Eft H61 QJorttfll Slaui Srlinnl Kbtarg Cornell University Library KF 2289.E46 1907 V 1 ' A treatise on the law of railroads, conta 3 1924 019 317 720 Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924019317720 A TREATISE LAW OF RAILROADS CONTAINING A CONSIDERATION OF THE ORGANIZATION, STATUS AND POWERS OF RAILROAD CORPORATIONS, AND OF THE RIGHTS AND LIABILITIES INCIDENT TO THE LOCATION, CONSTRUCTION AND OPERATION OF RAILROADS; TOGETHER WITH THEIR DUTIES, RIGHTS AND LIABILITIES AS CARRIERS INCLUDING STREET AND INTERURBAN RAILWAYS By BYRON K.ELLIOTT AND WILLIAM F. ELLIOTT Authors of " Roads and Streets," " General Practice/* " Evidence.' Second E&ition Volume I INDIANAPOLIS THE BOBBS-MERRILL COMPANY 1907 /b COPYKIGHT 1897 By the BOWEN-MEREILL COMPANY Copyright 1907 By the BOBBS-MEERILL COMPANY THE HOLLBNBECK PEEBS INDIANAPOLIS PREFACE TO THE SECONI^^^T^^ Eailroads, in this country, are of comparatively recent date, and the law upon the subject is growing rapidly. Almost, if not quite, as many decisions upon the subject have been rendered and reported since the first edition of this work was published as were rendered within the entire period of about fifty years between the time of the first important decision in a railroad case in this country and the publication of the first edition. Many changes have been made both by statute and by judicial decision, and many new questions have arisen. As no work upon the subject, purporting to be at all exhaust- ive or complete, has been published in the meantime, further justifi- cation for a second edition of this work seems unnecessary. Many new sections have been added and so have several new chap- ters. Among the new chapters will be found two on street railways and one on the new and important subject of interujban railroads. The latter subject, we believe, is not treated at any length in any other text-book. New chapters are also added on actions by and against railroad companies. Many practical suggestions are made and many points that often arise in such cases are considered, and authorities cited, that are not ordinarily found in text-books upon the subject. It is believed that the new sections and chapters on actions will be found particularly useful in the trial of railroad eases. There is a full treatment of the interstate commerce law and rail- road rate regulation generally, and the latest authorities are cited, many of which are decisions rendered within the last few months and cited in no other text-book. This is also true as to other recent acts of Congress, especially the employer's liability act of June 11, 1906. The text has been thoroughly revised in all respects. Many thou- sand new cases are cited, and the general subject is fully -covered, we believe, in all its branches. Byron- K. Elliott. William F. Elliott. Ill TABLE OF CONTENTS THE CORPOBATION CHAPTEE I. DEFINITIONS. Section 1. Railroad companies — ^Definition and characteristics. la. Usually but not always corporations — Other characteristics. 2. Dual nature of railroad corporations. 3. "Railroad" or "railway." 4. What are railroads. 5. "Railroad track" — "Right of way" — "Road-bed" and "roadway." 6. Street railways. 6a. Street railways further considered. 7. Elevated railroads. 8. Electric railroads. 9. Cable railroads. 9a. Interurban railroads. CHAPTEE II. PROMOTION AND FORMATION OF THE CORPORATION. Sectioit 10. Promoters — Who are. 11. Fiduciary relation of promoters — Duties and liabilities. 12. Promoter may sell property to the corporation. 13. Personal liability of promoters — When partners. 13a. Representations by promoters. 14. Contracts of promoters — ^When binding on corporation. 15. Legislative authority essential to creation of corporation. 16. Creation by special charter. 17. Acceptance of charter. 18. Incorporation under general laws. 19. Perfecting the organization. 20. Defective organization — ^Waiver — Collateral attack. V Vl TABLE OF CONTENTS. ) CHAPTER III. LEGAL STATUS. Section 21. As individual, person, citizen. 22. Corporation confined to jurisdiction creating it — ^Business elsewhere — Comity. 23. Citizenship — Removal of causes. 24. Residence and domicile — Jurisdiction. 25. Federal corporations. 26. Railroad in more than one state — Citizenship. 27. Control of railroads in more than one state. 28. Result of consolidation or concurrent action of several states creating new corporations. 29. Railroad only a citizen or domestic corporation of the states that charter it — Effect of mere license. 30. Foreign corporations — Condition of admission to state. 31. Railroads as property. 32. Railroads as monopolies. 33. Railroads as public highways. CHAPTER IV. CHARTERS. Section 34. Special charters and general laws. 35. Acceptance of charter. 36. Terms upon which charter is granted must he complied with — Pro- visions in general laws. 37. Particular corporation must he authorized. 38. Construction of charter — General rules. 39. Grants of monopolies and powers in derogation of public rights — Per- petuity. 40. Practical construction. 41. Charter to huild and operate a railroad — ^What powers are included. 42. Other powers of railroad companies — Implied powers included in cer- tain grants. 43. Amendment — Power must be reserved. 44. Police regulations. 45. Material amendments require unanimous consent of stockholders What are material. 46. Statutory provisions authorizing amendments. 47. Forfeiture — Statutory provisions dispensing with judicial determina- tion. -A TABLE OF CONTENTS. VU Section 48. Implied condition that corporate franchise Is subject to forfeiture — Judicial determination — Causes for forfeiture. 49. Grounds of forfeiture — Illustrative cases. 50. When duty to declare forfeiture Is mandatory and when discretionary. 51. What Is not cause for forfeiture. 52. Waiver of forfeiture — Collateral proceedings. t 53. Proceedings to forfeit — Quo warranto — Parties. 54. Proceedings must generally be in court of law — Statutory provisions. 55. Collateral proceedings — Pleadings and judgment in forfeiture pro- ceedings. 56. Repeal of charter — ^Reserved power. 57. Repeal where conditional power is reserved. 58. Rule where power to repeal is not reserved. 59. Effect of repeal. 60. Repeal of by general laws. 61. Charter is subject to general laws reserving power to repeal. 62. Expiration of charter. CHAPTER V. Section feanohises. 63. Definition. 64. Charter and franchise distinguished. 65. Grant of corporate franchises. 66. Consideration for the grant of a franchise. 67. Nature of a franchise further considered. 68. Franchise of being a corporation. 69. Difference between a franchise and a license. 70. Sale of corporate property essential to exercise of franchises — Limi- tations of right to sell. 71. Effect of attempt to sell franchise. 72. Judicial sale of franchises. 73. Sequestration. 74. Seizure of corporate franchise under power of eminent domain. 75. Dissolution effected by authorized sale of franchises. CHAPTER VI. Section stock. 76. Definition. 77. Classes of stock. 78. Shares of stock — Certificates. 79. Certificates — How far negotiable — Shares are personal property. 80. New certificates in place of lost — Fraud. Vlll TABLE OF CONTENTS. Section 81. Preferred stock. 82. When preferred stock may be issued — Rights and remedies of dis- senting stockholders. 83. Holder of preferred stock not a creditor — His rights and remedies. 84. Rights of preferred stockholders after payment of guaranteed divi- dend — Future dividend. 85. Rights of preferred stockholders on dissolution. 86. Guaranteed, interest-bearing, income and debenture stock. 87. Increase and reduction of capital stock. 88. Watered stock. 89. Watered stock not absolutely void. 90. Rights pf creditors and liabilities of holders of watered stock. 91. Stock paid for by overvalued property — Sale of stock on market. 92. Sale and transfer of stock. 93. Who may own and transfer shares. 94. Purchase and sale by trustees and fiduciaries. 95. Right of corporation to buy and sell stock. 96. Gifts and bequests of stock. 97. Formalities of transfer. 98. Registry of transfer. 99. Lien of corporation on stock. 100. When and to what the lien attaches. 101. Waiver of lien — Enforcement of lien. 101a. Condemnation of stock. CHAPTEE VII. subscriptions. Sechott 102. Preliminary agreements to subscribe. 103. Subscriptions generally — Form. 104. Construction of contract of subscription. 105. Contracts of subscription are several. 106. Effect of statutes requiring cash deposit to complete subscription. 107. Who may subscribe for stock. 108. Presumption that one whose name is' subscribed is a stockholder. 109. Implied promise to pay subscription — Consideration. 110. Payment of subscription — Trust fund doctrine. 111. Conditional subscription. Ilia. Implied conditions. 112. Valid and invalid conditions. 113. Conditional subscription is a mere offer until accepted. 114. Subscriptions in escrow — Parol evidence. 115. Waiver of conditions. 116. When conditional subscription becomes payable. TABLE OF COHTTENTS ix Section 117. Construction of conditional subscriptions — ^What is a sufficient com- pliance with conditions as to time of beginning and completing road. 118. Subscriptions payable as work progresses or upon expenditure of a certain amount. 119. Failure to perform parol condition will not defeat subscription. 120. Conditions in notes. 121. Subscriptions conditioned upon location or construction of the road. 122. Effect of alteration in route fixed by charter. 123. Effect of abandonment or sale of road. 124. Condition as to terminus — Question of intention for jury. 125. What is sufficient compliance with condition as to terminus or loca- tion of depot at a certain place. 126. General rule of construction — Performance of condition by consoli- dated company 127. Fraudulent representations in obtaining subscriptions. 128. Misrepresentations in prospectus and by agents generally. 129. Fraud may be shown by parol evidence. 130. Subscriber must be free from negligence in order to be released upon the ground of fraud. 131. Subscription Induced by fraud is merely voidable — ^When it will be enforced. 132. Ratification and estoppel — ^Rescission. CHAPTER VIII. calls and assessments. Section 133. When payment of subscription must be made. 134. Calls — Nature and effect of. 135. Directors may make calls — Delegation and ratification. 136. Directors must act as a body — De facto board — Illegal calls. 137. Discretion of board in making calls. 138. Charter and statutory limitations upon discretion — Periodical in- stalments. • 139. Call should affect all alike — Motive and expediency. 140. Subscriptions payable upon demand — Notice. 141. Requisites of notice. 142. Constructive nptice. 143. Waiver by stockholder of notice and formalities of call — Estoppel. 144. Demand and suit for assessment. 145. Assignment of right to collect subscription or assessment. 146. When courts may compel call and payment. 147: Extent of stockholder's liability for assessments — Agreements as af- fecting liability. 148. Construction of charter and statutory provisions regarding assess- ments. , x table op contents. Section 149. Remedies where stockholder falls to pay subscription or assessment — Forfeiture. 150. Cumulative remedies — Election. 151. Effect of forfeiture. 152. Statutory method of forfeiture must be pursued. 153. Notice of forfeiture. 154. Defeating and annulling forfeiture — Estoppel. CHAPTER IX; STOCKHOLDEES. Section 155. When one becomes a stockholder. 156. Rights of stockholders — Right to vote. 157. Who has right to vote — How determined. 158. Right of trustees and receivers to vote. 159. Right of corporations and voting trusts to vote. 160. Number of votes to which stockholder is entitled — Cumulative vot- ing. 161. Quorum must be present. 162. Voting by proxy. 163. Other powers of stockholders — Rights of minority. 164. Stockholders' meetings. 165. Remedies of stockholders. 166. Unregistered assignees and third persons cannot sue. 167. When stockholders may sue or become parties. 168. Right to recover insurance. 169. Other .rights and remedies of stockholders. 170. Stockholders as agents of the corporation. 171. Notice to stockholders. 172. Stockholders' right to inspect books. 173. Stockholder is disqualified to serve as judge or juror where corpo- ration is interested. 174. Unlawful combinations and oonspiraciss to vote or prevent voting — Injunction. 175. Liability of stockholders for unpaid subscriptions. 176. Release of stockholders — Withdrawal. 177. Compromises with stockholders. 178. Liability where stock is transferred. 179. When creditors may enforce unpaid subscriptions — Judgment and execution against corporation. 180. Effect, as against stockholder, of judgment against the corporation. 181. Stockholder's defense. 182. Methods of enforcing stockholder's liability. 183. Contribution. 184. Suits by assignees and receivers. TABLE OF CONTENTS. XI Section 185. Statutory liability of stockholders. 186. Defenses to actions to enforce statutory liability. 187. Who may institute action to enforce statutory liability. 188. How statutory liability is enforced — Judgment and execution against the corporation. 189. Priority among creditors — Forum — Contribution. 190. When stockholders are liable as partners. CHAPTER X. 3T-LAWS, RULES AND EEGULATIONS. Section 191. Power to make by-laws. 192. Who are affected by corporate by-laws. 193. Limits of power to make by-laws — Reasonableness a question for the court. 194. Power to make by-laws resides in stockholders — ^When directors may make. 195. Formalities of enactment — Proof. 196. Amendment and repeal. 197. Enforcement of by-laws. 198. Rules and .regulations in England. 199. Distinction between by-laws and rules and regulations — Right of railroad company to make rules and regulations. 200. Examples of rules and regulations which railroad companies may make — Rules affecting passengers. 200a. Rules affecting shippers and freight. 200b. Rules affecting employes. 201. Enforcement of rules — Penalties. 202. Reasonableness of rules — When a question of fact and when a ques- tion of law. 202a. Failure to enforce rules — ^Waiver or abrogation. • CHAPTER XI. corporate representatives. Section 203. Railroad corporations act through officers, agents or other repre- sentatives. 204. Appointment of officers and agents — General doctrine. 205. Statutory privileges bestowed on agents. 206. Officers generally. 207. Qualifications of officers. 208. Election of officers — Generally. XU TABLE OF CONTENTS. Section 209. Agents generally. 210. Proof of the existence of the relation of principal and agent. 211. Proof of authority. 212. Agency Inferred. 213. Powers, duties and authority of officers and agents generally. 214. Authority of agent — ^Llne of duty. 215. Scope of authority — General conclusions. 216. Contracts by agents — General doctrine. 217. Declarations and admissions of agents. 218. Declarations of agent — Res gestae. 219. Declarations must relate to transaction or event in controversy. 220. Exercise of authority by agents — Illustrative cases. 221. Scope of authority — Illustrative cases. 221a. Authority of agent — Emergencies and special circumstances. 222. Authority of agents — Employment of surgeons. 223. Physicians and surgeons. 224. Delegation of power by directors. , 225. Employment of sub-agents and servants. 226. Notice to agents or officers. 227. Ratification. 228. Acts that may be ratified. 229. Ratification — What constitutes. 230. Compensation of officers. 231. Liability of agents for their torts. 232. Bonds of officers and agents. 233. Sureties — Bonds of officers and agents. CHAPTEE XII. DIKECT0E8. Section 234. Different classes of officers — Generally. 235. The governing board— Generally. 236. Governing board not the corporation. 237. The board of directors represents the corporation. 238. Directors — Generally. 239. Number of directors. 240. Directors — How chosen — Generally. 241. Eligibility to the office of director. 242. Ineligibility because of connection with competing lines. 243. Election of ineligible person to office of director. 244. Officers de facto — Generally. 245. Election of ineligible person — ^Who may question right to office. 246. Directors de facto — Illustrative cases. 247. De facto directors — Two boards. 248. Holding over — Failure to elect. TABLE OF CONTENTS. xiii Section 249. Powers of directors — Source of. 250. Powers of directors — Generally. 251. Powers of directors — Illustrative cases. 252. Directors — Powers of — Organic changes. 253. Directors — Extent of authority — Generally. 254. Powers of directors, general conclusion. 255. Directors — Official action — Preliminary. 256. Directors — Official action. 257. Directors — Delegation of authority. 258. Directors — ^Delegation of authority — Illustrative cases. 259. Directors — ^Action where the mode is prescribed. 260. Directors — Meetings. 261. Directors — Meetings — Stated and special. 262. Directors — Meetings — ^Notice. 263. Directors — Meetings — Proxies — Quorum. 264. Directors — Meetings outside of the state. 265. Directors — Proceedings — Record. 266. Directors — Corporate records as evidence. 267. Proof of the proceedings of the board of directors. 268. Notice to directors. 269. Directors — ^Admissions and declarations. 270. Ratification of the acts of directors. 271. Directors — ^Removal from office. 272. Compensation of directors. 273. Directors — ^Relation to stockholders — ^Preliminary. 274. Directors considered trustees. 275. Directors a.s trustees — Illustrative cases. 276. Directors — ^Dealings with corporation. 277. Termination of fiduciary relations. 278. Directors — Liability of — Generally. 279. Directors — ^Liability in matter of contract. 280. Directors — Errors of judgment. 281. Directors — Liability for negligence. 282. Directors — Fraud on third persons. CHAPTBE XIII. EXECUTIVE AND MINISTEEIAIj OFFICERS AND AGENTS. Section 283. President — Generally 284. President — Incidental powers of. 285. President — Implied powers. 286. President — Powers implied from grant of authority by the board of directors. 287. President — Influence of usage. 288. President — ^Apparent authority. 289. President — ^Ratification of unauthorized acts. XIV TABLE OF CONTENTS. Section 290. President— Dealings with corporation. 291. President — ^Relation to shareholders. 292. Treasurer — Generally. 293. Treasurer — Duties — Liabilities. 294. Treasurer — Care of corporate funds. 295. Secretary. 296. Managing agents. 297. Superintendent. 298. Superintendent — General conclusion. 299. Intermediate agents. 300. Intermediate agents — ^Agent for one purpose not for another. 301. Intermediate agents and servants distinguished. 302. Conductors. 303. Station agents. CHAPTER XIV. DIVIDENDS. Section 304. Rights of stockholders — Dividends. 305. When dividend belongs to stockholder — Assignment. 306. To whom dividend should be paid. 307. Rights of life tenant and remainderman — Apportionment of divi- dends. 308. Duties of life tenant — Transfers. 309. Dividend is not property of the corporation — ^Rights of creditors and stockholders. 310. Dividend is irrevocable — ^Actions concerning. 311. Demand — ^Necessity and effect of. 312. Declaration of dividend discretionary with directors. 313. Power to borrow money or declare stock dividend. 314. Remedies for abuse of discretion. 315. Limitations upon authority to declare a dividend — Suits to reclaim. 316. Dividends should be paid out of the profits. 317. Enjoining payment of dividends. 318. Personal liability of directors. 319. Dividends payable in scrip. 320. Stock dividends. 321. Dividends payable without discrimination. CHAPTEE XV. CONSOLIDATION. Section 322. Consolidation must be authorized by legislature. 322a. What is sufficient authority. table of contents. xv Section 323. Statutory mode must be pursued — Collateral attack. 324. Intention to consolidate — Difference between succession and consoli- dation. 325. Right of majority to effect consolidation — ^When minority may pre- vent — Release of dissenting subscribers. 325a. Right to condemn shares of dissenting stockholder. 326. Statutory provisions for consolidation. 327. Rights of old stockholders and their relation to the new company. 328." Remedies for old stockholders. 329. Consolidated company succeeds to rights and liabilities of the old companies. 330. Special privileges and immunities — When they pass to the new com- pany. 331. "When special privileges do not pass. 332. Duties and obligations of new company. 333. Liability of new company on old contracts. 334. Liability of new company for torts — Extent of liability — Generally. 335. Constituent companies are usually dissolved — When not. 335a. Duration of life and franchises of consolidated company. 336. Effect of consolidation upon liens. 337. De facto consolidation — ^Estoppel — Liability of constituent companies where consolidation is set aside. 338. Effect of consolidation upon pending suits. 339. Consolidation with foreign corporations. CHAPTER XVI. contkacts. Section 340. Contracts — Power to make — Generally. 341. Contracts — Scope of corporate power. 342. General power to contract — Illustrative instances. 343. Power to contract— Control of by courts. 344. Effect of changes in charter. 345. Contracts — Formal requisites of. 346. Formal defects. 347. Contracts — ^Who may make — Generally. 348. Contracts by interested persons. 349. Mode prescribed must be pursued. 350. Contracts— Parties bound to take notice of charter provisions. 351. Contracts — Unauthorized — Notice. 352. Estoppel — Generally. 353. Ratification of unauthorized acts — Rights of the public and of cred- itors. 354. Contracts in conjunction with other parties. 355. Pledge of corporate securities. XVI TABLE OF CONTENTS. Section 356. Contracts between connecting lines — Division of fares. 357. Contracts permitting use of part of road. 358. Contracts regarding terminal facilities. 359. Traffic contracts — Surrender to competing line. 360. Contracts with municipal corporations for terminal facilities. 361. Use of tracks constructed under grant from municipal corporation. 362. Contracts for location of stations. 363. Location of tracks, switches and the like. 364. Contracts that may be made by railroad companies — Particular in- stances. 365. Pooling contracts — Generally. 366. Pooling contracts — The authorities. 367. Pooling contracts — Presumption. 368. Contracts — ^Ultra vires. 369. Contracts — ^Ultra vires — General doctrine. 370. Contracts — ^What are ultra vires — Generally. 371. Contracts — ^Ultra vires — Estoppel. 372. Contracts — Ultra vires — ^Executed and executory contracts. 373. Contracts — Ultra vires — Cases discriminated. 374. Contracts — Ultra vires — Illustrative instances, 375. Contracts — Ultra vires — Rule where statute prescribes consequences. 376. Contracts — ^Ultra vires — Injunction. 377. Contracts — Ultra vires — Denial of relief — ^Laches. 378. Contracts — Ultra vires — Who may contest. 379. Contracts — ^Ultra vires — Creditors. 380. Contracts — ^Ultra vires — Non-assenting stockholders. 381. Prohibited contracts — Effect of prescribing penalties. 382. Illegal contracts — Generally. 383. Illegal contracts and ultra vires contracts discriminated. 384. Classes of illegal contracts. 385. Contracts void because against public policy. 386. Contracts against public policy — Location of stations and tracks. 387. Contracts void as against public policy — General conclusions. 388. Contracts void as against public policy — Illustrative cases. CHAPTBE XVII. eeal estate. Section 389. "What railroad property is real estate. 390. Statutory authority requisite. 391. Power to acquire real estate — Implied power — Generally. 392. Implied power to acquire — General rule. 393. Implied power — Illustrative instances. 394. Power to acquire real estate — Instances of denial of power. 395. Title to real estate is in the company. TABLE OF CONTENTS. XVll Section , 396. Title once vested not divested because property subsequently be- comes unnecessary. 397. Effect of conveyance to corporation of land it has no power to hold.' 398. Right of foreign corporation to hold real estate. 399. The power to acquire by grant broader than the power to acquire by condemnation. 400. Acquisition of the fee by private grant. 401. Acquisition of title by adverse possession. 402. Possession of land — To what right referred. 403. Rights of company where land is owned in fee. 404. Effect of conveyance of property the company is not authorized to acquire. 405. Questioning the right to hold real estate. 406. Enjoining purchase of real estate where no power to receive and hold. 407. Executory contract of purchase not enforceable where there is no power to hold the land. 408. Estoppel of parties to deeds to deny corporate existence. 409. Deed to company not in existence. 410. Formal execution of conveyances and agreements relating to real estate. 411. Contracts under corporate seal — Effect of evidence. 412. Acceptance of deed. 413. Distinction between a donation of lands and a sale. 414. Deeds of company — By whom executed. 415. Construction of deeds to railroad companies — ^Generally. 416. Deeds to railroad companies — Construction of conditions. 417. Grants — Beneficial — Presumption of acceptance. 418. Incidents pass with principal thing granted. 419. Effect of designating in the deed the purpose for which the land is granted. 420. Covenants that run with the land. 421. Merger of preliminary agreement in deed. 422. Bonds for conveyance — Specific performance. 423. Presumption that there is power to hold the land. 424. Power to convey real estate. 425. Dedication of land for use as a highway. 426. Disposition of property corporation has no power to receive and hold — Escheat. CHAPTER XVIII. LEASES. Section 427. Power to lease — Generally. 428. What the legislature may prescribe. 429. Power to lease not an implied one — Legislative authority requisite. Ell. Eailkoads — ii XVIU TABLE OF CONTENTS. Section 430. The power to lease — General rule. 431. The foundation of the rule. 432. Power to accept a lease. 433. Statutes asserted to confer power to lease are not aided by construc- tion. 434. Statutes strictly construed — Illustrative instances. 435. Statutes — Construction of. 436. What is included in the authority to execute a lease. 437. Scope of authority to lease. 438. Statutes conferring power to lease must be strictly followed. 439. Consent of stockholders — Statutory requirement must.be obeyed. 440. Concurrence of stockholders necessary. 441. What number of stockholders must assent to the lease. 442. Consent of stockholders — Waiver of objections. 443. Lease where parties are corporations of different states. 444. Authority to execute lease has no extraterritorial effect. 445. Rights of foreign lessors. 446. Leases to connecting lines. 447. Lease to competing lines — Effect of statutes prohibiting. 448. Effect of executing unauthorized lease. 449. Lease — Construction. 450. Lease — Dependent and independent contracts. 451. Contract to permit use of track not necessarily a lease. 452. TraiBc contract not valid if it is in effect a lease. 453. Contracts granting right to use — Effect and construction of. 454. Part performance — ^Effect of. 455. Duration of a lease. 456. Effect of lease on taxation. 457. Public duties of lessee under an unauthorized lease — Mandamus. 458. Authorized lease — Duty of lessee to operate the road — Mandamus. 459. Lessee not liable for wrongs committed prior to the execution of the lease. 460. Effect of a lease upon rights of creditors. 461. Authorized lease — Rights and duties to which lessee company suc- ceeds. 462. Contract obligation of lessor — ^Lessee not liable thereon. 463. Recovery of rent under unauthorized lease. 464. Improvements of road by lessee operating under an unauthorized lease. 465. Receiver's power to lease. 466. Unauthorized lease — Liability of lessor — Generally. 467. Authorized lease — Liability of lessor for injuries caused by negli- gence of lessee — Cases holding lessor liable. 468. Authorized lease — Liability of lessor for negligence of lessee in op- erating the road — Authorities. 469. Authorized lease — Liability of lessor for negligence of lessee in op- erating the road — ^Views of the authors. 470. Control reserved by lessor. TABLE OF CONTENTS. xix Skction 471. Liability of lessee under authorized lease — Illustrative cases. 472. Unauthorized lease — Liability of lessor to employes of lessee — Gen- erally. 473. Unauthorized lease — Liability of lessor — General rule. 474. Liability of lessee for Injuries resulting from negligence in operat- ing the road. 475. Contracts of the lessee. 476. Joint liability. 477. Liability of company where it permits another company to use track in common with itself. 478. Fraudulent leases. 479. Unauthorized lease — Injunction. CHAPTER XIX. KAILKOAD SECURITIES. Section 480. Power of railroad companies to issue notes and bonds. 481. Power to guaranty bonds. 482. Income bonds. 483. Convertible bonds. 484. Negotiability of bonds — Bona fide purchasers. 485. Form and manner of issuing bonds — Effect of irregularities. 486. Interest coupons. 487. Payment of bonds and interest. 488. No power to mortgage without legislative authority. 489. Legislative authority to mortgage. 490. Distinction between authority to mortgage franchises and authority to mortgage property. 491. Who may execute the mortgage. 492. Ratification by stockholders of unauthorized or improperly executed mortgage. 493. When ultra vires mortgage m!ay be made effective. 494. Recording mortgages. 495. Generally as to what property is covered by the mortgage. 496. What is covered by a mortgage of the undertaking. 497. Mortgage of after-acquired property. 497a. After-acquired property — When lien attaches — ^What it includes. 498. Fixtures — Rolling stock. 499. Reserved power to create prior lien or dispose of unnecessary prop- erty. 500. Priority of mortgages. 501. Trust deeds. 502. Equitable and defective rnortgages. 503. Statutory mortgages. 504. Debentures. XX TABLE OF CONTENTS. CHAPTEE XX. FOEECLOSUEE. Section 505. Foreclosure — Default. 506. Option to declare -whole debt due — Election. 507. Foreclosure for default in payment of interest. 508. Parties to foreclosure suit — Plaintiffs. 509. Bondholders as plaintiffs. 510. Pledgees, assignees and others as plaintiffs. 511. Defendants in foreclosure suits — Generally. 512. When other lienholders should be made defendants. 513. Defenses to foreclosure suit. 514. Effect of provisions giving trustees the right to take possession and sell. 515. The decree. 516. Consent decree. 517. Deficiency decree. 518. Final and appealable decrees. CHAPTEE XXI. sale and eeoeganization. Section 519. Railroad company cannot sell franchise and necessary property without statutory authority. 520. Execution sales. 521. Foreclosure sales — ^Authority — Purchasers. 522. Sale on default in payment of interest — Sale of road as an entirety. 523. Sale of consolidated road — Sale by receiver pending foreclosure. 524. Discretion of trustees and officers as to time and manner of sale. 525. Effect of sale — Purchaser's title. 525a. "What passes to purchaser at foreclosure sale. 526. When purchaser takes title free from liabilities and liens. 527. Disposition of proceeds of sale. 527a. Disposition of proceeds — Purchaser not bound to see that they are properly applied. 528. Preferred claims — Six months' rule. 529. Setting sale aside. 530. Redemption. 531. Reorganization by purchasers at sale — Power of legislature to pro- vide for. 531a. Reorganization through purchasing committee. 532. Statutory reorganization — Liability of new corporation. TABLE or CON'TEN'TS. XXI Section 533. Reorganization by agreement — ^Rights of minority. 534. Rights and obligations of the parties — Laches and estoppel. 535. Fraud In the sale or reorganization. 536. Reorganization by the courts. CHAPTEE XXII. EECEIVEES. Section 537. Receivers generally. 538. Jurisdiction of courts of equity — Statutory provisions. 539. Jurisdiction is sparingly exercised — Purpose of appointment. 540. General rules as to when receivers of railroads will be appointed. 541. Receivers will not be appointed merely because parties consent. 542. Extent to which jurisdiction has been exercised. 543. Insolvency as ground for appointment of receiver. 544. "When insolvency is suflScient without default. 545. Default in payment of indebtedness as ground for appointment. 546. Appointment in foreclosure proceedings. 547. Other grounds for appointment. 548. Appointment upon application of unsecured creditor. 549. Appointment upon application of secured creditor. 550. Appointment upon application of stockholders. 551. Appointment upon application of corporation. 552. What court may appoint. 553. Court first obtaining jurisdiction retains it — Conflict of jurisdiction. 554. Extraterritorial jurisdiction. 555. Ancillary appointment — Comity. 556. Procedure — Ex parte application. 557. Parties to proceedings for appointment of receiver. 558. Appointment upon motion or petition and notice — Affidavits. 559. Who may appoint — ^Appointment in vacation. 560. Suit must generally be pending. 561. Who may be appointed receiyer. 562. Order appointing receiver. 563. EfCect of appointment. 564. Collateral attack on appointment. 565. Title and possession of receiver. 566. Authority, rights and duties of receiver — Control by court. 567. Contracts of receiver. 568. Suits by receivers — ^Authority to sue. 569. When receiver may maintain suit — Defenses to receiver's suit. 570. Right of receiver to sue in other jurisdictions — Comity. 571. Suits against receivers — Leave to sue must be obtained. 572. Effect of failure to obtain leave to sue. 573. Effect of recent act of congress. XXll TABLE OF CONTENTS. Section 574. Rule where suit has been commenced before appointment of re- ceiver. 575. Protection of receiver by the court. 576. Liability of receivers — Generally. 577. Liability for torts. 578. Receitier is bound to perform public duties — Mandamus. 579. Liability on contracts. 580. Liability on claims arising from operation of the road. 581. Liability of corporation. 582. Receivers of leased lines. 583. Receiver's accounts. 584. Compensation of receiver. 585. Attorney's fees. 586. Removal and discharge. 587. Effect of removal or discharge. CHAPTEK XXIII. eeceivek's certificates. Section 588. Definition and nature of receiver's certificates. 589. tower of courts to authorize. 590. Purposes for which receiver's certificates may be issued — Extent of power. 591. Order giving authority to issue. 592. Lien created by receiver's certificates. 593. Statutory provisions as to lien. 594. Negotiability of receiver's certificates. 595. Rights of holders of receiver's certificates. 596. "Who may question validity of receiver's certificates. 597. Payment and redemption of certificates. CHAPTEK XXIV. insolvency and dissolution. Section 598. Scope of the chapter. 599. Railroad company is subject to state insolvency law. 600. Trust fund doctrine. 601. When a corporation is deemed Insolvent — Effect of insolvency. 602. Assignments by corporations. 603. Preferences by corporations. 604. Preference of stockholders and officers. TABLE OF CONTENTS. XXlll Section 605. Statutory preference of employes. 606. "What constitutes a dissolution. 607. Judicial determination of dissolution. 608. Voluntary dissolution — Surrender of charter. 609. . Proceedings to dissolve. 610. Dissolution in case of consolidated company. 611. BfCect of dissolution. 612. Corporation may have a qualified existence after dissolution. 613. Disposition of property on dissolution. 614. Rights of creditors upon dissolution. CHAPTEE XXV. ACTIONS BY AND AGAINST CORPORATIONS. Section 615. Generally — Suits by corporations. 616. When incorporation must be alleged. 617. Actions and suits against corporations. 618. Power of corporation over litigation — Power to compromise and arbitrate. 619. Estoppel to deny corporate existence. 620. When stockholders may sue. 621. Service of process. 621a. Resident agent — Rule in federal courts. 621b. Agent need not reside in state — ^Agent casually in state. 622. Return of service. 623. Venue of action against corporations. 624. Attachment and garnishment. 625. Duty and liability of garnishee. 626. What may be reached in garnishment. 627. Garnishment of employes' wages. 628. Injunction-^enerally. 629. Injunction where the company seeks to take or condemn lands. 630. Injunction where railroad is laid in a street. 631. Enjoining a nuisance. 632. Injunction at suit of the company. 633. Enjoining strikers. 634. Injunction at suit of stockholder. 635. Mandatory injunction — English cases. 636. Rule in the United States — Illustrative cases. 637. Mandamus — Generally. 638. Mandamus to compel completion and operation of road. 639. Mandamus to compel restoration of highway and construction of crossings or viaducts. 640. Mandamus to compel carriage of freight. XXIV TABLE OF CONTENTS. Section 641. Mandamus to compel the company to maintain stations and furnish increased facilities. 642. When mandamus will not lie. 643. Who may be relator. 644. Quo warranto. CHAPTEE XXVI. REMOVAL OF CAUSES. Section 645. When removal is authorized — Statutes now in force. 646. What are suits of a civil nature under the removal acts. 647. Parties. 648. Rights of removal as affected by amount in controversy. 649. Diverse citizenship as a ground for removal. 650. Separable controversy. 650a. Action against company and employe. 651. Prejudice or local influence as a ground for removal. 652. Removal where federal question is involved. 653. Time and manner of making application for removal. 654. Effect of application on jurisdiction of state and federal court. 655. Remanding and dismissing cause. 655a. Remanding — Amendment — Waiver. 656. Pleading and practice in federal court after removal. 656a. Recent cases — Miscellaneous. THE CORPORATION. CHAPTEE I. DEFINITIONS. Sec. Sec. 1. Railroad companies — Definition 6. Street-railways. and characteristics. 6a. Street railways further consid- la. Usually but not always corpora- ered. tions — Other characteristics. 7. Elevated railroads. 2. Dual nature of railroad corpora- 8. Electric railroads. tions. 9. Cable railroads. 3. "Railroad" or "railway." 9a. Interurban railroads. 4. What are railroads. 5. "Railroad track" — "Right of way" — "Road-bed" and "roadway." § 1. Eailroad companies — Definition and characteristics. — ^Eailroad companies may be defined or described in general as companies or asso- ciations organized for the purpose of constrncting, maintaining and operating railroads. The general railroad statutes usually provide for the incorporation of campanies for all of these purposes, and railroad companies are usually organized for all of these purposes, but a com- pany engaged in any one of these things may be a railroad company. Eailroad companies are frequently engaged in operating railroads as lessees or the like, although they had nothing to do with the construc- tion of the roads. So, while mel*e construction companies are not railroad companies, a construction company may be as to certain matters within a statute or rule of law applicable to railroad com- panies. Thus, a company running gravel trains in the construction of a railroad has been held to be "operating a railroad" within the mean- ing of a certain statute.^ So, a trust company, operating a railroad 1 McKnight v. Iowa, &c. R. Co. 43 218 ; Roe v. Winston, 86 Minn. 77, Iowa 406. See, also, Coughlln v. 90 N. W. 122. But compare Beeson Cambridge, 166 Mass. 268, 44 N. B. v. Busenbark, 44 Kans. 669, 25 Pac. 1 §1] DEFINITIONS. for the benefit of the bondholders, has been held liable for killing stock under a statute applying in terms to "railroad corporations."^ And the interest coupons of a corporation authorized to condemn land and to construct and operate a railroad in addition to carrying on a mining and manufacturing business have been held taxable under an act of congress providing for the taxation of the interest coupons of railroads.^ But it has been held, on the other hand, that the fact that the charter of a lumber company authorized it to build a railroad as an incident to its business did not make it a railroad company within a statute making railroad companies liable for injuries to employes ;* and that contractors engaged in constructing a railroad are 48, 10 L. R. A. 839; McKivergan v. Alexander, &c. Co. 124 Wis. 60, 102 N. W. 332; Bradford, &c. Co. v. Hel- fln (Miss.), 42 So. 174. A railroad company may construct its own road, under most of the statutes, at least, but as a matter of fact the work is usually done in whole or in part by contractors or construction companies not in a strict sense rail- road companies. ''Union Trust Co. v. Kendall, 20 Kans. 515. See, also, Solomon R. Co. V. Jones, 30 Kans. 601, 2 Pac. 657. 'Kentucky, &c. Co. v. Slack, 100 U. S. 648. See also, Randolph Co. V. Post, 93 U. S. 502; International Coal Co. V. Cape Breton County, 22 Canada S. C. 305; State v. Eleventh Judicial Court, 54 Minn. 34, 55 N. W. 816. In the last case just cited it is said that "it can make no dif- ference, as respects the applicability of the statute, whether the railroad is three miles in extent or three hundred." * Ellington v. Beaver Dam Lum- ber Co., 93 Ga. 53, 19 S. B. 21. See, also, McKivergan v. Alexander, &c. Co. 124 Wis. 60, 102 N. W. 332 (dis- approving Roe V. Winston, 86 Minn. 77, 90 N. W. 122, in which the su- preme court of Minnesota gave the statute of Wisconsin a different con- struction) ; Beeson v. Busenbark, 44 Kaos. 669, 25 Pac. 48, 10 L. R. A. 839. So, It has been held that the North Carolina fellow-servant act giving the servant of any railroad company operating in the state a right of action against the com- pany for injuries sustained through the negligence of a fellow serv- ant, is not applicable where an injury is sustained by a servant as- sisting in the construction of a rail- road at a point five or six miles from the completed track, and still further from the track on which trains were being operated. Nich- olson V. Transylvania R. Co. 138 N. Car. 516, 51 S. E. 40. But it has been held in Texas that the word "railroad," as used in the Texas statute (Sayles' Ann. Civ. St. 1897, art. 4560f), making every cor- poration operating a railroad liable for damages to its servants by neg- ligence of other servants, is used in the same sense as in art. 3017, making the proprietor of any rail- road liable for death caused by its negligence, and includes a logging railroad operated by a corporation solely for the purpose of carrying its own lumber from the woods to its sawmill, and from the sawmill to a railroad station near by. Ixid- RAILROAD COMPANIES. [§ 3 not within, the meaning of a statute requiring "railroad companies" to sound a whistle." Again, railroad companies often construct and own, or own and maintain, railroads without operating them. Author- ity is often, though not always, given to lease the road to some other company to operate or maintain and operate. Originally, it seems, when railroads as commercial roads first came into being they were treated largely as canals or highways on which cars or vehicles were to be run by others for a fixed toll or charge, and the idea was that those who so used the road would furnish and operate their own vehicles. In other words, the railroad companies, as originally in- tended, were, primarily at least, the companies that constructed and owned the roads rather than the companies or persons that operated and carried on the transportation business." As already intimated. wick Lumber Co. v. Taylor (Tex.), 87 S. W. 358, citing text. See also Hemphill v. Buck Creek, &c. Co. (N. Car.) 54 S. E. 420; Schus v. Powers-Simpson Co. 85 Minn. 447, 89 N. W. 68, 69 L. R. A. 887; Roe v. Winston, 86 Minn. 77, 90 N. W. 122. For further consideration of this subject as to employer's liability statutes, see Vol. Ill, §§ 1338, 1341. " Griggs V. Houston, 104 U. S. 553. It has also been held that a "union depot and railroad company" Is not an ordinary railroad company and that it need not be incorporated un- der the statute providing for the in- corporation of railroad companies, but might be incorporated under the general law providing for the incor- poration of ordinary private corpo- rations. People V. Cheeseman, 7 Colo. 376, 3 Pac. 716, 16 Am. & Bug. R. Cas. 400. But see Union Depot Co. V. Morton, 83 Mich. 265, 47 N. "W. 228.^ See also Detroit, &c. Co. v. Detroit,' 88 Mich. 347, 50 N. W. 302; State V. St. Paul, &c. Co., 42 Minn. 142, 43 N. W. 840, 6 L. R. A. 234; Union Depot, &c. Co. v. Chicago, &c. R. Co. 113 Mo. 213, 20 S. W. 792. 'Thus, Simon Sterne says, in 3 Cyc. of Political Science, etc. (edited by John Taylor) 500: "It was sup- posed that, like the canal, the rail- way would be built by one class of capitalists, but that also, in the same manner as over canals, the traflBc over the railway would be carried on, by another class of indi- viduals or corporations, of forward- ers or common carriers, who, under regulations and charges for toll es- tablished by the railroad company, would do the transportation busi- ness over the line." Thus, in the earliest charters in this country, as, for instance, In that of the Ithaca, &c. R. Co. in 1827, the following pro- vision is found: "All persons pay- ing the toll aforesaid may, with suit- able and proper carriages, use and travel upon said railroad, subject to such rules and regulations as the said corporations are authorized to make." This theory and the history of railroads practically controlled the majority decision of the supreme court of the United States in the im- portant case of Lake Superior, &c. R. Co. V. United States, 93 U. S. 442. The opinion in this case contains an interesting discussion of the nature, history and development of rail- roads. § la] DEFINITIONS. however, most of the, special charters, and the general laws under which railroad companies are now almost universally required to be incorporated, usually grant the power in express terms to locate, con- struct and maintain the railroad, with proper equipment, and to oper- ate it and transport goods and passengers. Indeed, the great body of "railroad law" now has to do very largely with such companies as common carriers and with rights and liabilities growing out of the operation of the road. § la. TJsually but not always corporations — Other characteris- tics.' — An individual or a partnership may own and operate a rail- road,* except, perhaps, where the statute requires that all railroads shall be owned or operated by corporations.* And it seems that an individual, as well as a corporation, may, with legislative authority. 'The greater part of this section was part of § 1 in the original edl- dition. "Stewart's Appeal, 56 Pa. St. 413; Bank of Middlebury v. Edgerton, 30 Vt. 182; Henderson v. Ogden City R. Co. 7 Utah 199, 26 Pac. 286, 46 Am. & Bng. R. Cas. 95; David v. Kingscote, 6 M. & W. 174; Kerr, In re, 42 Barb. (N. Y.) 119. See also Budd v. Multnomah, &c. Co. 15 Ore. 404, 15 Pac. 654; People v. Brook- lyn, &C. Co. 89 N. Y. 75; Southern Pac. R. Co. V. Orton, 32 Fed. 457; Lawrence v. Morgan's, &c. R. Co. 39 La. Ann. 427, 2 So. 69, 4 Am. St. 265. If he holds himself out to the public as a common carrier he will be subject, it seems, to the law gov- erning common carriers. Bank of Middlebury v. Edgerton, 30 Vt, 182. » In the case of the Commonwealth v. Vrooman, 164 Pa. St. 306, 30 Atl. 217, 25 L. R. A. 250, 44 Am. St. 603, it was held that the legislature might rightfully require all persons desiring to conduct the business of insurance "to obtain a charter of incorporation." See, also. Jack v. Williams, 113 Fed. 823. If the doc- trine of the case from which we have quoted be sound, which we con- fess we doubt, then there can be no doubt that the legislature may re- quire that the business of owning and operating railroads be conduct- ed by corporations. The business of operating a railroad is unquestion- ably "affected with a public inter- est," and there is reason for the conclusion that where an associa- tion undertakes to conduct, such business the legislature may require it to be incorporated. See, also. Wilder v. Aurora, &c. Co. 216 111. 493, 75 N. E. 194, 203, and cases there cited. But the mere fact that the right to construct and operate railroads and to condemn and ob- tain the right of way therefor is given by statute to railroad corpora- tions does not prevent an individual from constructing and operating a railroad on his own land or the land of another from whom he has pur- chased the right of way. Moran v. Ross, 79 Cal, 159, 21 Pac. 457, 39 Am. & Eng. R. Cas. 1. See, also, Wil- son V. Cunningham, 3 Cal. 241, 58 Am. Dec. 407; Hall v. Brown, 54 N. H. 495. 5 USUALLY BUT NOT ALWAYS COEPOEATIONS. [§' la I exercise the right of eminent domain.^" If he does undertake to main- tain and operate a railroad without legislative authority it will be at the risk of being held liable for maintaining a nuisance or for injuries caused by the operation of the road,^^ and he will, at least in the ab- sence of legislative authority, have none of the special powers and immunities granted only to corporations. Although, as we have seen, an individual may construct and operate a railroad, yet, with few exceptions, railroad companies are corporations created either by special charter or organized under general laws. They are now usually organized under general laws. They are given certain prerogative franchises and privileges for public purposes, in return for which the state retains a right of supervision and control in excess of that ex- ercised over purely private corporations. In the very grant of the franchise there is, in effect, an implied condition that it shall be held as a public or quasi public trust.^^ Although the stockholders may derive a private benefit and gain therefrom, yet railroads are for the use of the public, and municipal aid may be authorized and granted to such corporations for the purpose of constructing theii: roads as in the case of any other public work.^^ This outline will serve to show in a general way the peculiar nature of railroad corporations, but their legal status will be more fully considered in a subsequent chapter. ^"Moran v. Ross, 79 Cal. 159, 21 "Messenger v. Pennsylvania R. Pac. 547, 39 Am. & Bng. R. Cas. 1; Co. 36 N. J. L. 407, 13 Am. R. 457, Coe V. Columbus, &c. R. Co. 10 Ohio 463, affirmed in 37 N. J. L. 531, 18 St. 372, 75 Am. Dec. 518, 529; Am. R. 754, 759. See, also. National Brown v. Beatty, 34 Miss. 227, 69 Docks R. Co. v. Railroad Co. 32 N. Am. Dec. 389. But an individual J. Eq. 755; State v. Dodge City, &c. may not take by transfer from a R. Co. 53 Kans. 377, 42 Am. St. 295; railroad corporation the charter Logan v. North Carolina R. Co. 116 right to build a railroad and to in- N. Car. 940, 945, 21 S. B. 959 ; Moore vade.the premises of others. Stew- v. Columbia, &c. R. Co. 38 S. Car. 1, art's Appeal, 56 Pa. St. 413. See, 16 S. B. 781. But see Pierce v. Com- also, Finney v. Somerville, 80 Pa. monwealth, 104 Pa. St. 155. St. 59 ; Barker v. Hartman Steel Co. ^ Northern Pac. R. Co. v. Roberts, 6 Pa. Co. Ct. 183. 42 Fed. 734, 31 Am. & Bng. Corp. "Regina v. Train, 3 F. & F. 22; Cas. 642, and authorities there Wilson V. Cunningham, 3 Cal. 241, cited; Rome v. Rome, 18 N. Y. 38; 58 Am. Dec. 407. See, also, Lodwick People v. Mitchell, 35 N. Y. 551 ; Lumber Co. v. Taylor (Tex.), 87 S. Chicago, &c. R. Co. v. Smith, 62 111. W. 358, 360, citing text. But com- 268, 14 Am. R. 99; Davidson v. pare Austin v. Augusta, &c. R. Co. County Commissioners, 18 Minn. 108 Ga. 671, 34 S. B. 852, 47 L. R. A. 482; Leavenworth County v. Miller, 755, 764, where the text is criticized, 7 Kans. 479, 12 Am. R. 425 ; Sharp- but seems to be misunderstood. less v. Mayer, 21 Pa. St. 147, 5» Am. §2] DEFINITIONS. § 2. Dual nature of railroad corporations. — ^A railroad company or corporation is usually regarded as a private corporation, and justly so, as contrasted with a strictly public corporation, such as a city, county, township or the like governmental subdivision, but it is not a private corporation in the strict sense that an ordinary business corporation is, for it is charged with duties of a public nature that distinguish it from a purely and strictly private corporation. In many respects a railroad corporation is a private corporation in all that the term implies, but in other respects it differs from a corporation upon which no public 'duties are imposed. The property of a railroad company used for the transportation of passengers and articles of com- merce is devoted to a public use. The doctrine of Chief Justice Hale that, "when private property is affected with a public interest it ceases to be juris privati only," applies to a railroad corporation.^* It is not Dec. 759, and note; Walker v. Cin- cinnati, 21 Ohio St. 14, 8 Am. R. 24; Gelpclce v. Dubuque, 1 "Wall. (U. S.) 175; Pine Grove Tp. v. Tal- cott, 19 Wall. (U. S.) 666; Lafayette, &c. R. Co. v. Geiger, 34 Ind. 185; Brocaw v. Board, 73 Ind. 543; Pitts- burgh, &c. R. Co. V. Harden, 137 Ind. 486, 37 N. B. 324, 15 Am. & Bng. Ency. of Law 1242; 2 Beach Pub. Corp., § 896. But see People v. Sa- lem, 20 Mich. 452, 4 Am. R. 400; El- lis V. Northern Pac. R. Co. 77 Wis. 114, 31 Am. & Eng. Corp. Cas. 661; Morrill v. Smith Co. 89 Tex. 529, 36 S. W. 56. See, also, Brown v. Chi- cago, &c. R. Co. 137 Mo. 529, 38 S. W. 1099. "Chicago, &c. Co. v. Iowa, 94 U. S. 155; Georgia, &c. Co. v. Smith, 128 tJ. S. 174, 9 Sup. Ct. 47; Peik v. Chicago, &c. Co. 94 U. S. 164; Munn V. Illinois, 94 U. S. 113, 126; Rail- road Commission Cases, 116 U. S. 307, 6 Sup. Ct. 334; Chicago, &c. R. Co. V. Nebraska, 170 U. S. 57, 18 Sup. Ct. 513; Newburyport, &c. Co. V. Eastern R. Co. 23 Pick. (Mass.) 326; Holladay v. Patterson, 5 Ore. 177; Whiting v. Sheboygan, &c. Co. 25 Wis. 167; State v. Mclver, 2 S. Car. 25; Mayor t. Baltimore, &c. Co. 21 Md. 50; McCoy v. Cincinnati, &c. Co. 13 Fed. 3, 6 Am. & Eng. R. Cas. 621; State v. Boston, &c. Co. 25 Vt. 433; Olcott v. Supervisors, 16 Wall. (U. S.) 678. See, also. People V. Boston, &c. R. Co. 70 N. Y. 569; Illinois Cent. R. Co. v. People, 143 111. 434, 33 N. E. 173, 19 L. R. A. 119. The principle stated in the text applies, as is well known, to many other kinds of corporations. Hockett V. State, 105 Ind. 250, 5 N. E. 178, 55 Am. R. 201; Rushville V. Rushville, &c. Co. 132 Ind. 575, 584, 28 N. B. 853; State v. Iron- ton, &c. Co. 37 Ohio St. 45; Zanes- ville v. Zanesville Gas Light Co. 47 Ohio St. 1, 23 N. E. 55. The later decisions of the supreme court of the United States modify the doctrine asserted in Munn v. Illi- nois, 94 U. S. 113, but we do not un- derstand that they deny the rule that railroads are affected with a public interest and are subject to legislative regulation and control. Chicago, &c. Co. v. Minnesota, 134 U. S. 418, 10 Sup. Ct. 462; Brass v. North Dakota, 153 U. S. 391, 14 Sup. Ct. 857; Reagan v. Farmers, &o. Co. 7 "eailkoad" ok "railway," [§ 3 to be understood, however, from the fact that the property of a rail- road company is devoted to a public use or "aflEeeted with a public interest," that it can be treated as a public corporation ; on the con- trary, a railroad corporation is classed as a private corporation and its strictly private rights are as much beyond legislative control as are the rights of a purely private corporation.^^ While a railroad cor- poration may for most purposes be regarded as a private corporation there is, nevertheless, as we have seen, a side to it, as one may say, that is public. As will hereafter appear, the element of public inter- est which enters into all railroad corporations distinguishes them from purely private corporations to such an extent as to lead to important results. § 3. "Railroad" or "railway." — The words "railroad" and "rail- way" are practically synonymous, and are ordinarily to be treated as without distinction of meaning.^^ Thus, in one of the eases cited, it is said : " 'Hailroad' and 'railway/' are used interchangeably. They are as nearly synonymous as any two words in the language. Though the latter name was, in strict accuracy, the corporate name of the company intended, there can be no doubt that the other name is used 154 U. S. 362, 14 Sup. Ct. 1047; Gov- make it a public corporation. Mar- ington, &c. Co. v. Kentucky, 154 U. shall v. Western R. Co. 92 N. Car. S. 204, 14 Sup. Ct. 1087. See also 322; Moore v. Schoppert, 22 W. Va. United States v. Trans-Missouri, &c. 282. Ass'n, 166 U. S. 290, 17 Sup. Ct. "Gyger v. Philadelphia, &c. R. 540; Lake Shore, &c. R. Co. v. Ohio, Co. 136 Pa. St. 96, 46 Am. & Eng. 173 U. S. 285, 19 Sup. Ct. 465. R. Cas. 229 n; Hestonville, &c. R. "Pierce v. Commonwealth, 104 Co. v. Philadelphia, 89 Pa. St. 210; Pa. St. 150; Thorpe v. Rutland, &c. Borough of Millvale v. Evergreen R. R. Co. 27 Vt. 140, 62 Am. Dec. 625; Co. 131 Pa. St. 1, 18 Atl. 993, 46 Am. Ohio, &c. R. Co. V. Ridge, 5 Blackf. & Eng. R. Cas. 219; State v. Brin, (Ind.) 78; Sweatt v. Boston, &c. R. 30 Minn. 522; Mobile, &c. R. Co. v. Co. 3 Cliff. (U. S.) 339; Sloan v. Yeates, 67 Ala. 164; Georgia, &c. R. Pacific R. Co. 61 Mo. 24, 21 Am. R. Co. v. Propst, 83 Ala. 518; Massachu- 397; Tinsman v. Belvidere, &c. R. setts, &c. Co. v. Hamilton, 88 Fed. Co. 26 N. J. L. 148, 69 Am. Dec. 588, 32 C. C. A. 46; Black v. St. 565. See, also, Lake Erie, &c. R. Co. Louis, &c. R. Co. 110 Mo. App. 198, v. Witham, 155 111. 514, 40 N. E. 85 S. W. 96; Contra, Munkers v. 1014, 28 L. R. A. 612, 46 Am. St. Kansas City, &c. R. Co. 60 Mo. 334, 355; Candless v. Richmond, &c. R. in which it is held that a "railroad" Co. 38 S. Car. 103, 16 S. B. 429, 18 is the graded right Of way and the L. R. A. 440. And the fact that the "railway" consists of the rails and state owns -some of the shares of a ties laid thereon, particular corporation does not 4] DEFINITIONS. as designating the same company."^^ So, in many other cases, a va- riance or an alleged variance, caused by using the term "railroad" instead of "rsTlway" in stating the corporate name in a pleading or writ, has been held immaterial or curable by amendment.^* § 4. What are railroads. — A railroad has been defined as "a road graded and having rails of iron or other material for the wheels of carriages, to run upon."^® This definition is no longer as accurate as it was when the patrons of the railroad company furnished or were supposed to furnish, the vehicles, yet it is, perhaps, as accurate as any brief definition that can be given. ^'' It is impossible to formulate an exact or precise definition giving the term "railroad" an infiexible "State v. Brin, 30 Minn. 522. In this case the variance was in an in- dictment. '= Where a petition is filed against the "C. Railrood! Co." and the sum- mons or citation is issued against the "C. 'Rsilway Co.," the variance is immaterial. Galveston, &c. R. Co. V. Donahoe, 56 Tex. 162; Central, &c. R. Co. V. Morris, 68 Tex. 49, 28 Am. & Eng. R. Cas. 50. See, also, Alabama, &c. R. Co. v. Bolding, 69 Miss. 255, 13 So. 844, 30 Am. St 541. But compare Vickery v. Omaha, &c. R. Co. 93 Mo. App. 1. The use of the word "railroad" in- stead of "railway" in a writ may be cured by amendment after de- fault. Chicago, &c. R. Co. v. John- son, 89 Ind. 88, 13 Am. & Bng. R. Cas. 181. A declaration may be similarly amended after the trial. East Tennessee, &c. R, Co. v. Ma- honey, 89 Tenn. 311, 15 S. W. 652. "Pierce Railroads, p. 2; Trunick v. Smith, 63 Pa. St. 18; Common- wealth V. Pitchburg R. Co., 12 Gray (Mass.) 180. It is also said that where a railroad is spoken of as a "public highway" it means "the im- movable structure extending across the country, graded and railed for the use of the locomotive and its train of cars." Lake Superior, &c. R. Co. V. United States, 93 TJ. S. 442, 451, and see further as to what Is meant by the term railroad, the same opinion on pages 446, 449. " For other definitions see Sey- mour V. Canandalgua, &c. R. Co. 25 Barb. (N. Y.) 284; Sharpless v. Mayor, &c. 21 Pa. St. 147, 59 Am. Dec. 759; Tracy v. Troy, &c. R. Co. 38 N. Y. 433; Lake Shore, &c. R. Co. V. Kaste, 11 111. App. 536; Hall v. Brown, 54 N. H. 495; Redfield Rail- ways, 6th ed.-, 1; 19 Am. & Eng. Ency. of Law 777. In Gibbs v. Drew, 16 Fla. 147, 26 Am. R. 700, 701, 702, It is said: "The legal sig- nification of the term 'railroad' Is not only a road or way on which Iron rails are laid, but a road as incident to the possession or owner- ship of which important franchises and rights affecting the public are attached. * * • Our conclusion is that a railroad is a public work, the possession of which is attended with the right and duty to use and employ the franchises granted by the sovereign In connection with and as appurtenant to it." For a discussion of the history of railways see 10 Ency. Americana 478. 9 ■■ WHAT ARE EAILEOADS. [§4 meaning. The truth is, it has no one settled and invariable meaning, and what it includes in any particular case depends largely on the connection in which it is used.^^ In one case it is held to mean the roadbed, tracks, and necessary appurtenances,^^ and in its broadest sense it includes far more than the track and right of way, and may include all structures and appurtenances necessary to operation ;^^ yet, in another case, as used in a pleading, it was held to mean merely the track. ^* Again, it is said to include the main line over which cars are run, together with all switches, sidings, and branch roads,^^ but not to include depot buildings, offices and warehouses.^^ Where the reference is to a permanent structure designated as a public highway, the word includes the graded and railed way ready for the train of locomotive and cars, which, together with other personal property, are not included.^^ While railroads are often called highways, they are not included in the phrase "public roads, streets and highways," in a statute designating the places where telegraph companies are au- thorized to erect their lines.^' In a statute providing for the assess- ment of the "entire railway," it is defined as including "all prop- erty, real and personal, exclusively used in the operation of such rail- way."^' A line for the private use of the controlling stockholder in conveying materials to his mill, though built by a company organized '' Neither the kind of motive ^ Black v. Philadelphia, &c. R. Co. power used nor its location neces- 58 Pa. St. 249; St. John v. Erie R. sarily determines the character of Co. 22 Wall. (U. S.) 136; Cleveland, the road. Central, &c. R. Co. v. &c. R. Co. v. Speer, 56 Pa. St. 325, Twenty-third St. R. Co. 54 How. Pr. 94 Am. Dec. 84; Lake Superior, &c. (N. Y.) 168. See, also, Newell v. R. Co. v. United States, 12 Ct. CI. Minneapolis, &c. R. Co. 35 Minn. 112, 35, 93 U. S. 442. See, also, Roby v. 27 N. W. 839, 59 Ain. R. 303; Carli Farmers' Grain, &c. Co. (Neb.), 107 V. Stillwater, &c. R. Co. 28 Minn. N. W. 766. But see Ricl^ter v. Penn 373, 41 Am. R. 290; Booth Street Co. 104 Pa. St. 511; Terre Haute R. R., § 1. Co. V. Peoria Co.,. 61 111. App. 405. ''"State V. Hudson Terminal R. =« South Wales R. Co. v. Local Co. 46 N. J. L. 289. So in United Board of Health, 4 E. & B. 189, 82 States V. Denver, &c. R. Co. 150 U. E. C. L. 188. S. 1, 12, 14 Sup. Ct. 11. " Lake Superior, &c. R. Co. v. =^ United States Trust Co. v. At- United States, 12 Ct. CI. 35, 93 U. S. lantic, &c. R. Co. 8 N. Mex. 689, 47 442. Pac. 725, 729. See, also. United =«New York City, &c. R. Co. v. States V. Denver, &c. R. Co. 150 U. Central Union Tel. Co. 21 Hun (N. S. 12, 14 Sup. Ct. 11. Y.) 261, 1 Am. Elec. Cas. 315. "'E. E. Jackson Lumber Co. v. '''R. S. Arizona 1887, § 2649; At- Cunningham, 141 Ala. 206, 37 So. lantic, &c. R. Co. v. Yavapai County 445. (Ariz.), 21 Pac. 768. §4] DEFINITIONS. 10 under the general law providing for the formation and regulation of public railroad companies, has been held not to be such a railroad as may exercise the right of eminent domain/" for one of the essential characteristics of a railroad authorized to exercise that right is said to be its readiness to render, without discrimination, the services which all citizens alike may elaim.^^ But, as will hereafter be seen, roads and side-tracks to mills, manufacturing establishments and the like may constitute a public as well as a private use for which the exercise of the power of eminent domain may oe invoked.*" The word "railroad" is sometimes applied, also, to the corporation owning the road and running trains thereon for the carriage of freight and pas- sengers.'* Ordinarily, however, the corporation is designated as a "railroad company"** or "railroad corporation;"*' and the fact that it is authorized to do other kinds of business besides that of trans- porting freight and passengers is held not to render these terms in- applicable;*® nor does their applicability necessarily depend on the possession of rolling stock or on the control of the road's operation, for a railroad company or corporation can exist without either.*^ "■Weidenfeld v. Sugar Run R. Co. 48 Fed. 615. See, also, Split Rock Cable Co., In re, 128 N. Y. 408, 28 N. B. 506; Pittsburg, &c. R. Co. v. Ben- wood Iron Works, 31 W. Va. 710, 8 S. E. 453, 2 L. R. A. 680 n. But see Bacot, Ex parte, 36 S. Car. 125, 15 S. E. 204, 16 L. R. A. 586. 50 Am. & Bng. R. Cas. 597. =' Colorado, &c. R. Co. v. Union, &c. R. Co. 44 Am. & Eng. R. Cas. 10, and note on page 25. '^Harvey v. Thomas, 10 Watts (Pa.) 63; Philadelphia, &c. R. Co. v. Williams, 54 Pa. St. 103 Getz's Ap- peal, 65 Pa. St. 1, 3 Am. & Bng. R. Cas. 186; Kettle River R. Co. v. Eastern R. Co. 41 Minn. 461; South Chicago R. Co. v. Dix, 109 111. 237. "* Calhoun v. Paducah, &c. R. Co. 2 Flip. (U. S.) 442, 9 Cent. L. Jour. 66. In the Standard Dictionary it is said that the term "railroad" may have any of the following mean- ings: 1. A graded road having one or more . tracks, usually of metal rails supported by sleepers and de- signed for the passage of rolling- stock. 2. The whole system of tracks, stations, rolling-stock and machinery used in transportation by rail. 3. The corporation or per- sons owning or operating such a system. "Griggs V. Houston, 104 U. S. 553; Great Western R. Co. v. Cen- tral Wales R. Co. 52 L,. J. Q. B. 211, L. R. 10 Q. B. Div. 231. == Union Trust Co. v. Kendall, 20 Kans. 515. '"Randolph Co. v. Post, 93 U. S. 502; Kentucky Imp. Co. v. Slack, 100 U. S. 648. The right to con- struct a railroad and to erect a ferry may be granted to one cor- poration, but "a ferry is not a rail- road, nor a railroad a ferry." Aikin V. Western R. Co. 20 N. Y. 370, 376. " Pennsylvania R. Co. v. St. Louis, &c. R. Co. 118 U. S. 290, 6 Sup. Ct. 1094, 24 Am. & Eng. R. Cas. 58, in which one of the parties was such a 11 RAILKOAD TRACK — EIGHT OP WAT — ROADBED. [§5 § 5. "Eailroad track" — "Eight of way" — "Roadbed" and "road- way." — ^The term "railroad track" is often used to designate the right of way with its grades and superstructure of iron rails.^* But, in a narrower sense, it has been defined as "the two continuous lines of rails on. which the railway ears run,"'* and it does not necessarily include the whole right of way.*" It may, however, be so used as to in- clude depot buildings, roundhouses, machine shops, coal or wood-sheds and water-tanks, if they are on the right of way.*^ The latter term has been defined as meaning the way over which the company has the right to pass in the operation of its trains f^ and as including all of the strip of land appropriated by the company for its use and upon which its roadbed has been built.** Primarily it would seem to mean the right, interest or tenure, but the term has a "twofold signification," and may also be used as meaning the strip of land itself.** The roadbed is company. See, also, Lake Superior, Ac. Co. V. United States, 93 U. S. 442; Tracy v. Troy, &c. R. Co. 38 N. Y. 433, 98 Am. Dec. 54; Interna- tional, &c. Co. V. Anderson Co. 59 Tex. 654, 663. =» Delaware, &c. Co. v. Whitehall, 90 N. Y. 21, 10 Am. & Bng. R. Cas. 227. '"Atchison, &c. R. Co. t. Kansas €ity, &c. R. Co. 67 Kans. 569, 70 Pac. 939, 73 Pac. 899. But see Gates T. Chicago, &c. R. Co. 82 Iowa 527, 48 N. W. 1040, 1041. "Drainage Com'rs v. Illinois Cent. R. Co. 158 111. 361, 41 N. E. 1073. " Pf afe V. Terra Haute, &c. R. Co. 108 Ind. 144, 9 N. B. 93, construing § 6410. R. S. Ind. 1881. See Acts 1891, Ind. 119, § 78. But not neces- sarily, nor, perhaps, ordinarily. Portland, &c. R. Co. v. Saco, 60 Me. 198. « PfafC V. Terre Haute, &c. R. Co. 108 Ind. 144, 9 N. B. 93; Williams T. Western, &c. R. Co. 50 Wis. 71, 5 TH. W. 482, 5 Am. & Bng. R. Cas. 290; Postal, &c. Co. v. Southern R. ■Co., 90 Fed. 30. As will hereafter he shown, however, it is usually in the nature of an easement, although a peculiar one, rather than an estate in fee. See Cincinnati, &c. R. Co. v. Geisel, 119 Ind. 77, 78, 21 N. E. 470, and authorities cited; Williams v. Western, &c. R. Co. 50 Wis. 71, 5 N. W. 482, 42 Cent. L. J. 156. "Keener v. Union Pacific Jl. Co., 31 Fed. 126. In the statute. Gen. Stat. Colo. § 2847, which this case construes, the "entire railway" is defined as Including the right of way. "New Mexico v. United States Trust Co. 172 U. S. 182, 19 Sup. Ct. 128, 132; Central Trust Co. v. Wa- hash, &c. R. Co. 29 Fed. 546; At- lantic, &c. R. Co. v. Lesueur, 2 Ariz. 428, 19 Pac. 157, 1 L. R. A. 244 n (tenure); Maysville, &c. R. Co. V. Ball, 108 Ky. 241, 56 S. W. 188; Uhl V. Ohio River R. Co. 51 W. Va. 106, 41 S. E. 340. See, also. Western Union Tel. Co. v. Pennsyl- vania R. Co. 195 U. S. 540, 25 Sup. Ct. 133. In Nashville, &c. R. Co. v. State, 129 Ala. 142, 30 So. 619, it is held to mean only the easement and not to include structures on the land. In Boyce v. Missouri Pac. R. Co. 168 Mo. 583, 68 S. W. 920, 58 L. 6] DEFINITIONS. 12 the foundation*' upon which the superstructure rests, while the term "roadway" is said to include all the ground upon which the company is authorized to construct and lay its bed and track.** § 6. Street railways. — A street railway has been defined as "a rail- way laid down upon roads or streets for the purpose of carrying pas- sengers."*^ A distinctive feature or characteristic of such a railway, considered in relation to ordinary commercial railroads, is that it is intended and used for the transportation of passengers and not of freight.** This, and the character of the use of the street, rather than R. A. 442, It is said to be, In strict- ness, neither an easement nor a fee, but merely an interest in land. As to whether it includes side tracks, switches, and the like, see Chicago, &c. R. Co. V. People, 98 111. 350; Chicago, &c. R. Co. v. People, 99 111. 464; Missouri, &c. R. Co. v. Ander- son, 36 Tex. CiT. App. 121, 81 S. W. 781; Chicago, &c. R. Co. v. Cass County, 8 N. Dak. 18, 76 N. W. 239; Akers v. United N. J. R., &c. Co. 43 N. J. L. 110; Chicago, &c. R. Co. V. Richardson County, 61 Neb. 519, 85 N. W. 532. " Text quoted with approval in Shreveport v. Shreveport Belt R. Co. 107 La. Ann. 785, 32 So. 189, 190. See also Dunn v. Burlington, &c. R. Co. 35 Minn. 73, 27 N. W. 448; Mo- bile, &c. R. Co. V. Alabama, &c. Co. 87 Ala. 520, 6 So. 407, 408, holding that it may include the track. *" San Francisco v. Central Pac. R. Co. 63 Cal. 467, 49 Am. R. 98; San Francisco, &c. R. Co. v. State Board, 60 Cal. 12, 34; North Beach, &c. Co., Appeal of, 32 Cal. 499. Fences, how- ever, are not part of the roadway to be assessed as such for purposes of taxation, but are to be assessed as improvements under the Cali- fornia statute. Santa Clara County V. Southern Pac. R. Co.- 118 XJ. S. 394, 6 Sup. Ct. 1132, 1142. See, also. San Francisco, &c. R. Co. v. Stock- ton (Cal.), 84 Pac. 771. "Elliott Roads and Streets, 557, quoted in Montgomery v. Santa Ana, &c. R. Co. 104 Cal. 186, 37 Pac. 786, 25 L. R. A. 654, 43 Am. St. 89; Louis- ville, &c. R. Co. V. Louisville City R. Co. 2 Duv. (Ky.) 175. Text cited with approval in Hannah v. Metro- politan St. R. Co. 81 Mo. App. 78. See definition in Harvey v. Aurora, &c. R. Co. 174 111. 295, 51 N. E. 163, 167, and cases there cited. As to whether this definition is not too narrow or restrictive, see chapter on street railways. *» Elliott Roads and Streets (24 ed.), § 732; Booth Street Railw., § 1; Carli v. Stillwater St. R. Co. 28 Minn. 373, 10 N. W. 205, 41 Am. R. 290, 3 Am. & Eng. R. Cas. 226. See, also, Wiggins Ferry Co. v. East St. Louis R. Co. 107 111. 450; Atty.- General v. Chicago, &o. R. Co. 112 111. 611; Potts V. Quaker City, &c. R. Co. 12 Pa. Co. Ct. 593, 31 W. N. Cas. 290; Funk v. St. Paul, &c. R. Co. 61 Minn. 435, 63 N. W. 1099, 1101, 29 L. R. A. 208, 52 Am. St. 608. Text cited in Rische v. Texas Transp. Co. 27 Tex. Civ. App. 33, 66 S. W. 324, 327. But the mere fact that some kind of freight is carried may not always be a conclusive test under recent developments. 13 STREET EAILWATS. [§ 6 the motive power, distinguish it from the ordinary commercial rail- road ;** and such a railway, laid in a street for the purpose of carrying passengers and facilitating its use by the public, is a street railway, no matter what motive power may be used to propel the cars.^" So, in- deed, the fact that freight of some character, such as small parcels, is carried, may not always be an invariable test under present condi- tions and future developments. But street railways are not always included when the term "railroads" is used in a statute. The exact meaning of that term, as already stated, depends upon the connection in which it is used.^^ Thus, it has been held to include street rail- roads operated by horse power, in statutes giving certain powers to "railroads ;"^^ making the proprietors of any "railroad" liable for injuries caused by the negligence of its servants ;^^ and prohibiting "Williams v. City Electric St. R. Co. 41 Fed. 556, 43 Am. & Eng. R. Cas. 215; Newell v. Minneapolis, &c. R. Co. 35 Minn. 112, 27 N. W. 839, 59 Ani. R. 303. See, also, annotation in 2 Am. Law Reg. & Rev., N. S. (Jan., 1895) 43; Massachusetts, &c. Co. V. Hamilton, 88 Fed. 588, 32 C. C. A. 46 ; Wilder v. Aurora, &c. Trac- tion Co. 216 111. 493, 75 N. E. 194, 206, 207; Linden Land Co. v. Mil- waukee R. Co. 107 Wis. 511, 83 N. W. 851. It might be better, how- ever, to say that the character of the use, that is, the fact that street railways are to accommodate local convenience and street travel, is the main test. See Harvey v. Aurora, &c. R. Co. 174 111. 295, 307, 51 N. E. 163; Sparks v. Philadelphia, &c. R. Co. 212 Pa. St. 105, 61 Atl. 881, 882. " Nichols V. Ann Arbor, &c. St. R. Co. 87 Mich. 361, 49 N. W. 538, 16 L. R. A. 371; Briggs v. Lewiston, .&c. R. Co. 79 Me. 363, 367, 10 Atl. 47, 1 Am. St. 316, 32 Am. & Eng. R. Cas. 167; Clement v. Cincinnati, 16 Weekly Law Bui. 355. See also New- ell V. Minneapolis, &c. R. Co. 35 Minn. 112, 27 N. W. 839, 59 Am. R. -303; Massachusetts &c. Co. v. Hamil- ,ton, 88 Fed. 588, 32 C. C. A. 46. But see East End St. R. Co. v. Doyle, 88 Tenn. 747, 13 S. W. 936, 9 L. R. A. 100, 17 Am. St. 933; Stanley v. Dav- enport, 54 Iowa 463, 2 N. W. 164, 6 N. W. 706, 37 Am. R. 216. And an underground railway may be a street railway. New York District R. Co., In re, 107 N. Y. 42, 14 N. E. 187, 32 Am. & Eng. R. Cas. 202. But see Sparks v. Philadelphia, &c. R. Co. 212 Pa. St. 105, 61 Atl. 881. "Massachusetts, &c. Co. v. Hamil- ton, 88 Fed. 588, 32 C. C. A. 46. See, also. Fidelity, &c. Co. v. Douglass, 104 Iowa 532, 73 N. W. 1039. "Chicago V. Evans, 24 111. 52. Statutes authorizing the incorpora- tion of railroad companies are often comprehensive enough to authorize the incorporation of street railway companies. In Sparks v. Philadel- phia, &c. R. Co. 212 Pa. St. 105, 61 Atl. 881, a statute for the incor- poration of railroad companies was held to authorize the construction of the road underground in a tunnel for a short distance, and it was also held that it was not a street pas- senger railroad. "^Johnson v. Louisville City R. Co. 10 Bush (Ky.) 231. But see Lax V. Forty-second St., &c. R. Co. 46 N. § 6] DEFINITIONS. u the obstruction of "railroad tracks."=* So, a statute authorizing the consolidation of "railroads" has been held to include street railways/^ and an act taxing the property of "any railroad company" has been held to include the property of a street railway.^" But a statute pro- hibiting the location within a certain territory of railroads other than that of a designated company, is held not to authorize an injunction restraining a street railway company from building its road across such territory/' A penalty denounced against railroad companies demanding fares in excess of the lawful rate has been held not to apply to street railroads f^ nor, according to one decision, does a stat- ute authorizing a laborer's lien on a railroad apply to a street ca!ble railroad. °° A "dummy line," operated over the county roads between two cities, along whose streets its track extends to termini in their centers, is a "railroad" within the meaning of a statute requiring all trains to stop within one hundred feet of where two railroads cross each other; the court holding, however, that it is "not a street rail- Y. Super. Ct. 448; Funk v. St. Paul, &c. R. Co. 61 Minn. 435, 63 N. W. 1099, 29 L. R. A. 208, 52 Am. St. 608; Sams v. St. Louis, &c. R. Co. 174 Mo. 53, 73 S. iW. 686, 61 L. R. A. 475. "Price V. State, 74 Ga. 378. See, also, Evans v. Utica, &c. R. Co. 44 Misc. (N. Y.) 345, 89 N. Y. S. 1089; Cheatham v. McCormick, 178 Pa. St. 187, 35 Atl. 631. == Hestonville, &c. R. Co. v. Phila- delphia, 89 Pa. St. 210; Washington St. R. Co., In re, 115 N. Y. 442, 22 N. B. 356, 40 Am. & Eng. R. Cas. 588. But see Gyger v. Philadelphia, &c. R. Co. 136 Pa. St. 96, 20 Atl. 399, 9 L. R. A. 369; Shipley v. Conti- nental, &c. R. Co. 13 Phila. (Pa.) 128. ™ Citizens' R. Co. v. Pittshurg, 104 Pa. St. 522, 17 Am. & Eng. R. Cas. 438. See ante, § 1, note 1. But see San Francisco, &e. R. Co. v. Scott, 142 Cal. 222, 75 Pac. 575. "Louisville, &c. R. Co. v. Louis- ville, &c. R. Co. 2 Duv. (Ky.) 175. "'Moneypenny v. Sixth Avenue R. Co. 4 Abb. Pr, N. S. (N. Y.) 357. See also Funk v. St. Paul, &c. R. Co. 61 Minn. 435, 63 N. W. 1099, 52 Am. St. 608; Lincoln St. R. Co. v. Mc- Clellan, 54 Neb. 672, 74 N. W. 1074, 69 Am. St. 736. ™ Front St. Cable R. Co. v. John- son, 2 Wash. 112, 25 Pac. 1084, 11 L. R. A. 693. See also Manhattan Trust Co. V. Sioux Cable R. Co. 68 Fed. 82; Massillon Bridge Co. v. Cam- bria Iron Co. 59 Ohio St. 179, 52 N. B. 192; Central Trust Co. v. Warren, 121 Fed. 323. Contra, St. Louis, &c. Co. V. Donohoe, 3 Mo. App. 559; New England Engineering Co. v. Oak- wood St. R. Co. 75 Fed. 1B2. See, also, Egan v. Cheshire St. R. Co. 78 Conn. 291, 61 Atl. 950; Koken Iron Works V. Robberson Ave. R. Co. 141 Mo. 228, 44 S. W. 269. In the first case, however, the statutory lien ex- tended to the land, and, as the street railway company did not own the fee, this was the principal rea- son for holding the statute inap- plicable. 15 STEEET EAILWATS. [§ 6a way" because not located within and dependent on any municipality.*" Such a line, engaged in the streets of a city exclusively in carrying passengers, is also held to be a "railroad" within a statute requiring some person on the locomotive to keep a lookout, and requiring, the whistle to be sounded to prevent accidents f- but not a "railroad" within a statute prohibiting the occupation of streets at crossings.*^ It is not easy to reconcile all of the decisions and about all that can be said is that the question as to whether a street railway is included in the term railroad in any particular ease is determined largely by the context or connection in which the term is used.^* § 6a. Street railways further considered.** — As street railways are usually constructed on streets and do not, ordinarily, constitute an additional burden, there is seldom any necessity for the exercise of power of eminent domain in order to obtain a right of way; but, like commercial railroads, they are of a quasi public nature and may be authorized to condemn property for a right of way as for a public use.*^ But it has been held that a statute authorizing the condemna- tion of a right of way by corporations "organized for the construction of any railway" did not apply to street railways.** And it has alsa * Birmingham R. Co. v. Jacobs, Traction Co. 147 Pa. St. 579, 23 Atl. 92 Ala. 187, 9 So. 320, 12 L. R. A. 884, 30 Am. St. 736; Bloxham v. Con- 830, 49 Am. & Eng. R. Cas. 263. sumer's, &c. Co. 36 Fla. 519, 18 So, " Katzenberger v. Lawo, 90 Tenn. 444, 29 L. R. A. 507, 51 Am. St. 44; 238, 16 S. W. 611, construing Tenn. Funk v. St. Paul, &c. R. Co. 61 Minn, code, § 1298. 435, 63 N. W. 1099, 52 Am. St. 608, °' Howard v. Union, &c. Co. 156 and in the following cases they were Mass. 159, 30 N. E. 479. See, also, held not to be included; Commis- Byrne v. Kansas City, &c. R. Co. 61 sioners v. Market St. R. Co. 132 Cal, Fed. 605, 9 C. C. A. 666, 24 L. R. A. 677, 64 Pac. 1065; State v. Duluth, 693. &c. Co. 76 Minn. 96, 78 N. W. 1032, "'Sams V. St. Louis, &c. R. Co. 57 L. R. A. 63; Scott v. Farmer's, 174 Mo. 53, 73 S. W. 686, 690, 61 L. &c. Bank, 97 Tex. 31, 75 S. W. 7, 16. R. A. 475, 479 ; Louisville, &c. R. Co. " Part of this section was part of V. Louisville City R. Co. 63 Ky. 175; § 6 in the original edition. Bloxham v. Consumer's, &c. Co. 36 "Kerr, In re, 42 Barb. (N. Y.) Fla. 519, 18 So. 444, 29 L. R. A. 507, 119; Union Depot R. Co. v. South- 51 Am. St. 44; Massachusetts, &c. ern R. Co. 105 Mo. 562, 16 S. W. Co. V. Hamilton, 88 Fed. 588, 32 C. 920; St. Louis R. Co. v. Southern C. A. 46. In the following cases R. Co. 105 Mo. 577, 16 S. W. 960, 46 street railways were held to be in- Am. & Eng. R. Cas. 1; Moran v. eluded: Savannah, &c. R. Co. v. Wil- Ross, 79 Cal. 159, 21 Pac. 547, 39 Hams, 117 Ga. 414, 43 S. E. 751, 61 Am. & Eng. R. Cas. 1. L. R. A. 249; Rafferty v. Central "'Thompson-Houston Electric Co.- § 7] DEFINITIONS. 16 been held that although a street car company is organized under the general railroad law, and has claimed to exercise the right of eminent domain, this does not bring it within the terms of a statute making railroad companies "owning and operating a railroad" liable for in- juries to a servant "injured in the work of operating such railroad" by the negligence of a fellow servant, where the company is in fact operating only a street railway."^ Street railway companies are com- mon carriers of passengers,"^ and, while not usually common car- riers of freight, may become liable as common carriers of goods by assuming to act as such."^ It has been held under the Wisconsin stat- ute, that a city cannot grant to a commercial railroad, and that the latter cannot accept, a street railway franchise.'"' § 7. Elevated railroads. — Elevated railroads are so far "railroads" that it has been held that they may be organized under general statutes authorizing the incorporation of railroad companies.''^ But it has been held that a company incorporated and organized as a street railway company has no authority or right to build V. Simon, 20 Ore. 60, 25 Pac. 147, 10 L. R. A. 251, 23 Am. St. 86, 47 Am. & Eng. R. Cas. 57. While such Statutes should be strictly construed, yet the soundness of the decision in the case just cited seems to us to admit of some doubt. See Ogden City R. Co. V. Ogden City, 7 Utah 207, 26 Pac. 288. " Sams v. St. Louis, &c. R. Co. 174 Mo. 53, 73 S. W. 686, 61 L. R. A. 475. >» Thompson-Houston Electric Co. V. Simon, 20 Ore. 60, 25 Pac. 147, 10 L. R. A. 251, 23 Am. St. 86; State v. Spokane St. R. Co. 19 Wash. 518, 53 Pac. 719, 41 L. R. A. 515, 67 Am. St. 739; Nelson v. Metropolitan St. R. Co. 113 Mo. App. 703, 88 S. W. 1119, 1121. ™Levi V. Lynn, &c. R. Co. 93 Mass. 300, 87 Am. Dec. 713. See, also, Thompson-Houston Electric Co. V. Simon, 20 Ore. 60, 25 Pac. 147, 10 L. R. A. 251, 23 Am. St. 86. "State v. Milwaukee, &c. R. Co. 116 Wis. 142, 92 N. W. 546. "Lieberman v. Chicago, &c. R. Co. 141 111. 140, 30 N. B. 544, 51 Am. & Eng. R. Cas. 581. See, also. Pul- ton V. Short Route R. Co. 85 Ky. 640, 4 S. W. 332, 7 Am. St. 619, 32 Am. & Eng. R. Cas. 256, where it is held that a street railroad may ele- vate its track if the character of the country requires it. Compare Potts V. Quaker City El. R. Co. 12 Pa. Co. Ct. 593, 2 Pa. Dist. 200, 161 Pa. St. 396, 29 Atl. 108. And in Potts v. Quaker City El. R. Co. 12 Pa. Co. Ct. 593, 161 Pa. St. 396, 29 Atl. 108, it was held that an elevated railroad through the streets of a city for the carriage of passengers exclusively cannot be organized under the gen- eral railroad law of Pennsylvania. See, also, Schaper v. Brooklyn, &c. R. Co. 124 N. Y. 630, 26 N. B. 311; People's, &c. Co. v. Dash, 125 N. Y. 93, 26 N. B. 25, 10 L. R. A. 728, 46 Am. & Eng. R. Cas. 114. 17 ELEVATED KAILEOADS. [§ 7 and operate an elevated railroad.'^ Such roads are generally in- tended and used merely for the carriage of passengers along the streets, and, where such is the case, it seems to us that, upon prin- ciple, they should be regarded as street railways rather than as ordinary commercial railroads,'* or at least more in the nature of the former in the respect indicated, although it would be still better, perhaps, to put them in a class by themselves. But whether a street railway company has authority to construct an elevated road or not must depend largely upon the particular charter or law under which it is organized, and the construction and use of the road may be such as to constitute an additional burden and entitle the abutting owners to damages, where they would not be entitled to compensation if it were an ordinary surface street railroad.''* Thus, it has been held that an elevated railroad supported by posts, with an overhead road- bed enclosed at the sides, is a "railway" and not a "street railway" within the meaning of a statute allowing the municipal authorities to authorize the construction of either in a street, but requiring compen- sation to the abutters where a "railway" is placed in the street.'^ "Commonwealth V. Northeastern El. R. Co. 161 Pa. St. 409, 29 Atl. 112. ™ See Doane v. Lake St. El. R. Co. 165 111. 510, 46 N. E. 520, 36 L. R. A. 97, 56 Am. St. 265, but compare Commonwealth v. Northeastern El. R. Co. 3 Pa. Dist. 104; Potts v. Quaker City El. R. Co. 12 Pa. Co. Ct. 593, 2 Pa. Dlst. 200, 161 Pa. St. 396, 29 Atl. 108. "There is no doubt that a railway under, or elevated above, the surface of a street, is still a street railway in that street." Per Peckham, J., People's, &c. Co. v. Dash, 125 N. Y. 93, 26 N. E. 25, 10 L. R. A. 728, 729, 46 Am. & Bng. R. Cas. 114. See, also. Booth Street Railw., § 1. " Story V. New York El. R. Co. 90 N. Y. 122, 43 Am. R. 146; American Bank Note Co. v. New York El. R. Co. 129 N. Y. 252, 29 N. E. 302; Bgerer v. New York Cent., &c. R. Co. 130 N. Y. 108, 29 N. E. 95, 14 L. R. A. 381, and note; Abendroth v. Manhattan R. Co. 122 N. Y. 1, 25 N. Ell. Railroads — 2 E. 496, 11 L. R. A. 634 n, 19 Am. St. 461; New York El. R. Co. v. Fifth Nat. Bank, 135 U. S. 432, 440, 10 Sup. Ct. 743; Lahr v. Metropoli- tan El. R. Co. 104 N. Y. 268, 10 N. E. 528; Kane v. New York El. R. Co. 125 N. Y. 164, 26 N. E. 278, 11 L. R. A. 640, 46 Am. & Eng. R. Cas. 137. See, also, State v. Superior Court, 30 Wash. 282, 70 Pac. 484. Compare Pulton v. Short Route, &c. Co. 85 Ky. 640, 4 S. W. 332, 7 Am. St. 619 ; Garrett v. Lake Roland El. R. Co. 79 Md. 277, 29 Atl. 830, 24 L. R. A. 396. "Freiday v. Sioux City, &c. Co. 92 Iowa 191, 60 N. "W. 656, 26 L. R. A. 246. See, also. People's, &c. Co. V. Dash, 125 N. Y. 93, 26 N. E. 25, 10 L. R. A. 728, 46 Am. & Eng. R. Cas. 114; Koch v. North Ave. R. Co. 75 Md. 222, 33 Atl. 463, 15 L. R. A. 377. A subway railway with fre- quent stations from which the sur- face could be reached was held in effect a street railway in New York, § 8] DEFINITIONS. 18 §■ 8. Electric railroads. — Eailroads operated by electricity and en- gaged in carrying passengers along the streets of a city are classed with street railways rather than with ordinary commercial railroads.''^ Their use being in furtherance of travel upon the streets may be said to be within the original purposes for which the streets were dedicated and laid out, and they do not, therefore, when properly constructed, constitute a new servitude or additional burden for which abutting property-owners are entitled to compensation.'^ In this respect, as in most respects, they are governed by the same rules that apply to ordinary street railways operated by animal power, and not by the rules applicable to commercial railroads. But the more dangerous nature 'of the motive power may require, both as to passengers and to other travelers, or the public generally, a degree of care not required in the ease of horse railways, that is to say, the care should be in pro- portion to the danger. A forcible illustration of the rule that electric railways for carrying passengers along the streets are to be regarded as street railways rather than as commercial railroads is found in a recent case'^ in which it is held that an electric railway company has the right to run its cars across a public toll bridge, upon the payment &c. R. Co., In re, 107 N. Y. 42, 14 N. B. 187. ™ See Thompson-Houston Electric Co. V. Simon, 20 Ore. 60, 25 Pac. 147, 10 L. R. A. 251, 23 Am. St. 86, 47 Am. & Eng. R. Cas. 51; Hill v. Rome St. R. Co. 101 Ga. 66, 28 S. B. 631; Hudson River Tel. Co. v. Water- vliet, &c. Co. 135 N. Y. 393, 32 N. E. 148, 17 L. R. A. 674, 31 Am. St. 838; Paterson R. Co. v. Grundy, 51 N. J. Eq. 213, 26 Atl. 788; Halsey v. Rapid, &c. R. Co. 47 N. J. Eq. 380, 20 Atl. 859; Elliott Roads and Sts. (2d ed.), § 699. But compare Chicago, &c. R. Co. V. Milwaukee, &c. R. Co. 95 "Wis. 561, 70 N. W. 678, 37 L. R. A. 856, 60 Am. St. 137. "Duhois Traction Co. v. Buffalo, &c. R. Co. 149 Pa. St. 1, 24 Atl. 179, 11 R. & Corp. L. Jour. 6; Lock- hart V. Craig St. R. Co. 139 Pa. St. 419, 21 Atl. 26; Taggart v. Newport St. R. Co. 16 R. I. 668, 19 AU. 326, 7 L. R. A. 205; West Jersey R. Co. V. Camden, &c. R. Co. 52 N. J. 452, 29 Atl. 423; Paterson R. Co. v. Grundy, 51 N. J. 213, 26 Atl. 788; Detroit St. R. Co. v. Mills, 85 Mich. 634, 48 N. W. 1007; Koch v. North Avenue R. Co. 75 Md. 22, 23 Atl. 463; Green v. City Suburban R. Co. 78 Md. 294, 28 Atl. 626, 44 Am. St. 288; Chicago, &c. R. Co. v. Whiting, &c. Co. 139 Ind. 297, 38 N. E. 604, 26 L. R. A. 337, 47 Am. St. 264; Cincinnati, &c. R. Co. v. City, &c. Co. 48 Ohio St. 390, 27 N. E. 890, 12 L. R. A. 534, 29 Am. St. 559, 10 R. & Corp. Law Jour. 82; Wil- liams V. City Electric St. R. Co. 41 Fed. 556; Cumberland, &c. Co. v. United Electric R. Co. 93 Tenn. 492, 29 S. W. 104; San Antonio, &o. R. Co. V. Limburger, 88 Tex. 79, 30 S. W. 533. "Pittsburgh, &c. R. Co. v. Point Bridge Co. 165 Pa. St. 37, 30 Atl. 511, 26 L. R. A. 323. 19 CABLE RAILROADS. [§' 9 of adequate toll, where the statute gives it the right to use "any street or highway." The court regarded it as a use which was consist- ent with the purpose for which the bridge was erected, being in fur- therance of public travel and accommodation, and held that it did not constitute a taking of property under the power of eminent domain.^" As electricity is now coming into use for commercial railroads, and is used almost altogether as a motive power on interurban railroads, there is likely to be confusion, unless the term is confined to such roads as were formerly known as electric railroads, and, as already stated, the mere fact that electricity is the motive power is not conclu- sive as to whether the rules and principles applicable to commercial railroads or those applicable to street railroads apply. § 9. Cable railroads. — Eailroads operated by the cable system are also classed with street railways. Indeed, as ordinarily located, con- structed and operated, they may be regarded as a sub-class or particu- lar kind of street railways. They do not, therefore, constitute an additional burden any more than ordinary horse railways.^" In one case, however, it was held that a cable road is, "as to one part of the street, surface, and as to another part, subterranean," and that a com- pany organized merely as a surface railway company had no right to excavate the streets and construct a subterranean cable system;*^ but the same court, in a later case, held that such a company could be authorized by the legislature to use the cable system without the consent of the local authorities, notwithstanding a provision of the constitution prohibiting the passage of any law authorizing the con- struction or operation of a street railroad without first obtaining the consent of the local authorities.*^ Although cable roads in city .streets " See, also, Covington, &c. Co. v. ^ People v. Newton, 112 N. Y. 396, South Covington, &c. Co. 93 Ky. 136, 1$ N. B. 831, 3 L. R. A. 174 n. 19 S. W. 403, 15 L. R. A. 828. '' Third Avenue R. Co., Petition *> Rafterty v. Central Traction Co. of, 121 N. Y. 536, 24 N. B. 951, 9 L. 147 Pa. St. 579, 23 Atl. 884, 30 Am. R. A. 124. The court said that, as St. 763; Lorie v. North Chicago R. the railroad had already been or- Co. 32 Fed. 270; Harrison v. Mt. ganlzed, constructed and operated Auburn Cable R. Co. (Ohio), 17 W. as a horse street railway, the act of L. Bull. 265; Clement v. Cincinnati the legislature in question did not (Ohio), 16 W. L. Bull. 355; Booth attempt to grant a franchise or au- St. Railw., § 84. Compare Tuebner thorlze the "construction or opera- v. California St. R. Co. 66 Cal. 171, tion of a street railroad," but mere- 4 Pac. 1162. ly regulated the use of an existing franchise. § 9a] DEFINITIONS. 30 engaged only in carrying passengers are usually regarded as street railways, yet a company which carries freight as well as passengers, whose road is but three miles in length, over two miles of which cars are drawn by locomotives, is a "railroad company," taxable as an ordinary railway, notwithstanding the fact that one mile of the line, up a steep ascent, is operated by cable. *^ §'9a. Interurban railroads. — Interurban railroads have been de- fined or described as "those connecting distant communities, which are laid mainly on highways, and as to so much of them as lie within each of these communities are built upon its streets and operated so as to promote local convenience and make these streets more serviceable to the public."** As a matter of fact, however, interurban railroads are now constructed, so far as they extend through the country between cities and towns, mainly upon the land or right of way of the company rather than upon the country highways. It is a vexed question as to whether such a railroad is an additional burden on a country high- way, and it is easier or cheaper, in some instances, to obtain such a right of way. So, when the railroad is thus located and constructed there is less danger of interfering with travel ; the cars can be run with more freedom, and there is less danger of liability of accident to passengers and travelers upon the highway. Such railroads are a new development of a somewhat mixed character, and the law applicable to them is not in all respects well settled. They usually extend from, one city or town to and within the limits of another city or town and partake, in some respects, of the nature of both street railways' and ordinary commercial railroads. Their nature and characteristics, and the principles of law applicable to them, will be fully considered in a separate chapter. °= State V. Eleventh Judicial Dis- so operated up the sides of moun- trict Ct., 54 Minn. 341, 55 N. W. tains not on or near any street, and 816. Compare Funk v. St. Paul City we remember to have traveled on a R. Co. 61 Minn. 435, 63 N. W. 1099, commercial steam railroad in Switz- 29 L. R. A. 208, 52 Am. St. 608. And erland which was so operated for a the fact that a railroad is operated short distance of its course up the either in whole or in part by a cable side of a mountain, system does not necessarily make it ** Baldwin Am. Railw. Law 9. a street railroad. There are roads CHAPTEE II. PKOMOTION AND FOEMATION OF THE COEPOEATION, Sec. Sec. 10. Promoters — Who are. 15. 11. Fiduciary relation of promoters — Duties and liabilities. 16. 12. Promoter may sell property to 17. the corporation. 18. 13. Personal liability of promoters — When partners. 19. 13a, Representations by promoters. 20. 14. Contracts of promoters — ^When binding on corporation. Legislative authority essential to creation of corporation. Creation by special charter. Acceptance of charter. Incorporation under general laws. Perfecting the organization. Defective organization — Waiver — Collateral attack. § 10. Promoters — ^Who are. — The sbeps preliminary to the organi- zation of a railroad corporation are frequently, if not generally, taken by persons known as "promoters," who bring together the persons in- terested in the enterprise, aid in procuring subscriptions, and set in motion the machinery which leads to the formation of the corpora- tion,^ often, also, making the necessary arrangements looking toward the purchase of property or the entering into contracts by the new company.^ By merely subscribing the articles, or taking stock in a company not yet incorporated, a person does not assume the character of a promoter.^ But circumstances which show that one is assuming to act in the interest of a project, and is- seeking to influence others to give it pecuniary assistance, will afPord evidence that he has under- *Cook Stock and Stockholders, § 651; Dickerman v. Northern Trust Co. 176 U. S. 181, 203, 20 Sup. Ct. 311, 319; Lee v. Heppenheimer (N. J. Eq.), 61 Atl. 843, 857. "Beach Law of Railways, § 1; Twycross v. Grant, L. R. 2 C. P. Div. 469, 503; Yale Gas Stove Co. v. Wilcox, quoted in note to § 11, infra. See, also, First Ave. Land Co. v. Hil- debrand, 103 Wis. 530, 79 N. W. 753; Ex-Mission Land, &c. Co. v. Flash, 97 Cal. 610, 32 Pac. 600; Bosher v. Richmond, &c. Co. 89 Va. 455, 16 S. E. 360, 37 Am. St. 879. ' St. Louis, &c. R. Co. V. Tiernan, 37 Kans. 606, 40 Am. & Eng. R. Cas. 525; Ward v. Brigham, 127 Mass. 24. See, also, Taylor Priv. Corp. (4th ed.), § 73. But see Lake v. Argyle, 6 Q. B. 477. 21 § 11] PROMOTION AND POEMATION OF THE CORPOEATION. 23 taken the responsibility of a promoter toward persons who deal with him as such.* § 11. Fiduciary relation of promoters — ^Duties and liabilities. — A promoter occupies a fiduciary relation toward the company, and is sub- ject, in general, to the disabilities attached to trustees.^ He is f orbid- * Sidney, &c. Co. v. Bird, L. R. 31 Ch. Div. 328; Lake v. Argyle, 6 Q. B. 477; Woodbury, &c. Co. v. Lou- denslager, 55 N. J. 78, 35 Atl. 436. The question is largely one of fact depending upon the circumstances of the case. Bagnall v. Carlton, 6 Ch. D. 371, 47 L. J. Ch. 30; Lydney, &c. Co. V. Bird, 33 Ch. D. 85, 24 Am. & Bng. Corp. Cas. 24. " Emma Silver M. Co. r. Grant, L. R. 11 Ch. Div. 918; Taylor Priv. Corp. (4th ed.), § 82. In the case of Yale Gas Stove Co. v. Wilcox, 64 Conn. 101, 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. 159, the court said: "Who and what are 'promoters' so- called, of corporations, and what their relations to the corporations which they help to form, has been more frequently judicially consid- ered and determined by the English courts than by those of this country. * * * A 'promoter' has been de- fined to be a person who organizes a corporation. It is said to be, not a legal, but a business term, 'use- fully summing up in a single word, a number of business operations fa- miliar to the commercial world, Ijy which a company is generally brought into existence.' Bowen, J., in Printing Co. v. Green, 28 Wkly. R. (Q. B. Div. 1880) 351, 352. That such persons occupy a fiduciary re- lation toward the company or cor- poration whose organization they seek to promote is well settled by the decisions of both countries. Lord Cotton prefers to call them 'trustees.' Bagnall v. Carlton, 6 Ch. Div. 371, 385. Sir George Jessel, M. R., in Phosphate Co. v. Erlanger, L. R. 5 Ch. Div. 73, said: 'Promoters stand in a fiduciary relation to that company which Is their creature.' In Erlanger v. Phosphate Co. 3 App. Cas. 1218, the Lord Chancellor said of promoters: 'They stand, in my opinion, undoubtedly in a fiduciary position. They have in their hands the creation and molding of the company. They have the power of defining how, and when, and in what shape, and under what super- vision. It shall start into existence and begin to act as a trading cor- poration. 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 purchasers of the property of them- selves (the promoters) it is, in my opinion, incumbent upon the pro- moters 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 prop- erty 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 sell it to the company through the 23 FIDUCIARY RELATION OF PROMOTERS. [§ 11 den to make any secret profits at the expense of the company," or to gain any advantage over other stockholders arising from the profits 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.' Lord O'Hagan, referring to the same subject, ex- pressed a similar . opinion in even more emphatic language, declaring that while an original purchase might be legitimate, and not less so because the object of the pur- chaser was to sell it again, and to sell it by forming a company which might afford th^ a profit on the transaction, yet 'the privilege given them for promoting such a company for such an object involved obliga- tions of a very serious kind. It re- quired, in its exercise, the utmost good faith, the completest truthful- ness, and a careful regard to the protection of the future stockhold- ers.' The test, therefore, of the va- lidity of such transactions is that it must, in all its parts be open and fair, so that the promoters shall not. In fact, substantially, 'act both as vendors and vendees, and in the lat- ter capacity approve a transaction suggested by them in the former.' Foss V. Harbottle, 2 Hare 461, 488; McElhenny's Appeal, 61 Pa. St. 188; Simons v. Mining Co. 61 Pa. St. 202, 100 Am. Dec. 628; Oil Co. v. Densmore, 64 Pa. St. 43; Pittsburg Mining Co. v. Spooner, 74 Wis. 307, 42 N. "W. 259, 17 Am. St. 149 n; South, &c. Co. V. Case, 104 Mo. 572, 16 S. W. 390; British Seamless Pa- per-box Co., In re, 17 Ch. Div. 467; Sewage Co. v. Hartmont, 5 Ch. Div. 394. In Hichens v. Congreve, 1 Russ. & M. 150 (on appeal, 4 Russ. 562), three promoters induced their company to buy a mine for £25,000, of which they received from the vendor and divided among them- selves, £15,000. This they were com- pelled to account for to the com- pany. Similar cases are Beck v. Kantorowicz, 3 Kay & J. 230; Print- ing Co. V. Green, 28 Wkly. R. (Q. B. Div. 1880) 351, 352; Mining Co. v. Grant, 11 Ch. Div. 918; Bagnall v. Carlton, 6 Ch. Div. 371, 385; Kent V. Brickmaking Co. 17 Law T. (N. S.) 77; "Water Co. v. Flash, 97 Cal. 610, 32 Pac. 600. * * * A care- ful examination of the cases will, we think, disclose two grounds of liability of the defendants to cor- porations for undisclosed profits re- sulting from transactions with such corporations: First, where the de- fendants are corporate fiduciaries. The characteristic of this relation is trust. Such a relation undoubted- ly exists between companies and their officers, such as directors. Mal- lory V. Mallory-Wheeler Co. 61 Conn. 135, 23 Atl. 707. With reference to promoters, since a man cannot re- ceive an appointment from a non- existent company, the proof may be less obvious; but it may, neverthe- less, be shown conclusively by a va- riety of representations, admissions, and acts. The second ground of lia- bility is fraud. The law does not ■prohibit a promoter from dealing with his company, but he must make full disclosure to the com- pany of his relations to the prop- erty that is the subject of his deal. Suppression, concealment, or mis- representation of material facts is fraud, upon proof of which rescis- sion of contract, or repayment of the secret profits, will be compelled." ■> Emma Silver M. Co. v. Grant, L. § 12] PROMOTION AND FORMATION OF THE CORPORATION. 34 of the company's transactions.'^ He must generally turn over to the company any commissions received for the sale of property to the company/ and it has been held that the company may sue the seller to recover such a commission if it is not yet paid/ or it may, in a proper case, upon discovery of the unfair character of the transaction, re- scind the contract of sale and sue the promoters to recover the moneys paid them for the property.^" § 12. Promoter may sell property to the corporation. — A promoter may, however, honestly and fairly sell to the company property which he owned before instituting the scheme for incorporation.^^ This is true even when the scheme relates to the development of the very property which he sells to the corporation.^^ But it seems that the R. 11 Ch. Div. 918; Pittsburg Min- ing Co. V. Spooner, 74 Wis. 307, 42 N. W. 259, 17 Am. St. 149, and note; Lydney, &c. Co. v. Bird, L. R. 33 Ch. Div. 85, 55 Law T. (N. S.) 558; Emery v. Parrott, 107 Mass. 95; Si- mons V. Vulcan Oil, &c. Co. 61 Pa. St. 202, 100 Am. Dec. 628; Plaque- mines, &c. Co. V. Buck, 52 N. J. Eq. 219, 27 Atl. 1094. See, also, Wardell V. Union Pac. R. Co. 103 U. S. 651; Rutland, &c. Co. v. Bates, 68 Vt. 579, 35 Atl. 480, 54 Am. St. 904. 'Getty V. Devlin, 54 N. Y. 403; Chandler v. Bacon, 30 Fed. 538, 540; Densmore Oil Co. v. Den,smore, 64 Pa. St. 43; Bagnall v. Carlton, L. R. 6 Ch. Div. 371; Emery v. Parrott, 107 Mass. 95. 'Emma Silver M. v. Grant, L. R. 11 Ch. Div. 918; Lydney, &c. Co. v. Bird, L. R. 33 Ch. Div. 85, 55 Law T. CN. S.) 558; Beck v. Kantoro- wicz, 3 Kay & J. 230; Brewster v. Hatch, 122 N. Y. 349, 25 N. B. 505, 19 Am. St. 498. 'Whaley, &c. Co. v. Green, L. R. 5 Q. B. Div. 109, 41 Law T. (N. S.) 674.' ■ ^ St. Louis, &c. Mining Co. v. Jack- son, 5 Cent L. J. 317; Phosphate Sewage Co. v. Hartmont, L. R. 5 Ch. Div. 394, 37 Law T. (N. S.) 9. See also Dickerman' v. Northern Trust Co. 176 U. S. 181, 20 Sup. Ct. 311. "The corporation is the proper plaintiff in a suit to set aside the promoter's acts." Taylor Priv. Corp. (4th ed.), § 83, citing Ex- Mission Land Co. v. Flash, 97 Cal. 610, 32 Pac. 600. So, in a suit to recover the avails of a secret agree- ment between him and one from whom the corporation purchases property. Yale Gas Stove Co. v. Wilcox, 64 Conn. 101, 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. 159. See, also, Pittsburg Min. Co. v. Spooner, 74 Wis. 307, 42 N. W. 259, 17 Am. St. 149, and note; 3 Pom. Eq. Jur., §§ 1094, 1096. "Taylor Priv. Corp. (4th ed.), § 83; Burbank v. Dennis, 101 Cal. 90, 35 Pac. 444; Plaquemines, &c. Co. V. Buck, 52 N. J. 219, 27 Atl. 1094. See, also, note to Yale Gas Stove Co. V. Wilcox, 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. 159, and note to Pittsburg Min. Co. v. Spooner, 74 Wis. 307, 42 N. W. 259, 17 Am. St. 149; Hess Mfg. Co., In re, 21 Ont. App. 66. "Dorris v. French, 4 Hun (N. Y.) 292; Cover's Case, L. R. 1 Ch. 25 PERSONAL LIABILITY OF PKOMOTEES. [§ 13 corporation may rescind such a contract, if the sale be made for an exorbitant price and without disclosing the real ownership of the property." And after the formation of the company is begun a promoter cannot purchase property and sell it to the corporation at an advanced price without a full disclosure of the facts.^* § 13. Personal liability of promoters — ^When partners. — The pro- moters, as a general rule, are personally liable on all contracts entered into by them before the organization is completed,^^ except where they have expressly stipulated against personal liability, or except, perhaps, where the contract is made in the name of the proposed cor- poration alone and the credit is knowingly given to it and not to the promoters.^* A promoter cannot, ordinarily, in the absence of evi- dence that he has received authority to act for his associates, render them responsible for his acts,^^ for the several promoters are not part- Div. 182; Seymour v. Spring Forest, &c. Ass'n., 144 N. Y. 333, 39 N. E. 365, 26 L. R. A. 859; Densmore Oil Co. V. Densmore, 64 Pa. St. 43. »' Cape Breton Co., In re, L. R. 26 Ch. Div. 221, L. R. 29 Cli. Div. 795; Lindsay Petroleum, &c. Co. v. Surd, L. R. 5 P. C. 221; Taylor Priv. Corp. (4th ed.), § 83. But see Densmore Oil Co. v. Densmore, 64 Pa. St. 43. "South, &c. Co. V. Case, 104 Mo. 572, 16 S. W. '390; Paducah Land, &c. Co. V. Mulholland, 15 Ky. L. 624, 24 S. "W. 624; Ex-Mission Land, &c. Co. V. Flash, 97 Cal. 610, 32 Pac. 600; Plaquemines, &c. Co. v. Buck, 52 N. J. Eq. 219, 27 Atl. 1094; Pittshurg Mln. Co. V. Spooner, 74 Wis. 307, 42 N. W. 259, 17 Am. St. 149; Lee v. Heppenheimer (N. J. Bq.), 61 Atl. 843. Where a promoter fraudulent- ly represents that he has bought property for a proposed corporation at a certain price, and the corpora- tion pays him that price, it may, after discovery of the. fraud, sue him for the profit thus made. Si- mons v. Vulcan Oil, &c. Co. 61 Pa. St. 202, 100 Am. Dec. 628. "Hurt V. Salisbury, 55 Mo. 310; Taylor Priv. Corp. (4th. ed.), § 76; Kelner v. Baxter, L. R. 2 C. P. 174; Scott V. Lord Ebury, 36 L. J. C. P, 161. See, also, Manistee Lumber Co. V. Union Nat. Bank, 143 111. 490, 32 N. E. 449; Hersey v. Tully, 8 Colo. App. 110, 44 Pac. 854. ^"Rennie v. Clarke, 5 Ex. 292; Hlgglns V. Hopkins, 3 Exch. 163; Landman v. Entwistle, 7 Ex. 632, See note to Pittsburg Min. Co. v. Spooner, 74 Wis. 307, 42 N. W. 259, 17 Am. St. 149, 162, and post, § 190. They cannot be held liable to one who knowingly agrees to accept and does accept the notes of a corpora- tion then contemplated and after- ward organized in payment, and pa- rol evidenbe is admissible to show such knowledge and agreement where the notes were signed by the company with the names and titles of the ofBcers, especially to contra- dict the contention of the plaintiff that the notes of the company were , accepted through a misunderstand- ing. Case Manufacturing Co. v. Sox- man, 138 U. S. 431, 11 Sup. Ct. 360. "Patrick v. Reynolds, 1 Com. B. N. S. 727; Williams v. Pigott, 5 § 13] PROMOTION AND FORMATION OF THE CORPORATION. 26 ners.^' They may, however, take on the character of partners by holding themselves out as such,^° or by fraudulently acting in concert for their own common personal benefit.^" If the scheme prove abortive, and the proposed corporation is never chartered, the expenses incurred in the attempted organization must usually be borne by the pro- moters,^^ and the subscribers, unless estopped by acquiescence or some act of their own, may recover back the money paid for shares of its stock. ^^ The promoters are also liable to one whom they have induced to subscribe by fraudulent representations.^* Eng. R. & C. Gas. 544; Johnson v. Corser, 34 Minn. 355, 25 N. W. 799. "Reynell v. Lewis, 15 Mees. & W. 517; Bailey v. Macaulay, 13 Q. B. 815; 1 Thompson Corp., § 421. See Davidson v. Hohson, 1 Mo. App. 28. And they cannot he held liable as partners under a complaint which does not proceed upon that theory hut simply seeks to hold them per- sonally liable .in the event that it is ascertained that the suhsequent incorporation, which was contem- plated by all parties at the time of the contract, was defective, and to hold them liable as stockholders if it should be determined to be an ef- fective incorporation. Shields v. Clifton, &c. Co. 94 Tenn. 123, 28 S. W. 668, 26 L. R. A. 509, 45 Am. St. 700. See, also, Bufflngton v. Bardon, 80 Wis. 635, 50 N. "W. 776. " Collingwood v. Berkeley, 15 C. B. N. S. 145; Lake v. Duke of Ar- gyll, 6 Q. B. 477. See, also, McFall V. McKeesport, &c. Co. 123 Pa. St. 259, 16 Atl. 478; McLennan v. Hop- kins, 2 Kans. App. 260, 41 Pac..l061. » Chandler v. Bacon, 30 Fed. 538; Colt V. Woollaston, 2 P. Wms. 154, See also Hornblower v. Crandall, 7 Mo. App. 220, affirmed in 78 Mo. 581; New Sombrero Phosphate Co. v. Er- langer, L. R. 5 Ch. Div. 73, 36 Law T. (N. S.) 222; Getty v. Devlin, 54 N. Y. 403. " Nockels V. Crosby, 3 Barn. & C. 814, 822; Johnson v. Corser, 34 Minn. 355, 25 N. W. 799; Sproat v. Porter, 9 Mass. 300. This may, how- ever, be regulated by contract or de- pend upon the peculiar circum- stances of each particular case. That the corporation is not necessarily liable to him, see Ritchie v. McMul- len, 79 Fed. 522, 25 C. C. A. 50; Sey- mour V. Spring Forest, &c. Ass'n, 144 N. y. 333, 39 N. E. 365, 26 L. R. A. 859; Wilson v. Trenton, &c. R. Co. 56 N. J. Eq. 783, 40 Atl. 597; Winters v. Hub Min. Co. 57 Fed. 287. '''Williams v. Page, 24 Beav. 654; Walstab v. Spottiswoode, 15 Mees. & W. 501; Ashpitel v. Sercombe, 5 Ex. 147; Nockels v. Crosby, 3 Barn. & C. 814; Grand Trunk, &c. R. Co. V. Brodie, 9 Hare 823. But see Moore v. Garwood, 4 Ex. 681; Tay- lor Priv. Corp., § 104. ^Miller v. Barber, 66 N. Y. 558; Paddock v. Fletcher, 42 Vt. 389; Short V. Stevenson, 63 Pa. St. 95; Teachout v. Van Hoesen, 76 Iowa 113, 40 N. W. 96, 1 L. R. A. 664, 14 Am. St. 206 ; Cridland v. De Mauley, 1 DeGex & S. 459, 12 Jur. 701; Glasier v. Rolls, 60 Law T. (N. S.) 59, L. R. 42 Ch. Div. 436. See, also, Brewster v. Hatch, 122 N. Y. 349, 25 N. B. 505, 19 Am. St. 498; Capel v. Sim's, &c. Co. 58 Law T. (N. S.) 807, 57 L. J. Ch. 713; Gerhard v. Bates, 2 El. & Bl. 476. 27 REPRESENTATIONS BY PROMOTERS. [§ 13a § 13a. Representations by promoters. — Misrepresentations made by the promoters of a corporation at a public meeting, called for the purpose of procuring subscriptions to stock, will not, ordinarily, vitiate a subscription made in reliance thereon by one of the class to whom the representations are made, where such representations are not au- thorized by the. corporation.^* Indeed, as already stated, those who promote or undertake to organize a proposed corporation are not, and cannot be in the nature of things, its agents before it comes into ex- istence. They cannot, therefore, bind it by engagements in behalf of the corporation not ratified or adopted by it after it comes into ex- istence, nor by their declarations and representations.^^ But the pro- moters may render themselves personally liable by their own misrep- resentations and fraud in their prospectus or at a public meeting to those who are injured thereby as a proximate cause.^* § 14. Contracts of promoters — ^When binding on corporation. — The promoters cannot bind the corporation by their contracts made before the organization of the company,^'' except so far as it adopts ■or ratifies their acts, either directly^^ or, in some cases, by accepting =" Smith V. Tallahassee, &c. Co. 30 Ala. 650; Mississippi, &c. R. Co. v. Cross, 20 Ark. 443, 454;' First Nat. Bank v. Hurford, 29 Iowa 579; Vicksburg, &c. R. Co. v. McKean, 12 La. Ann. 638; St. Johns Mfg. Co. V. Munger, 106 Mich. 90, 64 N. W. 3, 58 Am. St. 468; Buffalo, &c. R. Co. V. Dudley, 14 N. Y. 336. Compare Atlanta, &c. R. Co. v. Hodnett, 36 ■Ga. 669; Weems v. Georgia, &c. R. Co. 88 Ga. 303, 14 S. B. 583; and see note in 85 Am. St. 385, 386. == United States, &c. Co. v. Schleg- «1, 143 N. Y. 537, 38 N. E. 729; Lynde v. Anglo-Italian, &c. Co. (1896) 1 Ch. 178, 73 L. T. 502; 7 Thompson Corp. § 8282. ^ Reese, &c. Min. Co. v. Smith, L. R. 4 H. L. 64; New Brunswick R. Co. V. Muggeridge, 1 Drew & Sm. 363; Clarke v. Dickson, 6 C. B. (N. S.) 453; Walker v. Anglo-American, &c. Co. 72 Hun (N. Y.) 334, 25 N. Y. S. 432. See, also, Tuttle v. George A. Tuttle Co. (Me.) 64 Atl. 496. "Munson v. Syracuse, &c. R. Co. 103 N. Y. 58, 8 N. B. 355, 29 Am. & Bng. R. Cas. 377; Little Rock, &c. R. Co. V. Perry, 37 Ark. 164; Perry V. Little Rock, &c. R. Co. 44 Ark. 383, 25 Am. & Eng. R. Cas. 44; Rock- ford, &c. R. Co. V. Sage, 65 111. 328, 16 Am. R. 587; Sellers v. Greer, 172 111. 549, 50 N. E. 246, 40 L. R. A. 589; Caledonian, &c. Co. v. Helens- burgh, 2 Macq. 391; Carmody r. Powers, 60 Mich. 26, 26 N. W. 801; New York, &c. R. Co. v. Ketchum, 27 Conn. 170; Hill v. Gould, 129 Mo. 106, 30 S. W. 181; Abbott v. Hap- good, 150 Mass. 248, 22 N. B. 907, 5 L. R. A. 586, 15 Am. St. 193; Tuttle V. George A. Tuttle Co. (Me.), 64 Atl. 496. A promoter cannot bind the corporation by contract made in obtaining a subscription before the organization of the corporation. Joy V. Manion, 28 Mo. App. 55. =*Wood V. Whelen, 93 111. 153; Payne v. New South Wales, &c. Co. 10 Exch. 283; Hutchinson v. Surrey, § 14] PEOMOTIOBT AND FOEMATION OF THE COHPOEATIO]Sr. 28 the benefits of contracts made for it,^" and impliedly adopting it. The corporation can only take advantage of an executory contract entered into by the promoters by fulfilling all the engagements entered into by them on its behalf.^" It cannot, as a rule, accept and retain the benefit without assuming the burden.^ ^ But it has been held that &c. Association, 11 C. B. 689; Low V. Connecticut, &c. 45 N. H. 370, 46 N. H. 284; Stanton v. New York, &c. R. Co. 59 Conn. 272, 22 Atl. 300, 21 Am. St. 110; Pratt v. Oshkosh Match Co. 89 Wis. 406, 62 N. "W. 84; Cot- ting V. Grant, &c. R. Co. 65 Fed. 545. It has been held that the president and general manager may adopt and ratify a contract made by himself for the corporation before it w^s legally created, for services for the company which he would have au- thority to engage if no previous con- tract existed. Cakes v. Cattaraugus Water Co. 143 N. Y. 430, 38 N. B. 461, 26 L. R. A. 544. See also Ara- pahoe, &c. Co. V. Piatt (Colo.), 30 Pac. 584. =" Stanton v. New York, &c. R. Co. 59 Conn. 272, 22 Atl. 300, 21 Am. St. 110; Edwards v. Grand Junction R. Co. 1 Mylne & C. 650; Coyote Gold, &c. Co. V. Ruble, 8 Greg. 284; Bells Gap R. Co. V. Christy, 79 Pa. St. 59; Moore, &c. Co. v. Towers, &c. Co. 87 Ala. 206, 6 So. 41, 13 Am. St. 23; Schreyer v. Turner, &c. Co. 29 Greg. 1, 43 Pac. 719; Stanley v. Birken- head R. Co. 9 Simons 264. See, also. Hall V. Vermont, &c. R. Co. 28 Vt. 401; Bommer v. American Spiral, &c. Co. 81 N. Y. 468; Whitney v. Wyman, 101 U. S. 392; Battelle v. Northwestern, &c. Co., 37 Minn. 89, 33 N. W. 327; Frankfort, &c. Co. v. Churchill, 6 T. B. Mon. (Ky.) 427, 17 Am. Dec. 159; Seymour v. Spring Forest, &c. Ass'n, 144 N. Y. 333, 39 N. B. 365, 26 L. R. A. 859; Conti- nental Trust Co. V. Toledo, &c. Co. 86 Fed. 929, 948. In some cases. however, it is denied that a corpo- ration can ratify a contract so as to make it relate back to its inception before the corporation came into ex- istence. Abbott y. Hapgood, 150 Mass. 248, 22 N. E. 907, 5 L. R. A. 586, 15 Am. St. 193, citing Kelner V. Baxter, L. R. 2 C. P. 174; Gunn V. London, &c. Co. 12 C. B. N. S. 694; Melhado v. Porto Alegre, &c. R. L. R. 9 C. P. 503; Bmpress, &c. Co., In re, 16 Ch. Div. 125. See, also. Na- tal Land, &c. Co. v. Pauline, &c. Syn- dicate (1904), App. Cas. 120, 73 L. J. P. C. 22, 11 Manson 29. But, as we understand these decisions, they do not decide that the corporation may not be held as upon a new con- tract from the time of its adoption. McArthur v. Times Printing Co. 48 Minn. -319, 51 N. W. 216, 31 Am. St. 653. ^Taylor Priv. Corp. (4th ed.) § 90; Burrows v. Smith, 10 N. Y. 550; Bedford, &c. R. Co. v. Stanley, 32 L. J. Eq. 60. Unless it in some way accepts the contract so as to make it liable for failure to perform the same It cannot successfully claim the right to enforce the con- tract to which it never became a party. Penn Match Co. v. Hapgood, 141 Mass. 145, 7 N. E. 22. See, also, Gent V. Manufacturers', &c. Co. 107 111. 652, 8 Am. & Eng. Corp. Cas. 306; Van Buren, &c. R. Co. v. Lam- phear, 54 Mich. 575, 20 N. W. 590; note to Moore, &c. Co. v. Towers, &c. Co. 87 Ala. 206, 6 So. 41, 13 Am. St. 23. ''Bell's Gap R. Co. v. Christy, 79 Pa. St. 59; Low v. Connecticut, &c. 29 NECESSITY OF LEGISLATIVE AUTHORIZATION. [§■15 ■where the promoters mutually agree to perform services without com- pensation, the company cannot be held liable for such services although it received the benefit.'^ Where the contract is not made for the benefit of the corporation and the parties did not rely in any Way upon the corporation, but looked solely to the responsibility of the promoters, the corporation would not, as a rule at least, be liable, and it is not every contract that can be so adopted by the corporation as to make it liable thereon, for there may be an absolute want of power on the part of the corporation and the contract may be ultra vires in every sense.^^ § 15. Legislative authority essential to creation of corporation. — A corporation has been defined as a body consisting of one** or more persons, established by law for certain specific purposes, with the capacity qf succession and with special privileges not possessed by in- dividuals, yet acting in many respects as an individual.*^ It is neces- H. Co. 45 N. H. 370, 46 N. H. 284; Paxton Cattle Co. v. First Nat. Bank, 21 Neb. 621, 33 N. "W. 271, 59 Am. R. 852; Grand Junction R. Co. 1 Mylne & C. 650. But see Weather- iord, &c. R. Co. v. Granger, 86 Tex. 350, 24 S. W. 795, 40 Am. St. 837; Taft V. Quaker, &c. Bank, 141 Pa. St. 550, 21 Atl. 660; Davis, &c. Co. V. Hillsboro, &c. Co. 10 Ind. App. 42, 37 N. B. 549 ; Rotherham, &c. Co., In re, 50 Law T. (N. S.) 219. See, also, note to Pittsburg Mln. Co. v. Spoon- «r, 74 Wis. 307, 42 N. "W. 259, 17 Am. St. 149, 161, 162. "" Powell V. Georgia, &c. R. Co. 121 •Ga. 803, 49 S. E. 759. '"Shrewsbury v. North StafCord- shire R. Co. L. R. 1 Eq. 593, 12 Jur. (N. S.) 63; Skegness, &c. Tramways Co. In re, 41 Ch. Div. 215; Stanton V. New York, &c. R. Co. 59 Conn. 272, 22 Atl. 300, 21 Am. St. 110; Mar- shall County V. Schenck, 5 Wall. (U. S.) 772. But see Louis Cook Mfg. Co. V. Randall, 62 la. 244, 17 N. W. 507. In some instances, however, -there may, perhaps, be a liability be- cause of the acceptance and reten- tion of benefits and upon the ground of estoppel, although not strictly upon the contract. ■* Penobscot, &c. Co. v. Lamson, 16 Me. 224, 33 Am. Dec. 656. Under the general laws in most states the minimum number of incorporators is usually fixed at some certain num- ber more than one. Indeed, the number required for the incorpora- tion of railroad companies as fixed by such laws is often greater than the laws of the same state require for many other corporations. The corporation is a separate entity from the person or persons who may own its stock, and the fact that one person owns all the stock has been held not to make him and the cor- poration the same person. Monon- gahela Bridge Co. v. Pittsburg, &c. Co. 196 Pa. St. 25, 46 Atl. 99, 79 Am. St. 685. See also XJlmer v. Lime Rock R. Co. 98 Me. 579, 57 Atl. 1001, 66 L. R. A. 387; Chase v. Michigan, &c. Co. 121 Mich. 631, 80 N. W. 717. = 4 Am. & Bng. Bnc. 186; Mora- wetz Priv. Corp. (2d ed.) §§ 1, 227; 1 Thompson Corp. §§ 1, 2. Many def- initions are given by Judge Thomp- son from judicial decisions. See, § 16] PEOMOTION AND FORMATION OF THE COEPOEATION. 30 sary to the creation of the corporation that it be authorized by legis- lative enactment.^® It was formerly a criminal offense to assume to act as a corporation without such authority,^' and is still held to be so, in theory at least, in some jurisdictions.^* § 16. Creation by special charter. — Such legislative authority was formerly given by special act, in which the powers, duties and lia- bilities of the specified corporation were enumerated at length, and it is still granted in this way in some states,^" but in a number of states special laws are prohibited by the constitution and comparatively few special charters are now granted even where there is no such prohibi- tion. It is not necessary to the existence of a corporation that it be expressly declared a corporation in so many words.*" It is sufficient if powers are granted to a body of men that can only be exercised by a corporation.*^ Where certain designated persons are declared to be a corporation and given corporate powers by a special charter, they have been held to become a corporation eo instanti.*^ But a man also, Taylor's Priv. Corp. § 23 et seq.; Clark Corp. 1 et seq. =«Angell & Ames Corp. §§ 66-75; People V. Assessors, 1 Hill (N. Y.) 616; Franklin Bridge Co. v. Wood, 14 Ga. 80; Hoadley v. County Com- missioners, 105 Mass. 519; Atkinson V. Marietta, &c. R. Co. 15 Ohio St. 21. Congress has power to charter railroad companies in the territories within its jurisdiction. Thomson V. Pacific R. Co. 9 Wall. (XJ. S.) 579; Union Pacific R. Co. v. Lincoln County, 1 Dill. (U. S.) 314; Cali- fornia V. Pacific R. Co. 127 U. S. 1, 39, 8 Sup. Ct. 1073. "Duvergier v. Fellows, 5 Bing. 248, 5 Moore & P. 403. " People V. Ridgley, 21 111. 65. It is so declared by statute in Iowa. Rev. Stat. Iowa, 1888, § 1072. ™An act declaring that "a com- pany is hereby created called the St. Joseph and Iowa Railroad Com- pany," and naming the first board of directors, was held to be a pres- ent grant of corporate powers, of which the construction and opera- tion of part of its road by such com- pany was a suificient acceptance. Roosa V. St. Joseph, &c. R. Co. 114 Mo. 508, 21 S. W. 1124. See, also. Little Rock, &c. R. Co. v. Little- Rock, &c. R. Co. 36 Ark. 663, 684; Stoops V. Greensburgh, &e. Co. 10 Ind. 47. " Denton v. Jackson, 2 Johns. Ch. (N. Y.) 320; Commonwealth v. West Chester R. Co. 3 Grant Cas. (Pa.> 200. "Atkinson v. Bemis, 11 N. H. 44; Coburn v. EUenwood, 4 N. H. 101; Delaware, &c. Co. v. Commonwealth, 50 Pa. St. 399; Dunn v. Oregon Uni- versity, 9 Ore. 357; Inhabitants of Springfield v. Miller, 12 Mass. 415; Liverpool Ins. Co. v. Massachusetts, 10 Wall. (U. S.) 566; Blanchard v. KauU, 44 Cal. 440; Dean v. Davis, 51 Cal. 406. But see State v. Davis, 23 Ohio St. 434; Neil v. Board, 31 Ohio St. 15; Shelton v. Banks, 10 Gray (Mass.) 401; Walsh v. New York and Brooklyn Bridge, 96 N. Y. 427. «» Little Rock, &c. R. Co. v. Llttl© 31 ACCEPTANCE OF CHARTER. [§17 cannot be compelled to become a member of a private corporation against his will.*^ §17. Acceptance of charter. — For the reason stated in the last section, a special charter does not, ordinarily, create an effective pri- vate corporation until it is accepted.** But, as special charters are usually for the benefit of those who are named, an acceptance may be presumed in many cases.*^ Thus, the fact that they had applied for the charter,*" that they afterwards exercised the powers conferred,*^ or the like,*^ is strong, if not conclusive, evidence of an acceptance. It is not, therefore, essential that an express acceptance of the charter should appear in the records of 'the corporation.*' The acceptance must usually be unconditional, for a charter cannot be accepted in Rock, &c. R. Co., 36 Ark. 663, 684; Talledega Ins. Co. v. Landers, 43 Ala. 115 ; Stoops v. Greensburgh, &c. Plank Road Co., 10 Ind. 47. Com- pare Dartmouth College v. Wood- ward, 4 Wheat. (U. S.) 518; State V. Dawson, 16 Ind. 40. *'2 Kent Com. 277; Ellis v. Mar- shall, 2 Mass. 269, 3 Am. Dec. 49; Lauman v. Railroad Co. 30 Pa. St. 46, 72 Am. Dec. 685. "Lexington, &c. R. Co. v. Chand- ler, 13 Mete. (Mass.) 311; Dart- mouth College v. Woodward, 4 Wheat. (U. S.) 518, 708; Haslett v. Wotherspoon, 1 Strobh. Eq. 209; Quinlan v. Houston, &c. Co. 89 Tex. 356, 34 S. W. 738. *> Bangor, &c. R. Co. v. Smith, 47 Me. 34; Charles River Bridge v. Warren Bridge, 7 Pick. (Mass.) 344; 1 Elliott Ev. §106. "Atlanta v. Gate City, &c. Co. 71 Ga. 106; St. Joseph, &c. R. Co. V. Shambaugh, 106 Mo. 557, 17 S. W. 581; Astor v. New York R. Co. 48 Hun (N. Y.) 562, 1 N. Y. S. 174; Mfddlesex, &c. v. Davis, 3 Mete. (Mass.) 137. But the presumption of acceptance arising from the appli- cation for the charter may, it seems, be rebutted by proof that no steps were taken to organize or proceed under it, although a great many years had elapsed since it was grant- ed. Newton v. Carbery, 5 Cranch (U. S.) 632. " Illinois River R. Co. v. Zimmer, 20 111. 654; Eastern R. Co. v. Bos- ton, &c. R. Co. Ill Mass. 125, 15 Am. R. 13; Newton v. Carbery, 5 Cranch (U. S.) 632; Talladega Ins. Co. v. Landers, 43 Ala. 115; Quinlan v. Houston, &c. R. Co. 89 Tex. 356, 34 S. W. 738; Louisville Trust Co. v. Louisville, &c. R. Co. 75 Fed. 433, 22 C. C. A. 378. *° Taylor v. Newberne, 55 N. Car. 141, 64 Am. Dee. 566; Cleaves v. Turnpike Co. 1 Sneed (Tenn.) 491; McKay v. Beard, 20 S. Car. 156; St. Paul Division v. Brown, 11 Minn. 356; Snead v. Indianapolis, &c. R. Co. 11 Ind. 1()4. See, also, Glymont Imp. Co. V. Toler, 80 Md. 278, 30 Atl. 651; Cincinnati, &c. R. Co. v. Cole, 29 Ohio St. 126, 23 Am. Dec. 729; 3 Elliott Ev. §§ 1932, 1936. "Russell V. McLellan, 14 Pick. (Mass.) 63. The question of accept- ance is usually a question of fact for the jury. Hammond v. Straus, 53 Md. 1. § 18] PEOMOIION AND FOEMATION OF THE COEPOEATION'. 33 part and rejected in part, but must either be accepted or rejected as offered.^" Although directors may sometimes bind a corporation by acts performed by them in other states than that in. which the corpora- tion was created, yet the meetings of the stockholders or corporators must usually be held within the jurisdiction creating the corporation, and it has been held that the acceptance of a charter by the corpora- tors in their constituent capacity at a meeting held in another state for the purpose of organization is ineffective.^^ If a charter is granted by the legislature without any application upon the part of those to whom it is granted, it is regarded as a mere offer upon the part of the state, and may be withdrawn at any time before it is accepted.^^ When accepted, a charter takes effect immediately,^^ unless otherwise provided. § 18. Incorporation under general laws. — To prevent the grant of special and exclusive privileges, to secure uniformity in the powers of all corporations of the same class and render them subject to all such general laws as may be enacted for the government of corporations of that class, and to secure to the state the right to amend or repeal the charter at pleasure, provision is made for the creation of cor- porations by general laws in most of the states,^* in several of which the constitutions forbid the passage of any special act chartering rail- roads.°^ These general laws usually provide for the filing of articles "Lyons v. Orange, &c. R. Co. 32 Mississippi Society v. Musgrove, 44 Md. 18; Kenton County Court v. Miss. 820, 7 Am. R. 723; Chesa- Bank Lick, &c. Co. 10 Bush. (Ky.) peake, &c. Co. v. Baltimore, &c. R. 529; Rex v. Westwood, 2 Dow & CI. Co. 4 G. & J. (Md.) 1; Illinois River 21, 7 Bing. 1, 90. R. Co. v. Zimmer, 20 111. 654. "'Miller v. Ewer, 27 Me. 509, 46 "^Kaiser v. Lawrence Savings Am. Dec. 619, and note; Smith v. Bank, 56 Iowa 104, 8 N. W. 772, 41 Silver Valley, &c. Co. 64 Md. 85, 20 Am. R. 85. See, also, Coleman v. Atl. 1032, 54 Am. R. 760. See, also, Coleman, 78 Ind. 344; Cincinnati, Freeman v. Machias, &c. Co. 38 Me. &c. R. Co. v. Cole. 29 Ohio St. 126, 343 ; Bank of Augusta v. Earle, 13 23 Am. R. 729. Pet. (U. S.) 519; Aspinwall v. Ohio, "Morawetz Priv. Corp. {2d ed.) &c. R. Co. 20 Ind. 492, 83 Am. Dec. § 12; Stimson Am. St. Law, § 8520; 329. But compare Missouri Lead, Pierce Railw. 3; Cook Stockholders, &c. Co. V. Reinhard, 114 Mo. 218, 21 §§6, 33 and 34; 1 Thompson Corp. S. W. 488, 35 Am. St. 746. § 540. As to formation by consol- "' state V. Dawson, 16 Ind. 40. See, idation, see Yazoo R. v. Adams, 180 also, Cincinnati, &c. R. Co. v. Clif- U. ^. 1, 21 Sup. Ct. 240, and chapter ford, 113 Ind. 460, 463, 464, 15 N. E. 15 on Consolidation. 524; State v. Bull, 16 Conn. 179, 191; '"'This is true of Arkansas, Colo- 33 INCORPORATION UNDER GENERAL LAWS. [§ 18 of association, conforming to certain statutory requirements, by per- sons who have subscribed stock in the projected company. The per- sons subscribing to the articles of incorporation need not be residents of the state issuing the charter, unless the statute requires it.°° When the requisite stock is subscribed, and the articles signed and filed as provided (generally with the secretary of state) the subscribers and* ■stockholders usually become a corporation, clothed with the powers and charged with the duties and liabilities of corporations.^'^ Proof of the act of incorporation and of user or corporate action under it is generally sufficient evidence of the existence of the corporation,^^ rado, California, Illinois, Indiana, Kansas, Louisiana, Mississippi, Mis- «ouri, Nebraska, New Jersey, Texas, Hew York, Michigan, Minnesota, Ne- vada, Maryland, Maine, Oregon, Ohio, Wisconsin and the territories. Stimson Am. St. Law, § 441; 1 Thompson Corp. §§ 539, 540; 1 Beach Priv. Corp. § 8. The Kansas act in relation to the Missouri, Kan- sas and Texas Railway Company and the Union Pacific Railway Com- pany, purporting to convey and ex- tend all the rights possessed to any part of their line to their entire Toad, and to give a right of way over all lands as full as that en- Joyed over other lands under other acts, is in violation of Kans. Const. Art. 12, § 1, providing that the legis- lature shall pass no special act con- ferring corporate powers. Roberts T. Missouri, &c. R. Co. 43 Kans. 102, 22 Pac. 1006, 43 Am. & Eng. R. Cas. 532. "Central R. Co. v. Pennsylvania R. Co. 31 N. J. Eq. 475; National Docks R. Co. V. Central R. Co. 32 N. J. Eq. 755; Commonwealth v. Detwiller, 31 Pa. St. 614, 18 Atl. 990, 7 L. R. A. 357; note to State v. Manufacturers, &c. Ass'n, 24 L. R. A. 252; Commonwealth v. Heming- way, 131 Pa. St. 614, 18 Atl. 990, 7 1,. R. A. 360. "Clarkson v. Hudson River R. Ell. Railboads — 3 Co. 12 N. Y. 304; Cincinnati, &c. R. Co. V. Danville, &c. R. Co. 75 111. 113; Hunt v. Kansas and Missouri Bridge Co. 11 Kan. 412; Hoagland V. Cincinnati, &c. R. Co. IS Ind. 452; James v. Greensboro, &c. Co. 47 Ind. 379. The requirements of the stat- ute must be substantially complied with. People v. Chambers, 42 Cal. 201; McCallion v. Hibernia, &c. So- ciety, 70 Cal. 163, 12 Pac. 114; Reed V. Richmond, &c. R. Cq. 50 Ind. 342; Abbott V. Omaha, &c. Co. 4 Neb. 416; Eaton v. Aspinwall, 19 N. Y. 119; People v. Cheeseman, 7 Colo. 376, 16 Am. & Eng. R. Cas. 400; Childs V. Kurd, 32 W. Va. 66, 9 S. B. 362. But slight omissions in the certificate will not vitiate it. People V. Stockton, &c. R. Co. 45 Cal. 306, 13 Am. R. 178; Commonwealth v. Central Pass. R. Co. 52 Pa. St. 506; Rogers v. Danby Universalist Soci- ety, 19 Vt. 187; Eakright v. Logans- port, &c. R. Co. 13 Ind. 404; Buffalo, &c. R. Co. V. Cary, 26 N. Y. 75. The fact that nearly all the officers of a railroad company are also officers of other railroad companies does not affect the corporate existence of the former company, and, under the Kansas law, its existence dates from the filing of its charter. Southern, &c. R. Co. V. Towner, 41 Kans. 72, 21 Pac. 221. "' Braintree, &c. Co. v. Braintree, 18] FEOMOTION AND FORMATION OP THE OOEPOEATION. 34 and a proper certificate of incorporation, or copy of the original ar- ticles of incorporation, is,, in most states, prima facie evidence there- of f° but a certificate which fails to comply, in substance, with the statutory requirements is not proof of a valid corporate existence."" The articles of incorporation must usually specify the objects of the corporation in at least substantial compliance with the statute,"^ the pletce in which its operations are to be carried on or in which its pria- cip.al office is located,"^ the amount of the capital stock,"* and the names and residences of the incorporators,"* and the like."^ In the case of a railroad company it is also usually provided that the line of the road shall be more or less definitely described, but where the statute merely requires that the termini should be stated and the counties named into or through which it is intended to pass, it is sufficient so to describe the line by designating such place and naming each county into or through which it is expected to run."" Most of 146 Mass. 482 ; Bank v. International Bank, 21 N. Y. 542; Columbia, &c. Co. v. Meier, 39 Mo. 53; Wood v. Wiley, &c. Co. 56 Conn. 87, 13 Atl. 137; 3 Elliott Ev. §§ 1934-1941. ^'' 1 Thompson Corp. § 220. See 3 Elliott Ev. § 1941. "McCalllon v. Hibernia, &c. Soci- ety, 70 Cal. 163, 12 Pac. 114; People V. Selfridge, 52 Cal. 331; Piftli Bap- tist Church. V. Baltimore, &c. R. Co. 4 Mackey (D. C.) 43. , " West r. Bullskin, &c. Co. 32 Ind. 138; O'Reiley v. Kankakee, &c. Co. 32 Ind. 169; Attorney-General v. Lorman, 59 Mich. 157, 26 N. W. 311, 60 Am. R. 287; State v. Central Ohio, &c. Ass'n, 29 Ohio St. 399. »^ Harris v. McGregor, 29 Cal. 124; People V. Beach, 19 Hun (N. Y.) 259; Clegg v. Hamilton, &c. Co. 61 Iowa 121. •estate V. Shelbyville, &c. Co. 41 Ind. 151; Heinlg v. Adams, &c. Co. 81 Ky. 300. "Busenback v. Attica, &c. Co. 43 Ind. 265; Vawter v. Franklin Col- lege, 53 Ind. 88. But the residence need not be stated unless the statute requires it State v. Foulkes, 94 Ind. 493. It is sufficient if the ini- tials of the Christian name be used. State V. Beck, 81 Ind. 500. °= State V. Central Ohio, &c. Ass'n, 29 Ohio St. 399; New Orleans, &c. R. Co. V. Frank, 39 La. Ann. 707, 2 So. 310, 30 Am. & Eng. R. Cas. 275; Piper V. Rhodes, 30 Ind. 309. See, also, Martin v. Deetz, 102 Cal. 55, 36 Pac. 368, 41 Am. St. 151; People v. Montecito, &e. Co.. 97 Cal. 276, 32 Pac. 236, 33 Am. St. 172, and note on pages 178, 179. "Board v. Center Tp., 105 Ind. 422, 441, 2 N. E. 368, 7 N. E. 189. Where the line is described with, reasonable certainty and the ter- mini are shown to be in the state in which the company is incorporated. It has been held that the fact that the line as described runs partly through another state does npt in- validate the incorporation. Pied- mont, &c. R. Co. v. Speplman, 67 Md. 260, 10 Atl. 77, 293, 30 Am. & Eng. R. Cas. 316. An approximate estimate of the length of the road is sufficient where the length is re- quired to be stated. Buflalo, &c. R. Co. V. Hatch. 20 N. y. 157. And "ji- 35 IN-OOBPOBATION UNDER GENERAL LAWS. [§18 the statutes require that th? articles of incorporation shall be signed and acknowledged by a certain number of incorporators/^ and that the certificate or copy shall be filed with the secretary of state, or other officer, or published in some specified manner. In some jurisdictions the failure to comply with such a requirement has been held not to vitiate the organization or prevent the corporation from coming into existence,** but much depends upon the language of the particular statute, and if the requirement is a condition precedent it must be complied with.®" It is, indeed, the general rule that all conditions precedent must be substantially performed.'^" Thus, where the statute provides that a certain amount of stock shall be subscribed before ar- ticles of incorporation can be filed, or that a certain percentage of the capital stock shall btf paid in before the articles are filed, the statute must be complied with before a corporation can be legally organized.'^ definiteness In the description of the route may he rendered immaterial by legislative recognition, and the construction and operation of the road. Cayuga Lake R. Co. v. Kyle, 5 Thomp. & C. (N. Y.) 659, 64 N. Y. 185. See post, § 36. "People V. Montecito, &c. Co. 97 Cal. 276, 32 Pac. 236, 33 Am. St. 172; State V. Critchett, 37 Minn. 13, 32 N. W. 787; Indianapolis, &c. Mining Co. V. Herkimer, 46 Ind. 142; Corey V. Morrill, 61 Vt. 598. In such a case one who merely signs the arti- cles of association without acknowl- edging them does not become a stockholder and is not bound by the subscription. Coppage v. Hutton, 124 Ind. 401, 24 N. B. 112, 7 L. R. A. 591. <« Holmes v. GlUiland, 41 Barb. (N. Y.) 568; Granby Mining Co. v. Rich- ards, 95 Mo. 106, 8 S. W. 246; Sha- kopee, &c. Co., In re, 37 Minn. 91, 33 N. W. 219. See, also, Vanneman V. Young, 52 N. J. L. 403, 3 Lewis Am. R. & Corp. 660, and note. °»Bigelow V. Gregory, 73 111. 197; Childs T. Hurd, 32 W. Va. 66, 9 S. E. 362; Martin v. Deetz, 102 Cal. 55, 36 Pac. 368, 41 Am. St. 151; Indian- apolis, &c. Mining Co. v. Herkimer, 46 Ind. 142; State v. Critchett, 37 Minn. 13, 32 N. W. 787; Field & Co. v. Cooks, 16 La. Ann. 153; Clegg v. Hamilton, 61 Iowa 121; Capp v. Hastings, &c. Co. 40 Neb. 470, 58 N. W. 956, 24 L. R. A. 259, 42 Am. St. 677; Hurt v. Salisbury, 55 Mo. 310; Elgin, &c. Co. v. Loveland, 132 Fed. 41; Bergeron v. Hobbs, 96 Wis. 641, 71 N. W. 1056, 65 Am. St. 85. Where, however, the articles are properly delivered to the designated officer for record, the fact that he records them in the wrong book will not in- validate the incorporation. Walton V. Riley, 85 Ky. 413, 3 S. W. 605. See, also, State v. Foulkes, 94 Ind. 493. " Mokelumne Hill, &c. Co. v. Wood- bury, 14 Cal. 424, 73 Am. Dec. 658; Attorney-General v. Hanchett, 42 Mich. 436, 4 N. W. 182; Danbury, &c. R. Co. V. Wilson, 22 Conn. 435; Dutchess, &c. R. Co. v. Mabbett, 58 N. Y. 397; Garnett v. Richardson, 35 Ark. 144. " State V. Sf. Paul, &c. Co. 92 Ind. 42; State v. Dillon, 36 Ind. 388; Hol- man v. State, 105 Ind. 569, 5 N. E. 702; People v. Chambers, 42 Cal. § 19] PEOMOTION AND FOEMATIOlir OP THE COEPOEATIOHT. 36 In the absence, however, of any provision upon the subject in the statute or contract of subscription, it has been held not to be necessary that the entire capital stock should have been subscribed for before the incorporation.^^ And where the general law for the incorporation of railroads requires the payment of a certain part of the subscrip- tion in cash before the filing of the articles of incorporation it should be reasonably construed, and it has been held sufficient if the payment is made by check which would have been cashed.''^ § 19. Perfecting the organization. — ^Under some of the statutes the names of those who are to serve as directors for the first year must be stated in the articles of incorporation, and where such or similar pro- visions are found it would seem .that there must be a preliminary meet- ing and organization, or at least a selection in some manner of those who are to serve as directors. But, ordinarily, the articles of in- corporation are first executed and filed and a meeting of the stock- holders or members is then held for the purpose of adopting by-laws, electing directors, and perfecting the corporate organization;^* al- though, as already stated, the corporation comes into existence, under many of the statutes, as soon as the articles of incorporation are prop- erly filed. The directors then usually hold a directors' meeting and elect the officers. This, ordinarily, completes the corporate organiza- 201. But where this is not required Boiling v. Le Grand, 87 Ala. 482, 6 to precede the jBling of the articles So. 332; Waterford, &c. R. Co. v. there may be a corporate exist- Dalbiac, 20 L. J. Exch. 227; Mac- ence sufficient, at least, to withstand dougall v. Jersey, &c. Co. 2 H. & M. a collateral attack. Eastern, &c. Co. 528. But see Shurtz v. Schoolcraft, V. Vaughan, 14 N. Y. 546; Palmer v. &c. R. Co. 9 Mich. 269; Cabot, &c. Lawrence, 3 Sandf. (N. Y.) 161. Bridge v. Chapin, 6 Cush. (Mass.) 50; See, also, Boston, &c. Co. v. Moring, Salem Mill Dam Co. v. Ropes, 6 Pick. 15 Gray (Mass.) 211; McClinch v. (Mass.) 23; Worcester, &c. R. Co. v. Sturgis, 72 Me. 288; Cheraw, &c. Hinds, 8 Cush. (Mass.) 110; Livesey R. Co. V. White, 14 S. C. 51; People v. Omaha, &c. Co. 5 Neb. 50, and V. Stockton, &c. R. Co. 45 Cal. 306, compare City Hotel v. Dickinson, 6 13 Am. R. 178; Buffalo, &c. R. Co. Gray (Mass.) 586; Boston, &c. R. V. Hatch, 20 N. Y. 157; Ogdens- Co. v. Wellington, 113 Mass. 79. See burgh, &c. R. Co. v. Frost, 21 Barb, post, § 111. (N. Y.) 541; Spartanburg, &c. R. "People v. Chambers. 42 Cal. 201. Co. v. Ezell, 14 S. C. 281. See, also. People v. Stockton, &c. R. « Schenectady, &c. Plank Road Co. 45 Cal. 306, 13 Am. R. 178. Co. V. Thatcher, 11 N. Y. 102; John- "See Walker v. Devereaux, 4 son V. Kessler, 76 Iowa 411, 41 N. Paige Ch. (N. Y.) 229; Lehman v. W. 57; Massey v. Citizens', &c. Warner, 61 Ala. 455; McClinch v. Assn. 22 Kans. 624; Minor v. Me- Sturgis, 72 Me. 288. chanies' Bank, 1 Pet' (U. S.) 46; 37 DEFECTIVE ORGANIZATION — WAIVER — COLLATERAL ATTACK. [§' 20 tion, although there may be other statutory requirements that should be complied with before the corporation is ready to do businessJ° §' 20. Defective organization — ^Waiver — Collateral attack. — If the organization be defective, this fact cannot, as a rule, be taken advan- tage of in any collateral action,'® for mere irregularities may be waived by the state,''' which alone can object to the unauthorized assumption "In the recent case of Wechsel- berg V. Flour City Nat. Bank, 64 Fed. 90, 12 C. C. A. 56, 26 L. R. A. 470, It was held that, under the Wis- consin statute, where the requisite number of persons duly signed, ac- knowledged and filed articles of in- corporation, but did not subscribe for or issue any stock or do any- thing else to perfect the organiza- tion, the corporation had only a qualified existence without the full privileges of a complete incorpora- tion and organization, and that one of said persons was bound with the others for debts incurred by them in the name of the corporation, al- though he did not actively partici- pate in their acts. See, also. Anvil Mining Co. v. Sherman, 74 Wis. 226, 42 N. W. 226, 4 L. R. A. 232; State V. Fidelity, &c. Co. 49 Ohio St. 440, 31 N. E. 658, 16 L. R. A. 611, 6 Lewis Am. R. & Corp. 599. As a general rule, however, conditions to be per- formed after incorporation, in order to carry on business, are not condi- tions precedent in such a sense as to affect the corporate existence. Spartanburg, &c. R. Co. v. Bzell, 14 S. Car. 281; Harrod v. Hamer, 32 Wis. 162; Hughesdale, &c. Co., v. Vanner, 12 R. I. 491; Whitney v. Wyman, 101 U. S. 392; Hammond v. Straus, 53 Md. 1. And see Ruther- ford V. Hill, 22 Ore. 218, 17 L. R. A. 549, 29 Am. St. 596 n; Cincinnati, &c. R. Co. V. Clifford, 113 Ind. 460, 15 N. E. 524; People v. Rose, 210 111. 582, 71 N. E. 580. "Aurora, &c. R. Co. v. Lawrence- burg, 56 Ind. 80; Commissioners v. Hall, 70 Ind. 469; Illinois, &c. R. Co. V. Cook, 29 111. 237; Brown v. Calumet R. Co. 125 111. 600, 18 N. B. 283; Baton v. Aspinwall, 19 N. Y. 119; Lahman v. Warner, 61 Ala. 455; Baltimore, &c. R. Co. v. Fifth Baptist Church. 137 U. S. 568, 11 Supr. Ct. 185; Taggart v. Western Md. R. Co. 24 Md. 563, 89 Am. Dec. 760 n; Swartout v. Michigan A. L. Co. 24 Mich. 389, 394; Hanover Junction, &c. R. Co. v. Haldeman, 82 Pa. St. 36, 46; Frost v. Frostburg Coal Co. 24 How. (U. S.) 278, 283; Gill V. Kentucky, &c. Co. 7 Bush (Ky.) 635; Monongahela Bridge Co. V. Pittsburg, &c. Co. 196 Pa. St. 25, 46 Atl. 99, 79 Am. St. 685; Taylor v. Portsmouth, &c. St. R. 91 Me. 193, 64 Am. St. 216; Postal Tel. &c. Co. v. Oregon Short Line, &c. Co. 23 Utah 474, 90 Am. St. 705. See, also', Georgia Southern, &c. R. Co. v. Mer- cantile Trust, &c. Co. 94 Ga. 306, 21 S. E. 701, 32 L. R. A. 208 n, 47 Am. St. 153; Lush v. Riggs (Neb.), 102 N. W. 88; note to People v. Mon- tecito Water Co. 97 Cal. 276, 32 Pac. 236, 33 Am. St. 172, 180 et seq.; note to Vanneman v. Young, 3' Lewis Am. R. & Corp. 660, 662 et seq. "If the state fail for eight years to avail itself by quo warranto, of a defect in articles of association con- sisting in an uncertain statement of a terminus of a road, it cannot do it afterward. State v. Bailey, 19 Ind. 452. Under the statutes of § 30] PEOMOTION AND FORMATION OF THE COEPOEATION. 38 of corporate powers.^^ Legislative recognition of a corporation as a subsisting one is such a waiver/" for the legislature has the same right to ratify and confirm an irregularly organized corporation that it has to create a new one/" but mere legislative recognition only operates to cure defects in the organization, and not to create a new corporation where there is not even a de facto organization upon which it can act/^ Tennessee which provide that a railroad company's charter shall first be registered in the county ■where the company's principal of- fice is; that it shall then be trans- mitted to the secretary of state, who shall afllx his certificate of registra- tion and the great seal of state, and that these shall be registered where the charter was originally regis- tered; and that this shall complete the company's corporate character, it has been held that, where a com- pany was organized to run a rail- road through several counties, the county where its charter is regis- tered should be deemed to have been determined on as the location of the principal office, and holding a di- rectors' and stockholders' meeting in another county will not change the rule. Anderson v. Middle and Bast Tennessee Cent. R. Co. 91 Tenn. 44, 17 S. W. 803, 52 Am. & Eng. R. Cas. 149. "Hay V. People, 59 111. 94; Reis- ner v. Strong, 24 Kans. 410, 10 Am. & Eng. R. Cas. 335. See, also. Shields v. Clifton Hill Land Co. 94 Tenn. 123, 28 S. W. 668, 26 L. R. A. 509, 45 Am. St. 700. '" McAuley V. Columbus, &c. R. Co. 83 111. 348; McCartney v. Chicago, &c. R. Co. 112 111. 611, 29 Am. & Eng. R. Cas. 326; Atlantic, &c. R. Co. v. St. Louis, 66 Mo. 228; Cowell v. Col- orado Springs Co. 100 U. S. 55, 3 Colo. 82; Mead v. New York, &c. R. Co. 45 Conn. 199; Black River, &c. R. Co. v. Barnard, 31 Barb. (N. Y.) 258; Koch v. North Ave. R. Co. 75 Md. 222, 23 Atl. 463, 15 L. R. A. 377 n. «> Mitchell V. Deeds, 49 111. 416, 95 Am. Dec. 621. See, also, Fisher v. Evansville, &c. R. Co. 7 Ind. 407, 413; Comanche County v. Lewis, 133 U. S. 198, 10 Sup. Ct. 286, 288. See, generally, Hogue v. Capital, &c. Bank, 47 Neb. 929, 66 N. W. 1036; People V. Barker, 39 N. Y. S. 88; Mylrea v. Superior, &c. R. Co. (Wis.) 67 N. W. 1138; note in 33 Am. St. 179, 180; Smith v. Havens, &c. Soc. 90 N. Y. S. 168; Illinois, &c. Co. V. Cook, 29 111. 237. " Attorney-General v. Railroad Cos. 35 Wis. 425, 602; State v. Ford Co. 12 Kans. 441, approved in Com- anche County V. Lewis, 133 U. S. 198, 10 Sup. Ct. 286, 288. See, also, Oroville, &c. R. Co. v. Supervisor, 37 Cal. 354. On this theory it is held that a statute curing defects in the organization of a de facto corporation does not violate a con- stitutional provision prohibiting the creation of a corporation by special legislation. Central Agricultural Assn. V. Alabama, &c. Co. 70 Ala. 120. Where articles of incorpora- tion filed are void. It has been held that they cannot be made good by amendment. State v. Critchett, 37 Minn. 13, 23 N. W. 767: See gen- erally, Pearsall v. Great Northern, &c. R. Co. 73 Fed. 933; State v. Webb, 110 Ala. 214, 20 So. 462; Wil- lis V. Chapman, 68 Vt. 459, 35 Atl. 459. CHAPTBE III. LEGAL STATUS. Sec. 21. As individual, person, citizen. 22. Corporation confined to juris- diction creating it — Business elsewhere — Comity. 23. Citizenship — Removal of causes. 24. Residence and domicile — Juris- diction. 25. Federal corporations. 26. Railroad in more than one state — Citizenshsip. 27. Control of railroads in more than one state. Sec. 28. 29. 30. 31. 32. 33. Result of consolidation or con- current action of several states creating new corpora- tions. Railroad only a citizen or do- mestic corporation of the states that charter it — ^Effect of mere license. Foreign corporations — Condi- tion of admission to state. Railroads as property. Railroads as monopolies. Railroads as public highways. § 21. As individual, person, citizen. — ^A railroad company may be regarded as an individual, in the sense that it may, unless restrained by law, make contracts,^ sue and be sued,^ buy and sell property,* in furtherance of its business, and in general carry on business much the same as if it were a natural person. It is, for most purposes at least, regarded and treated as a distinct entity.* It is a "person" within the meaning of the fourteenth amendment to the United States constitution forbidding a state to deny to any person the equal pro- tection of the laws ;® and, generally^ is to be treated as a person within * See post chapter on Contracts. ''See post chapter on Actions by and against Railroad Companies. 'Richardson v. Mass. £c. Associa- tion, 131 Mass. 174; Crawford v. Longstreet, 43 N. J. L. 325; Graham V. Railroad Co. 102 U. S. 148, 161. See, also, Georgia Pac. R. Co. v. Wilks, 86 Ala. 478, 6 So. 34; Mc- Clure V. Missouri River, &c. R. Co. 9 Kans. 373 (not merely for specu- lation). As elsewhere shown, how- ever, it cannot, without legislative authority, sell all property neces- sary for it to keep in order to per- form its duties to the public. *Ulmer v. Lime Rock R. Co. 98 Me. 579, 57 Atl. 1001, 66 L. R. A. 387; Pullman Palace Car Co. v. Missouri R. Co. 115 U. S. 687, 6 Sup. Ct. 194; Monongahela Bridge Co. v. Pitts- burg, &c. Co. 196 Pa. St. 25, 48 Atl. 99, 79 Am. St. 685. "Santa Clara Co. v. Southern, &c. 39 §•31] LEGAL STATUS. 40 the meaning of statutes conferring rights and remedies on "persons,"* unless it is evident that the intention of the le^slature was that it should not fee so considered.^ It is not, however, a citizen entitled to the privileges and immunities of citizens of the several states within the meaning of the constitution of the United States.^ But it is, for jurisdictional and other purposes, regarded as a citizen of the state chartering it.^ R. Co. 118 U. S. 394, 6 Sup. Ct. 1132, 24 Am. & Eng. R. Cas. 523; San Mateo Co. v. Southern, &c. R; Co. 7 Sawy. (U. S.) 517; Minneapolis, &c. R. Co. V. Beckwlth, 129 U. S. 26, 9 Sup. Ct. 207; Pembina, &c. Co. V. Pennsylvania, 125 U. S. 181, 8 Sup. Ct. 830; Missouri, &c. R. Co. v. Mackey, 127 U. S. 205, 8 Sup. Ct. 1161; Gulf, &c. R. Co. v. Ellis, 165 U. S. 150, 17 Sup. Ct. 255. See, also, Kane v. Brie R. Co. 133 Fed. 681, 68 L. R. A. 788; Luman v. Hitchins Bros. Co. 90 Md. 14, 44 Atl. 1051, 46 L. R. A. 393; Cleveland, &c. R. Co. V. Backus, 133 Ind. 513, 32 N. E. 421, 18 L. R. A. 729; Knoxville, &c. R. Co. V. Harris, 99 Tenn. 68l, 43 S. W. 115, 53 L. R. A. 921; note in 14 L. R. A. 585. ° Louisville Safety, &c. Co. v. Lou- isville, &c. R. Co. 92 Ky. 233, 17 S. W. 567, 14 L. R. A. 579, and note; Boyd V. Cra'ydon R. Co. 4 Bing. N. C. 669; Mott v. Hitks, 1 Cow. (N. Y.) 513, 13 Am. Dec. 550; Indiana v. Woram, 6 Hill (N. Y.) 33, 40 Am. Dec. 378; State v. Nash- ville University, 4 Humph. (Tenn.) 157; Field v. New York, &c. R. Co. 29 Barb. (N. Y.) 176; Wright v. New York, &c. R. Co. 28 Barb. (N. Y.) 80; Mineral Point R. Co. v. Keep, 22 111. 9, 74 Am. Dec. 354; Lehigh Bridge Co. v. Lehigh Coal Co. 4 Rawle (Pa.) 9, 26 Am. Dec. 26. So, under statutes imposing taxes. People v. Utica Ins. Co. 15 John (N. Y.) 358;— relating to usury, Thornton v. Bank of Wash- ington, 3 Pet. (U. S.) 36; Grand G. B. V. Archer, 16 Miss. 151; Com- mercial Bank v. Nolan, 7 How. (Miss.) 508; — relating to limita- tions, Olcott V. Tioga R. Co. 20 N. Y. 210, 75 Am. Dec. 393;— relating to penal offenses. United States v. Amedy, 11 Wheat (U. S.) 392. See, generally, as to what is and what is not a denial of equal protection of the laws within the meaning of the constitution, note to Louisville Safe- ty Vault Co. V. Louisville, £c. R. Co. 92 Ky. 233, 17 S. W. 567, 14 L. R. A. 579. 'Commonwealth v. Phenix Bank, 11 Mete. (Mass.) 129. »Paul V. Virginia, 8 Wall. (U. S.) 168; Chicago, &c. R. Co. v. Whitton, 13 Wall. (U. S.) 270; Woodward v. Commonwealth (Ky.), 35 Am. & Eng. R. Cas. 498; Norfolk, &c. R. Co. V. Pennsylvania, 136 U. S. 114, 10 Sup. Ct. 958; Pembina, &c. Co. v. Pennsylvania, 125 U. S. 181, 8 Sup. Ct. 737; State v. Delaware, &c. Co. 7 Houst. (Del.) 269, 31 Atl. 714; Hawley v. Hurd, 72 Vt. 122, 47 Atl. 401, 52 L. R. A. 195, 82 Am. St. 922. See, also, Attorney-Gen. v. Electric, &c. Co. 188 Mass. 239, 74 N. E. 467; Union Cent. L. Ins. Co. v. Channing, 86 Tex. 654, 26 S. W. 982, 24 L. R. A. 505; Daggs v. Orient, &c. Co. 136 Mo. 391, 38 S. W. 85. 35 L. R. A. 226, affirmed in 172 U. S. 557; note in 14 L. R. A. 580. ' See post, § 23. 41 DOMESTIC COEPOEATION — COMITY. [§ 23 § 22. Corporation confined to jurisdiction creating it — ^Business elsewhere — Comity. — In common with other corporations, a railroad company exists only by force of law, and cannot migrate and remove" beyond the jurisdiction of that law,^" nor can it exercise any rights or privileges in a foreign jurisdiction unless it is admitted to do so by express or implied permission of the foreign state,^^ or except, per- haps, as an instrument of interstate commerce. A corporation, where not restrained by the law of its creation, may, however, do business and perform corporate acts in any state which will permit it to do so.^^ By the comity of nations, such permission, within proper limits, is always implied unless there is an affirmative refusal. ^^ § 23. Citizenship — ^Removal of causes. — It is generally held that a corporation may be adopted by the legislation of a state, so as to be- come a citizen thereof, for the purposes of jurisdiction, where that is plainly the legislative intent.** It has been held in Virginia that "Miller v. Ewer, 27 Me. 509. 46 Am. Deo. 619; Paul v. Virginia, 8 Wall. (U. S.) 168; County of Al- legheny v. Cleveland, &c. R. Co. 51 Pa. St. 228, 88 Am. Dec. 579; Aspin- wall V. Ohio, &c. R. Co., 20 Ind. 492, 83 Am. Dec. 329; Eel River R. Co. V. State, 143 Ind. 231, 238, 42 N. E. 617; note to Young v. South Tredegar, &c. Co. 4 Am. St. 752, 760; Connor v. Vickshurg, &c. R. Co., 36 Fed. 263, 1 L. R. A. 331, and note. "Bank of Augusta v. Earle, 13 Pet. (IT. S.) 519; Baltimore, &c. R. Co. V. Glenn, 28 Md. 287, 96 Am. Dec. 533; Atchison, &c. R. Co. v. Fletcher, 35 Kans. 236; Demarest v. Flack, 128 N. Y. 205, 28 N. E. 645, 13 L. R. A. 845; Paul v. Virginia, 8 "Wall. (U. S.) 168; Duke v. Taylor, 37 Fla. 64, 19 So.. 172. See, also, California v. Central, &c. R. Co. 127 U. S. 1, 8 Sup. Ct. 1073. "Atchison, &c. R. Co. v. Fletcher, 35 Kans. 236, 10 Pac. 596; Dodge v. Council Bluffs, 57 Iowa 560, 10 N. W. 886; Reichwald v. Commercial Hotel Co. 106 111. 439; Miller v. Ewer, 27 Me. 509, 46 Am. Dec. 619; Bank v. Earle, 13 Pet. (U. S.) 519; Christian Union v. Yount, 101 U. S. 352; Newhurg, &c. Co. v. Weare, 27 Ohio St. 343; Williams v. Creswell, 51 Miss. 817; Baltimore, &c. R. Co. V. Glenn, 28 Md. 287, 92 Am. Dec. 688; Blair v. Perpetual Ins. Co., 10 Mo. 559, 47 Am. Dec. 129 ; Ohio Life Ins. &c. Co. V. Merchants' Ins. &c. Co. 11 Humph. (Tenn.) 1, 53 Am. Dec. 742; Thompson v. Waters, 25 Mich. 214, 12 Am. R. 243; Merrick v. Van Santvoord, 34 N. Y. 208. " Cowell V. Colorado Springs Co. 100 U. S. 55, 3 Colo. 82; Christian Union v. Yount, 101 U. S. 352, 356; Reichwald v. Commercial Hotel Co. 106 111. 439; Baltimore, &c. R. Co. v. Glenn, 28 Md. 287, 92 Am. Dec. 688. See note to Cone, &c. Co. v. Poole, 41 S. C. 70, 19 S. E. 203, 24 L. R. A. 289. "Williams v. Missouri, &c. R. Co. 3 Dill (U. S.) 267; Ohio, &c. R. Co. v. Wheeler, 1 Black (U. S.) 286; Railroad Co. v. Harris, 12 Wall. (U. S.) 65; Railway Co. v. Whitton, 23] LEGAL STATUS. 42 a corporation, by leasing and operating a road in a foreign state be- comes a citizen of that state for purposes of jurisdiction; and that a suit against it for a cause of action arising in that state could not be removed from the state courts to the federal courts.^^ But the weight of authority is that a railroad company is a citizen of the state by which it is created, for the purposes of jurisdiction of the United States courts, and may take advantage of the constitutional privilege of conducting its suits against the citizens of other states in those courts.^" And a foreign corporation cannot be deprived of the right of removal to the federal courts by state legislation.^^ Any officer authorized to act for it in that behalf may make the necessary affidavit and procure the transfer to the federal courts of any suit begun against it in^the courts of a state wherein it is not domiciled.^* Where a rail- 13 Wall. (U. S.) 270; Railroad Co. V. Vance, 96 U. S. 450. A railroad corporation of another state operat- ing a railroad in the state under a lease may be so adopted. "Western, &c. R. Co. V. Roberson, 61 Fed. 592, 9 C. C. A. 646. "Baltimore, &c. R. Co. v. Wight- man, 29 Gratt. (Va.) 431, 26 Am. R. 384; Baltimore, &c. R. Co. v. Noell, 32 Gratt. (Va.) 394. Contra: See Wilkinson v. Delaware, &c. R. Co., 22 Fed. 353, 20 Am. & Eng. R. Cas. 597, and cases cited. See, also. Crane v. Chicago, &c. Co. 20 Fed. 402. "Louisville, &c. R. Co. v. Letson, 2 How. (U. S.) 497; Marshall v. Bal- timore R. Co. 16 How. (U. S.) 314; Railroad Co. v. Harris, 12 Wall. (U. S.) 65; Quigley v. Cent. Pac. Co. 11 Nev. 350, 21 Am. R. 757; Ohio, &c. R. Co. V. Wheeler, 1 Black (U. S.) 286; Railroad Co. v. Koontz, 104 U. S. 5; Williams v. Missouri, &c. R. Co. 3 Dill. (U. S.) 267; Wilkinson V. Delaware, &c. R. Co., 22 Fed. 353; Callahan v. Louisville, &c. R. Co. 11 Fed. 536; Southern, &c. R. Co. v. Denton, 146 U. S. 202, 13 Sup. Ct. 44; Baltimore, &c. R. Co. v. Mc- Laughlin, 73 Fed. 519, 19 C. C. A. 551; Barroso S. S. Co. v. Kane, 17U IT. S. 100, 18 Sup. Ct. 526; St. Louis, &c. R. Co. v. James, 161 U. S. 545, 16 Sup. Ct. 621. "State legislation seeking to de- prive foreign corporations of the right to resort to the federal courts must be held inoperative where such right is conferred by the con- stitution and laws of the United States. Rece v. Newport News, &c. Co. 32 W. Va. 164, 9 S. E. 212, 3 L. R. A. 572, 5 Ry. & Corp. L. J. 515; Chicago, &c. R. Co. v. Whitton, 13 Wall. (U. S.) 270; Martin v. Rail- road Co., 151 U. S. 673, 14 Sup. Ct. 533. A statute attempting to pro- hibit the right of removal would be unconstitutional. Home Ins. Co. v. Morse, 20 Wall. (U. S.) 445; Met- ropolitan, &c. Co. V. Harper, 3 Hughes (U. S.) 260; Common- wealth V. East Tenn. Coal Co. 97 Ky. 238, 30 S. W. 608; Southern Pac. Co. V. Denton, 146 U. S. 202, 13 Sup. Ct. 44; Barron v. Burnside, 121 U. S. 186, 7 Sup. Ct. 931. "Quigley v. Central, &c. R. Co. 11 Nev. 350, 21 Am. R. 757; Mahone V. Manchester, &c. R. Co., Ill Mass. 72, 15 Am. R. 9; Barron v. Burn- side, 121 U. S. 186, 7 Sup. Ct. 93L 43 EESIDENCE AND DOMICILE — JURISDICTION. [§ 24 road corporation is chartered by two or more states, it is for most purposes a citizen of each.^® § 24. Residence and domicile — Jurisdiction. — ^A railroad corpora- tion IS a legal entity, or person, capable of haTing a home, or domicile, which is always within the state, or sovereignty by which it is cre- ated.^" And it has recently been settled by the supreme court of the United States that, under the act of congress of March 3, 1887, as cor- rected by the act of August 13, 1888, a corporation incorporated in one state only is not a citizen nor a resident or inhabitant of another State, although it has a place of business in the latter, and cannot be sued in a United States circuit court of the latter state, which is in a different district from that in which the company is incorporated, by a citizen of a third state.^^ Like a natural person, however, it may, for some purposes, have a legal residence in a state of which it is not a citizen f^ and under the statutes of most states is held to be a resi- dent of each state and municipality through which the road runs, so as to be entitled to the protection of the local laws,^^ and for pur- " Railroad Co. v. Letson, 2 How. (U. S.) 497; Uphoff v. Chicago, &c. R. Co. 5 Fed. 545; post, § 26. =» Augusta V. Earle, 13 Pet. (U. S.) 519; Railroad Co. v. Koontz, 104 U. S. 5, 12. See, also. Central, &c. R. Co. V.' Carr, 76 Ala. 388, 52 Am. R. 339; Fowler v. Des Moines, &c. R. Co., 91 Iowa 533, 60 N. W. 116; Con- necticut, &c. R. Co. V. Cooper, 30 Vt. 476, 73 Am. Dec. 319; Bel River R. Co. V. State, 155 Ind. 433, 57 N. B. 701. " Shaw V. Quincy Mining Co. 145 U. S. 444, 12 Sup. Ct. 935, 6 Lewis' Am. R. & C. R. 357. This decision sets at rest a vexed question upon which there was much difference of opinion among the circuit judges, and the contrary view taken hy Mr. Wood in Wood Railways, § 14a, is not the law. See, also. United States V. Northern, &c. R. Co., 134 Fed. 715 ; Keasbey, &c. Co. In re, 160 U. S. 221, 16 Sup. Ct. 273; Blls- worth Trust Co. v. Parramore, 108 Fed. 906, 48 C. C. A. 132. See, also, leading articles in 36 Cent. Law Jour. 285, and 41 Cent. Law Jour. 215. ^' Thorn v. New York R. Co. 26 N. J. L. 121; New York, &c. R. Co. V. Shepard, 5 McLean (U. S.) 455; Androscoggin, &c. R. Co. v. Stevens, 17 Me. 434; Louisville, &c. R. Co. v. Letson, 2 How. (U. S.) 497. In Pa- cific R. Co. V. Perkins, 36 Neb. 456, 54 N. W. 845, 57 Am. & Eng. R. Cas. 673, it was held that the word "non- resident," in § 100, c. 16 Comp. St., relating to condemnation proceed- ings for right of way for a railroad, means a non-resident of the state, and not of the locality of the land affected, or of the county where it Is situated. ^Glaize v. South Carolina R. Co. 1 Strobh L. (S. C.) 70; Richardson V. Burlington, &c. R. Co. 8 Iowa 260; People v. Fredericks, 48 Barb. (N. Y.) 173. 24] LEGAL STATUS. 44r poses of taxation/* and of suing and being sued/' and for the service of summons.^" And "a law which requires a foreign corporation to appoint an agent upon whom process may be served, as a condition precedent to its right to transact business within the limits of a state, is valid and binding."^^ For most other purposes railroads are tr&ated as persons having their residence only in the place where their prin- cipal office is located.^^ Suits relating to any matters concerning the- organization, and conduct of the corporation as such, must generally be brought in the state by which it is chartered, although its principal office may be in another state. ^® And so, as a rule, must all corporate acts done by the body of the corporation be performed in the domestic- jurisdiction, for a corporation can only act in other states by its agents- in matters which it may delegate to them.'° "People V. Fredericks, 48 Barb. (N. Y.) 173. ^ Baldwin v. Mississippi, &c. R. Co. 5 Iowa 518. See, also, State v. Iowa Cent. R. Co. 91 Iowa 275, 59 N. W. 35; Davis v. Central, &c. R. Co. 17 Ga. 323. =»R. S. Ind. 1881, § 4039; Belden V. New York, &c. R. Co. 15 How. Pr. (N. Y.) 17. See, also, Tobln v. Chester, &e. R. Co. 47 S. Car. 387, 25 S. E. 283, 58 Am. St. 890; New Albany, &e. R. Co. v. Haskell, 11 Ind. 301; Schoch v. Winona, &c. R. Co. 55 Minn. 479, 57 N. W. 208; Slavens v. Southern Pac. R. Co. 51 Mo. 308. "Youmans v. Minnesota, &c. R. Co. 67 Fed. 282, 284; Wilson v. Se- ligman, 144 U. S. 41, 45, 12 Sup. Ct. 541; Schollenburger, Ex parte, 96 U. S. 369, 374; Reyer v. Odd Fel- lows, &c. Association, 157 Mass. 367, 373, 32 N. B. 469, 34 Am. St. 288. See, also, Katz v. Herrick (Idaho), 86 Pac. 873. ^Androscoggin, &c. R. Co. v. Stevens, 28 Me. 434; Thorn v. New York, &c. R. Co. 26 N. J. L. 121. In Eel River R. Co. V. State, 155 Ind. 433, 57 N. B. 701, where a railroad company had surrendered its prop- erty and franchises under a perpet- ual lease to another company, and did no business and had no ofiSce or agency in the state, and quo war- ranto proceedings were instituted against it by the state, the court held that its legal residence would be in the county where its princi- pal office was located when It ceased to do business. See, also, Piatt v.. New York, &c. R. Co. 26 Conn. 544; Connecticut, &c. Ins. Co. v. Sprat- ley, 172 U. S. 602, 19 Sup._ Ct. 308. ™Erickson v. Nesmith, 4 Allen. (Mass.) 233; Williston v. Mich. &c.. R. Co. 13 Allen (Mass.) 400-; Chase V. Vanderbilt, 5 J. & S. (N. Y.) 334,, 62 N. Y. 307; Carey v. Cincinnati, &e. R. Co. 5 Iowa 357; Howell v. Chicago, &c. R. Co. 51 Barb. (N. Y.) 378. "See Aspinwall v. Ohio, &c. R, Co. 20 Ind. 492, 83 Am. Dec. 329, where the company undertook to make a call for unpaid subscriptions at a meeting held outside the state. Ante, § 17. But a stockholders'' meeting may be held in a foreign jurisdiction, if all the shareholders consent to such meeting, or ratify its action. Stutz v. Handley, 7 R. & Corp. L. J. 407, 41 Fed. 531; Mis- 45 I'EDEEAL COEPOEATIONS. [§ 25 §25. Federal corporations.— rCorporations formed tinder author- ity of the federal government have their domicile within its terri- torial jurisdiction, and may reside any place within the United States where they have a general ofBee established by authority of law.^^ Congress has power to charter railroad companies in the territories within its jurisdiction.^^ And it seems that a state is powerless to prevent a corporation from doing acts in the discharge of its employ- ment by the federal government/* or to exclude one engaged in inter- state commerce under authority of the acts of congress.'* § 26. Bailroad in more than one state — Citizenship. — The legisla- ture of one state may authorize a railroad corporation of another to extend its line into/' or hold property in,'* the territory of the former. Such authority granted to a foreign corporation does not make of it a domestic corporation.'^ But where a railroad corporation souri Lead, &c. Co. v. Reinhard, 114 Mo. 218, 21 S. W. 488, 35 Am. St. 746. "Bank of United States v. Mc- Kenzie, 2 Brock. (U. S.) 39S: See, also. Supreme Lodge, &c. v. England, 94 Fed. 369, 36 C. C. A. 298; Com- monwealth V. Texas, &c. R. Co. 98 Pa. St. 90. '"Ante, § 15, note. "' Stockton V. Baltimore, &c. R. €o. 32 Fed. 9, 14; Pembina Mining Co. V. Pennsylvania, 125 U. S. 181, 186, 8 Sup. Ct. 737; Horn Silver Min. Co. V. New York, 143 U. S. 305, 12 Sup. Ct. 403; California v. Pacific R. Co. 127 U. S. 1, 8 Sup. Ct. 1073. '* Pensacola Tel. Co. v. Western U. ■Tel. Co. 96 U. S. 1, 12. See, also. People V. Wemple, 131 N. Y. 64, 29 N. B. 1002, 24 Am. St. 542. " Goodlett V. Louisville, &c. R. Co. 122 U. S. 391. 7 Sup. Ct. 1254; Balti- more, &c. R. Co. v. Harris, 12 Wall. (U. S.) 65; Pomeroy v. New York, .&c. R. Co. 4 Blatch. (U. S.) 120. "Baltimore, &c. R. Co. v. Wight- man, 29 Gratt. (Va.) 431, 26 Am. R. 284; Indianapolis, &c. R. Co. v. Vance, 96 U. S. 450; Goshorn v. Ohio County, 1 W. Va. 308; Baltimore, &c. R. Co. V. Noell, 32 Gratt. (Va.) 394; Baltimore, &c. R. Co. v. Galla- hue, 12 Gratt. (Va.) 655, 65 Am. Dec. 254. The authority granted does not confer jurisdiction as to such property on the incorporating state. Eaton, &c. Co. v. Hunt, 20 Ind. 457. "Denniston v. New York, &c. R. Co. 1 Hilton (N. Y.) 62; State v. Delaware, &c. R. Co. 30 N. J. L. 473, 31 N. J. L. 531, 86 Am. Dec. 226; Erie R. Co. v. Stringer, 32 Ohio St. 468; Baltimore, &c. R. Co. v. Cary, 28 Ohio St. 208. See, also, Hollings- worth V. Southern R. Co. 86 Fed. 353. Nor does it change the rela- tionship to the incorporating state. Commonwealth v. Pittsburg, &c. R. Co. 58 Pa. St. 26. But it may be, in a sense, a domestic corporation if the statute so provides in fixing the terms upon which it is' author- ized to enter and carry on business in the state. Young v. South Trede- gar, &c. Co. 85 Tenn. 189, 2 S. W. 202, 4 Am. St. 752. The same statute §■26] LEGAL STATUS. 46 is formed by the concurrent legislation of two or more states,'* or by the consolidation of corporations of two or more states by authority of their laws/" it is, for most purposes at least, a corporation, whether the same or distinct, of each, having a domicile*" therein where its corporate business may be transacted.*^ Although from one point of view it may be regarded as a single corporation or unit, yet from an- other it is not the same, but a distinct corporation in each state, so far as its property and business within that state are concerned,*^ and is controlled therein as to such matters by the laws of the state sub- stantially as any other domestic corporation is controlled.*' construed in the case just cited has, however, been held by the federal court not to make the foreign cor- poration authorized, to do business in Tennessee a domestic corporation of that state. Markwood v. South- ern R. Co. 65 Fed. 817. It was, therefore, permitted to remove the cause to the federal court. See, also, Rece V. Newport News &c. Co., 32 W. Va. 164, 9 S. E. 212, 3 L. R. A. 572. ==Ohio, &c. R. Co. V. Wheeler. 1 Black (IT. S.) 286; Newport, &c. Co. V. "Woolley, 78 Ky. 523; Nashua, &c. R. Co. V. Boston, &c. R. Co. 136 U. S. 356, 10 Sup. Ct. 1004. The formation of a new company by interstate con- solidation by joint or concurrent acts of the legislatures of different states is, from one point of view, something of an anomaly, and has been regarded by some courts as an impossibility. See Quincy Bridge Co. V. Adams County, 88 111. 615; Racine, &c. R. Co. v. Farmers', &c. Co. 49 111. 331, 95 Am. Dec. 595. But these cases are explained and criti- cised by the same court in the later case of Ohio, &c. R. Co. v. People, 123 111. 467, 14 N. E. 874. "'Cohn V. Louisville, &c. R. Co. 39 Fed. 227; St. Paul, &c. R. Co., In re, 36 Minn. 85; Guinault v. Louisville, &c. R. Co. 41 La. Ann. 571, 6 So. 850; State v. Chicago, &c. R. Co. 25 Neb. 165, 41 N. W. 128; Beach Priv. Corp., § 336. *° Guinault v. Louisville, &c. R. Co. 41 La. Ann. 571, 6 S. W. 850; Covington, &c. Bridge Co. v. Mayer, 31 Ohio St. 317. "Graham v. Boston, &c. R. Co. 118 U. S. 161, 6 Sup. Ct. 1009; Balti- more, &c. R. Co. V. Harris, 12 Wall. (U. S.) 65; Covington, &c. Bridge Co. V. Mayer, 31 Ohio St. 317. «Peik V. Chicago, &c. R. Co. 94 U. S. 164; Central Trust Co. v. St. Louis, &c. R. Co. 41 Fed. 551; Bald- win V. Chicago, &c. R. Co. 86 Fed. 167; Winn v. Wabash R. Co. 118 Fed. 55; Sprague v. Hartford, &c. R. Co. 5 R. I. 233; Atwood v. Shen- andoah, &c. R. Co. 85 Va. 966, 9 S. E. 748, 38 Am. & Eng. R. Cas. 534; Pittsburgh, &c. R. Co. v. Rothschild (Pa.), 26 Am. & Eng. R. Cas. 50. *^ Delaware Railroad Tax Cases, 18 Wall. (U. S.) 206; Clark v. Barnard, 108 U. S. 436, 2 Sup. Ct. 878; Gage v. Lake Shore, &c. R. Co. 70 N. Y. 220; Ohio, &c. R. Co. v. Weber, 96 111. 443; Chicago, &c. R. Co. v. Auditor-General, 53 Mich. 79, 18 N. W. 586. But see post, § 28, as to whether a single new corporation Is formed or more than one. 47 CONTEOL OF EAILROADS IN MOKE THAN ONE STATE. [§ 27 § 27. Control of railroads in more than one state. — The laws of a state can have no effect beyond the limits of its territorial jurisdic- tion,** and such a corporation is not necessarily affected, in regard to its rights, duties, and liabilities, in one sovereignty, by the terms of the charter granted to it by another,*^ but it has been held that its charter may be amended in either state so as to control its action in that state although the amendment be opposed to the constitution or laws of another state by which it is also chartered.*^ Where it has but one set of shareholders owning shares of a capital stock which repre- sents the entire property, and its entire business and property are under a single management and operated as a unit, contracts made by the controlling power are held to be made by each of the corpora- tions,*' and a decree rendered against the railroad in one state will bind it in the other.** It may be restrained by the courts of one state from using its corporate funds for other than corporate purposes in another through which it runs.** But it has been held that a state "Newport, &c. R. Co. v. Woolley, 78 Ky. 523; Land Grant R. Co. v. Comrs. of Coffey Co. 6 Kans. 245; Bank of Augusta v. Barle, 13 Pet. (U. S.) 519, 586; County of Alle- gheny V. Cleveland, &c. R. Co. 51 Pa. St. 228, 88 Am. Dec. 584; Louis- ville, &c. R. Co. V. Letson, 2 How. (U. S.) 497; Warren v. First Nat. Bank, 149 111. 9, 25 L. R. A. 746. *=01iIo, &c. R. Co. V. Wheeler, 1 Black (U. S.) 286; Muller v. Dows, 94 U. S. 444. One state cannot im- pose any restrictions or limitations upon the exercise of corporate pow- ers In another state by a corporation which extends into both jurisdic- tions. Atwood V. Shenandoah Val- ley R. Co. 85 Va. 966, 9 S. E. 748, 38 Am. & Eng. R. Cas. 534! But it is held that a corporation which has been adjudged insolvent and placed in the hands of a receiver In the state of its incorporation cannot prosecute a writ of error in an- other state, over the objection of the receiver. American Water-works Co. V. Farmers, &c. Co. 20 Colo. 203, 37 Pac. 269, 25 L. R. A. 338, 46 Am. St. 285. The court admitted the general rule that laws have no extra-terri- torial force as mere laws, but said that "things done in one state in pursuance of laws thereof are valid and binding in other states." " Covington v. Covington, &c. Bridge Co. 10 Bush (Ky.) 69. " Bissel V. Michigan, &c. R. Co. 22 N. Y. 258; Racine, &c. R. Co. v. Farmers', &c. Co. 49 111. 331, 95 Am. Dec. 595. " Paine v. Lake Erie, &c. R. Co. 31 Ind. 283, 347. «° Baltimore, &c. R. Co. v. Glenn, 28 Md. 287, 320, 92 Am. Dec. 698; State V. Northern R. Co. 18 Md. 193, 215; Fisk v. Chicago, &c. R. Co. 53 Barb. (N. Y.) 513, 4 Abb. Pr. N. S. (N. Y.) 378; March v. Eastern R. Co. 40 N. H. 548, 577, 77 Am. Dec. 732; Wilmer V. Atlanta, &c. R. Co. 2 Woods (U. S.) 409. And it may be en- joined as an entirety in the courts of either state from making unjust discrimination as a common carrier, although some of the acts were per- §■ 2^] LEGAL STATUS. 48 cannot tax bonds of snch a railroad corporation, secured by a mortgage on its entire line, for the reason that this would be a tax upon prop- erty lying without the state.^" The courts of one state, having juris- diction of the mortgagor and trustees under a mortgage covering such a road may order the sale of the entire road, subject to liens existing in the other state.^^ But where a corporation which is subject to a mortgage in one state, consolidates with a corporation of another state, the courts of such other state acquire no jurisdiction to enforce a foreclosure of the mortgage.^^ The courts of either state may ap- point a receiver for so much of the line as lies within its jurisdietion,^* and it has been held that the corporation in one state may be wound up and dissolved without affecting its charter rights in other states.^* The circuit court of the United States, for a district in one state, may exercise jurisdiction to appoint a receiver for an entire line extending into several states.^^ It may be somewhat difficult to reconcile all of these decisions with one another, for in several of them the court evi- dently looked upon the corporation as one and the same in each state, while in most of them the court treated it as practically a separate corporation in each state. In some of the cases the result woidd have been the same from either point of view. § 28. Besult of consolidation or concurrent action of several states creating new corporations. — It is said that the fiction that makes two • or three corporations out of what is in fact one, is established for the purpose of giving each state its legitimate control over the charters which it grants ; but the acts and neglects of the corporation are those of it as a whole.°° There is conflict among the authorities as to formed in the other state. Scofleld "^ Baton, &e. R. Co. v. Hunt, 20 V. Lake Shore, &c. R. Co. 43 Ohio Ind. 457. St. 571, 3 N. B. 907, 54 Am. R. 846, "'Ellis v. Boston, &c. R. Co. 107 23 Am. & Bng. R. Cas. 612; McDufEee Mass. 1; United States RoUingstock v. Portland, &c. R. Co. 52 N. H. Co. In re, 55 How. Pr. (N. Y.) 286, 430, 447, 13 Am. R. 72. 57 How. Pr. (N. Y.) 16; Richardson »° Northern, &c. R. Co. v. Jackson, v. Vermont, &c. R. Co. 44 Vt. 613. 7 Wall. (U. S.) 262. See, also, "Hart v. Boston, &c. R. Co. 40 Wood V. Goodwin, 49 Me. 260. Conn. 524. "MuUer v. Dows, 94 U. S. 444; ='Wilmer v. Atlanta. &c. R. Co. 2 McBlrath v. Pittsburg, &c. R. Co. Woods (U. S.) 409; Brassey v. New 55 Pa. St. 189; Mead v. New York, York, &c. R. Co. 19 Fed. 663; Mer- &c. R. Co. 45 Conn. 199; Hand v. cantlle Trust Co. v. Missouri, &c. Savannah, &c. R. Co. 12 S. C. 314, R. Co. 36 Fed. 221, 1 U. R. A. 397. 366. "Home v. Boston, &c. R. Co. 18 Fed. 50. 49 CONSOLIDATION. [§ 38 whether the result of a consolidation or incorporation under the laws of two or more states is one corporation or several corporations with a common name, stock, stockholders and property. But, as already stated, they are substantially in^aecord upon the proposition that for certain purposes, practically at least, two or more corporations are thus created. In other words, the portion of a railroad in either state is subject, in the main, to the laws of that state just as if it were a separate corporation of such state.. Upon the general subject, how- ever, it is said on the one hand, that the legislatures of two different states cannot co-operate and unite in creating a single corporation so as to make it one and the same legal being in both,'' and that, if a corporation be regarded as a legal institution or group of laws mani- fested in legal relations, as such laws can have no extraterritorial force, they must constitute a single, complete and separate corpora- tion in each state.' ^ On the other hand, it is said that there is no reason why several states cannot unite in creating one and the same corporation having a^ common name, stock, stockholders and prop- erty/' which will be, in reality, a single corporation, although it may be clothed with the powers of two corporations."" Thus, it has been held that such a corporation may legally hold shareholders' meetings in either state which will be valid as to all the property and stockhold- ers in both.®^ Another court has said that "a corporation may have a twofold organization, and be, so far as its relation to our state is con- cerned, both foreign and domestic. It may have a corporate entity in each state, yet its general character be of a bifold organization.""^ " Ohio & Mississippi R. Co. v. °° Covington Bridge Co. v. Mayer, Wlieeler, 1 Black (U. S.) 286; Ra- 31 Ohio St. 317. See, also. State v. cine, &c. R. Co. v. Farmers', &c. Co. Keokuk, &c. R. Co. 99 Mo. 30, 12 49 111. 331, 95 Am. Dec. 595; Alle- S. W. 290, 6 L. R. A*. 222; Lee v. gheny County v. Cleveland, &c. R. Sturges, 46 Ohio St. 153, 19 N. B. Co., 51 Pa. St. 228, 88 Am. Dec. 560, 2 L. R. A. 556; Rio Grande, &c. 579; Newport, &c. Bridge Col v. R. Co. v. Telluride, &c. Co. 16 Utah Woolley, 78 Ky. 523; Missouri &c. 125, 51 Pac. 146. R. Co. V. Meeh, 69 Fed. 753, 30 L. "'Covington Bridge Co. v. Mayer, R. A. 250; Clark Corp. §§ 77, 80. 31 Ohio St. 317; Graham v. Boston, ™ Taylor Priv. Corp. § 404 et seq. &c. R. Co., 14 Fed. 753, on appeal, ™See Railroad Co. v. Harris, 12 118 U. S. 161. See, also, Ohio, &c. Wall. (U. S.) 65; Graham v. Boston, R. Co. v. People, 123 111. 467, 14 N. &c. R. Co. 118 U. S. 161, 6 Sup. Ct. E. 874; Guinault v. Louisville, &c. 1009; Bishop v. Brainard, 28 Conn. R. Co. 41 La. Ann. 571, 6 So. 850. 289. Mr. Pierce strongly advocates '* McGregor v. Erie R. Co. 35 N. J. this doctrine. Pierce Rail. 17, 19. L. 115, 118. See, also, 1 Thomp. Corp. § 47. Ell. Railroads — 4 §' 28] LEGAL STATUS. 50 It is also said that when "two corporations created in different states consolidate, though for most purposes they are not therefore to be separately regarded, yet in each state the consolidated company is deemed to stand in the place of the corporation to which it there suc- ceeded, and of its members, and consequently to be a citizen of that state for many purposes, while in the other state it would stand in the place of the other corporation in respect to citizenship there."^^ Per- haps the question is to some extent to be determined by the legislative intention, for, if it be conceded that two states can co-operate so as to create one and the same corporation, as it certainly must be, in a sense, at least, it must also be conceded that each may authorize the same persons to incorporate a distinct company in that state, for the same general business, to hold property and operate in that state in connection with the company in the other state.^* The question most often arises with respect to the jurisdiction of the federal courts, but it seems that such jurisdiction does not necessarily depend altogether upon the answer to the question, for, whether there be one or two corporations, it is generally held, as we have already shown, that there is a domestic corporation or citizen of each state by which a charter is granted. ^'^ But this ruling seems to be mqre consistent with the theory that there are two corporations. And this is the view that appears to have been taken by the supreme court of the United States in a recent decision, which, however, it may be somewhat difficult to reconcile with other decisions and dicta of that court, and which re- sulted in the corporation created in the first state being held to be a foreign rather than a domestic corporation of the second state. In the case to which we refer it appeared that the Nashua and Lowell Eail- road Corporation was first created by the legislature of New Hampshire in 1835. In 1836 the legislature of Massachusetts constituted the "'Chicago, &c. R. Co. v. Auditor- bama, 107 XJ. S. 581, 2 Sup. Ct. 432; General, per Cooley, C. J., 53 Mich. Railway Co. v. Whitton, 13 Wall. (U. 79, 92, 18 N. W. 586. S.) 270; State v. Chicago, &c. R. « Clark V. Barnard, 108 U. S. 436, Co. 25 Neh. 156, 2 L. R. A. 564, 2 Sup. Ct. 878. Ante, § 26. And and note. See, also, Trester v. Mis- may authorize a consolidation, so- souri, &c. R. Co. 33 Neb. 171, 49 called, at least, by keeping one of N. W. 1110. But compare Walters the corporations alive and permit- v. Chicago, &c. R. Co. 104 Fed. 377. ting it to absorb or merge the other. See, generally, St. Joseph, &c. R. See post, chapter on Consolidation. Co. v. Steele, 167 U. S. 659, 17 Sup. »=Phlnizy v. Augusta, &c. R. Co. Ct. 925; Bradley v. Ohio, &c. R. Co. 56 Fed. 273; Muller v. Dows, 94 U. 78 Fed. 387; Baldwin v. Chicago, S. 444; Memphis, &c. R. Co. v. Ala- &c. R. Co. 86 F6d. 167, 51 , CONSOLIDATION. [§ 38 same persons a corporation of that state, under the same liame, and authorized them to build their road from Nashua, New Hampshire, to Lowell, Massachusetts. In 1838 both' states passed laws constitut- ing the stockholders of each corporation stockholders in the other, and uniting them into one corporation under the old name, and pro- viding that all the "tolls, franchises, rights, powers, privileges and property of the two should be held and enjoyed by all the stockholders in proportion to the number of their shares in either or both of said corporations." In 1857, the Nashua and. Lowell Eailroad Corporation entered into a traffic agreement with the Boston and Lowell Eail- road Corporation, which was incorporated under the laws of Massachu- setts. A controversy afterwards arose over this, and the former, alleg- ing that it was a New Hampshire corporation, brought suit against the latter in the United States circuit court of Massachusetts. It was held that the plaintiff "must be considered simply in its character as a corporation created by the laws of New Hampshire, and, as such, a citizen of that state, and so entitled to go into the circuit court of the United States and bring its bill against a citizen of any other state, and that its union or consolidation with another corporation of the same name, organized under the laws of Massachusetts, did not ex- tinguish or modify its character as a citizen of New Hampshire."^" "= Nashua & Lowell R. Corp. v. James, 161 U. S. 545, 16 Sup. Ct. Boston, &c. R. Corp. 136 U. S. 356, 621. In Walters v. Chicago, &c. R. 10 Sup. Ct. 1004. Citing Farnum v. Co. 104 Fed. 377, 378, it is said: Blackstone Canal Corp. 1 Sum. (U. "The rule deduciWe from the deci- S.) 46; Muller v. Dows, 94 U. S. 444; sions of the supreme court * * * St. Louis, &c. R. Co. v. Indianapo- is that a corporation, as such, has lis, &c. R. Co. 9 Biss. (U. S.) 144,' no citizenship; that the citizenship on appeal sub nom., Pennsylvania of the incorporators determines the R. Co. V. St. Louis, &c. R. Co. 118 jurisdiction of the federal court; U. S. 290, 6 Sup. Ct. 24; Racine, &c. that the citizenship of the incorpo- R. Co. V. Farmers', &c. Co. 49 111. rators is conclusively presumed to 331, 95 Am. Dec. 595; Quincy, &c. be that of the state in which the Bridge Co. v. Adams Co. 88 111. corporation was first created; that 615. See, also. Western &c. R. Co. while a corporation organized by V. Roberson, 61 Fed. 592; Rece v. the laws of one state may becpme a Newport News, ,~&c. Co. 32 W. Va. domestic corporation in another 164, 9 S. E. '212, 3 L. R. A. 572; state, the laws of the two states Louisville T. Co. v. Louisville, permitting, yet the citizenship of &c. R. Co. 75 Fed. 433; Louis- the incorporators remains that of ville, &c. R. Co. v. Louisville the state in which such corporation Trust Co. 174 U. S. 552, 19 Sup. was first created. Where, however, Ct. R. 817; St Louis, &c. R. Co. v. a new corporation is created by the §' 39] LEGAI; STATUS. 52 The court, as an additional reason for this opinion, called attention to the injustice that would result if the defendant, as a citizen of Massachusetts, could sue the plaintiff, as a citizen of New Hampshire, in the federal court of New Hampshire, and yet prevent the plaintiff from suing it in Massachusetts on the ground that they were both citizens of the latter state. Another interesting case upon the same general subject was recently decided by the supreme court of Mas- sachusetts. An action was brought in Massachusetts by the adminis- trator of a man who had lived there but had been killed by the de- fendant in Connecticut. The defendant was incorporated in both states, and there was a statute in Massachusetts providing that a cause of action for the death of a person shall survive in his personal repre- sentative, but there was no such law in Connecticut. The court held that the fact that a railroad is operated as a continuous line under a charter from each of two different states does not make its liabilities different or greater in one of them on account of an accident occurring in the other, nor because the person injured was a resident of the for- mer, and that, as the statute of Connecticut gave no right of action, the plaintiff could not recover in Massachusetts.^^ §■ 29. Railroad only a citizen or domestic corporation of states that charter it — Effect of mere license. — Many railroad corporations oper- ate, lines in other states than those by which the corporations are created, under license only, in which case they remain domestic cor- porations and citizens only of the states by which their charters are granted, and foreign corporations in the states granting the license."* joint action or operations of the 44; Wilson v. Winchester, &c. R. laws of two or more states, the citi- Co. 99 Fed. 642; Howard v. Gold, zenship of such corporation will be &c. 102 Fed. 657; Southern Pac. R. treated as that of each state." Co. v. Harrison, 73 Tex. 103, 11 S. "Davis V. New York, &c. R. 143 W. 168. In Baltimore, &c. R. Co. v. Mass. 301, 9 N. E. 815, 58 Am. R. Allen (W. Va.), 52 S. E. 465, it is 138. held that: Railroad corporations, •° Goodlett V. Louisville, &c. R. Co. chartered by other states, but own- 122 U. S. 391, 7 Sup. Ct. 1245; Rail- ing and operating railroads in West road Co. v. Harris, 12 Wall. (U. S.) Virginia, have the status of resi- 65, 83; Pennsylvania Co. v. St. dents of this state, although they Louis, &c. R. Co. 118 U. S. 290, 7 are not citizens of it, within the Sup. Ct. 24; Martin v. Baltimore, meaning of clause 1 of section 2 of &c. R. Co. 151 U. S. 673, 14 Sup. Ct. article 3 and clause 1 of section 2 533. See, also. Southern Pac. R. Co. of article 4 of the constitution of V. Denton, 146 U. S. 202, 13 Sup. Ct. the United States, nor domiciled in 53 CITIZEN OF STATE GRANTING CHARTER. [§ 39 An act of the legislature recognizing a foreign corporation, or granting it privileges, will not be construed to be a charter of incorporation, unless there be a manifest intention to create a new corporation within the state."* And the fact that the title of an act denominates it "an act to incorporate," is not sufficient to show such intention, where the body of the act is more properly construed as a license.'"' A rail- road company operating a line in a foreign jurisdiction under a lease,''^ or under authority given to it to condemn land for a right of way, and to build and operate a railroad,'^ does not thereby become a do- mestic corporation, even where the act giving it authority contains a proviso that it shall be deemed a domestic corporation as to all causes of action arising within the state. ''^ Where a corporation is doing business under a license, the license may generally be revoked at the West Virginia state in the technical sense of that term; and that such corporations may be proceeded against as garnishees, without refer- ence to the jurisdiction in which debts due from them were con- tracted or are payable. See, also, on the garnishment question the numerous and conflicting authori- ties there reviewed, also the recent cases of Louisville, &c. R. Co. v. Deer, 200 U. S. 176, 26 Sup. Ct. 207; Harris v. Balk, 198 U. S. 215, 25 Sup. Ct. 625. " Memphis, &c. R. Co. v. Commis- sioners, 112 U. S. 609, 5 Sup. Ct. 299; New Orleans, &c. R. Co. v. Delamore, 114 U. S. 508, 5 Sup. Ct. 1009; Martin v. Baltimore, &c. R. Co. 151 U. S. 673, 14 Sup. Ct. 533. See, also, Markwood v. Southern R. Co., 65 Fed. 817. But compare Louis- ville Trust Co. V. Louisville, &c. R. Co. 75 Fed. 433; Angier v. Bast Tennessee, &c. R. Co. 74 Ga. 634, 20 Am. & Eng. R. Cas. 618; Indianapo- lis, &c. R. Co. V. Vance, 96 U. S. 450. " Goodlett V. Louisville, &c. R. Go. 122 U. S. 391, 7 Sup. Ct. 1245. " Baltimore, &c. R. Co. v. Koontz, 104 U. S. 5; Baltimore, &c. R. Co. v. Cary, 28 Ohio St. 208; Callahan v. Louisville, &c. R. Co. 11 Fed. 536. See, also, Illinois Cent. R. Co. v. Sanford, 75 Miss. 862, 23 So. 355. So, where it purchases the local road. Morgan v. East Tennessee. &c. R. Co. 48 Fed. 705; Conn v. Chicago, &c. R. Co. 48 Fed. 177. Unless it is merged or consolidated with it. An- gier V. East Tennessee, &o. R. Co. 74 Ga. 634, 20 Am. & Eng. R. Cas. 618; Schaefer v. East Tennessee, &c. R. Co. 76 Ga. 99. " Hand v. Savannah, &c. R. Co. 12 S. C. 314. "A corporation of Illi- nois, authorized by its laws to build a railroad across the state from the Mississippi river to its eastern boundary, may, by the permission of the state of Indiana, extend its road a few miles within the limits of the latter, or, indeed, through the entire state, and may use and oper- ate the line as one road, by the per- mission of the state, without there- by becoming a corporation or a citi- zen of the state of Indiana." Penn- sylvania Co. V. St. Louis, &c. Co. 118 U. S. 290, 7 Sup. Ct. 24. " Chicago,- &c. R. Co. v. Becker, 32 Fed. 849. But see Western &c. R. Co. V. Roberson, 61 Fed. 592. 30] LEGAL STATUS. 54 pleasure of the state granting it;^* but this rule would probably be subject, as to railroads, to the principal that a state cannot exclude a corporation engaged in interstate commerce.^'' § 30. Foreign corporation — Conditions of admission to state. — The provision of the fourteenth amendment of the federal constitution, declaring that no state shall "deny to any person within its jurisdic- tion the equal protection of the laws," does not prohibit a state from imposing conditions upon ftfreign corporations before admitting them and allowing them to do business within the state.'* But the condi- tions must not be such As tax interstate commerce,''' or invade the province of congress. Many of the states have laws prescribing the conditions upon which such corporations will be permitted to do busi- ness." Several of them prohibit any foreign railroad corporation from acquiring a right of way and doing business without procuring a charter and becoming a domestic corporation.'^ Bringing an action '* Woods R. Law, § 15 and cases cited; Doyle v. Continental Ins. Co. 94 U. S. 535; Hartford Ins. Co. v. Raym'ond, 70 Mich. 485, 38 N. W. 474. " Pensacola Tel. Co. v. "Western Union Tel. Co. 96 U. S. 1; Norfolk, &c. R. Co. v. Pennsylvania, 136 U. S. 114, 10 Sup. Ct. 958. See, also, 41 Cent. L. J. 152. "Norfolk, &c. R. Co. v. Pennsyl- vania, 136 U. S. 114, 10 Sup. Ct. 958; Milnor v. New York, &c. R. Co. 53 N. Y. 363; People v. Fire Ass'n, 92 N. Y. 311, 44 Am. R. 380. See, also, Dugger v. Mechanics', &c. Co. 95 Tenn. 245, 32 S. W. 5. A statute imposing as a condition upon foreign corporations doing business in Pennsylvania that they shall as- sess and collect the tax upon that portion of their- loans in the hands of individual residents within the state was held valid, as such stat- ute does not impose a tax, hut sim- ply defines a duty, and fixes a pen- alty for a disregard thereof. Com- monwealth V. New York, &c. R. Co. 129 Pa. 463, 18 Atl. 412, 25 W. N. C. 15; New York, &c. R. Co. v. Com- monwealth, 18 Atl. 412, 7 R. & Corp. L. J. 14. But this was reversed in New York, &c. R. Co. v. Pennsyl- vania, 153 U. S. 628, 14 Sup. Ct. 952, for the reason that the statute im- paired the obligation of the contract between the company and the state. See note to State v. Ackerman (Ohio), 24 L. R. A. 298, and note to Cone, &c. Co. v. Poole (S. Car.), 24 L. R. A. 289; "State Legislation Against Foreign Corporations," 41 Cent. L. Jour. 152. "Crutcher v. Commonwealth, 141 U. S. 47, 11 Sup. Ct. 851; Norfolk, &c. R. Co. V. Pennsylvania, 136 U. S. 114, 10 Sup. Ct. 958; McCall v. People, 136 U. S. 104, 10 Sup. Ct. 881. See, also, Blake v. McClung, 172 U. S. 239, 19 Sup. Ct. 165; Stock- ton V. Baltimore, &c. R. Co., S2 Fed. 9; Pensacola Tel. Co. v. Western U. Tel. Co. 96 V. S. 1; People v. Wemple, 131 N. Y. 64, 29 N. E. 1002. 24 Am. St. 542. "See Stimson Am. Stat. (1892), §§ 8400-8415. " See, for instance. Pub. Acts, Va., 55 EAILEOADS AS PEOPEKTY. [§31 in the state or federal courts of a foreign state does not constitute "doing business" in such state, and such an action may be maintained, although the laws of that state relating to foreign corporations within its limits have not been complied with.*" Where a foreign corporation doing business in the state fails to designate a resident agent, upon whom service of process may be made as required by law, it has been held that a court possessing equity powers has jurisdiction to ap- point a receiver for the business of such corporation, without personal service, upon a showing of an immediate necessity for such action.^^ § 31. Railroads as property. — All property essential to the opera- tion of a railroad, including the right of way, roadbed, ties, rails, side-tracks, switches, depots, station-houses, water-tanks, and other fix- tures, together with the rolling stock and other necessary movable appliances, has been held by the federal courts to be real estate.*^ The 1889-90, c. 67, p. 51. So, in Ne- braska, It is held that a foreign rail- road corporation, being prohibited by the constitution from acquiring a right of way in Nebraska, cannot do so indirectly through a Nebraska corporation. Koenig v. Chicago, &c. H. Co. 27 Neb. 699, 43 N. W. 423. In Pennsylvania, where the stat- utes allow the stock of domestic corporations to be held by other cor- porations, it is held that a foreign corporation does not, by owning all the stock of a domestic corporation, "'acquire or hold" the real estate of the domestic corporation so as to violate the act of April 26, 1855, against acquiring or holding real es- tate "directly in the corporate name, or by, or through any trustee or other device whatsoever, unless spe- cially authorized," under penalty of «scEeat. Commonwealth v. New York, &c. R. Co. 132 Pa. St. 591, 19 Atl. 291. 7 L. R. A. 634, 25 W. N. C. 404, 47 Leg. Int. 222. A con- stitutional provision that no for- eign corporation shall "have power to condemn or appropriate prop- erty" does not prevent a foreign railroad corporation from acquiring a right of way by agreement with the landowner. St. Louis, &c. R. Co. V. Foltz, 52 Fed. 627. «" Texas Land, &c. Co. v. Worsham, 76 Tex. 556, 13 S. W. 384; Christian V. American, &c. Co. 89 Ala. 198, 7 So. 427; American Loan, &c. Co. v. Bast, &c. R. Co. 37 Fed. 242; Powder River, &c. Co. v. Custer County, 9 Mont. 145, 22 Pac. 383; C. B. Ro- gers & Co. y. Simmons, 155 Mass. 259, 29 N. E. 580; Ayres v. Siebel, 82 Iowa 347, 47 N. W. 989. " Glines v. Supreme S. 0. of I. H. 20 N. Y. S. 275. »= Minnesota Co. v. St. Paul Co. 2 Wall. (U. S.) 609; Farmers' &c. Co. V. St. Jo. &c. R. Co. 3 Dill. (U. S.) 412; Pennock v Coe, 23 How. (U. S.) 117. This ruling is made the more readily when neces- sary to the protection of the rights of lien holders, in whose hands the permanent structure without the movable appliances would have lit- tle value. An analogy is drawn be- tween rolling stock and other mov- able railroad appliances, and Vene- tian blinds, lightning rods, cattle, §■31] LEGAL STATUS. 56 same ruling is made by the courts of maoay states/^ in some oi which, however, the character of rolling stock as property is fixed by statute.** In those s;tates in which the subject is uncontrolled by statute, the preponderance of authority is to the effect that only the land owned by the railroad company, together with the ties, rails and other struc- tures permanently affixed thereto, is realty; and that engines, cars, and other movable appliances are to be regarded for most purposes as personalty.*^ The question of what is permanently affixed to a rail- road right of way is one partly of law and partly of fact, mainly de- pendent on the purpose of the builders, whether, for example, it be and slaves, and implements used in working a plantation, a steel-yard in a machine house, fish in a pond, doves in a cote, all of which have been held to he realty. Farrar v. Stackpole, 6 Greenl. (Me.) 155; Lushington v. Sewell, 1 Sim. 435, 480; Washburn Real Prop. (3d ed.), p. 10. But see as to taxation, the more recent decisions of the su- preme court of the United States in Green v. Van Buskirk, 7 Wall. (U. S.) 139, 150; Gloucester Ferry Co. V. Pennsylvania, 114 TJ. S. 196, 5 Sup. Ct. 826, 13 Am. & Eng. Corp. Cas. 365; also Baltimore, &c. R. Co. V. Allen, 22 Fed. 376, 17 Am. & Eng. R. Cas. 461; Union Loan & T. Co. V. Southern, &c. Co. 51 Fed. 840. Much, however, depends upon the statute. See, generally, Webster Lumber Co. v. Keystone, &c. Co. 51 W. Va. 545, 42 S. E. 632, 66 L. R. A. 33 and note. ''Farmers' &c. Co. v. Hendrick- son, 25 Barb. (N. Y.) 484, 493; Palmer v. Forbes, 23 111. 237; Youngman v. Elmira, &c. R. Co. 65 Pa. St. 278; Louisville, &c. R. Co. v. State, 25 Ind. 177, 87 Am. Dec. 358; Tiedeman Real Prop. (3d ed.), § 2; and authorities cited in 19 Am. & Eng. Ency. of Law, 882, 883, where it is said that the better and more recent authorities, which are there cited, hold that it is personalty. " Phillips V. Winslow, 18 B. Mon. (Ky.) 431, 68 Am. Dec. 729; Miller V. Rutland, &c. R. Co. 36 Vt. 452. 490. «>Rorer Rail., §§ 10, 11; Green Brice Ultra Vires, 238 and note; Hoyle V. Plattsburg, &c. R. Co. 54 N. Y. 314, 13 Am. R. 595; Randall V. Elwell, 52 N-. Y. 521, 11 Am. R. 747; Williamson, Trustee v. New Jersey R. Co. 29 N. J. Bq. 311, 15' Am. R. 572, and authorities there cited; Chicago, &c. R. Co. v. Ft. Howard, 21 Wis. 44, 91 Am. Dec. 458; Boston, &c. R. Co. v. Gilmore, 37 N. H. 410, 72, Am. Dec. 336; Coe V. Columbus, &c R. Co. 10 Ohio St. 372, 75 Am. Dec. 518; Boston, &c. Co. V. Gilmore, 37 N. H. 410, 72 Am. Dec. 336; Neilson v. Iowa Eastern R. Co. 51 la. 184, 1 N. W. 434, 33 Am. R. 124; and authorities cited in 25 Am. & Eng. Ency. of Law 654. Interest of a railway company in a street is held real estate in Newark, &c. Co. V. North Arlington, 65 N. J. L. 150, 46 Atl. 568. See, also. Pal- mer V. Forbes, 23 111. 301; Western, &c. R. Co. V. Deal, 90 N. Car. 110; Thompson v. Schenectady R. Co. 124 Fed. 274. But compare People v. Tax Com'rs, 104 N. Y. 240, 10 N. B. 437; Front St., &c. R. Co. v. John- son, 2 Wash. 112, 25 Pac. 1084, 11 L. R. A. 693, and ante, § 5. 57 EAILEOADS AS MONOPOLIES. [§ 32 to construct a main line or side branches for temporary use.** A rail- road corporation's property, so far as the ownership and the profit are concerned, is to all intents and purposes private, though applied to a use in which the public has an interest.*^ § 32. Railroads as monopolies. — A railroad is not necessarily nor usually a monopoly in a legal sense, nor is the company entitled to prevent the location of a rival railroad upon or across the territory through which its road runs, when such rival road is duly authorized by the state f^ for the grant of a franchise to one corporation will not be construed as a pledge that the state will not grant similar fran- chises to another, although by so doing it may impair or even destroy the value of the first franchise.*^ The legislature may, however, unless prohibited by the constitution, grant an exclusive franchise to build and maintain a railroad within certain limits,"" such franchise being " Van Keuren v. Central R. Co. 38 N. J. L. 165, .13 Am. R. 43. "Lake Shore, &c. R. Co. v. Chi- cago, &c. R. Co. 97 111. 506; Pitts- burg, &c. R. Co. V. Benwood Iron Works, 31 W. Va. 710, 8 S. B. 453, ^6 Am. & Bng. R. Cas. 531. == Baltimore, &c. R. Co. v. State, 45 Md. 596; Newcastle, &c. R. Co. v. Peru, &c. R. Co. 3 Ind. 464; Metro- politan R. Co-. V. Highland St. R. Co. 118 Mass. 290; 1 Rorer Railw. 9; Pierce Railw. 452, 453. But see Rari- tan, &c. R. Co. v. Delaware, &c. Canal Co. 18 N. J. Bq. 546. "Charles River Bridge v. Warren Bridge, 6 Pick. (Mass.) 376, 7 Pick. (Mass.) 344, 11 Peters (U. S.) 420. See, also, as to turnpikes, Indian C. R. Co. V. Rohinson, 13 Cal. 519; Bartram v. Central T. Co. 25 Cal. 283; Collins v. Sherman, 31 Miss. 679; Turnpike Co. v. State, 3 Wall. (U. S.) 210; Washington, &c. R. T. Baltimore, &c. R. Co. 10 Gill & J. (Md.) 392; White R. T. Co. V.Ver- mont C. R. Co. 21 Vt. 590; Lafay- ette P. R. Co. V. New Albany & S. R. Co., 13 Ind. 90, 74 Am. Dec. 246. As to bridges, see Hamilton Ave., In re, 14 Barb. (N. Y.) 405; Fall V. Sutter C., 21 Cal. 237; Oswego Falls B. Co. V. Fish, 1 Barb. Ch. (N. Y.) 547; Hartford B. Co. v. Union Ferry Co. 29 Conn. 210; Thompson V. New York, &c. R. Co. 3 Sandf. Ch. 625. As to ferries, see Collins V. Sherman, 31 Miss. 679; Fitch v. New Haven, &c. R. Co. 30 Conn. 38; Wright V. Nagle, 101 U. S. 791; Richmond, &c. R. Co. v. Rogers, 1 Duvall (Ky.) 135; McLeod v. Bur- roughs, 9 Ga. 213; Harrison v. Young, 9 Ga. 359; Shorter v. Smith, 9 Ga. 517. As to canals, see Tuoka- hoe C. Co. V. Tuckahoe, &c. R. Co. 11 Leigh (Va.) 42, 36 Am. Dec. 374; Illinois & M. C. Co. v. Chicago, &c. R. Co. 14 111. 314. ™ Boston, &c. R. Co. v. Salem, &c. R. Co. 2 Gray (Mass.) 1; Pennsyl- vania R. Co. V. National, &c. R. Co. 23 N. J. Bq. 441; State v. Noyes, 47 Me. 189, 208; Pennsylvania R. Co. v. Baltimore, &c. R. Co. 60 Md. 263; Camblos v. Phlila., &c. R. Co. 4 Brewster (Pa.) 563, 595; 19 Am. & Bng. Bncy of Law 784; Pierce Railw., citing Micou v. Tallassee C. Co. 47 Ala. 652; Binghamton B. Co., §■33] LEGAL STATUS. 58 always subject to the right of eminent domain.'^ But a monopoly is not to be implied."^ §■33. Railroads as public high-ways. — ^Eailroads, by whomsoever constructed or owned or operated, are quasi public works and are often likened by the courts and writers to public highways."^ The In re, 3 Wall. (U. S.) 51; Chenango B. Co. V. Binghamton B. Co. 27 N. y. 87; Chenango B. Co. v. Lewis, 63 Barb. (N. Y.) Ill; Bridge Proprie- tors V. Hoboken Co. 1 Wall. (U. S.) 116, 13 N. J. Eq. 81, 503; Martin v. O'Brien, 34 Miss. 21; California State Tel. Co. v. Alta T. Co. 22 Cal. 398; Richmond, &c. R. Co. v. Louisa R. Co. 13 How. (U. S.) 71; Pontchar- train R. Co. v. Orleans Nav. Co. 15 La. 404; Delaware & R. C. Co. v. Camden & A. R. Co. 16 N. J. Eci. 321, 18 N. J. Bq. 546; Michigan C. R. Co. V. Michigan S. R. Co. 4 Mich. 361; Pennsylvania R. Co. v. National R. Co. 23 N. J. Eq. 441. In Fidelity, &c. Co. V. Mobile St. R. Co. 53 Fed. 687, it is held that one public corporation cannot take the franchise of another even under legislative authority, if such taking will materially affect its use. Where there is no reserved right of amendment, it has been held that the grant of an exclusive fran- chise to operate a railroad within certain limits amounts to a contract on the part of the state, which it cannot violate by the conferring upon another company power to build and operate a parallel road. Boston, &c. R. Co. v. Salem, &c. R. Co. 68 Mass. 1; Pennsylvania R. Co. V. Baltimore, &c. R. Co. 60 Md 263. See, also, Raritan, &c. R. v. Canal Co. 18 N. J. Eq. 546; Pontchartrain R. Co. V. New Orleans, &c. R. Co. 11 La. Ann. 253. But compare Bos- ton, &c. R. Co. V. Boston, &c. R. Co. 5 Cush. (Mass.) 375; Richmond, &c. R. Co. V. Louisa, &c. R. Co. 13 How. (U. S.) 71; Louisville, &c. R. Co. v. Louisville City R. Co. 2 Duv. (Ky.) 175. "Enfield T. B. Co. v. Hartford & N. H. Co. 17 Conn. 40, 454, 42 Am. Dec. 716; Piscataqua B. v. New Hampshire Bridge, 7 N. H. 35; New Orleans, &c. R. Co. v. Southern & A. T. Co. 53 Ala. 211; New Jersey S. R. Co. V. Long Branch Com., 39 N. J. L. 28; Metropolitan C. R. Co. V. Chicago, &c. R. Co. 87 111. 317. »= Charles River Bridge v. Warren Bridge, 11 Peters (U. S.) 420; State V. Hamilton, 47 Ohio St. 52, 23 N. E. 935, 29 Am. & Eng. Corp. Cas. 208, 23 W. L. Bull. 190; Syracuse Water Co. V. Syracuse, 116 N. Y. 167, 22 N. E. 381, 5 L. R. A. 546, 26 N. Y. S. 364, 29 Am. & Eng. Corp. Cas. 307; Hudson River Tel. Co. v. Wa- tervliet Turnp. & R. Co. 56 Hun 67, 29 N. Y. St. 694, 9 N. Y. S. 177; In- dianapolis Cable St. R. Co. v. Citi- zens' St. R. Co. 127 Ind. 369, 24 N. E. 1054, 26 N. E. 893; Lafayette Plank Road Co. v. New Albany, &c. R. Co. 13 Ind. 90, 34 Am. Dec. 246; Citizens' St. R. Co. v. Jones, 34 Fed. 579. Post, § 39. ■"White River T. Co. v. -Vermont C. R. Co. 21 Vt. 590. "We regard it as a misnomer to attach even the name 'quasi public corporation' to a railroad company. • * * its road may be called a quasi public highway." Gordon, J., in Peirce v. Commonwealth, 104 Pa. St. 150, 13 Am. & Eng. R. Cas. 74, 79. Lake 59 RAILROADS AS PUBLIC HIGHWAYS. [§33 constitution®* and laws'^ of some states declare them to be public highways; those of others declare the companies to be common car- riers, whose roads are available to all persons for the transportation of themselves and their property.®^ This latter definition expresses most nearly the relation of a completed railroad to the public. Except in discharging its duties as a carrier, the company is entitled to the exclusive use and possession of its property.®' There may also be said Superior, &c. R. Co. v. United States, 53 U. S. 442, 458, dissenting opinion. "That railroads, though constructed tj private corporations and owned hy them, are public highways, has ■faeen the doctrine of nearly all the •courts ever since such conveniences for passage and tra.nsportation have had any existence." Olcoft v. Super- visors, 16 Wall. (U. S.) 678, 694. See, also, Cherokee Nation v. South- ern Kans. R. po. 135 U. S. 641, 10 Sup. Ct. 965, 971. But the old the- ory that a railroad is a public high- way in the same sense as a turn- pike, over which any person may run his vehicles upon payment of suitable tolls, has been abandoned. Cook Stock and Stockholders (3d ed.), § 900, citing Beekman v. Sara- toga, &c. R. Co. 3 Paige (N. Y.) 45, 74, 22 Am. Dec. 679; Camblos v. Philadelphia, &c. R. Co. 4 Brewster (Pa.) 563, 597. See, also, Clark v. Chicago, &c. R. Co. 127 Mo. 197, 29 S. W. 1013; Estes Park Toll Road Co. v. Edwards, 3 Colo. App. 74, 32 Pac. 549; Cox v. Louisville, &c. R. Co. 48 Ind. 178; Murch v. Concord R. Corp., 29 N. H. 9, 61 Am. Dec. 631; Chicago, &c. R. Co. v. Chicago, 140 111. 309, 29 N. E. 1109. They are not highways in such a sense as to render an obstruction thereon a pub- lic nuisance. Stoneback v. Thomas Iron Co. (Pa.), 4 Atl. 721. See, also. Comer v. State, 62 Ala. 320. « Const. Pa., art. 17, § 1; 111., art. 11, § 12; Neb., 1875, art. 2, § 4; W. Va., art. 11, § 9; Mo., art. 12, § 13; Ark., art. 17, § 1; Tex., art. 10, §§ 1, 2; Cal., art. 12, § 17; Colo., art. 15, § 4; Ala., art. 13, § 21; La., 1879, art. 244; Miss., 1890, art. 6, i 184; Char- ter Pennsylvania R. Co., 1846, see Trunick v. Smith, 63 Pa. St. 18. "» Stimson Am. Stat. Law, §§ 8801, 8830. °° The Pennsylvania railroad is de- ■ dared by its charter (Pamphlet Laws, 1846, 323) to be a public highway, over which the company must haul the cars of all persons who require such service subject to restrictions. Trunick v. Smith, 63 Pa. St. 18. In Lake Superior, &c. R. Co. V. United States, 93 U. S. 442, the doctrine of railroads as high- ways is carried very far, and it is held that the act of congress grant- ing lands in aid of a railroad and providing that it should be a public highway for the free use of the gov- ernment in transporting troops and property gave the government its use as a highway only and not free transportation in the cars of the company. " Central R. of Georgia v. Brlnson, 10 Ga. 207, 19 Am. & Eng. R. Cas. 42; Baltimore, &c. R. Co. v. Schwindling, 101 Pa. St. 258, 47 Am. R. 706, 8 Am. & Eng. R. Cas. 544; Toledo, &c. R. Co. v. Pence, 68 111. 524; Hoyt v. Chicago, &c. R. Co. 93 111. 601; Chicago, &c. R. Co. v. Chi- cago City Railway Co. 10 Nat. Corp. Rep. 651. See, also, Pittsburg, &c. R. § 33] LEGAL STATUS. 60 to be a resemblance to public highways in that the power of eminent domain can be invoked to aid in the construction and extension of railroads/* whenever, in the judgment of the legislature, they. will be of value as thoroughfares over which the services of common carriers can be rendered."" Again, they are so far public improvements that the state may levy and collect a tax to aid in their construction.^"" Co. V. Bingham, 29 Ohio St. 364, 370, 371, 23 Am. R. 751; Western Un. Tel. Co. V. Pennsylvania R. Co. 195 U. S. 540, 25 Sup. Ct. 133; Donovan V. Pennsylvania R. Co. 199 U. S. 279, 26 Sup. Ct. 91, 94; Hyde v. Mis- souri Pac. R. Co. 110 Mo. 272, 19 S. W. 483. "'Niagara Palls, &b. R. Co. In re, 108 N. Y. 375, 15 N. E. 429; Wor- cester V. Western R. Co. 4 Met. (Mass.) 564, 1 Am. R. Cas. 350, 352; Hodgerson v. St. Louis, &c. R. Co. 160 111. 430, 43 N. E. 614; Gibson V. Mason, 5 Nev. 283; Stewart v. Erie &c. Trans. Co. 17 Minn. 372; Olcott V. The Supervisors, 16 Wall. (U. S.) 678; Cooley's Const. Lim. (7th ed.) 753. Thus, in Cherokee Nation V. Southern Kans. R. Co. 135 U. S. 641, 657, 10 Sup. Ct. 965, 971, it is said: "It Is because it is a public highway and subject to such (governmental) control that the corporation by which it Is con- structed, and by which it is to be maintained, may be permitted, un- der legislative sanction, to appro- , priate private property for the pur- poses of a right of way, upon mak- ing just compensation to the owner in the mode prescribed by law." ""Weir V. St. Paul, &o. R. Co. 18 Minn. 155; Newburyport T. Co. v. Eastern R. Co. 23 Pick. (Mass.) 326, 1 Am. R. Cas. 294; Contra Costa R. Co. V. Moss, 23 Cal. 323. '"Olcott V. Supervisors, 16 Wall. (U. S.) 678, ante, § 1; post, chapter 35 on Municipal Aid; Ravenswood R. Co. V. -Ravenswood, 41 W. Va. 732, 24 S. E. 597, 56 Am. St. 906. CHAPTBK IV. CHAKTEES. Sec. 34. Special charters and general laws. 35. Acceptance of charter. 36. Terms upon which charter is granted must be complied with — Provisions in general laws. 37. Particular corporation must be authorized. . 38. Construction of charter — Gen- eral rules. 39. Grants of monopolies and pow- ers in derogation of public rights — Perpetuity. 40. Practical construction. 41. Charter to build and operate a railroad — ^What powers are included. 42. Other powers of railroad com- panies — Implied powers in- cluded in certain grants. 43. Amendment — Power must be reserved. 44. Police regulations. 45. Material amendments require unanimous consent of stock- holders — What are material. 46. Statutory provisions authoriz- ing amendments. 47. Forfeiture — Statutory provi- sions dispensing with judi- cial determination. Sec. 48. Implied condition that corpo- rate franchise is subject to forfeiture — Judicial determi- nation — Causes for forfei- ture. 49. Grounds of forfeiture — Illus- trative cases. 50. When duty to declare forfei- ture is mandatory and when discretionary. 51. What is not cause for forfei- ture. 52. Waiver of forfeiture — Collater- al proceedings. 53. Proceedings to forfeit — Quo warranto — Parties. 54. Proceedings must generally he in court of law — Statutory provisions. 55. Collateral proceedings — Plead- ings and judgment in forfei- ture proceedings. 56. Repeal of charter — Reserved power. 57. Repeal where conditional power is reserved. 58. Rule where power to repeal is not reserved. 59. Effect of repeal. 60. Repeal of by general laws. 61". Charter is subject to general laws reserving power to re- peal. 62. Expiration of charter. § 34. Special charters and general laws. — The power to grant rail- road charters in common with charters of other corporations is a legis- 61 § 34] CHARTERS. 62 lative function, usually exercised in this country by the legislatures of the various states,^ although congress may, in the exercise of its power to regulate interstate commerce, construct, or authorize individuals or corporations to construct, railroads across the states and territories of the United States.^ These charters aye either special, in which case corporate powers are .conferred upon certain designated persons by an act of the legislature, in which the powers, duties and liabilities of the specified corporation are enumerated at length ; or they are derived from a general authorization to any. man or men to be and act as a body corporate upon complying with certain terms. ^ In order to pre- vent the granting of special and exclusive privileges, and to render all corporations amenable to the will of the legislature at all times, char- ters are usually conferred only by general laws,* special charters being prohibited by the constitutions of most of the states.^ § 35, Acceptance of charter. — In eitlier case the charter is gener- ally of no eifect until the terms upon which it is granted are complied , with, and it is accepted by the incorporators.® The construction and operation by a railroad company of a part of its road is sufficient evi- dence of an acceptance of its charter, where no particular mode of 'Angell & Ames Corporations, also, Smith v. Indianapolis, &c. R. § 71. Co. 158 Ind. 425, 63 N. E. 849; ' California v. Central Pac. R. Co. Bohmer v. Hoffen, 161 N. Y. 390, 55 2 Interstate Com. 153, 127 U. S. 1, N. B. 1047; State v. Webb, 110 Ala- 8 Sup. Ct. 1073; Thomson v. Pacific 214, 20 So. 462; United States v. R. Co. 9 "Wall. (U. S.) 579. Stanford, 161 U. S. 412, 16 Sup. Ct. ' The general law and the articles 576, In support of the text, see Rob- ot incorporation or association exe- erts v. Missouri, &c. R. Co. 43 Kan. cuted and filed in compliance there- 102, 22 Pac. 1006, 43 Am. & Bng. R, with, in such a case, constitute the Gas. 532; San Francisco v. Spring charter. Valley, 48 Cal. 493; Wallace v. Loo- •Morawetz Priv. Corp. (2d ed.), mis, 97 U. S. 146; St. Paul Fire Ins. § 12; Pierce Railw. 3. Co. v. Allis, 24 Minn. 75. In England " Stimson Am. St. Law, § 441. general- power to organize railroads Even when the constitution pro- is given by the Railways Construe- hibits the creation of corporations tion Facilities Act, 27 and 28 Vict, by special laws, it has been held Ch. 121. that a special charter granted be- "Angell and Ames Corporations, fore the adoption of the constitu- (11th ed.), § 81; Bates v. Wilson, tion may be amended by special act. 14 Colo. 140, 24 Pac. 99, 8 R. & Corp. State V. Cape Girardeau R. Co. 48 L. J. 144; ante. Chapter II; Purdy Mo. 468; Roosa v. St. Joseph, &c. R. Beach Priv. Corp. § 67. Co. 114 Mo. 508, 21 S. W. 1124. See, 63 NECESSITY OF COMPLTING WITH TEEMS OF CHARTEE. [§'36 acceptance is designated/ and it is held that a railroad charter may be considered as presumptively accepted at its date without record evi- dence of the fact, when it appears that the grantees afterwards asked for and obtained amendments and have fully constructed the road,* although it has been said that the certificate of incorporation cpnsti- tutes the only evidence of the acceptance of the terms and conditions contained in the statute." This, however, is not the rule with regard to special charters, and it may be doubted if it is of universal applica- tion even in other cases. ^* § 36. Terms upon wMch charter is granted must be complied with — ^Provisions in general laws. — ^It is generally essential to the exist- ence of a de jure corporation that the terms upon which a grant of corporate rights is made should be substantially complied with, though slight irregularities will not necessarily defeat the incorporation,^'^ particularly where the statute provides for their amendment.^* The general laws for the incorporation of railway companies in the various states of this country are substantially the same in most respects.^* They usually require that the articles shall state the name of the com- 'St. Joseph & I. R. Co. v. Sham- baugh, 106 Mo. 557, 17 S. W. 581; Roosa V. St. Joseph, &c. R. Co. 114 Mo. 508, 21 S. W. 1124. ' Farnsworth v. Lime Rock R. Co. 83 Me. 440, 22 Atl. 373. See, also, Benbow v. Cook, 115 N. Car. 324, 20 S. E. 453, 44 Am. St. 454. ' Bates V. Wilson, 14 Colo. 140, 24 Pac. 99, 8 R. & Corp. D. J. 144. "See ante, §§ 17, 18, where the subject is more fully treated. And see, also, 3 Elliott Ev., §§ 1934-1938. "People v. Montecito, &c. Co. 87 Cal. 276, 32 Pac. 236, 33 Am. St. 172, and note; Eakright v. Logans- port, &c. R. Co., 13 Ind. 404; Busen- back V. Attica, &c. R. Co. 43 Ind. 265; State v. "Wood, 84 Mo. 378; People v. Cheeseman, 7 Colo. 376, 3 Pac. 716; Buffalo, &c. R. Co. v. Cary, 26 N. Y. 75; Cayuga Lake R. Co. v. Kyle, 64 N. Y. 185, 5 Thomp. & C. 669; Busey v. Hooper, 35 Md. 15, 6 Am. R. 350; Pierce Rail. 4. A statement in the articles of associa- tion of a railroad company that it shall be operated as a transfer road, and no discrimination shall be made against any road, and that uniform rates for the same services shall be charged to either persons or rail- road companies, does not show that the carriage of passengers was ex- cluded from the purposes of its or- ganization, especially where the ar- ticles state that the organization is for the purpose of constructing, operating and maintaining a rail- road of standard gauge. Bay City Belt Line R. Co. v. Hitchcock, 90 Mich. 533, 51 N. W. 808. "'See N. Y. Laws 1870, Ch. 135, § 1; Beach Railw., § 37. "The general acts of the various states are built upon the railroad act of New York, enacted in 1850, Laws 1850, Ch. 140, Cook Corpora- tions, § 27. § 36] CHARTERS. 64 pany/* the amount of the capital stock, and the number of shares into which it is divided, the termini of the road, the names of the counties through which it will pass, its length as near as may be, and the num- ber of directors chosen to manage the affairs of the corporation, to- gether with their names.^^ To these are added various requirements by different states, as that the capital stock shall be not less than a certain sum per imle, or that the places of residence of the directors shall be given, or that the number of years the corporation is to con- tinue shall be stated.^" The articles must usually be' signed by a cer- tain number^^ of subscribers to the capital stock, each of whom must state his place of residence and the number of shares taken by him.^* The filing of such articles, properly verified or acknowledged, in some public repository, as the office of the secretary of state or of some local recording officer, with the addition, perhaps, of the certificate of some public ofBcer, that the statutes have been complied with, usually creates the corporation.^® After such articles have been filed they are "Rhodes v. Piper, 40 Ind. 369. A corporation is entitled to the exclu- sive use of the name it chooses. Holmes v. Holmes, &c. Man. Co. 37 Conn. 278, 9 Am. R. 324; ffioodyear Rubber Co. v. Goodyear Rubber Mfg. Co. 8 Am. & Eng. Corp. Cas. 317; note to Cincinnati Cooperage Co. V. Bate, 10 Lewis' Am. R. & Corp. 653, 672. "See ante, § 18. R. S. 1881, Ind. § 3885; 1 N. Y. Laws 1850, Ch. 140, § 1; 1 Beach Railw., § 36; Pierce Railw. 3. The fact that the arti- cles are required to name the ter- mini of the road affords no argu- ment that such road shall be longi- tudinal. A circular railroad may be Incorporated and may exercise the power of eminent domain. State v. Martin, 51 Kans. 462, 33 Pac. 9. The Tiames of the directors are essential. Dutchess, &c. R. Co. v. Mabbett, 58 N. Y. 397. The contrary is held in Eakrlght v. Logansport, &c. R. Co. 13 Ind. 404. But the force of that case as an authority is destroyed by the cases of Bushenback v. Attica, &c. R. Co. 43 Ind. 265, and Reed V. Richmond Street R. Co. 50 Ind. 342, 19 Am. R. 718. " Stimson Am. St. § 8523. " The number required is twenty- five in New York, while five are sufficient in many states. Three only are required in Florida and one may incorporate in Iowa. Stim- son Am. Stat. Law, § 8520. Sub- scriptions of stock upon conditions that can only be fulfilled after in- corporation are not to be counted as a part of the necessary preliminary subscription. Fairview R. Co. v. Spillman, 23 Ore. 587, 32 Pac. 688. "Beach Railw., § 36; Pierce Railw. 3. See ante, § 18: "Ante, § 18, Pierce Railw. 3; Stimson's Am. Stat. Law, §§ 8522, 8526. See, also, Chicago, &c. R. Co. V. Lake, 130 111. 42, 22 N. E. 616; North Point, &c. Co. v. Utah, &c. Co. 16 Utah 246, 52 Pac. 168, 40 L. R. A. 851, 67 Am. St. 607. In Illinois it is said that a corporation cannot do business until the certificate of com- plete organization and a copy of all 65 PARTICULAR COEPOEATION" MUST BE AUTHORIZED. [§' 37 usually evidence of the existence of a corporation de jure.^" It is held in Colorado that the omission of any of the requisites of a cer- tificate of incorporation required by the general act for the formation of corporations/^ is a fatal defect, and no de jure right is conferred by such certificate to exercise corporate franchises ; and, therefore, a certificate of incorporation containing no provision for directors, trustees, or any governing body, as required by the statute, but vesting the control and management of the corporation in a president, vice- president, and attorney, is insufficient to confer a right to exercise such franchises. ^^ And in Tennessee it has been held that where the statute states what must be done to complete the corporate organiza- tion and prescribes the form of the charter the statute must be fol- lowed no matter how inconvenient or unnecessary some of the require- ments may seem.^^ A statute which requires the certificate of organi- zation of a railroad company to state the termini of the road, and the county or counties through which the road shall pass, applies only to the main line of the company, and, hence, it is unnecessary for the cer- tificate to specify the termini of branch lines or the counties through which they will pass.^* And it has been held that the description of a terminus as "at or near" a certain place is not so indefinite and de- fective as to vitiate the articles of incorporation.^^ Where an estimate of the length of the road is required, it may be approximately given.^" § 37. Particular corporation must be authorized. — The charter con- fers corporate rights and privileges only upon those named as incor- papers filed with the secretary of Adams, &c. Co. 81 Ky. 300; Purdyjs state have been duly recorded, and Beach Priv. Corp., §§ 73, 74, 75. that fraudulently and surreptitious- " Trester v. Missouri, &c. R. Co. ly recording papers of a new cor- 33 Neb. 171, 49- N. W. 1110. See ante, poration, contrary to the agreement § 18. of the incorporators, is of no effect. '^ Central R. Co. v. Pennsylvania Ricker v. Larkin, 27 111. App. 625. R. Co. 31 N. J. Eq. 475; Warner v. '"'Bates V. Wilson, 14 Colo. 140, Callender, 20 Ohio St. 190. But see 24 Pac. 99, 8 R. & Corp. L. J. 144. De Long v. Schimmel, 58 Ind. 64; =• Colo. Gen. Stat. 1883, § 238. Indianapolis, &c. R. Co. v. Newson, '- Bates V. Wilson, 14 Colo. 140, 54 Ind. 121. As to the right to con- 24 Pac. 99, 8 R. & Corp. L. J. 144. struct a circular road, notwithstand- See, also. Reed v. Richmond St. R. ing the statute requires the termini Co. 50 Ind. 342, 19 Am. R. 718. to be stated, see State v. Martin, 51 "= Collier v. Union R. Co., 113 Kans. 462, 33 Pac. 9; Collier v. Tenn. 96, 83 S. W. 155. See gener- Union R. Co. 113 Tenn. 96, 83 S. W. ally as to what is a fatal defect, 155. New York Cable Co. v. Mayor, 104 ='° Buffalo, &c. R. Co. v. Hatch, 20 N. Y. 1, 10 N. B. 332- Heinige v. N. Y. 157. Ell. Railboads — 5 § 38] CHARTERS. 66 porators or -upon those to whom their rights are transferred by author- ity of law. Parties cannot take a corporate charter with which they have no concern and which belongs to others, and effect a valid cor- porate organization by a pretense of user thereunder.^' The mere pur- chase of all the corporate property will not give any right to the use of the corporate franchise.^' Nor can a corporation, it seems, be formed for the purchase and operation of a railroad under a charter merely authorizing a corporation for the purpose of constructing and operating such a road.^® § 38. Construction of charter — General rules. — The charter of a railway company in common with those of other private corpora- tions/" is to be strictly but reasonably construed in favor of the public and against the company/^ wherever their interests conflict. This rule "Welch V. Old Dominion Min. & R. Co. 31 N. Y. St. 916, 10 'N. Y. S. 174, 8 R. & Corp. L. J. 254. See, also, Rogers v. Nashville, &c. R. Co. 91 Fed. 299, 33 C. C. A. 517; Memphis, &c. R. Co. v. Railroad Com'rs, 112 U. S. 609, 5 Sup. Ct. 299. The pre- tended purchase of the right of way of a railroad company at a sale on execution will give the purchaser no rights under the franchises of the execution-defendant. East Ala- bama R. Co. V. Doe, 114 U. S. 340, 5 Sup. Ct. 869. The roadhed and superstructure of a railroad built under charter from the state is charged not only in the hands of the original corporation, but of pur- chasers, with the burden of the charter obligations. Such burden can only be removed by consent of the state. State v. Dodge City R. Co. 53 Kans. 377, 36 Pac. 747, 42 Am. St. 295. ^'Bruffett V. Great Western R. Co. 25 111. 310; Coe v. Columbus, &c. R. Co. 10 Ohio St. 372, 75 Am. Dec. 518,- and note; Atkinson v. Marietta, &c. R. Co. 15 Ohio St. 21, 35. 2»Gulf, &c. Co. V. Morris, 67 Tex. 692, 4 S. W. 156, 35 Am. & Eng. R. Cas. 94; State v. Beck, 81 Ind. 500. See, also. State v. International In- vest. Co. 88 Wis. 512, 60 N. W. 796, 43 Am. St. 920. »" Taylor Priv. Corp. § 122; Water- man Corp. (2d ed.) § 493; Perrine V. Chesapeake, &c. Canal Co. 9 How. (U. S.) 172. =' The charter of a corporation is to be strictly construed; nothing is to be taken as conceded but what is given in unmistakable terms or by an implication equally clear. Rock- land Water Co. v. Camden & R. Water Co. 80 Me. 544, 15 Atl. 785, 1 L. R. A. 388; Oregon R. &c. Co. v. Oregonian R. Co. 130 U. S. 1, 9 Sup. Ct. 409, 32 L. Ed. 837, 5 R. & Corp. L. J. 364; East Line, &c. R. Co. v. Rushing, 69 Tex. 306, 6 S. W. 834; Richmond, &c. R. Co. v. Louisa, &c. •R. Co. 13 How. (U. S.) 71; Coosaw Mining Co. v. State, 144 U. S. 550, 12 Sup. Ct. 689; Bradley v. New York, &c. R. Co. 21 Conn. 294; Florida, &c. R. Co. v. Pensacola, &c. R. Co. 10 Fla. 145; Davis v. Old Colony R. Co. 131 Mass. 258, 41 Am. St. 221; Macon v. Macon, &c. R. Co. 7 Ga. 221; Pennsylvania R. Co. v. Canal Com'rs, 21 Pa. St. 9; Monon- 67 CONSTEUCTIOSr OF CHAETER — GENERAL RULES. [§■ 38 h, however, subject to the qualification that inasmuch as railway cor- porations are created to further great public interests, their charters will receive a liberal interpretation in furtherance of those interests, when they are apparent to the courts, instead of the strict construc- tion usually given to the charters of private corporations organized exclusively for pecuniary profit.^^ The powers of a corporation under its charter are such, and such only, as are expressly conferred by the statutes granting it, together with such additional powers as are fairly implied'* as being necessary to the enjoyment of the powers enum- gahelEi &c. Co, v. Kirk, 46 Pa. St. 112, 84 Am. Dec. 527; People v. Broadway R. Co. 126 N. Y. 29, 26 N. B. 961; Parker v. Great Western R. Co. 7 M. & G. 253, 49 B. C. L. 253. "A doubtful charter does not exist, because whatever is doubtful is de- cisively certain against the corpora- tion." Black, J., in Commonwealth V. Erie, &c. R. Co. 27 Pa. St. 339, 67 Am. Dec. 471 n; Jackson County Horse Car Co. v. Interstate, &c. Co. 24 Fed. 306, 308; Pennsylvania R. Co. V. Philadelphia, &c. R. Co. 10 Pa. Co. Ct. 625, 49 Leg. Intel. 5. '^ Mayor v. Baltimore, &c. R. Co. 6 Gill (Md.) 288, 48 Am. Dec. 531; Jacksonville, &c. Co. v. Hooper, 160 U. S. 514, 523, 16 Sup. Ct. 379; Fall River Iron Works Co. v. Old Colony, &c. R. Co. 5 Allen (Mass.) 221, 226; West Branch, &c. Co. V. Lumber, &c. Co. 121 Pa. St. 143, 6 Am. St. 766. See North Lon- don R. Co. V. Metropolitan Board, 1 Johns. Bng. Ch. 405, 5 Jur. N. S. 1121; State v. Stoll, 17 Wall. (U. S.) 425; Bradley v. New York, &c. R. Co. 21 Conn. 294; Mayor v. Bal- timore, &c. R. Co. 21 Md. 50, 93. In this last case it was held that power given to a railroad company to sub- scribe in aid of the construction of lateral roads authorizes it to loan money or bonds to such road, and take a mortgage to secure such loan. A grant of power for the per. formance of a public act is not to be so construed as to make the act impossible, and such a construction is not justified by the rule that pri- vate charters are to be strictly in- terpreted; provisos in a grant will not be allowed to defeat the grant itself. West Branch Boom Co. v. Pennsylvania Joint Lumber and Land Co. 121 Pa. St. 143, 15 Atl. 509, 6 Am. St. 766, 22 W. N. C. 303. The interpretation of a railroad charter, like the Interpretation of any other grant, is the ascertain- ment of intention. The means rea- sonably necessary for the enjoy- ment of a granted property or rights, to the exercise of the grant- ed power, and for the carrying out of the purpose of the grant, are given by implication. Burke v. Con- cord R. Co. 61 N. H. 160. But see Oregon R. & Nav. Co. v. Oregonian R. Co. 130 U. S. 1,. 9 Sup. Ct. 409, 5 R. & Corp. L. J. 364; Baltimore, &c. R. Co. V. Dist. of Columbia, 3 McAr- thur (D. C.) 122; East Line, &c. R. Co. V. Rushing, 69 Tex. 306, 6 S. W. 834, and authorities cited in last pre- ceding note. '^Thomas v. Railroad Co. 101 U. S. 71, 82; Commonwealth v. Erie, &c. R. Co. 27 Pa. St. 339, 67 Am. Dec. 471 n; Pittsburg, &c. R. Co. v. Allegheny County, 63 Pa. St. 126, 135; Delaware, &c. , Canal Co. v. Camden, &c. R. Co. 16 N. J. Eq. 321, § 38] CHAETEKS. 68 erated.^* The emimeration of certain powers implies the exclusion of all others not necessary to their enjoyment.'^ The phrase "necessary powers," however, generally means such as are convenient, useful and appropriate to the specific power granted.^" Ambiguity in the terms used may vitiate the charter" as all doubtful expressions will generally be construed against the corporation.^* A charter, however, like a con- tract between individuals,^" is to be construed fairly and reasonably,*" according to the natural import of the language used, with reference to the purposes and objects of the corporation," and with a view to carrying out the intention of the legislature in granting it.*^ Where similar franchises are granted to two corporations, the charters must. 372; Morris, &c. R. Co. v. Sussex R. Co. 20 N. J. Eq. 542, 562; Mobile, &c. R. Co. V. Franks, 41 Miss. 494, 511; Central R. Co. v. Collins, 40 Ga. 582; Pacific R. Co. v. Seely, 45 Mo. 212, 220, 100 Am. Dec. 369; State v. Atchison, &c. R. Co. 24 Neb. 143, 38 N. W. 43, 8 Am. St. 164 n; Lower v. Chicago, &c. R. Co. 59 Iowa 563, 13 N. W. 718, 10 Am. & Eng. R. Cas. 17; Mobile v. Railroad Co. 84 Ala. 115, 5 Am. St. 342 n. " Enfield Toll Bridge Co. v. Hart- ford R. Co. 17 Conn. 454, 44 Am. Dec. 556 n; Davis v. Old Colony R. Co. 131 Mass. 258, 41 Am. R. 221; Housatonic R. Co. v. Lee, &c. R. Co. 118 Mass. 391; Shawmut Bank v. Plattsburgh, &c. R. Co. 31 Vt. 491; Morris, &c. R. Co. v. Newark, 10 N. J. Eq. 352; Thomas v. Railroad Co. 101 U. S. 71; Ross, &c. Co. v. South- ern Co. 72 Fed. 957. == Thomas v. Railroad Co. 101 U. S. 71, 82; Tennessee, &c. R. Co. v. Adams, 3 Head. (Tenn.) 596; Case V. Kelly, 133 U. S. 21, 10 Sup. Ct. 216; Lewis, &c. Co.. v. Thomas (Ky.), 3 S. W. 907; Pittsburg, &c. E. Co. V. Jones, 111 Pa. St. 204, 2 Atl. 410, 56 Am. R. 260. °°McCulloch V. Maryland, 4 Wheat. (U. S.) 316, 413, Marshall, C. J.; Hood V. New York, &c. R. Co. 22 Conn. 1, 16; Buffett v. Troy, &c. R. Co. 40 N. Y. .168, 176; Buffit v. Troy, &e. R. Co. 36 Barb. (N. Y.) 420; Green Bay, &c. R. Co. v. Union Steamboat Co. 107 U. S. 98, 2 Sup. Ct. 221. But not such as are unusual and too remote and indirect. North- side R. Co. V. Worthington, 88 Tex. 562, 53 Am. St. 778; People v. Chi- cago, &c. Co. 130 111. 268, 17 Am. St. 319; Burrill L. Diet, title "Neces- sary." =' "Waterman Corp., § 493. =' Scales V. Pickering, 4 Bing. 448 ; Richmond, &c. R. Co. v. Louisa, &c. R. Co. 13 How. (U. S.) 71; Common- wealth V. Central Pass. R. Co. 52 Pa. St. 506; Rice v. Railroad Co. 1 Black (U. S.) 358; Pennsylvania R. Co. V. Canal Comrs., 21 Pa. St. 22; Singleton v. Southwestern R. Co. 70 Ga. 464, 48 Am. R. 574 n. "• Waterman Corp. § 138. "Green Bay, &c. R. Co. v. Union Steamboat Co. 107 U. S. 98, 2 Sup. Ct. 221; Brown v. Winnisimmet Co. 11 Allen (Mass.) 326, 336; Common- wealth V. Erie, &c. R. Co. 27 Pa. St. 339, 67 Am. Dec. 471 n. "Waterman Corp., § 484. " Waterman Corp. § 138, and cases cited. 69 MONOPOLIES PERPETUITIES. {§ 39 if possible, receive such a construction that efEeet may be given to both, and neither be held to be in derogation of the other.*' § 39. Grants of monopolies and powers in derogation of public rights — ^Perpetuity. — The rule of strict construction against corpora- tions is peculiarly applicable to grants of exclusive privileges, monop- olies, and powers in derogation of public rights, or the like. In such cases it is generally held that nothing passes by implication, and it is said that "this rule applies with peculiar force to articles of associa- tion, which are framed under general laws, and which are a substitute for a legislative charter, and assume and define the powers of the cor- poration by the mere act of the associates, without any supervision of the legislature or of any public authority."** Thus, exclusive privileges and monopolies are not to be presumed, and if not unequivocally granted must be deemed to be withheld.*" So, grants in derogation of public rights,*' or of the rights and franchises of other corpora- tions,*^ are to be strictly construed. And, "as between a construction *= Pennsylvania R. Co.'s Appeal, 93 Pa. St. 150, 3 Am. & Eng. R. Cas. 507; Hudson Riv. Tel. Co. v. Water- vllet Turnp. Co. 56 Hun (N. Y.) 67, 9 N. Y. S. 177. " Central Transp. Co. v. Pullman's Car Co. 139 U. S. 24, 49, 11 Sup. Ct. 478, per Gray, J.; Oregon R. Co. v. Oregonian R. Co. 130 U. S. 1, 27, 9 Sup. Ct. 409. ^^ Charles River Bridge v. Warren Bridge, 11 Pet. (U. S.) 420; Lehigh, &c. Co. V. Easton, 121 U. S. 388, 7 Sup. Ct. 916; Richmond, &c. R. Co. V. Louisa R. Co. 13 How. (U. S.) 71; People v. Broadway R. Co. 126 N. Y. 29, 26 N. E. 961; Indianapolis Cable R. Co. v. Citizens' R. Co. 127 Ind. 369, 24 N. E. 1054, 26 N. E. 893, 8 L. R. A. 539 n; East St. Louis, &c. R. Co. V. East St. Louis Union R. Co. 108 111. 265; Jackson &c. R. Co. V. Interstate R. Transit Co. 24 Fed. 306; Omaha Horse R. Co. v. Cable Tramway Co. 30 Fed. 324; De Lancey v. Insurance Co. 52 N. H. 581; Gaines v. Coates, 51 Miss. 335; Georgia R. Co. v. Smith, 70 Ga. 694. See, also, Detroit Citizens' St. R. Co. V. Detroit R. Co. 171 U. S. 48, 18 Sup. Ct. 732; Augusta, &c. R. Co. v. Augusta, &c. R. Co. 96 Ga. 562, 23 S. E. 501; Chicago, &c. 9. Co. v. Louisville, &c. R. Co. (Ky.) 58 S. W. 799. " Fertilizing Co. v. Hyde Park, 97 U. S. 659; Turnpike Co. v. Illinois, 96 TJ. S. 63. Thus, property already devoted to a public use cannot be taken and used by a corporation un- less the right is clearly granted. People V. Thompson, 98 N. Y. 6; People V. Newton, 112 N. Y. 396, 19 N. E. 831, 3 L. R. A. 174 n; Stam- ford V. Stamford R. Co. 56 Conn. 381, 15 Atl. 749, 1 L. R. A. 375; Elliott Roads and Streets, 167-169. " Pennsylvania R. Co.'s Appeal, 93 Pa. St. 150; Packer v. Sunbury, &c. R. Co. 19 Pa. St. 211; Bridgeport v. New York R. Co. 36 Conn. 255, 4 Am. R. 63; Worcester, &c. R. Co. v. Railroad Comrs. 118 Mass. 561. § 40] . CHARTERS. 70 which will place a limitation on the grant and one which will give rise to a perpetuity, it is clear that it is the duty of the court, ia favor of the public, to impose the limitation."*^ § 40. Practical construction. — It is a familiar rule that, in case of doubt, the practical exposition or construction of a contract by the parties is entitled to great, if not controlling influence, and ^will usu- ally be followed by the courts.*^ This rule has been applied to stat- utes which have received a contemporaneous construction,^" and even to constitutional provisions.^^ It follows, therefore, that the practical construction of a grant to a railroad company established by years of uniform usage, acquiesced in by the public and all parties interested, will be of great weight in determining the construction of the grant and will usually be followed by the courts if the meaning or extent of the grant would otherwise be doubtful.^ ^ But this rule should not, perhaps, be carried to the extent to which it is carried by some of the courts in the construction of ordinary contracts, that is, it should not be so applied as to enable corporations to acquire rights, as against the public, which are clearly not given to them, either expressly or im- pliedly, by their charters or grants from the public. In other words, the mere assumption of a right on their part and inaction on the part of the public will not necessarily be conclusive that such a right exists, especially as against the plain letter of the law.^^ "Detroit v. Detroit City R. Co. 56 Rogers v. Goodwin, 2 Mass. 475; Fed. 867, 886. See, also, Coosaw Pike v. Megoun, 44 Mo. 491; State Min. Co. v. South Carolina, 144 U. S. v. Parkinson, 5 Nev. 15. In Bruce 550, 12 Sup. Ct. 689. v. Schuyler, 4 Gilm. (111.) 221, it is " Central Trust Co. v. Wabash, &c. said : "It has always been regarded R. Co. 34 Fed. 254; District of Co- by the courts as equivalent to a pos- lumbia v. Gallagher, 124 C. S. 505, 8 itive law." Approved in Board of Sup. Ct. 585; Chicago v. Sheldon, 9 Comrs. v. Bunting, 111 Ind. 143, 12 Wall. (U. S.) 50; Vinton v. Bald- N. E. 151. win, 95 Ind. 433 ; Reissner v. Oxley, " Bingham v. Miller, 17 Ohio 445, 80 Ind. 580, and authorities there 49 Am. Dec. 471; Johnson v. Joliet, cited; Frazier v. Myers, 132 Ind. 71, 23 111. 202; State v. Mayhew, 2 Gill 31 N. E. 536; Union Pac. R. Co. v. (Md.) 487. Anderson, 11 Colo. 293, 18 Pac. 24; "^ Mobile V. Louisville, &c. R. Co. Bishop Cont. § 598; Clark Cont. 84 Ala. 115, 4 So. 106, 5 Am. St. 342. § 594. »" Powers that can only be ob- "" United States v. Philbrlck, 120 tained by charter or grant cannot U. S. 52, 7 Sup. Ct. 413; Hovey v. be acquired by assuming, without State, 119 Ind. 386, 395, 21 N. B. authority, to. exercise them; nor is 890; People v. Board, 100 111. 495; the public, although it may be rep- 71 RAILROAD CHARTER POWERS INCLUDED. [§■41 §41. Charter to build and operate a railroad — ^What powers are included, — ^The grant of authority to build and operate a railroad car- ries with it, when necessary to the enjoyment of the franchise, the implied authority to condemn lands for a right of way;^* to appro- priate land of the state over which the chartered route runs, although no provision is made for compensation for it when taken ;°^ to erect bridges oTer navigable streams ;°* to repair bridges where it is au- thorized to build;'' to construct its road across a highway"^ or rail- road' ° between its authorized termini; but not, ordinarily, along and upon a highway^" or property already devoted to railroad use;*^ to resented by its officers, In a situa- tion to protect its rights or take action to the same extent as are in- dividuals. " Tennessee, &c. R. Co. v. Adams, 3 Head (Tenn.) 596. ""Indiana Cent. R. Co. v. State, 3 Ind. 421. But this doctrine is of doubtful soundness. ""Fall River Iron Works Co. v. Old Colony, &c. R. Co. 5 Allen (Mass.) 221; Tennessee R. Co. v. Adams, 3 Head (Tenn.) 596; Ham- ilton V. Vicksburg, &c. R. Co. 34 La. Ann. 970, 44 Am. R. 451; Miller v. Prairie du Chien, &c. R. Co. 34 Wis. 533. In Schofield v. Pennsylvania, &c. R. Co. 12 Pa. Co. Ct. 122, it was held that the railroad had power to build a branch road ex- tending a thousand feet along the bed of a navigable stream. But see Stevens v. Brie R. Co. 21 N. J. Bq. 259. "Central Trust Co. v. Wabash, &c. R. Co. 32 Fed. 566. "'State V. Montclair R. Co. 35 N. J. L. 328; Lewis v. German town, &c. R. Co. 16 Phila. (Pa.) 608; White River Turnp. Co. v. Vermont Cent. R. Co. 21 Vt. 590. ""St. Louis, &c. R. Co. V. Spring field, &c. R. Co. 96 111. 274; Ft. Wayne v. Lake Shore, &c. R. Co. 132 Ind. 558, 32 N. E. 215, 18 L. R. A. 367 n, 32 Am. St. 277, citing El- liott Roads and Streets, 169. ""Springfield v. Connecticut River R. Co. 4 Cush. (Mass.) 63; St. Louis, &c. R. Co. V. Haller, 82 111. 208; Kenton County Court v. Bank Lick Turnp. Co. 10 Bush (Ky.) 529. "' Housatonic, &c. R. Co. v. Lee, &c. R. Co. 118 Mass. 391; Contra Costa, &c. R. Co. v. Moss, 23 Cal. 323; Alexandria, &c. R. Co. v. Alex- andria, &c. Co. 75 Va. 780; 40 Am. R. 743 n; Seymour v. Jef- fersonville, &c. R. Co. 126 Ind. 466, 26 N. B. 188; Lewis Eminent Domain, § 267. Express, or at least clearly implied, authority is generally necessary in such cases. Central City, &c. R. Co. v. Fort Clark, &c. R. Co. 81 111. 523; East- ern R. Co. V. Boston, &c. R. Co., Ill Mass. 125, X5 Am. R. 13; Balti- more, &c. R. Co. V. North, 103 Ind. 486, 3 N. E. 144; Elliott Roads and Streets, 167, 168. See, also, Denver, &c. R. Co. V. Denver, &c. Co. 17 Fed. 867, 5 McCrary (U. S.) 443; Rail- way Co. V. Ailing, 99 U. S. 463, as to respective rights of two railroad companies in a narrow canon or defile. Other authorities, and a full treatment of this subject will be found in the chapter on Eminent Domain. 41] CHAKTEES. 72 take gravel and material for use in construction of the roadbed, and water for the use of the engines f^ to run trains of cars over the road by the use of steam as a motive power, even though it be so near to a public highway as to frighten horses driven thereon;*^ and to take tolls for the carriage of goods and passengers.'* The grant of a right to construct a railroad between two towns has been held to carry implied authority to run a branch line along a street of one of the towns to reach a depot and turn-table which lay ofE from the direct line.'^ Power to build a road "to" or "from" a certain town, or to construct works "at" such a town, includes power to build to such point within the corporate limits suitable for the transaction of its business and the accommodation of the public as may be fixed upon by the company and the municipal authorities."" "A railroad, company =^See Morgan v. Louisiana, 93 U. S. 217; also, Strohecker v. Alabama, &c. R. Co. 42 Ga. 509; Pennsylvania R. Co. V. Miller, 112 Pa. St. 34, 3 Atl. 780; Aldrich v. Drury, 8 R. J. 554; Early wine v. Topeka, &c. R. Co. 43 Kans. 746, 23 Pac. 940; Henry v. Dubuque, &o. R. Co. 2 Iowa 288; Taylor v. New York, &c. R. Co. 38 N. J. L. 28. But see Preston v. Du- buque, &c. R. Co. 11 Iowa 15. "' Bordentown, &c. T. Co. v. Cam- den, &c. R. Co. 17 N. J. L. 314, 319. ''See Morgan v. Louisiana, 93 XJ. S. 217. "Courts have construed the charter of a canal or railroad com- pany, in relation to the right to take freight or toll, in favor of the public and against the company." 1 Waterman Corp. § 138, citing Stourbridge Canal Co. v. Wheeley, 2 B. & Ad. 793; Barrett v. Stockton, &c. R. Co. 2 Man. & Gr. 134, 7 Man. & Gr. 870; Gildart v. Gladstone, 11 East 675; Leeds, &c. Canal v. Hust- ler, 1 B. & C. 424; Camden, &c. R. Co. V. Briggs, 22 N. J. L. 623. Where the charter of a canal imposed a toll on goods carried on vessels pass- ing through the canal, and on such vessels as had not sufficient goods aboard to yield a toll of four dol- lars, it was held that the company had no right to charge toll for pas- sengers, and a vessel laden exclu- sively with passengers was entitled to navigate the canal upon payment of the toll imposed upon an empty vessel. Perrine v. Chesapeake, &c. Canal Co. 9 How. (U. S.) 172. "'Flanagan v. Great Western R. Co. L. R. 7, Eq. Cas. 116. See, also, Clarke v. Cuckfleld Union, 21 L. J. Q. B. 349; New Orleans, &c. R. Co. v. Second Municipality &c. 1 La. Ann. 128; Knight v. Carrollton R. Co. 9 La. Ann. 284. But see Northeastern R. Co. V. Payne, 8 Rich. L. (S. C.) 177, to the effect that authority to build "from" a city does not give a right to build within the city limits, »« Moses V. Pittsburgh, &c. R. Co, 21 111. 515, 522; Mohawk Bridge Co V. TJtica, &c. R. Co. 6 Paige Ch. (N. Y.) 554; Commonwealth v. Erie, &c, R. Co. 27 Pa. St. 339, 344, 67 Am Dec. 471 n. These terms are gen- erally regarded as inclusive and au- thorize a location within the city or place named. Chicago, &c. R. Co. V. Chicago, &c. R. Co. 112 111. 589, 25 Am. & Eng. R. Cas. 158; Rio Grande, &c. R. Co. v. Brownsville, 45 Tex. 88; Mason v. Brooklyn, &c. 73 EAILKOAD CHARTER — POWERS INCLUDED. [§41 whose charter gives it the right to build its road from a certain city is not barred from making the union depot in such city its terminus by the fact that it began to construct its road from a point in the outskirts of the city, and for some time ran trains from such point, when it appears the company never made any permanent improve- ments at such point, and that from the first it made efEorts to extend its line to the union depot."°^ But no authority is given to build the road into such a town in a direction different from that of the gen- eral direction of the road.*^ A company chartered to build a rail- road for the purpose of transporting lumber for shipment by water, with authority to construct the road "to the place of shipping lum- ber'* on a river, may lawfully appropriate lands for a right of way across the flats or overflowed lands within the ordinary banks of the river and extend its tracks across such lands to a convenient navigable part of the river from which lumber may be shipped.^' A railroad corporation has implied authority to build and maintain restaurants for its passengers^" or employes ;^^ to erect or secure the erection of a telegraph line along its route ;^^ and to erect and maintain depots, car houses, water tanks, repair shops, and the like.'^ If also has power R. Co. 35 Barb. (N. Y.) 373. See, also, Waycross, &c. R. Co. v. OfEer- man, &c. R. Co. 109 Ga. 827, 35 S. B. 275; Colorado, &c. R. Co. v. Union Pac. R. Co. 41 Fed. 293. Contra, Northeastern R. Co. v. Payne, 8 Rich. L.'(S. C.) 177. The term "be- tween" has also been construed as inclusive. Morris, &c. R. Co. v. Cen- tral, &c. R. Co. 31 N. J. L. 205. " Colorado E. R. Co. v. Union Pac. R. Co. 41 Fed. 293. See, also. Col- lier V. Union R. Co. 113 Tenn. 96, 83 S. "W. 155. °' Savannah, &c. R. Co. v. Shiels, 33 Ga. 601. ""Peavey v. Calais R. Co. 30 Me. 498, 1 Am. R. Cas. 147. "Flanagan v. Great Western R. Co. L. R. 7 Eq. Cas. 116. "Jacksonville, &c. R. Co. v. Hooper, 160 U. S. 514, 16 Sup. Ct. 379; Abraham v. Oregon, &c. R. Co. 37 Oreg. 495, 60 Pac. 899, 64 L. R. A. 391, 82 Am. St. 779. So, in some in- stances, it may buy or hire steam- boats or run stages in connection with its line. Green Bay, &c. R. Co. V. Union Steamboat Co. 107 U. S. 98, 2 Sup. Ct. 221; Shawmut Bank v. Plattsburg, &c. R. Co. 31 Vt. 491; Buffett V. Troy, &c. R. Co. 40 N. Y. 168, 172. See, also, Norfolk, &c. R. Co. V. Shippers' Compress Co. 83 Va. 272, 2 S. E. 139. "Prather v. Western U. Tel. Co, 89 Ind. 501; Pittsburg, &c. R. Co. v. Shaw (Pa.), 36 Am. & Eng. R. Cas. 453; Marietta, &c. R. Co. v. Western U. Tel. Co. 38 Ohio St. 24, 10 Am. & Eng. R. Cas. 387; Western U. Tel. Co. V. Rich, 19 Kans. 517, 27 Am. R. 159. Or scales at its stations for weighing freight. London, &c. R. Co. V. Price, L. R. 11 Q.B. Div. 485, 13 Am. & Eng. R. Cas. 128. '= Waterman Corp. § 138, citing State V. Mansfield, 23 N. J. L. 510, 57 Am. Dec. 409 n; Wright v. Carter, 27 N. J. L. 76; State v. Newark, 1 43] CHARTERS. u to make reasonable rules and regulations for the safety and convenience of its passengers^* and the management of its road and business.'^ § 42. Other powers of railroad companies — ^Implied powers in- cluded in certain grants. — A railroad company may offer a reward for the detection of persons obstructing its track.''® Under an au- thority to erect a bridge, the corporation may condemn land for abut- ments^^ and may build necessary approaches.'^ So, under a general authority to condemn land for a right of way, a corporation may take land for depots, water-tanks, roundhouses, shops, and coal and wood yards, and such other works as are necessary to the operation of the road,'^ and it may build side tracks to the establishments of large shippers as a power incidental to its expressly granted powers,*" and, under express power to build a branch road, it may buy one already built.* ^ It is said that the burden is upon those asserting the fact to show that the charter of a corporation authorizes it to take or con- vey lands,* ^ and those claiming such authority by implication must Butch. (N. J.) 315. But it has been held that a railroad has no implied power to erect houses for its em- ployes nor to establish factories for making its own rails and roll- ing-stock, nor to do any other acts not necessary to the successful oper- ation of the road. State v. Mans- field, supra. "Chicago, &c. R. Co. v. Williams, 55 111. 185, 8 Am. R. 641; Gray v. Cincinnati, &c. R. Co. 11 Fed. 683, 6 Am. & Bng. R. Gas. 588. '= Chicago, &c. R. Go. v. People, 56 111. 365, 8 Am. R. 690; Reagan v. St. Louis, &c. R. Go. 93 Mo. 348, 6 S. W. 371, 3 Am. St. 542; Cleveland, &c. R. Co. V. Bartram, 11 Ohio St. 457. See By-laws, Rules and Regulations, Chapter X. "Central R. &c. Co. v. Cheatham, 85 Ala. 292, 4 So. 828, 7 Am. St. 48, 37 Am. & Eng. R. Gas. 282. "Linton v. Sharpsburg, &c. Co. 1 Grant's Cas. (Pa.) 414. " Slatten v. Des Moines, &c. R. Co< 29 Iowa 148, 4 Am. R. 205. ™ State V. Comrs. of Mansfield, 23 N. J. L. 510, 57 Am. Dec. 409 n; Ver- mont Gent. R. Co. v. Burlington, 28 Vt. 193; Nashville, &c. R. Co. v. Cowardin, 11 Humph. (Tenn.) 348. ™ Wilson V. Furness R. Co. L. R. 9 Bq. Cas. 28; Chicago, &c. R. Co. V. Porter, 43 Minn. 527, 46 N. W. 75, 43 Am. & Eng. R. Cas. 170; Getz's Appeal, 65 Pa. St. 1, 3 Am. & Eng. R. Cas. 186. But see Pitts- burg, &c. R. Go. V. Benwood Iron Works, 31 W. Va. 710, 8 S. E. 453, 2 L. R. A. 680 n, 36 Am. & Eng. R. Cas. 531, where it is held that a railroad company cannot exercise the power of eminent domain to se- cure a right of way for a side track to a steel mill, even where there is evidence that all who wish to avail themselves of the proposed switch for shipping purposes may do so. "Branch v. Jessup, 106 U. S. 468, 484 et seq., 1 Sup. Ct. 175; Central Trust Co. V. Washington County R. Co. 124 Fed. 813. »= Lumbard v. Aldrich, 8 N. H. 31, 28 Am. Dec. 381. 75 RAILROAD CHARTER IMPLIED POWERS. [§ 42 .show that it is necessary to the enjoyment of the franchises expressly granted. ^^ The power to make contracts includes power to dispose of securities received in the prosecution of the objects for which the company is chartered.** A railroad corporation has implied authority to contract generally in the course of its legitimate business, where not prohibited or restricted by some express provision of law.*^ Thus, it may make proper traffic arrangements with other companies^^ and permit them to use its terminals.'^ It may borrow money, and give negotiable notes,** or issue or guarantee bonds, to carry into efEect the object of the organization.*" Authority to build a branch or lateral road implies power to condemn lands for a right of way for such road,"" and to construct a branch line running in the same general >= Rensselaer, &c. R. Co. v. Davis, 43 N. Y. 137; New York Cent. R. €o.. In re, 66 N. Y. 407. =* Rorer Railw., § 35. *' Racine, &c. R. Co. v. Farmers', &C. R. Co. 49 111. 331, 95 Am. Dec. 595 ; Philadelphia, &c. R. Co. v. Hick- man, 28 Pa. St. 318; Mobile, &c. R. €o. V. Talman & Ralston, 15 Ala. 472; Chicago, &c. R. Co. y. Howard, 7 Wall. (U. S.) 392; Pixley v. West- •ern Pac. R. Co. 33 Cal. 183, 91 Am. Dec. 623; ' Arlington v. Savannah, &c. R. Co. 95 Ala. 434, 11 So. 7; ■Chattanooga, &c. R. Co. v. Davis, 89 •Ga. 708, 15 S. B. 626. '" Sussex, &c. R. Co. v. Morris, &c. R. Co. 19 N. J. Bq. 13; Wheeler v. San Francisco, '&c. R. Co. 31 Cal. 46, 89 Am. Dec. 147; Perkins v. Portland, &c. R. Co. 47 Me. 573, 74 Am. Dec. 507; Manchester, &c. R. Co. V. Concord, &c. R. Co. 66 N. H. 100, 20 Atl. 383, 49 Am. St. 582; Stewart v. Erie, &c. Co. 17 Mich. 372; Georgia, &c. Co. v. Maddox, 116 Ga. 64, 42 S. B. 315, 321, citing text. "Miller v. Green Bay, &c. R. Co. 69 Minn. 169, 60 N. W. 1006, 26 L. R. A. 443. See, also. Union Pac. R. Co. V. Chicago, &c. R. Co. 163 TJ. S. 564, 16 Sup. Ct. 1173, and Georgia, &c. Co. v. Maddox, 116 Ga. 64, 42 S. B. 315, 321, citing text. ^ Chicago, &c. R. Co. v. Howard, 7 Wall. (U. S.) 392; White Water C. Co. v. Vallette, 21 How. (U. S.) 414; Wood V. Whelen, 93 111. 153; Branch V. Atlantic, &c. R. Co. 3 Woods (U. S.) 481. " Cases cited in preceding note. Contra, in England, Bateman v. Mid- Wales R. Co. L. R. 1 C. P. 499. It cannot, of course, guarantee bonds merely to help others or the like. Elevator Co. v. Memphis, &c. R. Co. 85 Tenn. 703, 5 S. W. 52, 4 Am. St. 798; Smead v. Indianapolis, &c. R. Co. 11 Ind. 104. But it can guar- antee bonds wh:ch it lawfully owns in order to make them salable and enhance their value to it. ™Newhall v. Galena, &c. R. Co. 14 111. 273.' The right to "construct such branches as the directors may deem necessary," conferred upon a railroad corporation by its charter gives it a continuing power of branch building which is not taken away by a sijbsequent act requiring the company within a certain time to complete its road "with one or more tracks, sidings, depots and ap- purtenances." Pittsburg, &c. R. Co- § 43] CHAETEKS. 76 direction, as the main line, even though it be built to connect with the main line of another road/^ and even, it has been held, to build a short elevated road from the original terminus of its route along a public landing.^^ A limitation as to the time within which the "works hereby required" shall be finished, will usually be held to apply only to the building and equipping of the main line, and the building of lateral roads will be understood to be optional with the company.'^ §43. Amendment — Power must be reserved. — The charter of a corporation constitutes a contract between the corporation and the state, and is not subject to amendment or repeal,"* unless the right to alter or revoke is reserved."" And it has been held that an express V. Pittsburg, &c. R. Co. 159 Pa. St. 331, 28 Atl. 155. "Blanton v. Richmond, &c. R. Co. 86 Va. 618, 10 S. E. 925, 43 Am. & Eng. R. Cas. 617. Where the charter of a railroad corporation empowers It to build only one specified branch road, another road, incorporated un- der the laws of a different state, though constructed and operated by the first road. Is not a "branch" of such road within the meaning of a deed reserving a right of way over such premises in favor of such road or any of its branches. Biles v. Ta- coma, &c. R.' Co. 5 "Wash. St. 509, 32 Pac. 211. Where a railroad com- pany's charter expressly authorizes it to build branch roads, contracts entered into by it with a construc- tion company for the construction of a projected branch road are Valid and may be enforced. Arrington v. Savannah, &c. R. Co. 95 Ala. 434, 11 So. 7. »^McAboy'^ Appeal, 107 Pa. St. 548. ™ Blanton v. Richmond, &c. R. Co. 86 Va. 618, 10 S. E. 925. But see Newhall v. Galena, &c. R. Co. 14 III. 273, where it is held that a limi- tation or extension of time in which to construct should, by intendment, be applied to the lateral or branch lines equally with the main line of the road. In Commonwealth v. New York, &c. R. Co. 10 Pa. Co. Ct. 129, a railroad and mining company was authorized by its charter to build a railroad or railroads from any lands held by them to a certain railroad, or to connect any two or more railroads which might be con- structed by them in either or both of two counties named. The court held that the building of one road did not exhaust the powers of the company, and that having built one railroad and finding it unprofitable, the building of another did not operate to forfeit the company's charter. " Dartmouth College v. Woodward, 4 Wheat. (U. S.) 518; Piqua Branch Bk. V. Knopp, 16 How. (U. S.) 369; State V. Noyes, 47 Me. 189; Com- monwealth V. Erie, &c. Co. 107 Pa. St. 112; Pennsylvania R. Co. v. Bal- timore, &c. R. Co. 60 Md. 263 ; Hous- ton, &c. R. Co. V. Texas, &c. R. Co. 70 Tex. 649; Ashuelot R. Co. v. El- liott, 58 N. H. 451; Thornton v. Mar- ginal Freight R. Co. 123 Mass. .32. See, also, Pennsylvania R. Co. v. Miller, 132 U. S. 75, 10 Sup. Ct. 34. "'The several states now provide by general laws or by constitutional 77 AMENDMENT — ^POWEE MUST BE KESEETED. [§ 43 reservation by the legislature of power to repeal a charter can give no authority to take away or destroy property lawfully acquired or created under authority conferred by the charter;"® nor to disturb, provisions that all charters granted shall be subject to alteration, amend- ment and repeal, at the discretion of the legislature. Stimson Am. Stat. Law, §§ 442, 8003. See St. Louis, &c. R. Co. V. Ryan, 56 Ark. 245, 19 S. W. 839; Mowrey v. In- dianapolis, &c. R. Co. 4 Biss. (U. S.) 78; New Orleans, &c. Co. v. Har- ris, 27 Miss. 517; Commonwealth v. Fayette, &c. R. Co. 55 Pa. St. 452; Delaware R. Co. v. Tharp, 5 Harr. (Del.) 454; Greenwood v. Union Freight R. Co. 105 U. S. 13; New York El. R. Co. In re, 70 N. Y. 327; 1 Beach Priv. Corp. §§ 36, 57. Ex- emption from legislative interfer- ence, given by charter, "must ap- pear by such clear and unmistak- able language that it cannot be rea- sonably construed consistently with the reservation of the power by the state." Georgia R. &c. Co. v. Smith, 128 U. S. 174, 9 Sup. Ct. 47, 32 L. Ed. 377, 16 Wash. L. 749. "The con- dition is implied in every grant of corporate existence, that the corpo- ration shall be subject to such rea- sonable regulations, in respect to the general conduct of its affairs, as the legislature may from time to time prescribe, which do not materially interfere with or obstruct the sub- stantial enjoyment of the privileges the state has granted, and serve only to secure the ends for which the corporation was created." Hill V. Merchants' Mut. Ins. Co. 134 U. S. 515, 10 Sup. Ct. 589, 33 L. Ed. 994, 7 Railw. & Corp. L. J. 442; Reed v. Gettysburg, &c. Asso. 129 Pa. St. 329, 18 Atl. 130, 24 W. N. C. 292; Montclair Tp. v. New York, &c. R. Co. 45 N. J. Eq. 436, 18 Atl. 242, 40 Am. & Eng. R. Cas. 342, 6 R. & Corp. L. J. 385. Exemption from future general legislation, either by a constitutional provision or by an act of the legislature, does not exist unless it is given expressly, or un- less it follows by an implication equally clear with express words. In the absence of any prior contract exempting it from liability to future general legislation, a railroad cor- poration takes its charter subject to the general law of the state and to such changes as may be made in such general law, and subject to fu- ture constitutional provisions and future general legislation. Chicago, &c. R. Co. V. Minnesota, 134 U. S. 418, 10 Sup. Ct. 462, 702, 33 L. Ed. 970, 41 Alb. L. J. 325, 2 Advo. 182, 42 Am. & Eng. R. Cas. 285. See, also. Citizens' St. R. Co. v. Memphis, 53 Fed. 715; Pearsall v. Great Northern R. Co. 161 U. S. 646, 16 Sup. Ct. 705. This rule applies to future general legislation as to compensation for property taken in the exercise of eminent domain. Pennsylvania R. Co. V. Miller, 132 U. S. 75, 10 Sup. Ct. 34, 33 L. Ed. 267; Pennsylvania, &c. R. Co. V. Duncan, 111 Pa. St. 353, 5 Atl. 742, 25 W. N. C. 1, 46 Phila. Leg. Int. 487. "People V. O'Brien, 111 N. Y. 1, 18 N. E. 692, 19 N. Y. St. 173, 2 L. R. A. 255, 7 Am. St. 684. But this decision is, in some respects, of doubtful soundness. See Greenwood T. Union Freight R. Co. 105 U. S. 13; Close v. Glenwood Cemetery, 107 U. S. 466, 2 Sup. Ct. 267. And compare Orr v. Bracken County, 81 Ky. 593 ; San Mateo v. Southern, &c. R. Co. 8 Sawy. (U. S.) 238, 279; § 43] CHAETEES. 78 affect or impair vested rights either of the corporation or of its share- holders.®^ It has no power to make any material or essential alteration in the contract between the members themselves and the corporation ; and therefore a new charter obtained by the directors of a railroad company, without the consent of the stockholders, changing the capital stock and route, is not binding upon the stockholders."' But the right of the state to amend the charter of a railroad company is not abridged or affected by executory contracts between the company and a construction company, and between the latter and subcontractors, touching the construction and equipment of the road; for all parties contracting with a corporation must take notice of the conditions on which it holds its franchises, and of its subjection to the legislative will."" Where a special charter containing no provision for its amend- ment is granted to a railroad company while an act is in force declaring that the charter of every corporation created under a general law, and every charter granted by act of the general assembly, unless such act declares the contrary, is subject to amendment, it has been held that the general assembly may impose upon such railroad, in common with others, the burden of paying the salary and expenses of a state officer to whom is given the supervision of the railroads of the state.^°* It may also impose upon the railway company the duty of construct- ing and maintaining bridges on the line of highways across rights of Black V. Delaware, &c. Co. 24 N. J. no acceptance of the provisions of Eq. 456; New Orleans, &c. Co. v. the original act and no rights are Harris, 27 Miss. 517. acquired thereunder, the amenda- "Hill V. Glasgow R. Co. 41 Fed. tory act is valid." Cincinnati, &c. 610; Bryan v. Board, 90 Ky. 322, R. Co. v. Clifford, 113 Ind. 460, 15 13 S. "W. 276, 7 R. & Corp. L. J. N. B. 524; Nashville Co. v. State, 96 389; Kenosha, &c. R. Co. v. Marsh, Tenn. 249, 34 S. W. 4. 17 Wis. 13; Knoxville v. Knoxville, "'Snook v. Georgia Imp. Co., 83 &c. R. Co. 22 Fed. 758; Troy, &c. Ga. 61, 9 S. B. 1104, 38 Am. & Bng. R. Co. V. Kerr, 17 Barb. (N. Y.) R. Cas. 492. See, also, Zabriskie v. 581; Detroit v. Detroit, &c. Co. 43 Hackensack, &c. R. Co. 18 N. J. Eq. Mich. 140, 5 N. W. 275. "After 178, 90 Am. Dec. 617; Mills v. Cen- vested rights have been acquired, tral R. Co. 41 N. J. Eq. 1, 2 Atl. 453 ; the charter of a corporation cannot New Orleans, &c. R. Co. v. Harris, be so amended as to impair them, 27 Miss. 517. unless the power to amend or repeal ™ Macon, &c. R. Co. v. Gibson, 85 is expressly reserved; but where the Ga. 1, 11 S. E. 442, 21 Am. St. 135, original and amendatory acts are 43 Am. & Eng. R. Cas. 318. passed at the same session of the ^"Charlotte, &c. R. Co. v. Gibbes, legislature, with only a brief inter- 27 S. Car. 385, 4 S. E. 49, 31 Am. & val between, during which there is Bng. R. Cas. 464. 79 POLICE REGULATIONS. [§ 44 way which it has merely graded without laying the rails.^"^ Such amendments may be made by the enactment of a general railroad act which applies to the specially chartered corporation.^"^ A charter granting to a railway company the privilege of choosing its own route between two places may be amended by requiring it to pass through an intermediate point, even after its route has been located and con- tracts have been let for its construction.^"^ And it is held that a change of a charter within a month after it was granted, so as to make the corporation liable to pay a certain percentage of its gross receipts from the operation of a street railroad, instead of fifty dollars per car, is within the general authority to alter a charter, under the 'New York statute."* § 44. Police regulations. — Even where no power to amend the charter is reserved, the railroad company is still governed by the prin- ciple that every owner of property, however absolute and unqualified his title, holds it subject to the implied condition that the use shall not be injurious to the public, and is amenable to regulations pre- scribed under the police power of the state.^°° Thus, it has been held that railroad companies may be compelled by statutes passed after their incorporation to fence their tracks,^"® to provide accommodations for their passengers, and the like.^"^ So, they may have imposed upon '"Montclair v. New York, &c. R. restricted by legislative charters, 32^ Co. 45 N. J. Eq. 436, 18 Atl. 242, 40 Cent. L. J. 181. See, also. People v. Am. & Eng. R. Cas. 342. Boston, &c. R. Co. 70 N. Y. 569; ™Montclair v. New York, &c. R. Nelson v. Vermont, &c. R. Co. 26 Co. 45 N. J. Eq. 436, 18 Atl. 242, Vt. 717, 62 Am. Dec. 614, and cases- 6 R. & Corp. L. J. 385, 40 Am. & cited in following notes. Eng. R. Cas. 342; Pearsall v. Great ""Wilder v. Maine Central R. Co, Northern R. Co. 161 U. S. 646, 16 65 Me. 332, 20 Am. R. 698; Illinois Sup. Ct. 705. Cent. R. Co. v. Willenborg, 117 111. ><"See Macon, &c. R. Co', v. Gibson 203, 7 N. B. 698, 57 Am. R. 862; (Stamps), 85 Ga. 1, 11 S. E. 442, 43 Thorpe v. Rutland, &c. R. Co. 27 Vt. Am. & Eng. R. Cas. 318. 140, 148, 62 Am. Dec. 625; New Al- '"New York v. Twenty-third bany, &c. R. Co. v. Tilton, 12 Ind. Street R. Co. 113 N. Y. 311, 21 N. E. 3, 74 Am. Dec. 195. 60, 22 N. Y. St. 958, 5 R. & Corp. "' State v. New Haven, &c. R. Co. L. J. 583. See, also, Chicago, &c. R. 43 Conn. 351; State v. Indiana, &c. Co. V. Minnesota, 134 U. S. 418, 10 R. Co. 133 Ind. 69, 32 N. E. 817, 18 Sup. Ct. 462; and see and compare L. R. A. 502. To provide for safety generally 1 Purdy's Beach Priv. of employes. State v. Nelson, 52 Corp. § 92, and cases there cited. Ohio St. 88, 39 N. E. 22, 26 L. R. A. MB Power of state over railroads as 317; State v. Hoskiiis, 58 Minn. 35, § 45] CHAETEES. 80 them a liability for setting fire to property along their right of way.^"^ Other illustrations and a fuller treatment of this subject will be foimd elsewhere.^"" §45. Material amendments require unanimous consent of stock- holders — ^What are material. — It is a general rule that fundamental and material amendments cannot be made by the directors or majority .stockholders so as to bind the minority stockholders without their consent. Such amendments require the unanimous consent of the stockholders, and cannot be made by the majority stockholders under general laws authorizing the filing of amended articles of association unless the minority stockholders eonsent.^^" But immaterial amend- ments, or those for the benefit of the corporation and in furtherance of its original purposes, may usually be made or accepted by a majority of the stockholders.^^^ It is difficult to formulate any general rule 25 L. R. A. 759, and note. To fence tracks, stop trains at crossings, slacken speed, post tariffs, charge no more than a certain fixed rate, etc. Stone v. Farmers', &c. Co. 116 V. S. 307, 6 Sup. Ct. 334; Smith v. Alabama, 124 U. S. 465, 8 Sup. Ct. 564. For other illustrations of the right to exercise the police power see New York, &c. R. Co. v. Bristol, 151 V. S. 556, 14 Sup. Ct. 437; "Wa- bash R. Co. T. Defiance, 167 TJ. S. 88, 17 Sup. Ct. 748; New York, &c. R. Co. V. Bridgeport Traction Co. 65 Conn. 410, 32 Atl. 953, 29 L. R. A. 367. "'Rodemacker v. Milwaukee, &c. R. Co. 41 Iowa 297, 20 Am. R. 592; Lyman v. Boston, &c. R. Co. 4 Cush. (Mass.) 288; Grissell v. Housatonic, &c. R. Co. 54 Conn. 447, 9 Atl. 137, 1 Am. St. 138, 32 Am. & Eng. R. Cas. 349. ■"See chapter on State Control. ""New Orleans, &c. R. Co. v. Har- ris, 27 Miss. 517; Hartford, &c. R. Co. V. Croswell, 5 Hill (N. Y.) 383; Marietta, &c. R. Co. v. Elliott, 10 Ohio St. 57; Sparrow v. EvansvlUe, &c. R. Co. 7 Ind. 369; Union Locks, &c. Canals v. Towne, 1 N. H. 44, 8 Am. Dec. 32; Mowrey v. Indianapo- lis, &c. R. Co. 4 Biss. (U. S.) 78; Printing House v. Trustees, 104 U. S. 711. The authorities are col- lected in the elaborate note to Com- monwealth V. Cullen (Pa.), 53 Am. Dec. 450, 462. See, also, 1 Beach Priv. Corp. § 44; 1 Thompson Corp. § 72; 2 Morawetz Priv. Corp. § 645. "'Fry V. Lexington, &c. R. Co. 2 Mete. (Ky.) 314, 322; Winter v. Muscogee R. 11 Ga. 438; Gifford v. New Jersey R. Co. 10 N. J. Eq. 171; Board v. Mississippi, &c. R. Co. 21 111. 338; Chicago Life Ins. Co. v. Needles, 113 U. S. 574, 5 Sup. Ct. 681; Agricultural, &c. R. Co. v. Win- chester, 13 Allen (Mass.) 29; Rut- land, &c. R. Co. V. Thrall, 35 Vt. 536; Cross v. Peach Bottom R. Co. 90 Pa. St. 392; Poughkeepsie, &Cv Co. V. Griffin, 24 N. Y. 150; Troy, &c. R. Co. V. Kerr, 17 Barb. (N. Y.) 581; Buffalo, &c. R. Co. v. Dudley, 14 N. Y. 336; 1 Beach Priv. Corp. §§ 41, 42; 1 Thompson Corp. §§ 68, 72. Contra, Central R. Co. v. Col- lins, 40 Ga. 582, 617; Zabriskie v. Hackensack, &c. R. Co. 18 N. J. Eq. 81 MATEEIAl AMENDMENTS. [§ 45 for determining what are material amendments and what are imma- terial. But it may be said, with a reasonable degree of accuracy, that an amendment that changes the rights of the stockholders inter se, alters the original object of the corporation, or adds to or restricts its franchises, rights and powers in such a manner as to increase the liabilities of the stockholders or deprive them of vested rights, is ma- terial and requires the consent of all the stockholders,^^^ while an amendment which merely clothes the corporation with such additional immunities and privileges as are strictly in furtherance of the original design, without substantially adding to or restricting the same and without materially affecting the rights of the stockholders inter se, may be regarded as immaterial and accepted by a majority of the stockholders.^^^ It is held in some cases that extensive changes may be made or accepted by the majority in the organization and objects of the corporatioii, provided they do not destroy its distinctive features or substitute an entirely different purpose ;^^* but some of these cases. 178, 90 Am. Dec. 617; 1 Morawetz Priv. Corp., § 403. "^ Changing course and termini of railroad, Marietta, &c. R. Co. v. El- liott, 10 Ohio St. 57; Middlesex Tump. Co. V. Locke, 8 Mass. 268; Witter V. Mississippi, &c. R. Co. 20 Ark. 463; Hester v. Memphis, &c. R. Co. 32 Miss. 378; Stevens v. Rut- land, &c. R. Co. 29 Vt. 545; Man- heim, &c. Co. v. Arndt, 31 Pa. St. 317. Consolidation, Botts v. Simp- sonville, &c. Co. 88 Ky. 54, 10 S. W. 134, 2 L. R. A. 594; McCray v. Junc- tion R. Co. 9 Ind. 358; Pearce v. Madison, &c. R. Co. 21 How. (U. S.) 441. Division into two corporations. Board v. Mississippi, &c. R. Co. 21 111. 338; Indiana, &c. Turnp. Co. v. Phillips, 2 Pen. & W^ (Pa.) 184. Changing purpose. Hartford, &c. R. Co. V. Croswell, 5 Hill (N. Y.) 383; Ashton V. Burbank, 2 Dill. CU. S.) 435. See, also, Mahan v. Wood, 44 Cal. 462; Thomas v. Railroad Co. 101 U. S. 71 ; Black v. Delaware, &c. Co. 24 N. J. Bq. 455; Oldtown, &c. R. Co. V. Veazie, 39 Me. 571. Ell. Railkoads — 6 "'Extending time for completion of road. Agricultural Branch R. Co. V. Winchester, 13 Allen (Mass.) 29; San Antonio v. Jones, 28 Tex. 19; Taggart v. Western R. Co. 24 Md. 563, 89 Am. Dec. 760 n. Changing name of corporation. Buffalo, &c. R. Co. V. Dudley, 14 N. Y. 336; Bucksport, &c. R. Co. v. Buck, 68 Me. 81; Milwaukee, &c. R. Co. v. Field, 12 Wis. 340. Slight changes in the route or branch in some di- rection where the general interests of the corporation and the rights of the stockholders are not affected thereby, Peoria, &c. R. Co. v, Pres- ton, 35 Iowa 115; Irwin v. Turn- pike Co. 2 Pen. & W. (Pa.) 466, 23 Am. Dec. 53; Fry v. Lexington, &c. R. Co. 2 Mete. (Ky.) 314, 323. See, also. Midland, &c. R. Co. v. Gordon, 16 Mees. & W. 804; Willson v. Wills Valley R. Co. 33 Ga. 466; Hazelett V. Butler University, 84 Ind. 230; leading article in 16 Am. Law Rev. 101, by W. H. Whitaker; and note in 53 Am. Dec. 465. ^* Changes in the governing body §■46] CHAETEES. 82 as is clearly demonstrated by Judge Thompson^^^ and Mr. Morawetz/^* are unsound in principle and contrary to the weight of authority. It is also said that the question of the materiality of an amendment must depend upon the peculiar facts and circumstances of the particular case f'^'' but, while this is doubtless true to some extent, and in a lim- ited sense, there must be some general rule by which the courts shall be guided, for the question is one of law for the court to determine.^^* § 46. Statutory provisions authorizing amendments. — Provision is made in the various states for the amendment of the charters granted under the various general railroad acts, by the voluntary act of the corporation, when it is desirable to increase the amount of its capital stock, or the number of its directors, or to change its route, or ter- mini.^^^ But not every change in the fundamental law of a corpora- tion is an amendment. Where the alteration by the legislature is very and organization, Commonwealtli v. CuUen, 13 Pa. St. 133, 53 Am. Dec. 450; Mower v. Staples, 32 Minn. 284, 20 N. ■W._225. Changes in the purpose, and the like. Pacific R. Co. V. Hughes, 22 Mo. 291, 64 Am. Dec. 265 n; Delaware R. Co. v. Tharp, 1 Houst. (Del.) 149, 174; Martin v. Pensacola, &c. R. Co. 8 Fla. 370, 73 Am. Dec. 713; Pacific R. Co. V. Renshaw, 18 Mo. 210. Changes in route and termini of railroad, Banet v. Alton, &c. R. Co. 13 III. 504; Peoria, &c. R. Co. v. Bit- ing, 17 111. 429; Ross v. Chicago, &c. R. Co. 77 111. 127. Consolidation, Sprague v. Illinois, &c. R. Co. 19 111. 174. Purchase of other roads, Venner v. Atchison, &c. R. Co. 28 Fed. 581. See, also, Greenville &c. R. Co. V. Coleman, 5 Rich. L. (S. Car.) 118; Worcester v. Norwich, &c". R. Co. 109 Mass. 103; Hanna v. Cin- cinnati, &c. R. Co. 20 Ind. 30; Will- son V. Wills Valley R. Co. 33 Ga. 466; Rice v. Rock Island, &c. R. Co. 21 111. 93; Troy, &c. R. Co. v. Kerr, 17 Barb. (N. Y.) 581. "»1 Thompson Corp. §§ 72, 73. ™ 1 Morawetz Priv. Corp. § 402. "'Witter V. Mississippi, &c. R. Co. 20 Ark. 463. "« Memphis Branch R. Co. v. Sulli- van, 57 Ga. 240; Witter v. Missis- sippi, &c. R. Co. 20 Ark. 463. But see Southern, &c. Co. v. Stevens, 87 Pa. St. 190. Many cases as to what are or are not material amendments are cited in 1 Purdy's Beach Priv. Corp. § 92, and considerable conflict among the decisions is there shown, some of them holding certain amendments material, and others holding the same amendments to be immaterial. Most of the deci- sions, however, are comparatively old and are already cited in the pre- ceding notes to this section. ^ Stimson Am. Stat. Law, § 8529. Where a charter is amended, under the Tennessee act, so as to change the starting poiqt of a railroad, the change will not be effected unless such amendment is registered where the charter was originally required to be registered. Anderson v. Mid- dle, &c. R. Co. 91 Tenn. 44, 17 S. W. 803, 52 Am. & Eng. R. Cas. 149. 83 FOEPEITDEB WITHOUT JUDICIAL DETEEMIlirATION. [§ 47 material, the act may be construed as the grant of a new charter, if such an intention appears on the part of the legislature, and by ac- cepting it the company will be held to have surrendered its rights and contracts under the original charter.^^® The legislature has, in every state, a certain control over all corporations in the way of modify- ing the charters under which they operate, but where an attempted enlargement of corporate powers becomes indistinguishable from a granting of new substantive rights, a statute attempting to give- such powers is within the purview of a constitutional amendment, prohibit- ing- any private or local statute granting any exclusive privileges or franchises to a corporation.^^^ §47. Forfeiture — Statutory provisions dispensing with judicial determination. — Provision is made in many charters for their forfei- ture upon failure of the corporation to comply with certain conditions imposed, as that it shall begin the construction of its road within a certain time, and complete the road and put it in operation before the expiration of a time limited.^^^ Such provisions appear in all the i» Snook V. Improvement Co. 83 Ga. 61, 9 S. E. 1104,- 38 Am. & Bng. R. Cas. 492. This was a case in which, after the incorporation of the A. & H. Co., under the general railroad law, the legislature passed an act entitled "An act to incorpo- rate the A. & H. R. Co., to confer certain powers and privileges on said company, and for other pur- poses." The corporators named in the act were not altogether the same as those to whom the original char- ter was granted, and the act stated that "they are hereby created a body politic and corporate," and' gave them all powers necessary to any railroad company. Afterwards an amendment to this act was passed, entitled "An act to amend the char- ter of the A. & H. R. Co., to change the name thereof, * * * to au- thorize the extension thereof, * « * and for other purposes." The last amendment gave the company a new name and, in the construction of the extension, all the powers granted by the act as first amended. The court held that these acts constituted a separate and distinct charter, creat- ing a new corporation, and were not merely amendments to the original charter. Youngblood v. Improve- ment Co. 83 Ga. 797, 10 S. E. 124. "^Astor V. New York Arcade R. Co. 113 N. y. 93, 22 N. Y. St. 1, 20 N. B. h94, 2 L. R. A. 789 n; Brace- ville Coal Co. v. People, 147 111. 66, 35 N. E. 62, 22 L. R. A. 340, 37 Am. St. 206. ^' People V. New York Central Un- derground R. Co. 137 N. Y. 606, 33 N. E. 744. But such a provision does not apply to every sidetrack and switch which the company may find necessary or convenient to con- struct after the road is put in oper- ation. It is sufficient if the main line is constructed and the road put in operation within the time lim- ited. Areata v. Areata, &e. R. Co. 92 Cal. 639, 28 Pac. 676. §47] CHAETEKS. 84 general acts for the incorporation of railroads.^^^ Under some of the statutes the forfeiture will take effect upon failure to comply with the conditions imposed/^* without judicial determination/ ^° and the franchises may be regranted by the legislature to another corpora- tion.^^° But this, as we shall hereafter show, is not the general rule, in the absence of such a statute, for, unless otherwise provided, a mere cause of forfeiture is not ipso facto a forfeiture, but is simply ground for a judicial determination and declaration of forfeiture.^^^ "^'Stimson Am. Stat. (1892), § 8528. ^A railroad company buying, at foreclosure sale, the franchise and property of another company whose road-bed is not completed, reorgan- izing under Laws N. Y., 1874, c. 430, which provide that such reorganiza- tion shall become and be vested with all the rights, privileges and franchises belonging to the corpora- tion owning the property so sold, "and shall be subject to all the pro- visions, duties and liabilities im- posed by the general railroad act and Its amendments, except so far as * * * Inconsistent herewith, and with the last named rights, privi- leges and franchises;" but failing to complete the railroad within the time limited by the general railroad act and amendments under which the company owning the property received its charter, may lose Its charter at suit of the attorney-gen- eral, under code Civil Proc. N. Y., § 1798 et sect. Attorney-General, In re, 50 Hun (N. Y.) 511, 2 N! Y. S. 684. ™ Oakland R. Co. v. Oakland, &c. R. Co. 45 Cal. 365, 13 Am. R. 181; Brooklyn Steam Tr. Co. v. Brooklyn, 78 N. Y. 524; State v. St. Paul, &c. R. 35 Minn. 222, 224, 28 N. W. 245; Bywaters v. Paris, &c. R. Co. 73 Tex. 624, 11 S. W. 856. And this is so, even though the construction of the projected road is actually begun within the time, by a lessee. Brook- lyn, &c. R. Co., In re, 72 N. Y. 245, 75 N. Y. 335, 19 Hun (N. Y.) 314, 55 How. Pr. (N. Y.) 14; Sulphur Springs, &c. R. Co. v. St. Louis, &c. R. Co. 2 Tex. Civ. App. 650, 23 S. W. 1012. Contra, Citizens', &c. R. Co. V. Belleville, 47 111. App. 388. See generally Atchison St. R. Co. v. Nave, 38 Kans. 744, 17 Pac. 587, 5 Am. St; 800, and note thereto. ""Oakland R. Co. v. Oakland, &c. R. Co. 45 Cal. 365, 13 Am. R. 181; LaGrange, &c. R. Co. v. Rainey, 7 Coldw. (Tenn.) 420; Kennedy v. Strong, 14 Johns. (N. Y.) 128; Brooklyn, &c. R. Co., In re, 72 N. Y. 245, 75 N. Y. 335, 19 Hun (N. Y.) 314, 55 How. Pr. (N. Y.) 14; Sturges V. Vanderbllt, 73 N. Y. 384; Brook- lyn, &c. Co. V. Brooklyn, 78 N. Y. 524; State v. Clinton, &c. R. Co. 4 Rob. (La.) 445; United States v. Grundy, 3 Cranch (U. S.) 337, 351. ^"Thus, In Brooklyn, &c. Co. v. Brooklyn, 78 N. Y. 524, 529, it Is said: "The general principle is not disputed that a corporation, by omit- ting to perform a duty imposed by its charter, or to comply with Its provisions, does not ipso facto lose its corporate character or cease to be a corporation, but simply ex- poses itself to the hazard of be- ing deprived of its corporate char- acter and franchises by the judg- ment of the court in an action in- stituted for that purpose by the 85 FORFEITURE JUDICIAL DETERMINATION. [§48 A eonditioii to ensure the speedy construction of the road is for the benefit of the public, and the general rule is that a forfeiture for non- compliance with such condition can be enforced only by the public authorities. A stockholder cannot take advantage of it,^^* nor can any advantage be taken of it in any collateral action.^ ^^ Thus, it is held that such non-compliance cannot be made available to defeat condemnation proceedings instituted by the company,^^" nor can a landowner take advantage of it in support of a suit to eject the com- pany from land over which the road has been built.^^^ § 48. Implied condition that corporate franchise is subject to for- feiture—Judicial determination — Causes for forfeiture. — Where no condition is expressed in the charter, there is, nevertheless, an im- plied condition annexed to every grant of corporate powers, that they shall be subject to forfeiture for willful misuser or non-user in regard to matters which go to the essence of the contract between the cor- poration and the state.^^^ Such a forfeiture can, ordinarily, be de- attorney-general in behalf of the people; but it cannot be denied that the legislature has the power to pro- vide that a corporation may lose its corporate existence without the in- tervention of the courts by any omission of duty or violation of its charter, or default as to limitations imposed, and whether the legisla- ture has intended so to provide in any case depends upon the con- struction of the language used." Many authorities are collected, cited and reviewed in the note to State v. Atchison, &c. R. Co. (24 Neb. 143), 8 Am. St. 164, 193 et seq; and see post, §§ 48, 52. "« Antonio v. Jones, 28 Tex. 19. See, also. People v. Ulster, &c. R. Co. 128 N. Y. 240, 28 N. E. 635, 60 Am. & Eng. R. Cas. 558, and note; People V. North River, &c. Co. 121 N. Y. 582, 24 N. B. 834, 9 L. R. A. 33 n, 18 Am. St. 843, 32 Am. & Eng. Corp. Cas. 149; Hinchman v. Phila- delphia, &c. Co. 160 Pa. St. 150, 28 Atl. 652. "» Hodges v. Baltimore, &c. R. Co. 58 Md. 603; Brooklyn El. R. Co., In re, 125 N. Y. 434, 26 N. B. 479, 57 Hun (N. Y.) 590, 11 N. Y. S. 161. See, also. Central, &c. ~R. Co. v. People, 5 Colo. 39. ™ Brooklyn El. R. Co., In re, 125 N. Y. 434 24 N. E. 834, 57 Hun 590, 11 N. Y. S. 161. "'Cincinnati, &c. R. Co. v., Clif- ford, 113 Ind. 460, 15 N. E. 524; Bravard v. Cincinnati, &c. R. Co. 115 Ind. 1, 17 N. E. 183. ^'2 Beach Priv. Corp. § 45; Angell and Ames Corp. (11th ed.), § 774; Waterman Corp. § 427; State v. Minnesota Cent. R. Co. 36 Minn. 246, 30 N. "W. 816, 29 Am. & Eng. R. Cas. 440 and note; People v. Milk Exchange, 133 N. Y. 565, 30 N. B. 850; Edgar Collegiate Inst v. Hardy, 142 111. 363, 32 N. E. 494; People v. Broadway R. Co. 126 N. Y. 29, 26 N. B. 961, 48 Am. & Eng. R. Cas. 692, and authorities there cited; State v. Atchison, &c. R. Co, 24 Neb. 143, 8 Am. St. 164 and note on page 180. §•48] OHAETEES. 8G clared only by decree of some competent judicial tribunal in proceed- ings instituted by the sovereign or its representative for that pur- pose.^^* To cause a forfeiture under the implied condition that the franchise shall be used for the purposes for which it was granted, there must be either an assumption of privileges not conferred by the charter/^* a willful abuse of corporate powers, or an improper neglect to perform duties imposed.^^' Each duty assigned by the act of in- corporation has been held to be a condition annexed to the grant of the franchise conferred.^^* One such act or neglect may be sufficient to justify a forfeiture if tending to mischievous consequences ;^^' but the ordinary rule is that acts, to have that effect, must be willful and repeated.^'^ Slight deviations from the provisions of a charter, es- ^= Board, &c. v. Hall, 70 Ind. 469, 472; Hasselman v. United States Mortgage Co. 97 Ind. 365, 368; State V. Mississippi, &c. R. Co. 20 Ark. 495; Darnell v. State, 48 Ark. 321, 3 S. W. 365; Dyer v. Walker, 40 Pa. St. 157; .Vermont, &c. R. Co. v. Ver- mont Cent. R. Co. 34 Vt. 1, 57; Chi- cago Life Ins. Co. v. Needles, 113 U. S. 574, 5 Sup. Ct. 681. Neither a stockholder, a corporate creditor nor one having a private contro- versy with the company can insti- tute the suit. North v. State, 107 Ind. 356, 8 N. B. 159; Folger v. Co- lumbian, &c. Ins. Co. 99 Mass. 267, 96 Am. Dec. 747 n; Gaylord v. Port Wayne, &c. R. Co. 6 Biss. (U. §.) 286; Moore v. Brooklyn, &c. R. Co. 108 N. Y. 98, 15 N. B. 191; Pickett V. Abney, 84 Tex. 645, 19 S. W. 859; West Jersey, &c. Co. v. Camden, &c. R. Co. 52 N. J. Eq. 452, 29 Atl. 333. See also Commonwealth v. German- town R. Co. 20 Pa. St. 518; Western Penna. R. Co.'s Appeal, 104 Pa. St. 399; note in 8 Am. St. 198, 199. '« People V. Utica Ins. Co. 15 Johns. (N. Y.) 358, 8 Am. Dec. 243. '»» People V. Kingston, &c. R. Co. 23 Wend. (N. Y.) 193, 35 Am. Dec. 551; Attorney-General v. Erie, &c. R. Co. 55 Mich. 15, 22, 20 N. W. 696; Central, &c. R. Co. v. People, 5 Colo. 39, 46; Angell and Ames Corp. (11th ed.) § 776; note to State v. Atchi- son, &c. R. Co. 24 Neb. 143, 38 N. W. 43, 8 Am. St. 164, 183. Under Rev. St. Ohio, § 6789, a suit to oust a corporation from its franchise for misuser must be brought within five years from the date of commission of the offense. State v. Pittsburgh, &c. R. Co. 50 Ohio St. 239, 33 N. B. 1051. An allegation that the com- pany intends at some time in the future to neglect the performance of its duties to the public, and does not in good faith intend to carry out the objects of the incorporation, is insufficient. State v. Martin, 51 Kans. 462, 33 Pac. 9, 60 Am. & Eng. R. Cas. 567; Commonwealth v. Pitts- burgh, &c. R. Co. 58 Pa. St. 26. ™ People V. Kingston Turnpike R. Co. 23 Wend. (N. Y.) 193, 35 Am. St. 551. ™ Attorney-General v. Petersburg R. Co. 6 Ired. (N. C.) 456; People V. Bristol, &c. Co. 23 Wend. (N. Y.) 222, 245; Commercial Bank of Nat- chez V. State, 6 S. & M. (Tenn.) 599, 623. ™ Harris v. Mississippi Valley R. Co. 51 Miss. 602; State v. Pipher, 28 Kan. 127, 131; State v. Royalton, 87 GROUNDS OF FOEFEITUKE — ILLUSTEATIVE CASES. [§ 49 pecially when arising from accident or mistake/^" or from the un- authorized acts of the company's servants,^*" will not necessarily cause a forfeiture, unless the franchises are made to depend upon a strict and literal performance/*^ for a substantial performance of conditions imposed is all that is ordinarily required.^*^ An abuse of one depart- ment of a franchise may, however, cause a forfeiture of the entire franehise.^*^ § 49. Grounds of forfeiture — ^Illustrative cases. — Failure to run regular trains sufScient for the accommodation of the public,^** even where the company possesses and continues to exercise- other and sec- ondary franchises/*^ and failure to keep its principal place of business within the state as required by statute,^*" have been held each to be a &c. Co. 11 Vt. 431; State v. Council Bluffs, &c. Go. 11 Neb. 354, 356, 9 N. W. 563. The mere failure to run trains for five days, not shown to have been willful or negligent, has been held insufficient cause for de- claring a forfeiture. People v. At- lantic, &c. R. Co. 125 N. Y. 513, 26 N. E. 622, 48 Am. & Eng. R. Cas. 688. •''Angell and Ames Corp. (11th ed.) § 776. ""State V. Commercial Bank, 14 Miss. 218, 237. "'Eastern Archipelago Co. v. Re- gina, 2 Ellis & B. 856, 22 Eng. L. & Eq. 338, cited in Angell and Ames Corp. (11th ed.), § 776. "^People V. Thompson, 21 Wend. (N. Y.) 235; Thompson v. People, 23 Wend. (N. Y.) 537; Common- wealth v. Allegheny, &c. Co. 20 Pa. St. 185; Chicago City R. Co. v. Peo- ple, 73 111. 541; State v. Wood, 84 Mo. 378. "'People V. Bristol, &c. T. Co. 23 Wend. (N. Y.) 222; People v. Kan- kakee, &c. Co. 103 IlL 491. '*'Silliman v. Fredericksburg, &c. R. Co. 27 Gratt. (Va.) 119; State v. Minnesota Central R. Co. 36 Minn. ' 246, 30 N. W. 816, 29 Am. & Eng. R. Cas. 440; People v. Albany, &c. R. Co. 24 N. Y. 261, 82 Am. Dec. 295. See State v. Railway Co. 40 Ohio St. 504. '" State V. Minnesota Central R. Co. 36 Minn. 246, 30 N. W. 816. But see Wadesboro, &c. Co. v. Burns, 114 N. Car. 353, 19 S. E. 238. "'State V. Park, &c. Co. 58 Minn. 330, 59 N. W. 1048, 49 Am. St. 516, 10 Lewis Am. R. & Corp. R. 585; Simmons v. Norfolk, &c. Co. 113 N. Car. 147, 18 S. B. 117, 22 L. R. A. 677, 37 Am. St. 614; State V. Milwaukee, &c. R. Co. 45 Wis. 579. And it is suggested that such failure is a breach of the duty of a corporation at common law, and would authorize a forfeiture in the absence of any statute on the sub- ject. State V. Milwaukee, &c. R. Co. supra; People v. Kingston, &c. Co. 23 Wend. (N. Y.) 193, 35 Am. Dec. 551. In this case it was shown that such action on the part of the cor- poration prevented the enforcement of an attachment against the shares of stockholders in an action brought in the courts of Wisconsin as pro- vided by state laws. But it is held that a failure on the part of the principal officers to reside in the 49] CHAKTEES. 88 sufficient ground for enforcing a forfeiture. The state need only prove that the act complained of is such as in the nature of things is calcu- lated to cause injury. No actual injury need be shown.^*^ Where a railroad corporation became insolvent thirteen years before, surren- dered its property, suspended business, and permitted another cor- poration to carry on the business for which it was organized, its char- ter was properly declared forfeited.^** So, where a corporation per- mitted its road to be sold on execution and broken up into two or more parts.^*' A mere colorable exercise of the corporate powers, as by the election of directors and the holding of occasional meetings, where the ordinary business of the corporation is relinquished, will bring the case within the meaning of a statute imposing a forfeiture for sus- pension of business.^'^" So, where a railroad company takes up part of its track^'*^ or abandons and ceases to operate a part of its road,^^^ or neglects to keep its road in such repair that it can be used,^^^ or neglects to build part of its road and uses the rest only in getting out coal from mines owned by those who control it,^" or leases its road to state and to keep the principal of- fices therein is not per se a forfei- ture, and the franchises will only be forfeited for this cause upon quo warranto where It is shown that such action works an injury to the legal rights of the public or of individuals. See State v. Southern Pacific R. Co. 24 Tex. 80; North and South, &c. Co. V. People, 147 111. 234, 35 N. E. 608, 24 L. R. A. 462 n, 9 Lewis Am. R. & Corp. 1. "' Commercial Bank v. State, 6 S. & M. (Miss.) 599. "'People V. Northern R. Co. 53 Barb. (N. Y.) 98. See, also. Hart v. Boston, &c. R. Co. 40 Conn. 524, where it is held that the fact that it is an enforced suspension brought on by legal proceedings is no de- fense. But Insolvency does not ipso facto work a forfeiture. Moran v. Lydecker, 27 Hun (N. Y.) 582; Bradt v. Benedict, 17 N. Y. 93 ; State V. Bailey, 16 Ind. 46, 79 Am. Dec. 405. "'State V. Rives, 5 Ired. (N. C.) 297, 309. ''"Jackson, &c. Ins. Co., In re, 4 Sanf. Ch. (N. Y.) 559. "=' State V. West, &c. R. Co. 34 Wis. 197. "" People V. Albany, &c. R. Co. 24 N. Y. 261, 82 Am. Dec. 295. But see post, § 51. As to what is sufficient evidence of abandonment see 3 El- liott Ev. §§ 1577, 1578, 1579, "'State V. Madison, &c. R. Co. 72 Wis. 612, 40 N. W. 487, 1 L. R. A. 771, 36 Am. & Eng. R. Cas. 135; People V. Plymouth, &c. Co. 32 Mich. 248; People v. Hillsdale, &c. Co. 23 Wend. (N. Y.) 254. "'•State V. Railroad Co. 40 Ohio St. 504. Where the charter does not limit the time within which the road is to be constructed, a railroad may build its line long after the date of its charter, no forfeiture having been enforced against it. Western. &c. R. Co.'s Appeal, 104 Pa. St. 399. 89 GROUNDS OF FOEFEITUKE ILLUSTRATIVE CASES. [§ 49* another corporation for a long period without statutory authority,^ °^ or builds a line with other termini than those named in its charter and connects with a foreign railroad without authority of law/^° it has been held that the state may enforce a forfeiture of the charter. And the sale of part of its road by a turnpike company to avoid the obligation to repair, has been held to be evidence of such willful non- user as authorized a decree of forfeiture.^^' Entering into an agree- ment with other corporations to destroy competition has been held a cause of forfeiture;^''* and such agrements on the part of compet- ing lines of railroad are expressly v ' ndden in many of the states. Where the statute requires a certain amount of capital stock to be sub- scribed before the organization of a railroad corporation, the sub- scription must be made in good faith by those having a reasonable ex- pectation of being able to pay for the stock subscribed, or the state may enforce a forfeiture.^^^ And generally a failure to proceed in good faith to carry out the purposes of the organization, and complete the enterprise, will authorize a suit by the state for this purpose.^"* "== State V. Atchison, &c. R. Co. 24 Neb. 143, 38 N. "W. 43, 8 Am. St. 164. In Louisiana, &c. R. Co. v. State, 75 Ark. 435, 88 S. W. 559, it is held that the statute providing for a for- fetiture of all charter rights of any railroad company acquired by lease not made in conformity with the statute is applicable to a foreign railroad company operating in the state under such a lease, and quo warranto may be maintained against it. "' Commonwealth v. Franklin Ca- nal Co. 21 Pa. St. 117. '" State V. Pawtuxet Turnpike Co. 8 R. I. 182. "' People V. North River Sugar Ref. 19 N. Y. St. 853, 3 N. Y. S. 401; People V. Milk Exchange, 133 N. Y. 565, 30 N. E. 850. See, also, Chi- cago, &c. R. Co. V. "Wabash, &c. R. Co. 61 Fed. 993, 10 Lewis' Am. R. & Corp. 173, and note; Cleveland, &c. R. Co. V. Closser, 126 Ind. 348, 26 N. B. 159, 9 L. R. A. 754 n, 22 Am. St. 593, 3 Lewis' Am. R. & Corp. 686. But see United States V. Knight & Co. 156 U. S. 1, 15 Sup. Ct. 249, 10 Lewis' Am. R. & Corp. 737; Oakdale, &c. Co. v. Garst,, 18 R. I. 484, 28 Atl. 973, 23 L. R. A. 639, 49 Am. St. 784, 10 Lewis' Am, R. & Corp. 184. "" The state is not concluded by the fact that the articles of associa- tion were filed, after the requisite subscription was made, if it be shown that the subscribers were in- solvent. Holman v. State, ex rel. 105 Ind. 569, 5 N. E. 702. ™Cook Stock and Stockholders, § 638; People v. New York, &c. R. Co. 137 N. Y. 606, 33 N. E. 744; Peo- ple V. Ulster, &c. R. Co. 128 N. Y. 240, 28 N. E. 635; State v. Noncon- nah, &c. Co. (Tenn.), 17 S. W. 128. But it has been held that a failure to organize within the time limited will not prevent a valid organiza- tion thereafter if no forfeiture has been adjudged at the suit of the state. Seaboard, &c. R. Co. v. Olive (N. Car.), 55 S. E. 263. §' 50] CHARTERS. 90 In Louisiana the issue of fictitious or "watered" stock is, by statute, made a cause for the forfeiture of the charter of a corporation ;^°^ and in Nebraska, where such issues are prohibited by the constitu- tion,^*^ a railroad corporation may be held to have forfeited its charter for this cause ;^°^ but this is not, ordinarily, a cause of for- feiture.^** § 50. When duty to declare forfeiture is mandatory and when dis- cretionary. — Where, in a proceeding by quo warranto on behalf of the state, a cause of forfeiture prescribed by statute is clearly shown to exist, it is mandatory upon the court to declare the forfeiture,^ *° and it has no discretion to refuse judgment upon the ground that it would be against public interest.^** But in all cases where the in- formation is based only upon the implied condition that the corpora- tion shall serve the purposes of its creation it is within the sound dis- cretion of the court whether or not it will pronounce judgment of ouster against a corporation which has misused or abused its fran- chises, and it will generally refuse to do so if, in its judgment, the interests of the public do not require a f orfeiture.^"^ § 51. What is not cause for forfeiture, — A mere intention to vio- late its duty,^*^ or to fail to build its road^** will not authorize a forfeiture, even though it might authorize an injunction.^'''' And it is said that there must be a violation of the spirit as well as the letter ^"^Stimson Am. Stat. Law (1886), ™ State v. Pennsylvania, &c. Co. § 452. 23 Ohio St. 121. "^ Const. Neb., art. 11, § 5. "'State v. People's Mut. Benefit ™ State V. Atchison, &c. R. Co. 24 Ass'n, 42 Ohio St. 579; State v. Neb. 143, 38 N. B. 43, 8 Am. St. Crawfordsville, &c. Co. 102 Ind. 283, 164. 289, 1 N. B. 395. See, also. People ^'^ State V. Minnesota, &c. R. Co. v. North Chicago R. Co. 88 111. 537. 40 Minn. 213, 41 N. W. 1020, 3 L.. R. "* Commonwealth v. Pittsburg, &c. A. 510; Commonwealth v. Central R. Co. 58 Pa. St. 26, 45; State v. Pass. R. Co. 52 Pa. St. 506. Post, Martin, 51 Kan. 462, 33 Pac. 9, 60 § 51. Am. & Eng. R. Cas. 567; Attorney '°= State V. Minnesota Cent. R. Co. General v. Superior, &c. Co. 93 Wis. 36 Minn. 246, 30 N. W. 816, 29 Am. 604, 67 N. W. 1138, 44 L. R. A. 565 n. & Eng. R. Cas. 440; State v. Oberlin, "'State v. Kingan, 51 Ind. 142; &c. Ass'n, 35 Ohio St. 258; People v. State v. Beck, 81 Ind. 500. Flshkill, &c. Co. 27 Barb. (N. Y.) "» See note to Ottaquechee Woolen 445 ; People v. Northern R. 53 Barb. Co. v. Newton, 57 Vt. 451, by H. C. (N. Y.) 98; State v. Real Estate Black, 21 Cent. L. J. 432, 435. Bank, 5 Ark. 595, 41 Am. Dec. 109. 91 WHAT IS NOT CAUSE FOR FOKFEITUEE. ' [§ 51 of the law before such a decree is justifiable.^''^ The intent is some- times considered in deciding whether the charter has been violated. Where the charter was made liable to forfeiture for non-user for two years, the court decided that a forfeiture was not incurred by the failure of a railroad corporation to begin building its line until three years from the date of its charter, where that time had been devoted to efforts to raise the necessary funds.^^^ And the holding of a meeting of the corporators of a company to which all the stock had been subscribed, at which the charter was accepted, officers elected, and contracts for building the road were authorized, was held to put the charter in operation within the meaning of the provision of the Illinois constitution'-^^ abrogating all charters not in operation.^''* Acceptance of a charter, paying an enrollment tax and bonus to the state, the election of officers, appointment of committees, and the expenditure of large sums of money in the purchase of mineral rights, and in surveying, grading, and constructing a railroad, were held sufficient in a recent case to exempt a railroad and mining company from the operation of the section of the Pennsylvania constitution,^^'' which provides that the charters of all such corporations as have not com- menced business in good faith, prior to a certain date, shall be for- feited,^'" and the court also said that : "A mere temporary suspension of the business of a railroad company for a year, the business being afterwards resumed and continued without interruption, is not such non-user of its franchise as will operate as a forfeiture of its char- ter."^'' The omission of a railroad company for five days to run its trains has been held not to be an "abuse of its powers," within the meaning of a statute,^'* which authorizes an action for dissolution for abuse of corporate powers.^''" The mere failure to observe some of the ™ Thompson v. People, 23 Wend. 26 N. E. 622, affirming 57 Hun (N. (N. Y.) 537, 585. Y.) 378, 10 N. Y. S. 907. See, also, "^ Young V. Webster City, &c. R. State v. Consolidation Coal Co. 46 Co. 75 Iowa 140, 39 N. W. 234. Un- Md. 1, 14. der the New York code, which al- "' Illinois Const. 1870, Art. XI. lows an action in equity for the '"McCartney v. Chicago, &c. R. forfeiture of the charter of a cor- Co. 112 111. 611. poration, "where it has suspended '"Const. Pa. Art. XVI, § 1. its ordinary and lawful business for "° Commonwealth v. New York, at least one year," it is no ground &c. R. Co. 10 Pa. Co. Ct. 129. for maintaining such action that a '"Commonwealth v. New York, railroad company has omitted for &c. R. Co. 10 Pa. Co. Ct. 129. five days to run its trains. People '" Code Civil Proc. N. Y. § 1798. V. Atlantic Ave. R. Co. 125 N. Y. 513, "' People v. Atlantic Ave. R. Co. § 51] CHAETEES. 93 preliminary requirements, as a failure to file a map of the proposed route with the secretary of state within a certain time/*" or the payment of one-half of the capital stock in property whose value exceeds one-half of the par value of the stock where the statute re- quires such half to be paid in lawful money of the United States/*'- will not work a forfeiture; nor will any specific act of non feasance, unintentionally but negligently committed, where it does not* have a mischievous tendency.^*^ Building the road across lands over which the company has not obtained the right of way is not a sufficient misuser to cause a forfeiture.**^ Neither an unauthorized attempt to change the corporate name,*** nor the use of an abbreviation instead of proper name,**^ is sufficient ground for quo warranto proceedings. Failure to run regular passenger trains, where, by reason of the con- struction and operation of a horse railroad, the income from such trains would not pay for the expense of operating them is not a cause of forfeiture, it appearing that the company is regularly engaged in the transportation of freight traffic over its road, and has carried all passengers who have sought passage/** nor is the obtaining of a charter from another state for a similar purpose**^ and bringing a suit in the federal court to test the constitutionality of a statute of its own state incorporating another company a cause of forfeiture /** 125 N. Y. 513, 26 N. E. 622, affirm- ^^ See State v. Kill Buck, &c. Co. ing 57 Hun (N. Y.) 378, 10 N. Y. S. 38 Ind. 71; People v. Hillsdale, &c. 907. Co. 2 Johns. (N. Y.) 190. '*° Harris v. Mississippi Valley, ^^ O'Donnell v. Johns & Co. 76 &c. R. Co. 51 Miss. 602. See Eastern Tex. 362, 13 S. W. 376. As to effect Archipelago Co. v. Regina, 22 Eng. of unauthorized change of name, L. & Bq. 228, cited in Angell & Ames see Cincinnati Cooperage Co. v. Corp. (11th ed.), § 776, to the effect Bate, 96 Ky. 356, 26 S. W. 538, 49 that slight deviations from the pro- Am. St. 300, 10 Lewis' Am. R. & visions of the charter are not neces- Corp. 653, and note, sarily either an ahuse or a misuse ^^ People v. Bogart, 45 Cal. 73. of it. But see People v. Montecito ^'^ Commonwealth v. Fitchburg R. Water Co. 97 Cal. 276, 32 Pac. 236, Co. 12 Gray (Mass.) 180. 33 Am. St. 172 n. "' Commonwealth v. Pittsburg, &c. "' State V. Wood, 84 Mo. 378. The R. Co. 58 Pa. St. 26. soundness of this decision, however, '"' Commonwealth v. Pittsburg, &c. is questionable. R. Co. 58 Pa. St. 26. The court, per "^Angell & Ames Corp. (11th ed.), Sharswood, J., intimates that the § 776, note 1. See, also. People v. case might be different if the suit Jackson P. R. Co. 9 Mich. 285; State were brought in the courts of a V. Royalton, &c. T. Co. 11 "Vt. 431; foreign sovereignty, but holds that People V. Hillsdale T. Co. 23 Wend, the federal courts form a part of the (N. Y.) 2 courts of each state, administering 93 WAIVEK OF FOEFEITUKE COLLATERAL PEOCBEDIITGS. [§ 53 nor forming an nnautliorized agreement of consolidation -with another corporation;^'^ nor issuing stock below par where no interests are injuriously affected thereby.^'" And it has been held that quo warranto will not lie to prevent the use of a portion of a railroad which has been completed, merely because the project for /building other portions au- thorized by the charter has been abandoned ;^®^ nor merely to vindicate private rights or redress private grievances.^'^ § 52. Waiver of forfeiture — Collateral proceedings. — 'Ro advan- tage can be taken in any collateral proceeding, of a forfeiture which has not been judicially established;^'^ and the state may waive any breach involving a forfeiture of charter rights/'* by implication as the law as construed by its own tribunals. "» State v. Crawfordsville, &c. Co. 102 Ind. 283, 1 N. B. 395; Crawfords- ville, &c. Co. v. State, 102 Ind. 435, 1 N. E. 864. It is held otherwise, however, where the consolidation Is expressly prohibited. State v. Atch- ison, &c. R. Co. 24 Neb. 143, 8 Am. St. 164. ™Howe V. Deuel, 43 Barb. (N. Y.) 504; Hastings v. Amherst, &c. R-. Co. 9 Cush. (Mass.) 596; State V. Minnesota, &c. Co. 40 Minn. 213, 41 N. W. 1020, 3 L. R. A. 510 n. "' Attorney-General v. Birming- ham Junction R. Co. 8 Eng. L. & Bq. 243. But see, ante, § 49. A sale of all the corporate property does not necessarily work a forfeiture of the corporate franchises, and where it is necessary for the pro- tection of the interests of stockhold- ers or third persons, a corporation which has disposed of all its prop- erty will be held to be still in ex- istence. Langhorne v. Richmond City R. Co. (Va.) 19 S. E. 122; Price V. Holcomb, 80 Iowa 123, 56 N. W. 407. ""State V. Atchison, &c. R. Co. 176 Mo. 687, 75 S. W. 776, 63 L. R. A. 761 n. This case also holds that quo warranto will not lie to prevent the company from making an un- lawful rate or charge where another ample and adequate remedy is pro- vided, and the subject is further considered, with citation of author- ities, in the note thereto. "« Cincinnati, &c. R. v. Clifford, 113 Ind. 460, 15 N. B. 524; New York, &c. R. Co. v. New York, &c. R. Co. 52 Conn. 274; Danbury, &c. R. Co. V. Wilson, 22 Conn. 435, 449; Cleveland, &c. R. Co. v. Brie, 27 Pa. St. 380; Hodges v. Baltimore, &c. R. Co. 58 Md. 603. See, also, Green- ville V. Greenville, &c. Co. 125 Ala. 625, 27 So. 764; Southern Pac. R. Co. V. Orton, 32 Fed. 457; Asheville Division v. Aston, 92 N. Car. 578; New Jersey So. R. Co. v. Long Branch Com'rs, 39 N. J. L. 28; Greenbrier Lumber Co. v. Ward, 30 W. Va. 43, 3 S. B. 227. ^°* Hinchman v. Philadelphia, &c. R. Co. 160 Pa. St. 150, 28 Atl. 652; State V. Bergen, &c. R. Co. 53 N. J. L. 108, 20 Atl. 762; Farnsworth v. Lime, &c. R. Co. 83 Me. 440, 22 Atl. 373; People v. Ulster, &c. R. Co. 128 N. Y. 240, 28 N. B. 635; State v. Portland, &c. Co. 153 Ind. 483, 53 N. E. 1089, 53 L. R. A. 413, 74 Am. St. 314; State v. Bergen Neck Railw. ■ §■52] CHARTERS. 94 welP"" as by express legislative enactment. ^"^ A waiver will not, however, revive a corporation after it has ceased to exist, where the constitution prohibits the granting of special charters,^'^ though, possibly, a general act for the remission . of all forfeitures incurred under the terms of the incorporating act would be valid.^®' It has been held that the passage of an act providing for the issue of bonds to be paid long after a forfeiture would, by the terms of the charter, have accrued, is a waiver of such forfeiture, and a repeal by implica- tion of the clause in the charter providing for it.^°' So a legislative recognition of a de facto corporation after an accrued forfeiture has become khown may constitute a waiver,^"" as well as a long-continued neglect on the part of the judicial department to enforce the for- feiture.^"^ But where there has been no attempt legally to organize 53 N. J. L. 108, 20 Atl. 762; Beach Prlv. Corp. § 59; Purdy's Beach Priv. Corp. § 1299; Cook Stock and Stockholders, § 636. "=New York, &c. R. Co., Petition of, 70 N. Y. 327; Foster v. Pitch, 36 Conn. 236. ""' Such a statute may revive and keep in force the original act of incorporation, and continue the ex- istence of the corporation as it was before the forfeiture. Phillips v. > Albany, 28 Wis. 340. ^"Oroville, &c. R. Co. v. Super- visors of Plumas Co. 37 Cal. 354; Brooklyn, &c. R. Co., In re, 72 N. Y. 245, 75 N. Y. 335, 19 Hun (N. Y.) 314, 55 How. Pr. (N. Y.) 14. "» See Maryland v. Baltimore, &c. R. Co. 3 How. (U. S.) 534; Wilson V. Ohio, &c. R. Co. 64 111. 542, 16 Am. R. 565; Chicago, &c. R. Co. v. Ad- ler, 56 111. 344. ""Foster v. Pitch, 36 Conn. 236. See, also. State v. Webb, 110 Ala. 214, 20 So. 462. '""New York, &c. R. Co., Petition of, 70 N. Y. 327; Brlggs v. Cape Cod Ship Canal Co. 137 Mass. 71; Balti- more, &c. R. Co. V. Marshall Co. 3 W. Va. 319; Central & Georgetown R. Co. V. People, 5 Colo. 39; Chesa- peake, &c. Canal Co. v. Baltimore, &c. R. Co. 4 Gill & J. (Md.) 1; En- field Bridge Co. v. Connecticut River Co. 7 Conn. 28; People v. Ottawa Hydraulic Co. 115 111. 281, 3 N. B. 413; La Grange, &c. R. Co. v. Rai- ney, 7 Coldw. (Tenn.) 420, empow- ering another company to buy the franchises of a railroad company is a waiver of accrued forfeiture for non-user of such franchises, and the new company takes by its purchase a right to complete and operate the purchased road under its original franchise. Hinchman v. Philadel- phia, &c. R. Co. 160 Pa. St. 150, 28 Atl. 652. See, also, Attorney-Gen- eral V. Superior, &c. Co. 93 Wis. 604, 67 N. W. 1138; State v. Godwins- ville, &c. Co. 44 N. J. L. 496, 501; Central Crosstown R. Co. v. Twenty- third St. R. Co. 54 How. Pr. (N. Y.) 168; Comanche Co. v. Lewis, 133 U. S. 198, 10 Sup. Ct. 286. =°' State V. Crawfordsville, &c. Turnpike Co. 102 Ind. 283, 1 N. B. 395; People v. Oakland County Bank, 1 Dougl. (Mich.) 282; People V. Williamsburg, &c. Co. 47 N. Y. 586. 95 PROCEEDINGS TO FORFEIT. [§ 53 a corporation, no lapse of time confers any rights,^"^ and where, according to the terms of the charter, the franchise lias been absolutely forfeited by failure to perform certain conditions, mere subsequent recognition by the legislature will not waive the forfeiture.^"' Provid- ing penalties for the acts which, by the terms of the charter would constitute a forfeiture, has been held to be a waiver,^"* but it is said that where there is a statute^*"^ which makes it the duty of the attor- ney-general, unless otherwise expressly directed by law, to seek the forfeiture of the charter of the corporation which has, by any act or omission, misuser or non-user, forfeited the same, the right of the state to demand a forfeiture of the charter of a railroad company which has sold its road and franchises to a foreign company in violation of the constitution, failed to keep up its organization, and allowed its road to become unsafe, is not waived by the provisions of a subsequent statute,^"* providing for quo warranto against a corporation carrying on business in violation of a constitutional provision^"^ forbidding sale to or consolidation with a competing or foreign company, to enforce the penalties therefor, together with an injunction against future violation, and the appointment of a receiver.^"* §53. Proceedings to forfeit — ftuo warranto — Parties. — At com- mon law it was held that a forfeiture of charter franchises should be enforced by scire facias,^°° while quo warranto was the proper means ="" People V. Stanford, 77 Cal. 360, Estate Bank, 5 Ark. 595, 41 Am. 18 Pac. 85, 19 Pac. 693, 2 Li. R. A. Dec. 109; Commonwealth v. Breed, 92. See, also. State v. Bailey, 19 4 Pick. (Mass.) 460; Baker v. Ind. 452; People v. Pullman Palace Backus, 32 111. 79. But see Com- Car Co. 175 111. 125, 51 N. B. 664, 64 mercial Bank of Natchez v. State, L. R. A. 366. Where the Incorpora- 6 S. & M. (Miss.) 599; State Bank tlon is merely irregular, a leglsla- v. State, 1 Blackf. (Ind.) 267, 12 tive recognition is equivalent to a Am. Dec. 234 n. charter. McAuley v. Columbus, &c. ""Rev. Stat. Tex. Art. 2805. R. Co. 83 111. 348; Atlantic, &c. R. =™ Sayles Civil Stat. Art. 4247a, § 2. Co. V. St. Louis, 66 Mo. 228; Mead "'Cons. Tex. Art. X, §§ 5, 6. V. New York, &c. R. Co. 45 Conn. '"'East Line, &c. R. Co. v. State, 199; Cowell v. Colorado, &c. Co. 3 75 Tex. 434, 12 S. W. 690. Colo. 82; Kanawha, &c. Co. v. Kana- "»Rex v. Pasmore, 3 Term R. 199, wha, &c. Co. 7 Blatch. (U. S.) 391. 244; Ames v. Kansas, 111 U. S. 449, ™ State V. Fourth, &c. Turnp. Co. 4 Sup. Ct. 437; Regents of Univer- 15 N. H. 162, 14 Am. Dec. 690. sity v. Williams, 9 Gill & J. (Md.) ^ State V. Morris, 73 Tex. 435, 11 365, 31 Am. Dec. 72, 111; State v. S. W. 392; Washington, &c. R. Co. St. Paul, &c. R. Co. 35 Minn. 222, v. State, 19 Md. 239; State v. Real 28 N. W. 245. 53] OHAETEES. of inquiring into an unauthorized assumption of corporate powers.^^" But the latter writ, or, in modern practice, an information in the nature of a quo warranto, may be used for the trial of abuse of powers as well as for inquiring into the usurpation of franchises.^^^ When quo warranto is employed for the purpose of ousting individuals who have unlawfully usurped the franchise to be a corporation, it is gen- erally held that it should be directed against the individuals assum- ing to act as a corporation,^^^ for "a corporation," it is said, "cannot be brought into court to answer the allegation that it is not and never was a corporation f^^^ and bringing a suit against the company by its assumed corporate name is held in many jurisdictions to be an admis- sion of its existence as a corporation.^^* Moreover, it is said that the incorporators should have their day in court, in the event that they ™ Authorities cited in last note, supra. ^"^ People V. Utica Ins. Co. 15 Johns. (N. Y.) 358, 386, 395; Peo- ple V. Trustees of Geneva College, 5 Wend. (N. Y.) 211; Chesapeake, Ac. Co. v. Baltimore, &c. R. Co. 4 Gill & J. (Md.) 1, 121; State v. Mil- waukee, &c. R. Co. 45 Wis. 579; State V. Boston, &c. R. Co. 25 Vt. 433; National Docks R. Co. v. Cen- tral R. Co. 5 Stew. (N. J.) 755; BrufEett v. Great Western R. Co. 25 111. 353; People v. Jackson, &c. R. Co. 9 Mich. 285; note to State v. Atchison, &c. R. Co. 8 Am. St. 164, 198; High Extr. Rem. § 647. ^»2 Wolfe V. Underwood, 97 Ala. 375, la So. 234; Mud Creek, &c. Co. V. State, 43 Ind. 236; Chesshire v. People, 116 111. 493, 6 N. B. 487; People V. Rensselaer, &c. R. Co. 15 Wend. (N. Y.) 113, 30 Am. Dec. 33; State V. Cincinnati, &c. Co. 18 Ohio St. 262; Commonwealth v. Central Pass. R. Co. 52 Pa. St. 506; People V. Stanford, 77 Cal. 360, 18 Pac. 85, 19 Pac. 693. "^ Mud Creek, &c. Co. v. State, 43 Ind. 236; Chesshire v. People, 116 111. 493, 6 N. E. 487. '2i< People V. Stanford, 77 Cal. 360, 18 Pac. 85, 19 Pac. 693, 2 L. R. A. 92; Commercial Bank of Natchez v. State, 6 S. & M. (Miss.) 599, 614; People V. Rensselaer, &c. R. Co. 15 Wend. (N. Y.) 113, 30 Am. Dec. 33, 38; State v. Cincinnati Gas Light, &c. Co. 18 Ohio St. 262. Contra, People V. Bank of Hudson, 6 Cow. (N. Y.) 217. In the note to State V. Atchison, &c. R. Co. 8 Am. St. 164, 199, it is said that "this rule rests upon no sound reason," and it does seem like sacrificing the spirit to the letter, for, where it clearly appears from the informa- tion that its purpose is to challenge the legal existence of the corpora- tion, or, in other words, the right of the incorporators to be a corpora- tion, it is very technical to hold that the use of the corporate name is an admission of the corporate ex- istence. It is more in consonance with the spirit of such proceedings, although it may not be entirely log- ical, to treat the name as descrip- tive and the information as calling upon the individuals to answer by what authority they use that name and exercise the rights of a cor- poration. 97 PEOOEEDINGS TO ENFORCE FOEFEITUEB. [§ 54 do not constitute a legal person capable of appearing and answering. ^'^ But the proceedings should be against the corporation itself, where the purpose is to enforce a forfeiture of its charter, incurred by misuse or abuse of its powers, or to oust it from the exercise of unwarranted rights and privileges under its charter, ^^^ and it is said that the doc- trine that the institution of the proceeding against the corporation eo nomine admits its legal existence rests upon no sound reason.^^'' § 54. Proceedings must generally be in court of law — Statutory provisions. — A proceeding to enforce a forfeiture or to deprive a de facto corporation of its usurped privileges must be brought in a court of law,^" a court of equity having no jurisdiction in such cases unless it is conferred by statute.^^^ In many of the states special provisions ='' State V. Independent School District, 44 Iowa 227; King v. City of London, Skin. 293, 310. ''^<' State v. Atchison, &c. R. Co. 24 Neb. 143, 38 N. W. 43, 8 Am. St. 164 n, 32 Am. & Eng. R. Cas. 388; People V. Bank of Niagara, 6 Cowen (N. Y.) 196; People v. New York, &c. R. Co. 137 N. Y. 606, 33 N. E. 744, 66 Hun (N. Y.) 633, 21 N. Y. S. 373; State v. Taylor, 25 Ohio St. 279; Smith v. State, 21 Ark. 294. Mr. Spelling states the rule as follows: "When the purpose is to suppress an usurpation of cor- porate franchises by individuals, the information should- name and pro- ceed against the defendants as indi- viduals, * * * but when the pur- pose is to enforce a forfeiture of corporate franchises usurped by a corporation the proceeding should he against the incorporated body in its corporate name. The rule is dif- ferent, however, when the proceed- ing is based upon a forfeiture which a, corporation once legally formed is alleged to have incurred. In that case it Is properly filed against the corporate body, not the individual members." 2 Spelling Extr. Relief, I 1843. See, also. State v. Barron, 57 Ell. Railroads — 7 N. H. 498; People, v. Rensselaer, &c. R. Co. 15 Wend. (N. Y.) 113, 30 Am. Dec. 33, and note; also article in 40 Alb. L. J. 10. '" See note in 8 Am. St. 199. ™ Attorney-General v. Stevens, 1 N. J. Eg. 369, 22 Am. Dec. 526; Pres- ident, &c. V. Trenton Bridge Co. 13 N. J. Bq. 46; King v. Clarke, 1 East. 38, 43; Attorney-General v. ptica Ins. ,Co. 2 Johns. Ch. (N. Y.) 371; Attorney-General v. Luder Ice Co. 104 Mass. 239, 6 Am. R. 227; Peo- ple V. Equity, &c. Co. 141 N. Y. 232, 36 N. E. 194. Whether a corporation has been guilty of acts or omissions sufficient to constitute cause for for- feiture is generally a judicial and not a legislative question. Cooley's Const. Lim. *106; Vermont, &c. R. Co. v. Vermont Cent. R. Co. 34 Vt. 2; Regents v. Williams, 9 G. & J. (Md.) 365, 31 Am. Dec. 72; Mayor v. Pitts- burgh, &c. R. Co. 2 Abb. U. S. 9. See post, §§ 57, 58. =" Belmont v. Erie R. Co. 52 Barb. 637; Bayless v. Orne, 1 Freem. Ch. (Miss.) 161; State v. Merchants' Ins., &c. Co. 8 Humph. (Tenn.) 234; Western, &c. R. Co.'s Appeal, 104 Pa. St. 399; Polger v. Columbian Ins. Co. 99 Mass. 267, 96 Am. Dec. 747. i^'55] CHAKTBES. 98 are made by statute for the prosecution of suits of this nature in cer- tain specified courts.^^" The state may delegate the right to bring the action in its name/^^ but it may not authorize any person to declare a forfeiture without first obtaining the judgment of a court.^^^ § 55. Collateral proceedings — ^Pleadings and judgment in forfei- ture proceedings. — No private individual tfan maintain a suit to en- force the forfeiture of a charter, unless specially authorized by the state to do so, nor can a mere ground or cause for forfeiture be suc- cessfully used by him as part of his cause of action in a collateral pro- See Heap V. Heap Manufacturing Co. 97 Mich. 147. 56 N. W. 349, note to State V. Atchison, &c. R. Co. 8 Am. St. 164, 200; 2 Morawetz Corp. § 1040. ^° In our own country writs or in- formations in the nature of writs of quo warranto are filed in the high- est courts of ordinary jurisdiction in several of the states, either hy the attorney-general or the prose- cutor. Angell & Ames Corp. § 733, citing 4 Cowen (N. Y.) 102; People V. Richardson, 4 Cowen 97, 102; Commonwealth v. Fowler, 10 Mass. 290; Respuhlica v. GrifBths, 2 Dall. (Pa.) 112; State v. Foster, 2 Halst. (N. J.) 101; State v. Charleston, 1 Const. R. (Treadway, S. C.) 36; State V. Merry, 3 Mo. 278. See Den- ike v. New York, &c. Co. 80 N. Y. 599. In California, this jurisdiction lies in the district courts. In Indi- ana an information may he filed in the circuit court by the prosecuting attorney, or by any person claiming an interest in the corporation which has abused its powers. R. S. 1894, §§ 1145, 1146; Board v. Hall, 70 Ind. 469; Danville, &c. Co. v. State, ex rel. 16 Ind. 456. In New York, Tennessee, and Colorado, the remedy is by civil action under the several codes, N. Y. Code, 1884, § 1983; People v. Cook, 8 N. Y. (4 Selden) 67, 59 Am. Dec. 451; State v. Turk, Mart. & Yerg. (Tenn.) 287; Attorney-Gen- eral V. Leaf, 9 Humph. (Tenn.) 753; Code of Tenn. § 3409 et seq.; Cen- tral, &c. R. Co. V. People, 5 Colo. 39; Atchison, &c. R. Co. v. People, 5 Colo. 60, cited in Waterman Corp. § 380. In Minnesota and Maryland, the proceeding is by complaint filed by the attorney-general in the dis- trict court of the proper county. 2 Stimson Am. Stat. 177. A forfeiture of corporate franchises granted by a city can be enforced only by a direct proceeding by quo warranto under the statutes. Citizens', &c. R. Co. V. Belleville, 47 111. App. 388. '^^^ State V. Smith, 32 Ind. 213; State V. Ireland, 130 Ind. 77, 29 N. B. 396; Western, &c. R. Co.'s Appeal, 104 Pa. St. 399. Where the common law rule has not been changed by statute, suit must be brought by the attorney-general on behalf of the state. Heap v. Heap Co. 97 Mich. 147, 56 N. W. 349; Bass v. Roanoke, &c. Co. Ill N. Car. 439, 16 S. E. 402; State V. International Co. 89 Tex. 562, 35 S. W. 1067. "^ A statute authorizing the secre- tary of state to declare the charter of a corporation forfeited if its taxes are not paid is invalid. Forfeiture can be made only after suit brought by the state for that purpose. Green- brier, &c. Co. V. Ward, 36 W. Va. 573, 15 S. E. 89. 99 COLLATERAL PEOCEEDINGS. [§ 55 ceeding,^^' nor can acts amounting to a forfeiture be set up by plea or answer in any collateral action.''** Proceedings to declare a for- feiture must be instituted in the state or country in which the corpora- tion is created.^^^ The information should, in most states, set forth specifically the facts upon which the claim of forfeiture of corporate rights is foimded.^^' A judgment recovered against a corporation pending an appeal from a judgment forfeiting its franchises will, where an appeal suspends the judgment of the trial court, bind the property of the corporation, although the judgment appealed from is afterward afiirmed.^^' But, after dissolution, the general rule is that no judgment can be entered against the corporation even in a suit which was pending at the time of the dissolution.*** ==» North V. State, 107 Ind. 356; State V. Rio Grande R. Co. 41 Tex. 217. Injunction will not lie at the suit of a private person, to enforce the forfeiture of a charter granted to a corporation for public purposes. Hinchman v. Philadelphia, &c. R. C6. 160 Pa. St. 150, 28 Atl. 652; Twelfth St. Market Co. v. Philadel- phia, &c. R. Co. 142 Pa. St. 580, 21 Atl. 902. ==* Logan V. Vernon, &c. R. Co. 90 Ind. 552; Union Branch R. Co. v. East Tenn., &c. Co. 14 Ga. 327;- Thompson v. New York, &c. R. Co. 3 Sand. Ch.-(N. Y.) 625; New York, &c. R. Co., Petition of, 70 N. Y. 327; Connecticut, &c. R. Co. v. Bailey, 24 Vt. 465, 58 Am. Dec. 181; Hammett v. Little Rock, &c. Co. 20 Ark. 204; La Grange, &c. R. Co. v. Rainey, 7 Coldw. (Tenn.) 420. See Bass v. Roanoke Nav., &c. Co. Ill N. Car. 439, 16 S. B. 402, 19 L. R. A. 247 n. =^= Carey v. Cincinnati, &c. R. Co. 5 Iowa 357, 367; Society v. New Haven, 8 Wheat. (U. S.) 464; Im- porting, &c.- Co. V. Locke, 50 Ala. 332; Howell v. Chicago, £c. R. Co. 51 Barb. (K. Y.) 378. ^^ State V. Southern Pac. R. Co. 24 Tex. 80. The state must charge and prove the abuse or misuser of its franchises relied on as ground of forfeiture. State v. Talbot, (Mo. Sup.) 27 S. W. 366. But need not, it has been held, expressly charge that the acts complained of were prohib- ited by statute or that public injury resulted therefrom. Eel River R. Co. V. State, 155 Ind. 433, 57 N. E. 388. See, however, People v. Colo- rado Eastern R. Co. 8 Colo. App. 301, 46 Pac. 219. A full treatment of the pleadings and practice in such pro- ceedings will be found in the note to People V. Rensselaer, &c. R. Co. 30 Am. Dec. 33, 49-53. ^' Texas Trunk R. Co. v. Jackson, 85 Tex. 605, 22 S. W. 1030; Giles v. Stanton, 86 Tex. 620, 26 S. W. 615; Giles V. Bast Line, &c. R. Co. (Tex. Civ. App.) 26 S. W. 1111. ™ First Nat. Bank v. Colby, 21 Wall. (U. 0.) 609; Thornton v. Mar- ginal, &c. a. Co. 123 Mass. 32; Terry V. Merchants', &c. Bank, 66 Ga. 177; Saltmarsh v. Planters', &c. Bank, 17 Ala. 761. As to form of judgment of forfeiture, see Slee v. Bloom, 5 Johns. Ch. (N. Y.) 366; People v. Rensselaer, &c. R. Co. 15 Wend. (N. Y.) 113, 30 Am. Dec. 33, and note. In Bel River R. Co. v. State, 155 Ind. '433, 57 N. B. 388, it is held that the court may not only render a judg- § 56] OHARTEES, 100 § 56. Bepeal of charter — ^Reserved power. — Where the state, either by constitutional provision,^^' by general statute/^" or by special reservation introduced into the creative act, reserves the power to alter, amend or repeal the charter of a corporation, such charter is held not to constitute a contract between the state and the incorporators within the meaning of the federal constitution;^^'- though in the absence of such reservation, the charter cannot be taken away excepting for acts of the corporation amounting to a forfeiture.^^^ Where an uncondi- tional reservation is made, the power to repeal may be exercised at the pleasure of the legislature,^^' and its exercise cannot be reviewed by the courts, unless, possibly, where some principle of natural justice is violated.^'* ' ment of forfeiture, but may also ap- point a receiver when asked for in the infbrmation. ==»See ante, § 43; Chesapeake, &c. R. Co. V. Miller, 114 U. S. 176, 5 Sup. Cti 813. When the constitution of a state forbids the granting of irrev- ocable charters, this provision be- comes a part of all charters granted, and under them subject to repeal, whether so expressed in the act of the legislature or not. Delawarcj &c. R. Co. V. Tharp, 5 Harr. (Del). 454. =™ The right to alter and repeal may be reserved in a general statute so as to apply to charters subse- quently granted. Thornton v. Mar- ginal, &c. R. Co. 123 Mass. 32; State V. Brown, &c. Co. (R. I.) 17 L. R. A. 856. And an act reserving power to repeal or amend remains in force until expressly repealed. 1 Water- man Corp. p. 535. But the legis- lature may enter into an irrepeal- able contract with a corporation, notwithstanding a previous legisla- ture has reserved the power to alter or repeal the charter. New Jersey v. Yard, 95 U. S. 104. ^"Zabriskie v. Hackensack, &c. R. Co. 18 N. J. Eq. 178, 185, 90 Am. Dec. 617; Commonwealth v. Payette Co. R. Co. 55 Pa. St. 452; Cross v. Peach Bottom R. Co. 90 Pa. St. 392; Pacific R. Co. V. Renshaw, 18 Mo. 210; Mow- rey v. Indianapolis, &c. R. Co. 4 Biss. (U. S.) 78; West Wisconsin R. Co. V. Trempealeau County, 35 Wis. 257; Wagner Free Inst. v. Philadelphia, 132 Pa. St. 612, 19 Atl. 297, 19 Am. St. 613. ^»= Miller v. State, 15 Wall. (U. S.) 478; State v. Northern Cent. R. Co. 44 Md. 131, 164; Campbell v. Missis- sippi Union Bank, 6 How. (Miss.) 625, 653. ™ Spring Valley Water-works v. Schottler, 110 U. S. 347, 4 Sup. Ct. 48; Thornton v. Marginal, &c. R. Co. 123 Mass. 32; New York, &c. R. Co., Petition of, 70 N. Y. 327, 351; Western, &c. R. Co. v. Rollins, 82 N. Car. 523 ; Mobile, &c. R. Co. v. State, 29 Ala. 573; Mayor v. Pittsburgh, &c. R. Co. 2 Abb. (U. S.) 9; BrufCett V. Great Western R. Co. 25 111. 353; Taylor Priv. Corp. § 503; Angell & Ames Corp. § 767. See, also, Mus- grove V. Vicksburg, &c. R. Co. 50 Miss. 670. ="Lothrop V. Stedman, 13 Blatch. (U. S.) 134, 42 Conn. 583; Sala v. New Orleans, 2 Woods (U. S.) 188. See, also. Shields v. Ohio, 95 U. S. 375; Sinking Fund Cases, 99 U. S. 700, 720. 101 REPEAL WHERE CONDITIOITAL POWER IS RElSEBVjED.- -^ § 57. Repeal where conditional power is reserved. — But where only a conditional power to repeal the charter upon a failure of the corporation to comply with certain conditions is reserved, although the power may be exercised at once upon such failure/^^ and although the presumption will be in favor of the existence of the facts on which the validity of a repealing statute depends,^^" yet it has been held that the legislature is not the final judge as to whether such a failure has given it authority to repeal, and that its action may be set aside by the courts."^^ It seems to us, however, that the legislature, having the right to reserve the power to repeal unconditionally,. may reserve the right to repeal conditionally with power to determine whether or not the condition exists, for it is a general rule that where the legis- lature is authorized to determine whether a state of facts exists authorizing the exercise of power, its judgment that such a state of facts does exist is conclusive.^^' As such repeal may be regarded as only a ready substitute for a forfeiture for abuse of corporate powers upon quo warranto proceedings,^'^ it has been suggested that the cor- poration should have an opportunity to be heard in its own defense before some judicial tribunal,^*" and not subjected to an ex parte === Oakland R. Co. v. Oakland, &c. R. Co. 45 Cal. 365, 13 Am. R. 181; Myrick v. Brawley, 33 Minn. 377; Miners' Bank v. United States, 1 Greene (Iowa) 553; Kennedy v. Strong, 14 Johns. (N. Y.) 128; New York, &c. R. Co. v. Boston, &c. R. Co. 36 Conn. 196. But see Flint, &c. Co. V. Woodhul.l, 25 Mich. 99, 12 Am. R. 233. ™ Erie, &c. R. Co. v. Casey, 26 Pa. St. 287; State v. Curran, 7 Bng. (Ark.) 321. ^" Commonwealth v. Pittshurg, &c. R. Co. 58 Pa. St. 26; Brie, &c. R. Co. V. Casey, 26 Pa. St. 287! See, also, Myrick v. Brawley, 33 Minn. 377. Some cases hold that hy accepting a charter containing a reservation by the legislature of power to repeal, upon the happening of a contin- gency, the corporation is estopped to question the authority of the legis- lature to determine whether the con- tingency has happened, though the question would otherwise he one for judicial determination. Crease v. Babcock, 23 Pick. (Mass.) 334, 34 Am. Dec. 61; Carey v. Giles, 9 Ga. 253; Lothrop v. Stedman, 42 Conn. 583; Miners' Bank v. United States, 1 Greene (Iowa) 553; DeCamp v. Bveland, 19 Barb. (N. Y.) 81, cited in 1 Beach Priv. Corp. § 39. This we regard as the better rule. ='='» Elliott Gen. Prac. § 148, and au- thorities last above cited. See, also, the more recent Pennsylvania case of Wagner Free Inst. v. Philadel- phia, 132 Pa. St. 612, 19 Am. St. 613. ''^"Legislative power to declare a forfeiture is cumulative to and not a substitute for a judicial proceed- ing by quo warranto, and such pro- ceedings may be brought when the legislature has failed to exercise Its repealing power. State v. Southern, &c. R. Co. 24 Tex. 80. '" Mayor v. Pittsburgh, &c. R. Co. 2 Abb. (U. S.) 9. See Vermont, &c. §' 58] OHAHTEKS. 103 judgment pronounced by one of the parties to the contract, which it is claimed has been violated."*^ But, since a judicial finding establishing the misuser or abuse of corporate powers would have the effect to dis- solve the corporation, such a proceeding would render idle the reserva- tion of the power of repeal."" This power is of value because it may be exercised when proceedings by quo warranto might not only prove ineffectual, but would involve risks, embarrassment and delay."^^ A legislative inquiry to ascertain if there has been a violation of its charter or any other default by a corporation chartered under a gen- eral statute reserving to the legislature the right to repeal charters of corporations of its class upon any such violation' or default, has been held not to be a "judicial act," such as the legislature is pro- hibited from performing by the constitutions of many of the states."** § 58, Rule where power to repeal is not reserved.' — Where the power to repeal has not been reserved a different rule applies. In such a ease the charter can only be revoked for cause as established by the decree of a competent tribunal upon judicial inquiry," *° and is not subject to legislative repeal for any alleged abuse of corporate fran- chises,"*' at least where the legislature is prohibited by the state con- stitution from exercising judicial powers."*' § 59. Effect of repeal. — The legislature may not, under the guise of authority to repeal the charter, invalidate contracts and vested R. Co. V. Vermont, &c. R. Co. 34 Brooklyn Cent. R. Co. v. Brooklyn Vt. 2. City R. Co. 32 Barb. (N. Y.) 358; ^1 Commonwealth v. New Bedford Commonwealth v. Pittsburg, &c. R. Bridge, 2 Gray (Mass.) 339; Taylor Co. 58 Pa. St. 26. Priv. Corp. § 503. '^'Bruffett v. Great Western R. "^Erie, &c. R. Co. v. Casey, 26 Co. 25 111. 353; University of Mary- Pa. 287; Crease v. Babcock, 23 Pick, land v. "Williams, 9 Gill & J. (Md.) (Mass.) 334, 34 Am. Dec. 61; Min- 365, 31 Am. Dec. 72. But see Crease ers' Bank v. United States, 1 Greene v. Babcock, 23 Pick. (Mass.) 334, 34 (Iowa) 553. Am. Dec. 61. It has been held that "^Brie, &c. R. Co. v. Casey, 26 a charter is perpetual and irrevoca- Pa. St. 287. ble if therei is no law limiting it or ^Crease v. Babcock, 23 Pick, providing for repeal. Snell v. Chi- (Mass.) 334, 34 Am. Dec. 61. But cago, 133 111. 413, 24 N. E. 532, 8 L. see post, § 58. R. A. 858 n. See, also. Suburban, &c. '"'Ante, §§ 54, 56. Co. v. Inhabitants, &c. (N. J.), 41 ^ State V. Noyes, 47 Me. 189; Atl. 865; National, &c. Co. v. Kansas Sturges V. Vanderbilt, 73 N. Y. 384; City, 65 Fed. 691. 103 EFFECT OF REPEAL. [§ 59 rights of third parties;^** nor will any action on its part affect the ownership of personal and real property acquired by the corporation during its lawful existence, or of rights or contract of choses in action, so acquired, which do not in their nature depend upon the general powers conferred by the charter.^** The rights of the shaxe-holders of such a corporation to their interests in such property are not, as a rule, annihilated by such a repeal,^'" and where the legislature does not provide a special remedy, the courts may enforce those rights by the means within their power.^^^ The repeal by the legislature of the char- ter of a corporation, however, destroys its ability to originate new transactions dependent on the power conferred by the charter, and leaves the incorporators .with only such powers as may be exercised by unincorporated private persons under the general laws of the state.^'^ But the legislature may charter a new corporation with au- . thority to take so much of the properly and franchises of the corpora- tion whose charter is revoked as may be necessary to the public use, upon making compensation therefor,^^^ and it has been held that the "'Miller v. State, 15 Wall. (U. S.) 478; Railroad Co. v. Maine, 96 U. S. 499; Rice v. Minnesota, &c. R. Co. 1 Black (U. S.) 358; Detroit v. De- troit Plank Road Co. 43 Mich. 140; Albany, &c. R. Co. v. Brownell, 24 N. Y. 345; Commonwealth v. Essex Co. 13 Gray (Mass.) 239, 253. But see Macon, &c. R. Co. v. Gihson, 85 Ga. 1, 21 Am. St. 135. '"'Greenwood v. Marginal, &c. R. Co. 105 U. S. 14, per Miller, X; New Orleans, &c. R. Co. v. Delamore, 114 U. S. 501, 5 Sup. Ct. 1009. See, also. People V. O'Brien, 111 N. Y. 1, 18 N. E. 692, 2 L. R. A. 255 n., 7 Am. St. 684, 45 Hun (N. Y.) 519 and note; Orr v. Bracken County, 81 Ky. 593; San Mateo v. Southern, &c. R. Co. 8 Sawy. (U. S.) 238, 279; State v. Noyes, 47 Me. 189; Detroit v. Detroit Plank Road Co. 43 Mich. 140; Mason T. Mining Co. 133 TJ. S. 50, 10 Sup. Ct. 224; Opinion of Justices, 66 N. H. 630, 33 Atl. 1076. Some of these cases, notably the New York and Maine cases, go still further and ap- ply this rule to franchises. ""Greenwood v. Marginal, &c. R. Co. 105 U. S. 14; Thornton v. Margi- nal Freight, &c. Co. 123 Mass. 32; Opinion of Justices, 66 N. H. 630, 33' Atl. 1076. And see IngersoU v. Nassau, &c. Co. 157 N. Y. 453, 52 N. B. 545, 43 L. R. A. 236; Africa v. Knoxville, 70 Fed. 734; Citizens' St. R. Co. v. City R. Co. 64 Fed. 651; Dow v. Northern R. Co. 67 N. H. 1, 36 Atl. 510; New York v. Twenty- third St. R. Co. 113 N. Y. 311, 21 N. E. 60. An intent to interfere with vested rights, which would render the statute unconstitutional, will not be inferred, ijnless plainly declared. West Jersey Traction Co. V. Camden, &c. Co. 52 N. J. Eq. 452, 29 Atl. 333. =*" Greenwood v. Marginal, &c. R. Co. 105 U. S. 14. "^^ Greenwood v. Marginal, &c. R. Co. 105 U. S. 14. "»" Greenwood v. Marginal, &c. R. Co. 105 U. S. 14. § 60] CHAKTEKS. 104 repeal of a corporation's charter vests in the state the right to all pub- lie works built by it for public use on lands taken in the name of the state (subject to the proprietary right of the shaxe-holders to the as- sets), together with the right to manage them or regrant them at its election.^" § 60. Repeal of by general laws. — Where power to repeal is re- served, a special charter may be repealed by a general law,^^^ even, it has been held, where no reference is made to the charter repealed,^^® but a general law can have such an efEect only where it is so opposed to the provisions of the charter that both acts may not stand to- gether.^^' The repeal of a general incorporating act does not, however, affect the charter rights of a corporation previously organized under its provisions,^^^ unless such is the intention of the legislature.^^® §61. Charter is subject to general laws reserving power to re- peal. — A charter, unless otherwise provided, is subject to the general laws in force when it was granted,^"" and, therefore, a general law reserving the power to alter, amend or repeal corporate charters generally is taken as forming part of all charters afterwards granted.^^^ For this reason, as already stated,^"^ the amendment or re- ^ Erie, &c. R. Co. v. Cg,sey, 26 Pa. brew Ass'n v. Benshimol, 130 Mass. St. 287. 325; Bibb v. Hall, 101 Ala. 79, 14 ^= State V. Commlssionerp, &c. 37 So. 98, 59 Am. & Eng. R. Cas. 62. N. J. L. 228; Mechanics, &c. Bank ""> See Wilson v. Tesson, 12 Ind. V. Bridges, 30 N. J. L. 112. That the 285; 2 Spelling Priv. Corp § 1066; charter may be revoked by a change Bibb v. Hall, 101 Ala. 79, 14 So. 98, in the constitution of the state, as 59 Am. & Eng. R. Cas. 62. well as by statute, where power to '"' Pratt v. Atlantic, &c. R. Co. 42 repeal has been reserved, see Lee Me. 579. & Co.'s Bank, Matter of, 21 N. Y. 9. =" Massachusetts Genl. Hospital v. ^' State V. Commissioners, &c. 37 State Mut. L. A. Co. 4 Gray (Mass.) N. J. L. 228. But see City of Grand 227; Suydam v. Moore, 8 Barb. (N. Rapids V. Grand Rapids Hydraulic Y.) 358; Tomlinson v. Branch, 15 Co. 66 Mich. 606, 33 N. W. 749; New Wall. (U. S.) 460; Citizens' St. R. Jersey v. Yard, 95 U. S. 104, same Co: v. Memphis, 53 Fed. 715; Citi- case as above. zens' Sav. Bank v. Owensboro, 173 ^" State V. Commissioners, &c. 37 U. S. 636, 19 Sup. Ct. 530, 43 L. ed. N. J. L. 228. See, also, Bangor R. 840; GriflSn v. Kentucky Ins. Co. 3 Co. v. Smith, 47 Me. 34; Union Imp. Bush (Ky.) 592, 96 Am. Dec. 259; Co. V. Commonwealth, 69 Pa. St. 140. State v. Person, 32 N. J. L. 134; '''>» Bewick v. Alpena Harbor Co. 39 Lee's Bank, In re, 29 N. Y. 9; Corn- Mich. 700; Don worth v. Coolbaugh, missloners v. Holyoke, &c. Co. 104 5 Iowa 300; Freehold, &c. Ass'n v. Mass. 446, 6 Am. R. 247. Brown, 29 N. J. Eq. 121; Union He- '"^Ante, § 56. 105 EXPIEATWDN OF CHARTBE. [§ 63 peal of the charter where such a general law existed at the time it was granted is not, ordinarily, a violation of the provision of the constitu- tion of the United States forbidding the impairment of the obligation of contracts. And the fact that part of such a general statute is incor- porated into a charter, does not, by implication, repeal the rest of the statute.2^8 § 62. Expiration of charter. — The existence of railroad companies incorporated by special charters,^** as that of other business corpora- tions,^"^ is frequently limited to a term of years; and some of the states having general laws, for the formation of such corporations limit the time for which a corporation may be formed under them.^"^ Where there are no provisions for renewal of the corporation^*' or where no advantage is taken of such provisions, the corporation is ipso facto dissolved upon the expiration of the time for which it was chartered.^"* It is not necessary in such a case that a dissolution should be judi- cially deereed,^*^ but the plea of nul tiel corporation may be inter- posed to any suits which it may bring,^'''' and any member may, in a proper case, insist upon a distribution of its assets.^'* If the charter =«'Angell & Ames Corp. § 767, citing Pratt v. Atlantic, &c. R. Co. 42 Me. 579. ^°'For instances of such charters of limited duration, see Charter of the Union Railroad Co. Local Laws Ind. 1838, p. 131; of Newburgh and Vanderburgh Railroad Co. Local Laws Ind. 1850, p. 308. *= Beach Railw. § 577. »R. sS. 111. Ch. 114, § 1; Rev. L. (1884) La. § 684. See R. S. Mo. § 926. 2" For examples of such provisions, see R. S. 111. Ch. 114, § 5; N. Y. Laws, 1890, Ch. 563, §-22. =»= Oakland R. Co. v. Oakland, &c. R. Co. 45 Cal. 365, 13 Am. R. 181. See, also. La Grange, &c. R. Co. v. Rainey, 7 Coldw. (Tenn.) 432; Com- monwealth V. Lykens Water Co. 110 Pa. St. 391, 2 Atl. 63; Asheville Di- vision V. Aston, 92 N. Car. 578; note in 33 L. R. A. 576; Marion, &c. Co. V. Perry, 74 Fed. 425, 33 L. R. A, 252; Combes v. Keyes, &c. R. Co- 89 "Wis. 297, 62 N. W. 89, 27 L. R. A, 369, 46 Am. St. 839; 3 Purdy's Beach Priv. Corp. § 1311. =™ Merrill v. Suffolk Bank, 31 Me. 57, 50 Am. Dec. 649; Sturges v. Van- derbilt, 73 N. Y. 384, 390; LaGrange, &c. R. Co. V. Rainey, 7 Coldw. (Tenn.) 420; Bank of Galllpolis v. Trimble, 6 B. Men. (Ky.) 599. ""Brooklyn, &c. R. Co. In re, 72 N. Y. 245; Krutz v. Paola Town Co. 20 Kan. 397. But see St. Louis Gas Light Co. V. St. Louis, 11 Mo. App. 55, 84 Mo. 202. ""Mann v. Butler, 2 Barb. Ch. (N. Y.) 362; Sturges v. Vanderbilt, 73 N. Y. 384; Greely v. Smith, 3 Story (U. S.) 657; Bank of Missis- sippi v. Wrenn, 11 Miss. 791; Eagle Chair Co. v. Kelsey, 23 Kan. 632; Burns v. Metropolitan Bid. Ass'n, 2 Mackey (D. C.) 7. §' 63] CHAETEES. 106 is to continue until a -certain day, the corporation expires at the close of the preceding day.^^^ But it has heen held that a general statute limiting the life of corporations will not affect a corporation organ- ized under a special charter, to which no particular reference is made in the general act.^^* If the charter of a company be suffered to expire it would seem that the legislature cannot then renew its char- ter so as to continue its existence as a corporate body, except by the consent of all the corporators.^^* This is intimated, rather than decided, in the case to which we have referred; but. where one be- comes a stockholder under a charter expressly limiting the dura- tion of the corporation, and there is no reserved power of amendment) or repeal, it seems clear to us that he cannot be compelled to remain or become a stockholder in what is virtually a new corporation by a renewal of the charter after the corporation had ceased to exist by rea- son of the expiration of the original charter. ""People V. Walker, 17 N. Y. 502. 192, 19 Pac. 636; Council Grove, '"Steadman v. Merchants', &c. &c. R. Co. v. Lawrence (Kans.), Bank, 69 Tex. 50, 6 S. W. 675; State 45 Pac. 125; Detroit, &c. Co. v. v. Ladies of the Sacred Heart, 99 Macomb Circuit Judge, 109 Mich. Mo. 533, 12 S. W. 293. See, also, 371, 67 N. W. 531; Board v. De- State V. Stormont, 24 Kans. 686. posit Bank, &c. 124 Fed. 18. As "♦Bailey v. HoUister, 26 N. Y. to the efCect of laws passed after 112. See, generally, upon the sub- the enactment of the charter but ject of rights after charters expire, prior to acceptance, see Planters, Union Pacific R. Co. v. Chicago, &c. &c. Co. v. Tennessee, 161 U. S. 193, R. Co. 51 Fed. 309; Union Pacific R. 16 Sup. Ct. 466; Stone v. Wisconsin, Co. V. Chicago, &c. R. Co. 163 94 U. S. 674, 24 L. ed. 102; Attorney- U. S. 564, 16 Sup. Ct. 1173; General v. Wisconsin, &o. R. Co. 35 Kansas, &c. Co. v. Smith, 40 Kans. Wis. 599. CHAPTER V. FRANCHISES. I Sec. 63. 64. 66. 67. 69. Definition. Charter and franchise distin- guished. Grant of corporate franchises. Consideration tor the grant of a franchise. Nature of a franchise further considered. Franchise of being a corpora- tion. Difference between a franchise and a license. Sec. 70. 71. 72. 73. 74. 75. Sale of corporate property es- sential to exercise of fran- chises — Limitations of right to sell. Effect of attempt to sell fran- chise. Judicial sale of franchises. Sequestration. Seizure of corporate franchise under power of eminent do- main. Dissolution effected by author- ized sale of franchises. § 63. Seflnition. — In its broad signification the term "franchises" means "special privileges conferred by govelrnment on individuals, and which do not belong to the citizens of the country generally by common right,"^ but the meaning of the term "corporate franchises" is not so comprehensive. We suppofee that the term "corporate fran- chises" means such special rights and privileges as are conferred upon corporations by the legislative power.* We do not include in our defi- nition corporate immunities because immunities are not always fran- chises," although they may sometimes be properly considered as such ' Angell & Ames Corp. § 4. "In Fletsam v. Hay, 122 111. 293, 13 N. B. 501, 3 Am. St. 492, It is said that the term, in Its appropriate sense, Is confined to such rights and privileges as are conferred upon corporate bodies by legislative grant, and that a franchise is the right or privilege of being a corpo- ration and of doing such things, and such things only, as are author- ized by the charter. In Detroit, &c. R. Co. V. Common Council, 125 Mich. 673, 85 N. W. 96, 86 N. W. 809, 84 Am. St. 589, it Is said that fran- chises are of three classes: 1. The right to organize and exist as a cor- poration. 2. The right to act gen- erally. 3. The special privileges which are not possessed by indi- viduals under general laws. ' In the case of Keokuk, &c. Co. v. Missouri, 152 U. S. 301, 14 Sup. Ct. 592, attention is directed to an ap- 107 § 63] SEANCHISES. 108 under the statute applicable to the particular instance. The franchises of a railroad corporation are such rights and privileges as are essential to the proper operation of a railroad and necessary to the conduct of the business of a railroad company.'' Merely transient or personal im- munities do not, as we believe, fall within the legal meaning of the term. The distinction between transient immunities and permanent rights and privileges which constitute franchises is one of importance since some franchises may be transferable while mere immunities are not. parent conflict in the decisions. We quote the following from the opin- ion in that case: "In Chesapeake, &c. R. Co. V. Miller, 114 U. S. 176, 5 Sup. Ct. 813, it was held that an immunity from taxation enjoyed by the Covington and Ohio Railway Company did not pass to a pur- chaser of such road under fore- closure of a mortgage, although the act provided that 'said purchaser shall forthwith be a corporation,' and 'shall succeed to all such fran- chises, rights and privileges * * * as would have been had * * * by the first company but for such sale and conveyance.' It was held, fol- lowing in this particular Morgan v. Louisiana, 93 U. S. 217, that the words 'franchises, rights and privi- leges' did not necessarily embrace a grant of an exemption or immunity. See, also, Picard v. East Tenn. &c. R. Co. 130 U. S. 637, 9 Sup. Ct. 640. Upon the other hand, it was held in Tennessee v. Whitworth, 117 U. S. 139, 6 Sup. Ct. 649, that the right to have shares in its capital stock exempted from taxation within the state is conferred upon a railroad corporation by state statutes grant- ing to it 'all the rights, powers and privileges' conferred upon another corporation named, if the latter cor- poration possesses by law such right of exemption, citing in sup- port of this principle a number of prior cases. See, also, Wilmington, &c. R. Co. V. Ashbrook, 146 IT. S. 279, 297, 13 Sup. Ct. 72." *In the case of Morgan v. Louisi- ana, 93 U. S. 217, 233, it was said: "Much confusion of thought has arisen in this case, and in similar cases, from attaching a vague and undefined meaning to the term 'fran- chises.' It is often used as synony- mous with rights, privileges and im- munities, though of a personal and temporary character; so that. If any one of these exists, it is loosely termed a 'franchise,' and is sup- posed to pass upon a transfer of the franchises of the company. But the- term must always be considered In connection with the corporation or property to which it is alleged to appertain. The franchises of a rail- road corporation are rights or privi- leges which are essential to the op- erations of the corporation, and without which its road and works would be of little value; such as the franchise to run cars, to take tolls, to appropriate earth and gravel for the bed of Its road, or water for Its engines, and the like. They are positive rights or privileges, with- out the possession of which the road of the company could not be suc- cessfully worked." See, also, Roch- ester R. Co. V. Rochester (TJ. S.), 27 Sup. Ct. 469. 109 CHARTER AND FRANCHISE DISTINGUISHED. [§ 64 §64. Charter and franchise distinguished.— A charter contains the, grant of a franchise, but is not the franchise itself. The charter is the evidence that a franchise has been granted rather than the fran- chise, for that is the thing the charter grants. The constitutional inhi- bition against impairing the obligation of contract is not operative upon the charter but upon the contract which the charter contains, and protects franchises because they are valuable property or contract rights.^ § 65. Grant of corporate franchises.— A corporate franchise can only be granted by the sovereign. Privileges or rights that are often called franchises may be granted by municipal corporations to railroad companies, but that which is a corporate franchise in the true sense of the term can only be granted by the state. A license to place a railroad track in a street is sometimes called a franchise, but this is, it seems to us, an erroneous use of the term. The right to use the street is a privilege or license, until acted upon, rather than a corporate fran- chise, except where it is conferred as a franchise by the charter or statute,* or if a franchise, it is a secondary or derivative one,'' and, at all events, it must be granted either directly by the legislature or through the action of the municipality authorized by the legislature.^ § 66. Consideration for the grant of a franchise. — A franchise, using the term "franchise" as meaning a property right vested in a corporation, is always supported by a consideration. This considera- » Oakland R. Co. v. Oakland, &c. Roads and Streets (2d ed.), §§ 739, Co. 45 Gal. 365, 13 Am. R. 181. 741. In one sense, however, such 'Chicago, &c. Co. v. People, 73 111. grant of such a right or privilege, 541; Metropolitan, &c. Co. v. Chica- when not a mere naked license, may- go, &c. Co., 87 111. 317 ; Eichels v. be called a secondary franchise. Evansville, &c. Co. 78 Ind. 261, 41 ' State v. Hilhert, 72 "Wis. 184, 39 Am. R. 561; Belleville v. Citizens' N. W. 326; Saginaw v. Saginaw, &c. R. Co. 152 111. 171, 38 N. B. 584, 26 Co. 28 Fed. 529. Xi. R. A. 681. The right of way is ' Pittsburg, &c. R. Co. v. Hood, 94 called an easement in Mayor, &c. of Fed. 618, 36 C. C. A. 423; Potts v. Knoxville v. Africa, 77 Fed. 503, 507, Quaker City R. Co. 161 Pa. St. 396, 23 C. C. A. 252. See, generally, 29 Atl. 108; Farmer v. Myles, 106 State V. Hilbert, 72, Wis. 184, 39 N. La. Ann. 333, 30 So. 858; People's R. W. 326; Saginaw, &c. Co. v. Sagi- Co. v. Memphis R. Co. 10 Wall. (U. uaw, 28 Fed. 529; Jersey City v. Jer- S.) 38, 51; Elliott Roads and Streets sey City, &c. R. Co. 20 N. J. Eq. 360; (2d ed.), §§ 739, 740. See and com- Eedfield R. (3d ed.) 317; 2 Dillon pare Covin v. Chicago, 132 Fed. 848. Munic. Corp. (4th ed.) 792; Elliott § 67] FEANCHISBS. 110 tion may be the implied imdertaking to perform corporate duties bene- ficial to the public, or it may be an express agreement to do or not to do a designated act. In this respect a franchise differs essentially from a bare license, for a bare license is not supported by any consideration. It is, therefore, entirely consistent with principle to hold that a bare or naked license is revocable and is not protected as a franchise. The license does not become a contract until it is accepted and acts are per- formed under it which vest the rights of the parties, while a franchise becomes effective upon the acceptance of the charter or the perform- ance of such acts as are required to be performed as conditions pre- cedent to the vesting of the rights granted.* § 67. Nature of a franchise further considered. — The right to ex- ist as a corporation, that is, as a legal entity composed of individuals united under a common name, with the capacity both of self-perpetu- ation and of exercising certain of the powers and privileges of a nat- ural person, such as the power to sue and be sued, to hold and con- vey property, to make by-laws for the control of its business and to enter into contracts in the corporate name, is often spoken of as the company's franchise.^° On the other hand, the word "franchises" is frequently used to designate those special privileges and powers con- " Philadelphia, &c. Co.'s Appeal, rate name, to make contracts, to sue 102 Pa. St. 123. See, generally. Hen- and be sued, and to acquire and hold derson v. Central, &c. Co. 21 Fed. property as a corporate body, and to 358; Western, &c. Co. v. Citizens', be exempt from . liability for the &c. Co. 128 Ind. 525, 26 N. E. 188, 28 debts of its stockholders, and solely N. E. 88, 10 L. R. A. 770 n, 25 Am. liable for the debts and liabilities St. 462; Indianapolis, &c. Co. v. Citi- contracted by it, with such other zens' Co. 127 Ind. 369, 24 N. E. 1054, rights as enable the corporation to 26 N. E. 893, 8 L. R. A. 539 n; Peo- act as a person or legal entity, are pie V. Mutual, &c. Co: 38 Mich. 154; called ordinary fraiichises and may Atchison St. R. Co. v. Nave, 38 Kans. be exercised in any jurisdiction 744, 17 Pac. 587, 5 Am. St. 800; Gal- where such exercise is not expressly veston City, &c. Co. v. Galveston prohibited. Prerogative franchises. City St. R. Co. 63 Tex. 529; Great such as the exercise of the right of Central R. Co. v. Gulf, &c. R. Co. 26 eminent domain, arise from a spe- Am. & Bng. R. Cas. 114; Detroit v. cial grant, and can only be exer- Detroit, &c. Co. 37 Mich. 558; Gulf cised by either an individual or a .City, &c. Co. V. Galveston, 65 Tex. corporation by authority of such a 502; People R. Co. v. Memphis R. grant and within the jurisdiction Co. 10 Wall. 38. of the state by which the grant is "Blackstone Com. 37. The right made. Wood R. Law, § 14; Rorer to carry on business in the corpo- Railw. 74.' Ill NATURE OF A FRANCHISE EDBTHER CONSIDERED. [§' 67 ferred upon a corporation for the furtherance of some public work, such as the right to construct a railroad upon lands taken by the right of eminent domain, and "those rights or privileges which are essential to the operations of the corporation, and without which its roads and works would be of little value, such as the franchise to run cars, to take tolls, to appropriate earth and gravel for the bed of its road, or water for its engines, and the like."^^ In so far as the word is used to desig- nate powers which an individual may not exercise without a special grant of 'authority from the legislature^'' (for example, eminent do- main), a franchise has, ordinarily, no transferable value,^^ and, though it may be valued for taxation separately from the capital stock and property,^* it cannot, as a rule, be transferred by sale,^° mortgage,^® "Morgan v. Louisiana, 93 U. S. 217; Lawrence v. Morgan Louisiana, &c. Co. 39 La. Ann. 427, 2 So. 69, 4 Am. St. 265; Vermont v. Boston, &c. R. Co. 25 Vt. 433. The right to take tolls is a special franchise. Beek- man v. Saratoga, &c. R. Co. 3 Paige (N. Y.) 45. " To the effect that franchises to huild, own and manage a railroad are not necessarily corporate nor unassignable, see Ragan v. Aiken, 77 Tenn. 609, 42 Am. R. 684; Bank of Middlebury v. Edgerton, 30 Vt. 182. "Morawetz Priv. Corp. § 929. " Wilmington, &c. R. Co. v. Board, &c. 72 N. Car. 10; Corporate taxa- tion, 23 Am. & Eng. Bncy. of Law. See, also. Bank of California v. San Francisco, 142 Cal. 276, 75 Pac. 832, '64 L. R. A. 918, 100 Am. St. 130; Horn, &c. Co. v. New York, 143 U. S. 305, 12 Sup. Ct. 403. ^^ Beach Priv. Corp. § 361, and cases cited. No transfer of the property and franchises of a corpo- ration will invest the purchasers with corporate existence. New Or- leans, &c. R. Co. V. Delamore, 114 U. S. 501, 5 Sup. Ct. 1009; Chaffe v. Ludeling, 27 La. Ann. 607; Black V. Delaware, &c. Co. 24 N. J. Eq. 455; Pietsam v. Hay, 122 111. 293, 13 N. E. 501, 8 Am. St. 492; Atkin- son V. Marietta, &c. R. Co. 15 Ohio St. 21, 35; .Oregon R. Co. v. Ore- gonian R. Co., 130 U. S. 1, 9 Sup. Ct. 409; Gulf, &c. R. Co. v. Morris, 67 Tex. 692, 4 S. "W. 156; Middlesex R. Co. V. Boston, &c. R. Co. 115 ' Mass. 347; Coe v. Columbus, &c. Co. 10 Ohio St. 372, 75 Am. Dec. 518 n;, Memphis, &c. Co. v. Railroad Com- missioners, 112 U. S. 609, 5 Sup. Ct. 299; Commonwealth v. Smith, 92 Mass. 448, 87 Am. Dec. 672; Rollins V. Clay, 33 Me. 132. '« Richardson v. Sibley, 93 Mass, 65, 87 Am. Dec. 700; Daniels v. Hart, 118 Mass. 543; Black v. Delaware, &c. Co. 22 N. J. Eq. iso, 396; Lau- man v. Lebanon Val. R. Co. 30 Pa. St. 42, 72 Am. Dec. 685; Woodruff V. Erie R. Co. 25 Hun (N. Y.) 246; Frazier v. Bast Tennessee, &c. R. Co. 88 Tenn. 138, 12 S. W. 537. Con- tra, Shepley v. Atlantic, &c. R. Co. 55 Me. 395; Meyer v. Johnston, 53 Ala. 237. The franchise of being a corporation is not included in a mortgage of all the property and franchises of a railroad, unless by positive provision of law. Memphis, &c. R. Co. V. Railroad Commission- ers, 112 U. S. 609, 5 Sup. Ct. 299 j 68] FRANCHISES. 113 or assignment/' nor be sold on execution,^' unless the legislature has provided for such a transfer in the charter or in some general statute.^* Where such provision is made, the grantee receives the franchise in- directly from the legislature by virtue of the power given to the cor- poration.^" § 68. Franchise of being a corporation. — Confusion often results from the failure to discriminate between the franchise of being a cor- poration and the franchise of acquiring rights and exercising corporate functions as a corporation. The difference between the franchise of being a corporation and the franchise of exercising rights as a corpora- tion is important. A corporation, or, more accurately, perhaps, the cor- porators may be invested with the franchise of existing as a corpora- New Orleans, &c. R. Co. v. Delamore, 114 U. S. 501, 5 Sup. Ct. 1009; Beach R. Law, § 616. See Snell v. Chi- cago, 133 111. 413, 24 N. B. 532, 8 L. R. A. 858 n; Threadgill v. Pum- phrey, 87 Tex. 573, 30 S. W. 356. But see as to franchises that pass to purchaser at foreclosure sale where there is authority to mort- gage, Vicksburg v. Vicksburg, &c. Co. 202 U. S. 453, 26 Sup. Ct. 660, 663. "Beach Priv. Corp. § 361; Pur- dy's Beach Priv. Corp. § 835; An- gell & Ames Corp. § 191; Hurlbut V. Carter, 21 Barb. (N. Y.) 221; Frazier v. East Tennessee, &c. R. Co. 88 Tenn. 138, 12 S. W. 537, 40 Am. & Eng. R. Cas. 358; Richard- son V. Sibley, 93 Mass. 65; Bowen V. Lease, 5 Hill (N. Y.) 221; Mem- phis, &c. R. Co. V. Railroad Commis- sioners, 112 XJ. S. 609, 619, 5 Sup. Ct. 299. "^ Randolph v. Lamed, 27 N. J. Eq. 557. But see State v. Rives, 5 Ired. L. (N. Car.) 297; Lawrence V. Morgan's, &c. Co. 39 La. Ann. 427, 2 So. 69, 4 Am. St. 265. Prop- erty essential to the exercise of a franchise may not be separated from it and sold on execution. East Alabama R. Co. v. Doe, 114 U. S. 340, 5 Sup. Ct. 869; Youngman V. Elmira, &c. R. Co. 65 Pa. St. 278; Baxter v. Nashville, &c. Turnpike Co. 10 Lea (Tenn.) 488; Louisville, &c. R. Co. v. Boney, 117 Ind. 501, 20 N. E. 432, 3 L. R. A. 435 n; Indianapolis, &c. Co. V. State, 105 Ind. 37, 4 N. E. 316; East Alabama R. Co. v. Doe, 114 U. S. 340, 5 Sup. Ct. 869. " East Boston Freight R. Co. 'v. Eastern R. Co. 13 Allen (Mass.) 422; State v; Sherman, 22 Ohio St. 411, 428; Mahaska, &c. R. Co. v. Des Moines Valley R. Co. 28 Iowa 437; State V. Richmond, &c. R. Co. 72 N. Car. 634. Where such acts are done without authority, the legislature may, by ratifying and confirming them, render them valid. Shaw v. Norfolk, &c. R. Co. 5 Gray '(Mass.) 162, 179; Richards v. Merrimack, &c. Co. 44 N. H. 127, 136; Branch v. Jessup, 106 U. S. 468, 1 Sup. Ct. 495; Shaw V. Norfolk, &c. R. Co. 5 Gray (Mass.) 162; Hall v. Sullivan R. Co. 21 Law R. 138; Pollard v. Mad- dox, 28 Ala. 321; Waterman Corp. § 159. ''"Taylor Priv. Corp. (2d ed.) § 131. 113 FRANCHISE OS BEING A COEPOEATION. [§ 68 tion and yet not endowed with the right to do acts it claims power to do. Thus, a water company may be invested with the franchise of be- ing a corporation and yet not possess the franchise of furnishing a city with water. ^'^ In another case the question was as to the right to ac- quire and hold property, and the distinction between the capacity to acquire property and the franchise to be a corporation was clearly drawn.^^ The question received very full consideration in still another ^'Andrews v. National Foundry, &c. Works, 61 Fed. 782, 10 C. C. A. 60. In the opinion in that case it was said: "By its act of incorpora- tion, the Oconto Water Company came into being, endowed not with the right to establish and maintain water-works in Oconto, but with capacity to receive and exercise that right." This illustrates the doctrine we are endeavoring to make clear, namely, that the franchise of being a corporation is essentially differ- ent from a right to receive property or the capacity to perform duties. Doubtless the power and capacity may often be implied from the char- ter or statute creating the corpora- tion, but they are not to be implied from the bare franchise of being a corporation. '^Southern, &c. Co. v. Orton, 32 Fed. 457, 473. Judge Sawyer, in the course of his very able opinion, said: "The creative act necessarily extends only to the bringing into being of an artificial person, with the capacities stated, among which is, 'a capacity to receive and enjoy in common grants and privileges and immunities;' that is to say, a capacity to receive and enjoy such grants, privileges and Immunities as may be made either at the time of the creation or any other time. The creation of the being, with the ca- pacity to receive grants. Is one thing; the granting of other privi- leges and immunities, which it has Ell. Railroads — 8 the capacity to receive when cre- ated, is another. When such a be- ing is brought into existence, a cor- poration has been created. A legal entity, a person, has been created, with a capacity to do, by its corpo- rate name, such things as the legis- lative power may permit, and re- ceive such grants of such rights and privileges, and of such property, as the legislature itself, or private per- sons with the legislative permission, may give. But I do not understand that every right, privilege or grant that can be conferred upon a corpo- ration must be given simultaneous- ly with the creative act of incorpo- ration. On the contrary, I suppose the artificial being must be created with a capacity to receive before anything can be received. The right to be a corporation is itself a sepa- rate, distinct and independent fran- chise, complete within itself, and a corporation having been created, eii- joying this franchise, may receive a grant and enjoy other distinct and independent franchises, such as may be granted to and enjoyed by natural persons. But because it en- joys the latter franchises, they do not, therefore, constitute a part of the distinct and independent essen- tial f ranchi&e — the right to be a cor- poration. They are additional fran- chises given to the corporation, and not parts of the corporation itself, — not of the essence of the corpora- tion." 69] FRANCHISES. 114 ease, and the rule was well stated by the 'court and its position en- forced with great strength.^^ Indeed, there is authority for saying that the franchise to become and exist as an artificial being or corporation vests in the corporators, while the franchise to act in a certain way and exercise the privileges granted for that purpose vests in the corpora- tion.2* § 69. Difference between a franchise and a license. — A distinction must be kept in mind between a charter franchise constituting a con- tract on the part of the state in consideration of certain duties which, by accepting the charter, the corporation undertakes to perform, and a mere legislative permission or license, which is revocable at the pleasure of the grantor. A supplement to a charter,^^ or a general statute or or- ^ In the case of Coe v. Columbus, &c. Co. 10 Ohio St. 372, 75 Am. Dec. 518, speaking of the distinction re- ferred to in the text, the court said: "This distinction has been clearly- pointed out in a recent case, in which it is said: 'Among the fran- chises of the company is that of be- ing a body politic, with rights of succession of members, and of ac- quiring, holding and conveying property, and suing and being sued, by a certain name. Such an arti- ficial being only the law can cre- ate; and when created it cannot transfer its own existence into an- other body, nor can it enable natu- ral persons to act in its name, save as its agents or as members of the corporation, acting in conformity with the modes required or allowed by its charter. The franchise to be a corporation, is, therefore, not a subject of sale and transfer, unless the law, by some positive provision, has made it so, and pointed out the modes in which such sale and trans- fer may be effected. But the fran- chises to build, own and manage a railroad, and to take tolls thereon, are not necessarily corporate rights; they are capable of existing in and being enjoyed by natural persons; and there is nothing in their nature inconsistent with their being as- signable'. Hall V. Sullivan R. Co. 21 Law R. 138, 140, 1 Brun. Col. Cas. 613, Curtis, J. Very similar lan- guage is used in a recent case in Vermont. Bank of Middlebury v. Bdgerton, 30 Vt. 182-190." The same general doctrine is asserted in Grand Rapids, &c. Co. v. Prange, 35 Mich. 400, 24 Am. R. 585; Fort Worth, &c. Co. V. Rosedale, &o. Co. 68 Tex. 169, 176. =«Fietsam v. Hay, 122 111. 293, 13 N. B. 501, 3 Am. St. 492. So, in Memphis, &c. R. Co. v. Rail- road Com'rs. 112 U. S. 619, 5 Sup. Ct. 299, 303, it is said: "The franchise of being a corporation be- longs to the corporators, while the powers and privileges, vested in and to be exercised by the corporate body as such, are the franchises of the corporation." But see Knoup v. Piqua Branch, 1 Ohio St. 614; Young V. Webster City R. Co.. 75 Iowa 140, 39 N. W. 234. "^ Philadelphia, &c. R. Co.'s Ap- peal, 102 Pa. St. 123. See Johnson V. Crow, 87 Pa. St. 184; Christ Church V. County of Philadelphia, 24 How. (U. S.) 300. 115 SALE OF CORPORATE PROPERTY. [§■70 dinance,^" which confers new rights or privileges for an indefinite time without the imposition of any new burdens, generally amounts to a mere license. A mere naked license is revocable at the pleasure of the legislature, but where there is money expended upon the faith that a permanent right is granted, it seems to us that the license is not rev- ocable. This opinion is> we know, opposed by eminent judges and au- thors, but it seems to us to rest on sound and solid principle." Of course, the doctrine we favor cannot prevail where there is no grant of a permanent right and the parties understand, or are bound to know, that a mere temporary privilege is granted, but where the privilege is in its nature permanent and is acted upon as such by the parties in good faith, and money is expended in the just belief that the right is of a permanent nature, the party making the Expenditure is entitled to protection.^* § 70. Sale of corporate property essential to exercise of franchises — Limitation of right to sell. — ^According to the greater weight of author- ity, a railroad corporation may not transfer any of its property or privileges which are essential to a fulfillment of the purposes for =*Southwark R. Co. v. Philadel- phia, 47 Pa. St. 314,- Branson v. Philadelphia, 47 Pa. St. 329. "That an ordinance granting a right to use a city street is an irre- vocable contract when accepted and acted on, see Asheville St. R. Co. v. Asheville, 109 N. Car. 688, 14 S. B. 316; Areata v. Areata, &c. Co; 92 Cal. 639, 28 Pac. 676; Belleville v. Citizens' R. Co. 152 111. 171, 38 N. E. 584, 26 L. R. A. 681; Williams v. Citizens' R. Co. 130 Ind. 71, 73, 29 N. B. 408, 409, 15 L. R. A. 64, 3 Am. St. 201; Elliott Roads and Streets (2d ed,), § 741. Professor Hare, re- ferring to the Pennsylvania cases cited in the following note, says: "These decisions are obviously sound. An individual who gives a license which cannot be enjoyed without the expenditure of money may fairly be presumed to intend that it shall be irrevocable, but no such Inference can be dra;wn where the state or city is dealing with a highway, and ought to retain the power of supervision and control." 1 Hare Am. Const. Law, 666. , ™ Some of the cases hold that such a license is revocable, although the grantee has made valuable improve- ments in the belief that the privi- lege will not be recalled. Branson V. Philadelphia, 47 Pa. St. 329; Mo- nongahela, &c. Co. v. Coons, 6 Watts & S. (Pa.) 101; South wark R. Co. V. Philadelphia, 47 Pa. St. 314; Beach Priv. Corp. § 21; Purdy's Beach Priv. Corp. § 56. But there is conflict on this point. Campbell v. Indianapolis, &c. R. Co. 110 Ind. 490, 11 N. B. 482; People v. Chicago, &c. Co. 18 111. App. 125; People v. O'Brien, 111 N. Y. 1, 7 Am. St. 684; State v. Noyes, 47 Me. 189; Com- monwealth V. Proprietors, &c. 2 Gray (Mass.) 339; Elliott Roads and Streets, 563, 564. 71] PKANCHISES. IIG which it was chartered, except by legislative authority. Property not held for strictly corporate purposes, that is property not necessary to enable the corporation to exercise its corporate functions and perform its corporate duties may be sold ; but property necessary for corporate use cannot be sold or transferred where its sale would render the cor- poration unable to perform its corporate duties. In other words, a corporation cannot sell or transfer its property in cases where such a sale or transfer would disable it from performing its corporate duties and exercising its corporate functions except in cases where there is legislative authority to make such sales or transfers.^' §'71. Effect of attempt to sell franchise. — Though all of the property of the corporation should pass into the hands of a purchaser, he would not by such purchase, necessarily, become entitled to the franchises,^" in the absence of any law giving authority to dispose of the corporate rights and privileges; for an authority to mortgage or otherwise transfer the property will not necessarily confer power to dispose of the franchises.^* It is, of course, competent for the legisla- "* Thomas v. West Jersey Co. 101 U. S. 71; Pennsylvania Co. v. St. Louis, &c. Co. 118 IT. S. 290, 6 Sup. Ct. 1094; Oregon V. Oregonian, &c. Co. 130 U. S. 1, 9 Sup. Ct. 409; Cen- tral Transportation Co. v. Pullman, &c. Co. 139 U. S. 24, 11 Sup. Ct. 478; York, &c. R. Co. v. Winans, 17 How. (U. S.) 30; Pearce v. Madison, &c. Co. 21 How. (U. S.) 441; Pullan v. Cincinnati, &c. Co. 4 Biss. (U. S.) 35; Richardson v. Sibley, 93 Mass. 65, 87 Am. Dec. 700; Commonwealth V. Smith, 10 Allen (Mass.) 448, 455, 87 Am. Dec. 672; State v. Dodge City, &c. R. Co. 53 Kans. 377, 36 Pac. 747, 42 Am. St. 295; Richards V. Merrimack R. CO. 44 N. H. 136; Roper V. McWhorter, 77 Va. 214; Singleton v. Southwestern R. Co. 70 Ga. 464, 48 Am. R. 574 n; Logan v. North Carolina R. Co. 116 N. Car. 940, 21 S. E. 959; Vermont, &c. Co. v. Vermont, &c. Co. 34 Vt. 1; Black V. Delaware &c. Co. 22 N. J. Eq. 130; Stewart's Appeal, 56 Pa. St. 413; Pittsburgh, &c. Co. v. Allegheny County, 63 Pa. St. 126; Johnson Co. V. Miller, 174 Pa. St. 605, 34 Atl. 316, 52 Am. St. 833; Philadelphia v. Philadelphia, &c. R. Co. 177 Pa, St. 292, 35 Atl. 610, 34. L. R. A. 564 Hays V. Ottawa, &c. Co. 61 111. 422 Atlantic, &c. Co. v. Union Pacific, &c. Co. 1 Fed. 745; Cumberland Tel. Co. V. Evansville, 127 Fed. 187. The general doctrine was thus stat- ed in Black v. Delaware, &c. Co. 22 N. J. Eq. 130: "It may be con- sidered as settled that a corporation cannot lease or alienate any fran- chise, or any property nececssary to perform its obligations and duties to the state, without legislative au- thority." »° Pierce v. Emery, 32 N. H. 484; Bruffett V. Great Western R. Co. 25 111. 353, 357; Clarke v. Omaha, &c. R. Co. 4 Neb. 458; Atkinson v. Mari- etta, &c. R. Co. 15 Ohio St. 21. ■" McAllister v. Plant, 54 Miss. 106; Pullan v. Cincinnati, &c. R. Co. 117 JUDICIAL SALE OF FRANCHISES. [§ 72 ture to confer power to sell and convey corporate franchises, but the power is not an incidental one and cannot exist in the absence of a statute conferring it. The attempt to sell a corporate franchise with- out statutory authority would be ineffective, and would pass no title, but the question as to who may take advantage of the attempt to sell where the power does not exist is one upon which there is some diversity of opinion. But, in most of the states, railroad corporations are given power by statute to mortgage, or sell, their franchises as well as their tangible property, subject to certain restrictions.^^ § 72. Judicial sale of franchises. — ^As a general rule, corporate franchises cannot be sold on a judgment or decree unless the statute authorizes a sale.^^ Where power is conferred upon a corporation to mortgage all its property and franchises a sale upon a decree foreclos- ing such a mortgage will convey to the purchaser all such franchises as are necessary to the use and enjoyment of the property bought by him at such sale.^* The franchise to be a corporation does not pass 4 Biss. (U. S.) 35. See Phila- delphia V. Western U. Tel. Co. 11 Phila. 327; Cumherland Tel. Co. v. Evansville, 127 Fed. 187; and note in 35 Am. St. 390. But compare Threadgill v. Pumphrey, 87 Tex. 573, 30 S. W. 356. '''Stimson Am. Stat. (1892) § 8642. In the United States it would be difficult to find a railroad that has not mortgaged its road and franchise, and in most instances under express legislative authority. Taylor Priv. Corp. (2d ed.) § 305. »» Wellsborough v. Griffin, 57 Pa. St. 417; Ammant v. President, &c. 13 Serg. & R. (Pa.) 212; Leedom v. Plymouth, &c. Co. 5 Watts & S. (Pa.) 265; Wood v. Truckee, &c. Co. 24 Cal. 474; Gue v. Tidewater, &c. Co. 24 How. (U. S.) 257; Ply- mouth, &c. Co. v. Colwell, 39 Pa. St. 337, 80 Am. Dec. 526; Youngman v. Railroad Co. 65 Pa. St. 278; James V. Pontiac Road Co. 8 Mich. 91; Meyer v. Johnston, 53 Ala. 237; Mil- ler v. Rutland, &c. R. Co. 36 Vt. 452. See State v. Rives, 5 Ired. (N. Car.) 297; Coe v. Cincinnati, &c. Co. 10 Ohio St. 372, 75 Am. Dec. 518; Coe V. Peacock, 14 Ohio St. 187; Stewart V. Jones, 40 Mo. 140; Railroad v. James, 6 Wall. (U. S.) 750; Poster V. Fowler, 60 Pa. St. 27; Richard- son V. Sibley, 93 Mass. 65, 87 Am. Dec. 700. •^ In New Orleans, &c. Co. v. Dela- more, 114 U. S. 501, 5 Sup. Ct. 1009, the court said: "When there has been a judicial sale of railroad prop- erty under mortgage authorized by law, covering its franchise, it is now well settled that the franchises nec- essary to the use and enjoyment of the railroad passes to the pur- chaser." Memphis, &c. Co. v. Rail- road Commissioners, 112 U. S. 609, 5 Sup. Ct. 299; Chaffee v. Ludeling, 27 La. Ann. 607; Metz v. Buffalo, &c. Co. 58 N. y. 61, 17 Am. R. 201; Peo- ple V. Brooklyn, &c. Co. 89 N. Y. 75; Atkinson, &o. Co. v. Marietta, &c. Co. 15 Ohio St. 21; Detroit v. Mu- tual, &c. Co. 43 Mich. 594, 5 N. W. §■ 73] FEANOHISES. 118 to the purchaser unless a clear provision of positive law makes it transferable. The franchise of being a corporation is a peculiar one, and, as we have seen, is essentially different from other corporate franchises; so peculiar is it that ordinarily it is not assignable and, indeed, is never assignable except when made so by statute.^^ The right to sell corporate franchises being statutory the general rule is that the sale must be conducted in substantial conformity to the re- quirements of the statute, and where a mode is provided for making the sale it is exclusive and must be pursued.^^ The purchaser at a valid judicial sale takes all the property and franchises of the corpo- ration in eases where the sale of such property and franchises is author- ized by statute, but is not bound for the debts of the corporation.^' The franchises which pass by the sale are, however, such only as by law can be sold and transferred. Purchasers at such a sale may organize a new corporation, and generally the new corporation will succeed to the franchises of the old (provided, of course, there was authority to sell the franchises) except the franchise to be a corporation. That franchise does not come from the sale but from the sovereign. § 73. Sequestration. — The process of sequestration is a writ or commission issued to some officer or person empowering him to enter into possession of property and receive the rents, revenues or profits thereof, and to apply them as the court may order or adjudge.^* The statutes in most of the states have supplanted the old chancery" doc- trine ; in others its existence has been denied upon the ground that the 1039. See, also, Julian v. Central &c. R. Co. 58 N. Y. 61, 17 Am. R. 201; Trust Co. 193 U. S. 93. 24 Sup. Ct. People v. Cook, 110 N. Y. 443, 18 N. 399, 404, 405. B. 113; Snell v. Chicago, 133 111. =» Memphis, &c. Co. v. Railroad 413, 24 N. E. 532, 8 L. R. A. 858. Commissioners, 112 U. S. 609, 5 Sup. ^ James v. Pontiac, &c. Co. 8 Ct. 299; "Willamette, &c. Co. v. Bank, Mich. 91. See, generally, Titcomb 119 U. S. 191, 7 Sup. Ct. 187; Hall v. v. Union Marine, &c. Co. 8 Mass. Sullivan, &c. Co. 1 Brun. (C. C.) 326; Howe v. Starkweather, 17 613; Commonwealth v. Smith. 92 Mass. 240; Stamford Bank v. Ferris, Mass. 448, 87 Am. Dec. 672; Adams 17 Conn. 25?. V. Boston, &c. Co. 4 Nat. Bank Reg. "Vilas v. Milwaukee, &c. Co. 17 (314) 99; .Sweatt v. Boston, &c. Co. Wis. 497; Smith v. Chicago, &c. Co. 5 Nat. Bank Reg. 234; Grand Rap- 18 Wis. 17; Stewart, &c. Co.'s Ap- ids, &c. Co. V. Prange, 35 Mich. 400, peal, 72 Pa. St. 291. 24 Am/ R. 585; Bldridge v. Smith, ''Hinde's Ch. Pr. 127; Angell & 34 Vt. 484; notes in 35 Am. St. 399, Ames on Corp. §§ 670, 671. and 103 Am. St. 555; Metz v. Buffalo, 119 SEQUESTEATION. [§ 73 courts did not possess inherent equity powers, in others the doctrine has been modified, and in some others prevails without substantial change.^' In many respects decrees appointing receivers for railroad corporations accomplish essentially the same results as those accom- plished by sequestration, and fhe process of sequestration is seldom employed in jurisdictions where the authority to appoint receivers is broad and comprehensive.*" As is the ease where receivers are ap- pointed the appointment of a sequestrator does not, as a general rule, end the corporate existence, but the sequestrator takes possession of the corporate property and employs the corporate franchises in conduct- ing business. If the debts are discharged in full the property and franchises, as a rule, revert to the corporation." The money received by the sequestrator of a corporation is to be distributed among the creditors in substantially the same manner as in the case of the in- solvency of a natural person.*^ ^''Earl of Kildare v. Eustace, 1 Vern. 419; Lowten v. Mayor, 2 Mer. 393; McKlm v. Odom, 3 Bland Ch. (Md.) 407; Grew v. Breed, 53 Mass. 363, 46 Am. Dec. 687; Johnson v. Chippendall, 2 Sim. 55; FrancWyn V. Colhoun, 3 Swanst. 276; Ammant v. New Alexandria, &c. Co. 13 Serg. & R. (Pa.) 210, 15 Am. Dec. 593 n; Clarkson v. DePeyster, 3 Paige (N. Y.) 320; Devoe v. Ithaca, &c. CcB Paige (N. Y.) 521; Judson v. Rossie Galena R. Co. 9 Paige (N. Y.) 598, 38 Am. Dec. 569; Cook v. Detroit, &c. R. Co. 45 Mich. 453; Jones v. Boston, &c. Co. 21 Mass. 507, 16 Am. Dec. 358; Bangs v. Mcintosh, 23 Barb. (N. Y.) 591; Reid v. North- western, &c. Co. 32 Pa. St. 257; Ger- mantown, &c. Co. v. Fitler, 60 Pa. St. 124, 100 Am. Dec. 546; Mann v. Pentz, 3 N. Y. 415; Foster v. Fowler, 60 Pa. St. 27; Steiner's Appeal, 27 Pa. St. 313; Penrose v. Erie, &c. Co. 56 Pa. St. 46, 93 Am. Dec. 778; Mc- Kusick V. Seymour, 48 Minn. 172, 50 N. W. 1114; Muncy Creek, &c. Co. v. Hill, 84 Pa. St. 459; Hospes v. Northwestern, &c. Co. 48 Minn. 174, 50 N. Wi 1117. 15 L. R. A. 470, 31 Am. St. 637; Cypress Shingle Co. v. Lorio, 46 La. Ann. 441, 15 So. 95. " In addition to those cases cited in preceding note relative to proc- ess of sequestration we cite. Ford V. Plankinton Bank, 87 Wis. 363, 58 N. W. 766; Morgan v. Turner, 4 Tex. Civ. App. 192, 23 S. "W. 284, 23 S. W. 284; Bloom v. Burdick, 1 Hill (N. Y.) 130, 37 Am. Dec. 299 n Rankine v. Elliott, 16 N. Y. 377 Foster v. Townshend, 68 N. Y. 203 Donnelly v. West, 17 Hun (N. Y.) 564; London, &c. Co. v. Morphy, 10 Ont. 86, 12 Am. & Eng. Corp. Cas. 53; Neall v. Hill, 16 Cal. 145, 150, 76 Am. Dec. 508 n; Craddocks v. Ins. Co., 5 Phila. 249; Rodbourn v. Utica, &c. R. Co. 28 Hun (N. Y.) 369; Mott v. Union Bank, 38 N. Y. 18; Loder v. New York, &c. Co. 4 Hun (N. Y.) 22. "Mann v. Pentz, 3 N. Y. 415; Kin- caid V. Dwinelle, 59 N. Y. 548;, Hol- lingshead v. Woodward, 35 Hun (N. Y.) 410; Parry v. American Opera Co. 12 Civ. Pro. (N. Y.) 194; Angell V. Silsbury, 19 How. Pr. (N. Y.) 48. *^ Steiner's Appeal, 27 Pa. St. 313. The sequestrator may be empowered § 74] FRANCHISES. 130 § 74. Seizure of corporate franchise under power of eminent do- main. — The corporation has a property interest in its franchises, and they may not be taken from it by the legislature and conferred upon another company without compensation ;*^ but they are subject to the power of eminent domain and may be taken under that power when- ever the interests of the public require it.** Property of this kind^ however, is so far favored in law that a.uthority to take the franchise of a corporation will not be implied from a grant of power to take property, conferred in general terms,*^ unless the taking be necessary to carry out the purposes of the charter containing such a grant.*® The intention to grant such power must appear by express words,*' or by necessary implication.*^ §'75. Dissolution effected by authorized sale of franchises. — The power of the legislature to authorize the sale of all corporate franchises is, as we have seen, undoubted, and when a sale is niade pursuant to a valid statute of all franchises it has been held that the corporate existence necessarily terminates.*' We suppose that the -authorized sale of part of the 'corporate franchises would not necessarily and of to sell the corporate property, or he may be authorized to use the prop- erty and franchises until enough money is earned to satisfy the claims of creditors. ^^ Boston Water Power Co. v. Bos- ton, &c. R. Co. 23 Pick. (Mass.) 360. "Newcastle R. Co. v. Peru R. Co. 3 Ind. 464; Richmond R. Co. v. Lou- isa R. Co. 13 How. (U. S.) 71; Jer- sey City, &c. R. Co. V. Jersey City, &c. R. Co. 20 n: J. Eq. 61; Northern R. Co. V. Concord, &c. R. Co. 27 N. H. 183; New York, &c. R. Co. v. Bos- ton, &c. R. Co. 36 Conn. 196; Beek- man v. Saratoga R. Co. 3 Paige Ch. (N. Y.) 45, 22 Am. Dec. 679 n; post, § 967. « Buffalo, Matter of, 68 N. Y. 167. "Little Miami, &c. R. Co. v. Day- ton, 23 Ohio St. 510; Boston, &c. R. Co. In re, 53 N. Y. 574; Milwaukee, &c. R. Co. v. Faribault, 23 Minn. 167; Mobile, &o. R. Co. v. Alabama Midland R. Co. 87 Ala. 501. " Clarence R. Co. v. Great North. &c. R. Co. 4 Q. B. 46. *= Hickok v. Hine, 23 Ohio St. 523, 13 Am. R. 255 n. To justify such a taking there must be a necessity so absolute that, without it, the grant itself will be defeated. It must also be a necessity that arises from the very nature of things over which the corporation has no control; it must not be created by the company itself for its own convenience or for economy. Sharon R. Co. Appeal of, 122 Pa. St. 533, 17 Atl. 234, 9 Am. St. 133 n; Pennsylvania R. Co.'s Ap- peal, 93 Pa. St. 150. See, generally, post, § 967. "' Snell V. Chicago, 133 111. 413, 24 N. B. 532, 8 L. R. A. 858 n, citing State V. Sherman, 22 Ohio St. 411; Memphis, &c. R. Co. v. Commission- ers, 112 U. S. 609, 5 Sup. Ct. 299; Thomas v. Dakin, 22 Wend. (N. Y.) 9, 71; Pierce v. Emery, 32 N. H. 484; Turnpike Co. v. Illinois, 96 U. S. 63. 131 DISSOLUTION. [§' 73 itself work a dissolutioii of the corporation, but 'each case must, as we believe, be determined upon the statute authorizing the sale. If the franchise of being a corporation is authorized to be sold, then a sale pursuant to the statute would terminate the corporate existence, but an authorized sale' of the franchise' to do certain acts not consti- tuting the whole of the corporate franchises would not have that effect. It has also been held that some so-called franchises, such, fof instance, as the right of a street railway company to use the streets of a city, may be granted for a longer period than the charter life of the company and may survive its dissolution.^" ™ People V. O'Brien, 111 N. Y. 1, 501, 5 Sup. Ct. 1009; Milhan v, 18 N. E. 692, 2 L. R. A. 225, 7 Am. Sharp, 27 N. Y. 611; People v. Na- St. 717; Detroit Citizens' St. R. Co. tional Trust Co. 82 N. Y. 283. Ordi- V. Detroit, 64 Fed. 628, 12 C. C. A. narily, however, it is said, "in the 365, 26 111. R. A. 673; Citizens' St. R. ahsence of controlling language to Co. V. City R. Co. 64 Fed. 647; De- the contrary, the life of the grant troit V. Detroit Citizens' St. R. Co. is the period fixed for the life of 184 U. S. 395, 22 Sup. Ct. 410. See the corporation." Covin v. Chicago, Greenwood v. Union Freight Co. 105 132 Fed. 848, 855. But this case U. S. 13; Hall v. Sullivan R. Co. 1 was reversed in Blair v. Chicago, Brunner's (C. C.) 613; New Orleans, 201 TJ. S. 400, 26 Supi Ct. 427. &c. R. Co. V. Delamore, 114 U. S. CHAPTER VI. STOCK. Sec. Sec. 76. Definition. 88. 77. Classes of stock. 89. 78. Shares of stock — Certificates. 79. Certificates — How far negotia- ble — Shares are personal property. 90. 80. New certificates in place of lost — Fraud. 91. 81. Preferred stock. 82. When preferred stock may be 92. issued — Rights and reme- 93. dies of dissenting stock- holders. 94. 83. Holder of preferred stock not a creditor — His rights and 95. remedies. 84. Rights of preferred stockhold- 96. ers after payment of guar- 97. anteed dividend — Future 98. dividend. 99. 85. Rights of preferred stockhold- ers on dissolution. 100. 86. Guaranteed, interest - bearing, income and debenture stock. 101. 87. Increase and reduction of cap- ital stock. 101a. Watered stock. Watered stock not absolutely void. Rights of creditors and liabil- ities of holders of watered stock. Stock paid for by overvalued property — Sale of stock on market. Sale and transfer of stock. Who may own and transfer shares. Purchase and sale by trustees and fiduciaries. Right of corporation to buy and sell stock. Gifts and bequests of stock. Formalities of transfer. Registry of transfer. Lien of corporation on stock. When and to what the lien at- taches. Waiver of lien — ^Enforcement of lien. Condemnation of stock. §' 76. Definition. — Capital stock has been defined as "the sum fixed by the corporate charter as the amount paid in or to be paid in by the stockholders for the prosecution of the business of the corporation and for the benefit of corporate creditors."^ The term is often used to denote the capital or property of the corporation,* but, strictly speak- ^ 1 Cook Stock and Stockholders, § 9. See, also, St. Louis, &c. R. Co. V. Loftin, 80 Ark. 695; State v. Nor- wich, &c. H, Co. 30 Conn. 290; Sang- er V. Upton, 91 U. S. 60; Parrington V. Tennessee, 95 U. S. 686. = So used in Wood Railw. § 15; State V. Norwich, &c. R. Co. 30 Conn. 122 123 DEFINITION. [§' 76 ing, the capital stock is not identical with the corporate property or capital.* It represents, rather, the capital or property of the corpora- tion to the extent required by its charter,* and may be said, in one sense at least, to describe or evidence the interest of the stockholders in the corporation and to consist of the sum of all the shares.^ It remains fixed and cannot exceed the amount authorized by the char- ter or statute and articles of incorporation, while the capital or property may vary greatly in value from time to time and* may ex- ceed the amount of capital stock authorized by the charterl* This excess over and above the amount of the required and authorized capital stock, arising generally out of the transaction of the corporate business and consisting of profits, may be divided among the stock- holders by way of dividends in the discretion of the directors, and does not constitute part of the capital stock,^ although, until a divi- sion is made, or, at least, until a dividend is declared, it remains the property of the corporation.' For these reasons it seems clear that 290; New Haven v. City Bank, 31 Conn. 106; People v. Commissioners, 23 N. Y. 192, 220, 222, opinion of Comstock, 4C. J. ; People' v. Coleman, 126 N. Y. 433, 27 N. B. 818, 12 L. R. A. 762 n. 'Stock dividends and their re- straint, 7 Am. Bar Ass'n. 257; State Bank v. Milwaukee, 18 Wis. 281, 295; State v. Morristown Fire Ass'n, 23 N. J. L. 195; Tennessee v. Whitworth, 117 U. S. 129, 6 Sup. Ct. 645, 648; Burrell v. Bushwick R. Co. 75 N. Y. 216; Commercial F. Ins. Co. V. Board of Revenue, 99 Ala. 4, 14 So. 490. See, also. Bank of Commerce v. Tennessee, 104 U. S. 495; Ohio, &c. R. Co. v. Weber, 96 111. 443; State v. Cheraw, &c. R. Co. 16 S. Car. 528. ♦See Hannibal, &c. R. Co. v. Shacklett, 30 Mo. 550; Williams v. Western Union Tel. Co. 93 N. Y. 162, 188; Tradesman, &c. Co. v. Wheel Co. 95 Tenn. 634, 32 S. W. 1097, 49 Am. St. 943. "See People v. Chicago, &c. Co. 130 111. 268, 22 N. E. 798; Greenleaf T. Board, 184 111. 226, 56 N. B. 295, 75 Am. St. 168; Tradesman, &c. Co. v. Knoxville, &c. Co. (Tenn.) 32 S. W. 1097; Lowell Transfer of Stock, § 4; "Stock dividends and their re- straint," 7 Am. Bar Assn. 263; Ten- nessee V. Whitworth, 117 TJ. S. 129, 6 Sup. Ct. 645; Henderson Bridge Co. V. Commonwealth, 99 Ky. 623, 31 S. W. 486. But see Wilkes-Barre, &c. Bank v. Wilkes-Barre, 148 Pa. St. 601, 24 AU. 111. "Barry v. Merchants', &c. Co. 1 Sandf. Ch. (N. Y.) 280; Tradesman, &c. Co. V. Knoxville, &c. Co. 95 Tenn. 634, 32 S. W. 1097, 49 Am. St. 943; Commercial F. Ins. Co. v. Board of Revenue, 99 Ala. 4, 14 So. 490; Cook V. Marshall, 191 Pa. St. 315, 34 Atl. 314. ' Farrington v. Tennessee, 95. U. S. 679; Hightower v. Thornton, 8 Ga. 486, 52 Am. Dec. 412; State Bank v. Milwaukee, 18 Wis. 281; Williams v. Western Union Tel. Co. 93 N. Y. 162; People v. Coleman, 126 N. Y. 433, 27 N. B. 818. But see Phelps v. Farmers', &c. Bank, 26 Conn. 269. 'The interest of a .stockholder may, however, exceed in value the § 77] STOCK. 134r the terms "capital" and "capital stock" are not synonymous, yet they are frequently so used, and the term "capital stock" has often been held to embrace all the property or capital of the corporation, particularly when found in a statute clearly evincing an intention upon the part of the legislature to include all corporate property within the meaning of the term." § 77. Classes of stock. — Corporate stock — using that term in the sense in which it is generally used in this connection — may be divided into two principal classes, common and preferred, the common stock being subject to a priority as to the payment of dividends in favor of the preferred stock. Other kinds of stock, mostly in the nature of preferred stock, are also frequently issued, such as guaranteed, inter- est-bearing, income, or debenture stock. And "special stock," having- certain peculiarities distinguishing it from ordinary stock, is also authorized in some cases. The different kinds of stock and the distinc- tions between them will, however, be considered in subsequent sec- tions. § 78. Shares of stock — Certificates. — The common stock is divided into shares, each of which gives to the owner a proportional part of certain rights in the management and profits of the corporation dur- ing its existence, and in the assets upon dissolution.^" The ownership nominal or par value of his shares, chise, neither of which is part of In a sense, therefore, his actual in- its capital stock; and that the capi- terest may not depend entirely up- tal stock, or share stock, of the on the amount of stock or capital stockholders "covers, embraces, rep- stock authorized. The real value of resents, all three in their totality." his shares, which measures his in- People v. Coleman, 126 N. Y, 433, terest, is more often determined by 438, 27 N. E. 818, 12 L. R. A. 762 n. the actual value of all the property See, also, Raleigh, &c. R. Co. v. of the corporation. Jones v. Terre Wake County, 87 N. Car. 414, 17 Haute, &c. R. Co. 57 N. Y. 196, and Am. Eng. R. Cas. 466; Coit v. North in the recent case of People v. Cole- Carolina, &c. Co. 14 Fed. 12; Hen- man, It is said that the capital stock derson Bridge Co. v. Common- of the company and the capital wealth, 99 Ky. 623, 31 S. "W. 486, 29 stock (or, more properly, the share L. R. A. 73. stock) of the shareholders are two "Ohio, &c. R. Co. r. Weber, 96 111. different things; that the property 443; Security Co. v. Hartford, 61 of the corporation may consist of Conn. 89, 23 Atl. 699; Philadelphia capital stock, which is the fund v. Ridge Ave. R. Co. 102 Pa. St. 190. required to be paid in and kept " Oakbank ,Oil Co. v. Crum, L. R. intact as the basis of the business 8 App. Cas. 65; Fisher v. Essex enterprise, its surplus, and its fran.- Bank, 5 Gray (Mass.) 373. See, 125 SHAKES OF STOCK CERTIFICATES. [§ 78 of these shares is usually evidenced by certificates which set forth the number owned and the amount actually paid thereon, or that they are paid u-p, if such is the ease.^^ The possession of such a certificate, however, does not necessarily constitute the holder an owner of the shares it represents,^^ and a person whose name appears in the list of stockholders in the company's books^^ will usually be entitled to trans- fer his stock,^* to receive dividends,^^ and to vote in corporation meet- ings,^® and may be held liable as a stockholder,^^ even though a cer- tificate has not be'en issued to him,^* or he has pledged^^ or assigned it. Eut the possession of a certificate, made out in the holder's name, or indorsed with a power of attorney to transfer the stock on the com- pany's books,^" is prima facie evidence of the holder's title to the also, Plimpton v. Blgelow, 93 N. Y. 592, 599; Field v. Pierce, 102 Mass. 253, 261; Bent v. Hart, 10 Mo. App. 143; Harrison v. Vines, 46 Tex. 15, 21; Bradley v. Bauder, 36 Ohio St. 28, 35, 38 Am. R. 547; Brightwell v. Mallory, 10 Yerg. (Tenn.) 196; Gibbons v. Mahon, 136 U. S. 549, 10 Sup. Ct. 1057; Jones v. Concord, &c. R. Co. 67 N. H. 234, 30 Atl. 614, 68 Am. St. 650; Monongahela, &c. Co. v. Pittsburg, &c. Co. 196 Pa. St. 25, 46 Atl. 99, 79' Am. St. 685.. "Morawetz Priv. Corp. (2d ed.), § 472; Cook Stock and Stockhold- ers (3d ed.), § 14. The certificate is the evidence of the ownership of the stock and not the stock itself. Higgins V. Lawringle, 154 111. 301, 40 N. E. 362; Hawley v. Brumagin, 33 Cal. 394; Winslow v. Fletcher, 53 Conn. 390, 4 Atl. 250, 52 Am. R. 122; Libscomb v. Condon, 56 W. Va. 416, 49 S. E. 392, 67 L. R. A. 670, 107 Am. St. 832. "Baker v. Woolston, 27 Kan. 185. "Vail v. Hamilton, 85 N. Y. 453, 20 Hun (N. Y.) 355. See Hawley V. Upton, 102 U. S. 314; New Hamp- shire, &c. R. Co. V. Johnson, 30 N. H. 390, 64 Am. Dec. 300. "National Bank v. Watsontown Bank, 105 U. S. 217; First Nat. Bank v. GiflEord, 47 Iowa 575; But- terfield v. Spencer, 1 Bosw. (N. Y.) 1; Cincinnati, &c. R. Co. v. Pearce, 28 Ind. 502. "= McNeil v. Tenth National Bank, 46 N. Y. 325, 7 Am. R. 34],; Ellis V. Proprietors, 2 Pick. (Mass.) 243. « Beckett v. Houston, 32 Ind. 393 ; Evans v.' Bailey, 66 Cal. 112, 4 Pac. 1089; State v. Ferris, 42 Conn. 560. "Mitchell V. Beckman, 64 Cal. 117; Agricultural Bank v. Wilson, 24 Me. 273. See Henkle v. Salem Manf. Co. 39 Ohio St. 547. '» Mitchell V. Beckman, 64 Cal, 117, 28 Pac. 110; Mathis v. Prid ham, 1 Tex. Civ. App. 58, 20 S. W, 1015; Fulgam v. Macon, &c. R. Co, 44 Ga. 597; Crumlish v. Shenan doah Valley R. Co. 40 W. Va. 627, 22 S. E. 90. "Vail V. Upton, 85 N. Y. 453, 20 Hun (N. Y.) 355. ™As to the effect of such a blank indorsement, see Fraser v. Charles- ton, 11 S. C. 486; Leavitt V. Fisher, 4 Duer (N. Y.) 1. As to the other modes of transfer, see Cook Stock and Stockholders, § 375. Under the law of Massachusetts, shares of stock may be effectually transferred by delivery of the certificate with a power of attorney to transfer the §79] STOCK. 136 shares it represents." And the owner of stock has a right to receive a certificate as a voucher for his title, if he asks for it.^^ But the books of the company are generally the final evidence as to who are stock- holders/^ and a certificate, apart from the ownership of the shares it represents, may be said to be worthless.^* § 79. Certificates — How far negotiable — Shares are personal prop- erty. — It follows, from what has been stated, that such certificates we not strictly negotiable,^^ but the shares which they represent may be sold^* as any other personal property,^^ and the certificates will pass as same on the books of the company, signed in blank. Andrews v. Worcester, &c. R. Co. 159 Mass. 64, 33 N. B. 1109. ''"Walker v. Detroit Transit, &c. Co, 47 Mich. 338, 11 N. W. 187. That it is only a convenient evidence of the holder's title, see Johnson v. Albany, &c. R. Co. 40 How. Pr. (N. Y.).193; Cincinnati, &c. R. Co. v. Pearce, 28 Ind. 502; Slipher v. Ear- hart, 83 Ind. 173. ^ Johnson v. Albany, &c. R. Co. 40 How. Pr. (N. Y.) 193; BufCalo, &c. R. Co. V. Dudley, 14 N. Y. 336, 347; Chester Glass Co. v. Dewey, 16 Mass. 94, 8 Am. Dec. 128; Rio Grande, &c. Co. v. Burns, 82 Tex. 50, 17 S. W. 1043; National Bank V. Watsontown Bank, 105 U. S. 217; 1 Morawetz Priv. Corp. § 472. ''^New Hampshire, &c. R. Co. v. Johnson, 30 N. H. 390, 64 Am. Dec. 300; Dows V. Naper, 91 111. 44, 71 Am. Dec. 337; Morrill v. Little Palls, &c. Co. 53 Minn. 371, 55 N. W. 547, 21 L. R. A. 174; New Albany, &c. R. Co. V. McCormick, 10 Ind. 499. See generally as to when and how far this rule is applicable, 3 Elliott Ev. § 1946. See, also, Chesapeake, &c. R. Co. v. Deepwater R. Co. 57 W. Va. 641, 50 S. E. 890. While between the parties a pro- vision requiring the transfer of stock on the corporation books is inoperative, yet as against the cor- poration and others the assignment is imporfect and executory until perfected on the books of the cor- poration. Noble V. Turner, 69 Md. 519, 16 Atl. 124; Topeka Mfg. Co.. V. Hale, 39 Kan. 23, 17 Pad. 601. =« Payne v. Elliot, 54 Cal. 339, 3& Am. R. 80. ^ Mechanics' Bank v. New York, &c. R. Co. 13 N. Y. 599, 627; Sewall V. Boston Water-power Co. 86 Mass. 277, 81 Am.. Dec. 701; Shaw v. Spen- cer, 100 Mass. 382, 97 Am. Dec. 107; Hammond v. Hastings, 134 U. S. 401, 10 Sup. Ct. 727; Clark v. Amer- ican Coal Co. 86 Iowa 436, 53 N. W. 291, 17 L. R. A. 557; Knox v. Bden„ &c. Co. 148 N. Y. 441, 42 N. E. 988, 31 L. R. A. 779, 51 Am. St. 700; Bast Birmingham, &c. Co. v. Dennis, 85 Ala. 565, 5 So. 679, 2 L. R. A. 836, 7 Am. St. 73. ^° Stock may be sold on execution in nearly all the states. "Nearly all of the states provide by statute that shares of stock shall be personal property. Stimson Am. Stat. Law, § 8116. Such a provision is merely declaratory of the com- mon law. Mohawk, &c. R. Co. v. Clute, 4 Paige Ch. (N. Y.) 384, 393; 1 Cook Stock and Stockholders, § 331. The rule is the same where all the corporate property is real estate. Baldwin v. Canfield, 25 137 CERTIFICATES NEGOTIABILITY PEESONAL PROPERTY. [§ 79 incident to the shares. But holders of stock who transfer their cor- porate certificates to others by indorsement in blank or by delivery when so indorsed, and corporations who issue certificates^' which state on their face that the shares are fully paid up and which con- tain no notice of the claims of the corporation^' are held so far Minn. 43, 1 N. W. 585. See, general- ly, to the effect that shares are per- sonal property, Seward v. Rising Sun, 79 Ind. 351, 13 Am. & Bng. R. Cas. 315; Cooper v. Corbln, 105 111. 224, 13 Am. & Eng. R. Cas. 394; Pahrig v. Milwaukee, &c. Co. 113 111. App. 525; Berney Nat. Bank V. Pinckard, 87 Ala. 577, 6 So. 364, 30 Am. & Eng. Corp. Cas. 52; Allen V. Pegram, 16 Iowa 163; Tregear v. Etiwanda Water Co. 76 Cal. 537, 18 Pac. 658, 9 Am. St. 245; Weaver v. Harden, 49 N. Y. 286; Bradley v. Bander, 36 Ohio St. 35, 38 Am. R. 547; Southwestern R. Co. v. Thom- ason, 40 Ga. 408; Budd v. Multno- mah St. R. Co. 12 Ore. 272, 7 Pac. 9.9, 53 Am. R. 355; Jellenlk v. Hu- ron, &c. Co. 82 Fed. 778; Watson v. Molden, 10 Idaho 570, 79 Pac. 503; Lipscomb's Adm'r v. Condon, 56 W. Va. 392, 49 S. E. 92, 67 L. R. A. 670. =' Where spurious and fraudulent certificates of stock are issued by the officers of a corporation under its seal and their genuineness af- * firmed by such ofBcers in answer to inquiries from an intending pur- chaser, the corporation is liable on such certificates to a bona fide pur- chaser for value. Fifth Ave. Bank V. Forty-second St., &c. R. Co. 137 N. Y. 231, 33 N. E. 378, 19 L. R. A. 331 n, 33 Am. St. 712; Mutual Life Ins. Co. V. Forty-second St., &c. R. Co. 74 Hun (N. Y.) 505, 26 N. Y. S. 545; Citizens' Nat. Bank v. Cin- cinnati, &c. R. Co. 29 Wkly. Law Bui. 15. See Ryder v. Bushwick R. Co. 134 N. Y. 83, 31 N. E. 251. But where the certificates were is-, sued in pursuance of a fraudulent scheme to which the assignor was a party, the assignee acquires no rights superior to those of his as- signor. Brown v. Duluth, &c. R. Co. 53 Fed. 889. ^ Where no lien upon shares is given to the company by the char- ter or by a general law for debts or unpaid calls due the company, the certificate should contain a ref- ference to its claims so as to notify all purchasers. 1 Morawetz Priv. Corp. (2d ed.), § 203. Where the certificate states that it represents paid-up stock, the corporation can not deny that fact after it has passed into the hands of a bona fide purchaser. Steacy v. Little Rock, &c. R. Co. 5 Diil. (U. S.) 348; Young V. Brie Iron Co. 65 Mich. Ill, 31 N. W. 814; 1 Cook Stock and Stockholders, § 50. And it seems that the purchaser may as- sume that stock is paid up, when he purchases in the open market. In the absence of anything to give him notice to the contrary, and he will be protected. Foreman v. Bige- low, 4 Cliff. (U. S.) 508; Dupont v. Tilden, 42 Fed. 87; Cleveland, &c. Co. V. Texas, &c. R. Co. 27 Fed. 250; Keystone Bridge Co. v. McCluney, 8 Mo. App. 496; West Nashville, &c, Co. V. Nashville Sav, Bank, 86 Tenn. 252, 6 S. W. 340, 6 Am- St. 835; Cook Stock and Stockholders, §§50, 257. Contra, Meyers v. Seeley, 10 Nat. Bank Reg. 411. Certificates of stock ordinarily contain no rep- resentations as to whether any equities attach to the shares which § ^9] STOCK. 128 estopped'" by the apparent ability to convey a good title to the shares which their acts have conferred upon the holder of the certificates,'^ that such certificates are said to possess quasi negotiability.'^ Where, they represent, and it is said that a certificate of stock is not negotiable paper and whoever takes It takes it subject to its equities and bur- dens, and it is not necessary that the certificate contain a statement of the limitations and burdens which the law casts upon all such paper. The omission of such a statement is not a waiver by the corporation of the benefits thereof; and, though the purchaser be igno- rant of such equities and burdens, his ignorance does not enable him to hold the paper discharged there- from. Wherever such paper is is- sued, under authority granted by general statute, whoever deals with that paper is charged with notice of all limitations and burdens at- tached to it by such statute, whether the party lives in or out of the state. Hammond v. Hastings, 134 U. S. 401, 10 Sup. Ct. 727; Hollins V. St. Paul, &c. R. Co. 29 N. Y. St. 208, 9 N. Y. S. 909; Craig v. Hes- peria, &c. Co. 113 Cal. 7, 45 Pac. 10, 35 L. R. A. 306, 54 Am. St. 316. ™ See 1 Purdy's Beach Priv. Corp. §§ 272, 273, 381. Even though cer- tificates are altogether spurious, the company issuing them can be com- pelled to indemnify one who pur- chases them in good faith from the person to whom it issued them. Kisterbock's Appeal, 127 Pa. 601, 18 Atl. 381, 14 Am. St. 868. The cor- poration wjll be estopped to deny that stock is fully paid after cer- tificates which were paid in prop- erty that the corporation was au- thorized to take in payment for stock have passed into the hands of bona fide purchasers, although the property was overvalued. Du- pont V. Tilden, 42 Fed. 87. In Far- rington v. South Boston R. Co. 150 Mass. 406, 23 N. E. 109, 5 L. R. A. 849, 15 Am. St. 222, 7 R. & Corp. L. J. 196, the court says: "We think it is a safer and more reason- able rule to hold that a person tak- ing on pledge a certificate of stock newly issued in his name by an officer of a corporation as security for the private debt of the oflScer should be required to investigate the title to the stock if the ofBcer is one who has the power, either alone or with others, to issue stock certificates, than to hold that such a person can rely upon a certificate so issued to him in the absence of actual notice or knowledge that it has been fraudulently issued." =' McNeil V. Tenth Nat. Bank, 46 N. Y. 325, 7 Am. R. 341; Tayler v. Great Indian, &c. R. Co. 4 DeG. & J. 559; Walker v. Detroit Transit R. Co. 47 Mich. 338, 347, 11 N. W. 187; Cook Stock and Stockholders, § 416; Morawetz Priv. Corp. (2d ed.), § 190. The English courts, however, refuse to follow the American rule as to the quasi nego- tiability of certificates even where they are issued by an American cor- poration. Colonial Bank v. Cady, 63 Law T. 27. =^ Daniel Nego. Instru. § 1708. An owner of stock who permitted a cer- tificate to be issued to another for stock which he had transferred to such other person without consid- eration, and who takes a blank as- signment of such certificate, can hold the stock as against an at- taching creditor of that other ner- 129 NEW CERTIFICATES IN PLACE 03? LOST FRAUD. [§■80 however, a corporation is organized under a public law which provides that the corporation shall have a lien upon all the stock or property of its members invested therein for any indebtedness of such members to the corporation, such law is notice to the world ; and, in the absence of any representations as to such lien on the part of the corporation, a purchaser of such stock will tdke it subject to such lien.^^ § 80. New certificates in place of lost — Fraud. — "A bond of in- demnity may be required by a corporation as a condition of issuing new certificates of stock for those that have been lost, where the owner is a;i assignee and has never had possession of the old certificates, and the lapse of time is not so great as to preclude danger of their reap- pearance."^* A purchaser of corporate stock receiving new certificates therefor, signed by the proper officers, although issued through their fraud, is, if he acts in good faith, and without notice, entitled to be protected as a bona fide purchaser. He owes no duty, ordinarily, to the corporation to see to it that the seller surrenders any old certifi- cates and transfers them on the books of the corporation,^^ and the son. Andrews v. Worcester, &c. R. Co. 159 Mass. 64, 33 N. E. 1109. They have, however, been held to he so far non-negotiable instruments that a bona fide purchaser of such certificates standing on the com- pany's books In the name of the former owner, regularly indorsed by him in blank, and stolen from the present owner without his fault, gets no title. East Birmingham Land Co. v. Dennis, 85 Ala. 565, 5 R. & Corp. L. J. 296, 2 L. R. A. 836. See, also, Masury v. Arkansas Nat. Bank, 93 Fed. 603, 35 C. C. A. 476; Sherwood v. Meadow Valley, &c. Co. 50 Cal. 412; Barstow v. Savage, &c. Co. 64 Cal. 388, 1 Pac. 349, 49 Am. R. 705; Knot v. Eden, &c. Co. 148 N. Y. 441, 42 N. E. 988, 31 L. R. A. 779, 51 Am. St. 700. "^ Hammond v. Hastings, 134 U. S. 401, 10 Sup. Ct. 727. =* Guilford v.' Western U. Tel. Co. 43 Minn. 434, 46 N. W. 70. Where, on application to a company to Ell. Railroads — 9 register a transfer of stock, the company sent a letter giving notice of it to the holder of stock on the register, and stating that, unless she advised them to the contrary, the stock would be transferred in their books; and she failed to an- swer the letter; and the company subsequently registered the trans- fer, — she was held not estopped from showing that her signature to the transfer was a forgery, and de- manding to have her name replaced on the register as holder of the stock. Barton v. London, &c. R. Co. L. R. 24 Q. B. D. 77. See, also, Gal- veston City Co. V. Sibley, 56 Tex. 269; Butler v. Glen Cove Starch Co. 18 Hun (N. Y.) 47. == Allen V. South Boston R. Co. 150 Mass. 200, 22 N. E. 917, 5 L. R. A. 716, 15 Am. St. 185. See, also, Salisbury Mills v. Townsend, 109 Mass. 115; American Wire Nail Co. V. Bayless, 91 Ky. 94, 15 S. W. 10; New York, &c. R. Co. v. Schuyler, § 81] STOCK. 130 corporation may be held liable to damages for the fraud of its officers in issuing such stock, where it cannot be compelled to issue valid shares in place of those fraudulently issued for the reason that this would cause an overissue of its capital stock. ^° On the other hand, it has been held that if a purchaser exhibits to the corporation a forged assignment of stock, and thus obtains a new certificate, which he sells, he may become liable to the corporation which he has deceived by impliedly representing that the signature is genuine,^^ and it has also been held that one who receives stock from an agent to secure the agent's own private debt, knowing that the surrender of the old certificate is a prerequisite to the issue of the new, without making any inquiry as to whether it has been surrendered, is not a bona fide purchaser and cannot hold the corporation liable in damages.'* The issue of new certificates of stock in place of other certificates, prop- erly issued, which have been lost, does not, however, constitute an overissue of stock.'^ § 81. Preferred stock. — Preferred stock is usually issued in ex- change for common stock as an inducement for the shareholders to advance money to meet certain exigencies which arise in prosecuting the corporate enterprises ; or as security to the holders of stock in the ' more prosperous of two consolidating companies; or in exchange for mortgage bonds of the corporation.*" It has been held that it cannot 34 N. Y. 30. But see Moores v. Citi- =' Boston, &c. R. Co. v. Rlchard- zens' Nat. Bank, 111 U. S. 156, 4 son, 135 Mass. 473. Sup. Ct. 345. This case is severely ^^Farrington v. South Boston R. criticised in 29 Alb. Law Jour. 364, Co. 150 Mass. 406, 23 N. E. 109, 5 and in Lowell Transfer of Stock, L. R. A. 849, 15 Am. St. 222. See, § 112, n. 2. also, Moores v. Citizens' Nat. Bank, "New York, &c. R. Co. v. Schuy- 111 U. S. 156, 4 Sup. Ct. 345; Hall ler, 34 N. Y. 30; Titus v. Great v. Rose Hill, &c. Co. 70 111. 673; Sel- Western, &c. Co. 61 N. Y. 237; , igson v. Brown, 61 Tex. 114, 10 Am. Bridgeport Bank v. New York, &c. & Eng. Corp. Cas. 143. R. Co. 30 Conn. 231; Cleveland, &c. =' Allen v. South B. R. Co. 150 R, Co. V. Robbins, 35 Ohio St. 483; Mass. 200, 22 N. E. 917, 5 L. R. A. Kisterbochs' Appeal, 127 Pa. St. 601, 716, 15 Am. St. 185. 18 Atl. 381, 14 Am. St. 868; Tome ^'A mortgagee who exchanges his V. Parkersburg R. Co. 39 Md. 36, 17 bonds for preferred stock is no Am. R. 540; Supply Ditch Co. v. longer a creditor, but becomes a Elliott, 10 Colo. 327, 15 Pac. 691, 3 stockholder, with a stockholder's Am. St. 586; Western Un. Tel. Co. rights and liabilities. St. John v. V. Davenport, 97 U. S. 369; Western, Erie R. Co. 22 Wall. (U. S.) 136. &c. R. Co. V. Franklin Bank, 60 Md. His claims are subject to all mort- 36. gages executed before or after his 131 PEEFEEEED STOCK — DISSENTING STOCKHOLDEES. [§ 82 be issued to raise money to pay a dividend on the common stock.*^ To induce investors to take the stock it is usually provided that the holder shall be entitled to payment of a certain dividend out of the accrued profits not necesiary for the operation of the road or for repairs,*^ or reasonable improvements/^ before dividends are paid to the holders of common stock,** and this is the reason it is called preferred stock. It usually gives priority of dividends but not priority of assets or capital.*^ § 82, When preferred stock may be issued — ^Rights and remedies of dissenting stockholders. — Such stock, at least when not provided for when the company is organized, can only be issued where the power to issue it is conferred by charter or by statute,*® unless it is stock was issued. King v. Ohio, &c. R. Co. 12 Chi. Leg. News 219. 2 Fed. 36; "Warren v. King, 108 U. S. 389, 2 Sup. Ct. 789. It seems, however, that, as it is not against public policy and amounts virtually to a mere contract on the part of the stockholders as to how they shall divide the profits, they may agree in the beginning and provide in the by-laws for the classification of the stock into common and preferred, even where the statute is silent upon the subject. South, &c. Brew- ery Co., Re, L. R. 31 Ch. Div. 261; Kent V. Quicksilver Mining Co. 78 N. Y. 159; Hamlin v. Toledo, &c. R. Co. 78 Fed. 664, 670, 24 C. C. A. 271, 36 L. R. A. 826; Lindley Com- panies, § 396; 1 Cook Stock and Stockholders, § 268. But see Guin- ness V. Land Corp. L. R. 22 Ch. Div. 349; Ashbury v. Watson, L. R. 30 Ch. Div. 376, 16 Am. & Bng., Corp. Cas. 383. "Hoole V. Great Western R. Co. L. R. 3 Ch. 262. "It has been held that earnings should go toward the payment of a floating debt in preference to the payment of dividends on the pre- ferred stock. Chaffee v. Rutland R. Co. 55 Vt. 110. See Belfast, &c. R. Co. V. Belfast, 77 Me. 445, 1 Atl. 362. But as to the payment of a debt not yet due, see Hazeltine v. Belfast, &c. R. Co. 79 Me. 411, 10 Atl. 328, 1 Am. St. 330. '^ New York, &c. R. Co. v. Nickals, 119 U. S. 296, 7 Sup. Ct. 209, re- versing 15 Fed. 575, where it was held that payment of dividends could be enforced before the im- provements contemplated were made. "Totten V. Tison, 54 Ga. 139; ChafCee v. Rutland R. Co. 55 Vt. 110; Henry v. Great Northern, &c. R. Co. 4 Kay & J. (Bng. Ch.) 1; Boardman v. Lake Shore, &c. R. Co. 84 N. Y. 157; Prouty v. Michi- gan, &c. R. Co. 1 Hun (N. Y.) 655; Bates V. Androscoggin, &c. R. Co. 49 Me. 491; Cook Stock and Stock- holders, § 270. " Jones V. Concord, &c. R. Co. 67 N. H. 234, 30 Atl. 614, 68 Am. St. 650. "Sturge V. Eastern, &c. R. Co. 7 De G., M. & G. 158; Williston v. Michigan, &c. R. Co. 95 Mass. 400; Bard v. Banigan, 39 Fed. 13; Kent §■82] STOCK. 132 issued by agreement of all the stockholders.*^ It is held in a recent case, however, that it may be issued unless prohibited.*' A stock- holder may waive objections to such an issue, and long acquiescence will be construed to be such a waiver.*' "A privilege given by a railroad company to its stockholders to exchange common stock for preferred stock must be exercised within a reasonable time, and a tender of common stock and the additional sum required for an ex- change, made thirty-three years after the privilege was conferred, is not made within a reasonable time."°° It has been held that the V. Quicksilver Mining Co. 78 N. Y. 159; Campbell v. American, &c. Co. 122 N. Y. 455, 25 N. B. 853, 11 L. R. A. 596. The power will not be ex- tended by implication. Covington, &c. Co. V. Sargent, 1 Cin. Super. Ct. 354; Melhado v. Hamilton, 28 L. T. (N. S.) 578, 29 L. T. (N. S.) 364; Harrison v. Mexican R. Co. L. R. 19 Eq. Gas. 358. Power granted to a railroad company to do all the law- ful acts incident to its corporate existence, with, "such additional powers as may be convenient for the due and successful execution of the powers granted," does not authorize it to guarantee a specific dividend on its stock, as a premium to in- duce a subscription, even though the guaranty be partly in considera- tion of services rendered the com- pany. Elevator Co. v. Memphis, &c. R. Co. 85 Tenn. 703, 4 Am. St. 798, 5 S. W. 52. " Harrison v. Mexican R. Co. 44 L. J. (Ch.) 403; Kent v. Quicksilver Mining Co. 78 N. Y. 159, 178; Hig- gins V. Lansingh, 154 111. 301, 40 N. E. 362. Some oases have held that under a power to increase the capi- tal stock and to borrow money such stock could be issued by a majority vote. Hazlehurst v. Savannah, &c. R. Co. 43 Ga. 13 (1875); Rutland, &c. R. Co. V. Thrall, 35 Vt. 536 (1863) ; West Chester, &c. R. Co. v. Jackson, 77 Pa. St. 321; Gordon v. Richmond, &c. R. Co. 78 Va. 501, 22 Am. & Bng. R. Cas. 33. But this has been denied. Kent v. Quick- silver Mining Co. 78 N. Y. 159. It has been held that the power to is- sue preferred stock is given by the grant of a right to raise funds by a sale of stock. Chaffee v. Rutland, &c. R. Co. 55 Vt. 110, 16 Am. & Eng. R. Cas. 408. See, also. State v. Cheraw, &c. R. Co. 16 S. Car. 524. " Continental Trust Co. v. Toledo, &c. R. Co. 86 Fed. 929, citing and relying on Hamlin v. Toledo, &c. R. Co. 78 Fed. 664, 24 C. C. A. 271, 36 L. R. A. 826. But see Mercantile Trust Co. V. Baltimore, &c. R. Co. 82 Fed. 360. "Hoyt V. Quicksilver Mining Co., 17 Hun (N. Y.) 169; Kent v. Quick- silver Min. Co., 78 N. Y. 159; Tay- lor V. South, &c. R. Co. 13 Fed. 152; Branch v. Atlantic, &c. R. Co. 3 Woods (U. S.) 481. See Banigan V. Bard, 134 U. S. 291, 10 Sup. Ct. 565; Lockhart v. Van Alstyne, 31 Mich. 76, 18 Am. R. 156, 163; Hazle- hurst V. Savannah, &c. R. Co. 43 Ga. 13, and compare American Tube Works V. Boston, .&c. Co. 139 Mass. 5, 29 N. E. 63; National Bank v. Drake, 29 Kans. 311, 44 Am. R. 646. »" Holland v. Cheshire R. Co. 151 Mass. 231, 24 N. E. 206, 8 R. & Corp. L. J. 49. See, also, Pearson v. Lon- don, &c. R. Co. 14 Sim. 541. 133 PKEIEKEED STOCKHOLDER AS CREDITOR. [§ 83 directors eannot issue such stock under an authorization to the cor- poration to do so/^ but this decision seems of doubtful soundness, and, in any event, such an issue is susceptible of ratification by a sub- sequent vote of the stockholders."^ A dissenting stockholder may en- join an unauthorized issue of preferred stock,"* or may have it set aside by suit brought within a reasonable time." § 83. Holder of preferred stock not a creditor — ^His rights and remedies. — The holder of preferred stock is not a creditor of the cor- poration,"" but simply a shareholder with a superior right to receive dividends when the profits are insufficient to pay them to all the holders of stock,"® and he can claim the payment of dividends only out of the net earnings."' The ownership of such stock .usually confers " McLaughlin v. Detroit, &c. R. Co. 8 Mich. 99. '^McLaughlin v. Detroit, &c. R. Co. 8 Mich. 99. " Sturge V. Eastern R. Co. 7 DeG., M. & G. 158; Moss v. Syers. 32 L. J. Ch. 711; Hutton v. Scarborough, &c. Co. 4 DeG., J. & S. 672; Kent v. Quicksilver, &c. Co. 78 N. Y. 159. " A long delay in bringing suit or other acquiescence may confirm the issue. Taylor v. South, &c. R. Co. 4 Woods (U. S.) 575, 13 Fed. 152 (10 years) ; Kent v. Quicksilver Mining Co. 78 N. Y. 159 (4 years) ; Banigan v. Bard, 134 U. S. 291, 10 Sup. Ct. 565; Hazlehurst v. Savan- nah, &c. R. Co. 43 Ga. 13. One ac- ceptinig such stock can not question its validity in a suit for the pur- chase price. If the other stockhold- ers do not complain. Evansville, &c. R. Co. V. Evansville, 15 Ind. 395, 415. See, also. Branch v. Jessup, ' 106 U. S. 468, 1 Sup. Ct. 495. But compare Reed v. Boston, &c. Co. 141 Mass. 454, 5 N. B. 852; Anthony v. Household, &c. Co. 16 R. I. 571, 18 Atl. 176, 5 L. R. A. 575. '^ Belfast, &c. R. Co. v. Belfast, 77 Me. 445, 1 Atl. 362; Chaffee v. Rut- land, &c. R. Co. 55 Vt. 110; Warren V. King, 108 U. S. 389, 2 Sup. Ct. 789; Taft v. Hartford, &c. R. Co. 8 R. I. 310, 5 Am. R. 575; Bailey v. Railroad Co. 1 Dill. (U. S.) 174; Birch V. Cropper, 61 Law T. 621; Field V. Lamson, &c. Co. 162 Mass. 388, 38 N. E. 1126, 27 L. R. A. 136, and note. See, also. People v. St. Louis, &c. R. Co. 176 111. 512, 52 N. B. 292; note in 73 Am. St. 228; 2 Purdy's Beach Priv. Corp. § 476. But see Emerson v. New York, &c. R. Co. 14 R. I. 555, 16 Am'. & Eng. R. Cas. 404; Burt v. Rattle, 31 Ohio St. 116. See generally Hel- ler V. National Marine Bank, 89 Md. 602, 43 Atl. 800, 45 L. R. A. 438, 73 Am. St. 212, and note. "" Bates V. Androscoggin, &c. R. Co. 49 Me. 491; Taft v. Hartford, &c. R. Co. 8 R. I. 310, 5 Am. R. 575; Warren v. King, 108 U. S. 389, 2 Sup. Ct 789; St. John v. Erie R. Co. 22 Wall. (U. S.) 136; Chaffee v. Rutland, &c. R. Co. 55 Vt. 110 ; State v. Cheraw, &c. R. Co. 16 S. Car. 524. Held subject to the statutory liabil- ity of a stockholder in Railroad Co. V. Smith, 48 Ohio St. 219. " Belfast, &c. R. Co. v. Belfast, 77 Me. 445, 1 Atl. 362; Lockhart v. Van Alstyne, 31 Mich. 76; Henry § 83] STOCK. 134 upon the holder a right to vote it at meetings of the shareholders; but it has been held competent for a railroad company, in issuing cer- tificates of preferred stock, to stipulate therein that the holders shall not have or exercise the right to vote as stockholders at such meet- ings.^' The directors may be compelled by suit to pay dividends on preferred stock before otherwise disposing of net eamings,^' subject to a reasonable discretion on their part as to making improvements,""" and, possibly, as to the liquidation of a floating debt,^^ yet no suit can be maintained, as a rule, against the corporation for a preferred dividend until profits with which to pay it have accrued and it has been declared.*^ But if such accrued profits be appropriated to the payment of dividends on common stock while the guaranteed dividends on preferred stock remain unpaid, payment of such common dividends V. Great Northern, &c. R. Co. 1 De Gex & J. 606; Elkins v. Camden, &c. R. Co. 36 N. J. Eq. 233; Miller v. Ratterman, 47 Ohio St. 141, 24 N. E. 496. But see Cotting v. New York, &c. R. Co. 54 Conn. 156, 5 Atl. 851; Totten V. Tison, 54 Ga. 139. As to what are net earnings, see St. John V. Erie R. Co. 10 Blatchf. (U. S.) 271, affirmed in 22 Wall. 136; War- ren V. King, 108 U. S. 389, 398; Van Dyck v. McQuade, 86 N. Y. 38; Phillips V. Eastern R. Co. 138 Mass. 122; Union Pac. R. Co. v. United States, 99 U. S. 402. ™ Miller v. Ratterman, 47 Ohio St. 141, 24 N. E. 49?. See, also, note in 73 Am. St. 239. ™Boardman v. Lake Shore, &c. R. Co. 84 N. Y. 157, 180; Bailey v. Han- nihal, &c. R. Co. 1 Dill. (U. S.) 174; Bates V. Androscoggin, &c. R. Co. 49 Me. 491; Barnard v. Vermont, &c. R. Co. 89 Mass. 512; Hazeltine v. Belfast, &c. R. Co. 30 Am. & Eng. R. Cas. 528, 79 Me. 411, 1 Am. St. 330; Mackintosh v. Flint, &c. R. Co. 32 Fed. 350; Dickinson v. Chesa- peake, &c. R. Co. 7 W. Va. 390. See, also, Storrow v. Texas, &c. Assn. 87 Fed. 612, 31 C. C. A. 139; Cotting V. New York, &c. R. Co. 54 Conn. 156, 5 Atl. 851. «' New York, &c. R. Co. v. Nickals, 119 U. S. 296, 7 Sup. Ct. 209, It is suggested that where arrears are not collectable the corporation should not be allowed to retain profits for the making of Improve; ments before paying dividends on preferred stock, as such power would give the corporation an op- portunity to defeat the preference by waiting to declare a dividend un- til the profits sufficed for dividends on all the capital stock. 1 Cook Stock and Stockholders, § 272. "■ ChafCee v. Rutland, &c. R. Co. 55 Vt. 110; Belfast, &c. R. Co. v. Bel- fast, 77 Me. 445, 1 Atl. 362. See Hazeltine v. Belfast, &c. R. Co. 79 Me. 411, 30 Am. & Eng. R. Cas. 528. ■^ Taft V. Hartford, &c. R. Co. 8 R. I. 310, 5 Am. R. 575; Lockhart v. Van Alstyne, 31 Mich. 76, 18 Am. R. 156; Webb v. Earle, L. R. 20 Eq. 556. The declaration of such a divi- dend is very largely within the dis- cretion of the directors as long as they act in good faith. Field v. Lamson, 162 Mass. 388, 38 N. E. 1126, 27 L. R. A. 136, and note. 135 GUAEANTEED DIVIDENDS — FUTURE DIVIDENDS. [§'84 may be enjoined.^^ Or, if the payment is actually made, the holder of preferred stock is entitled to interest on his accrued dividends from the date of this misappropriation.^* If from a lack of net profits with which to pay the guaranteed dividends upon preferred stock they should remain unpaid for a time, the holders are entitled to payment of arrears before any dividends are declared on common stoek,°° unless different provision is made by statute or otherwise.'" §■ 84. Rights of preferred stockholders after payment of guaraii' teed dividend — ^Future dividends. — ^After the holders of preferred stock have received the dividend guaranteed to them, the net profits remaining on hand may be devoted to the payment of dividends on the common stock alone, until the holders of such stock have received a dividend equal to that paid on the preferred stock, after which all stock shares equally in any additional dividends which the net earnings on hand may suffice to pay."^ The preferred shareholders are not en- titled to have the profits reserved to pay their dividends which may accrue in the future. An assignment of the stock carries with it all ''Union Pac. R. Co. v. United States, 99 U. S. 402; Taft v. Hart- ford, &c. R. Co. 8 R. I. 310, 5 Am. R. 575; Prouty v. Michigan South- ern, &c. R. Co. 1 Hun (N. Y.) 655. " Prouty V. Michigan, &c. R. Co. 1 Hun (N. Y.) 655; Henry v. Great Northern R. Co. 4 K. & J. 1. See, also, Boardman v. Lake Shore, &c. R. Co. 84 N. Y. 157, 4 Am. & Bng. R. Cas. 265. "^ Bailey v. Hannibal. &c. R. Co. 1 Dillon (U. S.) 174, 17 Wall. (U. S.) 96; Blkins v. Camden, &c. R. Co. 36 N. J. Eq. 233; Boardman v. Lake Shore, &c. R. Co. 84 N. Y. 157; Henry v. Great Northern R. Co. 1 DeG. & J. 606 (1857) ; Matthews v. Great Northern, &c. R. Co. 28 L. J. Ch. 375 (1859). But see, contra, Bel- fast, &c. R. Co. V. Belfast, 77 Me. 445, 1 Atl. 362; Gordon v. Richmond, &c. R. Co. 78 Va. 501. See, where there was a reduction of stock be- cause of losses, Roberts v. Roberts- Wicks Co. 184 N. Y. 257, 77 N. E. 13, 3 L. R. A. (N. S.) 1034. " See Dent v. London, &c. Co. L. R. 16 Ch. Div. 344; Belfast, &c. R. Co. V. Belfast, 77 Me. 445, 1 AU. 362, where a by-law was held to have controlling influence. See Com- panies Clauses, act of 1863, 26 and 27 Vict. Ch. 16, § 14, for statute provision limiting the fund for the payment of preferred dividends to the profits of the current year. See Stimson Am. Stat. (1892), § 8620, for statutes of Indiana, Michigan, Iowa, Minnesota, Missouri and Mon- tana, providing that the terms and conditions of payment of preferred stock shall be prescribed by the di- rectors or by the company, at the time it is issued. »' Bailey v. Hannibal, &c. R. Co. 1 Dillon (U. S.) 174, 17 Wall. (U. S.) 96; Allen v. Londonderry, &c. R. Co. 25 W. R. 524. 85] STOCK. 136 arrears of dividends,"^ not expressly separated and reserved to the grantor/* unless the dividend has been declared before the trans- fer.'" § 85. Eights of preferred stockholders on dissolution. — Unless a preference in repayment of capital invested has been specially con- tracted for'^ or is given by statute/^ the holder of preferred stock shares equally with common shareholders in a distribution of assets upon dissolution.'' His claims are subject to those of creditors for debts contracted subsequently to the issue of his stock:'* This results from the rule that he is a stockholder and not a creditor.'^ § 86. Guaranteed, interest-bearing, income and debenture stock. — An agreement on the part of the corporation to pay a specified dividend or interest on its stock absolutely and at all events, whether any profits are earned or not, T^ould be contrary to public policy and void,'* and it has been held that a railroad company cannot, with- "' Manning v. Quicksilver Min. Co. 24 Hun (N. Y.) 360; Hyatt v. Allen, 56 N. Y. 553, 15 Am. R. 449. ™ Jermaln v. Lake Shore, &c. R. Co. 91 N. Y. 483. "Ohio, City of, v. Cleveland, &c. R. Co. 6 Ohio St. 490. " Bangor, &c. Co., Re, L. R. 20 Eq. 59; Bridgewater Nav. Co., Re, L. R. 39 Ch. Div. 1, 58 Law T. 476, 26 Am. & B3ng. Corp. Cas. 386. "McGregor v. Home Ins. Co. 33 N. J. Eq. 181. "McGregor v. Home Ins. Co. 33 N. J. Eq. 181; Bridgewater Nav. Co., Re, 58 Law T. 476; Griffith v. Paget, L. R. 6 Ch. Div. 511; Birch v. Crop- per, 61 Law T. 621. But see Gor- don V. Richmond, &c. R. Co. 78 Va. 501, 22 Am. & Eng. R. Cas. 33. So, when the capital stock is reduced the preferred stock may be reduced equally with the common. Barrow, &c. Co., Re, 59 Law T. 500; Great Western, &c. Co., Re, 56 L. J. Ch. 3; Bannatyne v. Direct, &c. Co. 55 Law T. 716. Unless it is preferred as to assets as well as dividends. Que- brada R., Re, 60 Law T. 482. But see American Pastoral Co., Re, 62 Law T. 625. See generally, note In 73 Am. St. 243. " Warren v. King, 108 IT. S. 389, 2 Sup. Ct. 789; St. John v. Erie R. Co. 22 Wall. (U. S.) 136; King v. Ohio, &c. R. Co. 2 Fed. 36; Birch v. Cropper, 61 Law T. 621. "See ante, § 83. This section is quoted in Heller v. Nat. Marine Bank, 89 Md. 602, 43 Atl. 800, 44 L. R. A. 438, 443, 73 Am. St. 212 n. See, also, Higgins v. Lanslngh, 154 111. 301, 40 N. E. 362. "Lockhart v. Van Alstyne, 31 Mich. 76, 18 Am. R. 156; State v. Cheraw, &c. R. Co. 16 S. Car. 524; Crawford v. Northeastern, &c. R. Co. 3 Jur. (N. S.) 1093; Ohio Col- lege v. Rosenthal, 45 Ohio St. 183, 12 N. E. 665; Chase v. Vanderbilt, 62 N. Y. 307; Elevator Co. v. Mem- phis, &c. R. Co. 85 Tenn. 703, 5 S. W. 52, 4 Am. St. 798. 137 GUARANTEED INTEKEST-BEAEING INCOME ^DEBENTURE. [§ 86 out legislative authority, contract to pay interest on its stock before the road is completed or any income received.'^'' But in Massachu- setts, the statute provides for "special stock," upon which a semi- annual dividend or interest is payable absolutely and as a debt, with- out regard to the corporate earnings,'' ' and, even in the absence of ex- press legislative authority, a 'corporation has the same power to guaranty dividends and provide for interest out of the profits that it has to issue preferred stock, for such guaranteed or interest-bearing stock is virtually preferred stock and nothing more.'"' It will gener- " Painesville, &c. R. Co. v. King, 17 Ohio St. 500, 534, 49 Am. Dec. 478. See, also, Troy, &c. R. Co. v. Tibbits, 18 Barb. (N. Y.) 297; Pitts- burg, &c. R. Co. V. Allegheny Co. 63 Pa. St. 126. But we believe that a railroad company ordinarily has power, for the purpose of getting subscriptions and money to build the road, to issue interest-bear- ing stock or to agree to pay interest until the road is built or until some other designated time, at least where the interest, although ac- crued, is not to be paid until the road is in operation and sufficient profits are made. Thus, in the case of Evansville, &c. R. Co. v. Bvans- ville, 15 Ind. 395, 415, the court said: "The work of constructing a rail- road sometimes requires years for its completion, and dividends to stockholders seldom, if ever, accrue before the road is fully completed. If interest were not allowed upon the stock, those who invest their funds at the beginning would re- ceive nothing more than those who take their stock when the work may be nearly completed. We see nothing against the law or public policy in this arrangement. The construction of a railroad requires a large outlay of capital, much of which must be furnished before the , work can progress to any consider- able extent. If interest is allowed on the stock from the time it is paid for, there is an inducement for capitalists to invest early and fur- nish the means to successfully carry on the enterprise." To the same effect are the decisions in Richard- son V. Vermont, &c. Co. 44 Vt. 613, 618; Rutland, &c. Co. v. Thrall, 35 Vt. 536; Wright v. Vermont, &c. R. Corp. 12 Cush. (Mass.) 68; Mil- waukee, &c. R. Co. V. Field, 12 Wis. 340; Barnard v. Vermont, &c. R. Co; 7 Allen (Mass.) 512; Ohio v. Cleve- land, &c. R. Co. 6 Ohio St. 489. See, also. People v. Preston, 140 N. Y. 549, 35 N. B. 979, 24 L. R. A. 57; Miller v. Pittsburgh, &c. R. Co. 40 Pa. St. 237, 80 Am. Dec. 570 ; Water- man V. Troy, &c. R. Co, 8 Gray (Mass.) 433. " American Tube Works v. Bos- ton, &c. Co. 139 Mass. 5, 29 N. E. 63 ; Reed v. Boston, &c. Co. 141 Mass. 454, 5 N. E. 852, 12 Am. & Eng. Corp. Cas. 153; Williams v. Parker, 136 Mass. 204, 6 Am. & Eng. Corp. Cas. 566. See, also, Gordon v. Rich- mond, &c. R. Co. 78 Va. 501. ™Taft V. Hartford, &c. R. Co. 8 R. I. 310, 5 Am. R. 575; Miller v. Ratterman, 47 Ohio St. 141, 24 N. E. 496; Henry v. Great Northern, &c. R. Co. 4 K. & J. 1. See, also, note in 73 Am. St. 227, 228, 235. Ex- cept that the dividends are more clearly cumulative and more clearly show that the holder is entitled to 86] STOCK. 138 ally be construed to mean that the interest or dividend is payable only out of the profits and upheld on that ground/" but much, of course, will necessarily depend upon the language used, and where the interest is guaranteed absolutely and the corporation also agrees to liquidate the principal at a specified time, or the like, so that the so-called stock is in reality an interest-bearing debenture the relation created thereby will be ^hat of debtor and creditor and the holder will not be merely a shareholder as he would be if it were preferred or interest-bearing stock payable only out of the profits. ^^ Its validity, therefore, would depend upon some other power than the power to issue preferred stock. '^ Sometimes an agreement is made between two corporations whereby one guarantees to the other a certain speci- fied annual dividend on its capital stock. Such an agreement is held to be a guarantee to the corporation and not to the stockholders severally, and the directors have power to modify the terms of such guaranty, and their action in so doing will not be disturbed by the courts where they have acted fairly and in good faith.*' arrears as soon as the profits are earned and the dividend declared. Boardman v. Lake Shore, &c. R. Co. 84 N. Y. 157; Henry v. Great North- ern, &c. R. Co. 4 K. & J. 1; Field v. Lamson, &c. Co. 162 Mass. 388, .38 N. B. 1126, 27 li. R. A. 136. *° Lockhart v. Van Alstyne, 31 Mich. 76, 18 Am. R. 156; Taft v. Hartford, &c. R. Co. 8 R. I. 310, 5 Am. R. 575; Scott v. Central R. Co. 52 Barb. (N. Y.) 45; Waterman v. Troy, &c. R. Co. 8 Gray (Mass.) 433; Field v. Lamson, &c. Co. 162 Mass. 388, 38 N. E. 1126, 27 L. R. A. 136, and note. See, also, Bar- nard V. Vermont, &c. R. Co. 7 Allen (Mass.) 512; Richardson v. Ver- mont, &c. R. Co. 44 Vt. 613. ^Burt V. Rattle, 31 Ohio St. 116; West Chester, &c. R. Co. v. Jackson, 77 Pa. St. 321; Totten v. Tison, 54 Ga. 139. " Quoted in Heller v. National Ma- rine Bank, 89 Md. 602, 43 Atl. 800, 45 L. R. A. 438, 443, 73 Am. St. 212 n. where it is said that ordinarily pre- ferred stock does not constitute a lien upon the franchise and prop- erty, hut that merely calling it pre- ferred stock does not necessarily have the effect of making it ordi- nary preferred stock, and that the statute may make it a lien, although the term "preferred stock" is used. ^Plagg V. Manhattan R. Co. 10 Fed. 413, 20 Blatch. (U.S.) 142; Bev- eridge v. New York, &c. R. Co. 112 N. Y. 1, 19 N. E. 489, 2 L. R. A. 648. A guarantee of a specified dividend upon the stock of another company absolutely and without regard to profits was held unauthorized and not enforceable in Elevator Co. v. Memphis, &c. R. Co. 85 Tenn. 703, 5 S. W. 52, 4 Am. St. 798. It has also been held that a railroad company has no implied power to guarantee the interest and dividends on stocks and bonds of a summer hotel, al- though the business of the railroad might thus be increased. Western, &c. R. Co. v. Blue Ridge Hotel Co. 102 Md. 307, 62 Atl. 351, 3 L. R. A. (N. S.) 887, and note. 139 INCREASE AND REDUCTION OP CAPITAL STOCK. [§ 8r § 87. Increase and reduction of capital stock. — A corporation can neither increase nor reduce its fixed capital stock without legislative authority.** The power to increase it can not, ordinarily, be im- plied from the power to reduce it,*' nor can the power to reduce it be implied from the mere power to increase if And when the statute confers the power to increase or decrease the capital stock the statu- tory method of procedure sliould be substantially followed.*' Unless otherwise provided, the power so given can only be exercised by the stockholders, and not by the directors.** But the stockholders may be- estopped by their acquiescence, in such a case, from questioning the legality of an increase or decrease made by the directors.** When «* Spring Co. v. Knowlton, 103 U. S. 49; Scovlll V. Thayer, 105 IT. S. 143; Oldtown R. Co. v. Veazie, 39 Me. 571; Railway Co. v. AUerton, 18 Wall. (U. S.) 233; New York, &c. R. Co. v. Schuyler, 34 N. Y. 30; Me- chanics' Bank v. New York, &c. R. Co. 13 N. Y. 599, 617; "Winters v. Armstrong, 37 Fed. 508; Peck v. El- liott, 79 Fed. 10, 24 C. C. A. 425; Tschumi v. Hills, 6 Kans. App. 549, 51 Pac. 619; Cooke v. Marshall, 191 Pa. St. 315, 43 Atl. 314, 64 L. R. A. 413. But the authorized issue of honds convertible into stock may, in effect, amount to authority to in- crease the capital stock to that ex- tent. Belmont v. Erie R. Co. 52 Barb. (N. Y.) 637; Ramsey v. Erie R. Co. 38 How. Pr. (N. Y.) 193, 216. See, also, Van Allen v. Illinois Cent. R. Co. 7 Bosw. (N. Y.) 515. ''See Sutherland v. Olcott, 95 N. Y. 93; Lexington, &c. R. Co. v. Chandler, 13 Met. (Mass.) 311. *■ Seignouret v. Home Ins. Co. 24 Fed. 332, 10 Am. & Eng. Corp. Cas. 131, 25 Am. L. R. 29; Sutherland v. Olcott, 95 N. Y. 93. See, also. Smith V. Goldsworthy, 4 Q. B. (4 Ad. & E. N. S.) 430. "Spring Co. v. Knowlton, 103 U. S. 49; Aspinwall v. Butler, 133 U. S. 595, 10 Sup. Ct. 417; Smith v. Franklin Park Land, &c. Co. 168 Mass. 345, 47 N. B. 409; Knowlton V. Congress Spring Co. 57 N. Y. 518; Grangers', &c. Co. v. Kamper, 73 Ala. 325, 6 Am. & Eng. Corp. Cas. 497. Wheeler, In re, 2 Abb. Pr. N. S. (N. Y.) 361; State v. McGrath, 86 Mo. 239. But see Handley v. Stutz, 139 U. S. 417, 11 Sup. Ct. 530, 34 Am. & Eng. Corp. Cas. 624. The general rule is that if the stock is an overissue so that there is an en- tire want of power the holder does not become a stockholder, and is not liable as such, but if there is power to issue it, mere informalities or irregularities will not vitiate it and one who receives it may become lia- ble as a stockholder. This distinc- tion is drawn in Scovlll v. Thayer, 105 U. S. 143, where the authorities are reviewed and distinguished. ''Eidman v. Bowman, 58 111. 444, 11 Am. R. 90; Percy v. Mlllaudon, 9 La. 326 (6 Mart. N. S. 616), 7 Am. Dec. 196; Gill v. Balis, 72 Mo. 424; Chicago City R. Co. v. AUerton, 18 Wall. (tr. S.) 233; McNulta v. Corn Belt Bank, 164 111. 427, 45 N. E. 954, 56 Am. St. 203. But see Suther- land V. Olcott, 95 N. Y.' 93. ™ Chicago City R. Co. v. AUerton, 18 WaU. (U. S.) 233; Payson v. Stoever, 2 Dill. (U. S.) 428; SeweU's 87] STOCK. 140 the capital stock is increased new shares of stock are generally issued and sold, but the existing shareholders, it seems, have the first right to take their proportionate part of the new stock,"" although they have no right to demand a gratuitous distribution of it to them"'- and may lose their right to take precedence of other purchasers by failing, to act within the time specified, or within a reasonable time."^ The capital stock may also be increased, when authorized, by means of stock divi- dends."^ The ordinary method of reducing the capital stock is by re- funding to each stockholder a proportionate part of the surplus over and above the amount of the capital stock as reduced.** So, a eorpo- Case, li. R. 3 Ch. 131. See, also, Veeder v. Mudgett, 95 N. Y. 309; Barrows v. Natchang, &c. Co. 72 Conn. 658, 45 Atl. 951; Columbia Nat. Bank v. Matthews, 85 Fed. 934, 29 C. C. A. 491. "Cunningham's Appeal, 108 Pa. St. 546; Jones v. Morrison, 31 Minn. 140, 6 N. W. 854; Gray v. Portland Bank, 3 Mass. 364, 3 Am. Dec. 156; Humholdt, &c. Ass'n v. Stevens, 34 Neb. 528, 52 N. W. 568, 33 Am. St. 654; Crosby v. Stratton, 17 Colo. App. 212, 68 Pae. 130; Jones v. Con- cord, &c. R. Co. 67 N. H. 119, 38 Atl. 120, 68 Am. St. 650; Way v. American, &c. Co. 60 N. J. Eq. 263, 47 Atl. 44. It has, however, been questioned whether this rule applies to a railroad company existing inde- pendently of the stockholders with its economy and modes of iaction defined by statute. See Pierce Railw. 124; 1 "Wood Railw. § 72. And it does not apply to old shares pur- chased by the corporation and reis- sued. State v. Smith, 48 Vt. 266; nor, it seems, to original shares of authorized stock remaining undis- posed of. Curry v. Scott, 54 Pa. St. 270, 275. "Miller v. Illinois, &c. R. Co. 24 Barb. (N. Y.) 312, 330; Brown v. Florida, &c. R. Co. 19 Pla. 472. »=Hart V. St. Charles St R. Co. 30 La. Ann. 1, 758; Brown v. Flor- ida, &c. R. Co. 19 Fla. 472. See,, also, Sewall v. Eastern R. Co. 9 Cush. (Mass.) 5; Terry v. Eagle- Lock Co. 47 Conn. 141. See, also, Crosby v. Stratton, 17 Colo. 212, 68 Pac. 130; Hammond v. Edison, &c.. Co. 131 Mich. 79, 90 N. W. 1040, 100- Am. St. 582. ""Beach Priv. Corp. § 477; Purdy's. Beach Priv. Corp. § 440; 1 Cook. Stock and Stockholders, § 287; post,. §§ 331, 338. In one sense, perhaps, a stock dividend does not increase the capital stock as the theory is that, while it may increase the num- ber of shares, the aggregate interest of the stockholders is the same as before; in other words, it simply dilutes the existing shares to the extent that new shares are issued. Williams v. Western Un. Tel. Co. 93 N. Y. 162. "' Seeley v. New York Exchange Bank, 8 Daly (N. Y.) 400, affirmed in 78 N. Y. 608; Strong v. Brooklyn,. &c. R. Co. 93 N. Y. 426; Currier v. Lebanon, &c. Co. 56 N. H. 262. But a stockholder in a bank which, reduces its capital stock to the ex- tent that its capital has become im- paired on account of bad debts, to prevent an assessment upon the stockholders, cannot compel a dis- tribution of money afterward real- ized on the "bad debts," as in case of a reduction where the capital is 141 WATBEED STOCK. [§■ 88 ration may effect a reduction by purchasing and cancelling its own shares, where it has authority to do so.°^ This, however, will not neces- sarily operate as a reduction, unless so' intended, for they may be re- sold and reissued.'* And the mere power to reduce the capital stock does not authorize the corporation to purchase the shares of particular shareholders, over the objection of others, on such terms or in such a way as to benefit the former at the expense of the latter.'^ Nor is the "writing off" of a loss, which the corporation has suffered, such a reduction as is generally authorized.®* § 88. Watered stock. — What is known as "watered stock" is fic- titiously paid-up stock or stock which does not represent its face or par value in money or money's worth added to the assets of the corpo- ration,"' but which is issued as a bonus or exchanged for money, property, services,^"" or demands upon the company^"^ of a less value than the par value of the stock.'^"^ Such issues of stock are frequently unimpaired. McCann v. First Nat. Bank, 112 Ind. 354, 14 N. B. 251. "^ Taylor v. Miami, &c. Co. 6 Ohio 176; Chicago, &c. R. Co. v. Mar- seilles, 84 111. 145; State v. Smith, 48 Vt. 266; "Williams v. Savage, &c. Co. 3 Md. Ch. 418 ; Catling Gun, &c.. Re, 62 L. T. R. 312; British, &c. Trustee, &c. v. Couper (1894), A. C. 399; Berger v. United States Steel Corp. 63 N. J. Eq. 809, 53 Atl. 68. See article in 8 So. Law Rev. U. S. 369; Tulare, &c. Dlst. v. Kaweah, &c. Co. (Gal.), 44 Pac. 662. °° Commonwealth v. Boston, &c. R. Co. 142 Mass. 146, 7 N. B. 716; City Bank v. Bruce, 17 N. Y. 507; Vail T. Hamilton, 85 N. Y. 453; Jefferson V. Burford (Ky.), 17 S. W. 855; State Bank v. Fox, 3 Blatchf. (U. S.) 431; Clapp v. Peterson, 104 111. 26; Bank v. Wickersham, 99 Cal. €55, 34 Pac. 444. See, also, Leonard -V. Draper, 187 Mass. 536, 73 N. B. €44; Berger v. United States Steel Corp. 63 N. J. Eq. 809, 53 Atl. 68. " Currier v. Lebanon, &c. Co. 56 N. H. 262; Chetlain v. Republic Life Ins. Co. 86 111. 220; Gill v. Balis, 72 Mo. 424. See, also. Pacific Fruit Co. v. Coon, 107 Cal. 447, 40 Pac. 542. »» Ebbw Vale, &c. Co., In re, L. R. 4 Ch. Div. 832; Seignouret v. Home Ins. Co. 24 Fed. 332. ""Cook Stock and Stockholders, § 28; Handley v. Stutz, 139 U. S. 417, 418, 11 Sup. Ct. 530: ^^ Capital stock to an amount far beyond the actual cost of the road is frequently issued to the construc- tion company in payment for build- ing it. Cyclopedia of Political Sci- ence, &c. Vol. Ill, page 527, cited in Cook Stock and Stockholders, § 28. '" Such stock is frequently issued in the shape of a stock dividend when no corresponding amount has been added to the value of the com- pany's property. ^"^ Barnes v. Brown, 80 N. Y. 527, 534; Sturges v. Stetson, 1 Blss. (U. S.) 246; TObey v. Robinson, 99 111. 222, 228; Oliphant v. Woodburn, &c. Co. 63 Iowa 332, 19 N. W. 212. But see Scovill v. Thayer, 105 U. S. 143; Lorillard v. Clyde, 86 N. Y. 384. §89] STOCK. 143 said to be contrary to- public policy,^"^ and a fraud upon those who take it as full paid stock,^"* and are sometimes said to be cause for the forfeiture of the company's charter." In Louisiana the constitution provides that this penalty shall follow such action.^''^ § 89. Watered stock not absolutely void. — ^The stock so issued is not, however, absolutely void, where it is not an overissue, even though there is a constitutional provision declaring fictitious issues void, if there i^ a consideration to support it, as where it is sold below par, or issued in payment for work or property of less than its face value.^"" The general rule, however, is that if it is an overissue in excess of the amount limited by charter, it is ultra vires and void even in the hands of a bona fide purchaser. ^"^ And the stock, if issued Mere inflation, or gratuitous distri- bution of stock upon no increase of value in the corporate property, is condemned by law. Williams v. "Western Union Tel. Co. 93 N. Y. 162. ^<'=' State V. Atchison, &c. R. Co. 24 Neb. 143, 38 N. "W. 43; Morrow v. Iron, &c. Co. 87 Tenn. 262, 10 S. W. 495, 5 R. & Corp. L. J. 206; Sturges v. Stetson, 1 Biss. (U. S.) 246; Oli- phant V. Woodburn Coal, &c. Co. 63 Iowa 332, 19 N. W. 212. Quo war- ranto does not lie against a corpora- tion in Minnesota merely because it issues its stock below par. State v. Minnesota, &c. Co. 40 Minn. 213, 41 N. W. 1020, 3 L. R. A. 510 n. But such an act Is said to be clearly ultra vires. Fisk v. Chicago, &c. R. Co. 53 Barb. (N. Y.) 513. And it is held that a forfeiture may be de- creed for ultra vires acts which are detrimental to the interests of the public. People v. Utica Ins. Co. 15 Johns. (N. Y.) 358, 8 Am. Dec. 243; Commonwealth v. Delaware, &c. Ca- nal Co. 43 Pa. St. 295; State v. Peo- ple's, &c. Assn. 42 Ohio St. 579; People V. Improvement Co. 103 111. 491. See, also, Holman v. State, 105 Ind. 569, 5 N. B. 702. And the constitutions and laws of many of the states provide that railroad cor- porations shall not issue stock ex- cepting for money or its equivalent actually received. Stimson Am. Stat. § 452. See, also, Fitzpatrick v. Dispatch, &c. Co. 83 Ala. 604, 2 So. 727, 19 Am. & Bug. Corp. Cas. 423. "* Barnes v. Brown, 80 N. Y. 527. ^"^ Const. La. § 238. ™ Peoria R. Co. v. Thompson, 103 111. 187; Stein v. Howard, 65 Cal. 616, 4 Pac. 662; Gasquet v. Crescent City, &c. Co. 49 Fed. 496; Barr v. New York, &c. R. Co. 125 N. Y. 263, 26 N. B. 145; Lorillard v. Clyde, 86 N. Y. 384; Memphis, &c. R. Co. V. Dow, 120 U. S. 287, 7 Sup. Ct. 482; Scovill v. Thayer, 105 U. S. 143; Knapp v. Publishers, 127 Mo. 53, 29 S. "W. 885; Northern Trust Co. v. Columbia, &c. Co. 75 Fed. 936; Dickerman v. Northern Trust Co. 80 Fed. 450, 25 C. C. A. 549; Colt V. Gold Amalgamated Co. 119 U. S. 343, 7 Sup. Ct. 231; Ambrose, &c. Co., In re, L. R. 14 Ch. Dlv. 390, 394. But see New Castle, &c. R. Co. V. Simpson, 21 Fed. 533, 23 Fed. 214; Sturges v. Stetson, 1 Biss. (U. S.) 246; Fisk v. Chicago, &c. R. Co. 53 Barb. (N. Y.) 513. "'First Ave. Land Co. v. Parker, 111 Wis. 1, 86 N. W. 604, 87 Am. St. 143 WATEEED STOCK NOT ABSOLUTBLT VOID. [§ 89 gratuitously/"^ or such, a proportion of it as will reduce the face value of the shares, held to the sum paid for thB stock,^"® may, it has been held, where it is sold below par, be at the suit of a dissenting stockholder,^^" recalled for cancellation, from the person to whom it is issued,^^^ or from his grantee with notiee,^^^ though not, it would seem, from a bona fide purchaser for value.^^* Participating stock- holders^^* and their transferrees with noitiee^^^ are estopped to complain of the transaction,^^' at least when not absolutely 841, and note; Granger, &c. Ins. Co. V. Kamper, 73 Ala. 325; McChord V. Ohio, &c. R. Co. 13 Ind. 220; Ryder v. Bushwlck R. Co. 134 N. Y. 83, 31 N. E. 251; Kampman v. Tar- ver," 87 Tex. 491, 29 S. W. 768; Scovill V. Thayer, 105 U. S. 143. See, however, where it is merely spurious and not an overissue, American Wire Nail Co. v. Bayless, 91 Ky. 94, 15 S. W. 10; New York, &c. R. Co. V. Schuyler, 38 Barb. (N. Y.) 534; Manhattan Beach Co. v. Harned, 27 Fed. 484, 23 Blatchf. (U. S.) 494; note in 87 Am. St. 849, 850, 856. ■ ™Gilman, &c. R. Co. v. Kelly, 77 111. 426. See, also, Richardson v. Green, 133 U. S. 30, 10 Sup. Ct. 280; Donald v. American, &c. Co. 62 N. J. Eq. 729, 48 Atl. 771, 1116. ™Sturges V. Stetson, 1 Biss. (U. S.) 246; Fosdick v. Sturges, 1 Biss. (U. S.) 255. "° Since each shareholder may in- sist that every other shareholder shall contribute his ratable part of the company's capital for the com- mon benefit, he may maintain a suit to cancel an unauthorized issue of shares purporting to be paid-up, when they, in reality, are not. Morawetz Priv. Corp. (2d ed.), §§ 275, 286. See, also, Stebbins v. Perry County, 167 111. 567, 47 N. B. 1048; Kimball v. New England, &c. R. Co. 69 N. H. 485, 45 Atl. 253; note in 87 Am. St. 855, also show- ing when the corporation may main* tain such a suit. ™Gilman, &c. R. Co. v. Kelly, 77 111. 426. ^" Upton V. Tribilcock, 91 U. S. 45; Boulton Carbon Co. v. Mills, 78 Iowa 460, 43 N. W. 290, 5 L. R. A. 649. "''I Cook Stock and Stockholders,. § 31. "* Gold Co., In re, L. R. 11 Ch. Div. 701, 712; Scovill v. Thayer, 105 U. S. 143; Callahan v. Windsor, 78 Iowa 193, 42 N. W. 652; Wood v. Corry, &c. Co. 44 Fed. 146; Rich- ardson V. Chicago, &c. Co. 131 Cal. xviii, 63 Pac. 74; World, &c. Co. V. Hamilton, &c. Co. 123 Mich. 620, 82 N. W. 528. Dissenting stockhold- ers may have relief. Taylor v. Philadelphia, &c. R. Co. 7 Fed. 381; Parsons v. Joseph, 92 Ala. 403, 8 So. 788; Perry v. Tuscaloosa, &c. Co. 93 "Ala. 364, 9 So. 217. If they act promptly. Taylor v. South, &c. R. Co. 13 Fed. 152. "° Syracuse, &c. R. Co., In re, 91 N. Y. 1; Ffooks v. Southwestern R. 1 Sm. & G. 142; Foster v. Seymour, 23 Fed. 65. "'Scovill V. Thayer, 105 U. S. 143; Harrison v. Union Pac. R. Co. 13 Fed. 522; St. Louis, &c. R. Co. V. Tiernan, 37 Kans. 606, 15 Pac. 544, where the giving of $3,600,000 of stock and payment of $200,000 to directors of the company for an old road-bed which cost them $15,- 90] STOCK. 144 void as an overissue, as is the corporation itself, in the absence of fraud."^ § 90. Rights of creditors and liabilities of holders of watered stock. — But the creditors of the corporation may generally compel the per- sons receiving stock to pay the par value in 'fuU,^^* or such part thereof as may be necessary to pay their claims.^** It is held, however, by the Supreme Court of the United States, in a recent, yet much criti- cised ease, that "an active corporation may, for the purpose of paying its debts and obtaining money for the successful prosecution of its business, issue its stock and dispose of it for the best price that can be obtained," and that it may give the purchaser paid-up stock as a bonus without making him liable on such stock.^^" 000, when all the stockholders and directors knew all the facts, was held to give the corporation no cause to complain, 40 Am. & Bng. R. Cas. 525, 544. See, also, Arkan- sas, &c. Co. v. Farmers', &c. Co. 13 Colo. 587, 22 Pac. 954; First Nat. Bank v. Gustin, &c. Co. 42 Minn. 327, 44 N. W. 198, 6 L. R. A. 676 n, 18 Am. St. 510. '" See Dickerman v. Northern T. Co. 176 U. S. 181,- 20 Sup. Ct. 311. See, also, generally as to where there is or is not an estoppel. First Ave. Land Co. v. Parker, 111 Wis. 1,'86 N. W. 604, 87 Am. St. 841, 856-860. »" Sagory v. Dubois, 3 Sandf . Ch. (N. Y.) 466, 499; Upton v. Tribi- lock, 91 V. 8. 45; Scovill v. Thayer, 105 U. S. 143; Bates v. Great West- ern Tel. Co. 134 111. 536, 25 N. E. 521; Hickling v. Wilson, 104 111. 54; Great Western Tel. Co. v. Gray, 122 111. 630, 14 N. E. 214; Mann v. Cooke, 20 Conn. 178; Skrainka v. Allen, 76 Mo. 384; Fisher v. Selig- man, 7 Mo. App. 383; Flinn v. Bag- ley, 7 Fed. 785; Stutz v. Handley, 41 Fed. 531; Camden v. Stuart, 144 U. S. 104, 12 Sup. Ct. 585. But in Clark V. Sever, 139 U. S. 96, 11 Sup. Ct. 468, it was held that a rail- road company in financial straits could settle with a creditor by giv- ing him stock at twenty cents on the dollar, and that other corporate creditors could not afterwards hold him liable for the additional eighty cents. ^"Scovill V. Thayer, 105 U. S. 143, 155. Where a director takes shares of the capital stock as a bonus for his influence, he becomes subject to the liabilities of a shareholder who has taken stock but has not paid for the same, and a contract be- tween him and the company that the stock shall not be assessable cannot relieve him of the liability Richardson v. Green, 133 U. S. 30, 10 Sup. Ct. 280; McAvity v. Lin coin, &c. Co. 82 Me. 504, 20 Atl 82; Allen v. Fairbanks, 45 Fed 445; Haldeman v. Ainslie, 82 Ky, 395. But see Christensen v. Quin- tard, 29 N. Y. S. 61, where it is held that a reduction of forty per cent, in the price of stock and bonds was a donation by the corporation to induce him to take the stock, and a judgment creditor cannot claim it in payment of his debt See, also, Christensen v. Eno, 106 N. Y. 97, 12 N. B. 648. "" Handley v. Stutz, 139 U. S. 417, 145 PURCHASE WITH OVERVALUED PROPERTY. [§91 §91. Stock paid for by overvalued property — Sale of stock on market. — Where the stock is paid for in property at a fraudulent overvaluation, the corporate creditor may compel a rescission of the sale in toto/^^ and the restoration of the stock or its actual value/^^ un- less he knew of the manner in which payment was made for the stock before he became a creditor.^'^ It has also been stated broadly that the creditor must affirm in toto or rescind in toto and that he cannot hold the owner of such stock liable as for an unpaid subscription."* But most of the cases relied upon in support of this doctrine are cases in which the stock was not issued upon an ordinary subscription, but in payment for the construction of the road, or the like,^^^ and, what- ever may be the rule in such cases, it seems unjust and in violation of true principle, to extend it to ordinary subscriptions. ^^* It is a ques- tionable doctrine at the best, and, upon principle, a subscriber who 11 Sup. Ct. 530. See, also, Hospes V. Northwestern, &c. Co. 48 Minn. 174, 50 N. W. 1117, 15 L. R. A. 470, 31 Am. St. 637; Coe v. Bast & W. R. Co. 52 Fed. 531. See criticism in 2 Thomp. Corp. § 2092. '"'Currie's Case, 3 DeG., J. & S. 367; Van Cott v. Van Brunt, 82 N. Y. 535; Phelan v. Hazard, 5 Dill. U. S.) 45; Coffin v. Ransdell, 110 Ind. 417, 11 N. E. 20. "^In Iowa (Osgood v. King, 42 Iowa 478) and in Missouri (Shlckle v. Watts, 94 Mo. 410, 7 S. W. 274) it is held that the court will decree the payment of the difference be- tween the value of tlie property or labor given in exchange for stock and its par value, even where no fraud is proven, but this is against the weight of authority. See, also, Libby v. Tobey, 82 Me. 397, 19 Atl. 904. ^= Bank of Fort Madison v. Alden, 129 U. S. 372, 9 Sup. Ct. 332. ^ 1 Cook Stock and Stockholders, § 46; 1, Beach Private Corporations, § 120; Coffin v. Ransdell, 110 Ind. 417, 11 N. B. 20. In Fogg v. Blair, 139 U. S. 118, 11 Sup. Ct. 476, the stock was not shown to be of any Ell. Railroads — ^10 value and the court said that the creditors were not, therefore, wronged. In Anderson's Case, L. R. 7 Ch. Div. 75, the court said that the contract was for paid-up stock and to hold the owner liable as a "contributory" would be to make a new contract. ^' Fogg V. Blair, 139 U. S. 118, 11 Sup. Ct. 476; Van Cott v. Van Brunt, 82 N. Y. 535; Barr v. New York, &c. R. Co. 125 N. Y. 263, 26 N. B. 145. "« See Lloyd v. Preston, 146 U. S. 630, 13 Sup. Ct. 131; Camden v. Stuart, 144 U. S. 104, 12 Sup. Ct. 585; Elyton, &c. Co. v. Birmingham, &c. Co. 92 Ala. 407, 9 So. 129, 12 L,. R. A. 307, 25 Am. St. 65; Gar- rett V. Kansas, &c. Co. 113 Mo. 330, 20 S. W. 965, 35 Am. St. 713; Go- gebic, &c. Co. V. Iron Chief, &c. Co. 78 Wis. 427, 47 N. W. 726, 23 Am. St. 417; Macbeth v. Banfield, 45 Oreg. 553, 78 Pac. 693, 106 Am. St. 670. These cases would also seem to deny the universal application of the alleged rule stated in Coffin V. Ransdell, 110 Ind. 417; Sco- vill V, Thayer, 105 U. S. 143, and other cases cited in a previous note. 91] STOCK. 146 fraudulently pays his subscription in grossly overvalued property, or property which is practically worthless or of so little value that the transaction should be presumed to be fraudulent, and receives paid- up stock therefor, ought not to be allowed to take advantage of his own fraud and thus occupy a better position than one who has paid cash and acted in good faith, but should, on the contrary, be held liable to creditors whom he has misled for the entire subscription, where the property is worthless, and, it would seem, for the difference between the value of the property and the par value of the stock, in other cases, if the corporation is insolvent.^^' But, in the absence of fraud, paid- up stock may be paid for in property such as the corporation may use, and it will make no difference that the property afterwards turns out to be of lessvglue than was supposed.^^* The court, in such a case. that the transaction must first be set aside as fraudulent in a pro- ceeding for that purpose before the subscriber can be held liable in any event, and we see no reason for such rule in the code states where the same court has both law and equity- jurisdiction and can give full re- lief in one proceeding. "'Camden v. Stuart, 144 U. S. 104, 12 Sup. Ct. 585; Clayton v. Oreg., &c. Co. 109 N. C. 385, 14 S. E. 36; Boulton, &c. Co. v. Mills, 78 Iowa 460, 43 N. W. 290, 5 L. R. A. 649; Chisholm v. Forny, 65 Iowa •333, 21 N. W. 664; Jackson v. Traer, 64 Iowa 469, 20 N. "W. 764, 52 Am. R. 449; Osgood v. King, 42 Iowa 478; First Nat. Bank v. Gustin, &c. Co. 42 Minn. 327, 44 N. W. 198, 6 L. R. A. 676, 18 Am. St. 510; Peninsular, &c. Bank v. Black, &c. Co. 105 Mich. 535,-63 "N. W. 514; Coleman v. Howe, 154 111. 458, 39 N. E. 725, 45 Am. St. 133. See, also. Bates v. Great Western Tel. Co. 134 111. 536, 25 N. E. 621; Mo- Avity V. Lincoln Pulp, &c. Co. 82 I Me. 504, 20 Atl. 82; Bouglass v. Ireland, 73 N. Y. 100; Gamble v. Queens, &c. Co. 123 N. Y. 91, 25 N. E. 201, 9 L. R. A. 527. The whole subject is well considered in the recent case of Macbeth v. Bran- fleld, 45 Oreg. 553, 78 Pac. 693, 106 Am. St. 670, and note, and it is there held that the creditor or one standing in his stead may main- tain a suit in equity as for an un- paid subscription and compel the stockholder to respond for the dif- ference between the actual value of the property and the par value of the stock. See, also, Blyton Land Co. V. Birmingham, &c. Co. 92 Ala. 407, 9 So. 129, 25 Am. St 65; Sprague v. Nat. Bank, 172 111. 149, 50 N. B. 19, 64 Am. St. 17; "Wishard V. Hansen, 99 Iowa 307, 61 Am. St. 238, and note to Buck v. Ross, 57 Am. St. 67, 68. But compare Colo- nial Trust Co. V. McMillan, 188 Mo. 547, 87 S. W. 933, 107 Am. St. 335. ™ Coit V. North Carolina Gold, &c. Co. 14 Fed. 12, affirmed in 119 U. S. 343; Bickley v. Schlag, 46 N. J. Eq. 533, 20 Atl. 250; Clow v. Brown, 134 Ind. 287, 31 N. E. 361; Common- wealth V. Central Pass. R. 52 Pa. St. 506; Drummond's Case, L. R. 4 Ch. Ap. 772; Young v. Erie, &c. Co. 65 Mich. Ill, 31 N. W. 814; White- 147 SALE AND TRANSFER OE STOCK. [§'92 "will treat that as payment which the parties have agreed should be payment."^^' And it has been held that the fact that one to whom such stock is issued returns a portion of it as a gift to the corporation to sell below par and place the proceeds in the corporate treasury does not necessarily prove that the property was overyalued.^^" A corpora- tion may also distribute to its shareholders, or sell on the market, shares of stock which it has purchased under legislative authority,^'^ or which have been forfeited to it for non-payment of calls. ^^^ i § 92. Sale and transfer of stock. — Shares of stock (unless declared by statute to be real estate) are personal property,^'^ and are subject to purchase and sale by natural persons as other personal property, and the right of the shareholder to sell and transfer his stock cannot be taken away or unduly restrained by a by-law of the corporation.^^* hill V. Jacobs, 75 Wis. 474, 44 N. W. 630; Schenck v. Andrews, 57 N. Y. 133. '^'Phelan v. Hazard, 5 Dill. (U. S.) 45, 6 Cent. h. 3. 109; Brant v. Ehlen, 59 Md. 1; Coffin v. Ransdell, 110 Ind. 417, 11 N. E. 20; Peck v. Coalfield Coal Co. 11 111. App. 88. ""Lake Superior Iron Co. v. Drexel, 90 N. Y. 87; Williams v. Taylor, 120 N. Y. 244, 24 N. B. 288. See, also, Davis v. Montgomery, &c. Co. 101 Ala. 121. 127, 8 So. 496, 48 Am. St. 17. But compare Ailing v. Wenzel, 133 111. 264, 24 N. E. 551; Ailing V. Ward, 30 Am. & Bng. Corp. Cas. 133. "'Commonwealth v. Boston, &c. R. Co. 142 Mass. 146, 7 N. E. 716. "^Ramwell's Case, 50 L. J. (Ch.) 827; Otter v. Brevoort, &c. Co. 50 Barb. (N. Y.) 247; People v. Al- bany, &c. R. Co. 55 Barb. (N. Y.) 344, 371. "^Ante, § 79; note to Klaus, In re, 26 Am. L. Reg. (N. S.) 98, 104. And as such they are generally held in America to be included in the phrase "goods, wares and merchan- dise" in the statute of frauds. Baltzen v. Nicolay, 53 N. Y. 467; Tisdale v. Harris, 20 Pick. (Mass.) 9; North v.. Forest, 15 Conn. 400; Mason v. Decker, 72 N. Y. 595, 28 Am. R. 190; Boardman v. Cutter, 128 Mass. 388; Hinchman v. Lin- coln, 124 U. S. 38, 8 Sup. Ct 369; Pray v. Mitchell, 60 Me. 430. But see Vawter v. Griffin, 40 Ind. 593, 602; Green v. Brookins, 23 Mich. 48, 9 Am. R. 74; Gadsden v. Lance, 1 McMuU. Eq. (S. Car.) 87, 37 Am. Dec. 548. Statute does not apply to agreement to take back or repur- chase. Fitzpatrick v. Woodruff, 96 N. Y. 561; Meyer v. Blair, 109 N. Y. 600, 17 N. E. 228, 4 Am. St. 500; Thorndike v. Locke, 98 Mass. 340; Richter v. Frank, 41 Fed. 859; Fay V. Wheeler, 44 Vt. 292. IS* Morgan v. Struthers, 131 U. S. 246, 252, 9 Sup. Ct. 726; Klaus, In re, 67 Wis. 401, 29 N. W. 582; Gould V. Head, 41 Fed. 240, 247; Feck- heimer v. Nat. Exch. Bank, 79 Va. 80; Moore v. Bank, 52 Mo. 377; Sargent v. Franklin Ins. Co. 8 Pick. (Mass.) 90, 19 Am. Dec. 306. See, also, Victor G. Bloede Co. v. Bloede, 84 Md. 129, 57 Am. St. 373, and note. Such a by-law would be in restraint of trade and contrary to § 93] STOCK. 148 But reasonable regulations may be made regarding the formalities of transfer and registration/ ^° and such matters are frequently pro- vided for in the charter or by statute.^^^ The transfer, in order to re- lieve the transferor from further liability, must usually be absolute/^' and to a person capable of succeeding to his liabilities.^^* Where the shares are not fully paid-up a transfer to an insolvent person, or "man of straw," for the purpose of avoiding liability, cannot be made so as to relieve the transferor from liability to creditors upon his stock.^^° But, as a general rule, a regular transfer of shares of corpo- rate i stock will not be disturbed by the courts unless it is satisfactorily shown that it was conditional, designed to serve as collateral or pledge to secure a payment, or was simulated, and not intended to transfer the ownership.^*" Stock can generally be completely transferred only public policy. But an agreement be- tween members not to sell except on certain conditions may be valid if not in unreasonable restraint of trade. 1 Cook Stock and Stockhold- ers, § 332. See, also, Dane v. Young, 61 Me. 160; Metropolitan, &c. Bank v. St. Louis, &c. Co. 36 Fed. 722; New England Trust Co. v. Abbott, 162 Mass. 148, 38 N. B. 432, 27 L. R. A. 271, and note. The right to sell and transfer stock of a railroad company cannot be exercised to the prejudice of the public in a manner prohibited by law, and illegal agree- ments for "corners" in stcok and the like will not be enforced. Penn- sylvania R. Co. V. Commonwealth (Pa.), 7 Atl. 368; Town Council v. Elliott, 5 Ohio St. 113; Sampson V. Shaw, 101 Mass. 145; Leonard V. Poole, 114 N. Y. 371, 21 N. E. 707. But see Havemeyer v. Have- meyer, 11 J. & S. (N. Y.) 506, 13 J. & S. (N. Y.) 464, 86 N. Y. 618. As to such contracts and wager or gam- bling contracts generally, see 1 Cook Stock and Stockholders, §§ 333, 341-348. ™Dane v. Young, 61 Me. 160; Planters', &c. Co. v. Selma Sav. Bank, 63 Ala. 585; Bishop v. Globe, &c. Co. 135 Mass. 132, 5 Am. & Eng. Corp. Cas. 161. See, also, note in 57 Am. St. 379. ""Shepherd's Case, L. R. 2 Bq. 564; Smith v. Canada Car Co. 6 Upper Can. Pr. 107; Fractor's &c. Co. V. Marine, &c. Co. 31 La. Ann. 149; Merrill v. Call, 15 Me. 428. "' National Bank v. Case, 99 U. S. 628; Billings v. Robinson, 94 N. Y. 415; Veiller v. Brown, 18 Hun (N. Y.) 571. ™1 Beach Priv. Corp. § 128; Tay- lor's Priv. Corp. § 747; Article in 8 Cent. L. J. 182; and see observa- tion and cases cited in Pauly v. State Loan & Trust Co. 165 U. S. 606, 17 Sup. Ct. 465, 467. ""Dauchy v. Brown, 24 Vt. 197; Marcy v. Clark, 17 Mass. 330; Bow- den V. Johnson, 107 U. S. 251, 2 Sup. Ct. 246; Rider v. Morrison, 54 Md. 429 ; Gaff v. Flesher, 33 Ohio St. 107; Aultman's Appeal, 98 Pa. St. 505; McClaren v. Franciscus, 43 Mo. 452; 1 Beach Priv. Corp. § 127; Purdy's Beach Priv. Corp. § 376, and numerous authorities there cited. »° Small V. Saloy, 42 La. Ann. 183, 7 So. 450. See, also. Farmers', &c. Co. V. Chicago, &e. R. Co. 163 U. S. 31, 16 Sup. Ct. 917. 149 SALE AND TBANSFEE OF STOCK. [§ 93 on the books of the corporation, and the company is, entitled to re- quire proof of the right of the holder of certificates to demand such a transfer.^^^ If it negligently or wrongfully permits stock to be trans- ferred to one having no right to the same, it will be liable to the rightful owner.^*^ "The act of a corporation in transferring shares ^"Buttrick v. Nashua, &c. R. Co. Rio Grande, &c. Co. v. Burns, 82 62 rf. H. 413, 13 Am. St. 578; Tele- Tex. 50, 17 S. W. 1043. "= Pratt V. Boston, &c. R. Co. 126 Mass. 443; Crocker v. Old Colony R. Co. 137 Mass. 417; Livezey v. North- ern Pac. R. Co. 157 Pa. St. 75; 27 Atl. 762; Woodhouse v. Crescent Mut. Ins. Co. 35 La. Ann. 238; Midland R. Co. v. Taylor, 8 H. L. Cases 751, affirming Taylor v. Mid- land R. Co. 29 L. J. Ch. 731, ante, § 80. Where an executor surren- ders stock to a reorganization com- mittee of a corporation, taking therefor negotiable certificates re- deemable after a reorganization by a new issue of stock and, after his removal from the executorship, transfers the certificates, which, after several transfers, are taken up by the corporation and new stock issued to the holders in lieu thereof, the corporation is liable to the legatees for the value of the stock at the time of the transfer on the books of the company. Mo- bile & O. R. Co. V. Humphries, 67 Miss. 35, 7 So. 522, 19 Am. St. 262. If a corporation negligently can- cels a person's stock and issues cer- tificates therefor to a third party, the true owner may bring action against the corporation to compel replacement of his stock or its value. St. Romes v. Levee Steam Cotton-Press Co. 127 U. S. 614, 8 Sup. Ct. 1335, 32 L. Ed. 289. An agent, with power of attorney authorizing him to sell and transfer stock and other securities and property, caused stock belonging to the prin- cipal to be transferred to himself graph Co. v. Davenport, 97 U. 369; Davis v. Bank of England, 2 Bing. 393; Bayard v. Farmers', &c. Bank, 52 Pa. St. 232. Transfers of stock in corporations organized un- der Ky. Gen. Stat., chap. 56, are valid against creditors as well as between the parties, although not recorded in the books of the com- pany. Thurber v. Crump, 86 Ky. 408, 6 S. W. 145. One acting as the agent of a trust company, to enable it to perpetrate a fraud or wrong on the rights of a stock- holder, and who has thus acquired possession of certificates of stock, cannot compel a transfer of the stock to him on the books of the corporation. Gould, v. Head (C. C. D. Colo.), 7 R. & Corp. L. J. 402, 41 Fed. 240. If the corporation re- fuses to make the transfer, upon proper request, the party entitled to have it made has his remedy, al- though there is considerable con- flict among the authorities as to whether it is by mandamus, by suit in equity, or by an action at law for damages. - See 1 Cook Stock and Stockholders, §§ 389-392; Green Mount, &c. Co. V. Bulla, 45 Ind. 1; State V. Cheraw, &c. R. Co. 16 S. Car. 524; Cushman v. Thayer, &c. Co. 76 N. Y. 365, 32 Am. R. 315; Iron R. Co. V. Pink, 41 Ohio St. 321, 52 Am. R. 84; Hoppin v. Buffum, 9 R. I. 513, 11 Am. R. 291; St. Law- rence, &c. Co., Re, 44 N. J. L. 529; Doty V. First Nat. Bank, 3 N. Dak. 9, 53 N. W. 77, 17 L. R. A. 259; 93] STOCK. 150 of stock without the authority of the owner is not ratified by the lat- ter's having told another agent than the one on whose application the transfer was made that he would not hold him responsible for deliver- ing the certificates to the agent who applied for the transf er."^*^ § 93. Who may own and transfer shares. — ^Married women are generally enabled to become the owners of shares of stock, by the . statutes of the various states/** and also to a limited degree in Eng- land.^*° Purchases and sales of stock by an infant are voidable at any time during infancy,^*" or within a reasonable time after becom- ing of age,^*^ as are his other contracts. The corporation, it has been held, is bound to know of the inability of a person who is non compos mentis to make a valid transfer, and may become liable if it permits a registry.^** A sale of stock by a drunken person will be set aside. on the books of the company, with- out the knowledge of the principal. The court held that the corporation was liable to the original stock- holder. Tafft V. Presidio, &c. R. Co. 84 Cal. 131. reversing 22 Pac. 485, 24 Pac. 436, 11 L. R.^A. 125, 18 Am. St. 166, where it was held that the power was suflScient to author- ize a transfer to the agent, and the fact that such agent was a director of the corporation would not charge it with notice. A corporation may also be liable to the transferee where it represents that a forged certificate is genuine. Mut. Life Ins. Co. V. Forty-second St., &c. Co. 74 Hun 505, 26 N. Y. S. 545. explaining Fifth Ave. Bank v. Forty-second St., &c. Co. 137 N. Y. 231, 33 N. B. 378, 19 L. R. A. 331, 33 Am. St. 712. "= Quay V. Presidio, &c. R. Co. 82 Cal. 1, 22 Pac. 925. "*Whitters v. Sowles, 38 Fed. 700, construing law of Vermont. A married woman has the legal ca- pacity to receive a transfer of stock in moneyed corporations though the consideration may have been paid entirely by the husband. Key- ser T. Hitz. 133 TJ. S. 138, 10 Sup. Ct. 290, 33 L. Ed. 531. The wife's capacity to hold and transfer stock is generally determined by the law of her domicile, but that of the domicile of the corporation should also be consulted. Hill v. Pine River Bank, 45 N. H. 300; Cook Stock and Stockholders, § 319. "''Cook' Stock and Stockholders, § 319. "= Birkenhead. &c. R. Co. v. Pil- cher, 5 Ex. 24. Voidable and not void. Smith v. Nashville, &c. R. Co. 91 Tenn. 221, 18 S. W. 546; Lumsden's Case, L. R. 4 Ch. App. C. 31. "'Dublin, &c. R. Co. v. Black, 8 Ex. 181. But if he does not so dis- affirm within a reasonable time (in this case ten months) he will be bound. Ebbett's Case, L. R. 5 Chan. App. C. 302. Even a sale by trans- fer of the certificate is not binding on an infant. Smith v. Baker, 42 Hun 504. "» Chew V. Bank of Baltimore, 14 Md. 299. 151 PUECHASE AND SALE BY TRUSTEES AND FIDUCIAEIES. [§ 94 unless fairly made and for a sufficient conside^tion.^*' An unrecorded transfer, made in good faith before assignment by an insolvent, will be protected.^^" But if the transferee delay unreasonably to claim his stock, it may be awarded to the assignee.^"^ An officer or director of the company may buy and sell its stock like any other person, if he acts in good faith and does not mislead the person with whom he deals,^^^ and he is not bound to disclose information received by him as such officer.^^^ A partner may also sell and transfer partnership stock,^°* but a joint owner cannot transfer the interest of the other joint owner of stock registered in the name of both.^"^ Stock may be bought or sold by means of an agent,^^° and the principal will be bound by the acts of the agent done in excess of his authority, if the agent was clothed with apparent authority and the limitations im- posed were unknown to the person dealing with him in good f aith.^^'^ § 94. Purchase and sale by trustees and fiduciaries. — The common- law rule is that guardians, executors and trustees may not use trust "'Thackrah v. Haas, 119 U. S. 499, 7 Sup. Ct. 311. "° Dickinson v. Central Nat. Bank, 129 Mass. 279, 37 Am. R. 351. "'Shipman v. .^tna Ins. Co. 29 Conn. 245. "^Trisconi v. Winship, 43 La. Ann. 45, 33 Am. Eng. Corp. Cas. 271; Cawley, In re, L. R., 42 Ch. Div. 209; Board v. Reynolds, 44 Ind. 509, 15 Am. R. 245; Carpenter V. Danforth, 52 Barb. (N. Y.) 581; Crowell V. Jackson, 53 N. J. L. 656, 23 Atl. 426. But see Grant v. At- trlll, 11 Fed. 469; Gilbert's Case, L. R. 5 Ch. App. C. 559; South Lon- don, &c. Co., In re, L. R. 39 Ch. Div. 324, 60 L. T. R. N. S. 68; Fisher v. Budlong, 10 R. I. 525; Prewett v. Trimble, 92 Ky. 176, 17 S. W. 356, 36 Am. St. 586. !'» Board, &c. v. Reynolds, 44 Ind. 509. '"Quiner v. Marblehead Social Ins. Co. 10 Mass. 476. "= Comstock V. Buchanan, 57 Barb. (N. Y.) 127; Standing v. Bowring, L. R., 27 Ch. Div. 341, In most of the states, a joint-tenancy can only be created by an express statement or a manifest intention to create an estate limited to the survivor. Stinson's Am. Stat. Law, § 1371. "» 1 Cook Stock and Stockholders, Ch. 25. An agent has no further real interest in stock standing in his name than he has in any other property of his principal in his hands. Cook Stock and Stockhold- ers, Ch. 25, § 321. '" McNeil V. Tenth National Bank, 46 N. Y. 325, 7 Am. R. 341; Strange V. Houston, &c. R. Co. 53 Tex. 162, where the owner of a certificate of stock in an incorporated company, placed his certificate, with a blank transfer indorsed thereon, in the hands of an agent for sale, the agent filled the blank with his own name, and afterward indorsed thereon a transfer from himself to a bona fide purchaser, and it was held that such purchaser took a good title to the stock. § 94]. STOCK. 152 funds for the purchase of shares of stock/ ^^ nor sell shares which form a part of the trust estate/ °' except as empowered to do so by the stat- ute/'" or by the instrument creating the trust, or directed to do so by a court of chancery.^"^ It is held under the English Companies Act of 1845, paragraph 18, that when the names of the executors of a deceased shareholder in a company are placed on the register of shareholders in respect of shares, which belonged to their testator, they become joint-shareholders in their individual capacity, although they may be described as executors in the register ; and, consequently, the shares can only be transferred by means of a transfer executed by all of them.^°^ If a sale of shares held in trust be made by the trustee without authority he may be compelled to restore the stock with divi- dends, or to pay over the amount received therefor with interest, at the election of the cestui que trust.^'' And the same rule is enforced where the stock is sold in breach of the trust and converted to the use of the trustee, even though he was empowered to sell.^^* A bona fide purchaser from a trustee without notice takes a good title to the stock transferred.^"' But anything which is sufficient to put the purchaser "^Trafford v. Boehm, 3 Atk. 440 (1746). ""Bohlen's Estate, 75 Penn. St. 304. "" See 22 and 23 Victoria, Ch. 35, Sec. 32, 23 and 24 Victoria, Ch. 38. '" This is the rule of law in many of the states at the present time. King V. Talbot, 40 N. Y. 76; Ihm- sen's Appeal, 43 Pa. St. 431; Ward V. Kitchen, 30 N. J. Eq. 31; Kimball V. Reding, 31 N. H. 352, 64 Am. Dec. 333; Allen v. Gaillard, 1 S. C. (Rich. N. S.) 279; Tucker v. State, Hart, 72 Ind. 242. This rule stated in the text obtains generally in the United States and England. Hill Trustees, Marginal page 369; Perry Trusts 407, §§ 552, 553. Some of the states have upheld the rule that trustees may invest the trust funds in stocks without special au- thority. Washington v. Emery, 4 Jones Eq. (N. Car.) 32; Gray v. Lynch, 8 Gill (Md.) 403; Smyth v. Burns, 25 Miss. 422; Lamar v. Mi- cou, 112 U. S. 452, 5 Sup. Ct. 221, and 114 U. S. 218, 5 Sup. Ct. 857 (Ga. and Ala.). See, also, Boggs v. Adger, 4 Rich. Eq. (S. C.) 408, and dictum in Hunt, Appellant, 141 Mass. 515, 6 N. E. 554. "^ Barton v. London, &c. R. Co. L. R. 24 Q. B. D. 77. I"' Harrison v. Harrison, 2 Atk. 121; Hart v. Ten Byck, 2 Johns. Ch. (N. Y.) 62, 117; Pinkett v. Wright, 2 Hare 120; McKim v. Hib- bard, 142 Mass. 422, 8 N. E. 152. *" McKim V. Hibbard, 142 Mass. 422, 8 N. E. 152. "'Smith V. Nashville, &c. R. Co. 18 S. W. 546, 91 Tenn. 221; Salis- bury Mills V. Townsend, 109 Mass. 115; Cook Stock and Stockholders, § 325. The rule is otherwise in Eng- land until the purchaser has ob- tained registry. Shropshire Union R., &c. Co. V. Queen, L. R. 7 H. L. 496; Roots v. Williamson, 58 L. t: R. 802. 153 PURCHASE AND SALE BY TRUSTEES AND FIDUCIARIES. [§' 94 upon inquiry tHat would, if reasonably pursued, disclose the real facts, will amount to constructive notice.^^^ If the trustee has authority to transfer the stock f ot any purpose, the purchaser may assume that the proceeds of the sale will be properly disposed oi,^" and he will be protected unless he knows that the sale or pledge is to procure means for the private debts or purposes of the trustee.^"* The corporation is liable to the cestui que trust, if, with notice that stock is held in trust, it permits such stock to be transferred on the books of the company by the trustee without authority.^'® The word "trustee" following the holder's name is sufficient notice,^'" and formal notice ''"Where the stockholder is termed In the certificate a "trustee" or stated therein to hold the shares "in trust," this is notice of every- thing, which, upon inquiry, the pur- chaser could ascertain from the cestui que trust. Shaw v. Spencer, 100 Mass. 382, 97 Am. Dec. 107; Jaudon v. National City Bank, 8 Blatch. (U. S.) 430; Duncan v. Jau- don, 15 Wall. (U. S.) 165, 176; Ger- ard v. McCormick, 130 N. Y. 261, 29 N. E. 115, 14 L. R. A. 234. 167 Perry Trusts (5th ed.), § 225; Ashton V. Atlantic Bank, 85 Mass. 217. '™ Simons v. Southwestern R. Bank, 5 Rich. Eq. (S. C.) 270; Jau- don V. National City Bank, 8 Blatch. (U. S.) 450; Duncan v. Jaudon, 15 Wall. (U. S.) 165. ™ Maywood v. Railroad Bank, 5 S. Car. 379; Chapman v. City Council, 30 S. Car. 549, 6 S. E. 158, 3 L. R. A. 311; Bohlen's Estate, 75 Pa. St. 304; Barton v. North, &c R. Co. L. R. 38 Ch. D. 458, 58 L. T. R. 549. See Bird v. Chicago, &c. R. Co. 137 Mass. 428, Weyer v. Second Nat. Bank, 57 Ind. 198; Marbury v. Ehlen, 72 Md. 206, 19 Atl. 648; Stew- art v. Fireman's Ins. Co. 53 Md. 564; Wooten V. Wilmington, &c. R. Co. 128 N. Car. 119, 38 S. E. 298, 56 L. R. A. 615. A corporation having issued stock certificates showing on their face that they were to be taken by the holder as devisee under and subject to the provisions of a cer- tain will, is chargeable with notice of the contents of such will and of the trusts imposed thereby, in all subsequent dealings with such shares of stock, and is liable for a conversion by a trustee to the preju- dice of the rights of the cestui que trust, of which it has notice, where it aids such conversion by transfer of the stock and reissuance of cer- tificates. Caulkins v. Gaslight Co. 85 Tenn. 683, 4 S. W. 287, 4 Am. St. 786. Generally the corporation is not chargeable with liability for transferring stock in violation of trusts, of which it had no actual notice. Peck v. Providence Gas Co. 17 R. I. 275, 23 Atl. 967, -15 L. R. A. 643. Where the administrator of an estate transferred certain shares of stock to the "heirs and distributees" of his decedent's estate, it was held that the corporation was not bound to hold the stock subject to a trust imposed by the will of the decedent, of which it had no actual knowl- edge, but was justified in transfer- ring her proportion of the stock to the grantee of the decedent's daugh- ter. Smith V. Nashville, &o. R. Co. 91 Tenn. 221, 18 S. W. 546. ""Loring V. Salisbury Mills, 125 Mass. 138. See, also, Marbury v. § 95] STOCK. 154 to a board of directors is notice to the corporation under all future boards.^''^ § 95. Right of corporation to buy and sell stock. — In England it is held that a corporation cannot buy shares of its own stock/'^ unless expressly empowered to do so. In case of a transfer of stock to the corporation^'^ or to a trustee in trust for it, where this rule prevails, the transferor is liable on the subscription, and on the statutory lia- bility in case of insolvency to the same extent as if he still held the stock,^'* unless the corporation has authority by charter or otherwise to make the purchase.^'^ Where, however, he does not know that the trustee takes the stock in trust for the corporation, but believes him to be a bona fide purchaser, the seller is not so liable.^'" The trustee ac- cepting such a conveyance^''' and the directors procuring it^'* are also personally liable to the corporation and its creditors on all shares so conveyed. A person who has been employed by a railroad company to buy the stock of a certain person for the purpose of consummating a sale of the corporate property, who buys such stock in his own name, must be regarded as holding it subject to the equitable considerations growing out of an arrangement previously made by his vendor with parties acting in the interest of the corporation, and the most that he can have after a transfer of the cotporate property is tho fair value Ehlen, 72 Md. 206; Geyser, &c. Co. V. "'Walters' Second Case, 3 DeG. Stark, 45 C. C. A. 467, 53 L. R. A. & Sm. 244; Hunt's Case, 22 Beav. 684. The fact that the transfer is 55; Daniell's Case, 22 Beav. 43. made some years after the execu- "= Grady's Case, 1 DeG., J. & S. lion of the trust should have been 488. completed, is notice. Lowry v. Com- ™ Johnson v. Laflin, 103 U. S. 800; mercial, &c. Bank, &c. Taney's Dec. Nlcol's Case, 3 DeG. & J. 387. (U.S.) 310. ^"Crandall v. Lincoln, 52 Conn. "1 Mechanic's Bank, &c. v. Seton, 73, 52 Am. R. 560; AUibone v. 1 Pet. (U. S.) 299. Hager, 46 Pa. St. 48; Empire City ™ Trevor v. Whitworth, L. R. 12 Bank, Matter of, 18 N. Y. 199, 226. App. C. 409, 57 L. T. R. 457; Zulu- One who has exercised ownership of eta's Claim, L. R. 5 Ch. 444. See, stock by accepting a dividend can- also, Coppin v. Greenlees, &c. Co. 38 not deny his liability as owner. Ohio St. 275, 43 Am. St. 425; Ger- Sanger v. Upton, 91 U. S. 56, 60. man Sav. Bank v. Wulfekuhler, 19 "* Evans v. Coventry, 25 L. J. Kans. 60; Barton v. Port Jackson, (Ch.) 489, 501. So the corporate &c. Co. 17 Barb. (N. Y.) 397. agent may be made personally lia- ™ Dillon, J., in Johnson v. Laflin, ble for moneys expended by him for 5 Dill. (U. S.) 65; Great Eastern R. such stock., Crandall v. Lincoln, 52 Co. v. Turner, L. R. 8 Ch. App. 149. Conn. 73, 52 Am. R. 560. 155 EIGHT OF COEPOEATION" TO BUT AKD SELL STOCK. [§ 95 of the stock at the time of such transfer. ^^° But the better American authority^^" is to the effect that a railroad company may, for legiti- mate purposes, purchase shares of its own stock which have been issued to individuals,^*^ unless prohibited by statute.^*^ And the courts of all the states apparently hold or concede that a corporation may take shares of its own stock in payment of, or as security for, antecedent debts due to it from the stockholders.^** But it has been held that such purchase is voidable at the instance of corporate creditors who are injured thereby.^** Where shares of its own stock are transferred to the corporation^*^ or to a trustee for its benefit, the stock is not thereby merged, unless such is the intention, but may, it has been held, be resold by authority of the board of directors,^*^ or of the stockholders. ™ Young V. Toledo, &c. R. Co. 76 Mich. 485, 40 Am. & Bng. R. Cas. 514. ™Clapp V. Peterson, 104 111. 26; Dupee v. Boston Water-power Co. 114 Mass. 37; City Bank v. Bruce, 17 N. Y. 507; Eby t. Guest, 94 Pa. St. 160; First Nat. Bank v. Salem, &c. Co. 39 Fed. 89; Johnson County V. Thayer, 94 U. S. 631; Marvin v. Anderson, 111 Wis. 387, 87 N. W. 226; Hartridge v. Rockwell, R. M. Charlton (Ga.) 260; Farmers', &c. Bank v. Champlain Trans. Co. 18 Vt. 131, 139; Iowa Lumber Co. v. Foster, 49 Iowa 25, 31 Am. R. 140; Snyder v. Tunitas, &c. Co. 72 Cal. 194, 13 Pac. 479 ; Blalock v. Kerners- ville, &c. Co. 110 N. Car. 99, 14 S. B. 501, 36 Am. & Eng. Corp. Cas. 84, 90, and note, where the authorities on both sides of the question are col- lected. The authorities on both sides are also reviewed in the note to Hall V. Henderson, 126 Ala. 449, 28 So. 531, 61 L. R. A. 621, 85 Am. St. 53. ^'' Chicago, &c. R. Co. v. President, &c. Town of Marseilles, 84 111. 145. But see Hall v. Alabama, &c. Co. (Ala.) 39 So. 285, 2 L. R. A. (N. S.) 130. 182 poj. guch prohibition see Stim- son Am. Stat. (1892) §§ 8216, 8217. ^'Cook Stock and Stockholders, § 311. A promise of a stockholder to surrender to the corporation stock on which there is an unpaid assessment, which stock is not at the time under his control, having been pledged by him, does not con- stitute a surrender of such stock, as against a subsequent purchaser from such stockholder. Hill v. Atoka, &c. Co. 124 Mo. 153, 21 S. W. 508, 25 S. W. 926. i=*Clapp v. Peterson, 104 111. 26; Commercial Nat. Bank t. Burch, 141 111. 519, 31 N. E. 420. See, also, Crandall v. Lincoln, 52 Conn. 73, 52 Am. R. 560; Heggie v. People's, &c. Ass'n, 107 N. C. 581, 12 S. B. 275, 33 Am. St. 331 n, 32 Am. & Bng. Corp. Cas. 605; Fraser v. Ritchie, 8 111. App. 554. So, if the corporation is insolvent at the time. Currier v. Lebanon, &c. Co. 56 N. H. 262 ; Alex- ander V. Relfe, 74 Mo. 495; Colum- bian Bank, In re, 147 Pa. St. 422, 23 Atl. 626. '»= State Bank of Ohio v. Fox, 3 Blatch. (U. S.) 431; State v. Smith, 48 Vt. 266; Vail v. Hamilton, 85 N. Y. 453; Am. R. Frog Co. v. Haven, 101 Mass. 398. ™ State V. Smith, 48 Vt. 266; State Bank of Ohio v. Fox, 3 Blatch. (U. S.) 431; Williams v. Savage Mfg. §'95] STOCK. 156 at the market price,"^ without regard to its par value. But such stock, until resold, is said to be lifeless and cannot be voted, nor can it draw dividends.^*® A railroad company may not purchase stock of another railroad corporation,^*^ without legislative authority contained in the charter or in the general statute of the state.^'" One corporation has. Co., 3 Md. Ch. 418; Jefeerson v. Burford (Ky.). 17 S. W. 855. See, also. Vail v. Hamilton, 85 N. Y. 453; Comraonwealth v. Boston, &c. R. Co. 142 Mass. 146; City Bank v. Bruce, 17 N. Y. 507. "'Ramwell's Case, 50 L. J. (Ch.) 827; Otter v. Brevoort, &c. Co. 50 Barb. (N. Y.) 247. '*' Monsseaux v. Urquhart, 19 La. Ann. 482; Brewster v. Hartley, 37 Cal. 15, 99 Am. Dec. 437; State v. Smith, 48 Vt. 266; Vail v. Hamilton, 85 N. Y. 453; New England, &c. Ins. Co. V. Phillips, 141 Mass. 535, 6 N. B. 534; American, &c. Co. v. Haven, 101 Mass. 398; McNeely v. Woodruff, 13 N. J. Law 352. ^^ Such a purchase may be en- joined. Central R. Co. v. Collins, 40 Ga. 582; Hazlehurst v. Savannah, &c. R. Co. 43 Ga. 13, 57; Elkins v. Camden, &c. R. Co. 36 N. J. Eq. 5; Great North. R. Co. v. Eastern Counties R. Co. 21 L. J. (Ch.) 837; Pearson v. Concord, &c. R. Co. 62 N. H. 537, 13 Am. St. 590; Memphis, &c. R. Co. V. Woods, 88 Ala. 630, 7 So. 108, 7 L. R. A. 605 n, 1 Lewis's Am. R. & Corp. 55, and note; Mackintosh v. Flint, &c. R. Co. 34 Fed. 582; Angell & Ames Corp. § 392; Green's Brice's Ultra Vires, (2d ed.) 91. ^™ Mayor v. Baltimore, &c R. Co. 21 Md. 50; Zabriskie v. Cleveland, &c. R. Co. 23 How. (U. S.) 381 (Ohio Act) ; White v. Syracuse, &c. R. Co. 14 Barb. (N. Y.) 559; Atchison, &c. R. Co. V. Fletcher, 35 Kans. 236, and Atchison, &c. R. Co. v. Cochran, 43 Kans. 225, 19 Am. St. 129, 1 Lewis's Am. R. & Corp. 640, construing^ Kansas statute; Matthews v. Murch- ison, 17 Fed. 760. Authority to consolidate with a road gives pow- er to purchase its stock with a view to securing that end. Hill v. Nisbet, 100 Ind. 341. For a con-' struction of the provision in the constitution of Pennsylvania that a railroad company may not control a competing line, see The Common- wealth V. South Pa. R. Co. 1 Co. Ct. (Pa.) 214, 223, affirmed in Sup. Ct., see 29 Am. & E. R. Cas. 145, 154, where it is held to prohibit a pur- chase of the stock of a competing line by a railroad company in its own name or in the name of another road which it controls. To the same point under the constitution of Georgia,, see Clarke v. Central R., &c. Co. 50 Fed. 338 (1892). A railroad com- pany is authorized to purchase the stock of another company for the purpose of acquiring its roadbed and right of way, by a statute (How. Mich. 3403) which provides- that "it shall be lawful for any rail- road company in this state, which shall have entered in good faith upon the work of constructing its road, and shall become unable to complete the construction of the same, or any part thereof, to sell and convey the whole or any part of Its road so partially completed, to- gether with the rights and fran- chises connected therewith, to any other railroad company or corpora- tion of this state not having the same terminal points and not being- a competing line." Dewey v. Toledo, 157 .GIFTS AND BEQUESTS OF STOCK. [§96 generally, no implied power to invest money in the stocks of an- other. ^^^ But a corporation may have the right to acquire shares in another company in the usual course of its legitimate business/'^ or to protect itself by way of compromise or security or payment of a doubtful debt owing to it by the corporation whose shares it reeeives.^"^ A contract by the stockholders of a corporation to transfer their stock to a person or corporation not allowed by law to hold the same has been held illegal and void.^^* § 96. Gifts and bequests of stock. — Shares of stock in a corpora- tion may be the subject of a gift.^'^ A clear intent to give it must be proven, although no formal method of transfer is necessary.^'* But in England, under the statutes, the stock must be registered in the name of the donee, in order to vest the title in Mm.^'^ Stock may also he bequeathed by will like other property.^'* § 97. Formalities of transfer. — ^In making a complete and formal transfer of shares of stock three separate and distinct steps are usually &c. R. Co. 91 Mich. 351, 51 N. W. 1063, 50 Am. & Bng. R. Cas. 607. A railroad company may purchase and vote the stock of another company In like manner as an individual un- der the New York statute. Oelber- mann v. New York, &c. R. Co. (N. Y. Sup. Ct.) 77 Hun 332, 27 N. Y. S. 545. '"Cook Stock and Stockholders, i 315; Morawetz Priv. Corp. § 431; Hamilton v. Savannah, &c. R. Co. 49 Fed. 412; People v. Chicago Gas Trust Co. 130 111. 268, 22 N. B. 798, 6 L. R. A. 497 n, 17 Am. St. 319, 1 Lewis's Am. R. & Corp. 562; Frank- lin Bank V. Commercial Bank, 36 Ohio St. 350, 38 Am. R. 594; Franklin Co. v. Lewiston Institu- tion, 68 Me. 43, 28 Am. R. 9; Great Northern R. Co. v. Eastern, &c. R. Co. 21 L. J. Ch. 837. But see Booth T. Robinson, 55 Md. 419; Ryan v. Leavenworth, &c. R. Co. 21 Kans. 365. "^ Royal Bank of India's Case, L. R. 4 Ch. App. Cas. 252. "= First Nat. Bank v. Nat, &c. Bank, 92 U. S. 122, 128; Fleckner v. Bank, 8 Wheat. (U. S.) 351. "^ State V. Ohio, &c. R. Co. 6 Ohio Cir. Ct. 415. "'Cook Stock and Stockholders, § 308. See DeCaumont v. Bogert, 36 Hun (N. Y.) 382; Walker v. Joseph, &c. Co. 47 N. J. Eq. 342, 20 Atl. 885; Jackson v. Twenty-third St. R. Co. 88 N. Y. 520; Reed v. Copeland, 50 Conn. 472, 47 Am. R. 663; Grymes V. Hone, 49 N. Y. 17, 10 Am. R. 313; Roberts Appeal, 85 Pa. St. 84. ™ Cook Stock and Stockholders, § 308. But see Matthews v. Hoag- land, 48 N. J. Eq. 455, 21 Atl. 1054. '"Nanney v. Morgan, 57 L. T. R. 48. "» For the efCect of different forms of devise and of gifts causa mortis, see Cook Stock and Stockholders, Chap. XVIII. § 97] STOCK. 158 taken. The certificate is assigned by the transferor to the transferee, the certificate is then surrendered or delivered to the corporation, and finally the transfer is duly registered in the books of the corporation. A new certificate is then, ordinarily, issued to the transferee.^"' But where no certificate has ever been issued, the registry of the transfer upon the books of the company will be sufBcient,^"" and a transfer may be good, even where a certificate has been issued, without sur- rendering it.^"^ So, in the absence of any valid provision to the con- trary, a transfer may be made, at least as between the parties, by mere delivery of the certificate without any written assignment or registration.^"^ Ordinarily, however, the assignment is made in writ- ing upon the certificate, and it is held in accordance with the well established custom, that the assignment may be made in blank, that is, it may be signed by the transferor without inserting the name of the transferee, who, upon its delivery to him, may insert his own name.^°* Such an assignment is usually accompanied by a power of attorney, also signed in blank, authorizing such attorney to sign the transfer or registry upon the books of the company, thus obviating any necessity for the presence of the transferor at the office of the company, and "°But this is not absolutely essen- Conn. 472, 47 Am. R. 663; Common- tial. Chouteau Spring Co. v. Harris, wealth v. Crompton, 137 Pa. St. 138, 20 Mo. 382; First Nat. Bank v. Gif- 20 Atl. 417; Parker v. Bethel, &c. ford, 47 Iowa 575. Co. 96 Tenn. 252, 34 S. W. 209. See, ^"» First Nat. Bank v. Gifford, 47 also, Brewster v. Hartley, 37 Cal. 15, Iowa 575; Brigham v. Mead, 10 99 Am. Dec. 237; Jarvis v. Rogers, Allen (Mass.) 245. 13 Mass. 105. But compare Mat- ™Finn v. Brown, 142 U. S. 56, 12 thews v. Hoagland, 48, N. J. Eq. 455, Sup. Ct. 136, Roberts' Appeal, 85 Pa. 21 Atl. 1054; Burrall v. Bushwick St. 84; Citizens' St R. v. Robbins, R. Co. 75 N. Y. 211; Sltgreaves v. 128 Ind. 449, 26 N. E. 116, 12 L. R. Farmers', &c. Bank, 49 Pa. St. 359. A. 498, 25 Am. St. 445; De Caumont ^= McNeil v. Tenth Nat. Bank, 46 V. Bogert, 36 Hun (N. Y.) 382; N. Y. 325, 7 Am. R. 341; Cutting v. Hasting v. Blue Hills, &c. Co. 9 Pick Damerel, 88 N. Y. 410 ; Walker v. (Mass.) 80; New York, &c. R. Co. Detroit, &c. R. Co. 47 Mich. 338; V. Schuyler, 34 N. Y. 30; Seeligson Bank of America v. McNeil, 10 Bush V. Brown, 61 Tex. 114, 10 Am. & (Ky.) 54; Pennsylvania R., Co.'s Eng. Corp. Cas. 143. But see Moores Appeal, 86 Pa. St. 80; Sargent, Ex V. Citizens' Nat. Bank, 111 U. S. 156, parte, L. R. 17 Eq. Cas. 273 ; Orti- 4 Sup. Ct. 345. gosa v. Brown, 47 L. J. Ch. 168. We *^ Walsh V. Sexton, 55 Barb. (N. are not here considering, however, Y.) 251; Allerton v. Lang, 10 Bosw. the question as to whether creditors (N. Y.) 362; Reed v. Copeland, 50 can attach any of such assignments. 159 EE6ISTEY OP TEANSFEK. .[§■ 98 this blank may likewise be filled out by the transferee,^"* or by the registry clerk.""^ §98. Eegistry of transfer. — ^It is generally provided that stock shall be transferred only upon the books of the company. Even where such a provision exists, however, a valid assignment of the certificate will estop the transferor from impeaching his transferee's title or that of any subsequent bona fide transferee, notwithstanding the fact that such assignment or transfer is not registered.^"' As to the cor- poration, however, where such a provision exists it is not ordinarily bound to recognize as a stockholder a purchaser who does not have the transfer registered or properly apply for its registration.^"^ But the corporation may waive a formal registry so far as its own rights are "'Holbrook v. New Jersey Zinc Co. 57 N. Y. 616, 623; Broadway Bank v. McElrath, 13 N. J. Bq. 24; Bridgeport Bank v. New York, &c. R. Co. 30 Conn. 231; Otis v. Gardner, 105 111. 436; Colonial Bank v. Hep- worth, 36 Ch. Div. 36. ™Cook Stock and Stockholders, § 375; Allen v. South Boston R. 150 Mass. 200, 22 N. E. 917, 5 L. R. A. 716, 15 Am. St. 185. Such a power of attorney has been held irrevoca- ble. Skinner v. Ft. Wayne, &c. R. Co. 58 Fed. 55. ^Noyes v. Spaulding, 27 Vt. 420; Black V. Zacherie & Co. 3 How. (IT. S.) 483, 513; Johnson v. Laflin, 103 U. S. 800, 804; Continental Nat. Bank v. Eliot, &c. Bk. 7 Fed. 369; Baldwin v. Canfield, 26 Minn. 43, 1 N. W. 261; Merchants', &c. Bank v. Richards, 6 Mo. App. 454; Brown v. Smith, 122 Mass. 589 ; People's Bank V. Gridley, 91 111. 457; Duke v. Ca- hawba Nav. Co. 10 Ala. 82, 44 Am. Dec. 472; Noble v. Turner, 69 Md. 519; Ross V. Southwestern R. Co. 53 Ga. 514; Lund v. Wheaton, &c. Co. 50 Minn. 36, 52 N. "W. 268: Cushman V. Thayer Mfg. Co. 76 N. Y. 365, 32 Am. R. 315; Bruce v. Smith, 44 Ind. 1; Smith v. Nashville, &c. R. Co. 91 Tenn. 221, 18 S. W. 546. The same rule has been held to apply to the transferer's assignee in bankruptcy. Dickinson v. Central Nat. Bank, 129 Mass. 279; Sibley v. Quinsigamond Nat. Bank, 133 Mass. 515; Dobson, Ex parte, 2 Mont. & D. (Eng. B. R.) 685. =" 1 Cook Stock and Stockholders, § 381. As to the ordinary manner of registering the transfer, see Bur- rail v. Bushwick R. Co. 75 N. Y. 211; Green Mount, &c. Co. v. Bulla, 45 Ind. 1; National Bank v. Watson- town Bank, 105 U. S. 217. As to what is a suflBlcient registry or ap- plication in particular cases, see Plumb V. Bank, 48 Kans. 484, 29 Pac. 699; Chemical Nat. Bank v. Cod- well, 132 N. Y. 250, 30 N. E. 644; American Nat. Bank v. Oriental Mills, 17 R. I. 551, 23 Atl. 795; Case V. Bank, 100 U. S. 446; Fisher v. Jones, 82 Ala. 117, 3 So. 13; Pinker- ton V. Manchester, &e. R. Co. 42 N. H. 424; Newell v. Williston, 138 Mass. 240. Either party to the trans- fer is usually entitled to demand a registry. Johnston v. Laflin, 103 U. S. 800; Webster v. Upton, 91 U. S. 65. § 98] STOCK. 160 concerned.^"* And in many jurisdictions the rule is that a bona fide purchaser of a share of stock for a valuabl^e consideration is not affected by a subsequent attachment or levy upon stock for the debts of the transferor, nor, in general, by any subsequent equities, although the transfer has never been registered.^"" But this rule has not passed unchallenged,^^" and it does not, of course, apply to a purchaser of stock upon which a levy has been inade before the purchase.^^^ The corporation may, and should, generally, we think, insist upon the surrender of the old certificate as a condition to registration.^ ^^ But when this is done and proper application made it is the duty of the company to register the transfer in the absence of some legal ex- '^^ Cutting V. Damerel, 88 N. Y. 410; Isham v. Buckingham, 49 N. Y. 216; Robinson v. Nat. Bank, 95 N. Y. 637; Chambersburg Ins. Co. v. Smith, 11 Pa. St. 120; Richmond- ville Mfg. Co. V. Prall, 9 Conn. 487; Wilson V. St. Louis, &c. Co. 108 Mo. 588, 18 S. W. 286, 32 Am. St. 624, 36 Am. & Bng. Corp. Cas. 290; Upton V. Burnham, 3 Biss. (U. S.) 431, 520; American Nat. Bank v. Oriental Mills, 17 R. I. 551, 23 Atl. 795. ™ Continental Nat. Bank v. Eliot Nat. Bank, 7 Fed. 369; Scott v. Pe- quonnock Nat. Bank, 15 Fed. 494; Broadway Bank v. McElratb, 13 N. J. Eq. 24; Doty v. First Nat. Bank, 3 N. Dak. 9, 53 N. W. 77, 17 L. R. A. 259; Clark v. German, &c. Bank, 61 Miss. 611; Lund v. Wheaton, &c. Co. 50 Minn. 36, 36 Am. St. 623; Thur- ber v. Crump, 86 Ky. 408, 6 S. W. 145; Seeligson v. Brown, 61 Tex. 114; Smith v. Crescent City, &c. Co. 30 La. Ann. 1378; Kern v. Day, 45 La. Ann. 71, 12 So. 6; Comeau v. Guild Farm Oil Co. 3 Daly (N. Y.) 218; Smith v. American Coal Co. 7 Lans. (N. Y.) 317. At least where there is notice of the transfer. Bridgewater Iron Co. v. Lissberger, 116 U. S. 8, 6 Sup. Ct. 241; Scripture V. Francestown, &c. Co. 50 N. H. 571; Wilson v. St. Louis, &c. R. Co. 108 Mo. 588, 18 S. W. 286, 32 Am. St. 624; Telford, &c. Co. v. Gerhab (Pa.), 13 Atl. 90, 21 Am. & Bng. Corp. Cas. 471; Commonwealth v. Watmough, 6 Whart. (Pa.) 117; Mowry v. Haw- kins, 57 Conn. 453, 18 Atl. 784. °° Weston v. Bear River, &c. Co. 5 Cal. 186, 63 Am. Dec. 117; Conway V. John, 14 Colo. 30, 23 Pac. 170; State V. First Nat. Bank, 89 Ind. 302; Colman v. Spencer, 5 Blackf. (Ind.) 197; Oxford, &c. Co. v. Bun- nel, 6 Conn. 552; Buttrickv. Nashua, &c. R. Co. 62 N. H. 413, 13 Am. St. 578; Skowhegan Bank v. Cutler, 49 Me. 315; Murphy, Re, 51 Wis. 519,, 8 N. W. 419; Fort Madison, &c. Co. v. Batavian Bank, 71 Iowa 270, 32 N. W. 336, 60 Am. R. 789; Noble v. Turner, 69 Md. 519, 16 Atl. 124; Berney Nat. Bank v. Pinckard, 87 Ala. 577, 6 So. 364. But in several of these cases the statute explicitly altered the rule. ^'Chesapeake and Ohio R. Co. v. Paine, 29 Gratt. (Va.) 502; Shenan- doah Valley R. Co. v. Griffith, 76 Va. 913; Young v. South Tredegar, &c. Co. 85 Tenn. 189, 2 S. W. 202, 4 Am. St. 752. ^=' State v. New Orleans, &c. R. Co. 30 La. Ann. 308; Bank v. Lanier, 11 Wall. (U. S.) 369; New York, &c. R. Co. V; Schuyler, 34 N. Y. 30; Bris- bane V. Delaware, &c. R.' Co. S4 N. Y. 204; Bridgeport Bank v. New 161 REGISTRY OF TRANSFER. [§ 98 cuse.^^^* Where a corporation wrongfully refuses to make or permit the registry of a transfer the paxty entitled thereto usually has his remedy by suit in equity,^^' but he may, if he so elects, bring an action at law for damages,^ ^* and, in some jurisdictions, it is also held that mandamus will lie to compel the corporation to make or permit a registration.^^^ York, &c. R. Co. 30 Conn. 231; Fac- tors', &c. Co. V. Marine, &c. Co. 31 La. Ann. 149; Cleveland, &c. R. Co. V. Robbins, 35 Ohio St. 483; Na.- tional Bank v. Lake Shore, &c. R. Co., 21 Ohio St. 221; Supply Ditch Co. V. Elliott, 10 Colo. 327, 3 Am. St. 586; Tafft V. Presidio R. Co. 84 Cal. 131, 22 Pac. 485, 18 Am. St. 166. , 212a As to what will justify refusal, see Gould v. Head, 41 Fed. 240; Peo- ple V. Sterling Mfg. Co. 82 111. 457; Telegraph Co. v. Davenport, 97 U. S. 369; Merchants' Nat. Bank v. Richards, 6 Mo. App. 454; 2 Beach Private Corp. § 654. As to what will not justify refusal, see Helm v. Swiggett, 12 Ind. 194; Kahn v. St. Joseph Bank, 70 Mo. 262; State v. Mclver, 2 S. Car. 25; People v. Pa- ton, 5 N. Y. St. 316; Moffatt v. Far- quhar, L. R. 7 Ch. Div. 591; Ameri- can, &c. Co. V. Bayless, 91 Ky. 94, 15 S. W. 10. 2"= Cushman v. Thayer Mfg. Co. 76 N. Y. 365, 32 Am. R. 315; Shinner V. Ft. Wayne, &c. R. Co. 58 Fed. 55; Mechanics' Bank v. Seton, 1 Pet. (U. S.) 299; Wilson v. Atlantic, &c, R. Co. 2 Fed. 459 ; lasigi v. Chicago, &c. R. Co. 129 Mass. 46; Iron R. Co. v. Fink, 41 Ohio St. 321, 52 Am. 84; 1 Cook Stock and Stockholders, § 391. In Gould v. Head, 41 Fed. 240, the suit was against the secretary and it was- held that the corporation was not a necessary party. ^* Rio Grande, &c. Co. v. Burns, 82 Tex. 50, 17 S. W. 1043; Kimball v. Union Water Co. 44 Cal. 173, 13 Am. R. 157; Doty v. First Nat. Bank, 3 N. Dak. 9, 53 N. W. 77, 17 L. R. A. EtL. Raileoads — 11 259; Sargent v. Franklin Ins. Co. 8 Pick. (Mass.) 90, 19 Am. Deo. 306; Helm v. Swiggett, 12 Ind. 194; Kort- wright V. Buffalo, &c. Bank, 20 Wend. (N. Y.) 90; 2 Thomp. Corp. § 2447, et seq. ^■^ Green Mount, &c. Co. v. Bulla, 45 Ind. 1; State v. First Nat. Bank, 89 Ind. 302; State v. Cheraw, &c. R. Co. 16 S. C. 524; People v. Goss, &c. Co. 99 111. 355; Slemmons v. Thomp- son, 23 Ore. 215, 31 Pac. 514; Good- win V. Ottawa, &c. R. Co. 13 Upper Can. (C. P.) 254; Norris v. Irish Land Co., 8 El. & Bl. 512. It has been said that this remedy is pe- culiarly appropriate in the case of railroads on account of their quasi public nature. State v. Mclver, 2 S. C. 25. But, although we believe that, in many cases, where the shares have comparatively little value or an emergency exists, man- damus ought to lie, yet we do not believe that the distinction referred to in the case last cited exists, as the rights of the members are sub- stantially the same as in ordinary private corporations. See Stackpole V. Seymour, 127 Mass. 104. The fol- lowing cases hold that mandamus will not lie: Shipley v. Mechanics' Bank, 10 Johns. (N. Y.) 484; Freon V. Carriage Co. 42 Ohio St. 30, 51 Am. R. 794; Townes v. Nichols, 73 Me. 515; State v. Guerrero, 12 Nev. 105; Tobey v. Hakes, 54 Conn. 274, 7 Atl. 651, 1 Am. St. 114; Birming- ham, &c. Co. V. Commonwealth, 92 Pa. St. 72; State v. Rombauer, 46 Mo. 155 ; Baker v. Marshall, 15 Minn. 177; State v. People's, &c. Assn. 43 §■99] STOCK. 162 § 99. Lien of corporation on stock. — A corporation has, at common law, no lien upon a shareholder's stock for debts due from him to it.^^" Such a lien is given by general statutes in many of the states,^^^ and is frequently given by charter.^^' It may be created also, when authorized,. by a by-law of the corporation,^^' but many of the N. J. L. 389; Rex v. Bank, 2 Doug. 524; Rex v. London, &c. Co. 1 Dowl. & R. 510. See, generally, on the sub- ject of this section, note in 57 Am. St. 379, et seq., and 3 L. R. A. (N. S.) 551. ™ Farmers', &c. Bank v. Wasson, 48 la. 336, 30 Am. R. 398; Bank v. Pinson, 58 Miss. 421, 38 Am. R. 330; Massachusetts Iron Co. v. Hooper, 7 Cush. (Mass.) 183; Sargent v. Franklin Ins. Co., 8 Pick. (Mass.) 90, 19 Am. Dec. 306; Gemmell v. Davis, 75 Md. 546, 23 Atl. 1032, 32 Am. St. 412; Driscoll v. West Bradley, &c. Co. 59 N. Y. 96; Hagar V. Union Nat. Bank, 63 Me. 509; "Williams v. Lowe, 4 Neb. 382; Mer- chants' Bank v. Shouse, 102 Pa. St. 488; Carroll v. Mullanphy, &c. Bank, 8 Mo. App. 249; Case v. Bank, 100 U. S. 446; Dempter, &c. Co. v. Downs, 126 la. 80, 101 N. W. 735, 106 Am. St. 340. "'Stimson's Am. Stat. (1892) § 8148, citing the statutes; Pitts- Burgh, &c. R. Co. V. Clarke, 29 Pa. St. 146, construing the Pennsylvania statute requiring payment of the shareholder's indebtedness to the corporation before transfer of shares in a railway corporation un- less the lien is waived. Liens upon shares are forbidden by statute in New Hampshire. Hill v. Pine River Bank, 45 N. H. 300, 309. A corpora- tion has no special vendor's lien, in the absence of a contract to that effect, on shares or its capital stock, for unpaid purchase-money. Lan- kershim Ranch Land £ W. Co. v. Herberger, 82 Cal. 600. A statute may create a lien in favor of the corporation for debts due from shareholders prior to its enactment. Birmingham Trust, &c. Co. v. East Lake Land Co. 99 Ala. 379, 13 So. 72, 20 L. R. A. 600. See, also, Ham- mond V. Hastings, 134 U. S. 401, 10 Sup. Ct. 727; Oliphint v. Bank, 60 Ark. 198, 29 S. W. 460. See, also, note in 57 Am. St. 394. ^'Leggett V. Bank, 24 N. Y. 283; Reese v. Bank, 14 Md. 271, 74 Am. Dec. 536; German, &c. Bank v. Jef- ferson, 10 Bush (Ky.) 326; Cross v. Phenix Bank, 1 R. I. 39; Sabin v. Bank, 21 Vt. 353; Kenton Ins. Co. V. Bowman, 84 Ky. 430, 1 S. W. 717; Bohmer v. City Bank, 77 Va. 445; Bradford, &c. Co. v. Briggs, L. R. 12 App. Cas. 29. ^"Reading Trust Co. v. Reading Iron "Works, 137 Pa. St. 282;. St. Louis Perpetual Ins. Co. v. Goodfel- low, 9 Mo. 149; Mechanics' Bank v. Merchants' Bank, 45 Mo. 513, 100 Am. Dec. 388; Tuttle v. Walton, 1 Ga. 43 ; Cunningham v. Alabama, &c. Co. 4 Ala. 652; Farmers', &c. Bank V. Haney, 87 Iowa 101, 54 N. W. 61; Bank of Holly Springs v. Pinson, 58 Miss. 421, 38 Am. R. 330; Young v. Vough, 23 N. J. Eq. 325; Lockwood V. Mechanics' Nat. Bank, 9 R. I. 30£ 11 Am. R. 258; Dempster, &c. Co. V. Downs, 126 la. 80, 101 N. W. 735, 106 Am. St. 340; 1 Cook Stock and Stockholders, § 522; 2 Beach Private Corp. § 644; 1 Morawetz Corp. §201. It has also been held that such a Hen may be created by contract. Jennings v. Bank, 79 Cal. 323, 21 Pac. 852, 5 L. R. A. 233, 12 Am. St. 163 WHEN AND TO WHAT THE LIEN ATTACHES. [§ 100 courts hold that, if created in this way, it will not bind a bona fide purchaser, without notice that such a by-law existed,^^" for such a by-law, unless recited in the certificate, will not amout to constructive notice.^^^ Authority to make "regulations" as to transfers has been held sufficient to empower the directors of a corporation to make a by-law reserving such a lien.^^^ "Where, by general law, a lien is given to a corporation upon its stock for the indebtedness of the stockholder, it is valid and enforceable against all the world."^^* § 100. When and to what the lien attaches. — It may attach to the stock for the owner's debts, although registered in another's name;^^* and it will take priority over antecedent debts which the stock has been pledged to secure, if the pledgee has failed to notify the corpora- tion of his interest.^^^ JSTo action of the directors is necessary to fix the lien upon stock owned by its debtor.^^^ It will attach to trust stock for debts of a trustee holding the stock in his own Aame, there being nothing in the way of notice to the corporation of the nature of 145; Vansands v. Middlesex Co. Bank, 26 Conn. 144; Farmers', &c. Bank v. Haney, 87 Iowa 101, 54 N. W. 61. Or by usage. Morgan v. Bank, 8 Yerg. & R! (Pa.) 73, 11 Am. Dec. 575, and note. But this would not bind a bona fide purchaser with- out notice. Driscoll v. West Brad- ley, &c. Co. 59 N. Y. 96; Bryon v. Carter, 22 La. Ann. 98. "^This is true of New York, Louisiana, Massachusetts, Alabama, Pennsylvania, California, Missis- sippi and Ohio, and probably some others. 1 Cook Stock and Stock- holders, § 552. See, also. Bank v. Lanier, 11 Wall, 369; Kisterbock's Appeal, 127 Pa. St. 601, 14 Am. St.. 868. Bank v. Pinson, 58 Miss. 421, 38 Am. R. 330; Brinkerhoff-Farris Trust, &c. Co. v. Home, &c. Co. 118 Mo. 447, 24 S. W. 129, and 26 Am. & Eng. Bncy. of Law (2d ed.) 869. ^ 1 Cook Stock and Stockholders, § 532; Brinkerhoff -Ferris Trust, &c. Co. V. Home, &c. Co. 118 Mo. 447, 24 S. W. 129. ^Spurlock V. Pacific R. Co. 61 Mo. 319; Cunningham v. Alabama, &c. Co. 4 Ala. 652; McCready v. Rumsey, 6 Duer (N. Y.) 574; Pen- dergast v. Bank, 2 Sawy. (U. S.) 108. But see Bank v. Manufacturers', &c. Bank, 20 N. Y. 501; Bank v. Durfee, 118 Mo. 431, 24 S. W. 133. ^ Hammond v. Hastings, 134 U. S. 401, 10 Sup. Ct. 727, 2 Lewis' Am. R. & Corp. 698, and authorities there cited. To the same effect, see Bishop V. Globe Co. 135 Mass. 132; Bohmer v. City Bank, 77 Va. 445. ™ Stebbins v. Phoenix F. Ins. Co. 3 Paige (N. Y.) 350. See, also, Mount Holley Paper Co.'s Appeal, 99 Pa. St. 513; Planters', &c. Co. v. Selma Sav. Bank, 63 Ala. 585. But com- pare Helm V. Swiggett, 12 Ind. 194. =2= Piatt V. Birmingham Axle Co. 41 Conn. 255, 264; Union Bank v. Laird, 2 Wheat. (U. S.) 390. See where notice is given, Bradford, &c. Co. V. Briggs, 56 L. T. R. 62; Gem- mell V. Davis, 75 Md. 546, 23 Atl. 1032, 32 Am. St. 412. ^^» Elliott V. Sibley, 101 Ala. 344, 13 So. 500. § 101] STOCK. 164 his title.^^' The lien attaches to dividends as well as to stock, and they may be retained by the corporation to discharge a debt due it from the shareholder,^^' and the lien may be enforced, whether the debts are due, or are to become due at some future time.^^® But it has been held that no lien attaches for debts of a holder of certificates who has re-transferred them without obtaining registry.^'" § 101. Waiver of lien — ^Enforcement of lien. — The right to a lien is usually given exclusively for the benefit of the corporation,^^^ and cannot be enforced by any one else. It cannot even be enforced in- directly by assignment of another's claim to the corporation that it may enforce payment for his benefit.^^^ But a surety of the stock- holder, who has been compelled to discharge such a lien, is subrogated to the rights of the corporation.^^^ The corporation may waive its lien and proceed by other means to collect the debt,^^* or at its election ="' Young y. Vough, 23 N. J. Eq. 325; New London, &c. Bank v. Brocklebank, L. R. 21 Ch. Div. 302. Compare Bradford, &c. Co. v. Briggs, L. R. 12 App. Gas. 29. ■^" 1 Cook Stock and Stockholders, § 526; Hagar v. Union Nat. Bank, 63 Me. 509; Sargent v. Franklin Ins. Co. 8 Pick. (U. S.) 90, 19 Am. Dec. 306; Bates v. N. Y. &c. Co. 3 Johns. Cas. (N. Y.) 238. See Gemmell v. Davis, 75 Md. 546, 23 Atl. 1032, 32 Am. St. 412, and compare Brent v. Bank, 2 Cranch C. C. (U. S.) 517. '" Pittsburgh, &c. R. Co. v. Clarke, 29 Pa. St. 146; St. Louis, &c. Ins. Co. V. Goodfellow, 9 Mo. 149; Cun- ningham V. Alabama, &c. Co. 4 Ala. 652. The lien is not lost, even though the statute of limitations should interpose as a bar to an ac- tion on the debt. Geyer^v. Western Ins. Co. 3 Pittsb. (Pa.) 41; Farmers' Bank v. Iglehart, 6 Gill (Md.) 50. ^"Helm v. Swiggett, 12 Ind. 194. But see first note to this section, supra. "'■ 1 Cook Stock and Stockholders, § 529; Bank of Utica v. Smalley, 2 Cowen (N. Y.) 770, 14 Am. Dec. 526. =»" White's Bank v. Toledo, &c. Ins. Co. 12 Ohio St. 601. =" Young V. Vough, 23 N. J. Eq. 325; Petersburg Sav. &c. Co. v. Lumsden, 75 Va. 327. See, also. Gray v. Stone, 69 L. T. R. 282. But compare Cross v. Phenlx Bank, 1 R. I. 39. "^Hoylake R. Co. In re, L. R. 9 Ch. App. 0. 257, 259; 1 Cook Stock and Stockholders, § 531. A corpora- tion may waive a lien on Its stock, but ignorance of the existence of the lien, on the part of the pur- chaser, does not destroy the lien and does not constitute waiver on part of the corporation. Hammond v. Hastings, 134 U. S. 401, 10 Sup. Ct. 727. See, generally, as to waiver, Cecil Nat. Bank v. Watsontown Bank, 105 U. S. 217; First Nat. Bank V. Hartford, &c. Co. 45 Conn. 22; Hill V. Pine River Bank, 45 N. H. 300; Kenton Ins. Co. v. Bowman, 84 Ky. 430; Bishop v. Globe Co. 135 Mass-. 132; Des Moines, &c. Co. v. pes Moines, &c. Bank, 97 la. 668, 66 N. W. 914; Citizens' State Bank V. Kalamazoo, &c. Bank, 111 Mich. 313, 69 N. W. 663 (by-law held no ^aiver) ; Nat. Bank v. Rochester Tumbler Co. 172 Pa. St. 614, 33 Atl. 748. 165 CONDEMNATION OF STOCK. [§' 101a it may enforce it against shares in the hands of the debtor as liens are enforced against other property.^^^ It has been held that the waiver of the lien will not release a surety unless he has given the corporation express notice not to waive it.^^* The ordinary method of enforcing its lien against shares which have been sold by the debtor is by a refusal to transfer the stoek.^^^ The corporation cannot hold the purchaser personally liable.^^' And it cannot hold a lien on. stock for the debts of a registered stockholder contracted after it has been regularly notified that he has sold such stock and transferred the eertifieates.^^^ § 101a. Condemnation of stock. — ^An important question, to which reference will also be made in another connection, has recently been decided by the Supreme Court of the United States. A state statute authorized the condemnation, under certain circumstances and by proper proceedings, by a railroad company of minority shares of stock in another company, and it was held that one company, which was the lessee of another and the owner of three-fourths of the stock of the latter, could lawfully condemn the outstanding shares owned by a person who refused to sell, where the improvement of the lessor's road was necessary in order to serve the public and the lessor did' not have, while the condemning company did have, means to make the improvement.^*" This is in accordance with the prevailing view, and- afBrmed the decision of the state court,^*^ but the general question as to when stock of minority holders can be thus taken has been re- garded as not entirely free from doubt, and there are comparatively few decisions upon the subject. ='" Brent v. Bank of Washington, Conn. 22; Bohmer v. City Bank, 77 10 Peters (U. S.) 596. Foreclosure Va. 445. and sale or attachment, Sabin v. ^^"2 Cook Stock and Stockholders, Bank, 21 Vt. 353; Farmers' Bank of § 530. Maryland's Case, 2 Bland's Ch. ™ Conant v. Reed, 1 Ohio St. 298 ; (Md.) 394; Morrison, In re, 10 Nat. Nesmith v. Washington Bank, 6 Bank Reg. 105. Pick. (Mass.) 324; Bank of America ^» Perrine V. Fireman's Ins. Co. 22 v. McNeil, 10 Bush (Ky.) 54. See Ala. 575. Gemmell v. Davis, 75 Md. 546, 23 ==' Reese v. Bank, 14 Md. 271, 74 Atl. 1032. Am. Dec. 536; Mechanics' Bank v. ^"Offield v. New York, &c. R. Co. Merchants' Bank, 45 Mo. 513, 100 (U. S.) 27 Sup. Ct. 72. Am. Dec. 388; First Nat. Bank of ^ In New York, &c. R. Co. v. Of- Hartford v. Hartford, &c. Co. 45 field, 77 Conn. 417, 59 Atl. 510, and 78 Conn. 1, 60 Atl. 740. CHAPTEE VII. SDBSCEIPTIONS. Sec. 102. Preliminary agreements to subscribe. 103. Subscriptions generall y — Form. 104. Construction of contract of subscription. 105. Contracts of subscription are several. 106. Effect of statutes requiring cash deposit to complete subscription. 107. "Who may subscribe for stock. 108.' Presumption that one whose name is subscribed is a stockholder. 109. Implied promise to pay sub- scription — Consideration. 110. Payment of subscription — Trust fund doctrine. 111. Conditional subscription. Ilia. Implied conditions. 112. Valid and invalid conditions. 113. Conditional subscription is a mere offer until accepted. 114. Subscriptions in escrow — Pa- rol evidence. 115. Waiver of conditions. 116. When conditional subscription becomes payable. 117. Construction of conditional subscriptions — What is a sufficient compliance with conditions as to time of be- ginning and completing road. 118. Subscriptions payable as work progresses or upon expendi- ture of a certain amount. Sec. 119. 120. 121. 122. 123. 124. 125. 126. 127. 128. 129. 130. 131. 132. Failure to perform parol con- dition will not defeat sub- scription. Conditions in notes. Subscriptions conditioned up- on location or construction of the road. Effect of alteration in route fixed by charter. Effect of abandonment or sale of road. Condition as to terminus — Question of intention for jury. What is sufficient compliance with condition as to termi- nus or location of depot at a certain place. General rule of construction — Performance of condition by consolidated company. Fraudulent representations In obtaining subscriptions. Misrepresentations in pros- pectus and by agents gener- ally. Fraud may be shown by parol evidence. Subscriber must be free from negligence in order to be released upon the ground of fraud. Subscription induced by fraud is merely voidable — ^When it will be enforced. Ratification and estoppel — Rescission. 166 167 PKELIMINAET AGREEMENTS TO SUBSCRIBE. [§■ 103 § 102. Preliminary agreements to subscribe. — It frequently hap- pens, especially where corporations are formed under general laws, that, prior to their incorporation, a preliminary agreement is made by those who are interested, to take a certain amount of stock.^ There is a sharp conflict among the authorities as to the effect of such agreements and the liability of those who execute them. A distinction is sometimes drawn between an agreement to subscribe, and a present subscription or agreement stating that each subscriber "hereby sub- scribes" a certain sum, or the like;^ but while this may be good law where the facts justify such a distinction, it would seem that although the company is not yet incorporated and the agreement is made in contemplation of its future incorporation, yet if each one who signs the agreement relies and must rely upon each and every other party thereto in order to obtain the means to incorporate and carry out the purposes of the agreement, the effect is practically the same, no matter whether the agreement is in terms that they agree to subscribe * This is often contemplated Toy the statutory scheme of incorpora- tion, even where there is no express provision upon the subject. Thus, In Anderson v. New Castle, &c. R. Co. 12 Ind. 376, 74 Am. Dec. 218, It is said: "Under the general rail- road law, subscriptions of a certain amount of stock are necessary for the organization of the contem- plated corporation, and for that rea- son and purpose are valid before the corporation is organized, and may be collected by it after organiza- tion." See, also, Hughes v. Antietam, &c. Co. 34 Md. 316; Cross v. Pickney- ville, &c. Co. 17 111. 54; Hamilton, &c. Co. V. Rice, 7 Barb. (N. Y.) 157. ^ See Mt. Sterling, &c. Co. v. Little, 14 Bush (Ky.) 429; Lake Ontario, &c. R. Co. V. Curtiss, 80 N. Y. 219; Strasburg R. Co. v. Echternacht, 21 Pa. St. 220, 60 Am. Dec. 49. In such a case it is held that while the agreement does not amount to a subscription which can be enforced, yet the corporation may recover from the signer the damages caused by his failure to accept and pay for the stock, which should be meas- ured, however, not by the par value of the stock but" by the difference between its par value and its mar- ket value. Thrasher v. Pike County R. Co. 25 111. 340 (393 orig. ed.). See, also, Stowe v. Flagg, 72 111. 397, 402; Quick v. Lemon, 105 111. 578; Rhey v. Ebensburg, &c. Co. 27 Pa. St. 261; Peninsular R. Co. v. Duncan, 28 Mich. 130; Cartwright v. Dickinson, 88 Tenn. 476, 12 S. W. 1030, 7 L. R. A. 706, 17 Am. St. 910; Irwin Creek, &c. Co. v. Taylor, 51 N. Y. 969; Lake Ontario, &c. R. Co. V. Curtiss, 80 N. Y. 219 {intimating that one of the parties to the agree- ment, if made for his benefit, could bring such an action and that the measure of damages would be as above stated). The preliminary agreement may, of course, be so worded as to be binding only in case a de jure corporation is formed. Capps V. Hastings, &c. Co. 40 Neb. 470, 58 N. W. 956, 24 L. R. A. 259, 42 Am. St. 677. 102] SUBSOKIPTIONS. 168 a certain amount or that they do subscribe a certain amount.^ In either case, if a signer of the agreement receives shares after the com- pany is incorporated, pays calls, takes part in the corporate proceed- ings, or otherwise ratifies the subscription, the corporation, after also ratifying it, may hold him liable the same as any other subscriber.* Upon this proposition there is substantial unanimity among the au- thorities, although it is sometimes said that a corporation not in existence at the time a contract is made cannot become a party to it so far as to enforce it after the incorporation,^ and, in a recent Massa- chusetts case the rule is broadly stated that although a contract is made in the name and for the benefit of a projected corporation, it cannot, after its organization, become a party to the contract even by adoption or ratification of it." But the better rule is that such an agreement, if not a completed contract, is at least a continuing' offer made for the benefit of the corporation, which is practically the aggregate of the individuals who entered into the agreement upon the faith of each other's subscription, and that the corporation may adopt and enforce it.'' The statute may, however, provide that sub- *See Cook Stock and Stockhold- ers, § 75; 1 Thomp. Corp. §§ 1164, 1165; Auburn, &c. Asso. v. Hill, 113 Cal. 382, 45 Pac. 695; Nickum v. Burckhardt, 30 Oreg. 464, 47 Pac. 788, 48 Pac. 474, 60 Am. St. 822. "Tonlca, &c. R. Co. v. McNeely, 21 111. 71; Cross v. Pickneyville, &c. R. Co. 17 111. 54; Maltby v. North- western, &c. R. Co. 16 Md. 422; Inter Mountain Pub. Co. v. Jack, 5 Mont. 568, 6 Pac. 20; Rockville, &c. Co. V. Van Ness, 2 Cranch C. C. (U. S.) 449; Kansas City Hotel Co. v. Hunt, 57 Mo. 126; Bell's Appeal, 115 Pa. St. 88, 8 Atl/ 177, 2 Am. St. 532; Buffalo, &c. R. Co. V. Gifford, 87 N. Y. 294; Buffalo, &c. R. Co. v. Dudley, 14 N. Y. 336; Twin Creek, &c. Co. V. Lancaster, 79 Ky. 552; Kennebec, &c. R. Co. V. Palmer, 34 Me. 366; Penobscot R. Co. v. Dummer, 40 Me. 172, 63 Am. Dec. 654; McCormick v. Gas Co. 48 Kans. 614, 29 Pac. 1147; Red Wing Hotel Co. v. Freidrich, 26 Minn. 112, 1 N. W. 827; Minneap- olis, &c. Co. V. Davis, 40 Minn. 110, 41 N. W. 1026, 3 L. R. A. 796 n, 12 Am. St. 701; International, &c. Ass'n V. Walker, 83 Mich. 386, 47 N. W. 338, 3 Lewis Am. R. & Corp. 731, and note, where the authorities are collected and reviewed. "Lake Ontario, &c. Co. v. Curtiss, 80 N. Y. 219; Mt. Sterling, &c. Co. V. Little, 14 Bush (Ky.) 429; Pitts- burgh, &c. R. Co. V. Gazzam, 32 Pa. St. 340; Charlotte, &c. R. Co. v. Blakely (S. Car.), 3 Strob. 245; and note to Winston v. Dorsett, &c. Co. 129 111. 64, 21 N. B. 514, 4 L. R. A. 507, 508. See, also, Rikhoff v. Ma- chine Co. 68 Ind. 388. "Abbott V. Hapgood, 150 Mass. 248, 22 N. B. 907, 5 L. R. A. 586, 15 Am. St. 193. 'Marysville, &c. Co. v. Johnson, 93 Cal. 538, 29 Pac. 126, 27 Am. St. 215, 6 Lewis Am. R. & Corp. 9; Ashuelot Shoe Co. v. Hoit, 56 N. H. 548; Lake Ontario, &c. R. Co. v. Mason, 16 N. Y. 451; Buffalo, &o. R. 169 PEELIMINAET AGKEEMENTS TO SUBSCRIBE. [§ 103' scriptions shall be. made by signing the articles of incorporation, with certain other formalities, and it has been held that in such a case one who has merely signed a preliminary agreement, and has not signed or joined in the execution of the articles of incorporation in. the manner provided by statute, cannot be held liable upon the in- complete subscription or agreement.^ It is also urged, in support of this doctrine, and, indeed, in support of the broader doctrine an- nounced in some of the cases, which requires a ratification by the corporation and the alleged stockholder, before he can be held liable as a subscriber, that, as every contract must be mutually binding upon both parties, the corporation cannot enforce such an agreement because it is not itself bound thereby.^ In line with these decisions, it has also' been held that one who signs such an agreement may withdraw before acceptance by the corporation,^" but this would, in some cases^ Co. V. Clark, 22 Hun (N. Y.) 359; Nulton V. Clayton, 54 Iowa 425, 6 N. W. 685, 37 Am. R. 213; Auburn, &c. Assn. V. Hill (Cal.), 32 Pac. 587; Heaston v. Cincinnati, &c. R. Co. 16 Ind. 275, 79 Am. Dec. 430 n; Miller V. Wild Cat, &c. Co. 52 Ind. 51; note to Winston v. Dorsett, &c. Co. 129 111. 64, 21 N. E. 514, 4 L. R. A. 507, and authorities cited in notes to § 14, ante. In no case, perhaps, is this more clearly stated than it is by the supreme court of Massachusetts In the case of Athol Music Hall Co. v. Carey, 116 Mass. 471, and yet this is difficult to reconcile with the ex- treme rule that a corporation can- not ratify a contract made for its benefit, announced in Aljbott v. Hap- good, 150 Mass. 248, 22 N. E. 907, 5 L. R. A. 586, 15 Am. St. 193, hereto- fore cited. = Coppage V. Hutton, 124 Ind. 401, 24 N. E. 112, 7 L. R. A. 591; Reed V. Richmond St. R. Co. 50 Ind. 342; Dutchess, &c. R. Co. v. Mabbett, 58, N. Y. 397; Poughkeepsie, &c. R. Co. V. Griffin, 24 N. Y. 150; Troy, &c. R. Co. V. Tibbits, 18 Barb. (N. Y.) 297; Erie, &c. R. Co. v. Owen, 32 Barb. (N. Y.) 616; Sedalia, &c. R. Co. V. Wilkerson, 83 Mo. 235; Parker V. Northern Cent. &c. R. Co. 33 Mich. 23; Carlisle v. Saginaw, &c. R. Co. 27 Mich. 315; Monterey, &c. R.. Co. V. Hildreth, 53 Cal. 123; Butcher V. Dillsburg, &c. R. Co. 76 Pa. St. 306. But see McClure v. People's Freight R. Co. 90 Pa. St. 269; Buf- falo, &c. R. Co. V. Gifflord, 87 N. Y. 294. ° Strasburg R. Co. v. Echternacht, 21 Pa. St. 220, 60 Am. Dec. 49; Gleaves v. Brick Church Co. 1 Sneed (Tenn.) 491; Goff v. Win- chester College, 6 Bush (Ky.) 443; Monterey, &c. R. Co. v. Hildreth, 53 Cal. 123; Fanning v. Insurance Co. 37 Ohio St. 339, 41 Am. R. 517. But compare Shober v. Lancaster, &c. Assn. 68 Pa. St. 429, and Bdinboro Academy v. Robinson, 37 Pa. St. 210, 78 Am. Dec. 421, with the Pennsyl- vania case above cited. While some of the cases in which this rule is stated were, perhaps, correctly de- cided, yet we think the broad doc- trine they announce is unsound in principle and upon authority. "Garrett v. Dillsburg, &c. R. Co. 78 Pa. St. 465; Auburn Bolt and Nut Works V. Shultz, 143 Pa. St, § 103] SUBSCRIPTIONS. 170 be very unfair to the other subscribers, and one court, at least, has denied the existence of such a right.^^ Where a company has been incorporated before the subscription is made, the objection made in some of the cases to the enforcement of preliminary subscriptions upon the ground that a corporation not in existence could not be a party, does not, of course, obtain even though it may not have completed its organization before the subscription is made.^^ But the conditions of the agreement must be substantially complied with, at least so far as they are conditions precedent, and if the contemplated scheme becomes impossible of performance or a different corporation from that contemplated is organized, the subscriber to the preliminary agreement cannot be held liable as a shareholder.^^ § 103. Subscriptions generally — Form, — No particular formality is required in making a subscription to the capital stock of a corpora- tion, but a binding subscription may, in general, be made in any way in which other contracts are entered into.^* The courts will look to the intention of the parties rather than to the manner in which it is manifested, and if it appear that a writing was intended as a sub- scription, it will be suflBcient in the absence of some provision to the contrary, no matter how informal it may be.^^ Indeed, it would seem 256, 22 Atl. 904; Patty v. Hillsboro, Vt. 489; Oregon Cent. R. Co. v. Scog- &c. Co. 4 Tex. Civ. App. 224, 23 S. gin, 3 Ore. 161; Low v. Conn. &c. R. W. 336; Hudson Real Estate Co. v. Co. 45 N. H. 370; Diman v. Provi- Tower, 156 ■ Mass. 82, 30 N. B. 465, dence, &c. R. Co. 5 R. I. 130. But see 32 Am. St. 434. See, also, Holt v. Starrett v. Rockland Ins. Co. 65 Me. Winfield Bank, 25 Fed'. 812; Plank's 374; Wilmington, &c. R. Co. v. Tavern Co. v. Burkhard, 87 Mich. Wright, 5 Jones (N. Car.) 304. 182. '=Knox V. Childersburgh, &c. Co. "Kidwelly Canal Co. v. Raby, 2 86 Ala. 180; Dorris v. Sweeney, 60 Price 93. See, also. Lake Ontario, N. Y. 463. See, also, Indianapolis, &c. R. Co. V. Mason, 16 N. Y. 451; &c. Co. v. Herkimer, 46 Ind. 142; Peninsular, &c. R. Co. v. Duncan, 28 Marshall Foundry Co. v. Killian, 99 Mich. 130; Bullock v. Falmouth, &c. N. Car. 501, 6 S. B. 680, 6 Am. St. Co. 85 Ky. 184, 3 S. W. 129, 1 539; note in 33 Am. St. 185. Thomp. Corp. § 1181. " Blunt v. Walker, 11 Wis. 334, "^The right to enforce the sub- 349, 78 Am. Dec. 709. See, also, scription is merely suspended until Dupee v. Chicago, &c. Co. 117 Fed. organization. Danbury, &c. R. Co. v. 40; Hays v. Ottawa, &c. R. Co., 61 Wilson, 22 Conn. 435; Marlborough 111. 422. Branch R. Co. v. Arnold, 9 Gray i=Fry v. Lexington, &c. R. Co. 2 (Mass.) 159, 69 Am. Dec. 279; Ver- Met. (Ky.) 314; Nulton v. Clayton, mont, &c. Co. v. Windham Bank, 44 54 Iowa 425, 6 N. W. 685, 37 Am. R. 171 SUBSCEIPTIONS GENBEALLT FORM. [§■ 103 that a parol subscription may be valid/° and merely accepting and holding a certificate of stock is, ordinarily, sufficient to make one liable as a stockholder,^^ or if he assumes the duties and claims the rights of a stockholder, and acts as such with the acquiescence and consent of the corporation,^' it is sufficient to bind both him and the corporation. But the charter or statute may require subscriptions to be made in a specified manner ; and, unless there is a subsequent rati- fication, express or implied, by the parties, the statute must be sub- stantially complied with in order to hold the subscriber.^" It has also 213; Phcenix, &c. R. Co. v. Badger, 67 N. Y. 294; Cayuga, &c. R. Co. v. Kyle, 64 N. Y. 185; Hagerstown, &c. Co. V. Creeger, 5 Harr. & J. (Md.) 122, 9 Am. Dec. 495; WoodrufE v. McDonald, 33 Ark. 97; Stuart v. Valley R. Co. 32 Gratt. (Va.) 146; Ogdensburgh, &c. R. Co. v. Frost, 21 Barb. (N. Y.) 541; Melvin v. Lamar Ins. Co. 80 111. 446, 22 Am. R. 199; State Y. Beck, 81 Ind. 500; Ottawa, &c. R. Co. V. Black, 79 111. 262; Oler V. Baltimore, &c. R. Co. 41 Md. 583; Brownlee v. Ohio, &c. R. Co. 18 Ind. 68; Ashtabula, &c. R. Co. v. Smith, 15 Ohio St. 328, and note to Parker v. Thomas, 81 Am. Dec. 385, 395. But see McClelland v. White- ley, 11 Biss. (U. S.) 444, 15 Fed. S22. "Cook Stock and Stockholders, § 52; Colfax, &c. Co. v. Lyon, 69 Iowa 683, 29 N. W. 780; Man- chester St. R. Co. V. "Williams, 71 N. H. 312, 52 Atl. 461. See, also, "Walter v. Merced Academy, 126 Cal. 582, 59 Pac. 136; Electric Tel. Co. In re, 3 De G. & J. 170. If it may be performed within a year, it is not within the statute of frauds. Bul- lock V. Falmouth, &c. Co. 85 Ky. 184, 3 S. W. 129; Straughan v. In- dianapolis, &c. R. Co. 38 Ind. 185. But see Pittsburgh, &c. Co. v. Gaz- zam, 32 Pa. St. 340; Vreeland v. New Jersey, &c. Co. 29 N. J. Bq.. 188; Fanning v. Ins. Co. 37 Ohio St. 339, 41 Am. R. 517. And in a number of other cases a mere in- formal offer or promise to subscribe has been held insufficient. 26 Am. & Eng. Bncy. of Law (2d ed.), 904. "Upton V. Tribilicock, 91 U. S. 45; Stutz,v. Handley, 41 Fed. 531; McLaughlin v. Detroit, &c. R. Co. 8 Mich. 99. See, also, Shickle v. Watts, 94 Mo. 410, 7 S; W. 274; Clark T. Continental, &c. Co. 57 Ind. 135; Hamilton, &c. Co. v. Rice, 7 Barb. (N. Y.) 157; Lane v. Brain- erd, 30 Conn. 565; Nulton v. Clay- ton, 54 Iowa 425, 37 Am. B. 213; Rensselaer, &c. R. Co. v. Barton, 16 N. Y. 457. " Such acts operate as an estoppel to deny his membership in the com- pany. Boston, &c. R. Co. v. Welling- ton, 113 Mass. 79; Philadelphia, &c. R. Co. V. Cowell, 28 Pa. St. 329, 70 Am. Dec. 128; Jewell v. Rock River, &c. Co. 101 111. 57; Griswold v. Selig- man, 72 Mo. 110; Cheltenham, &c. R. Co. V. Daniel, 2 Q. B. 281; Wheel- er V. Millar, 90 N. Y. 353; Sanger v. Upton, 91 U. S. 56. But see Shields T. Casey, 155 Pa. St. 253, 25 Atl. 619. " Coppage V. Hutton, 124 Ind. 401, 24 N. E. 112, 7 L. R. A. 591; Reed v. Richmond St. R. Co. 50 Ind. 342; Bucher v. Dillsburg, &c. R. Co. 76 Pa. St. 306; Dutchess, &c. R. Co. v. Mabbett, 58 N. Y. 397; Troy, &c. R. Co. V. Tibbetts, 18 Barb. (N. Y.) 297; Union R. Co. v. Sneed, 99 Tenn. § 104] SDBSOEIPTIONe. 172 been held that an agreement by one to accept so many shares as should be allotted to him, and sending to the company's banker a sufficient deposit to cover the advancement required upon a subscription to such shares, although it is acted upon by the corporation and a certain number of shares are allotted, and the rest of his deposit returned, is not sufficient to constitute him a stockholder until he has accepted the shares, although his name is placed upon the register as a stock- holder, and he has notice that his certificates of stock are ready for him, and he requests that they be forwarded to him.^" § 104. Construction of contract of subscription. — ^Where the place of performance is not specified in a contract made in one state to subscribe for shares of stock of a railroad company incorporated under the laws of another state where it has its road and treasury, the eon- tract is to be performed in the latter state and is to be construed by its laws.^^ It is a well-established rule that the construction of a written contract is for the court, and this is true of a contract of sub- scription."^ But, on the other hand, questions of ratification and intention are usually questions of fact for the jury, and it has been held that the intention of an alleged subscriber to take stock as a subscriber, or to ratify an insufficient subscription, or an act of the corporation treating him as a subscriber, is a question of fact for the ]ury.='= § 105. Contracts of subscription are several. — Contracts of sub- scription, as usually made, are several and not joint."* This is true, 1, 41 S. W. 364, 47 S. W. 89; Carlisle the corporation is created govern- V. Saginaw Val. R. Co. 27 Mich. 315 ; ing, note In 93 Am. St. 393, 394. Ashtabula, &c. R. Co. v. Smith, 15 "^ Monadnock R. Co. v. Pelt, 52 N. Ohio St. 328; Eppes v. Mississippi, H. 379; 1 Elliott Gen. Pr. § 431. &c. R. Co. 35 Ala. 33. But see Phoe- '^ Philadelphia, &c. R. Co. v. Co- nix, &c. Co. V. Badger, 67 N. Y. 294; well, 28 Pa. St. 329, 70 Am. Dec. Buffalo, &c. R. Co. v. Gifford, 87 128; Galveston, &c. Co. v. Bolton, 46 N. Y. 294; Jewell v. Rock River, &c. Tex. 633; Macomb v. Barcelona, &c. Co. 101 111. 57, and compare Gran- Assn. 134 N. Y. 598, 31 N. E. 613. gars', &c. Co. v. Vinson, 6 Greg. 172. "Whittlesey v. Frantz, 74 N. Y. =*New Brunswick, &c. R. Co. v. 456; Wayne, &c. Inst. v. Smith, 36 Muggeridge, 4 H. & N. 160. Barb. (N. Y.) 576; Herron v. Vance, "Penobscot &c. R. Co. v. Bartlett, 17 Ind. 595; Connecticut, &c. R. Co. 12 Gray (Mass.) 244, 71 Am. Dec. v. Bailey, 24 Vt. 465, 58 Am. Dec. 753. See, generally, as to conflict of 181; Orynskl v. Loustaunan (Tex.) laws and the law of the state where 15 S. W. 674; Gibbons v. Grinsel, 79 173 STATUTES REQUIRING CASH DEPOSIT. [§ 106 ordinarily, even where they are joint in form, because it is clear from ihe nature of the contract that each subscriber intends to bind himself alone for his own subscription, and this intention must prevail not- withstanding the joint form of the promise.^° In accordance with this Tule it has even been held that where one person makes two subscrip- tions in two different capacities, that is, as an individual and as a trustee, a separate action must be brought to enforce each subscrip- iion.''^ §106. Effect of statutes requiring cash deposit to complete sub- scriptioii.^Several of the states by general statute^^ require that a certain sum shall be paid upon each share of stock at the time of sub- scribing, and such a provision is frequently found in special charters and in by-laws. It is generally held that an entire omission to make such a payment at the time of subscribing will not render the sub- scription absolutely void so that the subscriber can defend against payment of it for this cause,^^ since this would be permitting him to take advantage of his own wrong in failing to pay.^^ The theory of these cases is that the requirement is made for the benefit of the cor- poration and that it may waive the right to avoid the subscription for this cause,^" and enforce payment thereof, notwithstanding the "Wis. 365, 48 N. W. 255; Robertson =» Illinois River R. Co. v. Zimmer, T. Marcli, 4 111. 198; Miller v. Pres- 20 111. 654; Pittsburgh, &c. R. Co. v. -ton, 4 N. Mex. 314. Applegate, 21 W. Va. 172; Minneap- " Clark Contracts 605; Landwer- olis, &c. R. Co. v. Bassett, 20 Minn. len V. Wheeler, 106 Ind. 523, 5 N. B. 535, 18 Am. R. 376; Barrington v. S88; Davis v. Belford, 70 Mich. 120, Mississippi Cent. R. Co. 32 Miss. 57 N. W. 919; Price v. Grand Rap- 370; Vicksburg, &c. R. Co. v. Me- lds, &c. R. Co. 18 Ind. 137; Hall v. Kean, 12 La. Ann. 638; Wight v. Thayer, 12 Met. (Mass.) 130; Davis, Shelby R. Co. 55 Ky. 4, 63 Am. Dec. &c. Co. v. Barber, 51 Fed. 148; Gib- 522; Mitchell v. Rome R. Co. 17 Ga. bons v. Bente, 51 Minn. 499, 53 N. 574; Selma, &c. R. Co. v. Roundtree, W. 756, 22 L. R. A. 80, and note; 7 Ala. 670; Henry v. Vermillion, &c. T)ut see Davis V. Shafer, 50 Fed. 764; R. Co. 17 Ohio 187; Spartanburg, Davis V. Bronson, 2 N. Dak. 300, 16 &c. R. Co. v. Bzell, 14 S. C. 281; Xi. R. A. 655; Darnell v. Lyon, 85 Webb v. Baltimore, &c. R. Co. 77 Tex. 455, 22 S. W. 304, 960; Gait v. Md. 92, 39 Am. St. 396; Oler v. Bal- Swain, 9 Gratt. (Va.) 633, 60 Am. timore, &c. R. Co. 41 Md. 583; East Dec. 311. Gloucestershire R. Co. v. Bartholo- " Erie, &c. R. Co. v. Patrick, 2 mew, L. R. 3 Ex. 15. Abb. App. Cas. 72, 2 Keyes (N. Y.) '"Haywood, &c. R. Co. v. Bryan, 6 256. Jones L. (N. C.) 82. ?'Stimson Am. Stat. (1892) ^"Piscataqua Ferry Co. v. Jones, ^i 8110, 8617. 39 N. H. 491; Lake Ontario, &c. R. 106] SUBSCKIPTIONS. 174 fact that the statute, if literally construed, would seem to make a cash deposit essential to the validity of the subscription. In some of the states, however, this defense is allowed, because of the stringent language of the statute,^^ but even in such states it is strongly dis- approved,^^ and is restricted to the narrowest possible limits.^* Thus a few subscribers have been permitted to pay the percentage for all f* payment by check,^® or by promissory note,^° or in services rendered to the company under a contract,'^ has been held a sufficient compli- ance with the statute ; and it has been held that actual payment at any period after subscription with intent to effectuate and complete the subscription is sufficient.'* Indeed, acts indicating that the sub- Co. V. Mason, 16 N. T. 451; Garrett V. Dillsburg, &c. R. Co. 78 Pa. St. 465. Cases cited in two preceding notes. But see McRea v. Russell, 12 Ired. (N. C.) 224, where it is said that the provision "was, moreover, meant to protect men from the con- sequences of making such subscrip- tions under the influence of mo- mentary excitement, which they could not fulfill." " Charlotte, &c. R. Co. v. Blakely, 3 Strobh. Eq. (S. C.) 245; People V. Chambers, 42 Cal. 201; Taggart V. Western Md. R. Co. 24 Md. 563, 89 Am. Dec. 760 n; Wood v. Coosa, &c. R. Co. 32 Ga. 273; New York, &c. R. Co. V. Van Horn, 57 N. Y. 473; Hibernia T. Cor. v. Henderson, 8 Serg. & R. (Pa.) 219, 11 Am. Dec. 593; Fiser v. Mississippi, &c. R. Co. 32 Miss. 359. If the requirement is merely in the by-laws, and not in the charter or statute, failure to comply with it will not vitiate the subscription so as to prevent its en- forcement by the company. Water Valley, &c. Co. v. Seaman, 53 Miss. 655; Piscataqua, &c. Co. v. Jones, 39 N. H. 491. ^' Rensselaer, &c. R. Co. v. Barton, 16 N. Y. 457, note; Erie, &c. R. Co. V. Brown, 25 Pa. St. 156. In Wood V. Coosa, &c. R. Co. 32 Ga. 273, the court based its decision upon the positive language of the statute that a subscription without a prelimi- nary payment should be void. " See note to Parker v. Thomas, 81 Am. Dec. 385, 397, 398. " Ogdensburgh, &c. R. Co. v. Wool- ey, 3 Abb. Ct. of App. 398. See, also, Mississippi, &c. R. Co. v. Harris, 36 Miss. 17. "Syracuse, &c. R. Co. v. Gere, 4 Hun (N. Y.) 392; Staten Isl. &c. R. Co. Re, 37 Hun (N. Y.) 422, where the check was certified; People v. Stockton, &c. R. Co. 45 Cal. 306, 13 Am. R. 178, when it was shown that the check would have been paid if presented. ™ Ogdensburgh, &c. R. Co. v. Wool- ey, 3 Abb. Ct. of App. 398 ; Vermont Cent. R. Co. v. Clayes, 21 Vt. 30, 35; Greenville, &c. R. Co. v. Woodsides, 5 Rich. L. (N. C.) 145, 55 Am. Dec. 708. Contra Boyd v. Peach Bottom R. Co. 90 Pa. St. 169; Leighty v. Susquehanna, &c. Co. 14 Serg. & R. (Pa.) 434. "Beach v. Smith, 30 N. Y. 116, afE'g same case, 28 Barb. (N. Y.) 254. But see New York, &c. R. Co. v. Hunt, 39 Conn. 75. " Black River, &c. R. Co. v. Clarke, 25 N. Y. 208; Barrington v. Missis- sippi Cent. R. Co. 32 Miss. 370. 175 WHO MAY SUBSCRIBE FOR STOCK. [§• 107 scriber holds himself to be a shareholder may amount to a waiver of this defense.^' And the statute is held to apply only to subscriptions expressly mentioned in it, and not to embrace conditional subscrip- tions,*" nor subscriptions taken before incorporation,*^ where the language of the statute is general as to subscriptions given to the cor- poration. So, where the statute expressly referred only to subscrip- tions taken by the commissioners, the provision was held to apply to no others.*^ § 107. Who may subscribe for stock. — In general any one may subscribe for stock who is competent to enter into an ordinary con- tract.*^ Married women are enabled by statute in England** and gen- erally in the United States,*'' to become subscribers for stock. An in- fant's subscription is subject to the same rules which apply to his other eontracts.*^ And the general rules applicable to agency govern contracts made by the agents of the subscriber*' or of the corporation,** or by persons assuming to act as such in case their acts are subse- quently ratified.*^ The corporation itself cannot make a valid sub- '» Brie, &c. R. Co. v. Brown, 25 Pa. St. 156; Bverhart v. West Chester, &c. R. Co. 28 Pa. St. 339. See, also. Cole V. Satsop R. Co. 9 Wash. 487, 43 Am. St. 858, and note to the effect that it is no defense to sub- scribers as against creditors, that pdrt of the necessary amount is ille- gally subscribed by others, if they knew the facts at the time they sub- scribed. "Hanover, &c. R. Co. v. Halde- man, 82 Pa. St. 36. "Garrett v. Dillsburg, &c. R. Co. 78 Pa. St. 465, construing Pennsyl- vania act of 1868. See, also. Lake Ontario, &e. R. Co. v. Mason, 16 N. Y. 457. " Philadelphia, &c. R. Co. v. Hick- man, 28 Pa. St. 318. ^=1 Cook Stock and Stockholders, § 63. " Mrs. Matthewman's Case, L. R. 3 Eq. 781; Pugh & Sharman's Case, L,. R. 13 Bq. 566. "Stimson Am. St. (1886) § 6450; Witter's v. Sowles, 32 Fed. 767. « See Mitchell's Case, L. R. 9 Eq. 363; Ebbett's Case, L. R. 5 Chan. 302; Baker's Case, L. !r. 7 Chan. 115; Dublin, &c. R. Co. T. Black, 8 Exch. 181. "Musgrave v. Morrison, 54 Md. 161; New York, &c. Co. In re, 35 Hun 220; New York, &c. R. Co. In re, 99 N. Y. 12; Rhey v. Evens- burgh, &c. 27 Pa. St. 261; Merrick, &c. Co. V. Philadelphia, &c. Co. 115 Pa. 314, 8 Atl. 794. It has been held that a subscription by a trustee of an undisclosed principal is bind- ing on the trustee. State v. Supe- rior Court (Wash.), 88 Pac. 332. " Walker v. Mobile, &c. R. Co. 34 Miss. 245. " Judah V. American, &c. Co. 4 Ind. 333; Musgrove v. Morrison, 54 Md. 161; Mississippi, &c. R. Co. v. Harris, 36 Miss. 17; Philadelphia, &c. R. Co. V. Cowell, 28 Pa. St. 329, 70 Am. Dec. 128; Mobile, &c. R. Co. v. Yandal, 5 Sneed (Tenn.) 294; 1 Cook Stock and Stockholders, §§ 67, 68. § 108] SUBSOEIPTIONS. 176 seription to its own stock,'" and one corporation cannot, as a general Tule, subscribe for stock in another corporation ''^ unless making such a subscription is within the powers, express or implied, conferred by its charter or by statute.'^ It has been held, however, that a construc- tion company has implied power to take stock in a railroad which it is building.'* Commissioners to take subscriptions'* and corporate officers may take stock where the subscriptions are fairly made and no advantage is taJien of the public or of other subscribers." So munici- pal, corporations are frequently given authority by the legislature to aid railroads by subscribing to their stock.'* § 108. Fresumption that one whose name is subscribed is a stock- holder. — The appearance of a person's name on the books of a com- pany as a subscriber or stockholder,'^ or its appearance on the original subscription paper,'® or books,'^ or its entry in the books kept by com- missioners"" to take subscriptions is said to be prima facie evidence ""HoUaday v. Elliott, 8 Ore. 84; Allibone v. Hager, 46 Pa; St. 48; Preston v. Grand Colliery, &c. Co. 11 Sim. 327. "Maunsell v. Midland, &c. R. Co. 1 Hem. & M. 130; Franklin Bank v. Commercial Bank, 36 Ohio St. 350, 38 Am. R. 594; Berry v. Yates, 24 Barb. (N. Y.) 199, 410; Zabriskie v. Railroad Co. 23 How. (U. S.) 381; Valley R. Co. v. Lake Brie Iron Co. 46 Ohio St. 44, 1 L. R. A. 412; Peo- ple V. Chicago Gas Trust Co. 130 111. 268, 22 N. E. 798, 17 Am. St. R. 319; Merz Capsule Co. v. United States, &c. Co. 67 Fed. 414. "^ White v. Syracuse, &c. R. Co. 14 Barb. N. Y. 559. See Mayor, &c. v. Baltimore, &c. R. Co. 21 Md. 50; Zabriskie v. Cleveland, &c. R. Co. 23 How. (U. S.) 381; Matthews v. Murchison, 17 Fed. 760; Ryan v. Leavenworth, &c. R. Co. 21 Kans. 365; Pearson v. Concord, &c. R. Co. 62 N. H. 537, 13 Am. St. 590, 13 Am. & Eng. R. Cas. 102. '» Rochester, &c. R. Co. In re, 45 Hun (N. Y.) 126. "Walker v. Devereaux, 4 Paige (N. Y.) 229. See, also, Cheraw, &c. R. Co. V. White, 14 S. Car. 51. =° Sims V. Street R. Co. 37 Ohio St. 556. See Brower v. Passenger R. Co. 3 Phila. 161. ™Sharpless v. Mayor, 21 Pa. St. 147; Selma, &c. R. Co. Ex parte, 45 Ala. 696, 6 Am. R. 722; Commission- ers V. Miller, 7 Kans. 479, 12 Am. R. 425, where the authorities are collected and reviewed; 1 Thomp. Corp. § 1118. Post, § 875 et seq. So, a state may subscribe. Curran V. Arkansas, 15 How. (U. S.) 304; Brady v. State, 26 Md. 290; Balti- more, &c. R. Co. V. State, 36 Md. 519. " iPittsburgh, &c. R. Co. v. Apple- gate, 21 W. Va. 172; Turnbull v. Payson, 95 U. S. 418; Hoagland v. Bell, 36 Barb. (N. Y.) 57; Iowa, &c. R. Co. V. Perkins, 28 Iowa 281. "'Partridge v. Badger, 25 Barb. (N. Y.) 146. "Marlborough, &c. R. Co. v. Arn- old, 75 Mass. 159, 69 Am. Dec. 279; Rockville, &c. Co. v. Van Ness, 2 Cranch C. C. (U. S.) 449. ™Wood V. Coosa, &c. R. Co. 32 Ga. 273. 177 IMPLIED PROMISE TO PAT SUBSCRIPTION — CONSIDERATION". [§' 109 that he is a stockholder."^ But it is not conclusive unless shown to have been placed there by himself or by his authority."^ Where the books are lost or destroyed, a certified copy of the list of stockholders from the files or records of a public office is held to be evidence in like manner as the books themselves, if such list is required by law to be so filed or recorded,"^ but not otherwise."* The erasure of a name from a subscription list by the subscriber will not necessarily end his liability/^ but the fact that he became bound, may be proved by parol, where the written evidences of that fact have been lost or de- stroyed."" § 109. Implied promise to pay subscription — Consideration. — An action by the corporation to recover the amount subscribed may be maintained upon the implied promise to pay contained in a subscrip- tion to its capital stock,"' and the right to membership in the corpora- "But see, on this general subject, 3 Elliott Ev. § 1946; Harrison v. Remington, &c. Co. 140 Fed. 385, 402; Chesapeake, &c. R. Co. v. Deep- water, 57 W. Va. 641, 50 S. B. 890, S06. The presumption arising from his name being entered in the books may be overcome by proof. Mudgett T. Horrell, 33 Cal. 25. ^ New Brunswick, &c. R. Co. v. Muggeridge, 4 H. & N. 160; Water- ford, &c. R. Co. V. Pidcock, 8 Exch. 279. "^Cleveland v. Lurnham, 55 Wis. :598. "Troy, &c. R. Co. v. Kerr, 17 Barb. (N. Y.) 581, 600. "^Johnson v. Wabash, &c. Co. 16 Ind. 389; Greer v. Chartiers, &c. R. Co. 96 Pa. St. 391, 42 Am. R. 548; Bordentown v. Imlay, 4 N. J. L. 285. But see Burt v. Farrar, 24 Barb. (N. Y.) 518, to the effect that a subscriber having access to the certificate before it Is filed may erase or modify his subscription «ven though ' he has previously induced others to subscribe. "Galveston Hotel Co. v. Bolton, Ell. Railboads — 12 46 Tex. 633; Haynes v. Brown, 36 N. H. 545. »' Upton V. Tribilcock, 91 U. S. 45; Hawley v. Upton, 102 U. S. 314; Mil- ler V. Wild Cat, &c. Co. 52 Ind. 51; Coppage V. Hutton, 124 Ind. 401, 24 N. B. 112, 7 L. R. A. 591; Windsor Electric Light Co. v. Tandy, 66 Vt. 248, 29 Atl. 248, ,44 Am. St. 838; Lake Ontario, &c. R. Co. v. Mason, 16 N. Y. 451; Chase v. Tennessee, &c. R. Co. 5 Lea (Tenn.) 415; Sel- ma, &c. R. Co. v. Tipton, 5 Ala. 787, 39 Am. Dec. 344; Ventura, &c. R. Co. V. Collins (Cal.), 46 Pac. 287; Branch v. Augusta, &c. Works, 95 Ga. 573, 23 S. E. 128; Atlantic, &c. Co. V. Andrews, 97 Mich. 466, 56 N. W. 858; Greenville, &c. R. Co. v. Cathcart, 4 Rich. (S. Car.) 89; note to Parker v. Thomas, 81 Am. Dec. 385, 393, 394; Cook Stock and Stock- holders, § 71; note in 93 Am. St. 357, 358, 359, where this is stated to be the rule supported by the weight of authority. A few courts, however, seem to require an express promise. See note last above referred to in 93 Am. St., on pages 356 and 357, for citation of such cases. 110] SUBSCRIPTIONS. 178 tion, with the probable advantages to be derived from such member- ship, is a sufficient consideration to support the action."* Indeed, a consideration arising from the mutual obligations entered into by the subscribers,^" will, it seems, be conclusively implied by law from the fact of the subscription.'" A subscription to the capital stock of a corporation amounts to an agreement to take the stock at its par value, and where a land-owner agrees to take the stock of a railroad company in payment of damages to his land caused by the construction of the road, he cannot demand the stock at its market value. '^^ §110. Payment of subscription — Trust fund doctrine. — As al- ready stated, a subscription to corporate stock is, in effect, a contract to pay for it in the mode prescribed, although it contains no express promise to pay.'^ The fund contributed and agreed to be contributed by the stockholders constitutes, in equity, a trust fund for the benefit or security of the corporate creditors,'^ and the general rule, therefore. "'Bullock v. Falmouth, &c. Co. 85 Ky. 184, 3 S. W. 129; Selma, &c. R. Co. v. Tipton, 5 Ala. 787, 39 Am. Dec. 344; Walter A. Woods Harves- ter Co. V. Robbins, 56 Minn. 48, 57 N. W. 317; New Albany, &c. R. Co. V. Fields, 10 Ind. 187; Osborn v. Crosby, 63 N. H. 583; Lake Ontario, &c. R. Co. v. Mason, 16 N. Y. 451; St. Paul, &c. R. Co. V. Robbins, 23 Minn. 439. In most of the New England States, however, it is held that the only remedy available to the corporation is to declare the shares forfeited, unless the sub- scriber expressly promises to pay, or the charter expressly provides that a subscription on his part shall bind him to pay for the shares sub- scribed. Belfast, &e. R. Co. v. Moore, 60 Me. 561; Connecticut, &c. R. Co. V. Bailey, 24 Vt. 465, 58 Am. Dec. 181; Boston, &c. R. Co. v. Welling- ton, 113 Mass. 79; White, Ac. R. Co. V. Eastman, 34 N. H. 124; Russell V. Bristol, 49 Conn. 251. "'Northern, &c. R. Co. v. Miller, 10 Barb. (N. Y.) 260; Twin Creek. &c. Co. V. Lancaster, 79 Ky. 552; Belton Compress Co. v. Saunders, 70 Tex. 699, 6 S. W. 134; West v. Craw- ford, 80 Cal. 19, 21 Pac. 1123. But see Cottage, &c. Church v. Kendall, 121 Mass. 528, 23 Am. R. 286. "East Tennessee, &c. R. Co. v. Gammon, 5 Sneed (Tenn.) 567. "Hoffman v. Bloomsburg, &c. R. Co., 157 Pa. St. 174, 27 Atl. 564. "Ante, § 109; 1 Morawetz Priv. Corp. § 128. Beach Priv. Corp. § 555; Purdy's Beach Priv. Corp. § 338; note to Winston, v. Brooks, 4 L, R. A. 507. "Adler v; Milwaukee, &c. Co. 13 Wis. 57; Wood v. Dummer, 3 Mason (tr. S.) 308; Sawyer v. Hoag, 17 Wall. (U. S.) 610; Upton v. Tribil- cock, 91 U. S. 45; Germantown Pass. R. V. Fitler, 60 Pa. St. 124, 100 Am. Dec. 546 and note; Graham v. Rail- road Co. 102 U. S. 148, 161; Camden V. Stewart, 144 U. S. 104, 12 Sup. Ct. 585; 2 Thomp. Corp. § 1569; 2 Morawetz Priv. Corp. § 820 et seq. This doctrine, which is not found in the old English cases, is now too 179 PAYMENT OF SUBSOEIPTIOIT — TEUST FUND DOCTRINE. [§ 110 is that subscriptioBS must be paid in money or "money's worth."''* But this does not mean that stock must necessarily be paid for in cash at the time it is issued.''^ Unless otherwise provided, payment may be made in notes,'* checks,^' or municipal bonds,'* where the munici- well settled in this country to need the citation of all the authorities. They are collected and reviewed in the note to Thompson v. Reno Sav. Bank, 3 Am. St. 797, 808, and in 1 Beach Priv. Corp. § 116 et seq. See, also, note in 5 L. R. A. 649. For explanations of the general doctrine and limitations upon an- other phase " of it see Hollins v. Brierfield, &c. Co. 150 U. S. 371, 14 Sup. Ct. 127; Worthen v. Griffith, 59 Ark. 562, 28 S. W. 286, 43 Am. St. 50, and note; Henderson v. Indiana Trust Co. 143 Ind. 561, 40 N. E. 516; Chattanooga, &c. R. Co. v. Ev- ans, 66 Fed. 809 ; First Nat. Bank v. Dovetail, &c. Co. 143 Ind. 550, 40 N. E. 810; O'Bear, &c. Co. v. Volfer 106 Ala. 205, 17 So. .525, 28 L. R. A. 707, 54 Am. St. 31. The doctrine has been criticised in some respects, but the same result has been reached on other principles. See Macbeth v. Banfleld, 45 Ore. 553, 78 Pac. 693, 106 Am. St. 670, 677; Hospes v. Northwestern, &c. Co. 48 Minn. 174, 50 N. W. 1117, 15 L. R. A. 470, 31 Am. St. 637. " DrummonS's case, L. R. 4 Ch. 772; Marshall Foundry Co. v. Kil- lian, 99 N. Car. 501, 6 S. E. 680, 6 Am. St. 539; Wetherbee v. Baker, 35 N. J. Eq. 501; note to Winston v. Brooks, 4 L. R. A. 507. " "Where a share is Issued, if the price be paid in cash, so much is added to the working capital, there- by enhancing the creditor's security. If the price be not paid, the pur- chaser's indebtedness may be looked to for a like effect." Chouteau v. Dean, 7 Mo. App. 210, 214. "Unpaid stock is as much a part of this pledge (that the capital stock shall constitute a trust fund for the cred- itor), and as much a part of the as- sets of the company, as the cash which has been paid in upon it, creditors have the same right to look to it as to anything else, and the same right to insist upon its payment as upon the payment of any other debt due the company." Sanger v. Upton, 91 U. S. 56, 60, 61, and authorities there cited. "Goodrich v. Reynolds, 31 111. 490, 83 Am. Dec. 240; Ogdensburg, &c. R. Co. V. Wooley, 3 Abb. App. Dec. (N. Y.) 398; Stoddard v. She- tucket, &c. Co. 34 Conn. 542; Ver- mont Cent. R. Co. v. Clayes, 21 Vt. 30; Hardy v. Merri weather, 14 Ind. 203; Blunt v. Walker, 11 Wis. 334, 78 Am. Dec. 709; Pacific Trust Co. V. Dorsey, 72 Cal. 55. And see Mitchell V. Beckman, 64 Cal. 117; Union Cent. &c. Co. v. Curtis, 35 Ohio St. 343; McDowell v. Chicago Steel Wprks, 124 111. 491, 16 N. E. 854, 7 Am. St. 381; Doak v. Stahl- man (Tenn.), 58 S. W. 741. "Staten Island, &c. R. Co. In re, 37 Hun (N. Y.) 422; Syracuse, &c. R. Co. v. Gere, 4 Hun (N. Y.) 392; People V. Stockton, &c. R. Co. 45 Cal. 306, 13 Am. R. 178. "See 2 Beach Priv. Corp. § 556; 15 Am. & Eng. Ency. of Law 1242, and authorities there cited. See, also. Southern, &c. Co. v. Lanier, 5 Fla. 110, 58 Am. Dec. 448; Valk v. Crandall, 1 Sandf. Ch. (N. Y.) 179; Leavitt v. Pell, 27 Barb. (N. Y.) 322. 110] SUBSCEIPTIONS. 180 pality is authorized to issue them for that purpose. So, it may be made in labor or services." And property which is necessary to the corporation in carrying out its legitimate business, or which it is authorized to purchase, may likewise be received in payment.'" It has also been held that stock may be issued in satisfaction of a debt due from the corporation.'^ But the transaction must be bona fide^ and the overvaluation of services or property received in payment may be so grossly excessive as to raise a presumption of fraud."^ Yet the courts will usually treat that as a payment which the parties have agreed shall be payment,'^ and it will make no difference, in the ab- ™ Cincinnati, &c. R. Co. v. Clark- son, 7 Ind. 595; Liebke v. Knapp, 79 Mo. 22, 49 Am. R. 212; Beach v. Smith, 30 N. Y. 116; Rich v. State Nat. Bank, 7 Neb. 201, 29 Am. R. 382; State v. Timken, 48 N. J. L. 87, 2 Atl. 783; Lake St. EI. R. Co. v. Zlegler, 99 Fed. 114, 39 C. C. A. 431; La Crosse, &c. Harvester Co. V. Goddard, 114 Wis. 610, 91 N. W. 225, and note in 19 Am. and Bng. Corp. Cas. 258. Upon princi- ple, where the corporation has au- thority to pay Its ofiBcers salaries or compensation for special serv- ices, there seems to he no valid reason why the indebtedness of the corporation to them may not be used to pay for stock issued to him in good faith. 2 Thomp. Corp. § 1652. But see Daniell, Ex parte, 1 De G. and J. 372. »" Coffin V. Ransdall, 110 Ind. 417, 11 N. B. 20; Ohio, &c. R, Co. v. Cra- mer, 23 Ind. 490; New Haven Nail Co. V. Linden Spring Co. 142 Mass. 349, 7 N. E. 773; Philadelphia, &c. R. Co. V. Hickman, 28 Pa. St. 318; Liebke v. Knapp, 79 Mo. 22, 49 Am. R. 212; Clark v. Farrington, 11 Wis. 306; Beach v. Smith, 30 N. Y. 116; Donald v. American, &c. Co. 62 N. J. Eq. 729, 48 Atl. 771, 1116; Frenk- el V. Hudson, 82 Ala. 158, 60 Am. R. 736; Bedford County v. Nash- ville, &c. R. Co. 14 Lea (Tenn.) 525; Branch v. Jessup, 106 U. S. 468, 1 Sup. Ct. 495. Contra, Henry V. Vermilion, &c. R. Co; 17 Ohio 187; Neuse, &c. Co. v. Commissioners, 6 Jones (N. Car. L.) 204. "Lohman v. New York, &c. R. Co. 2 Sandf. (N. Y.) 39; Reed v. Hayt, 51 N. Y. Sup. Ct. 121; Carr v. LeFevre, 27 Pa. St. 413; Apple- yard's Case, 49 L. J. Ch. 290; Wood- fall's Case, 3 DeG, & Sm. 63. So, it has been held that it may be issued in payment of damages. Philadel- phia, &c. R. Co. V. Hickman, 28 Pa. St. 318. '^Douglass V. Ireland, 73 N. Y. 100; Boynton v. Andrews, 63 N. Y. 93; Carr v. LeFevre, 27 Pa. St. 413; Elyton Land Co. v. Birmingham, &c. 92 Ala. 407, 9 So. 129, 12 L. R. A. 307, 25 Am.' St. 65; Boulton, &c. Co. V. Mills, 78 Iowa 460, 43 N. W. 290, 5 L. R. A. 649 n, 6 R. & Corp. L. J. 417. See, also. National Tube Works Co. V. GllfiUan, 124 N. Y. 302, 26 N. B. 538; Chisholm v. Forny, 65 Iowa 333, 21 N. W. 664; Osgood V. King, 42 Iowa 478. And in a few states the property must be taken at its true value in order to amount to a complete payment as against a creditor. Libby v. Tobey, 82 Me. 397, 19 Atl. 904; Shickle v. Watts, 94 Mo. 410, 7 S. W. 274, 2 Thomp. Corp. § 1616. »=Phelan v. Hazard, 5 Dill. (U. 181 PAYMENT OF SUBSCEIETIOIT — TRUST FUND DOCTEINB. [§ 110; sence of fraud, that the property afterwards turns out to be of less value than was supposed.** The doctrine which we have been con- sidering would seem to prevent a corporation, at least as against credi- tors, from issuing paid-up stock and releasing the subscriber upon payment in money of less than its par value ;*'• but where all the other stockholders consent, and it is not forbidden by the charter or statute, such a transaction is binding upon the company, and it cannot collect the difference between the amount paid and the face value of the stock for its own benefit.^' And in a recent case, the supreme court of the TJnited States went still further and held that an active corporation might issue stock and sell it upon the market for far less than its par value, in order to obtain money to prosecute its business and pay its debts, and that creditors could not compel the purchaser to pay its face value.'^ This case, however, has met with much criticism,** and the rule therein annoimced should not be extended in S<) 45, 6 Cent. L. J. 109; Coffin v. Ransdell, 110 Ind. 417, 11 N. B. 20; Brant v. Ehlen, 59 Md. 1; Peck v. Coalfield Coal Co. 11 111. App. 88. "Colt V. North Carolina, &c. Co. 14 Fed. 12, affirmed in 119 V. S. 343, 7 Sup. Ct. 231; Young v. Erie, &c. R. Co. 65 Mich. Ill, 31 N. W. 814; Arapahoe, &c. Co. v. Stevens, 13 Colo. 534, 22 Pac. 823; Coe v. East & West R. Co. 52 Fed. 531; Grant v. East & West R. Co. 54 Fed. 569; Schenck v. Andrews, 57 N. Y. 133; Dupont v. Tilden, 42 Fed. 87; Brickley v. Schlag, 46 N. J. Eq. 533, 20 Atl. 250. ** See Chouteau v. Dean, 7 Mo. App. 210; Williams v. Evans, 87 Ala. 725, 6 So. 702, 6 L. R. A. 218 n; Upton V. Tribllcock, 91 U. S. 45; Sawyer v. Hoag, 17 Wall. (U. S.) 610; Bates v. Great Western Tel. Co. 134 111. 536, 25 N. E. 521; Goge- bic, &c. Co. V. Iron Chief, &c. Co. 78 Wis. 427, 47 N. W. 726, 23 Am. St. 417; Macbeth v. Banfleld, 45 Ore. 553, 78 Pac. 693, 106 Am. St. 670; Remington, &c. Co. In re, 139 Fed. 766 (distinguishing Handley v. Stutz, 139 U. S. 417, 11 Sup. Ct. 530); Taylor Corp. § 702; 2 Beach Priv. Corp. §§ 561, 562. ™Scovill V. Thayer, 105 XT. S. 143; Harrison v. Arkansas Valley R. Co. 4 McCrary (U. S.) 264. ,See, also, Hlggins V. Lansingh, 154 111. 301, 40 N. E. 362; Poster v. Seymour, 23 Fed. 65; Stewart v. Railroad Co. 41 Fed. 736; St. Louis &c. R. Co. v. Tiernan, 37 Kans. 606, 15 Pac. 544; Memphis, &c. R. Co. v. Dow, 120 U. S. 287, 7 Sup. Ct. 482; Dickerman v. Northern Trust Co. 80 Fed. 450, 25 C. C. A. 549; Coler v. Tacoma, &c. R. Co. 53 N. J. Eq. 680, 53 Atl. 680. " Handley v. Stutz, 139 U. S. 417, 11 ^up. Ct. 530. See, also, cases cited in Grant v. Bast & West R. Co. 54 Fed. 569, 575, and Van Cott V. Van Brunt, 82 N. Y. 535. »=See article by R. C. McMurtrle in 25 Am. L. Rev. 749; 2 Thomp. Corp. § 1665. See, also, Kimbell v. Chicago, &c. Co. 119 Fed. 102; Smith V. Ferries, &c. R. Co. (Cal.) 51 Pac. 723; Martin v. South Salem Land Co. 94 Va. 28, 26 S. E. 591; Adamant Mfg. Co. v. Wallace, 16 Wash. 614, 48 Pac. 415, §111] SUBSCKIPTIONS. 182 its application to a difEerent state of facts. In some jurisdictions the action of the directors and stockholders in good faith determining the value of the property, services, or the like taken in payment of a stock subscription is conclusive, in the absence of actual fraud, but in others the rule is not so strict, and a gross overvaluation of property, whose value is easily ascertained is presumptive if not conclusive evi- dence of fraud, in the absence of anything to the contrary.** § 111. Conditional subscriptions. — A subscription may be made upon a condition precedent, in which case it can only be enforced after the performance of the condition."" The courts, however, lean toward a construction of the subscription which will hold any conditions ex- pressed therein to be conditions subsequent,"^ in which case the sub- «» Coleman v. Howe, 154 111. 458, 39 N. E. 725, 727, 45 Am. St. 133; National Tube Works v. Gilflllan, 124 N. Y. 302, 307, 26 N. E. 538; Coit V. North Carolina, &c. Co. 119 U. S. 343, 7 Sup. Ct. 231; Lloyd v. Preston, 146 U. S. 630, 13 Sup. Ct. 131. In Macbeth v. Baafield, 45 Ore. 553, 78 Pac. 693, 106 Am. St. 670, 680, it is said: "It is competent for the determination of the question to take into consideration the na- ture of the property, the purposes for which it is accepted, and all the conditions and circumstances at- tending and surrounding the trans- action; and if, from the whole, it appears that the hoard has acted in good faith, in the honest exercise of its best judgment, no adverse presumption pending, then are its acts conclusive, otherwise not. Clark Corporations, 380, 381; Van Cleve v. Berkey, 143 Mo. 109, 44 S. W. 743, 42 L. R. A. 593, 598; Boyn- ton V. Andrews, 63 N. Y. 93; Doug- lass V. Ireland, 73 N. Y. 100; Lake Superior Iron Co. v. Drexel, 90 N. Y. 87; Blyton Land Co. v. Birming- ham, &c. Co. 92 Ala. 407, 423, 9 South. 129, 12 L. R. A. 307, 25 Am. St. 65; Osgood v. King, 42 Iowa 478; Jackson v. Traer, 64 Iowa 469, 20 N. W. 764, 52 Am. R. 449." See, also, note in 42 L. R. A. 593. "Taggart v. Western Md. R. Co. 24 Md. 563, 89 Am. Dec. 760 n; Lowe V. Edgefield, &c. R. Co. 1 Head (Tenn.) 659; Ashtabula, &c. R. Co. V. Smith, 15 Ohio St. 328; Porter v. Raymond, 53 N. H. 519; Montpelier, &c: R. Co. V. Langdon, 46 Vt. 284; Bucksport, &o. R. Co. v. Buck, 68 Me. 81; Peoria, &c. R. Co. v. Pres- ton, 35 Iowa 115; Chartiers, &c. R. V. Hodgens, 85 Pa. St. 501; Mil- waukee, &c. R. Co. V. Field, 12 Wis. 340; Allman v. Havana, &c. R. Co. 88 111. 521; Monroe v. Fort Wayne, &c. R. Co. 28 Mich. 272; North, &c. R. Co. V. Winfree, 51 Ga. 318; note to Parker v. Thomas, 81 Am. Dec. 385, 398. See, also, Missouri Pac. R. Co. V. Tygard, 84 Mo. 263, 54 Am. R. 97. "' Swartout v. Michigan Air Line R. Co. 24 Mich. 389; Chamberlain v. Painesville, &c. R. Co. 15 Ohio St. 225. The electors of a county voted to subscribe for stock in the plain- tiff's railroad and issue the bonds of the county for the same, on con- dition that the railroad should be completed and in operation in the 183 CONDITIONAL SUBSCKIPTIONS. [§111 scription. is held to be absolute,'^ and the condition subsequent a separate contract on the part of the corporation to be enforced like other contracts.'^ Subscriptions made before incorporation and taken for the purpose of raising the capital required to secure incorporation under a general statute, must be absolute.** Advance subscriptions made upon condition are held void in New York/^ ■while the condition only is held void in Pennsylvania/® and the subscription is upheld as an absolute one. But the cases generally agree that a conditional subscription is not to be counted in estimating the stock subscribed,®^ county, by lease or otherwise, from a connection witli existing roads in the state, and, also, conditioned that the acceptance of the bonds issued in payment of the stock should constitute a covenant bind- ing upon the railroad company, its lessees or assigns, to maintain and operate^said line of road, by lease or otherwise, over its route for a term of ninety-nine years. The court held that an agreement by the rail- road company, executed after such subscription, to sell and transfer its road after it was completed, in or- der to obtain money for its construc- tion, did not discharge or release the county from the payment of its subscription. Southern, &c. R. Co. V. Tower, 41 Kans. 72. '= Belfast, &c. R. Co. v. Moore, 60 Me. 561, 576; Henderson, &c. R. Co. V. Leavell, 16 B. Mon. (Ky.) 358; Paducah, &c. R. Co. v. Parks, 86 Tenn. 554, 8 S. W. 842; Miller v. Pittsburgh, &c. R. Co. 40 Pa. St. 237, 80 Am. Dec. 570; Johnson v. Georgia, &c. R. Co. 81 Ga. 725. »=1 Cook Stock and Stockholders, § 78. " Boyd V. Peach Bottom R. Co. 90 Pa. St. 169, 1 Am. & Bng. R. Cas. 631; Troy, &c. R. Co. v. Newton, 8 Gray (Mass.) 596; Chamberlin v. Painesville, &c. R. Co. 15 Ohio St. 225; Brand v. Lawrenceville, &c. R. Co. 77 Ga. 506, 1 S. B. 255; New York, &c. R. Co. v. Hunt, 39 Conn. 75; Troy, &c. R. Co. v. Tlbbits, 18 Barb. (N. Y.) 297; Ellison v. Mobile, &c. R. Co. 36 Miss. 572. "'Troy, &c. R. Co. v. Tibbits, 18 Barb. (N. Y.) 297. == Boyd V. Peach Bottom R. Co. 90 Pa. St. 169; Caley v. Philadelphia, &c. R. Co. 80 Pa. St. 363. See, also, Burke v. Smith, 16 Wall. (U. S.) 390, 396. " Caley v. Philadelphia, &c. R. Co. 80 Pa. St. 363; California, &c. Co. v. Russell, 88 Cal. 277, 26 Pac. 105; Ticonic, &c. Co. v. Lang, 63 Me. 480; New York, &c. R. Co. v. Hunt, 39 Conn. 75; Boston, &c. R. Co. v. Wel- lington, 113 Mass. 79 ; Brand v. Law- renceville, &c. R. Co. 77 Ga. 506. Nor colorable or fictitious subscrip- tions. Memphis Branch R. Co. v. Sullivan, 57 Ga. 240. Nor subscrip- tions by persons having no reasona- ble expectation of being able to pay. Holman v. State, 105 Ind. 569, 5 N. E. 702; Belfast, &c. R. Co. v. Inhab- itants of Brooks, 60 Me. 568. See, also. Branch v. Augusta, &c. Works, 95 Ga. 573, 23 S. E. 128; Denny Ho- tel Co. V. Schram, 6 Wash. 134, 32 Pac. 1002, 36 Am. St. 137. But if there is good faith, insolvency of some may not be a defense for oth- ers. Penobscot R. Co. v. Dummer, 40 Me. 172, 63 Am. Dec. 654; Salem, &c. Corp. V. Ropes, 9 Pick. (Mass.) 187, 19 Am. Dec. 363. §' Ilia] SUBSCRIPTIONS. 184 and the better reason and weight of authority would seem to be that, when made for this purpose, only absolute subscriptions are valid and enforceable by either the subscriber or the corporation.'* Yet, a con- dition in a preliminary subscription that the organization shall not be completed until a certain amount of stock has been subscribed, is valid.'" And such a provision in the charter constitutes a condition precedent annexed to every subscription.^"" § Ilia. Implied conditions. — It is not only true that a provision in a charter to the effect that no subscription shall be enforceable until a certain amount of stock has been subscribed for is a condition prece- dent, but it is also held in many jurisdictions that w;here the capital stock is fixed, it is an implied condition, in the absence of anything to the contrary, that it shall all be subscribed for before a subscriber is ='1 Cook Stock and Stockholders, § 79, note. »» Penobscot, &c. R. Co. v. Dunn, 39 Me. 587; 'Philadelphia, &c. R. Co. V. Hickman, 28 Pa. St. 318. And, ac- cording to the weight of authority, there is even at common law, an implied condition that all the re- quired stock shall be subscribed be- fore a subscription shall become due. Anderson v. Middle, &c. R. Co. 91 Tenn. 44, 52 Am. & Eng. R. Cas. 149, 151; Denny Hotel Co. v. Schram, 6 Wash. 134, 32 Pac. 1002, 36 Am. St. 130; Salem Mill Dam Corp. v. Ropes, 6 Pick. (Mass.) 23; Llvesey v. Omaha Hotel Co. 5 Neb. 50, and authorities there cited; Peoria, &c. R. Co. v. Preston, 35 Iowa 115; New Hampshire Cent. R. Co. v. Johnson, 30 N. H. 390, 64 Am. Dec. 300, 23 Am. & Eng. Ency. of Law 840, and authorities cited in note. But see Agtoria, &c. R. Co. v. Hill, 20 Ore. 177; Newcastle, &c. R. Co. V. Bell, 8 Blackf. (Ind.) 584; Chubb V. Upton, 95 U. S. 665; Che- raw, &c. R, Co. V. White, 14 S. Car. 51; Stewart v. Minnesota, &c. R. Co. 36 Minn. 355 (as to rights of creditors). See, also, ante, § 18. ™ Memphis Branch R. Co. v. Sulli- van, 57 Ga. 240; Peoria, &c. R. Co. v. Preston, 35 Iowa 115; New Hamp- shire, &c. R. Co. V. Johnson, 30 N. H. 390, 64 Am. Dec. 300; Somerset R. Co. V. Clarke, 61 Me. ,379. Sub- scribers for stock of an incorporated company, whose capital Is fixed at a certain sum, whose shares are limited to a certain number, and whose charter provides that pay- ment shall be made as may be de- termined by the board of directors, cannot be compelled to pay until the whole capital has been subscribed for and the board has called for payment, unless It Is shown that by their acts they have waived their rights in those regards. Exposition R. &c. JSo. V. Canal St. E. R. Co. 42 La. Ann. 370. This Is the common- law rule where the charter does not otherwise provide, but such, defense may be waived by the subscriber. Masonic Temple Ass'n v. Channell, 43 Minn. 353; International, &c. Ass'n V. Walker, 83 Mich. 386, 47 N. W. 338, 3 Lewis' Am. R. & Corp. 731. 185 IMPLIED OONDITIOHS. [§ Ilia liable upon his subscription. Thus it is said: "It is a general and well-settled rule, subject to a few qualifications only, that where the capital stock of a corporation is fixed, it is implied in every contract of subscription, as a condition precedent to liability thereunder, that all the capital stock must be subscribed. Until all the capital stock is subscribed, payment of his subscription or any part thereof cannot be required of any subscriber."^"* But if the subscription contract or agreement shows a contrary intention there is no room for such an ^"Note to Gettysburg Nat. Bank V. Brown (95 Md. 367), in 93 Am. St. 339, 368; Stoneham Branch R. Co. V. Gould, 68 Mass. 277; Contuo- cock Valley R. Co. v. Barker, 32 N. H. 363. See, also, Santa Cruz R. Co. V. Schwartz, 53 Cal. 106; Stearns V. Sopris, 4 Colo. App. 191, 35 Pac. 281; Allman v. Havana, &c. R. Co. 88 111. 521; McCoy v. World's Co- lumbian Exposition, 186 111. 356, 57 N. E. 1043, 78 Am. St. 288; Hoag- land V. Cincinnati, &c. R. Co. 18 Ind. 452; Peoria, &c. R. Co. v. Pres- ton, 35 Iowa 115; Exposition R., &c. Co. V. Canal St. &c. R. Co. 42 La. Ann. 370, 7 So. 627; Somerset, &c. R. Co. V. Gushing, 45 Me. 524; Somer- set, &c. R. Co. V. Clarke, 61 Me. 379; Rockland, &c. Co. v. Sewall, 78 Me. 167, 3 Atl. 181, 80 Me. 400, 14 Atl. 939; Hughes v. Aiitietam Mfg. Co. 34 Md. 316; Musgrove v. Morrison, 54 Md. 161; Worcester, &c. R. Co. v. Hinds, 62 Mass. 110; Shurtz v. Schoolcraft, &c. R. Co. 9 Mich. 270; International, &c. Assn. v. Walker, 88 Mich. 62, 49 N. W. 1086; Curry Hotel Co. v. Mullins, 93 Mich. 318, 53 N. W. 360; Masonic Temple Ass'n V. Chanwell, 43 Minn. 353, 45 N. W. 716; Duluth Inv. Co. v. Witt, 63 Minn. 538, 65 N. W. 956; Haskell v. Worthington, 94 Mo. 560, 7 S. W. 481; Sedalia, &c. R. Co. v. Abell, 17 Mo. App. 645; McCann v. American Cent. Ins. Co. 4 Neb. 256; Macfar- land V. West Side, &c. Assn. 53 Neb. 417, 73 N. W. 736; Jewett v. Valley R. Co. 34 Ohio St. 601; Astoria, &c. R. Co. V. Hill, 20 Ore. 177, 25 Pac. 379; Read v. Memphis, &c. Gas Co. 56 Tenn. 545; Anderson v. Middle, , &c. R. Co. 91 Tenn. 44, 17 S. W. 803; Galveston Hotel Co. v. Bolton, 46 Tex. 633; Norwich Lock Mfg. Co. V. Hockaday, 89 Va. 557, 16 S. E. 877; Denny Hotel Co. v. Schram, 6 Wash. 134, 32 Pac. 1002, 36 Am. St. 130; Birge v. Browning, 11 Wash. 249, 39 Pac. 643; Greenbrier Industrial Exp. v. Ocheltree, 44 W. Va. 626, 30 S. B. 78; Milwaukee Brick, &c. Co. v. Schoknecht, 108 Wis. 457, 84 N. W. 838; Wontner v. Shairp, 4 Com. B. 404. But see South. Ga., &c. R. Co. v. Ayres, 56 Ga. 230; Rensselaer, &c. Plank Road Co. V. Wetsel, 21 Barb. (N. Y.) 56; Schenectady Plank Road Co. v. Thacher, 11 N. Y. 102; Lynch v. Eastern, &c. R. Co. 57 Wis. 430, 15 N. W. 743, 825. As to the rule where the capital stock is not fixed, see note in 93 Am. St. 375, citing apparently conflicting authorities from the same states, most' of which, however, may probably be reconciled in view of the fact that in all or nearly all of those holding that there was no such implied con- dition there was an express promise to pay, and that both the fact of the express promise and of the capi- tal not being fixed were influential factors in the decision. § 113] SDBSCEIPTIONS. 186 implication,^"^ and an express unconditional provision to pay has been held in some cases to evince such an intention."' So, the matter is frequently regulated and determined by statute.^"* And a subscriber may be responsible for preliminary expenses, even though not subject to calls and assessments for the general purpose of the corporation.^"^ § 112. Valid and invalid conditions. — Where the condition is that the capital stock shall be limited to a certain amount, a subscription in excess thereof cannot be enforced by the corporation.^"' Parol con- ditions annexed to an absolute subscription are held void as a fraud upon the corporate creditors and other subscribers who are injured thereby,^"^ and the subscription is enforceable according to its terms. ™Arkadelphia Cotton Mills v. Trimble, 54 Ark. 316, 15 S. W. 776; Troy, &c. R. Co. v. Newton, 74 Mass. 596; Sedalia, &c. R. Co. v. Abell, 17 Mo. App. 645; Anderson v. Mid- dle, &c. R. Co. 91 Tenn. 44, 17 S. W. 803. '"'See West v. Crawford, 80 Cal. 19, 21 Pac. 1123; Lail v. Mt. Sterling Coal Road Co. 76 Ky. 32; Skow- liegan, &c. R. Co. v. Kinsman, 77 Me. 370; Rockland, &c. Co. v. Sewell, 80 Me. 400, 14 Atl. 939. *"' See San Bernardino, &c. Co. v. Merrill, 108 Cal. 490, 41 Pac. 487; Mandel v. Swan, &c. Co. 154 111. 177, 40 N. B. 462, 45 Am. St. 124; Anglo- American, &c. Co. V. Dyer, 181 Mass. 593, 64 N. E. 416; Pairview R. Co. V. Spillman, 23 Ore. 587, 32 Pac. 688. This the statutes frequently provide for organizing and doing business when a certain amount less than all the stock is subscribed, and a subscriber is generally liable in such a case, having subscribed with reference to such provision. See Jewett V. Valley R. Co. 34 Ohio St. 601; Hanover Junction R. Co. v. Haldeman, 82 Pa. St. 36; Milwau- kee, &c. Co. V. Schoknecht, 108 Wis. 457, 84 N. W. 838, and other au- thorities cited in note in 93 Am. St. 373. ^* Covington, &c. R. Co. v. Moore, 3 Ind. 510; Salem Mill, &c. Corp. V. Ropes, 23 Mass. 23; Littleton Mfg. Co. V. Parker, 14 N. H. 543; Anvil Min. Co. v. Sherman, 74 Wis. 226, 42 N. W. 226, 4 L. R. A. 232 n. Such a condition is waived if the subscriber, with knowledge that the required proportion of the stock has not been subscribed attends the meetings of the company and par- ticipates in its organization, but not if he acted in ignorance of the fact that the required stock had not been subscribed. Pairview, &c. R. Co. V. Spillman, 23 Ore. 587, 32 Pac. 688; Auburn Opera. House, &c. v. Hill (Cal.), 32 Pac. 587; Interna- tional, &c. Ass'n V. Walker, 97 Mich. 159, 56 N. W. 344. ^"Burrows v. Smith, 10 N. Y. 550; Oler V. Baltimore, &c. R. Co. 41 Md. 583; Clark v. Turner, 73 Ga. 1; Merrill v. Gamble, 46 Iowa 615. See, also, Laredo Imp. Co. v. Stevenson, 66 Fed. 633. '"New Albany, &c. R. Co. v. Fields, 10 Ind. 187; Kishacoquillas, &c. R. Co. V. McConaby, 16 Serg. & R. (Pa.) 140; Robinson v. Pitts- burg, &c. R. Co. 32 Pa. St. 334; Philadelphia, &c. R. Co. v. Conway, 177 Pa. St. 364, 35 AU. 716; Connec- ticut, &c. R. Co. V. Bailey, 24 Vt. 187 CONDITIONAL SUBSCRIPTION AN OFFEE UNTIL ACCEPTED. [§ 113 It cannot even be varied by a separate written contract executed at the time the subscription was made, if such separate contract was un- known to other subscribers and creditors.^"* But any condition which can be legally^"^ performed or complied with by the corporation,^^" may be annexed to a subscription given for stock in a corporation which is already organized, if such condition be expressed therein.^^^ A condition will be presumed to have been made when the subscrip- tion was given, in the absence of proof to the contrary,^^^ and will be held valid when annexed to the subscription after it was given, if done with the consent of all the parties, and for a consideration.^^* § 113. Conditional subscription is a mere offer until accepted. — A conditional subscription usually constitutes only an offer on the part of the subscriber until it is accepted by the corporation,^^* after which. 465, 58 Am. Dec. 181; Preston v. Grand Collier Dock Co. 2 Eng. Rail. & Canal Cas. 335; Davidson's Case, 3 DeG. & S. 21; Mann v. Cooke, 20 Conn. 178; Chouteau Co. v. Floyd, 74 Mo. 286; Ridgefield, &c. R. Co. V. Brush, 43 Conn. 86; Johnson v. Pensacola, &c. R. Co. 9 Fla. 299; Mississippi, &c. R. Co. v. Cross, 20 Ark. 443. "» Brownlee v. Ohio, &c. R. Co. 18 Ind. 68; White Mountains R. Co. v. Eastman, 34 N. H. 124; Meyer v. Blair, 109 N. Y. 600, 17 N. B. 228. 4 Am. St. 500. ™ As to the effect of an ultra vires condition in a subscription, see Pel- latt's Case, L. R. 2 Ch. 527; Thig- pen V. Mississippi, &c. R. Co. 32 Miss. 347. See, also. Morrow v. Nashville, &c. Co. 87 Tenn. 262, 10 S. W. 495, 3 L. R. A. 37, 10 Am. St. 658; Laredo Imp. Co. v. Stevenson, 66 Fed. 633. ™ Penobscot, &c. R. Co. v. Dunn, 39 Me. 587; Louisville, &c. R. Co. t. Sumner, 106 Ind. 55, 60, 55 Am. R. 719; Ashtabula, &c. R. Co. v. Smith, 15 Ohio St. 328; McMillan v. Mays- ville, &c. R. Co. 54 Ky. 218, 61 Am. Dec. 181; Dayton, &c. R. Co. v. Hatch, 1 Disney (Cin. Super. Ct.) 84; Lake Ontario Shore R. Co. v. Curtiss, 80 N. Y. 219. See Chicago, &c. R. Co. V. Aurora, 99 111. 205, where it is held that a town may issue railroad aid bonds, payable upon a condition which can not le- gally be fulfilled. "^ For conditions which have been held valid see 1 Cook Stock and Stockholders, § 83; 23 Am. & Eng. Ency. of Law, 836, 837. ""Robinson v. Pittsburg, &c. R. Co. 32 Pa. St. 334, 72 Am. Dec. 792. ™ Pittsburg, &c. R. Co. v. Stew- art, 41 Pa. St. 54; New Hampshire Cent. R. Co. v. Johnson, 30 N. H. 390, 64 Am. Dec. 300; Tonica, &c. R. Co. V. Stein, 21 111. 96. "* Junction R. Co. v. Reeve, 15 Ind. 236. See, also, Cass v. Pitts- burg, &c. R. Co. 80 Pa. St. 31; Tag- gart V. Western Md. R. Co. 24 Md. 563, 89 Am. Dec. 760. But see Mans- field, &c. R. Co. V. Stout, 26 Ohio St. 241, to the effect that the ques- tion of acceptance is immaterial where the corporation has fully per- formed the condition imposed. The death of the subscriber before ac- ceptance of a conditional subscrip- §114] SUBSCRIPTIONS. 188 Tipon performance of the condition, it has the binding force of any- other subscription,^^' but it has been held that such a subscription may be recalled if there is an unreasonable delay in accepting it.^^* So, a gratuitous subscription with only one signer is said to be an offer, which, until accepted by the promisee in express terms, or by a performance of the conditions stipulated therein, is but a nudum pactum, and cannot be enforced, against the will of the subscriber, by an action at law.^^^ § 114. Subscriptions in escrow — ^Parol evidence. — A contract of subscription to capital stock, absolute on its face, may, like any other contract, be delivered to a third person to be held in escrow until the performance of certain conditions. But if delivered to the railroad company it becomes valid and binding, and the delivery is effectual to convey title to the company.^^* Where a subscription is delivered in tion amounts to a revocation. Wal- lace V. Townsend, 43 Ohio St. 537, 54 Am. R. 829; Sedalia, &c. R. Co. V. Wilkinson, 83 Mo. 235. Where the acceptance must be formal, as in an offer to give land In payment for stock, it must be by the board of directors, or a specially author- ized agent, so as to bind the com- pany to issue stock In exchange for It before the subscriber will be bound. An acceptance by less than a quorum of the directors will not bind him. Junction R. Co. v. Reeve, 15 Ind. 236. ""New Albany, &c. R. Co. v. Mc- Cormick, 10 Ind. 499, 71 Am. Dec. 337; Ashtabula, &c. R. Co. v. Smith, 15 Ohio St. 328; Armstrong v. Karshner, 47 Ohio St. 276, 24 N. B. 897; Webb v. Baltimore, &c. R. Co. 77 Md. 92, 39 Am. St 396, 54 Am. & Eng. R. Cas. 202. Immediately upon performance of the condition, a promise on the part of the sub- scriber to pay, and of the company to issue Its stock upon such pay- ment, is implied. Mansfield, &c. R. Co. V. Brown, 26 Ohio St. 223; St. Paul, &c. R. Co. V. Robbins, 23 Minn. 439. "»Taggart v. Western Md. R. Co. 24 Md. 563, 89 Am. Dec. 760 n. See, also, Wood's Case, L. R. 15 Eq. 236, holding that notice of such recall may be given to the secretary. That a conditional subscription may be revoked while still in the hands of the corporate agent, see Lowe v. Edgefield, &c. R. Co. 1 Head (Tenn.) 659. "'Broadbent v. Johnson, 2 Idaho 300, 13 Pac. 83. ™ Cass V. Pittsburg, &c. R. Co. 80 , Pa. St. 31; Madison, &c. Co. v. Ste- vens, 10 Ind. 1; Wight v. Shelby R. Co. 16 B. Mon. (Ky.) 4, 63 Am. Dec. 522, where delivery was made to a commissioner to take subscriptions. But a director not authorized to take subscriptions directly may hold one in escrow. Ottawa, &c. R. Co. V. Hall, 1 Bradw. (111.) 612. And it has been held that where the subscription was left in the hands of an agent to solicit sub- scriptions with directions, to which he assented, to hold it until the sub- scriber made investigations and not to deliver it to the company until the subscriber directed him to do so, and the subscriber, on the inves- 189 "WAIVER OF CONDITIONS. [§ 115 escrow, parol evidence is admissible to show the conditions upon which it is held.^^' But such evidence is not, as a rule, admissible to estab- lish an escrow in the hands of the eompany,^^" although it has been held admissible to show that a subscription left with a soliciting agent was not to be delivered until the subscriber should, have made an in- vestigation and directed its delivery, and that, upon the investigation proving unsatisfactory, he had at once notified the agent to withhold and cancel it.^^^ If a subscription, delivered to a committee of citi- zens to be held as an escrow to await the performance of certain parol 'conditions annexed thereto, be delivered to the company before the condition is fulfilled, such delivery is ineffective, and the subscription cannot be enforced.^^^ When a subscription is given on a separate pa- per, parol evidence is admissible to show that it was to be annexed to the books only on the performance of certain eonditions.^^^ So, on the other hand, it has been held that where a subscription is in the name of a party as "trustee" it may be shown by parol evidence that he acted as agent for others, and creditors, or a receiver appointed at their instance, may maintain an action to recover the subscription from the real parties in interest.^^* §' 115. Waiver of conditions. — The condition may be waived by the subscriber, by express agreement,^^^ by acting as an officer of the tigation proving unsatisfactory, im- ered only upon the performance of mediately notified the agent to with- conditions annexed. Saginaw, &c. hold and cancel it, the subscriber R. Co. v. Chappell, 56 Mich. 190. did not become a stockholder and "' Bucher v. Dlllsburg, &c. R. Co. was not liable thereon. Great West- 76 Pa. St. 306; Tonica, &c. R. Co. v. ern Tel. Co. v. Loewenthal, 154 111. Stein, 21 111. 95. 261, 40 N. E. 318. ™Cole v. Satsop R. Co. 9 Wash. ™ Ottawa, &c. R. Co. v. Hall, 1 487, 43 Am. St. 858. But see as to Bradw. (111.) 612; Great Western the inadmissibility of parol evi- Tel. Co. V. Loewenthal, 154 111. 261, dence generally, Smith v. Tallahas- 40 N. E. 318. see, &c. Co. 30 Ala. 650; Martin v. ""Wight V. Shelby R. Co. 55 Ky. Pensacola, &c. R. Co. 8 Pla. 370, 73 4, 63 Am. Dec. 522. Am. Dec. 713; New Albany, &c. R. "'Great Western Tel. Co. v. Loew- Co. v. Fields, 10 Ind. 187; Wight v. enthal, 154 111. 261, 40 N. E. 318. Shelby R. Co. 16 B. Mon. (Ky.) 4, See, also, Cass v. Pittsburg, &c. R. 63 Am. Dec. 522; Kennebec, &c. R. Co. 80 Pa. St. 31. Co. v. Waters, 34 Me. 369; Miller v. '''^Beloit, &c. R. Co. v. Palmer, 19 Hanover, &c. R. Co. 87 Pa. St. 95, Wis. 574. The same is true if it be 30 Am. R. 349. put into the hands of a special "= Hanover Junction, &c. R. Co. v. agent of the company to be deliv- Haldeman, 82 Pa. St. 36. The con- §■ 115] SUBSCEIPTIONS. 190 corporation/^^ by paying the whole subscription,^''^ or giving an abso- lute, promissory note therefor,^^^ or by any act, with knowledge of the facts, which shows an intention to hold himself to' be an absolute shareholder in the enterprise.^^' So, as a general rule, any acts on the part of the subscriber which have induced others to act in reliance upon the fact that he was a stockholder will be suflRcient to establish such a waiver or estoppel without any necessity for showing that either the corporation or any other subscriber has in fact been in- fluenced by such acts.^^" The rule as to waiver of the implied con- ditions implied by law in subscrip- tions to stock, that payment shall not be enforced until all the stock is subscribed is waived by the sub- scribers to the stock of a railroad company expressly agreeing, for the purpose of enabling the company to build a certain part of its road, to pay their subscriptions; and if the company acts upon this agreement and constructs the road, the sub- scribers making such an agreement must pay, though others do not. An- derson V. Middle, &c. Tenn. Cent. R. Co. 91 Tenn. 44, 52 Am..& Eng. R. Gas. 149. As to waiver of such condition by express agreement, see, also, Skowhegan, &c. R. Co. v. Kins- man, 77 Me. 370. ''"Dayton, &c. R. Co. v. Hatch, 1 Disney (Cin. Super. Ct.) 84; Lane V. Brainerd, 30 Conn. 565. See, also, Macfarland v. West Side Imp. Ass'n, 53 Neb. 417, 73 N. "W. 736. "'Parks V. Evansville, &c. R. Co. 23 Ind. 567. "= Evansville, &c. R. Co. v. Dunn, 17 Ind. 603; Slipher v. Earhart, 83 Ind. 173; Chamberlain v. Paines- ville, &c. R. Co. 15 Ohio St. 225. But when the company's agent in- duces the subscriber to execute the notes by means of falsely represent- ing that the condition has been com- plied with, their execution is not a waiver. Taylor v. Fletcher, 15 Ind. 80. See, also, Parker v. Thomas, 19 Ind. 213, 81 Am. Dec. 385 n. And where payments are made under a mistaken belief induced by false and fraudulent representations that the condition has previously been performed, such payment is not a waiver. Ridgefleld, &c. R. Co. v. Brush, 43 Conn. 86; Somerset, &c. R. Co. V. Cushing, 45 Me. 524; Mor- ris, &c. Co. V. Nathan, 2 Hall (N. Y.) 239. The note given subsequent to the contract of subscription can not be regarded as forming a part of such contract and so is not sub- ject to the conditions annexed to it. O'Donald v. Evansville, &c. R. Co. 14 Ind. 259. •=» Parks V. Evansville, &c. R. Co. 23 Ind. 567; Parker v. Thomas, 19 Ind. 213, 81 Am. Dec. 385 n; Willa- mette Freighting Co. v. Stannus, 4 Ore. 261. See, also, California, &c. Co. V. Callender, 94 Cal. 120, 29 Pac. 859, 28 Am. St. 99; Hendrix v. Acad- emy of Music, 73 Ga. 437; Hards v. Platte Val. &c. Co. 35 Neb. 263, 53 N. W. 73; Fairview, &c. R. Co. v. Spillman, 23 Ore. 587, 32 Pac. 688; note in 93 Am. St. 380-383. Delay in cancelling a subscription may bind one where it shows an inten- tion to become an absolute stock- holder. Wheatcroft's Case, 29 L. T. R. 324. "° Railway Co. v. Lacey, 3 Younge & J. 80. 191 "WAIVER OF CONDITIOHrS. [§ 115 dition that no subscription shall be payable until all of the capital stock has been subscribed is well stated in a recent case, as follows: *'The courts, in stating what will estop the subscriber, or prevent his being heard to make the objection (that the full capital stock of the corporation has not been subscribed) refer only to his acts, and do not include the fact that they did influence others. If a technical estoppel were required to prevent a subscriber withdrawing his sub- scription on this ground much fraud might be committed; for, if it must be shown that the corporation or some subscriber, of whom there may be many hundreds or even thousands, was in fact influenced by the acts of the subscriber who seeks to withdraw, it might be impos- sible to prove the fact, even though it exist. The safer rule in such a ease is that, if his acts are of such a character that either the corpora- tion or subscribers may have been induced by them to act, and will be prejudiced if he be permitted to withdraw, he shall be held to have waived, or to be estopped to assert the defense. It is immaterial which word is used, except, perhaps, for the sake of strict verbal ac- curacy ."^^^ A waiver will generally be implied if the subscriber consents to the letting of contracts, the creation of debt, or the doing of any corporate act involving the necessity of calling in the subscribed stock, unless the charter expressly forbid the doing of any corporate act until the requisite capital is subscribed.^^^ An express condition may also be waived or qualified by another clause of the agreement which is inconsistent with it.^^' But a subscriber's mere silence,^'* or a part payment,^^^ or soliciting subscriptions and permitting him- self to be chosen to a corporate ofiice, without acting as such,^^" is not .necessarily such a waiver. Nor, in general, is participation in any acts done for perfecting the organization and setting it on its feet for business, such as preparing and procuring the execution of the ar- ticles, procuring subscriptions to its stock, preparing by-laws for its ™ Masonic Temple Ass'n v. Chan- R. Co. v. Stewart, 41 Pa. St. 54. But nell, 43 Minn. 353, 45 N. W. 716. see Klein v. Alton, &c. R. Co. 13 111. "^Anderson v. Middle, &c. Tenn. 514. The distinction is made as to Cent. R. Co. 91 Tenn. 44, 52 Am. & whether the payments are such as Bug. R. Cas. 149. to entitle the suhscriber to demand ^^ Woonsocket Union R. Co. v. his stock and preclude the company Sherman, 8 R. I. 564. from denying that he is a stock- '" Burlington, &c. R. Co. v. Boest- holder. Appeal of Mack (Pa.), 7 ler, 15 Iowa 555; Bucksport, &c. R. Atl. 481. See, also, Parks v. Evans- Co. V. Inhabitants, &•; 67 Me. 295. ville, &c. R. Co. 23 Ind. 567. i»» Jewett v. Lawrencehurgh, &c. '=" Ridgefield, &c. R. Co. v. Bejr- R. Co. 10 Ind. 539; Pittsburg, &c. nolds, 46 Conn. 375. 116] SDBSCKIPTIOBTS. 192 government, and the like, to be considered a waiver of the condition that the corporation shall not begin business until the capital stock is all subscribed, for these things are proper, and to some extent neces- sary to be done, although the subscriptions are incomplete.^^' If the annexed condition be a reserved right to withdraw the subscription, this right must be exercised within a reasonable time or it will be held to be waived.^^* §116. When conditional subscription becomes payable. — Where certain acts are to be done within a specified time, the expiration of the time without performance will generally operate to discharge the subscriber from liability,^^° at least where they are conditions prece- dent and time is of the essence. A subscription made on condition that the road shall be "permanently" located on a certain route becomes payable when the route is adopted by the directors,^ ^° but a change in the route so that it does not fulfill the conditions, after part of the money is paid, may enable the subscriber to recover his money.^*^ Whether the conditions have been performed is a question of fact which may be proved by parol,^*^ as may fraud or bad faith on the ^'" Glllfillan, C. J., In Masonic Tem- ple Assn. V. Channell, 43 Minn. 353; Oldtown, &c. R. Co. v. Veazie, 39 Me. 571; Memphis, &c. R. Co. v. Sullivan, 57 Ga. 240. See, also, Live- sey V. Omalia, &c. Co. 5 Neb. 50; In- ternational, &c. Assn. V. Walker, 88 Mich. 62, 49 N. "W. 1086. ^ Wilmington, &c. R. Co. v. Robe- son, 5 Ired. (N. C.) 391. ""Freeman v. Matlock, 67 Ind. 99; Moore v. Campbell, 111 Ind. 328, 12 N. B. 495; Memphis, &c. R. Co. v. Thompson, 24 Kans. 170; Portland, &c. R. Co. V. Inhabitants, &c. 58 Me. 23. See, also, Cincinnati, &c. R. Co. V. Bensley, 51 Fed. 738, 19 L. R. A. 796. Where performance of the con- dition was completed soon after the expiration of the time, and the sub- scriber neglected to take his name off the books, he was held bound. Lee V. Imbrie, 13 Ore. 510, 11 Pac. 270. And see Missouri Pac. R. Co. V. Tygard, 84 Mo. 263, 54 Am. R. 97. See, however, Freeman v. Mat- lock, 68 Ind. 99. »° Smith V. Allison, 23 Ind. 366. '" Jewett V. Lawrenceburgh, &c. R. Co. 10 Ind. 539. But if the change is unauthorized by law it is said that the alteration is inopera- tive and the subscription not made voidable. Danbury, &c. R. Co. v. Wilson, 22 Conn. 435, 456. ^" St. Louis, &c. R. Co. V. Eakins, 30 Iowa 279; Jewett v. Lawrence- burgh, &c. R. Co. 10 Ind. 539. See, also, Toledo, &c. R. Co. v. Johnson, 49 Mich. 148; Brand v. Lawrence- ville Branch R. Co. 77 Ga. 506, 1 S. E. 255. In some cases proof is made by the corporate records. Penob- scot, &c. R. Co. V. Dunn, 39 Me. 587. And the burden is usually upon the company. Santa Cruz R. Co. v. Schwartz, 53 Cal. 106; Bucksport, &c. R. Co. V. Buck, 65 Me. 536; Chase v. Sycamore, &c. R. Co. 38 111. 215. 193 CONDITIONAL SUBSCRIPTIONS. [§ 117 part of the corporation or its officers in this conneetion.^*^ Where the agreement leaves the question as to when the condition has been per- formed to the judgment of the directors, their decision, if made in good faith, is final.^** Notice of such performance must usually be given to the subscriber, and payment denjanded before the subscrip- tion will become payable.^*^ But a formal notice of performance is not necessary before suit, where the subscriber has actual knowledge that the condition has been fulfiUed.^*^ Property subscribed in pay- ment for stock taken must be specially demanded by the corporation, if no time is fixed for delivery.^*' And upon the failure of the sub- scriber to furnish the property, the subscription becomes payable in cash.^*' § 117. Construction of conditional subscriptions — ^What is a suffi- cient compliance with condition as to time of beginning and complet- ing road. — The conditions most commonly annexed to subscriptions to the stock of a railroad company relate to the time of beginning and completing the road, or to the route over which the road shall riin. Where the condition requires the railroad to be begun or finished be- fore a certain date, it is held that time is of the essence of the eon- tract,^ *° and the subscriber may be discharged from liability by a fail- ure to comply with the condition. But a substantial compliance is suflScient,^^" while a mere colorable compliance with a condition that '« New York Ex. Co. v. De Wolf, ^" Haywood, &c. R. Co. v. Bryan, 31 N. Y. 273. But see Ellison v. Mo- 6 Jones L. (N. Car.) 82; Sperry v. bile, &c. R. Co. 36 Miss. 572. Johnson, 11 Ohio 452. ^« Cass V. Pittshurg, &c. R. Co. 80 "» Jackson v. Shortridge, 29 Tex. Pa. St. 31. 394, 94 Am. Dec. 290; Ticonic, &c. '" Chase v. Sycamore, &c. R. Co. 38 Co. v. Lang, 63 Me. 480; Burlington, 111. 215; Trott v. Sarchett, 10 Ohio &c. R. Co. v. Boestler, 15 Iowa 555; St. 241; 1 Cook Stock and Stock- Memphis, &c. R. Co. v. Thompson, holders, § 89. Contra, Spartanburg, 24 Kans. 170; Freeman v. Matlock, &c. R. Co. V. De Graffenreid, 12 Rich. 67 Ind. 99. But see Johnson v. Kess- L. CS. C.) 675. ler, 76 Iowa 411, 41 N. W. 57. "'New Albany, &c. R. Co. v. Mc- ""Missouri Pac. R. Co. v. Tygard, Cormick, 10 Ind. 499, 71 Am. Dec. 84 Mo. 268, 54 Am. R. 97; Hall v. 337. See, also, Nichols v. Burling- Sims, 106 Ala. 56, 17 So. 534; South- ton, &c. Co. 4 Greene (Iowa) 42; ern Kansaa, &c. R. Co. v. Towner, Spartanburg, &c. R. Co. v. De Graf- 41 Kans. 22; Freeman v. Matlock, fenreid, 12 Rich. L. (S. Car.) 675. 67 Ind. 99; Brocaw v. Board, &c. 73 "'Ohio, &c. R. Co. V. Cramer, 23 Ind. 543; Fort Worth, &c. R. Co. v. Ind. 490. See McClure v. People's Williams, 82 Tex. 553, 18 S. W. 206; R. Co. 90 Pa. St. 269. Williams v. Ft. Worth, &c. R. Co. 82 Eli,. Railroads — 13 117] SUBSOEIPTIONS. 194 the road should be completed and a train run over the road by laying a temporary track, over which an engine and a few cars are run, but which must be replaced by another before regular trains can be run, would not be sufficient to bind the subseriber.^^* A condition that Tex. 553, 18 S. "W. 206. See, also. Hunt V. Upton (Wash.), 87 Pac. 56. But compare Toledo, &c. R. Co. v. Hinsdale, 45 Ohio St. 556, 15 N. E. 665; Martin v. Pensacola R. Co. 8 Fla. 390, 73 Am. Dec. 713. The road may be substantially built to a cer- tain point, although a depot has not been erected nor a station agent em- ployed. Ogden V. Kirby, 79 111. 555. The court held it a substantial com- pliance where the road was not finally completed for two and a half months after the stipulated time. De Moines Valley R. Co. v. Graff, 27 Iowa 99, 1 Am. R. 256. See, also, Missouri Pac. R. Co. v. Tygart, 84 Mo. 264. A condition in the vote of bonds by a county In aid of a railroad company, that it shall es- tablish and maintain a division ter- minus at a point situated between two named cities in the county, is substantially complied with if the terminus is established at a point on the line of the road between the two cities a few rods off from a di- rect line between them. Chicago, &c. R. Co. V. (Board, etc.) Harris, 49 Kans. 399, 30 Pac. 456. See, also, Wullenwaber v. Dunigan, 30 Neb. 877. '"Freeman v. Matlock, 67 Ind. 99; Brocaw v. Board, &c. 73 Ind. 543; Paris, &c. R. Co. v. Henderson, 89 III. 86. The condition is not ful- filled by making a temporary ar- rangement by which cars are run to the required terminus over a por- tion of another company's track. Lawrence v. Smith, 57 Iowa 701; Indianapolis, &c. R. Co. v. Holmes, 101 Ind. 348. A person subscribed $6,000 in aid of a railroad company, "one-half of said sum to be due and payable when said company shall construct or secure a continuous line of railway from T. to M." Trains ran from T. into M. over the road In the specified time, but the road belonging to the company only extended to D., and from D. to T.; trains were run over the road of another company under an arrange- ment by which the track was to be used by the new company, but in subordination to the use of the com- pany owning. The court held that there was no performance under which the subscriber could be held upon his subscription. Brown v. Dibble, 65 Mich. 520, 32 N. W. 656. See, also. Tabor, &c. R. Co. v. Mc- Cormick, 90 Iowa 446, 57 N. "W. 949. But see People v. Holden, 82 111. 93, where the company used one mile of track and terminals belonging to another railroad company in order to reach one of the towns named in the condition, and it was held to be a sufficient compliance to render the subscriber liable. A notice of elec- tion stated that the question to be submitted was whether aid should be voted for the construction of a railroad between W. and a point on the "W, R. Co. in W. county, the pe- tition stated that the road should be completed so that trains could be run from W. to L. on the line of the W. R. Co. by a stated time. It was held that the company was not re- quired to build an independent, con- tinuous line to L., but a junction with the W. R. Co. was sufficient. Young V. Webster City, &c. R. Co. 75 Iowa 140. 195 SUBSCEIPTIONS PAYABLE -AS WORK PEOGEESSES, ETC. [§ 118 "cars shall run to B, upon a completed railroad from B," is, however, sufBciently complied with by running leased cars over the road.^'^ Where payment is to be made upon completion of a portion of the road, it is not necessary that it be made a first-class road before pay- ment can be enforced, but the specified portion must be substantially finished and capable of being operated for the transaction of railroad business.^^* Upon such a completion of the specified part of the road the subscription becomes an absolute one.^^* § 118. Subscriptions payable as work progresses, or upon expendi- ture of a certain amount. — Subscriptions are sometimes made payable as the work progresses, or upon the construction of a certain portion of the work, or the expenditure of a certain sum or percentage. Such a stipulation in the contract of subscription may operate as a waiver of the implied condition that all the stock shall be subscribed before any subscription can be collected, and an agreement by subscribers to pay their subscription as the work progresses, in order to enable the company to build a certain portion of the road, will operate as such a waiver and render such subscribers liable to pay their sub- scription as the specified portion of the work is done under the agree- rnent.^^^ Where a subscription when made was ;unauthorized and in- ^^ Courtright v. Deeds, 37 Iowa completed if it receives and retains 603. But see St. Louis, &c. R. Co. stoclc. Lancaster County v. Cheraw, V. Houck (Mo. App.), 97 S. W. 963. &c. R. Co. 28 S. C. 134, 5 S. E. 338. 1=3 Armstrong v. Karshner, 47 Ohio ^" Webb v. lialtimore, &c. R. Co. St. 276. When the company has 77 Md. 92, 26 Atl. 113, 39 Am. St. constructed a road which is reason- 396, 54 Am. & Bng. R. Cas, 202. The ably safe, fit and convenient for the entire road need not be completed public use and accommodation, as in such a case before the subscrip- new railroads are ordinarily used tion can be collected. Gardner v. in similar localities, it has com- Walsh, 95 Mich. 505, 55 N. W. 355, plied with a condition in a vote of 59 Am. & Eng. R. Cas. 1. a municipal corporation granting ™ Anderson v. Middle & East aid in the construction of the rail- Tenn. Cent. R. Co. 91 Tenn. 44, 17 road, that it shall be paid when the S. W. 803, 62 Am. & Eng. R. Co. 149. road is completed for use. Where In this case subscribers to the capi- an act providing for the issuance tal stock of a railroad chartered to of bonds for the purpose of aiding run from Gallatin to Knoxville, a a railroad authorizes preferred distance of one hundred and fifty stock to be issued to the county ex- miles, signed an agreement to pay tending the aid when the road is their subscriptions "as fast as the completed, the county will be work progressed," upon a section of estopped to deny that the road is the road eleven and one-half miles § 119] SUBSCRIPTIONS. 196 valid because the company had not, at that time, expended ten per centum of its authorized capital in the construction of its road, nor obtained actual bona fide subscriptions to its capital stock, to the amount of twenty per cent thereof, as required by statute,^^* it was held that such subscription could be enforced against the subscriber, after the company had fully complied with its conditions.^^' Although originally invalid, it constituted a continuing offer by the subscriber to pay the company the amount subscribed, upon the performance by it of the prescribed conditions, which, when not withdrawn before the conditions were fully complied with, became an absolute subscription, and was no longer open to the objection that the company was without corporate capacity to receive it. But a requirement in the subscription that certain things be done must clearly appear to be intended as a condition precedent, or it will not be construed to have that effect.^ ^^ § 119. Failure to perform parol condition will not defeat subscrip- tion. — A condition will not be permitted to defeat a subscription un- less clearly required by what is set forth in the writing,^^' for, in the long, extending from Hartsville to a point on the Chesapealce and Nash- ville railroad, eight and one-half miles from Gallatin, which they agreed should be constructed before the company had procured sufficient finances to build the whole road. They were held liable to pay their subscriptions upon suit brought to enforce payment when seventy per cent, of the work had been done upon such section of the road, al- though the company was insolvent, and wholly unable to complete the road as originally contemplated, and although the subscribers were busi- ness men of Gallatin, whose object In taking stock was to secure an outlet from their city to Knoxville. The court said that they were estopped by their express agreement to deny their liability as subscrib- ers, for by such an agreement they waived the conditions, express and implied, annexed to their original contract of subscription. A com- pany, having accepted a donation from a city, in consideration that it permanently establish its terminus, main office, shops and car works in said city, has fulfilled its obligation when the terminus, office, shops and car works have been established therein without any intention of re- moving them, and the company can not be compelled to keep them there when the interests of the road and of the public require a removal. The city is relegated to its remedy for a breach by action for damages. Texas, &c. R. Co. v. Marshall. 136 U. S. 393, 10 Sup. Ct. 846, 34 L. Ed. 385, 8 R. & Corp. L. j. 162, 42 Am. & Bng. R. Gas. 637. ™ Rev. Stat. Ohio, § 3298. •"' Armstrong v. Karshner, 47 Ohio 276, 24 N. E. 897. ^ Armstrong v. Karshner, 47 Ohio 276, 24 N. E. 897; Johnson v. Kess- ler, 76 Iowa 411, 41 N. W. 57. ™ Cairo, &c. R. Co. v. tielap, 7 Brad. (111.) 60; Johnson v. Georgia 197 CONDITIONS IN NOTES. [§ 120 absence of fraud, or mistake, the written subscription cannot, as a rule, be varied or controlled by parol evidence.^*" Thus, it was held in a recent ease, that "it is no defense in an action on a railroad aid subscription, conditioned on the completion of the road to Iowa, Falls, by September 1, 1884, that the company had broken an oral promise, which was part of the consideration, to complete the line from Iowa Palls to Forest City within one year from the date fixed in the con- tract for the completion of the road to Iowa Falls, and that the com- pany had abandoned the project of building the line between those points. The rights of the parties are governed by the written con- tract, and parol evidence is not admissible to show a condition not embodied in the written agreement."^"^ §' 120. Conditions in notes. — A note payable two years after the road i? completed and trains are running to a certain point and ex- pressed to be in consideration of the completion of the line within sixty days, is not defeated by a failure to complete it within such time,^^^ and a note payable when the track is laid and cars run thereon cannot be defeated by showing that the consideration for such note was that the track should be so laid within three years of its date.^^^ But a long delay in constructing the road may defeat a note given upon this condition.^"* The words "the road to be finished by September 1, 1873," in such a note will not imply a condition precedent.^°° Kotes made payable when the railroad between two points "with the privilege of entering Atlanta, Ga., on the track of any rail- road having terminal facilities there," is graded and ready for the cross-ties, trestles and bridges, were held payable when the grading was done, although the road had not yet acquired such privilege.^"' Midland, &c. R. Co. 81 Ga. 725, 8 "= Cairo, &c. R. Co. v. Delap, 7 S. B. 531. See, also, Meyer v. Blair, Brad. (111. App.) 60. 109 N. Y. 600, 17 N. B. 228, 4 Am. "*A period of fourteen years is St. 500; Paducah, &c. Co. v. Parks, not "a reasonable time" within 86 Tenn. 554, 8 S. W. 842. which to build a railroad, where it "" Low v. Studabaker, 110 Ind. 57, is the evident intent of the parties 10 N. E. 301; Johnson v. Georgia that the road should be completed Midland, &c. R. Co. 81 Ga. 725; Ta- within "a reasonable time," so as to bor, &c. R. Co. V. McCormick, 90 render subscribers to capital stock Iowa 446, 57 N. W. 949. But com- liable on notes payable when cars pare Lake Manawa R. Co. v. Squire, shall be running. Blake v. Brown, 89 Iowa 576, 57 N. W. 307. 80 Iowa 277. ""■ Blair v. Buttolph, 72 Iowa 31, "= Davis v. Cobban, 39 Iowa 392. 33 N. W. 349. "« Johnson v. Georgia Midland, &c. M2 Traer v. Stuart, 46 Iowa 15. R. Co. 81 Ga. 725, 8 S. B. 531. The §' 121] suBSCEiPTioiirs. 198 And when the notes were payable at specified times ''as the work progressed through the county, provided the company establish a depot" at a certain place, the condition to erect a depot was held not a condition precedent. ^®^ § 121. Subscriptions conditioned upon location or construction of the road. — A subscription conditioned upon the location of the rail- road through a certain town becomes absolute when such location is permanently made, although the road has not been constructed.^*^ So, where the subscription was payable at such times and in such instalments as the directors should prescribe, provided the road should be "permanently located" on a certain route, and a "freight house and depot be built" at a certain point, the provision that the buildings be erected was held to be a stipulation merely, and not a condition prece- dent, to be performed before the subscription could be collected.^*® And so a stipulation that the road should be operated independently of an existing railroad was held to relate to what should be done after payment was made and the road was completed.^^" Where the sub- scribers promised to pay the sums set opposite their names, in equal instalments at six, twelve and eighteen months from a certain date, to be used only toward paying the damages and costs in acquiring the right of way, if the plaintiff's railroad should be permanently located and constructed through Lexington, it was held that the construction of the road was not a condition precedent.^^^ It is generally .held, in court, by Bleckly, C. J., says. "There Co. 120 111. 196, 11 N. B. 906 ; Swart- was no stipulation that the privi- out v. Michigan Air Line R. Co. lege of entering Atlanta was to be 24 Mich. 389; North Missouri, &c. secured before the notes became pay- R. Co. v. Winkler, 29 Mo. 318 ; Mil- able. The clause relating to that ler v. Pittsburgh, &c. R. Co. 40 Pa. privilege was introduced to describe St. 237, 80 Am. Deo. 570 (where the railroad as It was to be ulti- subscription said "located and eon- mately, not as it was to be at the Structed"); Berryman v. Cincinnati maturity and payment of the sub- Southern R. 14 Bush (Ky.) 755 scriptions to the capital stock." (same as last case). "'Paducah, &c. R. Co. v. Parks, i"° Chamberlain v. Painesville, &c. 86 Tenn. 554, 8 S. W. 842; "Williams R. Co. 15 Ohio St. 225; Ashtabula, V. Fort Worth, &c. R. Co. 82 Tex. &c. R. Co. v. Smith, 15 Ohio St. 553, 18 S. W. 206. 328. See, also, Pittsburg, &c. R. ™ Smith V. Allison, 23 Ind. 366; Co. v. Biggar, 34 Pa. St. 455. McMillan v. Maysville, &c. R. Co. "" Johnson v. Georgia Midland, &c. 15 B. Hon. (Ky.) 218, 61 Am. Dec. R. Co. 81 Ga. 725, 8 S. B. 531. 181; Wemple v. St. Louis, &c. R. "'Berryman v. Cincinnati, &c. R. 199 LOCATION OE CONSTEUCTION' OP ROAD. [§ 131 accordance with the authorities already cited, that a subscription, made upon the express condition that the company shall locate and construct its railroad to a certain point, becomes payable at the time or times mentioned in the contract of subscription, if the railroad shall have been located at that point, and that the construction of the road, unless expressly made so, is not a condition precedent to the payment of the subscription.^'^ Where the subscription is made upon condition that the road be 'Tjuilt" to a certain point, the money is payable upon call when the road is permanently located, in good faith, upon the designated route.^'^ And the same rule applies where the condition is that the railway shall "pass" through a certain coun- try.^''* Payment of such a subscription may be enforced, it seems, although work upon the road has been suspended from lack of means to prosecute it. To permit the subscriber to set up such a suspension as a defense in a suit to collect the subscription would be to permit him to take advantage of his own wrong akd bad faith in refusing to pay what he agreed to pay at a time fixed in order tl^at the company might have means with which to build the road.^''® It is now established by the decided weight of authority that stock may be subscribed or money donated to a railroad company upon condition that it will locate or build its road upon a specified route not inconsistent with its charter, and which does not plainly conflict with the interests of the public; and that any such, agreement to take stock or to pay money will be- come binding when the road is so located.^'" But where a citizen and Co. 14 Bush (Ky.) 755. But see Bur- 225; North Missouri R. Co. v. Wink- lington, &c. R. Co. v. Boestler, 15 ler, 29 Mo. 318. Iowa 555. "" Miller v. Pittsburgh, &c. R. Co. "■^ Miller v. Pittsburgh, &c. R. Co. 40 Pa. St. 237, 80 Am. Dee. 570. 40 Pa. 237, 80 Am. Dec. 570; Mc- "'Jewett v. Lawrenceburgh, &c. Millan v. Maysville, &c. R. Co. 15 B. R. Co. 10 Ind. 539; Missouri Pacific Men. (Ky.) 218, 61 Am. Dec. 181. R. Co. v. Taggard, 84 Mo, 263, 54 "^Warner v. Callender, 20 Ohio Am. R. 97; Tygard v. Western Md. St. 190; Swartout v. Michigan Air R. Co. 24 Md. 563, 89 Am. Dec. Line R. Co. 24 Mich. 389; Woon- 760; Connecticut, &c. R. Co. v. Bax- socket Union R. Co. v. Sherman, 8 ter, 32 Vt. 805; Cumberland Valley R. I. 564. In this latter case the R. Co. v. Baab, 9 Watts (Pa.) 458; subscription was payable "if the Mansfield, &c. R. Co. v. Brown, 26 road is built" through a certain vil- Ohio St. 223; Des Moines, &c. R. lage. See^ also. Hunt v. Upton Co. v. Graff, 27 Iowa 99, 1 Am. R. (Wash.), 87 Pac. 56. 256; Nashville, &c. R. Co. v. Jones, "'Ashtabula, &c. R. Co. v. Smith, 2 Cold. (Tenn.) 574; Burlington, 15 Ohio St. 328; Chamberlain v. &c. R. Co. v. Boestler, 15 Iowa 555; Painesville, &c. R. Co. 15 Ohio St. Swartout v. Michigan, &c. R. Co. 24 § 121] SUBSCEIPTIONS. 300 business man of a town made a subscription, on condition that the company would construct and operate its road through or into the town, it was held that this had reference to the limits of the town as they existed at the time, and that the construction of the road into territory afterwards annexed to the town was not a compliance there- with.^'a Mich. 389; Paris, &c. R. Co. v. Hen- derson, 89 111. 89; Martin v. Pensa- cola, &c. R. Co. 8 Fla. 370, 78 Am. Dec. 713; Bucksport, &c. R. Co. v. Brewer, 67 Me. 295; Agricultural, &c. R. Co. V. Winchester, 13 Allen (Mass.) 29; Charlotte, &e. R. Co. v. Blakeley, 3 Strobh. (S. C.) 245; Woonsocket, &c. R. Co. v. Sherman, 8 R. I. 564; Buffalo, &c. R. Co. v. Pottle, 23 Barb. (N. Y.) 21; McMil- lan V. Maysville, &c. R. Co. 15 B. Mon. (Ky.) 218, 61 Am. Dec. 181; Racine Co. Bank v. Ayres, 12 Wis. 512; Rose v. San Antonio, &c. R. Co. 31 Tex. 49; Moore v. Hanover Junction R. Co. 94 Pa. St. 324; Cedar Rapids, &c. R. Co. v. Spafford, 41 Iowa 292; Cayuga Lake, &c. R. Co. V. Kyle, 5 T. & C. (N. Y.) 659. Post, §§ 362, 363. But see Pacific R. Co. V. Seely, 45 Mo. 212, 100 Am. Dec. 369; Woodstock Iron Co. v. Richmond, &c. Extension Co. 129 U. S. 643, 9 Sup. Ct. 402; Florida, &c. R. Co. V. State, 31 Fla. 482, 13 So. 103, 34 Am. St. 30; St. Louis, &c. R. Co. V. Mathers, 104 111. 257; St. Joseph, &c. R. Co. v. Ryan, 11 Kans. 602, 15 Am. R. 357. An agreement to pay a stated sum to secure the location of a railroad upon a speci- fied route was upheld and enforced on the ground that the public inter- est was not opposed to the location required by the condition, in First National Bank v. Hendre, 49 Iowa 402, 31 Am. R. 153. A condition in- volving the location of the proposed route of a turnpike company's road has been held void in New York as an attempt to influence by improper means the decision of a question in which public interests are involved, and therefore against public policy. Butternuts, &c. T. Co. v. North, 1 Hill (N. Y.) 518; Fort Edwards, &c. Co. V. Payne, 15 N. Y. 583; Mace- don, &c. Plank R. Co. v. Snediker, 18 Barb. (N. Y.) 317. See to the same effect as to railroads, Utica, &c. R. Co. V. Brinckerhoffi, 21 Wend. (N. Y.) 139, 34 Am. Dec. 220. But see later New York cases cited, supra. ™aSt. Louis, &c. R. Co. V. Houck (Mo. App.), 97 S. W. 963. The court also held that the construction of a new line from the point named to a point where it connected with an old line extending into the town would be sufficient, but that where it was also a condition to the pay- ment of the subscription that the railroad company "shall have con- .structed and begun the operation" of a road through or into a certain town, and "shall have caused" a certain trust company "to execute in favor of the undersigned a bond" in a certain sum, conditioned that the line would be maintained and operated for the period of five years, it was understood that the operation of the road should be be- gun in good faith and with the in- tention of continuing to run trains for five years, and an operation de- signed to be temporary, either in order to conform to the words of 301 EFFECT OF ALTEEATION IN EOUTE FIXED BY CHAKTEE. [§ 123 § 122. Effect of alteration in route fixed by charter. — Generally, if a subscription be made to a railroad, whose route is fixed by its charter, any material alterations in such route, made without his con- sent, will release the subscriber from liability.^' ^ In a Georgia case where the southern terminus was changed by act of the legislature, passed upon application of the corporation, from Hawkinsville to Thomasville, and the authorized capital was greatly increased, the court held that a dissenting subscriber was released by such altera- tions, although, when he subscribed, the general law under which the first charter was obtained authorized amendments to be made to the charter, the route to be changed, and the capital stock to be in- creased.^^* The same is true if the subscription paper specifies the route and termini, and material alterations are made in them after it ' is signed ; and passing a resolution to make such a change will be evi- dence of an abandonment of the route as originally contemplated.^^*' Where a subscription is made upon a condition as to location, the subscriber may show that the alterations made, though very slight, are material alterations as to him. Thus, where the road is con- structed 1,200 feet from the subscriber's mill, instead of 500 feet, as required by the condition annexed to the subscription, it has been held that the subscriber may show that his interests are so injuriously af- fected by the change that he would have no inducement to subscribe stock in a road on the new location.^*" And building a railroad twenty- four hundred feet from a certain point, with a branch passing over the route mentioned in the condition, will not fulfill a requirement that the road shall be built within, twelve hundred feet of the desig- nated point.^*^ But a condition that the road should be constructed from Stockton up the valley of the San Joaquin river, in the direction of another town lying to the south, was held to be substantially complied with by the construction of the road toward the east across the subscription, or as a makeshift, ™ Snook v. Georgia Imp. Co. 83 until a depot was built outside of Ga. 61. the town named, to be stopped as "'Caley v. Philadelphia, &c. R. soon as the new depot was finished Co. 80 Pa. St. 363. See, also, Bur- and the mere running of a local lington, &c. R. Co. v. Whitney, 43 train to and from the depot for con- Iowa 113; Plattville v. Galena, &c. venience of the train crew, was not R. Co. 43 Wis. 493 ; Burrows v. sufficient. Smith, 10 N. Y. 550. "' Caley v. Philadelphia, &c. R. Co. "° Caley v. Philadelphia, &c. R. 80 Pa. St. 363; Buckfleld, &c. R. Co. Co. 80 Pa. St. 363. V. Irish, 39 Me. 44; Danbury, &c. R. "'Virginia & Truckee R. Co. v, Co. V. Wilson, 22 Conn. 435. Commissioners, 6 Nev. 68. § 133] SUBSCEIPTIONS. 303 the valley for the first few miles, and then up the valley toward the town named. ^^^ Where the charter empowers the corporation to change its route or termini, a subscription must, however, as a gen- eral rule, expressly make the construction of the road to a given point operate as a condition precedent or the subscription will be con- strued to be absolute and such changes as are deemed necessary may be made without affecting the subscriber's liability.^** The same rule applies to a note given for donated aid, even where an improper mo- tive prompted the change, if it was legally made.^** § 123. Effect of abandonment or sale of road. — The fact that the corporation has abandoned a part of its road,^*° or has not completed, and apparently has no intention of completing it,^^* is no defense to an action for the payment of a subscription, unless the completion of the road is clearly made a condition precedent. Neither, it has been held, is the sale of a portion of the road under authority of a stat- ute,^*' which provides that any dissenting stockholder may exchange his shares for shares in the purchasing company .^^^ In Indiana it is provided by statute,^'® that in case of a sale of any railroad by virtue of any mortgage foreclosure, and the formation by the purchasers of a new corporation to operate the road, all subscribers to the original stock of said railroad company shall be released and discharged from all their unpaid subscriptions. "Eecognizing the fact that stock in an insolvent railway company, the property of which has been sold in a foreclosure or other judicial proceeding, is worthless, this statute was intended to protect subscribers by cancelling all obligations to ™ Stockton, &c. R. Co. v. Stockton, 18 Ohio St. 208; Dorman v. Jackson- 51 Cal. 328. ' ville, &c. Co. 7 Fla. 265. But total ™ Jewett V. Valley R. Co. 34 Ohio abandonment causing a loss of the St. 601; Armstrong v. Karshner, 47 charter or the like may be. Sodus Ohio St. 276. Bay, &c. R. Co. v. Lapham, 43 Hun '"Greenville, &c. R. Co. v. John- (N. Y.) 314; Pittsburg, &c. R. Co. son, 8 Baxter (Tenn.) 332. v. Byers, 32 Pa. St. 22, 72 Am. Dec. '»= Armstrong V. Karshner, 47 Ohio 770;" McCully v. Pittsburg, &c. R. St. 276; Dorman v. Jacksonville, &c. Co. 32 Pa. St. 25; Fountain Ferry, R. Co. 7 Fla. 265; Ogden v. Kirby, &c. Co. v. Jewell, 8 B. Mon. (Ky.) 79 111. 555. See, also, McMillan v. 147. Maysville, &c. R. Co. 15 B. Mon. "' Rev. Stat. Ohio, § 3409. (Ky.) 218, 61 Am. Dec. 181. »™ Armstrong v. Karshner, 47 Ohio '"> Buffalo, &c. R. Co. v. Gifford. 87 St. 276, 24 N. E. 897. N. Y. 294, 22 Hun 359. See, also, «»Rsv. Stat. Ind., § 3947. Four Mile Valley R. Co. v. Bailey, 303 CONDITION AS TO TERMINUS. [| 134 pay impaid subscriptions to such stock in all cases where there shall not have been an adjustment by agreement or compromise. In other words, the statute was intended to enact into a law the rule of fair dealing, that no one should be required to pay something for noth- ing.""" § 124. Condition as to terminus — Question of intention for jury. — Where a condition requires the road to run to a certain named place, and there are both a township and a village of that name, it is a ques- tion of intention as to which is meant. And this is true though the vil- lage is not incorporated, if it is commonly designated by that narae."^ The question as to which is meant in such a case is to be determined by the jury upon evidence offered, like any other question of fact.^°^ .,§ 125. What Is sufficient compliance with condition as to terminus or location of depot at a certain place — ^Illustrative cases. — Where subscriptions to the capital stock of a railroad company were to be paid when the road "is completed and cars running from T. to M.," it was held that payment could not be enforced when the road had been built to a point nine hundred and fifty feet from the limits of T. and in another county, at which place its terminal facilities were lo- cated. The fact that the company had built a track leading from its main line into the town of T., where it had built a platform and transacted some business, did not, it was held, constitute a compli- ance with the condition of the subscription, where it was shown that such track was built upon ground leased for one year, and the plain- tiff's president had stated that it was not intended to be permanent. Such a condition in a subscription to the capital stock of a railroad company chartered to build a railroad from one town to another, requires that the principal business at the latter should be transacted at a point within its corporate limits.^'* Where the subscription is' made upon condition that a depot be established within a certain dis- tance of a town, the distance may be measured in a straight line from the corporate limits without regard to buildings or improvements,^®* or from the recorded plat, as it was at the time the subscription was "° Zollars, J., in Board, &c. v. ™ Tabor, &c. R. Co. v. McCormick, State, 115 Ind. 64, 88, 4 N. E. 589, 90 Iowa 446, 57 N. W. 949. See, also, 17 N. B. 855. St. Louis, &c. R. Co. v. Houck (Mo. '"Ogden V. Kirby, 79 111. 555. App.), 97 S. W. 963. ^" Connecticut, &o. R. Co. v. Bax- '" Courtright v. Strickler, 37 Iowa ter, 32 Vt. 805. 382. § 126] SUBSOEIPTIOITS. 204 made, and is not affected by a subsequent annexation of adjoining territory.^"" The measurement of distance is not controlled by the traveled route between the two points.^"* The location of the depot at the designated point, fulfills the condition, although the side-tracks and switches are placed at a grfeater distance away from the town.^"' A subscription made on condition that the depot shall be located at the nearest practicable point within one mile of the courthouse, is not violated by a failure to locate it at the nearest possible point ; but the company has fulfilled the condition when it has built a depot at the nearest point within one mile of the courthouse at which it could be located at a reasonable cost, with reference to all the circumstances under which it was to be done.^'^ An agreement to subscribe a certain 'amount of stock upon condition that the railroad company shall locate a depot at a certain point is held to become an absolute subscription, of which payment may be enforced according to its terms upon the location of the depot.^^^ Where the condition is that the road shall be "permanently located to and within the town of W., with a station at the same," thfe condition is not fulfilled by the construction of the road through the to-wn with a depot just outside its limits.^"" § 126. General rule of construction — ^Performance of condition by consolidated company. — Generally, where it can,be done without doing violence to the language used, any conditions imposed will be given such a construction as will further the enterprise. And a condition relating to the construction of the road may be so far complied with by another company which builds it, as to hold the subscriber f°^ -for "'Davenport, &c. R. Co. v. Rogers, Gamble, 46 Iowa 615; Muscatine, &c. 39 Iowa 298. R. Co. v. Horton, 38 Iowa 33; Mun- "= Cedar Falls, &c. R. Co. v. Rich., roe v. Fort Wayne, &c. R. Co. 28 33 Iowa 113. Mich. 272. The purchaser of a rall- ^" Courtright v. Strickler, 37 Iowa road, under a decree of foreclosure, 382. after one installment on a township "' Wooters v. .International R. Co. subscription to the railroad has 54 Tex. 294. . been paid, acquires no interest in '°° North Missouri R. Co. v. Miller, the money subscribed to the orig- 31 Mo. 19. inal company. Board of Commis- =" Davenport, &c. R. Co. v. O'Con- sioners v. State, 115 Ind. 64. A ner, 40 Iowa 477. See, also, St. promise to pay money upon the Louis, &c. R. Co. V. Houck (Mo. completion of a railroad described App.), 97 S. W. 963. in the contract as the Delphos, Bluft- ™ Michigan, &c. R. Co. v. Bacon, ton and Frankfort Railroad can 33 Mich. 466. See, also, Merrill v. only be enforced by the promisee 205 QElfEEAL RULE OF CONSTRUCTION, [§■ 136 it is usually of no importance to the subscriber who builds the road, if it is built in pursuance of the plan existing when the subscription was made. But the subscriber can, of course, limit his subscription to a single company, by express stipulation. And the consolidation of the railroad company with another made after the subscription, but before the stock was issued under a power existing when the sub- scription was made, has been held not to release a town from liability upon bonds issued in payment of such a subscription.^"^ The liability upon such a subscription cannot be denied where the municipality took an active part in bringing about the consolidation.^"^ But where the consolidated company has a longer route and difEerent termini than the company to which the subscription was made, and the consolidation is entered into without the consent of the subscriber, it has been held that the subscription cannot be enforced.""* Such contracts are in- terpreted by the same rules as other contracts, with reference to the true intent and meaning of the parties ; and in order to ascertain such upon proof that the railroad named has been completed, and it will not be sufficient to entitle the promisee to a recovery to prove that a rail- road has been built, for It must be shown that the railroad described Tias been built. Low v. Studabaker, 110 Ind. 57. ""''Menasha v. Hazard, 102 U. S. 81; Mt. Vernon v. Hovey, 52 Ind. 563. The subscription of a county to bonds in aid of a railroad is not annulled by consolidation of such railroad company with another, under a law providing that the rail- road company might consolidate with other companies with the ap- proval of two-thirds of the stock held in each company. Chicago, &c. R. Co. V. Board, &c. 36 Kans. 121, 12 Pac. 593. "^ County of Tipton v. Locomotive Works, 103 U. S. 523. A township in Missouri voted bonds in aid of the C. & O. R. Co., whose road was not then built, and whose articles of association • declared that its ob- ject was to construct and operate a railroad from C. to such point on the line between Missouri and Iowa as should be deemed the best route for operating a road between C. and Omaha, Neb. Before the bonds were issued, the C. & O. consolidated wlth^ an Jowa company, and the consoli- dated company proceeded to con- struct and operate a road from St. Louis, by way of C, to Council Bluffs, Iowa, and Omaha, and the bonds were issued to the consoli- dated company. The court held that as consolidation was necessary, in order to carry out the purpose for which the C. & O. Co. was organ- ized, the existing statutory provi- sion therefor became a part of the contract with the township, and the issuance of bonds to the consoli- dated company was valid. Livings- ton County V. First Nat. Bank, 128 U. S. 102, 9 Sup. Ct. 18. "* Rochester, &o. R. Co. v. Cuyler, 7 Lans. (N. Y.) 431. See, also, Marsh v. Fulton County, 10 Wall. (U. S.) 676. § 127] SUBSCRIPTIONS. 306 intent and meaning, the circumstances under whicli the agreement was made may be shown.^*"* The condition, to be valid, must be ex- pressed in the subscription. Secret agreements between the subscriber and the officers of the company afford no protection to the subscriber, but the subscription will usually be enforced as an absolute one.^"' § 127. Fraudulent representations in obtaining subscriptions. — ^A subspription to capital stock is understood to be made upon the implied condition that the representations of the company or its ofBcers and authorized agents and promoters as to the financial condition of the enterprise, the amount and kind of property which it owns, or any other existing facts that would influence subscriptions, upon the faith of which such subscription is made, shall be true and made in good faith.^"^ And not only is this true, but where statements are made to induce subscriptions there must be a full and fair statement of all material facts, which it is the duty of the corporation or its agents to disclose. A suppression of part of the truth will often amount to a misrepresentation.^"* But representations, in order to be so far binding upon the corporation as to avoid the subscription in case they prove to be false, must generally relate to some fact =°= Detroit, &c, R. Co. v. Starnes, ^"New Brunswick, &c. R. Co. v. 38 Mich. 698. See, also, State v. Muggeridge, 1 Dr. & Sm. 363, 381; Old Town Bridge Co. 85 Me. ' 17, Directors, &c. R. Co. v. Kisch, L. R. 26 Atl. 947; Rogers v. Galloway, &c. 2 H. L. Cas. 99; Oakes v. Turquand, College, 64 Ark. 627, 44 S. W. 454, L. R. 2 H. L. Cas. 325, 2 Pom. Eq. 39 L. R. A. 636. Jur. §§,901, 902. "Where the prospec- S08 York Park, &o. Assn. v. Barnes, tus set forth the ownership by the 39 Neb. 834, 58 N. W. 440; Great corporation of a piece of property Western Tel. Co. v. Haight, 49 111. claimed to be of great value, the App. 633; Downie v. White, 12 Wis. omission to state that a very large 176, 78 Am. Dec. 731; Robinson v. sum of money was paid for it was Pittsburgh, &c. R. Co. 32 Pa. St. held to be a fraudulent suppression 334, 72 Am. Dec. 792; Madison, &c. of facts. Directors, &c. v. Kisch, R. Co. v. Stevens, 6 Ind. 379; Cun- L. R. 2 H. L. Cas. 99. An omission ningham v. Edgefield, &c. R. Co. 2 to state in a prospectus how many Head (Tenn.) 23; Minneapolis, &c. shares have been taken by the direc- Co. V. Davis, 40 Minn. 110, 12 Am. tors is not. Directors, &c. v. Kisch, St. 701. See article in 28 Am. Law L. R. 2 H. L. Cas. 99; Atlanta, &c. Reg. (N. S.) 306; also Oswald v. R. Co. v. Hodnett, 36 Ga. 669; Puls- Minneapolis, &c. Co. 65 Minn. 249, ford v. Richards, 17 Beav. 87, 17 68 N. W. 15. Jur. 865; Heymann v. European, &c. =" 1 Cook Stock and Stockholders, R. Co. L. R. 7 Eq. 154. Ch. 9. 207 FRAUDULENT EEPEESENTATION'S. [§ 127 existing either in the past or present time which has an influence upon the status of the corporation.^"^ And it must appear that the repre- sentations were relied upon as true by the subscriber, and formed an inducement to make the subscription.^^" Any representations as to ^ Bdgington v. Fitzmaurice, L. R. 29 Ch. Div. 459. See, generally, Ala- bama, &c. Works V. Dallas, 127 Ala. 513, 29 So. 459; Tyler v. Savage, 143 U. S. 79, 12 Sup. Ct. 340. A person induced to give a note for subscrip- tion to the capital stock of a rail- road by representations that only a certain amount of stock would be issued when there had already been issued a larger amount, is relieved from his subscription. Weems v. Georgia, &c. R. Co. 84 Ga. 356, 11 S. E. 503. So is one who is induced to subscribe by means of a false statement that certain stock has been subscribed. Arnison v. Smith, 59 L. T. R. 627; Spellier, &c. Co. v. Leedom, 149 Pa. St. 185, 24 Atl. 197. Or that a government guaranty has been obtained. Klsch v. Central R., &c. 34 L. J. (Ch.) 545. So, a false statement by an oflScer that none^ of the stock had been sold for less than par has been held sufficient to authorize a rescission. Hubbard v. International Mercantile Agency (N. J. Ch.), 59 Atl. 24. So, a repre- sentation that a certain promi- nent business man has subscribed for a large amount, when it was given to him without the payment of any purchase price therefor, is sufficient to render voidable any subscription induced by such repre- sentations. Coles V. Kennedy, 81 Iowa 360. And so is a false repre- sentation that certain property has been purchased and is owned by the company, and that the company is in good condition and is earning on the completed portion of the road four and one-half per cent, on the entire cost of the road, when the agent knew that the company was almost bankrupt, having neither money nor credit, and that its stock was almost worthless. Waldo v. Chicago, &c. R. Co. 14 Wis. 575. '''° Authorities cited in preceding note. Jennings v. Broughton, 22 L. J. (N. S.) Ch. 585; Mitchell v. Deeds, 49 111. 416, 95 Am. Dec. 621; Me- lendy v. Keen, 89 111. 395; Oregon Central R. Co. v. Scoggin, 3 Ore. 161; Sinnett v. Moles, 38 Iowa 25; 2 Pom. Eq. Jur. § 890. See Crump V. U. S. Mining Co. 7 Gratt. (Va.) 352, 56 Am. Dec. 116. It is said that the misrepresentations must not only be made without an honest be- lief in their truth, but must have been intended for the subscriber to act upon, and he must have acted in reliance upon them. Woods' Rail- way Law, 116. But .the authorities do not bear out this rule any fur- ther than that the subscriber must have been so far influenced by the misrepresentations as to material facts concerning the enterprise that it would operate as a fraud upon him to hold him to a contract into which he would not knowingly have entered, although there are many dicta which go much further. In an action on a note given for subscrip- tion to the stock of a railroad, de- fendant claimed that plaintiff when soliciting the subscription repre- sented that the road would be stocked and bonded only to a cer- tain amount per mile, whereas it was stocked and bonded to a much larger amount per mile, but he did not testify, that he would not have 137] STJBSCEIPTIONS. 208 the future policy or intentions of the corporation"^ or any parol promises or agreements as to what the corporation will or will not do cannot be interposed as a defense to an absolute subscription,"^ subscribed and given his note if he had known how much stock and bonds had been or would be issued, and it appeared that other true rep- resentations were the chief induce- nient to his subscription. He was held bound by his subscription. "Weems v. Georgia Midland, &c. R. Co. 88 Ga. 303, 14 S. B. 583. ^"McAllister v. Indianapolis, &c. R. Co. 15 Ind. 11; Topeka, &c. Co. V. Hale, 39 Kans. 23, l7 Pac. 601; Jefferson v. Hewitt, 95 Cal. 535; "Weston V. Columbus, &c. R. Co. 90 Ga. 289, 15 S. E. 773; Anderson v. Middle, &c. R. Co. 91 Tenn. 44, 52 Am. & Eng. R. Cas. 149. =" White Mts. R. Co. v. Eastman, 34 N. H. 124; LaGrange, &c. Co. v. Mays, 29 Mo. 64; Clem v. Newcastle, &c. R. Co. 9 Ind. 488, 68 Am. Dec. 653; Smith v. Tallassee Branch, &c. R. Co. 30 Ala. 650; East Tennessee, &c. R. Co. V. Gammon, 5 Sneed (Tenn.) 567; Grossman v. Penrose Perry Bridge Co. 26 Pa. St. 69 ; "Walk- er V. Mobile, &c. R. Co. 34 Miss. 245; Ogilvie V. Knox Ins. Co. 22 How. (U. S.) 380; S'w^atara R. Co. v. Brune, 6 Gill. (Md.) 41; Jewett v. Valley R. Co. 34 Ohio St. 601; Syra- cuse, &c. R. Co. V. Gere, 4 Hun (N. Y.) 392; Oregon Central R. Co. v. Scoggin, 3 Ore. 161; "Wight v. Shel- by R. Co. 16 B. Mon. (Ky.) 4, 63 Am. Dec. 522; Dill v. -"Wabash Valley R. Co. 21 111. 91; Vicksburgh, &c. R. Co. V. McKean, 12 La. Ann. 638; Milwaukee, &c. R. Co. v. Field, 12 Wis. 340; N. E. R. Co. v. Rodrigues, 10 Rich. (S. G.) 278; German Na- tional Bank's Receiver v. Nagel, 26 Ky. 748, 82 S. W. 433. Proof that the execution of the contract was procured by false and fraudulent representations by the company that the means were already provided for the construction of the road be- tween two points within the time specified, where the subscription was made upon condition that an- other portion of the road should be constructed within that time was held Insufflcient to constitute a de- fense to an action on the subscrip- tion. Blair v. Buttolph, 72 Iowa 31, 33 N. W. 349. A representation that payment will not be demanded until certain work is completed does not bind the company. LaGrange, &c. R. Co. V. Mays, 29 Mo. 64; Clem v. New- castle, &c. R. Co. 9 Ind. 488, 68 Am. Dec. 653. Nor does a representation that the road will be extended to a certain point. Low v. Studebaker, 110 Ind. 57, 10 N. E. 301. Or that a branch road will be built. McAl- lister V. Indianapolis, &c. R. Co. 15 Ind. 11; Guarantee, &c. Co. v. Weil, 141 Pa. St. 511, 21 Atl. 665. But it is said that if a person is induced to subscribe for stock by means of an agreement made by an officer of the corporation within the scope of his authority, the subscriber may, upon a failure of the corporation to perform the agreement, cancel his subscription and recover back the sums paid on the stock. Weeden v. Lake Erie, &c. R. Co. 14 Ohio 563; Grossman v. Penrose Perry Bridge Co. 26 Pa. St. 69. The fact that the subscription was made in reliance upon the statement of the coin- pany's agent who procured the sub- scription that the road would be economically built, and that the stock would prove a good invest- 209 FRAUDULENT EEPEESBNTATIONS. [§ 127 even though made with a fraudulent intent by the company's agents in order to procure the subscription. Nor will any statement as to the legal efEect of the contract of subscription, or as to the legal rights and liabilities assumed, prove a defense, for every one is bound to know the law.^^* Statements of facts, however, need not, ordinarily, be made with knowledge of their falsity ; for, if the corporation or its agents mislead a subscriber by statements recklessly made in ignorance of the truth, it may not take advantage of the acts induced by its own misstatements.^^* Statements, which amount only to an expression of opinion, if honestly made without intent to deceive, or if made in relation to matters equally open to the knowledge of both parties, will not amount to fraudulent representations.^^^ Thus, a representation that a sufficient amount of solvent stock was subscribed to complete the road within two years, and that the company was able and would complete it within that time, does not amount to a fraudulent repre- sentation even though untrue.^^* Nor would a satement that the con- struction company, which had undertaken to build and equip the road, was able to complete it by the use of its own resources, without any advance from the company.^^T Eepresentations made by an agent of ment, is no defense to an action to enforce payment. Weston v. Colum- bus Southern R. Co. 90 Ga. 289, 15 S. E. 773. '^^ Clem v. Newcastle, &e. R. Co. 9 Ind. 488, 68 Am. Dec. 653; Parker v. Thomas, 19 Ind. 213, 81 Am. Dec. 385 n; Upton v. Tribilcock, 91 U. S. 45; N. E. R. Co. v. Rodrigues, 10 Rich. (S. C.) 278; Pom. 2 Bq. Jur. § 877. But see Upton v. Englehart, 3 Dill. (U. S.) 496, where a mis- representation as to the legal lia- bility of the stockholders in a cor- poration organized in another state was held to be a defense. "* Henderson v. Railroad " Co. 17 Tex. 560, 67 Am. Dec. 675; Reese River, &c. Co. v. Smith, L. R. 4 H. Ij. 64; Edgington v. Fitzmaurice, L. R. 29 Ch. Div. 459; 2 Pom. Eq. Jur. § 887. The courts incline very strongly to uphold subscriptions to capital stock, and many cases inti- ELL. RAttEOADS — 14 mate that the person making the statement must have had a fraudu- lent purpose, or such knowledge as would impute such fraudulent pur- pose to him. Nugent v. Cincinnati, &c. R. Co. 2 Disney (Ohio) 302; Selma, &c. R. Co. v. Anderson, 51 Miss. 829; Cunningham v. Edgefield, &c. R. Co. 2 Head. (Tenn.) 23. ''"Montgomery, &c. R. Co. v. Mat- thews, 77 Ala. 357, 54 Am. R. 60; Walker v. Mobile R. Co. 34 Miss. 245; 2 Pom. Eq. Jur. § 878. See, also, German Nat. Bank's Receiver v. Nagel, 26 Ky. 748, 82 S. W. 433; West. Eng. &c. Co. v. Claiborne, 97 Va. 734, 34 S. E. 900. '" Brownlee v. Ohio, &c. R. Co. 18 Ind. 68; Weston v. Columbus, &c. R. Co. 90 Ga. 289, 15 S. E. 773. See, also, Johnson v. National, &c. Assn. 125 Ala. 465, 28 So. 2. =" Andrews v. Ohio, &c. R. Co. 14 Ind. 169. § 128] SDBSCEIPTIONS. 210 a railroad company in reference to the value of a donation of land made by congress to the company, and in relation to the amount of assets of the company, and its ability to complete the road within a certain time, and the probable cost and profits of the road, though false and exaggerated, and made to induce persons to subscribe for the stock, were held to be but expressions of opinion, and not to amount to fraudulent representations.^,^^ And representations that the road would be constructed over a certain route within a certain time, al- though offered as an inducement to subscribe for stock, and operating as such, have been held to be no defense to an action for payment of the subscription.^^' Where the directors, in good faith and by honest mistake of judgment, added to the assets certain debts which proved not to be collectible, and thereby showed the company to be solvent, when the loss of the money represented by such debts threw it into insolvency, it was held not a fraudulent misrepresentation.^^" The same holding was made where it was stated in good faith that the corporation had a valid government contract, but, upon litigation, this was found to be untrue. ^^^ And it has even been held that a repre- sentation that title to land was good when in fact it was bad, if made in good faith with an honest belief that it is true is not a fraudulent misrepresentation.^^^ The mere intent on the part of the company to deceive and defraud by misrepresentations is immaterial if it does not cause any damage to the subscriber.^^^ Eepresentations, false when made, but which become true by the force of intervening events before the subscription is completed, cannot afterward, it seems, be com- plained of by the subscribers.^^* § 128. Misrepresentations in prospectus and by agents generally. — ^The fraudulent representations which will avoid a subscription may ='= Walker v. Mobile, &c. R. Co. 34 Ellison v. Mobile, &c.' R. Co. 36 Miss. Miss. 245. See, also, Union Nat. 572. Bank v. Hunt, 76 Mo. 439. "'° Jackson v. Turquand, L. R. 4 H. 21° Montgomery, &c. R. Co. v. Mat- L. 305. thews, 77 Ala. 357, 54 Am. R. 60. '"Kennedy v. Panama, &c. Co. L. The court, by Stone, C. J., says: R. 2 Q; B. 580. "The representations set forth in ''^New Brunswick, &c. R. Co. v. each of the special pleas * * * Conybeare, 9 H. L. Cas. 711. could be nothing but opinion. These '^ Keller v. Johnson, 11 Ind. 337, pleas are fatally bad, because they 71 Am. Dec. 355; Cunningham v. do not aver that Kirkpatrick did Edgefield, &c. R. Co. 2 Head not honestly entertain the opinions (Tenn.) 23; Pom. Eq. Jur. § 898. he expressed." See, also, Blair v. =" Ship v. Crosskill, L. R. 10 Eq. Buttolph, 72 Iowa 31, 33 N. W. 349; Cas. 73. 311 MISREPRESENTATIONS IN PROSPECTUS AND BY AGENTS. [§ 128 be made by statements contained in a prospectus issued by the author- ity of the directors or the stockholders of a corporation if they in- duced the subscription to be made.''^^ Or they may be contained in a report made by the corporate officers to the stockholders ; for a person may rely upon such a report when subscribing for stock.^^^ And the corporation is chargeable with the frauds and misrepresentations of its authorized agents to procure subscriptions.^^^ It was formerly held in England that the corporation was only bound by such representa- tions as the agent was authorized to make.^^* But the rule is said to be now well established both in that country and in this that a cor- poration cannot claim or retain the benefit of a subscription obtained through the fraud of its agents.^^" And the fact that the person mak- ing the fraudulent representations had no express authority from the corporation, or exceeded such authority,, will not affect this rule, provided he was legally connected with the taking of the subscrip- tion.^^" If the corporation adopts a subscription taken without au- ^'^ Oakes v. Turquand, L. R. 2 H. L. Gas. 325. See, also, Bosher v. Richmond, &c. Co. 89 Va. 455, 16 S. B. 360, 37 Am. St. 879; 2 Pom. Eq. Jur. § 881; 1 Purdy's Beach Priv. Corp. § 263. But due allow- ance must be made for high color- ing and some exaggeration due to the sanguine expectations of the pro- moters. Directors, &c. Central R. Co. V. Kisch, L. R. 2 H. L. Cas. 99. The language of the prospectus will be construed in favor of the validity of the subscription. 1 Cook Stock and Stockholders, § 143. ="New Brunswick, &c. R. Co. v. Conybeare, 9 H. L. Cas. 711; Na- tional, &c. Co. V. Drew, 32 Bng. Law and Bq. 1. See, also, Peterson V. People's, &c. Assn. 124 Mich. 573, 83 N. W. 606. ^"Montgomery, &c. R. Co. v. Mat- thews, 77 Ala. 357, 54 Am. R. 60; Ranger v. Great Western R. Co. 5 H. L. Cas. 72. If the president had no authority to take subscriptions and did not in fact take the sub- scription, the subscriber cannot charge the company with fraud be- cause of any representations he may have made. Rives v. Montgomery South Plank R. Co. 30 Ala. 92. And the subscriber is bound to know that commissioners with statutory powers to take subscriptions cannot bind the corporation by any repre- sentations which they may make. Bavington v. Pittsburgh, &c. R. Co. 34 Pa. St. 358; Wight v. Shelby R. Co. 16 B. Mon. (Ky.) 4, 63 Am. Dec. 522; Syracuse, &c. R. Co. v. Gere, 4 Hun (N. Y.) 392; North Carolina R. Co. V. Leach, 4 Jones L. (N. C.) 340. '^Cook Stock and Stockholders, § 139. In Pennsylvania the corpora- tion is held bound only when it has clothed the agent with actual or ap- parent authority to make repre- sentations. Custar V. Titusville, &c. Co. 63 Pa. St. 381. ="Cook Stock and Stockholders, § 140. Compare 1 Purdy's Beach on Prlv. Corp. §§ 260, 261. ™ Crump V. United States Min. Co. 7 Gratt. (Va.) 352, 56 Am. Dec. 116; 129] SUBSCEIPTIONS. 313 thority, it must also adopt the representations by which that subscrip- tion was procured.^^^ But false representations by persons who have no authority from the company and who do not take the subscription for its benefit cannot afEect the binding force and validity of the subscriptions.^^^ Parol declarations and representations made by an officer of the corporation at a public meeting, though false and made with intent to deceive, will not ordinarily so far bind the corporation as to release a subscription made in reliance upon ihem.^^' The sub- scriber must be presumed to know that an ofiicer l^as received no au- thority from the corporation to bind it in this manner ;^^* and there, could be but little security for the creditors of a corporation if it were held answerable for all the declarations of its officers made out- side the scope of their authority.^^^ The question as to whether the person making the false representations had authority from the cor- poration to act as its agent is usually a question of fact for the jury.^^" § 129. Fraud may be shown by parol evidence. — The fraud may be established by parol evidence,^'' since this only goes to show that no Waldo V. Chicago, &c. R. Co. 14 Wis. 575. "=' Crump V. United States Min. Co. 7 Gratt. (Va.) 352, 56 Am. Dec. 116. See, also. Walker v. Mobile, &c. R. Co. 34 Miss. 245; Garrison v. Tech- nic, &c. Works, 55 N. J. Bq. 708, 37 Atl. 741. See, also, Virginia Land Co. v. Haupt, 90 Va. 533, 20 S. B. 824, 44 Am. St. 939. ^^ Cunningham v. Edgefield, &c. R. Co. 2 Head. (Tenn.) 23, See, also. Miller v. Wild Cat, &o. Co. 57 Ind. 541, holding that an agent taking subscriptions before the incorpora- tion of the company cannot bind it by his misrepresentations. An agent must at least have implied or ap- parent authority before he can bind his principal. 2 Pom. Eq. Jur. § 909. '^ Buffalo, &c. R. Co. v. Dudley, 14 N. Y. 336; First Nat. Bank v. Hur- ford, 29 Iowa 579. A different rule is announced in Wisconsin and Georgia, but the rule in the text is most consonant with the current of authority. See Atlanta, &c. R. Co. v. Hodnett, 36 Ga. 669; McClellan v. Scott, 24 Wis. 81. See, also, Weems V. Georgia, &c. R. Co. 88 Ga. 303, 14 S. B. 583, where the question was submitted to the jury. ^ Smith V. Tallassee Branch, &c. R. Co. 30 Ala. 650. "=" Vicksburg, &c. R. Co. v. Mc- Kean, 12 La. Ann. 638. '"Kelsey v. Northern, &c. Co. 45 N. Y. 505; Crump v. United States Min. Co. 7 Gratt. (Va.) 352, 56 Am. Deo. 116. '^^ Jewett V. Valley R. Co. 34 Ohio St. 601; N. Y. Exchange Co. v. De Wolf, 31 N. Y. 273; New Orleans, &c. R. Co. V. Williams, 16 La. Ann. 315; Henderson v. Railway Co. 17 Tex. 560, 67 Am. Dec. 675; Wert v. Crawfordsville, &c. Co. 19 Ind. 242; Connecticut, &c. R. Co. v. Bailey, 24 Vt. 465, 58 Am. Dec. 181; St. Louis, &c. R. Co. V. Tierman, 37 Kans. 606, 15 Pao. 544. See, also, Anderson v. Scott, 70 N. H. 350, 47 Atl. 607. 213 EELEASB OK GROUND OF FEAUD. [§ 130 contract was formed, and not to vary it as made.^'* This rule does not, therefore, conflict with the general rule that parol evidence is not ad- missible to alter or vary the terms of a written contract. On ihe con- trary, it is in accord with the rule that parol evidence is admissible, especially in case of fraud, to show that there never was, in reality, a valid agreement.^^^ § 130. Subscriber must be free from negligence, in order to be re- leased upon the ground of fraud. — In order to secure a release from his subscription upon the ground that his subscription was induced by fraud, the subscriber must show that he was not misled by his own negligence in not making prudent inquiries.^*" For where both parties have equal access to the means of information, the subscriber has no right to rely entirely upon the representations of the agent, unless some means or artifices are used to prevent investigation.^*^ A sub- scriber who reads contradictory statements in different documents can- not rely upon a part only of such representations without investiga- tion.^*^ But where the facts are such as are within the knowledge of the corporation and its agents, the subscriber is only bound to exercise reasonable caution in accepting as true the representations made.^** He is not bound to pursue independent inquiries, even though they would have shown him the falsity of the statements made by the agent or contained in the prospectus.^** § 131. Subscription induced by fraud is merely voidable — ^When it will be enforced. — A subscription induced by fraudulent repre- sentations is voidable only, and not void;^*° and is binding on both =»»2 Beach Priv. Corp. § 530; "Sub- '^Scholey v. Central R. Co. L. R. scriptions to Capital Stock," by 9 Bq. Cas. 267, n. James M. Kerr, 6 R. Corp. L. J. 422. ^ New Brunswick, &c. R. Co. v. ==" Clark Contracts, 569, 570; 2 Muggeridge, 1 Dr. & Sm. 363; Up- Rlce Ev. 259, 292; 1 Elliott Bv. ton v. Englehart, 3 Dill. (U. S.) §§ 592, 593; 3 Elliott Bv. § 1947. 496; Directors, &c. Central R. Co. v. =*» Upton V. Englehart, 3 Dill. (U. Kisch, L. R. 2 H. L. Cas. 99. S.) 496; Hughes v. Antietam Mfg. '^Documents referred to in the Co. 34 Md. 316; Davis v. Dumont, prospectus need not be examined, 37 Iowa 47; Custar v. Titusville, &o. even though they would show the Co. 63 Pa. St. 381; Connecticut, &c. falsity of statements made therein. R. Co. V. Bailey, 24 Vt. 465, 58 Am. Kisch v. Central R. Co. 34 L. J. Dec. 181. (Ch.) 545; Directors, &c. Central R. «i Walker v. Mobile, &c. R. Co. 34 Co. v. Kisch, L. R. 2 H. L. Cas. 99. Miss. 245; Jennings v. Braughton, ""Upton v. Englehart, 3 Dill. (U. 22 L. J. (Ch.) 585. S.) 496; Reese River Mln. Co. v. §■ 133] STJBSCKIPTION-S. 314 parties unless disaffirmed or rescinded.^*" If fraud is estabKshed, however, it has been held that no action can be maintained by the corporation to recover, either upon the original subscription or upon a note given therefor,^*' unless the subscriber has ratified it or in some Vay become estopped, and the subscriber may recover back whatever money he has paid before discovery of the fraud.^** Where, however, his subscription was made in pursuance of a fraudulent purpose he may not complain that his strict legal liabilities are enforced.^*' A subscription, absolute on its face, made under a secret agreement with the directors of the company, by which the subscriber was to be per- mitted to reduce the number of shares taken after it had operated as an inducement to others to subscribe, should be enforced according to its terms.^^" And, in general, a secret agreement between the com- pany and subscriber, lessening his liability and changing the ostensible terms of the subscription, can neither be enforced nor successfully used as a defense to defeat his subscription. To release the subscriber would operate as a fraud upon the other subscribers and the corporate creditors.^^^ §132. Ratification and estoppel — ^Rescission. — The subscriber should take steps to have his subscription canceled within a reason- Smith; L. R. 4 H. L. 64; Cunning- Southern P. R. Co. v. Hixon, 5 Ind. ham V. Edgefield, &c. R. Co. 2 Head 165, 169. See County of Crawford (Tenn.) 23. v. Pittsburgh, &c. R. Co. 32 Pa. St. =*»Tennent v. City of Glasgow 141; Downie v. White, 12 Wis. 176, Bank, L. R. 4 App. Cas. 615. 78 Am. Dec. 731. =*' 1. Occidental Ins. Co. v. Zanz- ^° White Mountain R. Co. v. East- horn, 2 Mo. App. 205. But an inno- man, 34 N. H. 124. cent third person may enforce such "'^ Meyer v. Blair, 109 N. Y, 600, a note where It Is negotiable and is 4 Am. St. 500; York Park, &c. Assn. taken by him upon a valuable con- v. Barnes, 39 Neb. 834, 9 Lewis Am. slderation In the usual course of R. and Corp. 240, 244 ; Graff v. Pitts- business. Andrews v. Hart, 17 Wis. burgh, &c. R. Co. 31 Pa. St. 489; 297. Miller v. Hanover, &c. R. Co. 87 Pa. "'Atkinson v. Pocock, 1 Exch. St. 95, 30 Am. R. 349; Melvin v. 796, 12 Jur. 60; Jarrett v. Kennedy, Lamar Ins. Co. 80 111. 446, 22 Am. 6 C. B. 319; Grangers' Ins. Co. v.. R. 199. See, also, Chubb v. Upton, Turner, 61 Ga. 561. 95 U. S. 665; Schaefler v. Missouri ""Litchfield Bank v. Peck, 29 Home, &c. Co. 46 Mo. 248; Howard Conn. 384. The subscribers "could v. Glenn, 85 Ga. 238, 11 S. B. 610; not be permitted to set up any fraud. 2 Beach Prlv. Corp. § 543; 2 Thomp. to which they were a party, as a Corp. § 1400; 2 Purdy's Beach Prlv. ground for their own discharge." Corp. § 646. 315 EATIFICATION' AND ESTOPPEL — EESCISSIOK. [§ 133 able time after he discovers the fraud ; for, if he permits the interests of other subscribers and corporate creditors to attach by reason of his delay, his own laches will be a bar to his relief in equity.^^^ And any acts on his part after he has knowledge of the fraud, which are in- consistent with an intention to disaffirm the subscription contract will be held to amount to a ratification, and render it absolutely bind- jjjg_253 Thus, it has even been held that one who subscribes in con- sideration of the extension of a railroad to a certain point is estopped to deny his obligation after the road has been built on the faith thereof, although such point is outside of the state which granted the charter and such charter does not purport to authorize a line beyond the lim- its of the state. ^^*' He may also be guilty of laches in failing to inform himself as to facts which would give him notice of the fraud that has been practiced upon him. It is held that it is the duty of a person taking shares in a company to inform himself as to the provisions of the articles of association, they being registered, and he must take the consequences of his neglect to do so,^**^- and if they show that the representations by which he was induced to subscribe were untrue, he must rescind within a reasonable time after he has an opportunity to know the truth by consulting them. But it has been held that he is not guilty of laches until after he has knowledge of the fraud, or of facts which should reasonably put him on inquiry, and that he is not ="> Graff V. Pittsburgh, &c. R. Co. 513. So, also, is instructing his 31 Pa. St. 489; Chubb v. Upton, 95 broker to sell. Briggs, Ex parte, L. U. S. 665; London, &c. Ins. Co., Re, R. 1 Eq. 483. And so is participa- L. R. 24 Ch. Div. 149; Heymann v. tion in stockholders' meetings. European Central R. Co. L. R. 7 Eq. Chaffln v. Cummlngs, 37 Me. 76. Cas. 154; Schaeffer v. Missouri But attendance on a meeting has Home Ins. Co. 46 Mo. 248 ; Cook been held not to be a waiver. Stew- Stock and Stockholders, § 161; 2 art's Ca^, L. R. 1 Ch. App. 574. Thomp. Corp. § 1438, et seq. See, And the same has been held as to also, Wallace v. Bacon, 86 Fed. 553; voting shares by proxy. Greenville, Barcus v. Gates, 89 Fed. 783; Bar- &c. R. Co. v. Coleman, 5 Rich. L. tol V. Walton, &c. Co. 92 Fed. 13. (S. C.) 118; McCuUy v. Pittsburgh, ="' Upton V. Jackson, 1 Flipp. (U. &c. R. Co. 32 Pa. St. 25. Paying a S.) 413; Chubb v. Upton, 95 U. S. call after knowledge of the fraud 667; City Bank v. Bartlett, 71 Ga. is held to be a waiver. Scholey v. 797; 2 Thomp. Corp. § 1377; Martin Central R. Co. L. R. 9 Eq. 267, n. V. Paul O'Burne, &c. Co. 99 Cal. "* Doherty v. Arkansas, &c. R. Co. 355, 33 Pac. 1107; Wilson v. Hund- 5 Ind. Ter. 537, 82 S. W. 899. ley, 96 Va. 96, 30 S. B. 492, 70 Am. '""Oakes v. Turquand, L. R. 2 H. St. 837. Selling part of his stock L. 325. Is a waiver. Ayre's Case, 25 Beav. § 132] SUBSCRIPTIONS. 316 chargeable with knowledge of facts disclosed at a stockholders' meet- ing at which he was not present but was represented by the perpetrator of the fraud, to whom he had given his proxy.^^^ If he elects to rescind the contract, he must do so in toto, and must generally tender back his stock certificates.^^^ In England,^^* and apparently by the weight of authority in this eountry,^^" it is held that a subscription cannot be rescinded on the ground that it was induced by fraudulent representa- tions unless proceedings are begun before the corporation becomes in- solvent, or, at least, while it is a "going concern."^"" ™ Virginia Land Co. v. Haupt, 90 Va. 533, 19 S. E. 168, 44 Am. St. 939 n, 9 Lewis' Am. R. & Corp. 235. '=' Parks V. Evansville, &c. R. Co. 23 Ind. 567. A subscriber to stock cannot rescind for fraud, when lie has had the stock transferred to his infant children, unless their right thereto is also tendered back. Fran- cis V. New York, &c. R. Co. 108 N. Y. 93. But compare West, Ex parte, 56 Law Times (N. S.) 622. ''"'Tennent v. City of Glasgow Bank, L. R. 4 App. Cas. 615; Reese River Co. v. Stnith, L. R. 4 H. L. 64; Oakes v. Turquand, L. R. 2 H. L. Cas. 325; Kent v. Freehold, &c. Co. L. R. 3 Ch. App. 493. =»»Duffield V. Barnum, &c. Works 64 Mich. 293, 31 N. W. 310; SafEold V. Barnes, 39 Miss. 399; Ruggles v. Brock, 6 Hun (N. Y.) 164; Chubb V. Upton, 95 U. S. 665; Ogllvie v. Knox Ins. Co. 22 How. (U.S.) 380; Clarke v. Thomas, &c. Co. 34 Ohio St. 46. '^ This was the rule in our bank- ruptcy courts under the bankrupt act of 1867. Parrar v. Walker, 13 Nat. Bankr. Reg. 82. See, also, Up- ton V. Tribilcock, 91 U. S. 45; Tur- ner V. Grangers, &c. Co. 65 Ga. 649, 38 Am. R. 801; Cunningham v. Edgefield, &c. R. Co. 2 Head (Tenn.) 23. Certainly this is true where there is unreasonable delay and the rights of creditors are involved. Newton Nat. Bank v. Newbegin, 74 Fed. 135, 20 C. C. A. 339, 33 L. R. A. 727; Howard v. Turner, 155 Pa. St. 349, 26 Atl. 753, 35 Am. St. 883. In Bosher v. Richmond, &c. Co. 89 Va. 455, 16 S. E. 360, 37 Am. St. 879, where several subscriptions had been obtained by means of fraudu- lent representations in a prospectus, it was held that such subscribers had a common Interest, and several might join in a bill for the benefit of themselves and others similarly situated, to set aside their subscrip- tions. CHAPTBK VIII. CALLS AND ASSESSMENTS. Sec. 133. 134. 135. 136. 137. 138. 139. 140. 141. 142. 143. When payment of subscrip- tion must be made. Calls — Nature and effect of. Directors may make calls — Delegation and ratification. Directors must act as a body — De facto board — Illegal calls. Discretion of board in making calls. Charter and statutory limita- tions upon discretion — Peri- odical instalments. Call should affect all alike — Motive and expediency. Subscription payable upon de- mand — Notice. Requisites of notice. Constructive notice. Waiver by stockholder of no- tice and formalities of call — Estoppel. Sec. 144. 145. 146. 147. 148. 149. 150. 151. 152. 153. 154. Demand' and suit for assess- ment. Assignment of right to collect subscription or assessment. When courts may compel call and payment. Extent of stockholder's liabil- ity for assessments — ^Agree- ments as affecting liability. Construction of charter and statutory provisions regard- ing assessments. Remedies where stockholder fails to pay subscription or' assessment — Forfeiture. Cumulative remedies — Elec- tion. Effect of forfeiture. Statutory method of forfeiture must be pursued. Notice of forfeiture. Defeating and annulling for- feiture — Estoppel. § 133. When payment of subscription must be made. — Where a subscription contains a promise to pay upon a certain day, the sub- scriber is bound to pay at that time without further notice or he is liable to suit immediately upon his default/ and he is also bound, in ^ Estell V. Knightstown, &c. Turnp. Co. 41 Ind. 174; Beckner v. River- side, &c. Turnp. Co. 65 Ind. 468; Waukon, &c. R. Co. v. Dwyer, 49 Iowa 121; Northwood Union Shoe Co. V. Pray, 67 N. H. 435, 32 Atl. 770. A subscription may regulate the time of payment. N. J. Midland R. Co. T. Strait, 35 N. J. L. 322; Roberts v. Mobile, &c. R. Co. 32 Miss. 373. Even though the statute fixes the time of payment. Iowa, &c. R. Co. V. Perkins, 28 Iowa 281. See, also. West v. Crawford, 80 Cal. 19, 21 Pac. 1123. 2ir § 133] CALLS AND ASSESSMENTS. 218 the absence of any provision in the subscription, if the charter or a general statute specifies the time of payment, to pay at the designated time.^ The same is true where the subscription is made payable upon the happening of a certain event and at stated periods thereafter. The subscriber must know when his subscription becomes payable.^ The stockholder may pay his subscription as soon after the corporation is organized as he may choose, without awaiting the formality of a call,* if he act in good faith.^ But where the capital stock is to be paid at such times and in such instalments as may be required by the presi- dent and directors, such a requirement, being an uncertain event, forms a condition which, as between the corporation and the stock- holder, suspends the obligation to pay until it is made.® And an ordi- nary subscription made without any designated time for payment is generally held to become payable only after a formal declaration to that effect by the corporate authorities.' ' Phoenix Warehousing Co. v. Bad- ger, 67 N. Y. 294. "Breedlove v. Martinsville, &c. R. Co. 12 Ind. 114, where the subscrip- tion was payable in instalments of ten per cent, every sixty days after the work was put under contract. * Marsh v. Burroughs, 1 Wood (U. S.) 463; Poole, Jackson & Whyte's Case, L. R. 9 Ch. D. 322. Where the corporation owes money to the sub- scriber, it is frequently applied to discharge his indebtedness without awaiting a call. Adamson's Case, L. R. 18, Eq. Cas. 670. ° If it be merely a colorable pay- ment to escape liability in case of insolvency he will not be permitted to claim a release from indebted- ness on his subscription. Syke's Case, L. R. 13 Bq. Cas. 255; Barge's Case, L. R. 5 Bq. Cas. 420. •Purton V. New Orleans, &c. R. Co. 3 La. Ann. 19. See, also, Wil- liams V. Taylor, 120 N. Y. 244, 24 N. B. 288. 'Spangler v. Indiana, &c. R. Co. 21 111. 276; Braddock v. Phila- delphia, &c. R. Co. 45 N. J. L. 363; Alabama, &c. R. Co. v. Rowley, 9 Fla. 508; North, &e. St. R. Co. v. Spullock, 88 Ga. 283, 14 S. E. 478; Ventura, &c. R. Co. v. Hartman, 116 Cal. 260, 48 Pac. 65. A call is not applicable to stock which was sub- scribed for after the call was made. Pike V. Bangor, &c. R. Co. 68 Me. 445. Some cases in New York have asserted the rule that unless the contract provides for calls, the sub- scription is payable absolutely and at once. Lake Ontario, &c. R. Co. v. Mason, 16 N. Y. 451; Phoenix, &c. R. Co. V. Badger, 67 N. Y. 294. But the point was not decided in either of these cases and other cases in that state recognize the doctrine of the text. Mann v. Pentz, 3 N. Y. 415; Seymour v. Sturgess, 26 N. Y. 134; Williams v. Meyer, 41 Hun (N. Y.) 545. See, also, Williams v. Taylor, 120 N. Y. 244, 24 N. E. 288; South Georgia, &c. R. Co. v. Ayres, 56 Ga. 230. In a suit on a subscription to the capital stock of a company which provided that the subscrip- tions should be paid "in such in- stalments and at such times as may be decided by a majority of the stockholders or board of directors. 319 CALLS NATURE AND EFFECT OF. [§■ 134 § 134. Calls — ^Nature and effect of. — Such a declaration as that referred to in the preceding section is termed a "call,"^ and the sum of money so rendered payable may be payable in one or more instal- ments, where the directors are invested with entire discretion and there is no contract to the contrary, according to the terms of the resolu- tion.^ Any declaration or resolution to the effect that the whole,^" or a certain part,^^ of the unpaid subscriptions shall be paid in, though informal and irregular,*^ will be a valid call if it be sufficient to show a clear official intent to render payable so much of the subscription as is embraced by the terms,^* and is susceptible of legal proof.^* The resolution need not state the time or place of payment,^^ but these may or a trustee empowered for the pur- pose by a majority of the stock- holders," no proof was offered to show that any provisions as to the amount of the instalments or the time of payment of such had ever heen so made, nor that any call for payment had ever been made in said manner, and it was held that there should be a judgment of non-suit against the plaintiff. North, &c. R. Co. V. SpuUock, 88 Ga. 283, 14 S. E. 478. ° Braddock v. Philadelphia, &c. R. Co. 45 N. J. L. 363; Newry and En- niskillen R. Co. v. Edmunds, 2 Ex. R. 118; Spangler v. Indiana, &c. R. Co. 21 111. 276; Pittsburgh, &c. R. Co. V. Clarke, 29 Pa. St. 146. The term may also refer to a notice given of such resolution, or to the time which it names as the time of payment. Ambergate, &c. R. Co. v. Mitchell, 4 Ex. 540. "Northwestern, &c. R. Co. v. Mc- Michael, 6 Ex. 273; Birkenhead, &c. R. Co. V. "Webster, 6 Ex. 277; Hays V. Pittsburgh, &c. R. Co. 38 Pa. St. 81; Rutland, &c. R. Co. v. Thrall, 35 Vt. 536; Haun v. Mulberry, &c. Road, 33 Ind. 103. But it is said that debt will not lie for one of such in- stalments until all are due and pay- able. Birkenhead, &c. R. Co. v. Webster, 6 Ex. 277. " Fox v. AUensville, &c. R. Co. 46 Ind. 31; Haun v. Mulberry, &c. R. Co. 33 Ind. 103. " Spangler v. Indiana, &c. R. Co. 21 111. 276; Ross v. Lafayette, &c. R. Co. 6 Ind. 297. " Philadelphia, &c. R. Co. v. Hick- man, 28 Pa. St. 318; Southampton Dock Co. V. Richards, 2 Eng. Railw. & Canal Cas. 215, 234. Irregularities may be waived. Hays v. Pittsburgh, &c. R. Co. 38 Pa. St. 81; Macon, &c. R. Co. V. Vason, 57 Ga. 314. But see Grosse Isle Hotgl Co. v. I'Anson, 43 N. J. L. 442. "Budd V. Multnomah St. R. Co. 15 Ore. 413, 15 Pac. 659, 3 Am. St. 169. "An entry in the minutes of the corporation is suflScient proof. Fox V. AUensville, &c. Turnp. Co. 46 Ind. 31. The passage of the resolution may be proven, though no entry was made in the minutes. Hays v. Pitts- burgh, &c. R. Co. 38 Pa. St. 81. See Bavington v. Pittsburgh, &c. R. Co. 34 Pa. St. 358. "Andrew v. Ohio, &c. R. Co. 14 Ind. 169; Great North, &c. R. Co. v. Biddulph, 7 M. & W. 243; Marsh v. Burroughs, 1 Woods (U. S.) 463; Rutland, &c. R. Co. v. Thrall, 35 Vt. 536. § 135] CALLS AND ASSESSMENTS. 320 be left to be fixed by the administrative officers of the corporation.^" It is perfectly competent for the directors to determine these matters at the same or a subsequent meeting. And it has been held that they may order that at a certain future time a call payable at a later date shall be made.^' Where no place is designated, the resolution requir- ing payment will import a requirement that the payments should be made to the treasurer of the corporation at his office.^^ § 135. Directors may make calls — ^Delegation and ratification. — In general, the directors are the proper authorities to make calls/^ in the absence of any other provision in the charter, or in any statute or by-law. Where this power is not given to the directors, it is usually lodged with the stockholders at large,^" in which case it has been held they may delegate the power to the directors ;^^ and it has been held in such a case that even without such a delegation of power, the directors may still make calls, if not expressly prohibited.^^ But the directors cannot delegate such a special authority entrusted to them,^^ though they may ratify a call made by one to whom they have attempted to delegate it, and so render such call valid.^* And they may, it seems, authorize another to determine the amount of some of the instalments and to designate the times of payment.^' Thus it is said that they may make a general declaration that the stock is payable, and give a general authority to the treasurer to require the payment of the stock, " They should be fixed by the no- ™ Cook Stock and Stockholders, tice. Andrew v. Ohio, &c. R. Co. 14 § 109. Ind. 169; Cook Stock and Stock- ^ Rives v. Montgomery, &c. R. Co. holders, § 115. And should be rea- 30 Ala. 92. Contra, Winsor, Ex. sonable. Fairfield, &c. Co. v. Thorp, parte, 3 Story C. C. 411. 13 Conn. 173. =^Budd v. Multnomah St. R. Co, "Sheffield, &c. R. Co. v. Wood- 15 Ore. 413, 15 Pac. 658, 3 Am. St cock, 7 Mees. & W. 574. See, also, 169. But see Marlborough, &c. Co. Penobscot R. Co. v. Dummer, 40 v. Smith, 2 Conn. 579. Me. 172, 63 Am. Dec. 654; Heaston "^ Rutland, &c. R. Co. v. Thrall, 35 V. Cincinnati, &c. R. Co. 16 Ind. 275, Vt. 536; Silver Hook R. v. Greene, 79 Am. Dec. 430. 12 R. I. 164; Pike v. Bangor, &c. R. " Danbury, &c. R. Co. v. Wilson, Co. 68 Me. 445 ; Banet v. Alton, &c, 22 Conn. 435. R. Co. 13 111. 504. " Budd V. Multnomah St. R. Co. =• Rutland, &c. R. Co. v. Thrall, 35 15 Ore. 413, 15 Pac. 659, 3 Am. St. Vt. 536; Read v. Memphis, &c. Co. 9 169, 172; Ambergate, &c. R. Co. v. Heisk. (Tenn.) 545. Mitchell, 4 Ex. 540. == Banet v. Alton, &c. R. Co. 13 IlL 404. B21 UNITED ACTION DE FACTO BOAKD ILLEGAL CALLS. [§ 136 and calls made by him will be valid, even though the resolutions do not specify the amount of each instalment to be called for.^^ § 136. Directors must act as a body — ^De facto board — Illegal calls. — A valid call cannot be made by a portion of the board of directors in the absence of a quorum for the transaction of business. ^^ But that a de facto board was illegally elected cannot be set up as a defense to a call regularly^ made by them.^* If the corporation is unauthorized and illegal, calls made by it cannot, it seems, be enforced.^** But it is generally held that the implied promise to pay upon call contained in a subscription to the capital stock of a legally incorporated company is sufficient to support an action, and of course an action may be main- tained on an express promise to pay for such stock. § 137. Discretion of board in making calls. — The corporate au- thorities who are empowered to make calls are the sole judges as to the advisability of making them,^° subject, perhaps, to the condition that the power must be exercised in good faith for the purpose of raising money for the use of the corporation.^^ And where no limitations are ^'Hays V. Pittsburg, &c. E. Co. 38 Pa. St. 81. But see Silver Hook Road V. Green, 12 R. I. 164. "Price V. Grand Rapids, &c. R. Co. 13 Ind. 58; Bottomley's Case, L. R. 16 Oh. Div. 681. Possibly such an act could be confirmed by >the majority. Phosphate of Lime Co., Re, 24 L. T. 932. ^ Eakright v. Logansport, &c. R. Co. 13 Ind. 404; Steinmetz v. Ver- sailles, &c. R. Co. 57 Ind. 457; Fair- field, &c. Turnp. Co. v. Thorp, 13 ■Conn. 173; Macon, &c. R. Co. v. Vason, 57 Ga. 314; Ohio, &c. R. Co. V. McPherson, 35 Mo. 13, 86 Am. Dec. 128. Contra, Howbeach, &c. Co. V. Teague, 5 H. & N. 151. And see People's Mut. Ins. Co. v. West- cott, 14 Gray (Mass.) 440, where a call by directors elected at a meet- ing without notice was held invalid. Moses V. Tompkins, 84 Ala. 613, 4 So. 763. The rule in Kngland seems to be opposed to the doctrine stated in the text. Swansea Dock Co. v. Levien, 20 L. J. (Ex.) 447. See, also, Moses v. Tompkins, 84 Ala. 613, 4 So. 763. "Gillespie v. Ft. Wayne, &c. R. Co. 17 Ind. 243. °°Judah V. American, &c. Co. 4 Ind. 333; Budd v. Multnomah St. R. Co. 15 Ore. 413, 15 Pac. 659, 3 Am. St. 169; Chouteau Ins. Co. v. Floyd, 74 Mo. 286; Oglesby v. At- trill, 105 U. S. 605; Visalia, &c. R. Co. v. Hyde, 110 Cal. 632, 43 Pac. 10, 52 Am. St. 136; Anglo-American Land Co. v. Dyer, 181 Mass. 593, 64 N. E. 416, 92 Am. St. 437; American Alkali Co. v. Campbell, 113 Fed. 398. =*Harbershon's Case, L. R. 5 Eq. 286. But where the money is raised for the use of the company, equity will not inquire whether such use is essential to its best interests. Bailey v. Birkenhead, &c. R. Co. 12 Beav. 433; Yetts v. Norfolk, &c. R. § 138] CALLS AND ASSESSMENTS. 333l placed upon their discretion, they may require the whole subscription) to be paid, either at one time or in instalments.^^ § 138. Charter and statutory limitations upon discretion — Peri- odical instalments. — The assessments are frequently required by char- ter or by statute^^ to be limited to not more than a certain per centum of the subscription within a given time. And where the charter pro- vides that after the payment of a certain per cent., no further assess- ment shall be made "unless with the assent of three-fourths of the stockholders," a shareholder cannot be made to pay the balance by the directors, without a three-fourths vote of the stockholders.^* It has also been held that subscriptions to stock which is to be called for in proportions can only be recovered where the instalments were called for periodically, and that an attempt to make all the assessments at one time, without having given any notice to the subscriber that pre- vious assessments were payable is invalid.^^ But where the subscrip- tion was made upon condition that not more than five per cent, should be assessed at any one time, it was held that an. assessment of more than that sum, payable in instalments of not more than five per cent each, must be levied by a single vote of the directors.^' The corpora- tion cannot, however, by contract, agree to postpone a call for an in- definite time.*^ §139. Call should affect all alike — ^Motive and expediency. — A call in order to be valid must ordinarily affect all similar stock of the corporation alike.^* But the fact that wrong motives induced the directors to make the call does not constitute a valid objection to it,^* where the assessment is equal and the money is raised ostensibly for corporate uses. Thus, in the case cited, it was held that, although the Co. 3 DeG. & Sm. 293. See, also, Me. 172, 63 Am. Dec. 654; Penobscot Oglesby V. Attrill, 105 U. S. 605. R. Co. v. Dunn, 39 Me. 587. =^Haun V. Mulberry, &c. Grav. R. "McComb v. Credit Mobilier, &c. Co. 32 Ind. 103. 13 Phil. 468; Van Allen v. 111. Cen- '"Stimson Am. Stat. (1892), tral R. Co. 7 Bosw. (N. Y.) 515. § 8601. "Pike v. Bangor, &c. R. Co. 68 =' Louisiana Paper Co. v. Waples, Me. 445; Great Western, &c. Co. v. 3 Woods (U. S.) 34. Burnham, 79 Wis. 47, 47 N. W. 373. »' Spangler v. Indiana, &c. R. Co. See, also, North Milwaukee Town- 21 111. 276. But see Heaston v. Cin- site v. Bishop, 103 Wis. 492, 79 N. cinnati, &c. R. Co. 16 Ind. 275, 79 W. 785, 45 L. R. A. 174, 24 Am. St. Am. Dec. 430. 698. '= Penobscot R. Co. v. Dummer, 40 '" Oglesby v. Attrill, 105 U. S. 605. 323 SUBSCEIPTION PAYABLE UPON DEMAND. [§■ 140 declaration alleged that the assessment was unnecessary and was made in pursuance of a scheme to embarrass the plaintiff and get possession of his stock at a nominal price, as it did not appear to be in excess of the power of the directors nor for an object foreign to the purposes of the corporation, the court would not inquire into the motives which prompted it or the expediency of making it. § 140. Subscription payable upon demand — Notice. — The better rule seems to be that a subscription payable at such times and places as shall be directed by the directors of the company is payable upon demand,*" that a suit to collect the installment called for is a sufiScient demand,*^ and that no notice of such a call need be given before suit,*^ unless it is required by the charter or by-laws, or by statute.*^ In ac- "Ross V. Lafayette, &c. R. Co. 6 Ind. 297; New Albany, &c. R. Co. V. McCormick, 10 Ind. 499, 71 Am. Dec. 337, and note; Gray v. Monon- gahela, &c. Co. 2 "Watts & S. (Pa.) 156, 37 Am. Dec. 500, and note. But see 2 Thomp. Corp. §§ 1750, 1751, and English authorities there cited. The statutes of nearly all the states make the capital stock payable in such instalments, and at such times and places as the directors pre- scribe. Stimson Am. Stat. (1892), §§ 8112, 8601. But subject, in some states, to a restriction as to how much'^of- the capital stock may be called for within a given time. Stimson's Am. Stat. (1892), §§ 8112, 8601, citing laws of Indiana, Ne- vada, Utah, New Mexico, Arizona, Pennsylvania, Montana. A call for the payment of a subscription is a sufficient acceptance of the sub- scriber as a stockholder. Danbury, &c. R. Co. V. "Wilson, 22 Conn. 435; "Wight V. Shelby R. Co. 16 B. Mon. (Ky.) 4, 63 Am. Dec. 522; Buffalo, &c. R. Co. V. Dudley, 14 N. Y. 336. *^ Smith V. Indiana, &c. R. Co. 12 Ind. 61. " "Wilson V. "Wills Valley R. Co. 33 Ga. 466; Grubbs v. "Vicksburg, &c. R. Co. 50 Ala. 398; Eppes v. Missis- sippi, &c. R. Co. 35 Ala. 33; Hill v. Nisbet, 100 Ind. 341; Grubb v. Ma- honing Nav. Co. 14 Pa. St. 302; Lake Ontario, &c. R. Co. v. Mason, 16 N. Y. 451, 464; Peake v. "Wabash R. Co. 18 111. 88. '^ Notice is required by statute in several states. Stimson's Am. Stat. (1892), § 8112. Such a statute is generally held to be mandatory. Mississippi, &c. R. Co. v. Gaster, 20 Ark. 455; Macon, &c. R. Co. v. "Va- son, 57 Ga. 314; note in 93 Am. St. 384, 385. The Pennsylvania R. R. act requires notice of calls to be given. McCarty v. Sellnsgrove, &o. R. Co. 35 Leg. Intel. 410. See, also, Scarlett v. Academy, 43 Md. 203; Muskingum Valley, &c. Co. v. "Ward, 13 Ohio 120, 42 Am. Dec. 191, 2 Thomp. Corp. § 1756 (notice by pub- lication). "When the trustees of a corporation, suing on a subscription to its capital stock, show that they have taken steps, which the law authorized them to take, the pre- sumption is that they have taken them regularly; and, if there is any by-law which renders their action irregular, it is matter of defense and should be so pleaded. Puget 141] CALLS AND ASSESSMENTS. 224 cordance with this doctrine, where no such requirement is found in -the charter or general laws, a judgment for an instalment on a sub- scription will be sustained even though it does not appear that the defendant had any notice whatever of a call for such instalment.** But respectable* authority holds that notice of calls must.be given be- fore suit is brought to collect them,*^ since all stockholders cannot reasonably be presumed to know what the directors do without notice of that fact,*" which is peculiarly within the knowledge of the cor- porate authorities seeking to enforce the subscription liability.*^ § 141. Eequisites of notice. — Where notice is required, it must be fiuch a notice as will give the shareholder to understand that a call has been made, and that he is required to pay the amount on a named day,*^ and some authorities hold that it must designate the place of payment.*® It must be given the full number of days prescribed before the call is made payable or before suit is brought,^" but where actual personal notice is given this has been held efEectual, although the char- ter, statute or by-laws provide for some other form of notice.^^ Actual Sound, &c. R. Co. v. Ouillette, 7 -Wash. 265, 34 Pac. 929. « Wilson V. Mills Valley R. Co. 33 Gbl. 466. "Wear v. Jacksonville, &c. R. Co. 24 111. 594; Rutland, &c. R. Co. v. Thrall, 35 Vt. 536; Edinburgh, &c. R. Co. V. Hebblewhite, 6 M. & W. 707; Miles v. Bough, 3 Ad. & El. (N. S.) 845; Lindley Comp. L. (5th €d.) 417. *■ Hughes V. Antietam Mfg. Co. 34 Md. 316. " This rule is commended by Cook in his work on Stock and Stockhold- ers, § 118. See, also, note in 73 Am. St. 385, 386, where It is stated that the weight of authority is that no- tice is unnecessary, but authorities on both sides are cited. *Shackleford v. Dangerfleld, L. R. 3 C. P. 407. "Dexter, &c. R. Co. v. Millerd, 3 Mich. 91, holding that a notice to pay to the treasurer does not suflfl- cently indicate the place of pay- ment. But see Muskingum Valley Tump. Co. V. Ward, 13 Ohio 120, 42 Am. Dec. 191, holding that it does. And see Danbury, &c. R. Co. V. Wilson, 22 Conn. 435, where it is held that a call is impliedly pay- able to the treasurer at his office unless otherwise provided in the resolution. I'" Mississippi, &c. R. Co. v. Gaster, 20 Ark. 455. Fifty-nine days is in- sufficient where the statute pre- scribes sixty days. Macon, &c. R. Co. V. Vason, 57 Ga. 314. See, also. Cole V. Joliet Opera House Co. 79 111. 96. " Mississippi, &c. R. Co. v. Gaster, 20 Ark. 455, where the statute pro- vided for sixty days' notice by pub- lication. Schenectady, &c. R. Co. v. Thatcher, 11 N. Y. 102, where the defendant aided in sending out by mail notices required by charter. See, also, Lexington, &c. R. Co. v. Chandler, 13 Mete. (Mass.) 311; McCarty v. Selinsgrove R. Co. 87 225 CONSTKUCTIVE NOTICE. _ [§ 143 notice will be presumed where the subscriber expressly promises to pay a call which has already been made.^^ Notice by mail has been held to be effective only if actually received, in the absence of special provision for notice of this kind/* and it is for the jury to decide whether it was so received."* § 142. Constructive notice. — Where constructive notice is relied upon proof must be made of a strict compliance with the provisions of the statute, charter, or by-law conferring authority to give notice by publication or otherwise. "^ Publication must be made the full number of days required before the call is payable,"' but one publication has been held sufficient unless more are expressly required."^ It has been held that this mode of giving notice of matters in which many persons are interested, such as a call by the directors of a corporation, has so long been an' universal usage, and of a notoriety equal to that of the publication of newspapers themselves, that the custom of doing so has become a part of the law of the land,"* and that such a notice is suffi- cient where the mode of notice is left undetermined by express pro- vision of law."' But the better authority seems ta hold that such a notice would bind only those who could be proven to have actually Pa. St. 332. Contra, Tomlin v. publication. Tomlin v. Tonioa, &c. Tonica, &c. R. Co. 23 111. 429 (374). R. Co. 23 111. 429. The printed notice "Miles v. Bough, 3 Ad. & El. (N. must be put in evidence. Rutland, S.) 845; Fairfield Co. Turnp. Co. v. &C..R. Co. v. Thrall, 35 Vt. 536. But Thorp, 13 Conn. 173. may be supplemented by the testi- "" Hughes v. Anteitam, &c. Co. 34 mony of the publisher as to subse- Md. 316; Lake Ontario, &c. R. Co. v. quent insertions. Unthank v. Henry Mason, 16 N. Y. 451. But see Brad- Co. Turnp. Co. 6 Ind. 125; Andrews dock v. Philadelphia, &c. R. Co. 45 v. Ohio, &c. R. Co. 14 Ind. 169. N. J. L. 363. " Muskingum Val. Turnp. Co. v. "Braddock v. Philadelphia, &c. R. Ward, 13 Ohio 120, 42 Am. Dec. 191; Co. 45 N. J. L. 363. Only the person Fox v. AUensville, &c. Turnp. Co. 46 actually mailing the notice can tes- Ind. 31; Marsh v. Burroughs, 1 tify that it was sent. Jones v. Sis- Woods (U. S.) 463. son, 6 Gray (Mass.) 288. ■" Hall v. United States Ins. Co. 5 »» Macon, &c. R. Co. v. Vason, 57 Gill (Md.) 484. Ga. 314; Cole v. Juliet, &c. Co. 79 "' Louisville, &o. Co. v. Meriwether, 111. 96; Louisville, &c. Turnpike Co. 5 B. Monr. (Ky.) 13; Danbury, &c. v. Meriwether, 5 B. Mon. (Ky.) 13. R. Co. v. Wilson, 22 Conn. 435; "Macon, &c. R. Co. v. Vason, 57 Grubbs v. Vicksburg, &c. R. Co. 50 Ga. 314. The certificate of the secre- Ala. 398. See, also, Fisher v. Evans- tary is not admissible to prove such ville, &c. R. Co. 7 Ind. 407. Ell. Railboads — 15 § 143] CALLS AND ASSESSMENTS. 226 read it ;'" and that, in general, showing that notice was given to others even of the immediate neighborhood will not be sufficient to charge a subscriber/^ where constructive notice is not expressly provided for and such provisions carefully and exactly complied with. § 143. Waiver by stockholder of notice and formalities of call — Estoppel. — The subscriber may waive notice, or he may waive the for- malities which give validity to the call,*^ and may even waive the. call itself.** Such a waiver may be by acts as well as by express agree- ment.°* It is held that a director participating in a call cannot ques- tion its validity.*' And a subscriber who, on receiving notice of a call, refuses to pay it and denies his liability as a stockholder, waives any further notice of future calls.** But voluntary payment of part of a subscription is not necessarily a waiver of the right to have calls made for the balance before payment.*^ And the payment of one illegal as- sessment does not estop the subscriber from setting up illegality as a defense to a second.*' § 144. Demand and suit for assessment. — ^After a call is rendered payable by resolution and due notice, suit may ^e brought to collect it without further demand.*' Where several instalments are in default, it has been held that one suit may be brought for all.'" The complaint ""Alabama, &c. R. Co. v. Rowley, "York Tramways Co. v. Willows, 9 Fla. 508; Lake Ontario, &c. R. Co. L. R. 8 Q. B. D. 685. But the fact v. Mason, 16 N. Y. 451. And see that a director voted for a call and Lincoln v. Wright, 23 Pa. St. 76; made a part payment of It, will not Tomlin v. Tonica, &c. R. Co. 23 111. estop him to question his liability 429, 62 Am. Dec. 316 n. as a stockholder. "New Jersey Midland R. Co. v. "Cass v. Pittsburg, &c. R. Co. 80 Strait, 35 N. J. L. 322. Pa. St. 31. " The vote of a city to pay a call " Grosse Isle Hotel Co. v. Panson, is no waiver of its invalidity. Pike 43 N. J. L. 442. V. Bangor, &c. R. Co. 68 Me. 445. A " Somerset, &c. R. Co. v. Gushing, waiver must be clearly proved. Rut- 45 Me. 524. Nor, on the other hand, land, &c. R. Go. v. .Thrall, 35 Vt. 536. does the illegality of one assessment "^ Such a waiver is frequently vitiate a subsequent legal assess- made by an agreement to pay the ment. European, &c. R. Co. v. Mc- subscription on a day certain. New Leod, 3 Pugsley (16 N. B.) 3, 39. Albany, &c. R. Co. v. Pickens, 5 Ind. " Winter v. Muscogee, &c. R. Co. 247; Waukon, &c. R. Co. v. Dwyer, 11 Ga. 438; Penobscot R. Go. v. Dum- 49 Iowa 121. mer, 40 Me. 172, 63 Am. Dec. 654. "Macon, &c. R. Co. v. Vason, 57 "Spangler v. Indiana, &c. R. Co. Ga. 314. 21 111. 276. 337 ASSIGNMENT OP EIGHT TO COLLECT. [§' 145 in such a case must aver that all the several instalments are due and ■ payable.'^ Interest may be collected from the time the instalments become due, in case they are not promptly paid." § 145. Assignment of right to collect subscription or assessment. — The claim arising from an unpaid call may be assigned like any other debt/^ as may subscription contracts payable upon a day certain.''* But subscriptions made subject to call cannot be mortgaged or sold before payment has been called for/^ since the discretion to make calls vested in the directors is not the subject of transfer,'® and, generally, the power to enforce calls can only be exercised by the company to whose stock the subscription was made, unless there has been a con- solidation or transfer of the franchises to another company in pursu- ance of full statutory authority. '^ § 146. When courts may compel call and payment. — In case of corporate insolvency, a court of equity may compel the directors to make a call for the purpose of raising funds with which to pay the debts of the corporation.''* Or it may dispense with a call and order that the unpaid subscriptions, or such a part of them as may be neces- " Bethel, &e. TUrnp. Co. v. Bean, " A mortgage on all the land, 58 Me. 89. property and effects of the corpora- " Gould V. Oneonta, 71 N. Y. 298; tion does not cover unpaid subscrip- Casey v. Galli, 94 U. S. 673; Rlkhoff tions. Pickering v. Ilfracomhe R. V. Brown's &c. Co. 68 Ind. 388. This, Co. 37 L. J. (C. P.) 118. however. Is a matter frequently reg- " Thrasher v. Pike County R. Co. ulated by statute. Thus, under the 25 111. 393. Virginia statute, it has been held in- ™ Germantown Pass. R. Co. v. Fit- terest may be collected from the ler, 60 Pa. St. 124, 100 Am. Dec. date of the call. Hawkins v. Glenn, 546 n; Sanger v. Upton, 91 U. S. 56; 131 U. S. 319, 9 Sup. Ct. 739. Chandler v. Siddle, 3 Dill. (U. S.) "Miller v. Malony, 3 B. Mon. 477. See, also, Efird v. Piedmont (Ky.) 105; Wells v. Rodgers, 50 Land, &c. Co. 55 S. Car. 78, 32 S. E. Mich. 294, 15 N. W. 462; Downie v. 758, 896; Glenn v. Saxton, 68 Cal, Hoover, 12 Wis. 174, 78 Am. Dec. 353, 9 Pac. 420. But this remedy has 730; Morris v. Cheney, 51 111. 451. been disapproved. Dalton, &c. R. Co. "See Smith v. Hollett, 34 Ind. v. McDaniel, 56 Ga. 191; Hatch v. 519; Hays v. Branham, 36 Ind. 219. Dana, 101 U. S. 205; Ward v. Gris- " Stanley, Ex parte, 33 L.J. (Ch.) woldville, &c. Co. 16 Conn. 593. 535; N. J. Midland R. Co. v. Strait, Compare Glenn v. Howard, 81 Ga. 35 N. J. L. 322; Wells v. Rodgers, 383, 8 S. E. 636, 12 Am. St. 318. See, 50 Mich. 294, 15 N. W. 462; Rodgers also. Great Western Tel. Co. v. V. Wells, 44 Mich. 411, 6 N. W. 860. Purdy, 162 U. S. 329, 16 Sup. Ct. 810. 147] CALLS AND ASSESSMENTS. 338 -sary to pay the corporate debts,'^ be paid to a receiver for the benefit of the corporate creditors.*" The right of the court to do this is upheld even where the statute provides that calls shall be made only by the directors.*^ §147. Extent of stockholder's liability for assessments — ^Agree- ments as affecting liability. — The principle of law is now well settled that a stockholder is not liable for assessments beyond the par value of his stock/^ unless made so liable by provisions of the corporate charter or by a constitutional statute.*^ Liability to such an assessment cannot be created by a by-law adopted by a majority vote of the directors or of the stockholders.** It has been held, however, that an agreement en- tered into by all the stockholders and printed upon the certificates, may make not only the stockholders but their assignees liable to fur- ther assessments.*^ And if the stockholders, by agreement among them- selves, voluntarily contribute to the corporate treasury in proportion " Citizens', &c. Co. v. Gillespie, 115 Pa. St. 564, 9 Atl. 73. See, also. Bank V. Butchers', &c. Bank, 107 Mo. 133, 17 S. W. 644, 28 Am. St. 405; McKay v. BIwood, 12 Wash. 579, 41 Pac. 919; Henry v. Vermillion, &c. R. Co. 17 Ohio 187. ™ Scovill v. Thayer, 105 U. S. 143 ; Hatch v. Dana, 101 TJ. S. 205; Marsh V. Burroughs, 1 Woods (U. S.) 463; Henry v. Vermillion, &c. R. Co. 17 Ohio 187; Glenn v. Sample, 80 Ala. 159, 60 Am. R. 92; Chandler v. Keith, 42 Iowa .99; Shockley v. Fish- er, 75 Mo. 498; Adler v. Milwaukee, &c. Co. 13 Wis. 57; Glenn v. Saxton, 68 Cal. 353, 9 Pac. 420; Sagory v. Dubois, 3 Sandf. Ch. 466; Elderkin v. Peterson, 8 Wash. 674, 36 Pac. 1089. "Glenn v. Saxton, 68 Cal. 353, 9 Pac. 420; Crawford v. Rohrer, 59 Md. 599. But see Trustees, &c. v. Waples, 3 Woods (U. S.) 34, holding that the court cannot make a call where the charter provides for a call only upon a three-fourths vote of the stockholders. '='Lewey's Island R. Co. v. Bolton, 48 Me. 451, 77 Am. Dec, 236; Great Falls, &c. R. Co. V. Copp, 38 N. H. 124; Smith v. Huckahee, 53 Ala. 191; Chase v. Lord, 77 N. Y. 1; CoflSn V. Rich, 45 Me. 507, 71 Am. Dec. 559. Inhabitants of Norton v. Hodges, 100 Mass. 241; Carr v. Igle- hart, 3 Ohio St. 457; Redkey Citi- zens', &c. Gas Co. V. Orr; 27 Ind. App. 1, 60 N. E. 716; Enterprise Ditch Co. V. Moffitt, 58 Neb. 642, 79 N. W. 560, 45 L. R. A. 647 n, 76 Am. St. 122. ''Santa Cruz R. Co. v. Spreckles, 65 Cal. 193, 3 Pac. 661, 802. See post Chapter IX, Stockholders. " Kennebec, &c. R. Co. v. Kendall, 31 Me. 470; Trustees of Free Schools V. Flint, 13 Mete. (Mass.) 539; Flint V. Pierce, 99 Mass. 68; Enterprise Ditch Co. V. Moffitt, 58 Neb. 642, 79 N. W. 560, 76 Am. St. 122, 45 L. R. A. 647 n, 96 Am. Dec. 691. But see Hume V. Winyah Canal Co. 1 Caro- lina L. J. 217, cited in Cook Stock, &c. § 242. «= Weeks v. Silver, &c. Co. 23 J. and S. (N. Y. Sup. Ct.) 1. 329 CHAETEE PROVISIONS REGARDING ASSESSMENTS. [§ 148 to the value of their shares to meet the needs of the corporation, such advances do not create corporate debts and cannot be recovered back.*® § 148. Constniction of charter and statutory provisions regarding assessments. — Statutes and charter provisions authorizing such assess- ments will be strictly construed.*' Where the charter provided "that the shares in said capital stock shall not be liable to assessment after the capital stock so fixed in amount has been paid in, except in equal proportions, and by the consent of the stockholders owning at least three-fourths of the shares of the capital stock of the corporation," it was held that paid-up stock was not liable to assessment in any event until the full amount of the capital stock as fixed by the charter had been subscribed for and actually paid in.** So, where the charter pro- vided that "if at any time the stock paid into said corporation shall be impaired by loss or otherwise, the directors shall forthwith repair the same by assessment," this authority was held to be conferred only for the purpose of providing capital with which to continue business, and a receiver was not allowed to make an assessment with which to pay debts.*^ § 149. Bemedies where stockholder fails to pay subscription or assessment — Forfeiture. — A subscriber may ordinarily be sued for any unpaid instalment due on his stock, as for the breach of any other contract to pay money,®" his subscription to the capital stock being " Bidwell V. Pittsburgh, &c. B. Co. " The corporation may levy execu- 114 Pa. 535, 6 Atl. 729. tion on the stock and sell it to sat- "Libby v. Tobey, 82 Me. 397, 19 isfy a judgment obtained in such Atl. 904; Lewey's Island R. Co. v. suit. Chase v. East Tenn., &c. R. Co. Bolton, 48 Me. 451, 77 Am. Dec. 236; 5 Lea (Tenn.) 415. In most of the Henderson v. Turngrew, 9 Utah 432, New England States, however, the 35 Pac. 495; O'Reilly v. Bard, 105 rule is that the only remedy open Pa. St. 569. to a corporation in case of the non- ^ Atlantic De Laine Co. v. Mason, payment of stock subscribed is by 5 R. I. 463. forfeiture of the shares, unless the ™ Dewey v. St. Albans -Trust Co. subscriber expressly promised to 57 Vt. 332. -But a similar statute in pay, or the charter expressly bound California (Civ. Code, §§ 331, 332) him to do so. Katama Land Co. v. is construed to permit assessments Jernegan, 126 Mass. 155; Piscataqua to any extent "for the purpose of Ferry Co. v. Jones, 39 N. H. 491; New paying expenses, conducting busi- Hampshire, &c. R. Co. v. Johnson, 30 ness or paying debts." Santa Cruz N. H. 390, 64 Am. Dec. 300; Belfast, R. Co. V. Spreckles, 65 Cal. 193, 3 &c. R. Co. v. Cottrell, 66 Me. 185; Con- Pac. 661, 802. necticut. &c. E. Co. v. Bailey, 24 Vt. § 149] CALLS AND ASSESSMENTS. 230 construed as a promise to pay the face value of the shares subscribed f or/^ But the corporation is also, in many of the states, authorized by statute to declare a forfeiture of its stock for non-payment of calls f^ while others authorize a sale of the stock and an application of the proceeds to the payment of the instalment, for which a call has been issued and to which the owner does not respond, after due notice.'^ This remedy cannot be pursued except when it is given by charter or 465, 58 Am. Dec. 181. Contra, Wind- sor Electric Light Co. v. Tandy, 66 Vt. 248, 29 Atl. 248, 44 Am. St. 838. Cook Stock and Stockholders, § 71, and numerous authorities cited. But in Connecticut it is held that the signing of a subscription paper and agreeing to "take" certain shares amounts to a promise to pay their face value. Hartford, &c. R. Co. v. Kennedy, 12 Conn. 499. And this is the general rule throughout the United States and is the rule en- forced in the federal court. Upton V. Trihilcock, 91 U. S. 45; Sanger v. Upton, 91 U. S. 56, and cases cited in next note infra. A provision in the charter that the subscription may he enforced hy suit or by forfeiture will fix a personal liability upon the subscriber without an express prom- ise to pay. Kenne'bec, &c. R. Co. v. Kendall, 31 Me. 470; Connecticut, &c. R. Co. V. Bailey, 24 Vt. 465, 58 Am. Dec. 181. See Fry v. Lex- ington, &c. R. Co. 2 Met. (Ky.) 314. Pennsylvania, Nebraska, Mary- land, Michigan, Wisconsin, Alabama, New Mexico and Arizona have gen- eral statutes providing that a rail- road corporation may sue for unpaid installments. Stlmson's Am. Stat. (1892), § 8602. Similar provision is made by statute in the following states: Ohio R. S., 1890, § 3253; Minn. Gen. Stat. 1891, § 3131; W. Va. Code, 1887, Ch. 53, § 28; Ark. Dig., 1884, § 970; Colo. Gen. Stat, 1883, § 241. An agreement to take and fill certain shares has been con- strued to be an agreement to pay for them. Buckfield Branch R. Co. V. Irish, 39 Me. 44. See, also, Penob- scot, &c. R. Co. V. Bartlett, 12 Gray (Mass.) 244. « Northern R. Co. v. Miller, 10 Barb. (N. Y.) 260; Kirksey v. Flor- ida, &c. Plank R. Co. 7 Fla. 23, 68 Am. Dec. 426; Instone v. Prank- fort Bridge Co. 2 Bibb. (Ky.) 576, 5 Am. Dec. 638 ; Hartford, &c. R. Co. V. Kennedy, 12 Conn. 499; Hughes V. Antietam M. Co. 34 Md. 316; Selma R. Co. v. Tipton. 5 Ala. 787, 39 Am. Dec. 344; Western R. Co. v. Avery, 64 N. C. 491; Klein v. Alton, &c. R. Co. 13 111. 514; N. B. R. Co. V. Rodriguez, 10 Rich. L. (S. C.) 278; Stokes v. Lebanon, &c. Turnp. Co. 6 Humph. (Tenn.) 241; Free- man V. Winchester, 10 S. & M. (Miss.) 577; Delaware, &c. Canal Nav. V. Sansom, 1 Binn. (Pa.) 70; Windsor El. Light Co. v. Tandy, 66 Vt. 248, 29 Atl. 248, 44 Am. St. 838. But an action on a stock assess- ment against one party on stock which Is in the name of another party on the books of the corpora- tion cannot ordinarily be main- tained by the corporation. Vale Mills V. Spalding, 62 N. H. 605. ""Stlmson's Am. Stat. (1892), § 8113. »» Stlmson's Am. Stat. (1892), § 8113. But see where sale was held void and issue of new stock in its place compelled, when stockholder 231 CUMULATIVE REMEDIES ELECTION. [§ 150 by statute/* or is created by consent of all the stockholders which is usually indorsed on the certificates.^^ § 150. Cumulative remedies — ^Election. — Statutory permission to declare a forfeiture does not destroy the corporate right to collect the money due upon the subscription by other means, where such right is given by law or by contract,"" and the corporation may, in a proper duly tendered amount due, Wilson V. Duplin, &c. Co. 139 N. Car. 395, 52 S. B. 62. °*Westcott V. Minnesota, &c. Co. 23 Mich. 145; Budd v. Multnomah St. R. Co. 15 Oreg. 413, 15 Pac. 659, 3 Am. St. 169; Budd v. Multno- mah, 15 Oreg. 404, 15 Pac. 654, 40 Am. & Bng. R. Cas. 551; Barton's Case, 4 DeG. & J. 46; Perrin v. Granger, 30 Vt. 595; Minnehaha, &c. Ass'n V. Legg, 50 Minn. 333, 52 N. W. 898. »' Weeks v. Silver, &c. Co. 23 J. & S. (N. Y.) 1; Lesseps v. Architects Co. 4 La. Ann. 316. It cannot be created hy a by-law, except where authority to make such by-law is conferred by statute, and a sale un- der an attempted forfeiture without such authority conveys no title. Long Island R. Co., Matter of, 19 Wend. (N. Y.) 37, 32 Am. Dec. 429. See Kirk v. Nowill, 1 Term R. 118; Kennebec, &c. R. Co. v. Kendall, 31 TVIe. 470. And compare Detweiler v. Breckenkamp, 83 Mo. 45; Lesseps v. Architects Co. 4 La. Ann. 316. "'Atlantic Dynamite Co. v. An- drews, 97 Mich. 466, 56 N. W. 858; Puget Sound, &c. R. Co. v. Ouellette, 7 Wash. 265, 34 Pac. 929; Ogdens- ■burg, &c. R. Co. V. Frost, 21 Barb. (N. Y.) 541; Rensselaer, &c. R. Co. V. Wetsel, 21 Barb. (N. Y.) 56; Del- aware, &c. Co. V. Sansom, 1 Binn. (Pa.) 70; Hartford, &c. R. Co. v. Kennedy, 12 Conn. 499; Rutland, &c. R. Co. V. Thrall, 35 Vt. 536; White Mountain R. Co. v. Eastman, 34 N. ■H. 124; Hightower v. Thornton, 8 Ga. 486, 502, 52 Am. Dec. 412; Selma, &c. R. Co. v. Tipton, 5 Ala. 787, 39 Am. Dec. 344; Gratz v. Redd, 4 B. Mon. (Ky.) 178; Boston, &c. R. Co. V. Wellington, 113 Mass. 79; New Orleans, &c. Co. v. Briggs, 27 La. Ann. 318; Peoria, &c. R. Co. v. Elting, 17 111. 429; Greenville, &c. R. Co. V. Cathcart, 4 Rich L. (S. C.) 89; Stokes v. Lebanon, &c. Co. 6 Humph. (Tenn.) 241; Kirksey v. Florida, &c. Co. 7 Fla. 23, 68 Am. Dec. 426; Tar River, &c. Co. v. Neal, 3 Hawks. (N. C.) 520; South Bay, &c. Co. V. Gray, 30 Me. 547. The lia- bility of a stockholder in a for- eign - corporation is generally de- termined by the law of the state which created it, but it may be enforced by the courts of other jurisdictions, and "the general rule in the states of this country is, where a corporation has a right un- der the statute creating it, to declare a forfeiture of shares for non-pay- ment of calls, it may exercise its option to forfeit the stock or bring its action to collect the amount of the calls, but caUnot forfeit the stock and afterwards sue at law, as the exercise of the first option would end the relation of the parties and exclude a resort to the other." Man- del V. Swan Land, &c. Co. 154 111. 177, 40 N. E. 462, 27 L. R. A. 313, 45 Am. St. 124, citing Small v. Herki- mer, &o. Co. 2 N. Y. 330; BufCalo, &c. § 150] CALLS AND ASSESSMENTS. 333 case, elect which remedy it will pursue.*" It has been held that the remedy for forfeiture and sale could be pursued, and that the share- holder could then be sued for any unpaid balance not discharged by the proceeds arising from a sale of the stock, as in a foreclosure of a mortgage, where the mortgaged property does not sell for enough to pay the debt.'* It is argued that where provision is made for the pay- ment to the subscriber of any surplus arising from a sale, after paying the delinquent assessment/" the contention that the forfeiture destroys the contract relation between hiin and the corporation cannot be up- held, but he will be impliedly liable for any deficiency in the sum necessary to discharge such assessment. ^°"' And it has been held that the company may declare a forfeiture after suit brought to recover un- paid calls, and that such a forfeiture cannot be pleaded in bar of the further maintenance of the suit where the value of the stock forfeited is not equal to the money due the company,^"^ although the stock- holder may insist, in diminution of damages, that such value shall be subtracted from the sum for which the corporation would otherwise have judgment.^"^ But it is generally held that while the corporation may proceed either by suit or by forfeiture, the adoption of the statu- tory remedy by forfeiture or sale excludes the other,^''' except where R. Co. V. Dudley, 14 N. Y. 336; Rut- Vermont, Maryland and Wisconsin, land, &c. R. Co. v. Thrall, 35 Vt. 536. Stimson's Am. Stat. (1892), § 8602. "'l Cook Stock and Stockholders, ""Carson v. Arctic Min. Co. 5 § 124. Mich. 288. See, also. Great Northern "* Carson v. Arctic Min. Co. 5 R. Co. v. Kennedy, 4 Exch. 417; Mich. 288. But see Mandel v. Swan, Hartford, &c. R. Co. y. Kennedy, 12 &c. Co. 154 111. 177, 40 N. E. 462, 27 Conn. 499. L. R. A. 313, 45 Am. St. 124. For '»' Herkimer Mfg. Co. v. Small, 21 other cases in which legislative pro- "Wend. (N. Y.) 273, reversed, how- vision is made by charter or other- ever, in 2 N. Y. 330. wise, for such procedure see Brock- "^Herkimer Mfg. Co. v. Small, 21 enbrough v. James River, &c. Go. 1 Wend. (N. Y.) 273, reversed, how- Patton & H. (Va.) 94; Mann v. ever, in 2 N. Y. 330. Cooke, 20 Conn. 178; Danbury, &c. "' Ogdensburg, &c. R. Co. v. Frost, R. Co. V. Wilson, 22 Conn. 435. One 21 Barb. (N. Y.) 541; Mills v. Stew- who acquired his shares by transfer art, 41 N. Y. 384;Athol, &c. R. Co. v. is held liable under this rule equally Inhabitants of Prescott, 110 Mass. with an original subscriber. Merri- 213; Mechanics', &c. Co. v. Hall, 121 mac Min. Co. v. Bagley, 14 Mich. 501, Mass. 272 ; Allen v. Montgomery, &c. and cases cited supra. Co., 11 Ala. 437; Macauly v. Robin- »» Provision that the shareholder son, 18 La. Ann. 619; Rutland, &c. shall have the surplus or be liable R. Co. v. Thrall, 35 Vt. 536; Macon, for any deficiency is found in the &c. R. Co. v. Vason, 57 Ga. 314; general statutes of Massachusetts, Ashton v. Burbank, 2 Dill. (U. S.) 233 EFFECT OF FOEFEITURE. [§ 151 the statute gives an action for the balance of the subscription not can- celed by the proceeds of the sale.^"* Where such an action was given by statute in Massachusetts it was held that a personal action could not be maintained until there had been a formal declaration of forfeiture and a sale based upon such forfeiture.^" ^ But a mere threat to enforce a forfeiture, or an unsuccessful attempt to sell the shares, will not bar a suit to enforce the subscription contract.^"' Notice that a forfeiture will be enforced in the future unless payment is made is not a for- feiture,^"' nor is a threat of forfeiture for non-payment.^"^ And a stockholder's obligation to pay continues so long as his right to the shares, with the privileges and emoluments attached to them, re- mains.^"* It has also been held that an action to collect a subscription, when prosecuted to judgment, will preclude the enforcement of a for- feiture.^^" The remedy in such a case would seem to be by execution levied upon the stock.^^^ § 151. Effect of forfeiture. — ^Except where the statute makes pro- vision for the payment to the shareholder of the surplus arising from a sale of the forfeited shares after payment of the instalments 435; King's Case, L. R. 2 Ch. 714; Mandel v. Swan, &c. Co. 154 111. 177, 40 N. E. 462, 27 L. R. A. 313, and note, 45 Am. St. 124. '" Such a provision is frequently found in special charters granted to corporations. See New Hampshire ■Cent. R. Co. v. Johnson, 30 N. H. 390, 64 Am. Dec. 300; Danbury, &c. R. Co. V. Wilson, 22 Conn. 435; Great Northern R. Co. v. Kennedy, 4 Exch. 417, 425. It is also given by general statute in Massachusetts, Vermont, Maryland and Wisconsin. Stimson's Am. Stat. (1892), § 8602. And in West Virginia and Arkansas, R. S. W. Va. (1887) Ch. 53, § 27, R. g. Ark. (1884), § 970. ™ Athol, &c. R. Co. V. Prescott, 110 Mass. 213. But the holding would probably be different in. those states where a personal action is given in the first instance by the common law, as construed by their courts. '"Macon, &c. R. Co. v. Vason, 57 Ga. 314; Instone v. Frankfort Bridge Co. 2 Bibb. (Ky.) 576, 5 Am. Dec. 638. See Water Valley M. Co. V. Seaman, 53 Miss. 655; Cockerell V. Van Diemen's Land Co. 26 L. J. (C. P.) 203. >" Macon, &c. R. Co. v. Vason, 57 Ga. 314; Bigg's Case, L. R. 1 Eq. 309; Hays v. Franklin County Lum- ber Co. 35 Neb. 511, 53 N. W. 381. See, al:io, Johnson v. Albany, &c. R. Co. 40 How. Pr. (N. Y.) 193. '<« Water Valley M. Co. v. Seaman, 53 Miss. 655. ™ Instone v. Frankfort Bridge Co. 2 Bibb. (Ky.) 576, 581, 5 Am. Dee. 638; Buffalo, &o. R. Co. v. Dudley, 14 N. Y. 336, 347. "» Giles V. Hutt, 3 Ex. 18. ™For an instance of the sale of stock on such an execution, see Chase v. East Tenn., &c. R. Co. 5 Lea (Tenn.) 415. 152] CALLS AND ASSESSMENTS. 234 due/^^ it is held that such surplus belongs to the corporation.^^* After forfeiture, the stockholder can claim none of the rights of an owner of stock/^* nor can he be charged as a stockholder, with the corporate liabilities at the suit of the corporate creditors,^^^ even for debts contracted before the forfeiture.^^®. But to have this efEeet, the forfeiture must be enforced in good f aith.^^ A forfeiture of shares by- collusion of the shareholder and the directors will be set aside for fraud by a court of equity at the suit of the creditors of an insolvent corporation,^^'' and the shareholder will be held liable to the same ex- tent as if no forfeiture had been attempted.^iJ^ § 152. Statutory method of forfeiture'^inust be pursued. — The method of forfeiture prescribed by the statute authorizing this remedy must be strictly pursued, and all the prescribed formalities complied with,^^' in order to divest the stockholder's title. Where, as is true "^The statutes of Massachusetts, Vermont, Maryland and Wisconsin make such provision. Stimson's Am. Stat. (1892), § 8602. "= Small v. Herkimer, &o. Co. 2 N. y. 330. See Freeman v. Harwood, 49 Me. 195; Cook Stock and Stock- holders, § 133. But compare Henkel v. Pioneer Sav. &c. Co. 61 Minn. 35, 63 N. W. 243. "*St. Louis, &c. Co. V. Sandoval, &c. Co. 116 111. 170, 5 N. E. 370. ""Allen V. Montgomery R. Co. 11 Ala. 437, 450; Macauley v. Robin- son, 18 La. Ann. 619; Snell's Case, L. R. 5 Chan. 22. "'Mills V. Stewart, 41 N. Y. 384 (unless it is collusive and fraudu- lent). "' Germantown, &e. R. Co. v. Fit- ler, 60 Pa. St. 124, 100 Am. Dec. 546 n. •"Burke v. Smith, 16 Wall. (U. S.) 390; Slee v. Bloom, 19 Johns. (N. Y.) 456, 10 Am. Dec. 273; Gow- er's Case, L. R. 6 Eq. 77; Stan- hope's Case, L. R. 1 Ch. 161. Aban- donment of the shares hy the stock- holder, without a declaration of for- feiture by the corporation will not release the subscriber from liability on his subscription. Rockville, &c. Turnp. Co. v. Maxwell, 2 Cranch C. C. (U. S.) 451. "» Germantown, &c. R. Co. v. Fit- ler, 60 Pa. St. 124, 100 Am. Dec. 546 n; Portland, &c. R. Co. v. Graham, 11 Mete. (Mass.) 1; York, &c. R. Co. V. Ritchie, 40 Me. 425; Lewey's Island R. Co. v. Bolton, 48 Me. 451, 77 Am. Dec. 236; Eastern, &c. P. R. Co. T. Vaughan, 20 Barb. (N. Y.) 155; Johnson v. Albany, &c. R. Co. 40 How. Pr. (N. Y.) 193; Downing v. Potts, 23 N. J. L. 66; Occidental, &c. Assoc, v. Sullivan, 62 Cal. 394; London, &c. R. Co. v. Fair- clough, 2 Mann. & G. 674. Garden GuUey, &c. Co. v. McLister, L. R. 1 App. Cas. 39; Moses v. Tompkins, 84 Ala. 613, 4 So. 763 ; Alabama, &c. R. Co. V. Rowley, 9 Fla. 508; Morris v. Metalline Land Co. 164 Pa. St. 326, 30 Atl. 240, 27 L. R. A. 305, and note, 44 Am. St. 614. See Rutland, &c. R. Co. v. Thrall, 35 Vt. 536. Some of the old cases hold that a substan- tial compliance with the require- ments is sufficient, but the modern rule is as stated in the text. Cook 335 STATUTORY METHOD OF FORFEITURE MUST BE PURSUED. [§ 153 in many of the states/^" the statute authorizes a sale of the forfeited shares at public auction, they cannot legally be sold at priyate sale.^^'- And a sale for the payment of several assessments, including one which was illegal or unauthorized, may be avoided.^^^ It has been held that only a properly constituted board of directors has authority io declare a forfeiture,^^^ and the stockholder may enjoin an at- tempted forfeiture of his shares by a board that has not been legally €hosen.^^* The company may defer the exercise of its power of for- feiture until all of the instalments become due,^^^ but if it elects to sell stock that is only partially paid for by payment of the delinquent assessment, the purchaser at the forfeiture sale must assume the pay- ment of the instalments to become due in the future ; and if he fails to pay them the stock must be sold again.^^° And where the statute is silent as to details, the procedure must be just and reasonable. ^^^ Stock and Stockholders, § 129. But neglect to comply strictly with, a matter of mere form rather than ■validate a forfeiture. North Hollen- beagle Min. Co., In re Knight's Case, li. R. 2 Chan. 321, 15 L. T. (N. S.) 546. ^Stimson's Amf. Stat. (1892), § 8113. Several of these states per- mit other modes of sale to be pre- scribed by by-laws. Stimson's Am. Stat. (1892), § 8113. '^Lewey's Island R. Co. v. Bolton, 48 Me. 451, 77 Am. Dec. 236. See Birmingham, &c. R. Co. v. Locke, -1 Q. B. 256; Catchpole v. Ambergate, &c. R. Co. 1 Ellis & B. Ill, as to what is a suflBcient compliance with prescribed formalities. ^"^ Stoneham, &c. R. Co. v. Gould, 2 Gray (Mass.) 277; Lewey's Island R. Co. V. Bolton, 48 Me. 451, 77 Am. Dec. 236. ^ Garden Gully, &c. Co. v. McLis- ter, L. R. 1 App. Cas. 39, 55. See, also, Ormsby v. Vermont, &c. Co. 56 N. Y. 623; Bottomley's Case, L. R. 16 Ch. Div. 681. "• Moses v. Tompkins, 84 Ala. 613, 4 So. 763. "= Brockenbrough v. James River, &c. Co. 1 Patton & H. (Va.) 94. "=Sturges v. Stetson, 1 Biss. (U. S.) 246, 251. >" Rutland, &c. R. Co. v. Thrall, 35 Vt. 536, holding that a resolution of the board of directors that all stock remaining unpaid at a day named in the future shall be sold to satisfy the assessment levied, is reasonable. But see Johnson v. Albany, &c. R. Co. 40 How. Prac. (N. Y.) 193, to the effect that a general resolution to forfeit all stock remaining un- paid at a certain day in the future is insufficient to effect a forfeiture without ' further action by the cor- poration. But where the stockholder is shown to have received notice of such determination, it' is held that the court will presume that the necessary steps were taken to per- fect the forfeiture. Knight's Case, L. R. 2 Ch. 321, 15 L. T. (N. S.) 546. A thirty days' notice is reason- able and sufficient. Rutland, &c. R. Co. V. Thrall, 35 Vt. 536. But a three days' notice is not; at least, where the owner lives at a distance in an- other state. Lexington, &c. R. Co. v. Staples, 5 Gray (Mass.) 520. 153] CALLS AND ASSESSMENTS. 236 § 153. Notice of forfeiture. — E"otiee to the delinquent subscriber that his shares will be forfeited unless calls are paid within a certain time is generally required to precede the enforcement of the for- feiture/^^ and this requirement must be strictly complied with.^^* While the manner of giving notice is usually prescribed by the statute authorizing a forfeiture, personal notice is said to be sufEcient.^^" And it is intimated that one having actual notice cannot object to the mode by which it is given.^^^ But a notice which did not purport to be given by the proper officer of the company has been held insufficient, and the sale based thereon was held voidable.^^^ The notice must be certain and unequivocal as to the time of the forfeiture,^^* and time and place of sale.^^* '^For the general statutes of thirty of the states containing this requirement, see Stimson's Am. Stat. (1892), § 8113. But, under the Indiana statute, after notice of the call is given, one who fails to pay cannot insist that an additional no- tice of forfeiture should be given. Hill V. Nisbet, 100 Ind. 341. 1^ Lewey's Island R. Co. v. Bolton, 48 Me. 451, 77 Am. Dec. 236; Lake Ontario, &c. R. Co. v. Mason, 16 N. Y. 451; Morris v. Metalline, &c. Co. 164 Pa. St. 326, 31 Atl. 114, 27 L. R. A. 305 n, 44 Am. St. 614; Rutland, &c. R. Co. V. Thrall, 35 Vt. 536, 546; Hughes V. Antietam, &c. R. Co. 34 Md. 316; Heaston v. Cincinnati, &c. R. Co. 16 Ind. 275, 79 Am. Dec. 430 n. See, also, Eppes v. Mississippi, &c. R. Co. 35 Ala. 33; Cockrell v. Van Dieman's Land Co. 26 L. J. (C. P.) 203; Lexington> &c. R. Co. v. Chandler, 13 Mete. (Mass.) 311, where a notice required by a by-law was held merely directory. See, also, Mississippi, &c. R. Co. v. Cas- ter, 20 Ark. 455. Knight's Case, L. R. 2 Ch. 321, 15 L. T. (N. S.) 546. But a notice after forfeiture was presumed to have been given, when the substantial requirements were complied with. Where notice of an assessment must be given thirty days before the order of the direc- tors to sell the shares, it is not suf- ficient to give the notice thirty days before the sale. Lewey's Island R. Co. V. Bolton, 48 Me. 451, 77 Am. Dec. 236. See Ijouisville, &e. Turnp. Co. V. Meriwether, 5 B. Mon. (Ky.) 13. ^" Mississippi, &c. R. Co. v. Gaster, 20 Ark. 455; Lexington, &c. R. Co. v. Chandler, 13 Mete. (Mass.) 311. See Knight's Case, L. R. 2 Chan. 321, 15 L. T. R. 546; Birmingham, &c. R. Co. T. Locke, 1 Q. B. 256; South Staf- fordshire R. Co. v. Burnside, 5 Exch. 129. But see Lewey's Island R. Co; V. Bolton, 48 Me. 451, 77 Am. Dec. 236. "■^ Mississippi, &c. R. Co. v. Gaster, 20 Ark. 455; Lexington, &c. R. Co. v. Chandler, 13 Mete. (Mass.) 311. ""^ Portland, &c. R. Co. v. Graham, 11 Met. 1. See, also, Lewey's Island R. Co. V. Bolton, 48 Me. 441, 77 Am. Dec. 236. It should usually be served upon the person who is reg- istered as owner. Graham v. Van Diemen's Land Co. 1 Hurlst. & N. 541, 26 L. J. Ech. 73. ^'^ Watson V. Eales, 23 Beav. 294. "* Lexington, &c. R. Co. v. Staples, 5 Gray (Mass.) 520. 237 DEfEATING AND ANNULLING FOEFEITITEB — ESTOPPEL. [§ 154 § 154. Defeating and annulling forfeiture — ^Estoppel. — The for- feiture can be defeated by a tender of the full amount due on the sub- scription to the proper officer of the corporation at any time before a sale actually takes place.*^^ An irregular or defective forfeiture is voidable only, and not void, and long acquiescence^^* may estop both the shareholder and the company from denying its validity.^^^ But ■the shareowner^^^ may, in a proper case, by calling upon a court of "'Mitchell V. Vermont, &c. Co. 67 N. Y. 280. This is true though the tender be accompanied by a protest. Sweny v. Smith, L. R. 7 Eq. 324. And, it would seem, even though a declaration of strict forfeiture had "been entered on the books of the company. Walker v. Ogden, 1 Biss. (U. S. C. C.) 287. See, also. Iron R. Co. V. Fink, 41 Ohio St. 321, 52 Am. R. 84. The owner has been allowed to redeem in several cases involving peculiar circumstances. See, Stubbs V. Lister, 1 Younge & C. Ch. Cas. 81; Walker v. Ogden, 1 Biss. (U. S.) 287. "° Phosphate, ~&c. Co. v. Green, L. R. 7 C. P. 43. By statute in Cali- fornia application for relief from an irregular forfeiture must be made -within six months. Civ. Code Cal., I 347. ^"Knight's Case, L. R. 2 Ch. 321; Austin's Case, 24 L. T. (N. S.) 932; Woollaston's Case, 4 DeG. & J. 437; liesseps V. Architects Co. 4 La. Ann. 316; Evans v. Smallcombe, L. R. 3 H. of L. 249; Prendergast v. Turton, 1 Younge & C. Ch. Cas. 98, 5 Jur. 1102 ; Sayre v. Citizens' Gas, &c. Co., 69 Cal. 207, 7 Pac. 437, 10 Pac. 408. But, see. Garden Gully, &c. Co. v. McLister, L. R. 1 App. Cas. 39, 55, holding that mere laches will not bar the shareholder from equitable relief against an invalid declaration of forfeiture. See, also, Ormsby v. Vermont, &c. Co., 56 N..Y. 623. "'Mitchell V. Vermont, &c. Co. 67 N. Y. 280; Sweny v. Smith, L. R. 7 Eq. 324. An unauthorized forfeiture may be enjoined. Moore v. New Jer- sey, &c. Co. 5 N. Y. S. 192; Green T. Abietine, &c. Co. 96 Cal. 322, 31 Pac. 100. But an injunction to re- strain the sale of shares for assess- ments will not be granted where the plaintiff does not offer to pay the calls. Burnham v. San Francisco, &c. Co. 76 Cal. 24, 17 Pac. 939. Where the forfeiture is legal equity will seldom interfere because of hardship or the like. Sparks v. Liv- erpool Water-Works, 13 Ves. 428; Taylor v. North Star, &c. Co. 79 Cal. 285, 21 Pac. 753; Clark v. Barnard, 108 U. S. 436, 456, 2 Sup. Ct. 878; Vatable v. New York, &c. R. Co. 96 N. Y. 49; Marshall v. Golden Fleece, &c. Co. 16 Nev. 156. But see Glass V. Hope, 16 Grant (Upper Can.) Ch. 420; Iron R. Co. v. Fink, 41 Ohio St. 321, 22 Am. & Eng. R. Cas. 20, 52 Am. R. 84. Mandamus will not lie to compel a foreign corporation to an- nul a forfeiture. North State, &c. Co. V. Field, 64 Md. 151, 20 Atl. 1039. Damages may also be recovered where stock is wrongfully forfeited and sold. Allen v. American, &c. Ass'n, 49 Minn. 544, 52 N. W. 144; 32 Am. St. 581; Budd v. Multnomah St. R. Co. 15 Oreg. 413, 15 Pac. 659, 3 Am. St. 169; Ormsby v. Vermont, &c. Co. 56 N. Y. 623; New Chile, &c. Co., Re, 63 L. T. R. 344; Catchpole v. 'Ambergate, &c. R. Co. 1 El. & BI. Ill, 22 L. J. Q. B. 35. §■ 154] CALLS AND ASSESSMENTS. 338 chancery, obtain a decree annulling such a forfeiture ; and so, too, may corporate creditors whose interests are injured thereby.^^^ It was held, however, in one of the cases to which we have referred in support of our last proposition, that where a corporation had made an as- signment for the benefit of creditors, and the directors afterwards made a call and forfeited the plaintifE's stock for non-payment, without any express objection or assent on the part of the assignee, the plaintiff could not, without tendering the amount due or taking any steps to prevent the forfeiture, maintain a suit to annul the for- feiture and restore to him his rights as a stockholder.^*" "» Germantown, &c. R. Co. v. Fit- the forfeiture aside for irregularity ler, 60 Pa. St. 124, 100 Am. Dec. 546; in the notice, and hold the sub- Grand Rapids Savings Bank v. "War- scriber liable as a stockholder. Aus- ren, 52 Mich. 557, 18 N. "W. 356. It tin's Case, 24 L. T. (N. S.) 932. seems that the corporation itself '" Germantown, &c. R. Co. v. Fit- cannot, after forfeiting shares, set ler, 60 Pa. St. 124, 100 Am. Dec. 546. CHAPTBK IX. STOCKHOLDERS. Sec. Sec. 155. When one becomes a stock- 175. holder. 156. Eights of stockholders— Right 176. to vote. 157. Who has right to vote — How 177. determined. 158. Right of trustees and receivers 178. to vote. 159. Right of corporations and vot- 179. ing trusts to vote. 160. Number of votes to which stockholder is entitled — Cumulative voting. 180. 161. Quorum must be present. 162. Voting by proxy. 163. Other powers of stockholders 181. — Rights of minority. 182. 164. Stockholders' meetings. 165. Remedies of stockholders. 183. 166. Unregistered assignees and 184. third persons cannot sue. 167. When stockholders may sue 185. or become parties. 168. Right to recover insurance. 186. 169. Other rights and remedies of stockholders. 187. 170. Stockholders as agents of the corporation. 188. 171. Notice to stockholders. 172. Stockholders' right to inspect books. 173. Stockholder Is disqualified to 189. serve as judge or juror where corporation is Interested. 190. 174. Unlawful combinations and conspiracies to vote or pre- vent voting — Injunction. 339 Liability of stockholders for unpaid subscriptions. Release of stockholders — ^With- drawal. Compromises with stock- holders. Liability where stock is transferred. When creditors may enforce unpaid subscriptions — Judg- ment and execution against corporation. Effect, as against stockholder, of judgment against the cor- poration. Stockholder's defense. Methods of enforcing stock- holder's liability. Contribution. Suits by assignees and re- ceivers. Statutory liability of stock- holders. Defenses to actions to enforce statutory liability. Who may institute action to enforce statutory liability. How statutory liability is en- forced — Judgment and exe- cution against the corpora- tion. Priority among creditors — Forum — Contribution. When stockholders are liable as partners. § 155] STOCKHOLDERS. 240 § 155. When one becomes a stockholder. — It is sometimes said that one who has subscribed for stock in an incorporated company does not become a stockholder until he has paid for such stock,^ and, on the other hand, it is said that he does become a stockholder as soon as he subscribes to an unconditional agreement to take a certain number of shares.^ It seems to us that it will not do to affirm as a general rule that payment of a subscription is essential to constitute the subscriber a stockholder, although this may doubtless be made essential by charter, statute, or authorized by-law;^ nor will it do to say that a mere subscription, without anything more, will always be sufficient, but a complete and valid subscription is undoubtedly suffi- cient, as a general rule, where the subscriber is accepted by the cor- poration as a stockholder.* So, even where the subscription is ir- regular, or incomplete, or conditional, the subscriber may become a 'Baltimore, &c. R. Co. v. Ham- bleton, 77 Md. 341, 26 Atl. 279; Busey v. Hooper, 35 Md. 15; Bates V. Great Western Tel. Co. 134 111. 546, 25 N; E. 521; St. Paul, &c. R. Co. V. Robbing, 23 Minn. 439; Min- neapolis Harvester Works v. Llbby, 24 Minn. 327. "1 Thompson Corp. i 1138, citing Hartford &c. R. Co. v. Kennedy, 12 Conn. 499; Sagory v. Dubois, 3 Sandf. Ch. (N. Y.) 466; Union Turn- pike Co. v. Jenkins, 1 Gaines (N. Y.) 381; Spear v. Crawford, 14 Wend. (N. Y.) 20, 28 Am. Dec. 513; Burr V. Wilcox, 22 N. Y. 551; Upton v. Tribilcock, 91 U. S. 45; Brigham v. Mead, 10 Allen (Mass.) 245; Hart- ford, &c. R. Co. V. Groswell, 5 Hill (N. Y.) 383; Kennebec, &c. R. Co. V. Palmer, 34 Me. 366, and others. See, also, Waukon, &c. R. Co. v. Dwyer, 49 Iowa 121; Harrison v. Remington, &c. Co. 140 Fed. 385. ° And where the contract is not a subscription, but a purchase of new shares, payment may be required, as the delivery of a certificate and pay- ment may be intended to be concur- rent acts. 1 Morawetz Priv. Corp. § 61, citing Clark v. Continental Imp. Co. 57 Ind. 135; Weiss v. Mauch Chunk Co. 58 Pa. St. 295; Quick V. Lemon, 105 111. 578. A mere pledgee is not, ordinarily, a stockholder. Becher v. Wells, &c. Go. 1 McCrary (U. S.) 62; Baker v. Woolston, 27 Kans. 185, although he may become such to most intents and purposes by being registered as owner upon the books of the com- pany. 2 Beach Priv. Corp. §§ 640, 641, 642; Purdy's Beach, Priv. Corp. 688; note to Argus Printing Co., In re, 12 L. R. A. 781. 'Authorities cited In next to last note, supra. See, also, 1 Cook Stock and Stockholders, § 10; Wheeler v. Millar, 90 N. Y. 355; State v. Harris, 3 Ark. 570, 36 Am. Dec. 460; Hen- derson V. Hogan, 7 Ohio Dec. (Re- print) 173. In Dunn v. Howe, 107 Fed. 849, 850, 47 G. C. A. 13, it is said that, notwithstanding expres- sions in many cases and books to the effect that the record is conclu- sive evidence, one who never ac- cepts but refuses to accept stock is not a stockholder even though the secretary enters his name on the books as such. See, generally. 3 Elliott Ev. § 1946. 241 EIGHTS OF STOCKHOLDEES — HEIGHT TO VOTE. [§ 156 stockholder by acting as such, and being treated as such by the cor- poration. And one may also become a stockholder by purchasing stock and having it transferred to him upon the books of the company. But where stock is issued in excess of the amount authorized by the char- ter or governing law, a purchaser of certificates for shares so issued cannot compel the corporation to accept him as a stockholder, although he may have an action for damages, and, as he does not obtain the rights of a stockholder he cannot be held liable as a stockholder.^ On the other hand, however, "if a corporation is authorized by, law to in- crease its capital stock upon complying with certain prescribed forms or conditions, and the corporation or its agents appear to have en- deavored to comply with the prescribed forms or conditions, and have in fact increased the company's capital stock by issuing new shares, on the assumption that the legal right to increase the capital stock had been acquired, and if the holder of such new shares has acted as a shareholder and enjoyed the rights of a shareholder, then the cre- ation of such new shares will be recognized by the courts and given cfEect according to the intention of the parties, although the statutory forms or conditions were not complied with, and no legal right to cre- ate the new shares was in fact obtained."* § 156. Rights of stockholders — ^Bight to vote. — A stockholder can- not, ordinarily, be deprived of the property rights which attach to his membership, including his right to participate in the management of the company's business,^ except by a regularly enforced forfeiture of his stock under charter or statutory authority.^ The most important of these rights are those of sharing in the profits earned by the cor- "Morawetz Priv. Corp. §§762, per, 73 Ala. 325; Veeder v. Mudgett, 763 ; Scovill v. Thayer, 105 U. S. 95 N. Y. 295, 310. 143. See, also, McCord v. Ohio, &c. 'Long Island R. Co., In re, 19 R. Co. 13 Ind. 220; Oler v. Balti- "Wend. (N. Y.) 37; Hill v. Nisbet, more, &c. R. Co. 41 Md. 583; Laredo 100 Ind. 341; Perrin v. Granger, 30 Imp. Co. V. Stevenson, 66 Fed. 633; Vt. 595; Kennebec, &c. R. Co. v. Rood V. Whorton, 67 Fed. 434; Kendall, 31 Me. 470. Green v. Signa Iron Co. 76 Fed. 947, ' If one has title to corporate 22 C. C. A. 636; Wheeler v. Thayer, stock, it cannot be defeated by a 121 Ind. 64, 22 N. E. 972. subsequent resolution of the direct- '2 Morawetz Priv. Corp. § 763; ors of the corporation. Gurney v. 2 Beach Priv. Corp. § 485; Chubb v. Union Transfer &c. Co. 25 Jones & Upton, 95 U. S. 665; Kansas City S. (57 Super. Ct.) 444, 29 N. Y. St. Hotel Co. V. Hunt, 57 Mo. 126; 274, 8 N. Y. 549. Grangers' Life, &c. Ins. Co. v. Kam- Bll. Raileoads — 16 § 157] STOCKHOLDEES. 243 poration,* and in the property remaining for distribution upon a dis- solution of the corporation;^" of helping t6 select the persons to manage the affairs of the corporation; and of aiding to shape its policy and control its action, or, in other words, of voting at stock- holders' meetings. The right to vote usually belongs to the person in whose name the stock is registered,^^ or in case of his decease to his legally qualified administrator or exeeutor,^^ although it has been held competent for a railroad company, in issuing certificates of pre- ferred stock, to stipulate that the hoMers shall not have or exercise the right to vote at stockholders' meetings and persons accepting such shares will be bound thereby.^* But, ordinarily, the right to vote is an incident to the ownership of shares of stoek,^* and the corporation cannot by by-laws restrict^ ° nor enlarge^* the right to vote as fixed by the charter or by general statute. ^^ § 157. Who has right to vote — ^How determined. — The books and records of a corporation determine who are its stockholders for the time being, and who have a right to vote, although the stock may have been sold or pledged as collateral security,^* and the inspectors and "See, generally, Dividends, Ch. XV. " See, generally. Insolvency and Dissolution, Ch. XXIV. "Long Island R. Co., In re, 19 "Wend. (N. Y.) 37; Beckett v. Hous- ton, 32 Ind. 393; Monsseaux v. Urquhart, 19 La. Ann. 482; Vowell y. Thompson, 3 Cranch (U. S.) 428; Northrop v. Newton, &c. Turnpike Co. 3 Conn. 544. See, also, Lucas v. Milliken, 139 Fed. 816. " North Shore, &c. Ferry Co., Mat- ter of, 63 Barb. (N. Y.) 556; Cape May, &e. Co., Matter of, 51 N. J. L. 78, 16 Atl. 191. Stock sold hy three executors of the deceased owner can not be voted unless they agree upon the vote to be cast. Tunis v. Heston- ville, &c. R. Co. 149 Pa. St. 70, 24 Atl. 88, 15 L. R. A. 665. See, also. Pioneer Paper Co., Re, 36 HoW. Pr. (N. Y.) 111. As to right of partner to vote, see Allen v. Hill, 16 Cal. 113'; Kenton Furnace, &c. Co. v. Mo- Alpin, 5 Fed. 737. " Miller v. Ratterman, 47 Ohio St. 141, 26 N. E. 496, 43 Am. & Eng. R. Cas. 339. "1 Beach Priv. Corp. § 274; Pur- dy's Beach Priv. Corp. § 688; Krei- ger V. Shelby R. Co. 84 Ky. 66. " Beckett v. Houston, 32 Ind. 398; Rex V. Spencer, 3 Burr. 1827. ""Taylor v. Griswold, 14 N. J. L. 222, holding that a by-law of the Hackensack Bridge Co. could not confer upon stockholders the right to one vote for each share they owned, where the number of votes was limited by the charter. " But some of the states have stat- utes authorizing the corporations to make by-laws regulating the num- ber of shares that shall entitle the members to one or more votes. Stimson Am. Stat. Law (1892), § 8071. " Parker, C. J., in State v. Ferris, 42 Conn. 560; Brewster v. Hartley, 37 Cal. 15, 99 Am. Dec. 237; Will- cocks, Ex parte, 7 Cow. (N. Y.) 402, 243 ,WHO HAS EIGHT TO VOTE — ^HOW DETEEMINED. [§■ 157 tellers cannot, as a rale, assume to go into a hearing and decision of the question as to who is in fact the owner of the stock sought to be voted." The registry on the transfer books of the corporation is, as a general rule, prima facie, if not conclusive, evidence of the holder's right to vote the shares so registered in his name.^" It is generally im- 17 Am. Dec. 525, where the stock was pledged; Scholfleld v. Union Bank, 2 Cranch (U. S.) 115; Vow- ell V. Thompson, 3 Cranch (TJ. S.) 428, where It was mortgaged. If mortgaged stock is transferred to the mortgagee, upon the books of the corporation, he and not the mortgagor will be entitled to vote it. So, generally, where the stock has been duly transferred upon the books of the company, and regis- tered in the name of the pledgee, he is entitled to vote. 2 Beach Priv. Corp. § 642; Purdy's Beach Priv. Corp. § 691; Argus Printing Co., Re, 1 N. Dak. 434, 12 L. R. A. 781; Hop- pin v. Buffum, 9 R. I. 513, 11 Am. R. 291. Compare State v. Smith, 15 Oreg. 98, 14 Pac. 814, 15 Pac. 137, 386. These cases state, however, that a court of equity may compel the pledgee to give the pledgor a proxy in a proper case. 1 Rorer Railroads 195, and authorities cited. In order that a stockholder may vote at a corporation election, it is not necessary that he be the sole or only owner. A creditor holding stock as collateral security may agree with the debtor owning the stock as to which shall vote at a corporate election, and they may appoint a third person to hold the stock and vote for them. Brvin v. Philadelphia, &c. R. Co. (C. P. Phila. Pa.) 7 R. & Corp. L. J. 87. "1 Thomp. Corp. § 748. Held contra, under New York statute, in Strong V. Smith, 15 Hun (N. Y.) 222. " Long Island R. Co., In matter of, 19 Wend. (N. Y.) 37, 44; TurnbuU V. Payson, 95 V. S. 418; State v. Ferris, 42 Conn. 560, 568 (where a bankrupt was permitted to vote) ; Morrill v. Little Falls, &c. Co. 53 Minn. 371, 55 N. W. 547, 21 L. R. A. 174; Semple v. Glenn, 91 Ala. 245, 6 So. 46, 9 So. 265, 24 Am. St. 894; and authorities cited in 23 Am. & Eng. Ency. of Law 782, note 1. But one railroad corporation, having ac- quired a majority of the stock of another railroad corporation, unless expressly authorized by statute, will not be allowed to vote such stock in the corporation elections or in mat- ters concerning the management or control of the latter company; at least where the two roads are rivals in the same field of operation, and a conflict of interest may arise in the matter of expenditure, or in divi- sion of patronage or of earnings, or where the profits of one company may be increased by a diminution of those of the other. Memphis, &c. R. Co. V. Woods, 88 Ala. 630, 7 So. 108, 7 L. R. A. 605. See, also, O'Con- nor V. International, &c. Co. 68 N. J. Eq. 67, 680, 62 Atl. 408. Where the contract for the present sale of shares of stock had been entered into and the stock delivered to a third person in escrow, to be deliv- ered to the purchaser only on ful- fillment of the terms of the sale, and by the terms of the contract the purchaser was to have the right to vote the stock, while the sale re- mained executory, it was held that the seller had no right to vote, al- though the statute made the certlfl- 157] STOCKHOLDERS. 344 material that lie has no certificates of stoek,^^ or has sold and trans- ferred his certificates/^ or that he owes the subscription price,^* or that he is a mere nominal holder of stock belonging to another/* which has been registered newly for the purpose of voting.^^ But where the owner of the stock is not entitled to vote, as in a case where stock is owned by a non-resident under a charter which provides that only resident stockholders may vote, it has been held that a resident . of the state who receives a colorable transfer of the stock, for the pur- pose of voting it, does not thereby become a legal voter.^* Al- though the corporate books are the proper evidence of the right of an owner of shares to exercise a stockholder's rights and privileges, he is entitled to have a certificate issued to him as a voucher for his title, and to enable him the more readily to put his shares upon the market,^^ and where the books do not show who is the owner, the certificate is prima facie evidence of ownership.^* Where his subscription is made Gates of stock and the transfer books of the corporation prima facie evidence of the right to vote the stock. Commonwealth v. Patterson, 158 Pa. St. 476, 27 Ail. 998. Held not to be conclusive in Mudgett v. Horrell, 33 Cal. 25; Stephens v. Fol- lett, 43 Fed. 842, 31 Am. & Eng. Corp. Cas. 466; Waterford, &c. R. Co. V. Pidcock, 8 Exeh. 279; Chaffin V. Cummings, 37 Me. 76; Smith v. San Francisco, &c. Co. 115 Cal. 584, 47 Pac. 582, 35 L. R. A. 309, 56 Am. St. 119. In Archer v. American, &c. Co. 50 N. J. Eq. 33, 24 Atl. 508, the hooks are held conclusive evidence so far as the election officers are concerned, but only prima facie evi- dence when the right to vote is the subject of judicial investigation. ^Beckett v. Houston, 32 Ind. 393; Mitchell V. Beckman, 64 Cal. 117, 28 Pac. 110, 1 Am. & Eng. Corp. Cas. 40; Hawley v. Upton, 102 TJ. S. 314; New Hampshire Cent. R. Co. V. Johnson, 30 N. H. 390, 64 Am. Dec. 300; Crumlish v. Shenandoah Valley R. Co. 40 W. Va. 627, 22 S. B. 90, and authorities cited in 23 Am. & Eng. Ericy. of Law 783, note 1. =^ People V. Robinson, 64 Cal. 373, 1 Pac. 156; State v. Ferris, 42 Conn. 560; Bailey v. Railroad Co. 22 Wall. (U. S.) 604, 637. "^ Birmingham, &c. R. Co. v. Locke, 1 Q. B. 256; Downing v. Potts, 23 N. J. L. 66, where nothing had been paid; Savage v. Ball, 17 N. J. Eq. 142, where the stock was issued in payment for work which had not been performed. =" State of Nevada v. Leete, 16 Nev. 242. ^The corporation eannot require him to take oath as to the real ownership of the stock. People v. Kip, 4 Cowen (N. Y.) 382, note. And it may be compelled to register a transfer made for the purpose of qualifying the transferee to vote. MofEatt V. Farquhar, L. R. 7 Ch. D. 591. But see post, § 174. =» State V. Hunton, 28 Vt. 594. See, also. Barker, Re, 6 "Wend. (N. Y.) 509. " Johnson v. Albany, &c. R. Co. 40 How. Pr. (N. Y.) 193. " Broadway Bank v. McElrath, 13 N. J. Eq. 24; ante, § 78. 345 EIGHT OF TRUSTEES AND EECEIVEES TO VOTE. [§ 158 upon a condition not yet performed, if the stockholder has been regis- tered, he may vote upon the question whether such condition shall or shall not be performed.^^ The holder of shares issued as a stock divi- dend may vote upon such stock after registry, the same as upon any other,^"* and a transferee usually receives this right with the stock transferred.'^ It is frequently provided, however, that no stockholder can vote on stock, unless it has been standing in his name on the books of the corporation at least a certain number of days prior to the elec- tion or meeting.'^ § 158. Right of trustees and receivers to vote. — If the stock be registered in the name of the holder as trustee, he may yet vote it,'* unless he be a trustee for the corporation itself, in which case the officers are chargeable with notice of the title which he holds, and his holding is subject to the rule that stock owned by the corporation can- not be voted.'* The fact that the holder of shares is designated as "cashier" or "president" on the company's books will not influence his right to vote, as such words are merely descriptive. And it has been held that a person who succeeds him in that position has no right to vote the shares so held unless they are regularly transferred to him by name.'^ The right of a receiver of stock to vote seems generally ® Greenville, &c. R. Co. v. Cole- R. 377; Brewster v. Hartley, 37 Cal. man, 5 Rich. Law (S. C.) 118. 15, 99 Am. Dec. 237. See, also, Mc- =» Bailey v. Railroad Co. 22 Wall. Neely v. WoodrufE, 13 N. J. L. 352; (U. S.) 604, 637. But the rule is Union, &c. Ass'n v. Seligman, 92 Mo. different as to scrip dividends, con- 635, 15 S. W. 630, 1 Am. St. 776 n; vertible into stock. Bailey v. Rail- O'Connor v. International, &c. Co. road Co. 22 Wall. (U. S.) 604, 637. 68 N. J. Eq. 67, 680, 59 Atl. 321; ''See Commonwealth v. Stevens, Warren v. Pim (N. J. L.), 59 Atl. 168 Pa. 582, 32 Atl. 111. 773, 775; Parsons v. Tacoma Co. 25 === Stimson's Am. Stat. Law (1892), Wash. 492, 65 Pac. 765. § 8054. =' Mohawk, &c. R. Co., Ex parte, 19 =s Barker, Matter of, 6 Wend. (N. Wend. (N. Y.) 135. A contrary rule Y.) 509; Hoppin v. Buffum, 9 R. I. is upheld as more reasonable and 513; Commonwealth v. Dalzell, 152 just in Farmers', &c. Co. v. Chicago, Pa. St. 217, 25 Atl. 535, 34 Am. St. &c. R. Co. 27 Fed. 146, 156. See, 640. Executor allowed to vote in also, Mousseaux v. Urquhart, 19 La. Schmidt v. Mitchell, 101 Ky. 570, 41 Ann. 482. But it would seem that a S. W. 929, 72 Am. St. 427. transfer on the corporate hook is a =* Holmes, Ex parte, 5 Cow. (N. reasonable means of proving that Y.) 426; American Railway Frog such successor has been selected to Co. V. Haven, 101 Mass. 398, 3 Am. fill the former ofllcer's place. § 159] STOCKHOLDERS. 246 to have been conceded without question,** and it has been held that the court appointing him may direct him how to vote.^' § 159. Eight of corporations and voting trusts to vote. — Corpora- tions authorized to hold stock in another corporation are usually en- titled to vote it.^^ And this they may do by an agent.*' But one cor- poration cannot, ordinarily, acquire and vote stock in another without statutory authority,*" and a rival company which has acquired a majority of the stock in a corporation, without statutory authority, may be enjoined from voting it.*^ And so may a trust company which is a stockholder of a corporate stock pledged as collateral for bonds of another corporation and which is also a trustee of the indebtedness of the corporation and an agent for its creditors, or a voting trust which holds a majority of the stock of a railroad company to be voted in the interest of another corporation.*^ The subject of voting trusts as illegal combinations or monopolies under the act of congress will =»Cook Stock and Stockholders, § 612. "American Inv. Co. v. Yost, 25 Abb. N. C. (N. Y.) 274, note. ^» Davis V. U. S. &c. Co. 77 Md. 35, 25 Atl. 982; Rogers v. Nashville, &c. Co. 91 Fed. 299, 33 C. C. A. 517. =» State V. RohlfEs (N. J.), 19 AU. 1099. "Brice Ultra Vires, 95; Woods V. Memphis, &c. R. Co. 5 R. & Corp. L. J. 372; State v. McDaniel, 22 Ohio St. 354; Valley R. Co. v. Lake Brie, &c. Co. 46 Ohio St. 44, 18 N. B. 486, 1 L. R. A. 412; Central R. Co. V. Collins, 40 Ga. 582; McGinness, &c. Co. v: Boston, &c. Co. 29 Mont. 428, 75 Pac. 89; Parsons v. Tacoma Co. 25 Wash. 495, 65 Pac. 765. *i Memphis, &c. R. Co. v. Woods, 88 Ala. 630, 7 So. 108, 7 L. R. A. 605, and note; Mack v. DeBardeleben, &c. Co. 90 Ala. 396, 8 So. 150, 9 L. R. A. 650 n; Milbank v. N. Y. &c. R. Co. 64 How. Pr. (N. Y.) 20. See, also. Buckeye, &c. Co. v. Harvey, 92 Tenn. 115, 20 S. W. 427. Contra, Camden, &c. R. Co. v. Elkins, 37 N. J. Eq. 273. "Clarke v. Central R. &c. Co. 50 Fed. 338, 15 L. R. A. 683, and note. But see 1 Beach Priv. Corp. § 304- 306; Purdy's Beach Priv. Corp. § 691. The federal court? have re- cently held that the purchase of stock in sugar refineries for the purpose of acquiring control of the business of refining and selling sugar in the United States is not in violation of the act of congress of July 2, 1890, and does not in- volve a monopoly or restraint of interstate commerce within the meaning of that act. United States V. B. C. Knight Co. 60 Fed. 934, af- firmed in 156 U. S. 1, 15 Sup. Ct. 249; Greene, In re, 52 Fed. 104. The authorities are reviewed in the opinion of the court and in the dis- senting opinion in the case in the United States Supreme Court cited supra. See, also, Harvey v. Linville, &c. Co. 118 N. Car. 693, 24 S. E. 489. But see Northern Securities Co. V. United States, 193 U. S. 197, 24 Sup. Ct. 436. 347 VOTES — CUMULATIVE VOTING. [§ 160 be hereafter considered, but it may be said in this coimection that while fair agreements among stockholders to vote as a unit as the ma- jority may determine have been upheld,** yet an unfair agreement among the officers for their own benefit or between two corporations having common directors,** or an irrevocable voting trust or holding company creating a monopoly has recently been held illegal as against public policy or the statute.*" § 160. Number of votes to which stockholder is entitled — Cumu- lative voting. — It seems under the common law, in the absence of any statute on the subject, that each stockholder is entitled to but one vote.*' But this is not the natural and reasonable rule in corpora- tions whose capital represents a money investment, and it is generally provided in the laws for the creation of railroad corporations, that the stockholders shall have one vote for each share of stock which they own,*^ although the total number of votes that may be cast by one stockholder is sometimes limited. It is also provided by constitution or statute in several of the states that, in voting for directors, each shareholder shall be entitled to as many votes as will equal the number of his shares, multiplied by the number of directors to be elected.*^ *'Ziegler v. Lake, &c. R., 69 Fed. "1 Cook Stock and Stockholders, 176; Chapman v. Bates, 61 N. J. Bq. § 608. 658, 47 Atl. 638, 88 Am. St. 459; "Hays v. Commonwealth, 82 Pa. Brightman v. Bates, 175 Mass. 105, St. 518. Such provision is made by 55 N. B. 809; Smith v. San Fran- general statute in most of the Cisco, &c. R. Co. 115 Cal. 584, 47 Pac. states. Stimson Am. Stat. Law 582, 35 L. R. A. 309, 56 Am. St. 119; (1892), § 8054, citing the laws of Mobile, &c. R. Co. v. Nicholas, 98 New Hampshire, Vermont, Connecti- Ala. 98, 12 So. 723. cut. New York, New Jersey, Indiana, " Withers v. Edmonds, 26 Tex. "Wisconsin, Maryland, Delaware, Vir- Civ. App. 189, 62 S. W. 795; Good- ginia, Tennessee, Arkansas, Oregon, ell v. Verdugo, &c. Co. 138 Cal. 308, Colorado, Washington, Dakota, Ida- 71 Pac. 354. ho, Wyoming, Utah, South Carolina, •= Northern Securities Co. v. Unit- Alabama, New Mexico, District of ed States, 193 U. S. 197, 24 Sup. Ct. Columbia, Oklahoma. 436; Warren v. Pirn (N. J. L.), ^4 Am. & Eng. Bncy. of Law, 69 Atl. 773. See, also, Shepang Vot- 956 ; 1 Cook Stock and Stockholders, ing Trust Cases, 60 Conn. 576, 24 § 609, a; Wright v. Central, &c. Co. Atl. 34; Harvey v. Linville, &c. 67 Cal. 532, 13 Am. & Eng. Corp. Co. 118 N. Car. 693, 24 S. B. 489, 54 Cas. 89, in which the system is fully Am. St. 749; Fisher v. Bush, 35 explained. See, also, 3 Cyclopedia of Hun (N. Y.) 641; article in 35 Am. Political Science, 526; 2 Purdy Law Reg. (N. S.) 50. Beach Corp. § 702. 161] STOCKHOLDEES. 248 This system of cTimulative voting is intended to enable the minority to obtain a representation upon the board. Such a provision, however, would be unconstitutional so far as it applied to corporations previ- ously chartered/^ unless, perhaps, where the power to amend or re- peal remains in the legislature."" § 161. Quorum must be present. — ^Before votes may be cast at a meeting, it is necessary that a certain number of stockholders or the holders of a certain number of shares"^ (called a quorum) shall be present. This number is frequently iixed by the by-laws,^ ^ and is gen- erally a majority of the stock entitled to vote."^ But if the body consists of an indefinite number and no provision is made upon the subject, those who actually assemble at a regularly called meeting may constitute a quorum."* And if the required number, or a quorum, ■ be present, a majority of the votes actually cast at the meeting will generally control in the absence of any special provisions as to the number of votes necessary to bind the corporation,"" although it is "Hays V. Commonwealth, 82 Pa. St. 518; Baker's Appeal, 109 Pa. St. 461; Commonwealth v. Butterworth, 160 Pa. St. 55, 28 Atl. 507; State v. Greer, 78 Mo. 188, 8 Am. & Eng. Corp. Cas. 328. Such a statute is not retroactive. Loewenthal v. Rub- ber, &c. Co. 52 N. J. Bq. 440, 28 Atl. 454; Looker v. Maynard, 179 tl. S. ^46, 21 Sup. Ct. 21; Smith v. Atchi- son, &c. R. 64 Fed. 272. =» Cross V. West Va. &c. R. 35 W. Va. 174, 12 S. E. 1071. "" Tennessee, &c. R. Co. v. East Alabama R. Co. 73 Ala. 426. "^Stimson Am. Stat. Law (1892), § 8071. "1 Beach Priv. Corp. § 276; Purdy's Beach Priv. Corp. § 152; Stimson Am. Stat. Law (1892), § 8056. "Morrill v. Little Falls, &c. Co. 53 Minn. 371, 21 L. R. A. 174; Craig V. First Presbyterian Church, 88 Pa. St. 42; Columbia, &c. Co. v. Meier, 39 Mo. 53; Brown v. Pac. Mail, &c. Co. 5 Blatchf. (U. S.) 525; Field v. Field, 9 Wend. (N. Y.) 394; Rex v. Bellringer, 4 Term 810; 1 Thomp. Corp. § 725. =' State V. Green, 37 Ohio St. 227; Gowen's Appeal, 10 Week. N. Cas. 85. See, also, Gifford v., New Jersey R. Co. 10 N. J. Bq. 171; New Or- leans, &c. R. Co. V. Harris, 27 Miss. 517, 537; Durfee v. Old Colony, &c. R. Co. 5 Allen (Mass.) 230, 242; Stevens v. Rutland, &c. R. Co. 29 "VH. 545. "If a qyorum is present and a majority of the quorum vote in favor of a measure, it will pre- vail, although an equal number should refrain from voting. A majority of the number of members required to constitute a quorum is sufficient." Rushville Gas Co. v. Rushville, 121 Ind. 206, 23 N. B. 72, 6 L. R. A. 315; followed in State V. Dillon, 125 Ind. 65, 25 N. E. 136. In such a case, "silence is acquiescence rather than opposi- tion." Cases just cited. See, also, Willcock Munic. Corp. § 546; How & Bemis Munic. Police Ord. 42; 249 VOTING BY PEOXT. [§ 162 frequently said or intiraated that it requires a majority of those present."' It is held that a single shareholder, even though he owns a majority of the stock, cannot hold' a corporate meeting alone. There must generally be at least two to constitute a meeting.^T But the- holding would probably be different where a single individual is allowed to form a corporation,"^ as is the case in Iowa,"* if the meet- ing was regular in other respects. §' 162. Voting by proxy. — ^At common law the stockholder must cast his vote in person.*" But authority to vote by proxy upon cer- tain conditions and under certain restrictions is given by general statute in many of the states,*^ and it may be and very often is con- ferred by a by-law.*^ And the suggestion has been made that the Launtz v. People, 11'3 111. 137; County of Cass v. Johnston, 95 U. S. 360, 369; State v. Chute, 34 Minn. 135, 24 N. W. 353; Atty .-Gen- eral V. Shepard, 62 N. H. 383, 13 Am. St. 576; Oldknow v. "Wain- right, 2 Burr. 1017; 2 Purdy Beach Priv. Corp. § 698. Contra, Common- wealth V. Wickersham, 66 Pa. St. 134; Lawrence v. IngersoU, 88 Tenn. 52, 12 S. W. 422, 6 L. R. A. 308, 17 Am. St. 870. ="1 Thomp. Corp. §§ 723, 728; Lawrence v. IngersoU, 88 Tenn. 52, 12 S. W. 422, 6 L. R. A. 308, 17 Am. St. 870. • See, also, State v. Fagan, _ 42 Conn. 32 (under a statute), with which compare State v. Chapman, 44 Conn. 595. "England v. Dearborn, 141 Mass. 590, 6 N. E. 837; Hopkins v. Rose- clare Lead Co. 72 111. 373; Sharpe V. Dawes, 46 L. J. Q. B. 104. "^ See Swift v. Smith, 65 Md. 428, 5 Atl. 534, 57 Am. R. 336; where one stockholder owned all the stock and was held to he, in efEect, the corporation itself. ""Revised Code of Iowa (1888),. §§ 1058, 1088; McClain's Ann. Code Iowa, § 1638. ™1 Cook Stock and Stockholders, § 610; Philips v. Wickham, 1 Paige (N. Y.) 590; McKee v. Home, &c. Co. 122 Iowa 731, 98 N. W. 609; Commonwealth v. Bringhurst, 103 Pa. St. 134, 49 Am. R. 119; 1 Thomp. Corp. § 736 et seq.; 2 Purdy's Beach Priv. Corp. § 701. . "Stimson Am. Stat. Law (1892), § 8057. Where a statute provided that any stockholder might select- his own proxy to represent him and vote at any election, it was held that a hy-law, providing that no proxy could be voted except by a stockholder, was invalid. People's Home Sav. Bank v. Superior Court, 104 Cal. 649, 38 Pac. 533, 43 Am. St. 147; Lighthall Mfg. Co., Matter of, 47 Hun (N. Y.) 258. ^ «=' State V. Tudor, 5 Day (Conn.) 329, 5 Ani. Dec. 162; People v. Crossley, 69 111. 195; Commonwealth V. Detwiller, 131 Pa. St. 614, 18 Atl. 990, 7 L. R. A. 357. Many of the states give statutory authority for the making of by-laws to regulate this matter. Stimson Am. Stat. Law (1892), § 8071; People v. Cross- ley, 69 111. 195. But the existence of such authority at common law is doubted in Philips v. Wickham, 1 Paige (N. Y.) 590, and is denied in. § 163] STOCKHOLDEES. 350 modern custom of voting by proxy in moneyed corporations, without any regard to any express authority, which prevails in the United States, may have modified the common law so far as to permit evidence of such a usage to establish the right where it is not expressly con- ferred by charter or by statute.®^ A proxy should be in writing, and should be in such form and so executed as to bear reasonable evidence of being genuine and valid."* And the corporate officers may insist upon reasonable evidence of that fact before allowing it to be voted,^^ but it has been held that they cannot require sworn proof that the person executing the proxy is the owner of the stock it represents.'* A proxy only confers the right to vote upon the measures contem- plated by the person giving it,"'' and ordinarily only gives authority to vote for officers."* One who holds stock of a railroad company in trust for corporations owning competing lines, and is forbidden by law to hold such stock, and who is largely interested in such competing lines, does not, by a relinquishment of such stock made by such corn- Taylor V. Griswold, 14 N. J. Law "People v. Tibbets, 4 Cowen (N. 222, 27 Am. Dec. 33. Y.) 358. "^Rorer Railroads, 1^3; Woods' "A proxy to vote is not a proxy Railway Law, 150. to demand a poll. Haven, &c. Co., °*But the mere omission of a date In re, L. R. 20 Ch. D. 151; Reg. v.. will not justify its rejection. St. Gov. Stock Co. L. R. 3 Q. B. D. 442. Lawrence Steamboat Co., Matter of The appointment of a proxy with- Election of, 44 N.' J. L. 529. The out limitation, gives him authority by-laws may require proxies to be to bind his principal by a vote witnessed. Harben v. Phillips, L. R. against his interest as well as for 23 Ch. D. 14, 22. One to whom a it, to the same extent as if the vote testator has by will directed his were cast in person. Mobile, &c. R. executors to give a proxy to cast the Co. v. Nicholas, 98 Ala. 92, 12 So. vote for stock held by the testator 723. cannot vote when the executors re- °'l Cook Stock and Stockholders, fuse the proxy, because of inability § 610. He cannot vote to dissolve the to agree as to how the vote shall be corporation or to sell the entire cor- cast. Tunis v. Hestonville, &c. R. porate property and business. 1 Cook Co. 149 Pa. St. 70, 24 Atl. 88, 15 L. Stock and Stockholders, § 610. A R. A. 665. proxy at a stockholders' meeting to " St. Lawrence Steamboat Co., elect directors may vote on motions Matter of Election of, 44 N. J. L. to take a ballot and to adjourn the 529. But it has every appearance of same as a stockholder. Forsyth v. genuineness and is regular in form. Brown, 13 Pa. Co. Ct. 576. the officers cannot refuse it. Cecil, Matter of, 36 How. Pr. (N. Y.) 477. 351 OTHER POWERS — RIGHTS OP MINORITY. [§ 163 peting corporations in his favor, acquire any right to vote the same."' A naked proxy is revocable.'" § 163. Other powers of stockholders — ^Rights of minority. — ^Be- sides electing officers, the corporate shareholders in meeting assem- hled usually have power to make the by-laws of the corporation,'^ to increase or' decrease the capital stock under authority of the legis- lature,'^ to accept or authorize amendments of a certain kind to the charter,'^ to dissolve the corporation for an authorized cause,'* and the like.'^ The right to vote includes the right to a voice in the set- »» Clarke v. Central R. &c. Co. 50 Fed. 338. A railroad which owns stock of a competing line may be enjoined from voting the same at the suit of stockholders of the com- petitor, who have acquiesced in its ownership of such stock and control of such line for more than six years. George v. Central R. &c. Co. 101 Ala. 607, 14 So. 752. '° Woodruff V. Dubuque, &c. R. Co. 30 Fed. 91; Vanderbilt v. Bennett, 2 R. and Corp. L. J. 409; Reed v. Bank, 6 Paige (N. Y.) 337. See, also. Cone v. Russell, 48 N. J. Eq. 208, 21 Atl. 847. And this is the general rule in regard to proxies. 1 Cook Stock and Stockholders, § 610. "2 Cook Stock and Stockholders (2d ed.), § 700, a; Angell & Ames Corp. (8th ed.) § 327; Morton, &c. Co. V. Wysong, 51 Ind. 4. But it is frequently provided by charter or otherwise that the by-laws shall .be made by the directors. Angell & Ames (8th ed.), § 327; Stimson Am. Stat. Law (1892), §§ 8070, 8071, 8537. "Percy v. Millaudon, 3 La. 568, 585; Crandall v. Lincoln, 52 Conn. 73, Q9, 52 Am. R. 560; Eidman v. Bowman, 58 111. 444, 11 Am. R. 90; Railway Co. v. Allerton, 18 Wall. (U. S.) 233; Finley, &c. Co. v. Kurtz, 34 Mich. 89. "Marlborough Mfg. Co. v. Smith, 2 Conn. 579; Peoria, &c. R. Co. v. Preston, 35 Iowa 115; Taggart v. Western R. Co. 24 Md. 563, 89 Am. Dec. 760 n; Brown v. Fairmount Mine Co. 10 Phil. (Pa.) 32. A ma- terial or fundamental amendment must be accepted by a unanimous vote of the stockholders. Marietta, &c. R. Co. V. Elliott, 10 Ohio St. 57; New Orleans, &c. R. Co. v. Harris, 27 Miss. 517. A dissenting stock- holder will not be bound thereby. Snook V. Georgia Improvement Co. 83 Ga. 61, 9 S. E. 1104. Where the amendment does not work any ma- terial change in the corporation, the will of the majority should govern. Sprague v. Illinois River R. Co. 19 111. 174. But the right to amend without any acceptance by the stock- holders is generally reserved by the legislature. "Mobile, &c. R. Co. v. State, 29 Ala. 573,, 586; Chesapeake, &c. Co. v. Baltimore, &c. Co. 4 Gill & J. (Md.) 1, 121; LaGrange, &c. R. Co. v. Rainey, 7 Coldw. (Tenn.) 420; Denike v. New York, &c. Co. 80 N. Y. 599, 606; Mclntyre Poor School V. Zanesville Canal, &c. Co. 9 Ohio 203, 34 Am. Dec. 436; Houston v. Jefeerson College, 63 Pa. St. 428. "Eidman v. Bowman, 58 111. 444, 11 Am. R. 90; Metropolitan, &c. R. 164] STOCKHOLDEES. 253 tlement of these various questions. But the rights of the minority must be respected, and a single stockholder has been held to be able, by refusing his assent, to prevent a material amendment to the char- ter,^° as he may a dissolution,'' where it is not authorized or not made with a bona fide intention to pay the corporate debts and discontinue the business. § 164. Stockholders' meetings. — In matters which must be settled by the body of the stockholders, the assent of a majority of them, expressed elsewhere than at a meeting-^as, where the assent of each is given separately and at different times to a person who goes to them privately — is not binding upon the company.'® But provision is sometimes made by statute for the stockholders to perform certain acts, such as the adoption of by-laws, by giving a written consent thereto, without the formality of a meeting.'* Stockholders' meetings should be held within the state by which the corporation is created.'" It is sometimes said that acts performed at a meeting in a foreign jurisdiction are void,'^ but the better rule would seem to be that, in Co. V. Manhattan, &c. R. Co. 11 Daly (N. Y.) 367. '» Fry's Ex'rs v. Lexington, &c. E. Co. 2 Mete. (Ky.) 314; Delaware, &c. R. Co. V. Irick, 23 N. J. L. 321; Pearce v. Madison, &c. R. Co. 21 How. (U. S.) 441; Tuttle v. Mich. Air Line Co., 35 Mich. 247 ; Marietta, &c. R. Co. v. Elliott, 10 Ohio St. 57; New Orleans, &c. R. Co. v. Harris, 27 Miss. 517. Ante, § 45. "Ervln V. Oregon R. &c. Co. 27 Fed. 625; Black v. Delaware, &c. Ca- nal Co. 22 N. J. Eq. 130, where the deject was to continue business un- der a new organization; Kean v. Johnson, 9 N. J. Bq. 401; Von Schmidt v. Huntington, 1 Cal. 55; Barton v. Enterprise, &c. Ass'n, 114 Ind. 226, 5 Am. St. 608, where the corporation charter had not expired; Angell & Ames (11th ed.), § 772. " Duke v. Markham, 105 N. C. 131, 18 Am. St. 889; Commonwealth v. Cullen, 13 Pa. St. 133, 53 Am. Dec. 450; Dennis v. Joslin, &c. Co. 19 R. L 666, 36 Atl. 129, 61 Am. St 805. But it is held that a certificate signed hy the president of a corpora- tion, who holds nearly all of its stock, stating that a majority of the stockholders has assented thereto, implies that he has assented, and such certificate is suflBcient assent of the majority of the stockholders, un- less the statute provides some par- ticular form or place for such as- sent. Humphreys v. St. Louis, &c. R. Co. 37 Fed. 307. " The written assent of two-thirds of the stock is sometimes made suflS- cient to adopt by-laws without a meeting. Stimson Am. Stat. Law (1892), §, 8872. ™ Jones V. Pearl Min. Co. 20 Colo. 417, 38 Pac. 700; Harding v. Ameri- can, &c. Co. 182 111. 551, 55 N. E. 577, 74 Am. St. 189; Bank of Augusta v. Earle, 13 Pet. (U. S.) 519. "Miller v. Ewer, 27 Me. 509, 46 Am. Dec. 619; Aspinwall v. Ohio, &c. R. Co. 20 Ind. 492, 83 Am. Dec. 553 stockholders' meetings. '[§ 164 the absence of any provision to the contrary, the acts of the stockhold- ers at such a meeting are voidable rather than void, and may be valid ■where all the stockholders give their consent.'^ In other words, the corporation and the stockholders in such a case are estopped from •questioning upon this ground the validity of the meeting and proceed- ings, to which they consented and in which they participated. If the corporation is consolidated or incorporated in two or more states, so as to be a citizen of each, the stockholders may lawfully meet in either state.*^ Where the officers of a corporation neglect and refuse to call a meeting which it is their duty to call, they may be compelled to do -so, in a proper case, by mandamus at the suit of a stockholder.** In order to bind absent and dissenting stockholders, the meeting must be ■duly assembled.'^ Members are bound to take notice of regular stated meetings fixed by the charter or by-laws;'* but they should be duly notified of special or called meetings,*^ and the statute or by-laws 329. See, also, Hilles v. Parrish, 14 N. J. Bq. 380; Franco-Texan Land Co. V. Laigle, 59 Tex. 339; Hodgson T. Duluth, &o. R. Co. 46 Minn. 454, 49 N. W. 197; Ormsby v. Vermont, &c. Co. 56 N. Y. 623; Craig Silver Co. V. Smith, 163 Mass. 262, 39 N. B. 1116; Duke v. Taylor, 37 Fla. 64, 19 So. 172, 31 L. R. A. 484, 53 Am. St. -332; 1 Beach Priv. Corp. § 285. See, also. Mack V. De Bardeleben, &c. Co. 90 Ala. 396, 8 So. 150. '^Missouri Lead, &c. Co. v. Rein- hard, 114 Mo. 218, 21 S. "W. 488, 35 Am. St. 746; Heath v. Silverthorn, &c. Co. 39 Wis. 146; Handley v. Stutz, 139 U. S. 417, 11 Sup. Ct. 530, appeal from Stutz v. Handley, 41 Fed. 531; 1 Morawetz Priv. Corp. § 488; Taylor Corp. § 382; 1 Cook Stock and Stockholders, § 589. See, also, Wright v. Lee, 2 S. Dak. 596, 51 N. W. 706; Graham v. Boston, &c. R. 118 U: S. 161, 6 Sup. Ct. 1009. There is more reason, perhaps, for holding that meetings for the pur- pose of accepting the charter and organizing should be held within the state. Smith v. Silver Valley, .&c. Co. 64 Me. 85, 64 Am. R. 760; Freeman v. Machias, &c. Co. 38 Me. 343; 1 Beach Priv. Corp. §286; Pur- dy's Beach Priv. Corp. § 672; ante, § 17. »=' Covington, &c. Bridge Co. v. Mayer, 31 Ohio St. 317; Graham v. Boston, &c. R. Co. 118 U. S. 161, 6 Sup. Ct. 1009; ante, § 28. But see Aspinwall v. Ohio, &c. R. Co. 20 Ind. 492, 83 Am. Dec. 329. "People V. Cummings, 72 N. Y. 433; McNeely v. Woodruff, 13 N. J. L. 352; State v. Wright, 10 Nev. 167. See, also, American R. Prog. Co. V. Haven, 101 Mass. 398, 3 Am. 377. "It should be called by the au- thorized oflScers or persons. See Reilly V. Oglebay, 25 W. Va. 36; Cassell V. Lexington, &c. Co. (Ky.), 9 S. W. 502; Evans v. Osgood, 18 Me. 213; Johnston v. Jones, 23 N. J. Bq. 216. ™ Warner v. Mower, 11 Vt. 385; State V. Bonnell, 35 Ohio St. 10; People v. Batchelor, 22 N. Y. 128. " Commonwealth v. Cullen, 13 Pa. St. 133, 53 Am. Dec. 450; Farwell V. Houghton Copper Works, 8 Fed. 66; Kynaston v. Mayor, 2 Strange 164] STOCKHOLDEES. 354 may, of course, provide for notice of all meetings. The provisions of the charter or by-laws in regard to the time and manner of calling meetings and the nature of the notice should be followed ;** but a byr law providing that notice may be given in a certain way is not neces- sarily exclusive.'* In the absence of any express provision, personal notice, if not absolutely essential, is certainly the safest."" The essen- tial elements of the notice are the time of the meeting,"^ the place of the meeting,*^ and the business to be transacted,"^ unless the stock- holders, by reason of some provision in the charter or by-laws, are al- ready chargeable with knowledge of one or more of these things. An appearance at the meeting without objection will usually operate as 1051; Rex v. Hill, 4 Barn. & Cress. 426; Angell & Ames Corp. (llth ed.) § 492; 1 Beach. Prlv. Corp, § 279; Purdy's Beach Priv. Corp. § 664; Stow v. Wyse, 7 Conn. 214; 13 Am. Dec. 99, and note. ^ Stockholders of Shelby R. Co. v. Louisville, &c. R. Co. 12 Bush (Ky.) 62; Hunt v. School Dist. 14 Vt. 300, 39 Am. Dec. 225; Tuttle v. Michigan Air Line R. Co. 35 Mich. 247. ™ Citizens' Mut. Ins. Co. v. Sort- well, 8 Allen (Mass.) 217. •"Stow V. Wyse, 7 Conn. 214, 18 Am. Dec. 99. See, also, Wiggin v. Freewill Baptist Church, 8 Mete. (Mass.) 301; Harding v. Vande- water, 40 Cal. 77. "It has been held that the hour, as well as the day, must be stated. San Buenaventura, &c. Co. v. Vas- sault, 50 Cal. 534, 537. The fact that there is some delay in calling the meeting to order will not, as a rule, invalidate it, but holding it before the time designated may op- erate as a surprise upon some of the stockholders and give those who do not participate just cause for at- tacking its validity as to them. Peo- ple V. Albany, &c. R. Co. 55 Barb. (N. Y.) 344. The notice should also be served a reasonable time before the meeting, although this is usual- ly fixed by the statute or by-laws. Long Island R. Co., In re, 19 Wend. (N. Y.) 37, 32 Am. Dec. 429; Brown V. Republican, &c. Mines, 55 Fed. 7; Covert V. Rogers, 38 Mich. 363, 31 Am. R. 319. "Angell & Ames Corp. (11th ed.) § 496; Jones v. Milton Turnp. Co. 7 Ind. 547; United States v. McKelden, 8 Reporter 778. ''Notice of the ordinary business to be transacted at a general stated meeting is usually unnecessary. Chi- cago, &c. R. Co. V. Union Pac. R. Co. 47 Fed. 15; Warner v. Mower, 11 Vt. 386; Sampson v. Bowdoinham, &c. R. Co. 36 Me. 78; Merritt v. Ferris, 22 111. 303. But notice of the busi- ness to be transacted at a special meeting is generally essential, and no other business can be regularly transacted than that specified in the notice. Atlantic Delaine Co. v. Ma- son, 5 R. I. 463; People's Mut. Ins. Co. V. Westcott, 14 Gray (Mass.) 440 ; Rex V. Mayor, &c. of Doncaster, 2 Burr 738. See, also, Bridport Old Brewery Co. L. R. 2 Ch. 191; Lon- don, &c. Co., In re, L. R. 31 Ch. D. 223; Tuttle v. Michigan Air Line R. Co. 35 Mich. 247; 1 Beach Priv. Corp. § 279; Purdy's Beach Priv. Corp. § 664. 255 REMEDIES OF STOCKHOIDEKS. [§■ 165 a -waiver of objections to the notice.^* And where a meeting is duly called and held, the corporation may adjourn and transact any busi- ness at the adjourned meeting which they could have transacted at the original meeting, without giving any additional notice other than that implied in the adjournment."® It will be presumed, in the ab- sence of anything to the contrary, that a meeting attended by a quorum was duly called."® §' 165. Bemedies of stockholders. — A stockholder has the further right to bring an action to obtain redress for wrongs done to the cor- porate rights or to restrain ultra vires acts done in the name of the corporation in cases where the corporation, upon request, refuses to bring the suit,'^ and where the persons who are despoiling the eor- '^Stutz V. Handley. 41 Fed. 531; Handley v. Stutz, on appeal, 139 U. S. 417, 11 Sup. Ct. 530; Union Pac. R. Co. V. Chicago, &c. R. Co. 51 Fed. 309; Jones v. Milton Turnp. Co. 7 Ind. 547; People v. Peck, 11 Wend. (N. Y.) 604, 27 Am. Dec. 104; Ken- ton Furnace Co. v. McAlpin, 5 Fed. 737; Campbell v. Argenta, &c. Co. 51 Fed. 1; Wood v. Corry, &c. Co. 44 Fed. 146; Nelson v. Hubbard, 96 Ala. 238, 11 So. 428, 17 L. R. A. 375; Bucksport, &c. R. Co. v. Buck, 68 Me. 81. »= Warner y. Mower, 11 Vt. 385; Smith V. Law, 21 N. Y. 296; Gran- ger V. Grubb, 7 Phila. (Pa.) 350; Rex V. Carmarthen, 1 Maule & S. 697; Scadding v. Lorant, 3 H. L. Cas. 418. But see, where there is bad faith and stockholders are taken advantage of. State v. Bonnell, 35 Ohio St. 10; New York, &c. Co. v. Parrott, 36 Fed. 462; also State v. Phillips, 79 Me. 506, 10 Atl. 447; Reg. V. Grimshaw, L. R. 10 Q. B. 747 (new and different business can not be transacted). »« Sargent v. Webster, 13 Mete. (Mass.) 497, 46 Am. Dec. 743; Mc- Daniels v. Flower Brook, &c. Co. 22 Vt. 274; Beardsley v. Johnson, 121 N. Y. 224; Wells v. Rodgers, 60 Mich. 525, 27 N. W. 671; Lane v. Brainerd, 30 Conn. 565. "Teachout v. Des Moines, &c. St. R. Co. 75 Iowa 722; Foster v. Mans- field, &c. R. Co. 36 Fed. 627; Mem- phis, &c. R. Co. V. Woods, 88 Ala. 630, 7 So. 108, 7 L. R. A. 605 n, 16 Am. St. 81; Wilkie v. Rochester, &c. R. Co. 12 Hun (N. Y.) 242; Stevens V. Rutland, &c. R. Co. 29 Vt. 545; Putnam v. Ruch, 56 Fed. 416; Tay- lor V. Holmes, 127 U. S. 489, 8 Sup. Ct. 1192; Hawes v. Oakland, 104 V. S. 450; Mack v. DeBardeleben, &c. Co. 90 Ala. 396, 8 So. 150, 9 L. R. A. 650, and note; Atwood v. Merry- weather, L. R. 5 Eq. 464, note. A request and refusal of the corpora- tion to sue must generally be shown or a sufficient excuse for failure to make the request. Atchison, &c. R. Co. V. Board, 51 Kan. 617, 33 Pac. 312; Latimer v. Richmond, &g. R. Co. 39 S. C. 44, 17 S. E. 258; Whit- ney V. Fairbanks, 54 Fed. 985; Weid- infelder v. Allegheny, &c. R. Co. 47 Fed. 11; Beshoar v. Chappell (Colo.), 40 Pac. 244; Johns v. Mc- Lester, 137 Ala. 283, 34 So. 174, 97 Am. St. 27, and note; Macon, &c. R. Co. V. Shailer, 141 Fed. 585. Where 165] STOCKHOLDERS. 256 poration or who have caused it to exceed its powers, are in control of it."^ Thus a suit brought by a stockholder on behalf of his cor- poration against the directors and others, has been sustained, where he sought redress for frauds, wrongs, and breaches of trust, and to re- cover from them money of which the corporation had been defrauded."' a corporation expired by limitation in its charter, but its existence was continued thereafter by statute for the purpose of winding up its busi- ness, such limitation in its charter is not sufficient ground for bring- ing a suit in the name of some of the stockholders in behalf of the corporation, to recover its property, where no application has been made to the directors. Taylor v. Holmes, 127 U. S. 489, 8 Sup. Ct. 1192. == Heath v. Erie R. Co. 8 Blatchf . (U. S.) 347; Doud v. Wisconsin, &c. R. Co. 65 Wis. 108, 25 N. W. 533, 56 Am. R. 620; Parrott v. Byers, 40 Cal. 614; Board, &c. v. Lafayette, &c. R. Co. 50 Ind. 85; Currier v. New York, &c. R. Co. 35 Hun (N. Y.) 355; Oshkosh, &c. Co., Re, 77 Wis. 366, 46 N. W. 441, 9 L. R. A. 273, and note; Miner v. Belle Isle Ice Co. 93 Mich. 97, 53 N. W. 218, 17 L. R. A. 412. See, also, Jones v. Mis- souri, &c. Co. 144. Fed. 765. The minority stockholders can not en- join acts of the majority stockhold- ers or directors of a corporation in relation to its internal management, such as executing a perpetual lease of its railroad and franchises, where the acts complained of are neither fraudulent nor illegal. And the mere fact that defendants are also the majority stockholders and of- ficers of the corporation to which the proposed lease is to be made is not sufficient to establish fraud. Shaw v. Davis, 78 Md. 308, 28 Atl. 619, 23 L. R. A.. 294. Where the suit is against those in control of the corporation, no request that they shall bring the suit is necessary. George v. Central R., &c. Co. 101 Ala. 607, 14 So. 752; Sage v. Culver, 71 Hun (N. Y.) 42, 24 N. Y. S. 514; Smith V. Dorn, 96 Cal. 73, 30 Pac. 1024; Landis v. Sea Isle, &c. Co. 53 N. J. 654, 31 Atl. 755. See, also, Higgins V. Lansingh, 154 111. 301, 40 N. E. 362, and note in 97 Am. St. 34. Where a majority stockholder of a railroad company elects and controls its board of directors, and obtains a lease of its railroad at a nominal rental, any minority stock- holder may sue in his own name for the fraud committed on the com- pany. Pondir v. New York, &c. R. Co. 72 Hun (N. Y.) 384, 25 N. Y. S. 560; Earle v. Seattle, &c. R. Co. 56 Fed. 909. Where it is merely a question of corporate policy, and no question of fraud or illegality of the proposed action of the corpora- tion is raised, equity will not in- terpose to control the action of di- rectors to whom the charter con- fides the management of corporate affairs. EUerman v. Chicago Junct. R., &c. Co. 49 N. J. Eq. 217, 23 Atl. 287; Wheeler v. Pullman, &c. Co. 143 111. 197, 32 N. E. 420, 17 L. R. A. 818; M9.nufacturers, &c. Co. v. Cleary (Ky.), 89 S. W. 248. ""Beach v. Cooper, 72 Cal. 99, 13 Pac. 161; Putnam v. Ruch, 54 Fed. 216. A stockholder may bring an ac- tion to enjoin the directors from un- lawfully transferring the stock to a consolidated corporation, and he need not consult with the directors 257 SUIT BY UNEEGISTEEED ASSIGNEES AND THIRD PEESONS. [§ 166 In such a suit, the corporation should be joined as a defendant/"" as the court cannot pass upon its rights unless it is brought into court. It has also been held that a stockholder may enjoin the performance of an ultra vires contract to which all the other stockholders have con- sented although he is not specially injured thereby.^"^ § 166. Unregistered assignees and third persons cannot sue. — An assignee of railroad stock, who has not registered his stock, nor ob- tained recognition as a stockholder, cannot bring suit in behalf of himself and other stockholders to restrain the officers of the corpora- tion from ultra vires and illegal acts.^"^ Parties who never paid, or agreed to pay, anything for corporate stock issued to them, are not. with reference thereto. Botts v. Simpsonvllle, &a. Tpk. Co. 88 Ky. 54, 10 S. W. 134, 2 L. R. A. 594. ""Kennebec, &c. R. Co. v. Port- land, &c. R. Co. 54 Me. 173, 181; Bagshaw v. Eastern R. Co. 7 Hare 114; Heath v; Brie, &c. Co. 8 Blatchf. (U. S.) 347, 394; Curran v. Ar- Itansas, 15 How. (U. S.) 304; Brewer V. Boston Theater, 104 Mass. 378; Cooli Stock and Stockholders, § 738, and numerous authorities cited. The general rule Is that the corpora- tion is a necessary party, either as a plaintiff or defendant. Zinn v. Mendel, 9 W. Va. 580; Greaves v. Gouge, 69 N. Y. 154, 52 How. Pr. (N. Y.) 58; "Western R. Co. v. No- lan, 48 N. Y. 513; Hersey v. Veazie, 24 Me. 9, 41 Am. Dec. 364; Daven- port V. Dows, 18 "Wall. (U. S.) 626; Beach v. Cooper, 72 Cal. 99, 13 Pac. 161; "Wilson v. American Palace Car Co. 64 N. J. 534, 54 Atl. :tl5; note in 97 Am. St. 45, 46. "'Byrne v. Schuyler, &c. Co. 65 Conn. 336, 31 Atl. 833, 28 L. R. A. 304, and cases cited. See, also. Cen- tral R. Co. V. Collins, 40 Ga. 582; Davis V. Congregation, 40 App. Div. (N. Y.) 424, 57 N. Y. S. 1015. '"Brown v. Duluth, &c. R. Co. 53 Fed. 889. See, also. Heath v. Erie Ell. Railboads — 17 R. Co. 8 Blatchf. (XJ. S.) 347; Her- sey V. Veazie, 24 Me. 9, 41 Am. Dec. 364 n; Ramsey v. Erie R. Co. 7 Abb. Pr. N. S. (N. Y.) 156. But compare Ervin v. Oregon, &c. Co. 28 Hun (N. Y.) 269; Parrott v. Byers, 40 Cal. 614; Bagshaw v. Eastern, &c. R. Co. 7 Hare 114; Moore v. Silver, &c. Co. 104 N. C. 534, 10 S. E. 679. A bill to enjoin corporate acts which does not allege fraud on the part of the directors, or that they are threatening to do some act ultra vires or for their own interests, in a manner injurious to, or destruc- tive of, the rights of other share- holders, but that the plaintiffs have made an earnest effort to obtain re- dress within the corporation itself, is insufficient on demurrer. Lati- mer V. Richmond, &c. R. Co. 39 S. C. 44, 17 S. E. 258; Atchison, &c. R. Co. V. Board, &c. 51 Kans. 617, 83 Pac. 312; Roman v. "Woolfolk, 98 Ala. 219, 13 So. 212. But where the com- plaint shows that a rival corpora- tion has secured control of the com- pany, and acts of itself and its of- ficers amounting to fraud upon the rights of plaintiff are stated, the complaint is sufficient. Earle v. Seattle, &c. R. Co. 56 Fed. 909. 167] STOCKHOLDEES, 358 ordinarily, shareholders, and cannot, as a rule, maintain an action as such.^°= The expectant owner of stock in a corporation, before becom- ing a stockholder, can neither be heard to complain of acts of the corporation which may be ultra vires, nor be permitted to interfere in any way in the affairs of the company."* To enable one or more stockholders to maintain in a federal court of equity, a suit which should properly be brought by the corporation itself, they must show- that they were shareholders at the time of the transaction complained of, or that the shares have devolved on them since by operation of law."= § 167. Wheh stockholders may sue or become parties. — Stockhold- ers have been permitted to sue on behalf of the corporation to remove a cloud from the corporate title to real estate,^°° and to compel pay- ment of subscriptions.^"'' But, on the other hand, a stockholder has been' denied the right to sue for a trespass upon the company's prop- Qj-ljioa gjj^ jjg eajijiot take an appeal in a suit which it has lost.^"* In cases involving fraud and collusion he must "move promptly to "'Arkansas River, &c. Co. v. Farmers', &c. Trust Co. 13 Colo. 587, 22 Pac. 954; Hlnchley v. Pfister, 83 Wis. 64, 53 N. W. 21. See, also, Busey v. Hooper, 35 Md. 15. Pur- chasers of stock have the right to demand that a contract of the cor- poration be canceled on the ground that it is ultra vires, and a wrongful refusal to transfer stock on the books of the company can not defeat that right. Carson v. loWa City Gaslight Co. 80 Iowa 638, 45 N. W. 1068. "'Mayer v. Denver, &c. R. Co. 38 Fed. 197, 6 R. & Corp. L. J. 49. "= Dimpfell v. Ohio, &c. R. Co. 110 U. S. 209, 3 Sup. Ct. 573. Rule 94, U. S. Rules of Practice in Equity Cases, 104 U. S. IX. A suit removed to the federal court from a state court will not be dismissed for fail- ure to comply with this rule since it applies only to suits originally begun in the federal court. Earle V. Seattle, &c. R. Co. 56 Fed. 909. Where stock was transferred merely by indorsement and not by issuing certificates, the stockholder must show that he purchased the stock in good faith and not for mere pur- pose of vexation, before he can sue for redress for fraudulent transac- tion committed by officers or others before he became a stockholder. Moore v. Silver Valley Min. Co. 104 N. C. 534, 10 S. E. 679. ™ Baldwin v. Canfield, 26 Minn. 43, 56, 1 N. W. 261. "'Wallworth v. Holt, 4 Mylne & Cr. 619. Other illustrative cases are referred to in Hiscock y. Lacy, 9- Misc. (N. Y.) 578, 30 N. Y. S. 860,. quoted In note in 97 Am. St. 41. "» Dale V. Grant, 34 L. J. 142. ™ Silk Mfg. Co. V. Campbell, 27 N. J. L. 539. For other illustrative cases see Van' Kirk v. Adler, 111 Ala. 104, 20 So. 336; Hendrlckson v. Bradley, 85 So. 508; Flynn v. Brook- lyn City R. Co. 158 N. Y. 493, 53 N. E. 520; note in 97 Am. St. 42, 43. 259 WHEK STOCKHOLDERS MAT SUE OR BECOME PARTIES. '[§' 167 assert his rights upon gaining knowledge of the wrongful acts com- plained of, for if he participates or acquiesces in unwarrantable acts of the officers or of a majority of the stockholders, he will usually be bound by them.^^** He will not be permitted to wait until he can see whether the unauthorized act is for the advantage of the corporation, and in case it proves disastrous, sue to set it aside.^^^ The fact that the plaintiff bought his stock expressly to enable him to bring the suit is not necessarily a ground for refusing relief. ^^^ If it appears that "» Memphis, &c. R. Co. v. Grayson, 88 Ala. 572, 7 So. 122, 16 Am. St. 69; Burgess v. St. Louis County R. Co. 99 Mo. 496, 12 S. W. 1050; Taylor V. Holmes, 127 U. S. 489, 8 Sup. Ct. 1192; Alexander v. Searcy, 81 Ga. 536, 8 S. B. 630, 12 Am. St. 337. But see Appleton v. American Malt. Co. 65 N. J. Eq. 375, 54 Atl. 454; Fitz- gerald T. Fitzgerald, 41 Neb. 374, 59 N. W. 838. An act not expressly prohibited by law, but unauthorized in the charter of the corporation, which affects only the interests of the stockholders, may be made good by the assent of the stockholders, so as to protect strangers dealing with them in good faith. Hollins v. St. Paul, &c. R. Co. (Sup. Ct), 29 N. Y. S. 208, 8 R. & Corp. L. J. 117. So, a purchaser of stock with notice that it was voted in favor of the illegal act cannot complain of such act. Brown v. Duluth, &c. R. 53 Fed. 889; Wood v. Corry, &c. Co. 44 Fed. 146; Barr v. New York, &c. R. 125 N. Y. 263, 26 N. E. 145; Syra- cuse, &c. R., In re, 91 N. Y. 1. Sev- eral of these cases apply this doc- trine even to transferees without notice of the fraud, but in Parsons V. Joseph, 92 Ala. 403, 8 So. 788, its application to bona fide purchasers is denied. "^Atchison, &c. R. Co. v. Fletcher, 35 Kans. 236, 10 Pac. 596; Burgess V. St. Louis County R. Co. 99 Mo. 496, 12 S. W. 1050. For an instance In which it was held that the stock- holder acted with sufficient prompt- ness, see Byrne v. Schuyler, &c. Co. 65 Conn. 336, 31 Atl. 833. "= Ramsay v. Erie R. Co. 8 Abb. Pr. N. S. (N. Y.) 174; Young v. Drake, 8 Hun (N. Y.) 61; Winsor V. Bailey, 55 N. H. 218; Elkins v. Camden, &c. R. Co. 36 N. J. Eq. 5; Chicago V. Cameron, 22 111. App. 91, aff'd 120 111. 447; Cook Stock and Stockholders, § 736. But see ante, note 3, page 241, and Alex- ander V. Searcy, 81 Ga. 536, 8 S. E. 630, 12 Am. St. 337. The fact that the certificates of stock were not is- sued to him until after a corpora- tion had accepted an unconstitu- tional amendment to its charter will not preclude one having a vested right to stock of the corporation by virtue of stock receipts from enforc- ing his rights against an attempt to misappropriate funds under such amendment. Hill v. Glasgow R. Co. 41 Fed. 610. The fact that plaintiff became a stockholder after commis- sion of the acts complained of does not defeat his right to begin the action, which is brought directly for the benefit of the corporation. Chicago V. Cameron, 22 111. App. 91, aff'd in 9 West. R. 507, 120 111. 447, 11 N. E. 899. But it has been ■ held that where the transfer is mere- ly nominal the transferee cannot maintain the suit. McDonnell v. Grand Canal Co. 3 Ir. Ch. R. 578; Robson V. Dodd, L. R. 8 Eq. 301. 167] STOCKHOLDERS. 360 the plaintiff is prosecuting the suit at the instance and for the benefit of others who are not stockholders, and who indemnify him against the costs of the suit, the court will not interfere by interlocutory in- junction.^^* Nor will it readily grant this extraordinary relief "before hearing, where the measures are of evident expediency, and have the approbation of all the other stockholders, although proper relief will not be denied upon final hearing if the acts complained of are shown to be ultra vires.^^* The fact that a rival company merely instigated the suit is not a reason for denying relief of which the stockholders are shown to be entitled,^^^ although the court may decline to entertain a suit by shareholders in such a company who have purchased shares in the rival company for purpose of litigation.^^* And in cases where the corporation heglects or refuses to defend a suit because of fraud and collusion on the part of the corporate officers, a stockholder may, according to some authorities, be admitted as a defendant, and allowed to set up any defenses which the corporation might have offered to the suit.^^^ But other authorities hold that the proper means by which the stockholders should protect their rights is to file an original bill in equity to have the judgment in such a suit set aside for fraud.^^* "'Filder v. London, &c. R. Co. 1 H. & Miller 489; Forrest v. Man- chester, &c. R. Co. 4 DeG., F. & J. 1'26; Belmont v. Erie R. Co. 52 Barb. (N. Y.) 637; Beshoar v. Chappell (Colo.), 40 Pac. 244. But see Dins- more V. Central R. Co. 19 Fed. 153; Sandford v. Railroad, 24 Pa. St. 378; Central R. Co. v. Collins, 40 Ga. 582. He must not act in bad faith or the court will usually refuse to aid bim. Beshoar v. Chappell, 6 Colo. App. 323, 40 Pac. 244; Tevis v. Hammer- smith, 161 Ind. 74, 66 N. E. 79, 67 N. E. 672. "•DuPont V. Northern Pacific R. Co. 18 Fed. 467. But not where he has knowingly accepted and retained the benefit. Wormser v. Metropoli- tan St. R. Co. 184 N. y. 83, 76 N. B. 1036. ""Colman v. Eastern Counties R. Co. 10 Beav. 1. ""Ffooks V. London, &c. R. Co. 17 Jur. 365. "' Koehler v. Black River, &c. Co. 2 Black (U. S.) 715; Bayliss v. La- fayette, &c. R. Co. 8 Biss. (U. S.) 193; Mussina v. Goldthwaite, 34 Tex. 125; Graham v. Boston, &c. R. Co. 118 U. S. 161, 6 Sup. Ct. 1009; Farmers', &c. T. Co. v. Toledo, &c. R. Co. 67 Fed. 49. A stockholder cannot defend against a suit to fore- close a mortgage upon its property for default in the payment of in- terest upon the ground that the rail- road company has misapplied its earnings in order to bring about the default, even where the majority stockholder is a heavy bondholder and desires the mortgage foreclosed. Farmers', &c. T. Co. v. New York, &c. R. Co. 78 Hun (N. Y.) 213, 28 N. Y. S. 933; Oelbermann v. New York, &c. R. Co. 7 Misc. (N. Y.) 352, 27 N. Y. S. 945. "»BIackman v. Central R. Co. 58 Ga. 189; Forbes v. Memphis, &c. R. Co. 2 Woods (U. S.) 323; Kelley v. gel EIGHT TO EECOVER INSURANCE. [§ 168 § 168. Right to recover insurance. — Where the corporation neg- lects properly to insure its property, it is held that a stockholder may insure it in his own name, and may, in case of loss, recover upon such a policy for a sum which will make up any deficiency in the amount of the company's insurance necessary to cover his interest.^^* But the corporation is generally held to he a legal entity separate and apart from the owners of its stock, even though all the stock belong to one person.^^" It would seem, therefore, that he cannot insure as absolute owner of the property,^^^ whatever may be the rule as to his qualified interest therein. § 169. Other rights and remedies of stockholders. — A stockholder may, in general, contract with the corporation upon the same terms, in the same manner, and to the same extent that another person may.^^^ And it is held that he may be interested in the construction company to which a corporate contract is given, even though he owns a majority of the stock and thereby may have control.^^^ But this Mississippi, &c. R. Co. 1 Fed. 564, holding that at common law a stock- holder can not defend, even though the corporation is in no position to do so. ""Warren v. Davenport Fire Ins. Co. 31 Iowa 464; Riggs v. Commer- cial Mut. Ins. Co. 125 N. Y. 7, 25 N. E. 1058, 10 L. R. A. 684, 21 Am. St. 716. See, also. Seaman v. Enter- prise Fire Ins. Co. 18 Fed. 250. ^» Button v. Hoffman, 61 Wis. 20, 20 N. W. 667, 50 Am. St. 131. See Hopkins v. Roseclare, &c. Co. 72 111. 373; Newton, &c. Co. v. White, 42 Ga. 148. But see Swift v. Smith, 65 Md. 428, 5 Atl. 534, 57 Am. R. 336, where it is held that a person own- ing all the stock may bind the cor- poration by his individual acts. '^See Philips v. Knox, &c. Ins. Co. 20 Ohio 174; Riggs v. Commer- cial, &c. Ins. Co. 19 J. & S. (N. Y. 'Super. Ct.) 466. "^ Hartford, &c. R. Co. v. Kennedy, 12 Conn. 499, 509; Central, &c. R. Co. V. Claghorn, 1 Speers Eq. (S. C.) 545, 562. It is held that stockhold- ers of a corporation have the same right to purchase its property and take possession thereof that stran- gers would have during the pend- ency of a suit to forfeit the charter. Havemeyer v. Superior Ct. 84 Cal. 327, 24 Pac. 121, 10 L. R. A. 627, 18 Am. St. 192. See, also, Crymble v. Mulvaney, 21 Colo. 203, 40 Pac. 499; Merrick v. Peru Coal Co. 61 111. 472; Mickles v. Rochester City Bank, 11 Paige (N. Y.) 118, 42 Am. Dec. 103. Stockholders in a corporation may purchase its mortgage bonds and en- force payment in the usual manner, though the object in purchasing the bonds was to cause a foreclosure and to purchase the property at the sale. Farmers, &c. Co. v. New York, &c. R. Co. 78 Hun (N. Y.) 213, 28 N. Y. S. 933. See, also, Oelber- mann v. New York, &e. R. Co. 7 Misc. (N. Y.) 352, 27 N. Y. S. 945. ^ Porter v. Pittsburg, &c. Co. 120 U. S. 649, 670, 7 Sup. Ct. 741, hold- ing that the mere fact of such own- 169] STOCKHOLDERS. 262 right would seem to be held subject to the priaeiple which is tlOyt firmly established, that where a majority of the stockholders assume control of the corporation, they take upon themselves the trust relation occupied by the corporation toward its stockholders,^^* and are bound to equity and fair dealing.^^^ Upon this principle depends the well- established right of a minority stockholder to have set aside a fraudu- lent sale of the corporate property, by the majority of the stockhold- ers,^^* or by the directors,^^' to themselves, or a fraudulent sale of property to the corporation by them.^^' He may, in good faith, ob- tain security for his debt,^^" and may sue or be sued by the corporation ership does not raise a legal infer- ence that he dominates the board of directors. ''''Ervin v. Oregon R., &c. Co. 27 Fed. 625, 20 Fed. 577, (Irvin v.) 28 Fed. 833. See, also. Miner v. Belle Isle Ice Co. 93 Mich. 97, 53 N. W. 218, 17 L. R. A. 412. ^^And a court of equity will re- view their action at the instance of the minority. Menier v. Hooper's Tel. Works, L. R. 9 Ch. 350; Meeker v. Winthrop, &c. Co. 17 Fed. 48. See Barr v. New York, &c. R. Co. 96 N. Y. 444. ""Reilly v. Oglebay, 25 "W. Va. 36; Mason v. Pewabic Min. Co. 25 Fed. 882. A creditor of the old corpora- tion who is injureij thereby may have the sale set aside for fraud. San Francisco, &c. R. Co. v. Bee, 48 Gal. 398. 1^ Jones V. Arkansas, &c. Co. 38 Ark. 17; Buell v. Buckingham, 16 Iowa 284, 85 Am. St. 516; Hoyle v. Plattsburgh, &c. R. Co. 54 N. Y. 314, 13 Am. R. 595, setting aside a pur- chase by a director at a sale on exe- cution. The director can hold prop- erty of the corporation which he may purchase only as a trustee for ,the corporation, and, on being re- paid the purchase money he must make it over to his cestui que trust. Harts V. Brown, 77 111. 226; Munson v. Syracuse, &c. R. Co. 103 N. Y. 58, 29 Hun 76; Covington, &c. R. Co. v. Bowler's Ex'rs, 9 Bush (Ky.) 468, holding a purchaser from the di- rector with notice subject to the same liability as his vendor. But a sale to a syndicate of which a di- rector is a member, if made in good faith and for an adequate price, will not be set aside. DuPont v. North- ern Pac. R. Co. 18 Fed. 467; Hill v. Nisbet, 100 Ind. 341. See Ashhurst's Appeal, 60 Pa. St. 209, where a sale to a director was upheld. But where the sale was made to the directors through "dummies" the corporate creditors can not have it set aside after the lapse of a long time, even though made for an inadequate price. Graham v. Railroad Co. 102 U. S. 148. ^'^ Where a director fraudulently conveys land to the corporation, the stockholder should not sue in equity to dissolve the corporation on ac- count of such sale, but his remedy is in an action by the corporation through its proper agents, or, in case they refuse to sue, then by the stockholder himself, to set aside the fraudulent sale. Tutwiler y. Tus- caloosa Coal, &c. Co. 89 Ala. 391, 7 So. 398. ^^Reichwald v. Commercial Hotel Co. 106 111. 439; Foster v. Belcher's Sugar Refining Co. 118 Mo. 238, 24 S. W. 63. 263 STOCKHOLDEES AS AGENTS OF COKPOEATION. [§' 1^0 both at law and in equity.^'" And in ease of its insolvency he may be competent and qualified to act as its receiver or assignee.^*^ § 170, Stockholders as agents of the corporation. — A stockholder cannotj as such, bind the corporation by a contract made in its name/*" although, of course, he may act as its agent by appointment.^'* And it is held that all the stockholders in meetings assembled cannot, ordi- narily, make a valid contract,^** but that this power belongs to the di- rectors or to agents acting under their authority.^*^ Since he is not the corporation nor necessarily its agent, a stockholder's admissions will not bind it,^** and service of process upon him is not service upon the corporation.'^*^ ""Waring v. Catawba Co. 2 Bay (S. C.) 109; Booker, Ex parte, 18 Ark. 338; Sanborn v. Lefferts, 58 N. Y. 179; Leonard v. Spencer, 108 N. Y. 338; Wausau, &c. Co. v. Plumer, 35 "Wis. 274. A stockholder may re- cover damages for an injury caused • by the negligence or misconduct of the corporation. Morbach v. Home Min. Co. 53 Kan. 731, 37 Pac. 122. '"' Covert V. Rogers, 38 Mich. 363, 31 Am. R. 319 n; Bowery Bank, Matter of, 16 How. Pr. 56. But a stockholder should be appointed only with the consent of the parties having opposing interests. Atkins V. Wabash, &c. R. Co. 29 Fed. 161. A corporate officer cannot be a re- ceiver in New Jersey. Freeholders V. State Bank, 28 N. J. Bq. 166. ^^' Morelock v. Westminster Water Co. (Md.), 4 Atl. 404; Mays v. Fos- ter, 13 Ore. 214, 10 Pac. 17; Alle- mong V. Simmons, 124 Ind. 199 (where a stockholder and director owning most of the stock in a rail- road company made a contract in its name which was held invalid); England v. Dearborn, 141 Mass. 590, 6 N. E. 837; Central Trust Co. v. Bridges, 57 Fed. 753. "» Spear v. Ladd, 11 Mass. 94. The rule has been held to be the same where he owns all the stock. But- ton V. Hoftman, 61 Wis. 20, 20 N. W. 667, 50 Am. R. 131. But the con- trary is held in Swift v. Smith, 65 Md. 428, 5 Atl. 534, 57 Am. R. 336. '» Conro V. Port Henry, &c. Co. 12 Barb. (N. Y.) 27; McCullough v. Moss, 5 Denio (N. Y.) 567; Gash- wiler V. Willis, 33 Cal. 11, 91 Am. Dec. 607; Gulf, &c. R. Co. v. Morris, 67 Tex. 692, 4 S. W. 156; Humphreys V. McKissock, 140 U. S. 304, 11 Sup. Ct. 779. See post, §§ 236, 249, 252. '" 2 Cook Stock and Stockholders, §712. ""Mitchell V. Rome R. Co. 17 Ga. 574, 586; Soper v. Buffalo, &c. R. Co. 19 Barb. (N. Y.) 310; Morrell v. Dixfield, 30 Me. 157; Fairfield, &c. Co. V. Thorp, 13 Conn. 173; Magill V. Kauffman, 4 Serg. & Rawle (Pa.) 317, 321, 8 Am. Dec. 713 n. Except- ing, of course, where he is acting as agent for the corporation by its au- thority in a matter which it has en- trusted to him. Norwich, &c'. R. Co. V. Cahill, 18 Conn. 484; American Fur Co. V. United States, 2 Pet. (U. S.) 358. '"Lillard v. Porter, 2 Head (Tenn.) 177; DeWolf v. Mallett's Adm'r, 3 Dana (Ky.) 214. § 171] ■ STOCKHOLPEES. 264 § 171. Notice to stockholder. — Notice to an individual stocHiolder is not, as a rule, notice to the corporation.^'* A stockholder is not, ordinarily, chargeable with knowledge of corporate contracts,^'" or entries in the books of the corporation,^*" unless his relations are such as to render it reasonably probable that he had actual knowledge thereof. In the latter case, of course, actual knowledge may be in- ferred.^*^ It has also been held that a stockholder is not chargeable with constructive notice of the corporate by-laws j^*^ but this is cer- tainly not the general rule. § 172. Stockholders' right to inspect books. — A stockholder is en- titled to inspect the corporate books at reasonable intervals, either in person,^*' or by an expert or an agent, when he is too ignorant to do it himself intelligently.^** The directors cannot exclude a member »»» Union- Canal Co. v. Loyd, 4 Watts & S. (Pa.) 393; Racine, &c. Co. V. Joliet, &c. Co. 27 Fed. 367. See, also, dissenting opinion in City of Logansport v. Justice, 74 Ind. 378, 39 Am. R. 79 n, and authorities there cited. ""Tarbox v. Gorman, 31 Minn. 62; Baker v. Woolston, 27 Kans. 185, 189. "° Hill V. Manchester, &c. Co. 5 B. & Ad. 866; Rudd v. Robinson, 126 N. Y. 113, 26 N. E. 1046, 12 L. R. A. 273 n, 22 Am. St. 816. But see Hamilton, &c. Co. v. Iowa, &c. Co. 88 Iowa 364, 55 N. W. 496. '"See Bedford R. Co. v. Bowser, 48 Pa. St. 29. In Graff v. Pitts- burg, &c. R. Co. 31 Pa. St. 489, 495, the court holds a stockholder bound by an entry made while he was pres- ent and assenting to it. If he is also a director he is as fully charge- able with notice of entries in the books as a partner would be with entries in the partnership books. Montgomery v. Exchange Bank (Pa.), 6 Atl. 133; First Nat. Bank V. Tisdale, 18 Hun (N. Y.) 151; aff'd 84 N. Y. 655. Between stock- holders the books of the corporation control as to what It has done. Hub- bell V. Meigs, 50 N. Y. 480. A stock- holder is an integral part of the cor- poration to the extent that, in view of the law, he is privy to the pro- ceedings touching the body of which * he is a member. Hawkins v. Glenn, 131 U. S. 319, 9 Sup. Ct. 739; Lewis T. Glenn, 84 Va. 947, 6 S. E. 866. '"Pearsall v. Western U. Tel. Co. 44 Hun (N. Y.) 532, on appeal, 124 N. Y. 256, 26 N. E. 534, 21 Am. St. 662. But see post, § 192, contra. "= Commonwealth v. Philadelphia, &c. R. Co. 3 Pa. Dist. R. 115; Dead- erick v. Wilson, 8 Baxt. (Tenn.) 108; Stone v. Kellogg, 165 111. 192, 46 N. E. 222, 56 Am. St. 240; Stein- way, Matter of, 159 N. Y. 250, 53 N. B. 1103; Angell & Ames Corp. (11th ed.) § 681. The corporation cannot refuse stockholders the right to in- spect the transfer books simply be- cause it would be inconvenient to grant it, nor because a by-law re- quired the transfer books to be closed thirty days before an election. State V. St. Louis, &c. R. Co. 29 Mo. App. 301. See State v. Laughlin, 53 Mo. App. 542. '"Phoenix Iron Co. t. Common- 265 DISQUALIFIED TO SERVE AS JUDGE OR JDROE. [§ 173 from this right because his motives in making the inspection are hos- tile to the interests of the corporation/*" and he may enforce the right by mandamus if it is -wrongfully denied.^*^ The writ should be directed to the officer or person having the custody of the books.^*^ § 173. Stockholder is disqualified to serve as judge or juror where corporation is interested. — A stockholder is incompetent to serve as wealth, 113 Pa. St. 563, 6 Atl. 75; Foster v. White, 86 Ala. 467, 6 So. 88; Cincinnati, &c. Co. v. HofE- meister, 62 Ohio St. 189, 56 N. E. 1033, 78 Am. St. 707; State v. Bien- ville, &c. Co. 28, La. Ann. 204; Ells- worth V. Dorwart, 95 Iowa 108, 63 N. W. 588, 58 Am. St. 247; People V. Nassau Ferry Co. 83 Hun (N. Y.) 128, 33 N. Y. S. 244. Such a pro- vision Is contained in the statutes of nearly all of the states. Stimson Am. Stat. Law (1892), §§ 8042, 8539. Under Wis. Rev. Stat. §§ 1757, which is similar to the statutes of most of the other states, it is held that a stockholder has the right to examine not only the books contain- ing the stock accounts, but those containing the general accounts. State V. Bergehthal, 72 Wis. 314, 39 N. W. 566. "" State V. Sportsman's, &c. Ass'n, 29 Mo. App. 326; People v. Throop, 12 Wend. (N. Y.) 183; Common- wealth V. Phoenix Iron Co. 105 Pa. St. Ill, 51 Am. R. 184; Weihen- mayer v. Bitner, 88 Md. 325, 42 Atl. 245, 45 L. R. A. 446 n; Cobb v. La- garde, 129 Ala. 488, 30 So. 326; Chable v. Nicaragua, &g. Co. 59 Fed. 846; Regina v. Wilts, &c. Canal Navigation Co. 29 L. T. R. (N. S.) 922, where the shareholder was an attorney, who sought to make the inspection in the interest of his cli- ents, who were in litigation with the company. But see State v. Bin- stein, 46 N. J. L. 479; People v. Walker, 9 Mich. 328; Lyon v. Amer- ican Screw Co. 16 R. I. 472, 17 Atl. 61; People V. Northern Pac. Co. 18 Fed. 471. Nor does the fact that he requests to see some of the books which he Is not entitled to see, jus- tify a refusal to permit him to in- spect those which he is entitled to see. Ellsworth v. Dorwart, 95 Iowa 108, 63 N. W. 588, 58 Am. St. 427. . "'People V. Lake Shore, &c. R. Co. 11 Hun (N. Y.) 1; People v. Pacific, &c. Co. 50 Barb. (N. Y.) 280; Commonwealth v. Phoenix Iron Co. 105 Pa. St. Ill, 51 Am. 184; Cockburn v. Union Bank, 13 La. Ann. 289; Merrill Mandamus, § 161. A stockholder of a private corpora- tion, or his attorney in fact, has a right to inspect the books and rec- ords of a corporation at any rea- sonable time, without giving a rea- son therefor. His remedy is man- damus. Poster V. White, 86 Ala. 467, 6 So. 88, 6 R. & Corp. L. J. 88. Contra, Investment Co. v. Eldridge, 2 Pa. Dist. 394. But the refusal of such right by the secretary is not of itself ground for damages against the corporation. Legendre v. New Orleans, &c. Ass'n, 45 La. Ann. 669, 12 So. 837, 40 Am. St. 243. "' People V. Throop, 12 Wend. (N. Y.) 183; State v. Bergenthal, 72 Wis. 314, 39 N. W. 566; People v. Mott, 1 How. Pr. (N. Y.) 247. .§ 1^4], STOCKHOLDERS. 266 ^ judge/** or juror,^*° in a ease to which the corporation is a party, •and, at common law, is incompetent to testify as a witness in such a ■case.^^" But many of the states have statutes rendering interested parties competent as witnesses, and in other states this last rule may usually be evaded by a transfer of the shareholder's stock.*"'- A bona fide transfer of the stock before the commencement of the suit has been held sufficient, although "the debt sued for existed at the time of the transfer, and continued to exist until the suit was brought."^^^ § 174. TJnlawfuI combinations and conspiracies to vote or prevent voting — ^Injunction. — Where a fraudulent purpose to vote stock in a particular way, and thereby to control the election to the irreparable and permanent injury of the corporation or of other stockholders is shown,^"^ or where a conspiracy to control the election by qualifying others to vote stock which the owner is not authorized to vote;*°* or hy excluding the votes of certain stockholders**" is shown; or where '" Dimes v. Prop, of Grand Junc- tion Canal, 3 H. of L. Cas. 759; Pen- insular R. Co. V. Howard, 20 Mich. 18; Cregin v. Brooklyn, &c. R. Co. 19 Hun (N. Y.) 349. But relation- ship to a stockholder does not dis- qualify. Searsburgh Turn. Co. v. ■Cutler, 6 Vt. 315; Butler v. Glens, &c. R. Co. 121 N. Y. 112, 24 N. E. 187. ""Page V. Contoocook Valley R. Co. 21 N. H. 438; Peninsular R. Co. V. Howard, 20 Mich. 18; Georgia Railroad v. Hart, 60 6a. 550, where a stockholder's son was also held incompetent. See 2 Elliott's Gen. Pr. § 518. ™ Porter v. Bank of Rutland, 19 Vt. 410; Delaware, &c. R. Co. v. Irick, 23 N. J. L. 321; Rapalje Wit- nesses, § 77; 2 Elliott on Ev. § 739. "' 1 Cook Stock and Stockholders, §11. ^"Rapalje Witnesses, § 77, citing Smith v. Tallahassee, &c. Co. 30 Ala. 650; Illinois Mutual Fire Ins. Co. V. Marseilles, &c. Co. 6 111. 236; Utica Ins^ Co. v. Cadwell, 3 Wend. (N. Y.) 296; Union Bank v. Owen, 4 Humph. (Tenn.) 338. «=Reed v. Jones, 6 Wis. 680. Or- dinarily, however, the purpose or motive of the shareholder is imma- terial if he does no illegal act. ^"Wehb V. Ridgely, 38 Md. 364, where the charter permitted a sin- gle stockholder to vote only twenty shares. But though a court of equity may do so, the corporation cannot question the holder's right to vote because the shares were trans- ferred to him by one who owned a greater number of shares than any one person is permitted to vote, Stranton, &c. Co., In re, L. R. 16 Eq. 559; State v. Smith, 48 Vt 266; People V. Kip, 4 Cowen (N. Y.) 382, note. See ante, § 157. "» Camden, &c. R. Co. v. Elkins, 37 N. J. Eq. 273; People v. Albany, &c. R. Co. 55 Barb. (N. Y.) 344, where it is held that the inspectors may be enjoined from receiving the votes of certain stockholders until the votes of others have been de- posited. Hafer v. New York, &c. R. Co. 14 Wkly. Law Bui. 68. 267 COMBIITATION'S AND CONSPIRACIES IN VOTING. [§' 174 a rival corporation has obtained control of stock by ultra vires act, and seeks to vote it to the injury of the company's interests,^ °° an injunc- tion may issue to restrain the holding of an election until further order of the court,^°^ or to restrain the offending stockholder or his agents from voting his stock,^^^ or a particular portion of it,^°* either altogether, or until the petitioner's rights have been protected.^""' But an injunction will not issue to prevent stockholders holding large interests from gaining control of the corporation, by legal means, be- cause they will probably misuse their power.^^^ Nor can the right to vote be denied because of the alleged wrongful motives of the holder in buying his stock.^°^ And it is perfectly competent for stockholders owning a majority of the stock to combine and elect a board of di- rectors,^"^ if the combination is formed without fraud.^** Where the application for an injunction is not made a sufficient number of days before the election to afford the defendants an opportunity to be heard, it may, as a rule, be summarily dismissed.^"^ But where the persons sought to be enjoined can have no legal right to vote any stock they ™ Memphis, &c. R. Co. v. Woods,. 88 Ala. 630, 7 So. 108, 7 L. R. A. 605, 16 Am. St. 81, where the rival com- pany owned a majority of the stock and had elected its own directors to serve as directors of the company in which plaintiffs were interested, who used their power against the interests of that road, the defend- ant company and all persons rep- resenting it were enjoined from vot- ing the shares of stock which it held. Ante, § 159. See, also. Mil- bank V. New York, &c. R. Co. 64 How. Pr. (N. Y.) 20; George v. Cen- tral R. &c. Co. 101 Ala. 607, 14 So. 752. '" People V. Albany, &c. R. Co. 55 Barb. (N. Y.) 344. But an injunc- tion forbidding the holding of an election at all is void. "^ Memphis, &c. R. Co. v. Woods, 88 Ala. 630, 7 So. 108, 7 L. R. A. 605, 16 Am. St. 81. i»'Reed v. Jones, 6 Wis. 680; Webb V. Ridgely, 38 Md. 364. ^»" Brown v. Pacific Mail, &c. Co. 5 Blatchf. (U. S.) 525, where the de- fendants were enjoined from par- ticipating in any election unless plaintiff's votes were received at the election. ^" Camden, &c. R. Co. v. Elkins, 37 N. J. Bq. 273. One stockholder can do nothing to control or direct the vote of another stockholder. Ryder V. Alton, &c. R. Co. 13 111. 516. ""Pender v. Lushington, L. R. 6 Ch. D. 70. Parties who are inter- ested in opposition to a corporation have the right to purchase its stock in order to defeat a contract which it is about to make. Carson v. Iowa City Gaslight Co. 80 Iowa 638, 45 N. W. 1068. *'" Havemeyer v. Havemeyer, 86 N. Y. 618, aff'g 43 N. Y. Super. Ct. 506; Faulds V. Yates, 57 111. 416, 11 Am. R. 24. '" People V. Albany, &c. R. Co. 55 Barb. (N. Y.) 344. ^•=Hilles V. Parrish, 14 N. J. Eq. 380. See, also, Lucas v. Milliken, 139 Fed. 816. § 175] STOCKHOIDEES. 368 own, or in the case of a railroad owning stock in a rival corporation, there may be reason for issuing an injunction restraining them.^°* And, in a proper case, the court may order that an election shall be teniporarily postponed,^*^ though an order that it should never be held would be erroneous.^** An injunction directed against the vot- ing of particular stock may cause what would otherwise be the minor- ity to become the majority, and so change the result, but it will not prevent the holding of the election.^"* A stockholder may also en- join the directors from interfering with and postponing an annual election and thereby extending their term.^'" Further than the right to vote in the management of corporate affairs, the stockholder has not, during the continuance of the corporation, any direct legal inter- est in its property.^^^ § 175. liability of stockholders for unpaid subscription. — A stock- holder is, of course, liable to the corporation for any unpaid balance due on the shares for which he has subscribed, and this liability may be enforced in a proper case by suit in the name of the corporation, or in equity at the suit of any corporate creditor who is injured by its non-payment, upon the insolvency and winding up of the corpora- tion.^^" And one who subscribes or takes part as a stockholder after ™ Memphis, &c. R. Co. v. Woods, v. McKessock, 140 U. S. 304, 11 Sup. 88 Ala. 630, 7 So. 108, 7 L. R. A. Ct. 779. 605, 16 Am. St. 81. ""' The courts of America general- '" People V. Albany, &c. R. Co. 55 ly hold that the capital stock of a Barb. (N. Y.) 344; Scholfleld v. corporation, upon insolvency, and Union Bank, 2 Cr. C. C. (U. S.) especially the unpaid subscriptions, 115. constitute a trust fund for the bene- ™ People v. Albany, &c. R. Co. 55 fit of the creditors of the corpora- Barb. (N. Y.) 344. tion. Note to Thompson v. Reno ™ Brown v. Pacific Mail, &c. Co. 5 Sav. Bank, 19 Nev. 103, 7 Pac. 68. Blatchf. (U. S.) 525. 3 Am. St. 797, 808, et seq.; Cook "» Elkins v. Camden, &c. R. Co. 36 Stock and Stockholders, § 199. N. J. Bq. 467. Ante, §§ 90, 110. Where a consoli- ™ Jones V. Terre Haute, &c. R. Co. dation between two corporations is 57 N. Y. 196; Granger v. Bassett, 98 effected under a law providing that Mass. 462; Goodwin v. Hardy, 57 all the property, rights of action Me. 143, 99 Am. Dec. 758 n; Bur- and other interests of the consoli- roughs V. North Carolina R. Co. 67 dating companies shall rest in and N. C. 376, 12 Am. R. 611; Curry v. become the property of the consoli- Woodward, 44 Ala. 305; Phelps v. dated corporation, and provides Farmers', &c. Bank, 26 Conn. 269; that stock of the new corporation Lockhart v. Van Alstyne, 31 Mich, shall be issued in exchange for the 76, 78, 18 Am. R. 156; Humphreys stock of the corporations merged, a 269 LIABILITY OP STOCKHOLDERS FOE UNPAID SUBSCKIPTION. [§ 175 the corporation is formed is estopped to deny that it is legally in- corporated, although some of the statutory formalities may not hav& been complied with.^''^ But one 'who merely subscribes to a preliminary agreement to take stock after the corporation is formed is usually en- titled to insist upon the regular organization of a legal corporation, and if he does not by subsequent acts acquiesce in the mode of in- corporation, recognize it as a legal corporation or in any way act as a stockholder, he is not estopped to deny his liability as such, where the incorporation is defective and invalid.^''* Ordinarily, subscrip- tions are required to be paid in money; but where the state law al- lows subscriptions to be paid in property, the transfer of property in payment of shares made in good faith at ah honest valuation entitles the owner to hold his shares as fully paid up even against creditors of the corporation in the event of its insolvency.^^' So, it is held that a bona fide purchaser of stock in open market, where the certificate, on its face, purports to be fully paid up and non-assessable, is not liable for assessments, although, in fact, it was not fully paid.^'* subscription to the stock of one of the old corporations becomes assets for the payment of the debts of the new corporation. Hamilton v. Clar- ion, &c. R. Co. 144 Pa. St. 34, 23 Atl. 53, 13 L. R. A. 779 n. "' Thompson v. Reno Sav. Bank, 19 Nev. 103, 7 Pac. 68, 3 Am. St. 797, and note; Cravens v. Eagle Cotton Mills, 120 Ind. 6, 21 N. E. 981, 16 Am. St. 298; Dutchess, &c. Co. v. Davis, 14 Johns. (N. Y.) 238, 7 Am. Dec. 459; Hickling v. Wilson, 104 111. 54; Casey v. Galli, 94 U, S. 673; €larke v. Thomas, 34 Ohio St. 46; Hamilton v. Clarion, &c. Co. 144 Pa. St. 34, 23 Atl. 53, 13 L. R. A. 779 n; Upton v. Hansbrough, 3 Biss. (U. S.) 417; Anderson v. Newcastle, &c. R. Co. 12 Ind. 376, 74 Am. Dec. 218; Slocum y. Warren, 10 R. I. 112 and 116; Chubb v. Upton, 95 U. S. 665; 1 Cook Stock and Stockholders, §§ 184, 185; Taylor Priv. Corp. § 738. "*Dorris T. Sweeney, 60 N. Y. 463; Reed v. Richmond St. R. Co. 50 Ind. 342; Indianapolis, &c. Co. v. Herkimer, 46 Ind. 142; Capps & Mc- Capps v. Hastings, &c. Co. 40 Neb. 470, 58 N. W. 956, 24 L. R. A. 259, 42 Am. St. 677; Fairview, &c. Co. v. Spillman, 23 Ore. 587, 32 Pac. 688; Richmond Factory Ass'n v. Clarke, 61 Me. 351; Taggart v. Western Md. R. Co. 24 Md. 563, 89 Am. Dec. 760 n; note to Parker v. Thomas, 81 Am. Dec. 392 ; 1 Morawetz , Priv. Corp. § 49. ""Grant v. Bast. & West. R. Co. &c. 54 Fed. 569. Ante, § 91. Where the property was transferred to the corporation at an overvaluation and accepted by a board of directors chosen by the votes of the subscrib- ers, it was held that the pretended payment for the stock subscribed was fraudulent, and that the sub- scriber could be compelled to pay the difference between the actual value of the property and the par value of the stock. Lloyd v. Pres- ton, 146 U. S. 630, 13 Sup. Ct. 131. See, also, Boulton Carbon Co. v. Mills, 78 Iowa 460, 5 L. R. A. 649. ""Rood V. Whorton, 67 Fed. 434, and authorities there cited; Hand- § 176], STOCKHOLDEES. 370 An unpaid subscription may be collected in payment of damages for a tort the same as for a contract debt.^''' § 176. Kelease of stockholder — ^Withdrawal. — ^This liability is ooe from which the stockholder cannot ordinarily claim release after the corporation has become insolvent, in eases ■where such release was not legally ascertained and established before such insolvency.^'* And he can only be released from liability not induced by fraud on the part of the corporation by the unanimous consent, express or implied,^'" of all the other stockholders.^*" Even a majority of the stockholders can- not withdraw and refuse to proeeed.^*^ A cancellation of the sub- ley r. Stutz, 139 U. S. 417, 11 Sup. Ct. 530;. Young v. Erie Iron Co. 65 Mich. Ill, 31 N. W. 814. See, also, Hospes V. Northwestern, &c. Co. 48 Minn. 174, 50 N. W. 1117, 15 L. R. A. 470, 31 Am. St. 637; First Nat. Bank v. Gustin, &c. Co. 42 Minn. 327, 44 N. W. 198, 6 L. R. A. 676, 18 Am. St. 510; Hess v. Trumbo, 27 Ky. L. 320, 84 S. W. 1153; Eaton Nat. Bank v. American, &c. Co. (N. J. Eq.) 60 Atl. 54. But compare Howe V. Illinois, &c. Works, 46 111. App. 85. "'Powell V. Oregonian Railway, 36 Fed. 726, 38 Fed. 187; Grindle v. Stone, 78 Me. 176, 3 Atl. 183. "' He cannot then rescind his con- tract of subscription for fraud of the company's agents in obtaining it. Kent v. Freehold, &c. Co. L. R. 3 Ch. App. 493 ; Turner v. Grangers', &c. Ins. Co. 65 Ga. 649, 38 Am. R. 801; Ruggles v. Brock, 6 Hun (N. Y.) 164; Saffold v. Barnes, 39 Miss. 399; Duffield v. Barnum, &c. Works, 64 Mich. 293, 31 N. W. 310; Chubb V. Upton, 95 TJ. S. 665; Farrar v. Walker, 13 Nat. Bankr. Reg. 82. And the company cannot agree to a rescission to the detriment of the creditors' interests. Vick v. La Ro- chelle, 57 Miss. 602; Gill v. Balis, 72 Mo. 424; Zirkel v. Joliet, &c. Co. 79 111. 334; Burke v. Smith, 16 Wall. (U. S.) 390. See, also, Anglo-Amer- ican, &c. Co. V. Lombard, 132 Fed. 721; Knickerbocker, &c. Co. v. My- ers, 133 Fed. 764. "" Knowledge and acquiescence for years will bind a stockholder who did not know of the release be- fore it was effected. Evans v. Smallcombe, L. R. 3 H. L. 249; Stuart V. Valley R. Co. 32 Gratt. (Va.) 146. Retaining and using benefits arising from a cancellation of the subscription will prevent the corporation and the stockholders from objecting to the release. Miller V. Second, &c. Ass'n, 50 Pa. St. 32. ^"Lake Ontario, &c. R. Co. v. Ma- son, 16 N. Y. 451, 463; Gulf Coast, &c. R. Co. V. Neely, 64 Tex. 344; Selma, &c. R. Co. v. Tipton, 5 Ala. 787, 39 Am. Dec. 344; Garrett v, Dillsburg, &c. R. Co. 78 Pa. St. 465; Miller v. Hanover, &c. R. Co. 87 Pa. St. 95, 30 Am. R. 349; Johnson V. Wabash, &c. R. Co. 16 Ind. 389; Pacific Fruit Co. v. Coon, 107 Cal. 447, 40 Pac. 542. "'Busey v. Hooper, 35 Md. 15, 6 Am. R. 350. A tender of payment for stock and refusal on the part of the corporate officers to accept the same is no defense in an action by corporate creditors for the un- paid balance due on such stock,. 371 RELEASE OF STOCKHOLDER WITIIDEAWAL. [§■ 176-. seription, even where made with the unanimous consent of the other stockholders, may be impeached and set aside, in a proper case, by any corporate creditor injured thereby.^*^ Any attempt on the part of the corporation to release a subscriber from liability will be sub- jected to rigid scrutiny by a court of equity, at the instance of cor- porate creditors,^ *^ and will only be upheld where the release is fairly and honestly made for a valuable consideration.^** Neither the board of directors of the corporation,^*^ nor any officer,^** has power to agree' with a subscriber that his subscription shall be canceled, unless such power is given by charter or statute, or by the by-laws of the com- pany; and entries caused by them to be made in the books of the company showing a release will, be disregarded.^*'^ The money re- after the corporation has become in- solvent, where the subscriber con- tinued an active member of the cor- poration after such tender and re- fusal. Potts V. Wallace, 146 TJ. S. 689, 13 Sup. Ct. 196. i^'Vick V. La Rochelle, 57 Miss. 602; Farnsworth v. Robbins, 36 Minn. 369, 31 N. W. 349; Appeal of Miller, 1 Penny. (Pa.) 120; 2 Thomp. Corp. §§ 15, 17. But in England it is held the creditor can obtain nothing but what the com- pany is entitled to get from the shareholders. Dronfield, &c. Co., In re, L. R. 17 Ch. Div. 76. ""Sawyer v. Hoag, 17 Wall. (U. S.) 610; Morgan v. Allen, 103 U. S. 498; Putnam v. New Albany, 4 Biss. (U. S.) 365; Upton v. Hansbrough, 3 Biss. (U. S.) 417, 425; South Mountain, &c. Mining Co., In re, 7 Sawyer (U. S.) 30; Union Ins. Co. v. Frear, &c. Co. 97 111. 537, 37 Am. R. 129; Thompson v. Meisser, 108 111. 359; Chisholm v. Forny, 65 Iowa 333, 21 N. W. 664; Goodwin v. Mc- Gehee, 15 Ala. 232; Gill v. Balis, 72 Mo. 424. M*This is the rule in the federal courts. New Albany v. Burke, 11 Wall. (U. S.) 96; Burke v. Smith, 16 Wall. (U. S.) 390; Potts v. Wal- lace, 146 U. S. 689, 13 Sup. £!t. 196. And is followed in the Illinois- courts. Zirkel v. Joliet, &c. Co. 79 111. 334. "'"Bedford R. Co. v. Bowser, 48 Pa. St. 29; Ryder v. Alton, &c. Co. 13 111. 516; Jewett v. Valley R. Co. 34 Ohio St. 601; White Mts. R. Co. V. Eastman, 34 N. H. 124; Tucker- man V. Brown, 33 N. Y. 297, 88 Am. Dec. 386; Rider v. Morrison, 54 Md. 429; Lafayette, &c. Corp. v. Ryland, 80 Wis. 29, 49 N. W. 157; London, &c. Co., In re, L. R. 5 Ch. Div. 525; Thomas' Case, L. R. 13 Bq. 437. "= Cartmell's Case, L. R. 9 Ch. 691. "'The general manager of a cor- poration, who is also its largest stockholder, secretary and treasurer, can not release a stockholder from his contract by charging oft balance due on the books for unpaid calls and crediting sums already paid, where no attempt is made to trans- fer the shares, although the man- ager secures new subscriptions as substitutes therefor, and both par- ties at the time believe that he has authority to release old contracts and substitute new ones; and the- fact that an over-issue of stock will result on account of the new sub- scriptions unless there is a cancel- § 177] STOCKHOLDEES. 273 funded for calls paid before such an attempted release may be recov- ered at the suit of any stockholder, by a bill in equity, and the sub- scriber's liability upon his canceled subscription may be established.^** If loss accrues to the corporation by reason of the improper cancella- tion of a subscription by the directors, they may be held personally liable for such loss.^*° § 177. Compromises witli stockholder. — ^But the corporate author- ities may compromise a subscription debt, as they may other debts, if there be a reasonable doubt as to the liability of the subscriber,^*" or if he be insolvent,^*^ where it is done in good faith. If there be no real controversy, the compromise will not be binding.^'^ It has been held, however, that where a subscriber fails to pay his subscrip- tion or to act as a stockholder, the corporation may treat his sub- scription as abandoned and permit others to fill it.^^* It has also been held that one subscription may be substituted for another upon request of the parties where a. regular transfer of shares is not yet possible.^** lation of earlier subscriptions, will not justify such invalid cancella- tion. Cartwriglit v. Dickinson, 88 Tenn. 476, 12 S. W. 1030, 7 L. R. A. 706, 17 Am. St. 910. '«* Melvin v. Lamar Ins. Co. 80 111. 446, 22 Am. R. 199; Soutli Bfend Toy, &c. Co. V. Pierre, &c. Ins. Co. 4 S. Dak. 173, 56 N. W. 98. A secret agreement by which the ofiBcers of the corporation agree that the sub- scriber shall not be compelled to pay for his subscription, but shall be permitted to withdraw when he chooses, is invalid and does not af- fect the subscription nor the sub- scriber's liability. Great Western Tel. Co. V. Haight, 49 111. App. 633. ™ Bank of St. Mary's v. St. John, 25 Ala. 566; Hodgkinson v. National &c. Co. 26 Beav. 473. It seems that the subscriber may set up this fact as a defense. Southern Hotel Co, v. Newman, 30 Mo. 118. '«' Bath's Case L. R. 8 Ch. Div. 334; Lord Belhaven's Case, 3 DeG., J. & S. 41. See Whitaker v. Grum- mond, 68 Mich. 249, 36 N. W. 62; New Albany v. Burke, 11 Wall. (U. S.) 96. ^" Philadelphia, &c. R. Co. v. Hick- man, 28 Pa. St. 318. A receiver can- not be empowered by a court of equity to compromise a subscrip- tion, unless all the subscribers are parties to the suit in connection with which he is appointed. Chan- dler V. Brown, 77 111. 333. "^Phosphate, &c. Co. v. Green, L. R. 7 C. P. 43; Spackman v. Evans, L. R. 3 H. L. 171, 188, 231; Living- stone V. Temperance, &c. Society, 17 Out. App. 379, 31 Am. & Eng. Corp. Cas. 541. ^"'Perkins v. Union, &c. Co. 12 Allen (Mass.) 273. See, also, 2 Thomp. Corp. §§ 1530, 1535. i»*To make a valid substitution, the signature of the first subscriber must be erased and that of his sub- stitute inserted. Ryder v. Alton, &c. R. Co. 13 111. 516. See, also, 1 Cook Stock and Stockholders, § 62, and compare Cartwright v. Dickinson, 88 273 LIABILITY WHEKE STOCK IS TEANSFERKED. [§ 178 §178. Liability where stock is transferred. — An original sub- scriber cannot, however, by a transfer of his stock, discharge himself from liability for unpaid instalments without the consent of the cor- poration; and where he does transfer on the books of the company as required by its by-laws, a receiver of the company, or assignee in bankruptcy, on its becoming insolvent, may recover from him the unpaid instalments already due.^*' But, as a general rule, in most jurisdictions, upon a valid transfer, duly registered, the transferee succeeds to all the rights and liabilities of the transferor, and becomes .liable in his place for future calls and indebtedness.^'* If the transfer is not registered, the transferor will usually continue liable, both to the corporation and to its creditors.^ °^ § 179. When creditors may enforce unpaid subscriptions — Judg- ment and execution against corporation. — Subscriptions to the capi- tal stock of railroad corporations are most commonly disputed when an attempt is made to call them in to liquidate claims after corporate insolvency has occurred.^*' Under such circumstances, it is the prac- tice of the courts to rigidly enforce the payment of the unpaid sub- Tenn. 476, 12 S. W. 1030, 17 Am. St. 910; Hawkins v. Mansfield, &c. Co. 52 Cal. 513; Coleman v. Spencer, 5 Blackf. (Ind.) 197. "'Hood V. McNaughton, 54 N. J. Law 425; Upton v. Tribilcock, 91 U. S. 45 ; American Alkali Co. v. Camp- bell, 113 Fed. 398. Some cases hold that a stockholder cannot by trans- ferring his stock relieve himself from liability for debts already ac- crued. Voight V. Dregge, 97 Mich. 322, 56 N. W. 557; Glenn v. Hunt, 120 Mo. 330, 25 S. W. 181; Nenney V. Waddill, 6 Tex. Civ. App. 244, 25 S. "W. 308; Commercial Nat. Bk. v. Gibson, 37 Neb. 750. Others hold that he is relieved of such liability unless the transfer was fraudulent- ly made to an insolvent purchaser for the purpose of escaping liability. Van Demark v. Barons, 52 Kans. 779, 35 Pac. 798; Close v. Brady, 4 Misc. (N. Y.) 474, 24 N. Y. S. 567. Eli. Railboads — 18 "'Webster v. Upton, 91 U. S. 65, 70; Hartford, &c. R. Co. v. Boorman, 12 Conn. 530; Tucker v. Gilman, 121 N. Y. 189; Angell & Ames on Corp. (11th ed.) S 534; Taylor Priv. Corp. §§ 586, 587, 747; 1 Beach Priv. Corp. § 126. See, generally, notes in 6 Am. St. 838, and 3 Am. St. 806, and 93 Am. St. 388. "' Richmond v. Irons, 121 U. S. 27, 7 Sup. Ct. 788; Dane v. Young, 61 Me. 160; Shellington v. Howland, 53 N. Y. 371; Plumb v. Bank, 48 Kan. 484; Kellogg v. Stockwell, 75 111. 68; Bell's Appeal, 115 Pa. St. 88, 8 Atl. 177, 2 Am. St. 532. See, also, Knick- erbocker, &c. Co. V. Meyers, 133 Fed. 764; Russell v. Easterbrook, 71 Conn. 50, 40 Atl. 905; and see Amer- ican Alkali Co. v. Kurtz, 134 Fed. 663, 665, as to liability where stock is in the name of a dummy. "* 1 Cook Stock and Stockholders, § 166. § 179]^ STOCKHOLDERS. 374 seriptions for the accumulation of a fund with which to pay corporate debts. But these unpaid subscription balances are not the primary fund for the payment of corporate liabilities.^"* The corporate prop- erty must first be exhausted, or it must be made to appear that such property is so inadequate for the payment of corporate debts as to establish insolvency/"" before a creditor is permitted to resort to them. The general rule in most jurisdictions is that a creditor's suit to enforce payment of unpaid subscriptions can be maintained only after a judgment at law has been obtained against the corporation and an execution issued thereon has been returned unsatisfied.^"^ This rem-. ^" 1 Cook Stock and Stockholders, § 200. A stockholder cannot set off his claim as a creditor against his liability as a stockholder, but must share with the other creditors, as he is not ordinarily liable in excess of his obligation to pay in full for his stock. Boulton Carbon Co. v. Mills, 78 Iowa 460, 43 N. W. 290, 6. R. & Corp. L. J. 417; Tama Water Power Co. V. Hopkins, 79 Iowa 653, 44 N. W. 797. The liability of a stockhold- er should not be enforced on a judg- ment against a corporation, where there are other judgment debtors whose property subject to execution could satisfy the judgment. Burch V. Taylor, 1 Wash. 245, 24 Pac. 438. An attachment against a corpora- tion cannot be levied on the individ- ual property of natural persons com- posing it. State V. Marshall, 69 Miss. 486, 13 So. 668. ™ Terry v. Tubman, 92 U. S. 156; Hedges v. Silver Hill, &c. Co., 9 Ore. 200; Stiles v. Samainego, 3 Ariz. 48, 20 Pac. 607; First Nat. Bank v. Greene, 64 Iowa 445, 17 N. W. 86, 20 N. W. 754; Cleveland v. Marine Bank, 17 Wis. 545. Corporate bank- ruptcy has been held sufficient evi- dence of the inability of the corpora- tion to pay a corporate debt to jus- tify an action by creditors to enforce subscriptions. State Savings Assn. V. Kellogg, 52 Mo. 583; Shellington V. Howland, 53 N. Y. 371; Terry v. Anderson, 95 U. S. 628, 636. =»' Terry v. Anderson, 95 IT. S. 628, 636; Swan Land, &c. Co. v. Frank, 148 U. S. 603, 13 Sup. Ct. 691; Wal- ser V. Seligman, 21 Blatch. (U. S.) 130; Bank, &c. v. Dallam, 4 Dana (Ky.) 574; Wetherbee v. Baker, 35 N. J. Eq. 501; Cutright v. Stanford, 81 111. 240; Freeland v. McCullough, 1 Denio (N. Y.) 414, 43 Am. Dec. 685 n; Cleveland V. Burnham, 55 Wis. 598, 13 N. W. 677; Baxter v. Moses, 77 Me. 465, 1 Atl. 350, 52 Am. R. 783; note to Thompson v. Reno Sav. Bank, 3 Am. St. 797, 814; and nu- merous authorities cited in 26 Am. & Eng. Bncy. of Law (2d ed.) 1045. But see Williams v. Chamberlain (Ky.), 94 S. W. 29. This should be a personal judgment pronounced by the courts of state in which the cor- poration exists. Patterson v. Lynde, 112 111. 196; .Bayliss v. Swift, 40 Iowa 648; Rocky Mt. &c. Bank v. Bliss, 89 N. Y. 338; Murray v. Van- derbilt, 39 Barb. (N. Y.) 140, 147; Barclay v. Talman, 4 Edw. Chan. (N. Y.) 123; Bank, &c. v. Adams, 1 Pars. Bq. (Pa.) 534. Some states by statute require the remedy against the corporation to be exhausted be- fore resort is had to the property of the stockholders. Stimson Am. Stat. Law (1892) § 8143, citing statutes of Maine, Pennsylvania, Iowa, Min- 375 EFFECT OF JDDGMEH'T AGAINST COKPOEATION. [§■ 180 edy, however, need not be pursued where the corporation has formally dissolved/°2 and has no funds with which to pay the corporate debts.^"^ And the unpaid subscription in such a ease may be reached by the general -creditors, although the corporate property, rights, privileges and franchises are covered by mortgage to secure another creditor.^"* § 180. Effect as against stockholder of judgment against the cor- poration. — Such a judgment, where the court has jurisdiction, is generally held conclusive against the stockholders as to the validity and amount of the creditor's claim, unless impeached for fraud or collusion.^"° And it was held in a recent case, where the plaintiff nesota, Kansas, Maryland, Missouri, Texas, Florida. Only a judgment and an unsatisfied execution exhausts the legal remedy. Rocky Mountain Nat. Bk. V. Bliss, 89 N. Y. 338; Brice V. Munro, 5 Can. L. T. (Ont.) 130. See, also, Priest v. Essex, &c. Co. 115 Mass. 380; Shellington v. Howland, 53 N. Y. 371; Dauchy v. Brown, 24 Vt. 197; Wehrman v. Reakirt, 1 Cin. Super. Ct. 230; Thornton v. Lane, 11 Ga. 459; New England, &c. Bank v. Newport Steam Factory, 6 R. I. 154, 75 Am. Dec. 688. Contra, in Marion, &c. Co. V. Norris, 37 Ind. 424; Shafer V. Moriarity, 46 Ind. 9; Sleeper v. Goodwin, 67 Wis. 577; Bird v. Cal- vert, 22 S. Car. 292. ""Kincaid v. Dwinelle, 59 N. Y. 548. See Remington v. Samana Bay Co., 140 Mass. 494, to the effect that a judgment against a corporation, recovered after the corporation has been dissolved, is void; and see au- thorities cited in 26 Am. & Eng. Ency. of Law (2d ed.) 1046. '»' Creditors will not be required to await the collection of doubtful claims or claims in litigation. The stockholders must pay promptly, and take upon themselves the onus of de- lay and risk as to all such cases. Moses V. Ocoee Bank, 1 Lea (Tenn.) 398, 413; Stark v. Burke, 9 La. Ann. 341, 343. But see Younglove v. Kel- ly, &c. Co. 4& Ohio. St. 663. 33 N. E. 234. ««Dean v. Biggs, 25 Hun (N. Y.) 122. =»» Powell V. Oregonian R. Co., 36 Fed. 726; American Nat. Bank v. Supple, 115 Fed. 657, 52 C. C. A. 293; Wilson V. Pittsburgh, &c. Coal Co., 43 Pa. St. 424; Henry v. Vermillion, &c. R. Co., 17 Ohio 187; Milliken v. Whitehouse, 49 Me. 527; Hampson v. Weare, 4 Iowa 13, 66 Am. Dec. 116 n; Grund v. Tucker, 5 Kans. 70; Hinck- ley V. Kettle River R. Co. 80 Minn. 32, 82 N. W. 1088; Hawes v. Anglo- Saxon Petroleum Co. 101 Mass. 385; Marsh v. Burroughs, 1 Woods (TJ. S.) 463; Bissit V. Kentucky River Nav. Co. 15 Fed. 353, 'and note 360. See, also, Hawkins v. Glenn, 131 U. S. 319, 9 Sup. Ct. 739 ; Glenn v. Lig- gett, 135 U. S. 533, 10 Sup. Ct. 867; Scofleld V. Excelsior, &c. Co. 27 Ohio Clr. Ct. 347; Childs v. Blethen, 40 Wash. 340, 82 Pac. 405; Conklin v. Furman, 8 Abb. Pr. N. S. (N. Y.) 161; Slee v. Bloom, 20 Johns. (N. Y.) 669; Stephens v. Fox, 83 N. Y. 313. The last of the cases hold that it is sufficient evidence of these facts where not disproved. This doctrine has been denied in New York. Slee V. Bloom, 5 Johns. Ch. (N. Y.) 366, reversed in Slee v. Bloom, 20 Johns. 669. Moss V. McCullough, 5 HiU (N. § 181] STOCKHOLDEES. 276 had recovered a judgment against the corporation in an action for damages for waste, that a judgment against a corporation for the recovery of money is conclusive evidence, in a suit against a stock- holder for the collection of said judgment, of the existence of the corporation and its liability to plaintiff therein as thereby determined ; and such judgment, whether given in an action ex contractu or ex . delicto, is an indebtedness of the corporation, for which a stockholder is liable to the amount due on his stock.'"'" But in some jurisdictions the stockholder is permitted to disprove the claim when a judgment is sought to be enforced against him,^"^ and the judgment amounts only to prima facie evidence,^"^ of the creditor's right to money due the corporation for subscriptions. It has also been held that a judg- ment against a corporation is merely a step to fix the liability of stock- _ holders, and does not merge it or stand in the way of any discovery or relief which would otherwise be proper to enforce that liability.^"' § 181. Stockholder's defense. — ^The stockholders may be admitted to defend a suit brought against the corporation for the purpose of Y.) 131, reversed 7 Barb. (N. Y.) 279; Strong v. Wheaton, 38 Barb. (N. Y.) 616; Miller v. White, 50 N. Y. 137; McMahon v. Macy, 51 N. Y. 155. But this point did not properly arise in the last two cases, and Strong V. Wheaton professes to be based on the authority of Moss v. McCuUough, 5 Hill (N. Y.) 131. ""Powell 'v. Oregonian R. Co., 6 R. & Corp. L. J. 28, 38 Fed. 187. A judg- ment on a claim for damages for waste becomes an indebtedness of the corporation, whether the claim for damages was an "indebtedness" under the Oregon constitution or not; and the stockholder is liable for such debt to the extent of the amount unpaid on his stock. Powell v. Oregonian R. Co., 36 Fed. 726, 3 L. R. A. 201. =»' Quick v. Lemon, 105 111. 578; Hawes V. Anglo-Saxon, &c. Co. 101 Mass. 385; Merchants' Bank v. Chandler, 19 Wis. 434; Grund v. Tucker, 5 Kans. 70; Grand Rapids Sav. Bank v. Warren, 52 Mich. 557; Neilson v. Crawford, 52 Cal. 248. See, also. Rood v. Whorton, 67 Fed. 434. And see, where judgment is on an ultra vires contract. Ward v. Jos- lin, 186 U. S. 142, 22 Sup. Ct. 807. ™ It has been held that the stock- holder may set up any defense that was open to the corporation and put the creditor to strict proof of his claim a second time. Moss v. Mc- CuUough, 5 Hill (N. Y.) 131, and cases following; Chase v. Curtis, 113 U. S. 452, 5 Sup. Ct. 554; Chestnut v. Pennell, 92 111. 55. Cases of this kind may be found depending upon the peculiar language of statutes holding the corporation liable for debts in the first instance, if not promptly paid. Trippe v. Hancheon, 82 Ind. 307; Southmayd v. Russ, 3 Conn. 52; Bailey v. Bancker, 3 Hill (N. Y.) 188, 38 Am. Dec. 625. '°° Newberry v. Robinson, 41- Fed. 458, 7 R. & Corp. L. J. 396. 277 METHODS OP ENFOKCING STOOKHOLDEE'S LIABILITY. [§ 183 charging them on their individual liability, and the eourt will, in a proper case, relieve the corporation from a default and permit them to carry on the litigation.^^" Of course, the judgment does not even tend to prove that the person sued as a subscriber or stockholder is liable as such, and he may offer, vrith some exceptions, the same de- fenses that he could offer to suit by the corporation itself.^^^ But it is generally held that any fraud on the part of the corporation^^^ or its ofiBcers^^^ is not available as a defense to the claims of a corporate creditor who gave credit on the faith of the subscription and who was not a party to such fraud and had no knowledge of it. And secret agreements by which the corporation contracted that the defendant should not be liable for the unpaid balance of his subscription cannot be pleaded as such defense.''^* The statute of limitations may, how- ever, be a good defense in a proper case.^^" § 182. Methods of enforcing stockholder's liability. — The sub- scriber is liable to garnishment, in common with any other corporate "° Peck V. New York, &c. S. S. Co. 3 Bosw. (N. Y.) 622. ^ 1 Cook Stock and Stockholders, § 210. In a suit by the assignee of a judgment against a corporation brought against the stockholders, the assignee must show that he paid a valuable consideration for the judgment assigned. Wilson v. St. Louis, &c. R. Co. 120 Mo. 45, 25 S. W. 527, 759. == Howard v. Glenn, 85 Ga. 238, 11 S. E. 610, 21 Am. St. 156; Turner V. Grangers', &c. Ins. Co. 65 Ga. 649, 38 Am. R. 801; Tennent v. Glasgow Bank, L. R. 4 App. Cas. 615; Stone v. City, &c. Bank, L. R. 3 C. P. Div. 282; Oakes v. Turquand, L. R. 2 H. L. 325; Ruggles v. Brock, 6 Hun (N. Y.) 164; SafCold v. Barnes, 39 Miss. 399; Chubb v. Upton, 95 U. S. 665, 667. See, also, note in 93 Am. St. 393. But see Sav- age V. Bartlett, 78 Md. 561, 28 Atl. 414. ^» Republic Ins. Co., In re, 3 Biss. (U. S.) 452. "* Such an agreement is held to be fraud at law upon the corporate creditors. Scoyill v. Thayer, 105 U. S. 143; Sagory v. Dubois, 3 Sandf. Ch. R. (N. Y.) 466, 499; Upton v. Tribilcock, 91 U. S. 45; Chubb v. Up- ton, 95 U. S. 665; Flinn v. Bagley, 7 Fed. 785; Hickling v. Wilson, 104 111. 54; Northrop v. Bushnell, 38 Conn. 498; Eyerman v. Krieckhaus, 7 Mo. App. 455. See, also, Wilson v. Hundley, 96 Va. 96, 30 S. B. 492, 70 Am. St. 837. An agreement operat- ing among and against stockholders only for an apportionment of their several stock liabilities is good and is contrary neither to law or public policy. Winston v. Dorsett Pipe & P. Co. 27 111. App. 546. ^ As to the statute of limitations as a defense and when it begins to run, see note in 93 Am. St. 390 et seq.; and Boyd v. Mutual L. Ass'n, 116 Wis. 155, 90 N. W. 1089, 94 N. W. 171, 61 L. R. A. 918, 96 Am. St. 948 and extended note. 183] STOCKHOLDERS. 378 debtor, for unpaid calls that have been made by the company.^^* And it has been held that he may be sued at law by a corporate creditor for unpaid calls, and that he is liable to a judgment for the full amount due on such calls.^^^ But the remedy most commonly resorted to and the one most favored by the courts, is by bill in equity.^^^ And it has been said that no one creditor can assume that he alone is enti- tled to what any stockholder owes, and sue at law so as to appropriate it exclusively to himself .^^^ Such a bill should be filed by so many credit- ^° Simpson t. Reynolds, 71 Mo. 594; Curry v. Woodward, 53 Ala. 371; Hays v. Lycoming, &c. Co. 99 Pa. St. 621; Rand v. White Mts. R. Co. 40 N. H. 79; Brown v. Union Ins. Co. 3 La. Ann. 177; Faull v. Alaska, &c. Min. Co. 8 Sawyer (U. S.) 420; note to Thompson v. Reno Sav. Bank, 3 Am. St. 797, 806. But un- paid subscriptions for which no calls have been issued cannot be reached in this way. Bingham v. Rushing, 5 Ala. 403; Bunn's Appeal, 105 Pa. St. 49, 51 Am. R. 116; Brown v. Union Ins. Co. 3 La. Ann. 177; McKelvey V. Crockett, 18 Nev. 238; Meints v. East St. Louis. &c. Co. 89 111. 48; Hughes V. Oregonian R. Co. 11 Oreg. 158. ^' Allen V. Montgomery R. Co. 11 Ala. 437; Freeman v. Winchester, 18 Miss. 577; Bank, &c. v. Dallam, 4 Dana (Ky.) 574; McCarthy v. Lavas- che, 89 111. 270, 31 Am. R. 83 n; Faull V. Alaska, &c. Min. Co. 8 Saw- yer (U. S.) 420. '^ Christensen v. Eno, 106 N. Y. 97, 100, 12 N. B. 648; Shickle v. Watts, 94 Mo. 410, 7 S. W. 274; Ward v. Griswoldville, &c. Co. 16 Conn. 593; Dalton, &c. R. Co. v. McDaniel, 56 Ga. 191; Germantown, &c. R. Co. V. Pitler, 60 Pa. St. 124, 100 Am. Dec. 546 n;' Allen v. Montgomery, &c. R. Co.' 11 Ala. 437; Henry v. Vermillion, &c. Turnp. Co. 17 Ohio 187; Craw- ford v. Rohrer, 59 Md. 599 ; Adler v. Milwaukee, &c. Co. 13 Wis. 57; Hick- ling V. Wilson, 104 111. 54; Harmon V. Page, 62 Cal. 448 ; Ogilvie v. Knox Ins. Co. 22 How. (U. S.) 380; Hatch V. Dana, 101 U. S. 205; Holmes v. Sherwood, 16 Fed. 725; Louisiana Paper Co. v. Waples, 3 Woods (U. S.) 34; Faull v. Alaska, &c. Min. Co: 8 Sawyer (U. S.) 420. A creditor's bill is a proper remedy for enforcing personal liability of stockholders. Stutz V. Handley, 7 Ry. & Corp. L. J. 407, 41 Fed. 531. Such a bill can- not be maintained to enforce a stale claim. Wilson v. St. Louis, &c. R. Co. 120 Mo. 45, 894, 25 S. W. 527, 759. =»' Patterson v. Lynde, 106 U. S. 519, 1 Sup. Ct. 432. It seems to be a settled rule in the United States Courts that unpaid subscriptions can be reached by a corporate cred- itor in a court of equity only. Brown V. Pisk, 23 Fed. 228. Some states provide by statute that the only remedy to enforce the payment of a debt of a corporation against the in- dividual stockholders thereof shall be by bill in chancery. Stimson Am. Stat. Law (1892), § 8143, citing the laws of New Hampshire, Pennsyl- vania and Maryland. Many of the courts hold a bill in equity to be the creditor's only means of reaching unpaid subscriptions. Jones v. Jar- man, 34 Ark. 323; Erickson v. Ne- smith, 15 Gray (Mass.) 221; Smith V. Huckabee, 53 Ala, 191; Umsted v. Buskirk, 17 Ohio St. 113 ; Hodges v. - Silver Hill Min. Co. 9 Oreg. 200. 279 ;m:ethods of enforcing stockholder's liabiiitt. [§■ 182 ors as may wish to bring suit/^" in favor of any or all creditors that may choose to come in and establish their claims/^^ and should be directed against the corporation itself/^^ and all solvent subscribers within the jurisdiction of the court whose subscriptions are not fully paid, excepting such as are unknown.^^^ Even where the general equitable remedy by credit&r's bill has been abolished by statute, the right to proceed herein by suit in equity has been held to exist. Adler v. Milwau- kee, &c. Co. 13 Wis. 57. An action at law cannot be maintained by a cred- itor of a corporation, under Wash. Code, § 2434, against a stock sub- scriber, for the unpaid portion of his subscription. Burch v. Taylor, 1 Wash. 245, 24 Pac. 438. ==^ Crease v. Babcock, 10 Mete. (Mass.) 525; Patterson v. Lynde, 106 U. S. 519, 1 Sup. Ct. 432. Several creditors cannot bring separate suits but the first properly framed bill takes precedence, and another cred- itor's suit may be enjoined. Pierce v. Milwaukee Construction Co. 38 Wis. 253. ^^ Morgan v. New York, &c. R. Co. 10 Paige (N. Y.) 290, 40 Am. Dec. 244 n; Umsted v. Buskirk, 17 Ohio St. 113; Crease v. Babcock, 10 Mete. (Mass.) 525; Wetherbee v. Baker, 35 N. J. Eq. 501; Coleman v. White, 14 Wis. 700, 80 Am. Dec. 797; Terry V. Little, 101 U. S. 216. Even if the hill was not filed for the benefit of all creditors choosing to come in and share the expense, any creditor has a right to establish his claim under it and share pro rata in the distribu- tion of the assets. Turnbull v. Pren- tiss Lumber Co. 55 Mich. 387; Walk- er V. Crain, 17 Barb. (N. Y.) 119. See, alsOj Wright v. McCormack, 17 Ohio St. 86 ; Adler v. Milwaukee, &c. Co. 13 Wis. 57. '^Walser v. Memphis, &c. R. Co. 19 Fed. 152; Mann v. Pentz, 3 N. Y. 415; Wetherbee v. Baker, 35 N. J. Bq. 501. Where the corporation is beyond the jurisdiction or is de- funct it need not be made a party. Walser v. Seligman, 21 Blatch. (U. S.) 130; Wellman v. Howland, &c. Works, 19 Fed 51. ^= Walser v. Memphis, &c. R. Co. 19 Fed. 152; Vick v. Lane, 56 Miss. 681; Erickson v. Nesmith, 46 N. H. 371; Ulmsted v. Buskirk, 17 Ohio St. 113; Pierce v. Milwaukee, &c. Co. 38 Wis. 253. All need not be originally made parties, according to the au- thority of some cases, but the stock- holders against whom the suit is di- rected may bring in those not made parties by cross-bill and thus en- force contribution. Hatch v. Dana, 101 tr.' S. 205. See, also, Ogilvie v. Knox Ins. Co. 22 How. (U. S.) 380; Glenn v. Williams, 60 Md. 93; Grif- fith V. Mangam, 73 N. Y. 611; Brun- dage V. Monumental, &c. Co. 12 Oreg. 322; Lamar Ins. Co. v. Gullck, 102 111. 41; Von Schmidt v. Huntington, 1 Cal. 55. Some cases hold that judgment cannot be rendered against part of the delinquent §,ub- scribers unless it affirmatively ap- pear that the others are insolvent or beyond the jurisdiction of the court. Wood V. Dummer, 3 Mason (U. S). 308; Bonewitz v. Van Wert Co. Bank, 41 Ohio St. 78; Marsh v. Burroughs, 1 Woods (U. S.) 463. See Erickson v. Nesmith, 46 N. H. 371; Beach Priv. Corp. § 700. But this rule may well be doubted. See Hatch V. Dana, 101 .U. S. 205. Cook Stock and Stockholders (2d ed.), § 206. § 183] STOCKHOLDERS.. 280 § 183. Contribution. — The creditors are under no obligation to see that the payments made by the subscribers are proportionally equal, but a court of chancery will compel payment of so much of the unpaid subscriptions of the stockholders that are before it as may be necessary to pay the corporate debts.^" The stockholder may, however, in gen- eral, have the other stockholders within the jurisdiction joined as de- fendants,^"^ in which case contribution may be enforced in the original suit.^"' Or, if he is compelled to pay more than his proportion of the debts of the company, he may maintain a suit against his co-stock- holders for contribution.""^ The fact that the creditor is himself a stockholder and delinquent in making payments on his stock does not prevent him from recovering against other delinquent subscribers in a suit to enforce payment of a judgment obtained by him against the '^Pentz V. Hawley, 1 Barb. Ch. (N. Y.) 122; Marsh v. Burroughs, 1 Woods (U. S.) 463; Evans v. Coven- try, 25 L. J. Chan. 489. But actual subscribers are not liable for that part of the capital stock which was never subscribed. Evans v. Coven- try, 25 L. J. Chan. 489. "^ Hatch v. Dana, 101 U. S. 205. The fact that creditors of a corpora- tion have released one stockholder from his liability is of no concern to another stockholder unless his lia- bility has been thereby Increased, and he is still liable on his sub- scription to the capital stock. How- ard V. Glenn, 85 Ga. 238, 11 S. B. 610. A creditor of a corporation may bring individual action at law against one of the stockholders to recover to the amount of his entire . pro rata liability, notwithstanding that he has compromised with other stockholders, especially where the . offer to compromise was made to all with notice that If not accepted the creditor would claim his full legal rights. Hall v. Klinck, 25 S. C. 348, 60 Am. R. 505. A compromise decree making an offer of terms of settlement to all alike who are liable on stock of an insolvent corporation does not release those who do not accept it from their liability on the stock. Hambleton v. Glenn, 72 Md. 351, 20 Atl. 115. ^™ Holmes v. Sherwood, 3 McCrary (U. S.) 405; Umsted v. Buskirk, 17 Ohio St. 113; Hodges v. Silver Hill Min. Co. 9 Oreg. 200; Masters v. Ros- sie, &c. Co. 2 Sandf. Ch. 301; N. Y. Code of Civil Procedure, §§ 1791- 1794. ''"Millaudon v. New Orleans, &c. R. Co. 3 Rob. (La.) 488; Matthews V. Albert, 24 Md. 527; Wincock v. Turpin, 96 111. 135; Stewart v. Lay, 45 Iowa 604; Hadley v. Russell, 40 N. H. 109; Stover v. Flack, 30 N. Y. 64; Umsted v. Buskirk, 17 Ohio St. 113; Farrow v. Bivings, 13 Rich. Bq. (S. Car.) 25; Gray v. Coffin, 9 Cush. (Mass.) 192; Marsh v. Burroughs, 1 Woods (U. S.) 463; Holmes v. Sherwood, 3 McCrary (U. S.) 405; Sutton's Case, 3 DeG. & Sm. 262. See, also, Putnam v. Misochi, 189 Mass. 421, 75 N. E. 956 ; Lee v. Hep- penheimer (N. J.), 61 Atl. 843; Brinham v. Wellersburg Coal Co. 47 Pa. St.' 43, where it is said that the right to contribution in Pennsyl- vania is purely statutory. 281 SUITS BY ASSIGNEES AND EECEIVEES. [§ 184 corporation. But lie must contribute ratably with the other stock- holders to' the payment of the amount due him.^^* It is held that a part of the stockholders may, in a proper case, file a bill in equity upon their own account, making the corporation a party, to enforce the payment of unpaid balances of subscriptions, for the payment of corporate indebtedness, and for contribution, even before a creditor's bill has been filed.^^® § 184. Suits by assignees and receivers. — In case the corporation has passed into the hands of a receiver or an assignee it is the duty of such jeceiver^^" or assignee^^^ to collect the unpaid subscriptions necessary for the payment of the debts of the corporation, and the creditor's right to proceed directly against the delinquent shareholders is usually suspended during the time it remains in his hands. ^^^ A receiver represents the creditors as well as the shareholders and cor- poration, and may, as such representative and as an officer of the court, disaffirm illegal and fraudulent transfers of corporate property and recover its misapplied funds and securities,^^' although he cannot. =^ Wilson V. Klesel, 9 Utah 397, 35 Pac. 488. See, also, Thompson v. Reno Sav. Bank, 19 Nev. 103, 7 Pac. 68, 3 Am. St. 797. 22= Fiery v. Emmert, 36 Md. 464. ™ Andrews v. Bacon, 38 Fed. 777; Dayton v. Borst, 31 N. Y. 435; Frank v. Morrison, 58 Md. 423; Mean's Appeal, 85 Pa. St. 75 ; Chand- ler V. Brown, 77 111. 333; State v. Union Stock Yards State Bank, 103 Iowa 549, 70 N. W. 752, 72 N. W. 1076; note to Germantown, &c. R. Co. V. Fitler, 100 Am. Dec. 551. Un- der the English Railway Companies Act of 1867, a receiver has no such power. Birmingham, &c. R. Co., In re, L. R. 18 Ch. Div. 155. 'See, also, Hancock Nat. Bank v. Ellis, 172 Mass. 39, 61 N. E. 207, 42 L. R. A. 396, 70 Am. St. 232. "'^Tobey v. Russell, 9 R. I. 58; Clarke v. Thomas, 34 Ohio St. 46; Stewart v. Lay, 45 Iowa 604; Phoe- nix, &c. Co. V. Badger, 67 N. Y. 294; Shockley v. Fisher, 75 Mo. 498; Van- derwerken v. Glenn, 85 Va. 9, 6 S. E. 806; Chamberlain v. Bromberg, 83 Ala. 576, 3 So. 434; note to Ger- mantown, &c. R. V. Fitler, 100 Am. Dec. 551, 556. An assignee in bank- ruptcy may sue by bill in equity to recover unpaid subscriptions. Saw- yer V. Hoag, 17 "Wall. (U. S.) 610, «21; Chubb v. Upton, 95 U. S. 665; Payson v. Stoever, 2 Dill (U. S.) 427. See, also. Potts v. Wallace, 1'46 U. S. 689, 13 Sup. Ct. 196. "" See Franklin v. Menown, 10 Mo. App. 570. But the creditors may compel the receiver to act for them in collecting unpaid subscriptions. Stark V. Burke, 9 La. Ann. 341; Rankine v. Elliott, 16 N. Y. 377; At- wood V. Rhode Island, &c. Bank, 1 R. I. 376. ^ Attorney-General v. Guardian, &c. Co. 77 N. Y. 272; Davis v. Gray, 16 Wall. (U. S.) 203, 218; Graham Button Co. V. Spielmann, 50 N. J. Eq. 120, 24 Atl. 571; Voorhees v. In- dianapolis, &c. Co. 140 Ind. 220, 39 185] STOCKHOLDERS-, 383 ordinarily, enforce a subscription which the corporation could not have enforced at the time of his appointment.^" § 185. Statutory liability of stockholders. — In several of the states a corporation creditor may, upon the dissolution of a railroad corpora- tion without payment of his debt, sue the stockholders individually and recover the whole debt, leaving the stockholder paying it to his action against the other stockholders for contribution.^^^ Other states provide by statute that each stockholder shall be liable for the debts of the corporation to the amount unpaid of the stock held or sub- scribed for by him until all the stock is paid in,^^^ while some of the states add a personal liability on the part of the stockholders for the wages of certain of their employes, regardless of the fact that their stock may or may not be paid in fuU.^^^ And similar provisions are frequently found in special charters.^^^ The individual liability of N. E. 738; 1 Elliott's Gen. Pr. § 393; 2 Beach Eq. § 905; High Receivers (Sd ed.), §§ 314, 315, 317. ='* Cutting V. Damerel, 88 N. Y. 410; Taylor Priv. Corp. § 542. »Stimson's Am. Stat. (1892) § 8354. This provision is very commonly found as to other corpo- rations, but not often as to rail- roads. 1 Cook Stock and Stockhold- ers, §212. Under the Kansas law governing private corporations stockholders are severally and not jointly liable to the corporation creditors, and each must be sued separately. Abbey v. W. B. Grimes Dry Goods Co. 44 Kans. 415, 24 Pac. 426, 8 R. & Corp. L. J. 207. Where the directors of a corporation, act- ing in good faith, have borrowed money for the purposes of the cor- poration, the indebtedness against the corporation is created, the stock- holders become personally liable to the lender of the money or the sure- ties who pay it, and it is not neces- sary to show that all the money was actually appropriated to the legiti- mate uses of the corporation. Bor- land V. Haven, 37 Fed. 394. ^'"Stimson Am. Stat. Law (1892), §§ 8140, 8630. South Carolina cre- ates a liability to the value of the shares when the debt was created and five per cent of the par value thereof additional. Laws S. C. 1885, Ch. 96, § 7. In Ohio the stock- holder is made liable to the amount of stock owned by him, in addition to the amount unpaid thereon. R. S. Ohio, 1890, § 3259. The liability created by a statute similar to the present one in South Carolina, was held to be enforceable by an action at law against one stockholder indi- vidually. Hall V. Klinck, 25 S. C. 348, 60 Am. 505. =»'Stimson Am. Stat. Law (1892), §§ 8142, 8553. Holders of preferred stock in an insolvent corporation are subject to the statutory liability for its debts, equally with the com- mon stockholders. Railroad Co. v. Smith, 48 Ohio St. 219, 31 N. E. 743. ™ A provision in an act of incor- poration, that stockholders shall be individually liable "to the extent of double the amount of the stock sub- scribed for or held by them," ren- ders them liable to double the 283 DEFENSES TO ENFOECEMENT OF STATUTORY LIABILITY. [§ 186 members for the debt of a corporation is a departure from the estao- lished rules of law, and is founded solely upon grounds of public policy, depending entirely upon express provisions of the statute law ; and such liability is to be construed reasonably but strictly, rather than liberally, and not extended beyond the limits to which it is plainly carried by such provisions of the statute.^** Accordingly it is held that such liability for debts cannot be enforced to pay damages recovered against the corporation in an action in tort.^*° § 186. Defenses to actions to enforce statutory liability. — In suits to enforce such liability, certain defenses are open to the stockholder that would not be allowed him in an equitable suit to enforce payment of his subscription to the corporation. Thus he may show that the debt for which the suit is brought does not belong to the particular amount of thfeir stock, whether paid up or not. Dreisbach v. Price, 133 Pa. 560, 19 Atl. 569, 26 Wkly. Notes Cas. 61. And it is held that the individual liability of a stockholder under the terms of a charter is, not extinguished by the expiration of the charter. Wheatley v. Glover, 125 Ga. 710, 54 S. B. 626. '"'Libby v. Toby, 82 Me. 397, 19 Atl. 904, where the plaintiff sought to enforce against a stockholder, a judgment recovered against the cor- poration under the Maine statute. O'Reilly V. Bard, 105 Pa. St. 569; Chase v. Lord, 77 N. Y. 1; Chamber- lin V. Huguenot, &c. Co. 118 Mass. 532; Windham, &c. Inst. v. Sprague, 43 Vt. 502; Salt Lake City Nat. Bank v. Hendrickson, 40 N. J. L. 52; note to Thompson v. Reno Sav. Bank, 3 Am. St. 797, 834, 24 Am. & Eng. Cyc. of Law 869. "The indi- vidual liability of stockholders in a corporation for the payment of its debts is always a creation of statute. At common law it does not exist. The statute which creates it may also declare the purpose of its crea- tion and provide for the manner of its enforcement." Pollard v. Bailey, 2D Wallace (U. S.) 520; Terry v. Little, 101 U. S. 216; Russell v. Pa- cific Co. 113 Cal. 258, 45 Pac. 323, 34 L. R. A. 747 n. It is held that a statute attempting to repeal and take away this statutory liability and right is unconstitutional if retroactive and applied as against creditors who made their contracts and acquired their rights, while the defendant was a stockholder, before the passage of the repealing statute. Harrison v. Remington, &c. Co. 140 Fed. 385. ^ Heacock v. Sherman, 14 Wend. (N. Y.) 58; Stanton v. Wilkeson, 8 Ben. (U. S.) 357; Chase v. Curtis, 113 U. S. 452, 5 Sup. Ct. 554; Ca- ble V. McCune, 26 Mo. 371; 72 Am. Dec. 214; Bohn v. Brown, 33 Mich. 257, 263; Zimmer v. Schleehauf, 115 Mass. 52. Note to Prince v. Lynch, 99 Am. Dec; 427, 435. A stockholder of a railroad company is not person- ally liable for the negligence of the officers, agents, or employes of the company in the operation of its road. Atchison, &c. R. Co. v. Coch- ran, 43 Kans. 225, 23 Pac. 151, 7 L. R. A. 414, 19 Am. St. 129, 41 Am. & Eng. R. Cas. 48. §• 186] STOCKHOLDEKS. . 384 class for ■wMeli the stockholders are made liable,^*^ and it is held, in general, that statutes fixing a personal liability upon the stock- holders for debts due to servants or laborers are enacted for the benefit of that "class whose members usually look to the reward of a day's labor or service for immediate or present support, from, whom the company does not expect credit, and to whom its future ability to pay is of no consequence."^*^ Consequently, a civil engineer,^*' or his assistant,^** or a superintendent,^*^ or a general manager,^*" will not be entitled to enforce such liability for his own benefit, where it is confined to debts due "laborers and servants." But a master me- chanic and superintendent of works has been held to be a "servant and laborer" under a similar statute applying to manufacturing com- panies.^*^ And a superintendent of construction, who acted as fore- man of a gang of one hundred and fifty men engaged in digging trenches and laying gaspipes, and whose duties required him to be with the men while at work and occasionally to do some physical labor because of a scarcity of hands, was held a "laborer" within the meaning of a mechanic's lien law.^** The stockholder may also show in defense to such a suit that the corporate creditor by express con- tract made at the time the debt was incurred waived his right to re- sort to the stockholders for payment in whole or in part, and it is settled in England that he may show that the contract contained a stipulation by the corporation for the exemption of its members from the liability imposed upon them by statute in the event of corporate =« "Wilson v. Stockholders, 43 Pa. (N. Y.) 390. Contra, Conant v. Van- St. 424; Conant v. Van Schaick, Schaick, 24 Barb. (N. Y.) 87; Wil- 24 Barb. (N. Y.) 87; Larrabee v. liamson v. Wadsworth, 49 Barb. (N. Baldwin, 35 Cal. 155. One who be- Y.) 294. came a stockholder after the debt ™ Brockway v. Innes, 39 Mich. 47, was incurred by the corporation is 33 Am. R. 348. liable under the statute like any ""Kincaid v. Dwlnelle, 59 N. Y. other stockholder. Railroad Co. v. 548. And see Gurney v. Atlantic, Smith, 48 Ohio St. 219. &c. R. Co. 58 N. Y. 358; Gordon v. ^ Wakefield v. Fargo, 90 N. Y. Jennings, L. R. 9 Q. B. Div. 45. But 213, 217, overruling several earlier compare Sleeper v. Goodwin, 67 Wis. cases; Adams v. Goodrich, 55 Ga. 577. 233. And see Harrod v. Hamer, 32 =*» Wakefield v. Fargo, 90 N. Y. Wis. 162; note to Thompson v. Reno 213; Hill v. Spencer, 61 N. Y. 274. Sav. Bank, 3 Am. St. 797, 842. '^^ Sleeper v. Goodwin, 67 Wis. 577, ^ Pennsylvania, &c. R. Co. v. 31 N. W. 335. LuefCer, 84 Pa. St. 168, 24 Am. R. ="Pendergast v. Yandes, 124 Ind. 189; Ericsson v. Brown, 38 Barb. 159, 24 N. B. 724, 8 L. R. A. 849. 285 DEFENSES TO ENEOEOEMENT OE STATUTORY LIABILITY. [§ 186. insolvency.^** So he may show that he has been separately released from the statutory liability/^" or that he has voluntarily paid cor- porate debts to the full amount of such liability.^^^ He may also, in some jurisdictions, set off a debt or judgment due him from the cor- poration against a personal action brought by an individual creditor, where the statute provides for such suits,^^^ although, as we have seen, a different rule applies in case of an ordinary suit to reach unpaid ^° Such a contract is valid. Rob- inson V. Bidwell, 22 Cal. 379; Bas- shor V. Forbes, 36 Md. 154; Brown V. Eastern State Co. 134 Mass. 590, where the waiver was oral; Hess v. Werts, 4 Serg. & R. (Pa.) 356; State Fire Ins. Co., In re, 1 Hem. & M. 457, 1 DeG., F. & J. 634. But the ex- emption must be clearly proved. Skinner v. Dayton, 19 John. (N. Y.) 513, 537, 10 Am. Dec. 286; Athe- naeum, &c. Society, Re, 3 DeG. & J. 660. A stipulation against holding stockholders liable has been held to refer to the statutory liability and not to the subscription liability. Preston v. Cincinnati, &c. R. Co. 36 Fed. 54. "^^ Where the stockholders are held to be severally and not jointly lia- ble under the statute, one may be released without releasing the oth- ers. Bank, &c. v. Ibbotson, 5 Hill (N. T.) 461. See, also, Herries v. Piatt, 21 Hun (N. Y.) 132; Prince V. Lynch, 38 Cal. 528, 99 Am. Dec. 427 n; Borland v. Haven, 37 Fed. 394. =='Mathez v. Neidig, 72 N. Y. 100; Boyd V. Hall, 56 Ga. 563; San Jose Sav. Bank v. Pharis, 58 Cal. 380. The payments must be bona fide. Thebus v. Smiley, 110 111. 316; Man-- ville T. Karst, 16 Fed. 173. And must be made before the suit in which they are relied upon as a defense was commenced. Jones v. Wiltberger, 42 Ga. 575. But see Richards v. Brice, 15 Daly (N. Y.) 144, 3 N. Y. S. 41. And his exemp- tion from liability will be measured by the sum actually paid on corpo- rate debts and judgments, and not by the face of the claims paid off or purchased by him. Kunkelman v. Rentchler, 15 Brad. (111.) 271; Bulkley v. Whitcomb, 49 Hun (N. Y.) 290, 1 N. Y. S. 748; Holland v. Heyman, 60 Ga. 174. The fact that suits brought by other stockholders are pending is no defense, so long as they have not been brought to judgment. Ingalls v. Cole, 47 Me. 530, 541; Grose v. Hilt, 36 Me. 22, denies the doctrine of the text. == Wheeler v. Millar, 90 N. Y. 353, 362; Christensen v. Colby, 43 Hun (N. Y.) 362; Boyd v. Hall, 56 Ga. 563; Jerman's Adm'r v. Benton, 79 Mo. 148. The rule is different when the suit is on behalf of the corpora- tion to reach unpaid subscriptions. Thompson v. Reno Sav. Bank, 19 Nev. 103, 3 Am. St. 797, and note 826. Judgments purchased by hini can only be set off to the extent of the amount that was actually paid for them. Bulkley v. Whitcomb, 49 Hun (N. Y.) 290, 1 N. Y. S. 748. In action by corporate creditors to' enforce the statutory liability of a stockholder, the stockholder must have held his claim against the cor- poration at the time the execution against the corporation was re- turned nulla bona, in order to use it as a defense. Coquard v. Pren- dergast, 35 Mo. App. 237. .§ 187] STOCKHOLDERS. 286 subscriptions for the creditors. Of course he may set up in defense any proper matters tending to show that he is not a stockholder and that a stockholder's liabilities do not attach to him.^^' But it is no defense that the creditor purchased his claim against the corporation at a discount after its insolvency.^^* § 187. Who may institute action to enforce statutory liability. — An action to enforce the statutory liability can only be maintained by the creditors themselves for their own benefit.'''^ Neither the corpora- tion itself,^^" nor its assignee,'''^ nor a receiver can enforce it.^^^ Herein lies another distinction between the statutory liability of a stockholder and his ordinary liability for unpaid subscriptions. § 188. How statutory liability is enforced — Judgment and execu- tion against the corporation. — In most of the states, special provision is made for enforcing this liability/^" but it is the rule in many juris- dictions that, even where not expressly required by statute, an action =='1 Cook Stock and Stockhold- ers (2ded.), § 225. =" Coquard v. Prendergast, 35 Mo. App. 237. An assignee of a judg- ment against a corporation, in order to maintain an action upon it against the Individual stockholders, must show that he paid a valuable consideration for it. "Wilson v. St. Louis, &c. R. Co. 120 Mo. 45, 25 S. W. 527, 759. ^'Farnsworth v. Wood, 91 N. Y. 308; note to Thompson v". Reno Sav. Bank, 3 Am. St. 797, 847; Hicks v. Burns, 38 N. H. 141. =''=Umsted v. Buskirk, 17 Ohio St. 113; Liberty, &c. Ass'n v. Watkins, 70 Mo. 13. ^"Wright V. McCormack, 17 Ohio St. 86, 95; Dutcher v. Marine Nat. Bank, 12 Blatch. (TJ. S.) 435; Run- ner v. Dwiggins, 147 Ind. 238, 46 N. E. 580, 36 L. R. A. 645. ™ Billings V. Robinson, 94 N. Y. 415; Arenz v. "Weir, 89 111. 25; Ja- cobson V. Allen, 20 Blatch. (U. S.) 525, 12 Fed. 454. Unless, of course. the receiver is vested with that right by statute. Walker v. Crain, 17 Barb. (N. Y.) 119; Richmond V. Irons, 121 U. S. 27, 7 Supt. Ct. 788; Kirtley v. Holmes, 107 fi'ed. 1, 46 C. C. A. 102, 52 L. R. A. 738, holding that a receiver might eur force the statutory liability. =™Stimson v. Am. Stat. Law (1892), § 8143; note to Thompson V. Reno Sav. Bank, 3 Am. St. 797, 854. If no remedy is provided and the statute simply affirms the lia- bility of stockholders for unpaid subscriptions, the usual remedy in equity is the proper one. But if a new liability is imposed upon the stockholders severally, the creditor's remedy may be either at law or in equity, according to the circum- stances of the case, and the nature of the relief that should be granted. For authorities upon these propo- sitions, and upon the subject of par- ties in such cases, see the exhaustive note to Thompson v. Reno Sav. Bank, 3 Am. St. 797, 855, 858. 38'i' PRIORITY AMONG CREDITORS FORUM CONTRIBUTION. [§ 189 ' for this cause must be preceded by a judgment and an execution re- turned unsatisfied.^*" In other jurisdictions, however, it is held that the statutory liability of stockholders is primary and may be enforced, without first obtaining a judgment against the corporation.^*^ Such a judgment is generally held conclusive as to the amount and validity of the creditor's claim in the same manner as when the suit is to enforce payment of balances due on subscriptions.^"^ § 189. Priority among creditors — ^Forum^ — Contribution. — A judg- ment creditor of an insolvent corporation who first moves to charge a stockholder on his liability under the statute, acquires the priority of right to recover against such stockholder, with which a creditor subsequently moving cannot rightfully interfere.^"' The courts of another state in which a part of the stockholders may reside^ will gen- erally enforce a liability imposed by statute or charter, for contract debts of the company,^** though they will not enforce penalties pre- =*> Mean's Appeal, 85 Pa. St. 75; Bayliss v. Swift, 40 Iowa 648; Lane V. Harris, 16 Ga. 217; Drinkwater V. Portland, &c. R. Co. 18 Me. 35; Wright V. McCormack, 17 Ohio St. 86; note to Prince v. Lynch, 99 Am. Dec. 427, 434; 2 Morawetz Corp. § 883; Cook Stock and Stockhold- ers, § 221. See, also. Globe Pub. Co. V. State Bank, 41 Neb. 175, 59 N. W. 683, 27 L. R. A. 854, 10 Lewis Am. R. & Corp. 589; Swan Land, &c. Co. V. Frank, 148 U. S. 603, 13 Sup. Ct. 691. ^"'Spence v. Shapard, 57 Ala. 598; Davidson v. Rankin, 34 Cal. 503; Queenan v. Palmer, 117 111. 619, 629; Todhunter v. Randall, 29 Ind. 275; McMahon v. Macy, 51 N. Y. 155, 160; Sleeper v. Goodwin, 67 Wis. 577, 586. Compare Marshall v. Harris, 55 Iowa 182, with the Iowa case cited in last note, and Harper v. Union, &c. Co. 100 111. 225, with Illinois case herein cited. See, also, 26 Am. & Eng. Ency. of Law (2d ed.) 1047. See, also, as to when prior proceed- ings against the corporation are ex- cused as useless. Paine v. Stewart, 33 Conn. 516; Hodges v. Silver, &c. Co. 9 Ore. 200; Fourth Nat. Bank v. Francklyn, 120 U. S. 747, 7 Sup. Ct. 757, 30 L. Ed. 825; Shellington V. Howland, 53 N. Y. 371; State Sav. Assn. v. Kellogg, 52 Mo. 583. ''"^See note to Thompson v. Reno Sav. Bank, 3 Am. St. 797, 858. In Ohio, suits against the stockholder directly are permitted, and it is held that he can interpose only such defenses to them as are available to the corporation. Railroad Co. v. Smith, 48 Ohio St. 219. »■» Wells V. Robb, 43 Kans. 201, 23 Pac. 148; Cole v. Butler, 43 Me. 401; Lowry v. Parsons, 52 Ga. 356; The- bus V. Smiley, 110 111. 316. But see Chicago V. Hall, 103 111. 342; State Sav. Assn. v. Kellogg, 63 Mo. 540. =" Corning v. McCuUough, 1 N. Y. 47; Lowry v. Inman, 46 N. Y. 119, 127; Woods V. Wicks, 7 Lea (Tenn.) 40; Aultman's Appeal, 98 Pa. St. 505; Queenan v. Palmer, 117 111. 619; Manville v. Edgar, 8 Mo. App. 324; Sackett's Harbor Bank v. §' 190] STOCKHOLDERS. 388 scribed for failures to obey state regulations.^®^ This liability may be enforced against the estate of a deceased shareholder.^"* Stockholders are usually entitled, in equity, to contribution from other shareholders, as in the case of suits for unpaid subscriptions.^"^ § 190. When stockholders are liable as partners. — Stockholders may generally be held liable as partners for the payment of debts in- curred by the company, if it has proceeded to do business without taking the requisite steps to become legally incorporated.^"* And •where no such business undertaken is authorized by the act under which incorporation is attempted, a partnership liability will be in- curred by all who become members,^"* as it also is, according to some Blake, 3 Rich. Eq. (S. C.) 225; Flash V. Conn, 16 Fla. 428, 26 Am. R. 721, 109 U. S. 371, 3 Sup. Ct. 263; Howell V. Manglesdorf, 33 Kans. 194, 199; Aldrich v. Anchor Coal, &c. Co. 24 Oreg. 32, 32 Pac. 756, 41 Am. St. 831. But see, where special remedy is provided, Fowler v. Lam- son, 146 111. 472, 34 N. B. 932, 37 Am. St. 163, and note. =°= Derrickson v. Smith, 27 N. J. Law 166; Lowry v. Inman, 46 N. Y. 119; Sayles v. Brown, 40 Fed. 8. See, generally, as to enforcement of stat- utory liability, conflict of laws and what law governs in such cases, note In 37 Am. St. 168-174; and note in 93 Am. St. 393, 394; also Blair v. Newbegin, 65 Ohio St. 425, 62 N. E. 1040, 58 L. >R. A. 644, and note. ^'"Richmond v. Irons, 121 U. S. 27, 7 Sup. Ct. 788; Chase v. Lord, 77 N. Y. 1; Manville v. Edgar, 8 Mo. App. 324. ™'l Cook Stock and Stockholders, § 227; note to Thompson v. Reno Sav. Bank, 3 Am. St. 797, 870; Tay- lor Priv. Corp. § 783. ^•^ Kaiser v. Lawrence Sav. Bank, 56 Iowa 104, 8 N. W. 772, 41 Am. R. 85; Wechselberg v. Flour City Nat. Bank, 64 Fed. 90; Hurt v. Salisbury, 55 Mo. 310; Pettis v. Atkins, 60 111. 454; Fuller v. Rowe, 57 N. Y. 23; Walton V. Oliver, 49 Kans. 107, 30 Pac. 172, 33 Am. St. 355; Unity Ins. Co. V. Cram, 43 N. H. 636; Smith v. Colorado, &c. Co. 14 Fed. 399; Har- ris V. McGregor, 29 Cal. 124; Midill V. Collier, 16 Ohio St. 599, 613, 47 Am. Dec. 387; Coleman v. Coleman, 78 Ind. 344; Martin v. Fewell, 79 Mo. 401; Western, &c. T. Co. v. Union Pacific R. Co. 3 Fed. 721; Field V. Cooks, 16 La. Ann. 153; Bigelow V. Gregory, 73 111. 197; Gar- nett V. Richardson, 35 Ark. 144. But, see Humphrey^ v. Mooney, 5 Colo. 282; Planters', &c. Bank v. Padgett, 69 Ga. 159; Merriman v. Magiveny, 12 Heisk. (Tenn.) 494; Merchants', &c. Bank v. Stone, 38 Mich. 779; Whitney v. Hyman, 101 U. S. 392. " 1 Cook Stock and Stockholder's, § 236; Vredenburg v. Behan, 33 La. Ann. 627. But see Mandeville v. Courtwright, 126 Fed. 1007. So where the law under which incor- poration is attempted is unconstitu- tional. Eaton y. Walker, 76 Mich. 579, 43 N. W. 638, 6 L. R, A. 102. See, also, Chenango Bridge Co. v. Paige, 83 N. Y. 178, 190, 38 Am. R. 407; Williams v. Bank, 7 Wend. (N. Y.) 541; Kennedy v. McLellan, 76 Mich. 598, 43 N. W. 638; Heaston v. Cincinnati, &c. R. Co. 16 Ind. 275, 278, 79 Am. Dec. 430. 389 WHEN STOCKHOLDERS ARE LIABLE AS PARTNERS. [§ 190 authorities, where a corporation is formed to do business only outside of the state creating it, the formation of such a corporation being held to be a fraud upon the law.^''' But the weight of authority seems to be opposed to this latter rule.^^^ What omissions in the articles will render the incorporation so incomplete as to fix a partnership liability upon the members may depend largely upon the language of the statute under which incorporation is attempted ; for where there is a valid law authorizing the incorporation a failure to observe imma- terial provisions,^^^ or to perform acts required after the incorpora- tion is effected will not, as a rule, vitiate the organization/^^ and "°Land Grant R. &c. Co. v. Coffey Co. 6 Kans. 245, and Opinion of Atty. Gen. of Texas (1887), 2 R. & Corp. L. J. 433, where the compa- nies were only authorized to trans- act business outside the sovereignty creating them. Hill v. Beach, 12 N. J. Eq. 31; Kruse v. Dusenbury, 19 "Wkly. Dig. (N. Y. C. P.) 201; Mont- gomery V. Forbes, 148 Mass. 249, 19 N. B. 342, where regularly organized corporations had places of business only outside of the states by which they were created. See, also, Won- derly v. Booth, 36 N. J. L. 250; Coler V. Tacoma, 64 N. J. 117, 53 Atl. 680; State V. Park, &c. Co. 58 Minn. 330, 59 N. W. 1048, 49 Am. St. 516; Duke v. Taylor, 37 Fla. 64, 19 So. 172, 31 L. R. A. 484, 53 Am. St. 232; Mont- gomery v. Forbes, 148 Mass. 249, 19 N. E. 342. "' Canada Southern R. Co. v. Geb- hard, 109 U. S. 527, 3 Sup. Ct. 363; Oregonian R. Co. v. Oregon R. &c. Co. 23 Fed. 232; New York, &c. R. Co., In re, 35 Hun (N. Y.) 220; Dem- arest v. Flack, 128 N. Y. 205, 28 N. E. 645, 13 L. R. A. 854; Pennsyl- -vania Co. v. Sloan, 1 Bradw. (111.) 364; Empire Mills v. Aston (Tex. Civ. App.), 15 S. W. 200, 12 L. R. A. 366, and note. But see Northern Securities Co. v. United States, 193 XJ. S. 197, 24 Sup. Ct. 436; Second Nat. Bank v. Hall, 35 Ohio St. 158, Ell. Railroads — 19 where the stockholders escaped a personal liability by organizing un- der the laws of an adjoining state. Bateman v. Service, L. R. 6 App. Cases 386. As to tramp corpora- tions, generally, see 2 Purdy's Beach Priv. Corp. §§ 598, 788. "^McClinch v. Sturgis, 72 Me. 288, where notice of the meeting to or- ganize was not sent to all the mem- bers. Judah V. American, &c. Co. 4 Ind. 333, where the subscriptions were taken and notice of the stock- holders' meeting given in a different manner from that provided in the act. Stout V. Zulick, 46 N. J. L. 599, 7 Atl. 362, where an immaterial part of the certificate of acknowledgment was omitted. Russell v. McLellan, 14 Pick. (Mass.) 63; Holmes v. Gil- liland, 41 Barb. (N. Y.) 568, where no notice was given to the com- munity by publication. Granby, &c. Co. V. Richards, 95 Mo. 106, 8 S. W. 246, where the articles were not filed with the county clerk. See, generally, 2 Purdy's Beach Priv. Corp. § 598. For omissions held ma- terial, see note 268, supra. "= Trowbridge v. Scudder, 11 Cush. (Mass.) 83, where the princi- pal business for which the corpora- tion was orgahized was never be- gun. Langan v. Iowa, &c. Construc- tion Co. 49 Iowa 317, where the com- pany had been guilty of ultra vires § 190] STOCKHOLDERS. 290 different preliminary acts are made essential in different statutes.^^* Nor is it tme in every case that the failure to fnlly comply with the statute will make the stockholders liable as partners. The doctrine of estoppel should not be overlooked. In accordance with that doctrine it is fairly well settled that where there is a valid law providing for incorporation and an attempt has been made in good faith to incorpo- rate under such law for the purposes therein specified, and to carry on the authorized business as a corporation, one who deals with it as such is estopped from questioning the corporate existence and cannot hold the incorporators liable as partners, notwithstanding the fact that the statutory formalities may not have been fully complied with.^^^ A stockholder, if held to the liability of a partner, will, ordinarily, be bound only as a partner for the debts contracted while he was a member of the company.^''^ A stockholder does not become liable as and fraudulent acts. First Nat. Bank v. Davles, 43 Iowa 424, where the articles were to he filed within ninety days. But in the recent case of Cincinnati Cooperage Co. v. Bate, 96 Ky. 356, 26 S. W. 538, 49 Am. St. 300, 10 Lewis' Am. R. & Corp. 653, it Is held that changing the name of a corporation without complying with the statute is to destroy the Identity of the corporation and amounts to a virtual abandonment of it, so as to render the stockholder liable as partner. The soundness of this decision, however, seems to us to be doubtful, and such, we under- stand, is the opinion of Mr. Lewis as Indicated in the note in 10 Lew- is' Am. R. & Corp. 665 et seq. ^* Stlmson Am. Stat. Law, §§ 8022- 8024, 8522, 8523. '""Vanneman v. Young, 52 N. J. L. 403, 20 Atl. 53, 3 Lewis' Am. R. & Corp. 660, and note; Gartside Coal Co. V. Maxwell, 22 Fed. 197; Alle- gheny Nat. Bank v. Bailey, 147 Pa. St. Ill, 23 Atl. 439; American Salt Co. V. Heidenhelmer, 80 Tex. 344, 15 S, W. 1038, 26 Am. St. 743; Bush- nell V. Consolidated, &c. Co. 138 111. 67, 27 N. E. 596; Lamed v. Beal, 65 N. H. 184, 23 Atl. 149; 'Walton v. Riley, 85 Ky. 413; Whitney v. Wy- man, 101 U. S. 392; Baker v. NefC, 73 Ind. 68; Williamson v. Kokomo, &c. Co. 89 Ind. 389; Crowder v. Sullivan, 128 Ind. 486, 28 N. E. 94; Snyder v. Studebaker, 19 Ind. 462, 81 Am. Dec. 415; Snider's Sons Co. V. Troy, 91 Ala. 224, 8 So. 754, 11 L. R. A. 515, 24 Am. St. 887; Rutherford v. Hill, 22 Oreg. 218, 29 Pac. 546, 17 L. R. A. 549 n, 29 Am. St. 596 n; Humphreys v. Mooney, 5 Colo. 282; Second Nat. Bank v. Hall, 35 Ohio St. 158; First Nat. Bank v. Almy, 117 Mass. 476; Laflln, &c. Co. v. Sinsheimer, 46 Md. 315, 24 Am. R. 522; Finnegan v. Noerenberg, 52 Minn. 239, 53 N. W. 1150, 18 L. R. A. 778, 38 Am. St. 552; Globe Pub. Co. T. State Bank, 41 Neb. 175, 59 N. W. 683, 27 L. R. A. 854; Duke v. Taylor, (Fla.) 19 So. 172, 175, 10 Lewis' Am. R. & Corp. 589. "= Fuller V. Rowe, 57 N. Y. 23. But where he becomes a member by transfer of another's interest, he may be held to have assumed his grantor's liability for precedent debts. Taylor v. Ifill, 1 N. R. 566, 8 L. T. R. (N. S.) 148. It has been S91 WHEN STOCKHOLDERS ARE LIABLE AS PARTNERS. [§ 190 a partner because he falsely represents that .the corporation is solv- ent/" and his promise to pay the corporate debts is a promise to an- swer for the debts of another within the statute of frauds.^" Where persons purchase a railroad at execution sale, it has been held that they acquire none of the special privileges of individual stockholders in the old corporation, and, in such a case, if they continue to operate it without forming a new corporation, they will incur partnership liabilities on account thereof.^'' held, however, that one who becomes 175. But he may render himself a member after the attempted or- liable in damages for false repre- ganization, and takes no part In the sentations. management of the company is riot ""* Trustees, &c. v. Flint, 13 Mete, liable for its debts because of im- (Mass.) 539. perfect incorporation. Stafford Nat. ^° Chaffe v. Ludeling, 27 La. Ann. Bank y. Palmer, 47 Conn. 443. 607. "'Searight v. Payne, 2 Tenn. Ch. CHAPTER X. BT-LAWS, RULES AKD REGULATIONS. Sec. 191. 192. 193. 194. 195. 196. 197. 198. 199. Power to make by-laws. Who are affected by corporate by-laws. Limits of power to make by- laws — Reasonableness a question for the court. Power to maktf by-laws resides in stockholders^— When di- rectors may make. Formalities of enactment — - Proof. Amendment and repeal. Enforcement of by-laws. Rules and regulations in Eng- land. Distinction between by-laws and rules and regulations — Sec. 200. 200a. 200b. 201. 202. 202a. Right of railroad company to make rules and regula- tions. Examples of rules and regula- tions which railroad com- panies may make — Rules af- fecting passengers. Rules affecting shippers and freight. Rules affecting employes. Enforcement of rules — Penal- ties. Reasonableness of rules — When a question of fact and when a question of law. Failure to enforce rule s — Waiver or abrogation. § 191. Power to make by-laws. — The law implies from the act of creating a corporation a grant of power to make all necessary by-laws, or private statutes for the government of itself and its members, ofSeers and agents.^ This power is, however, in most cases, specially granted to railroad companies and other corporations either by a pro- vision of the company's charter or by general statute.^ In many cases the power is granted to make by-laws for certain specified pur- poses,^ and where this is so, legislation upon other subjects is usually considered as prohibited by implication.* The corporation cannot pass * Drake v. Hudson River R. Co. 7 Barb. (N. Y.) 508; State v. Over- ton, 24 N. J. L. 435, 61 Am. Dec. 671; Martin v. Nashville, &c. Ass'n, 2 Cold. (Tenn.) 418. ''They may make all by-laws and regulations for their own govern- ment necessary and consistent with the constitution and laws of the state and with their own charters. Stimson's Am. Stat. (1892) §§ 8070, 8537; Angell & Ames Corp. (11th ed.) § 325. »Stimson Am. Stat. (1892), § 8071. 'Child V. Hudson Bay Co. 2 Peere Wms. 207; State v. Ferguson, 33 N. H. 424, 430; Redfield Railways (6th ed.) 83; Angell & Ames Corp. 393 393 WHO ARE AFFECTED BT CORPORATE BY-LAWS. [§ 193 any by-law inconsistent with its charter/ nor, as a rule, any relating to matters outside the objects for which it was incorporated, unless power to do so is expressly conferred." The usual subjects with refer- ence to which corporations ordinarily have power to make by-laws are such as relate to the time and manner of calling and conducting meet- ings of the stockholders, or of the directors, the number of each re- quired to form a quorum, the method of voting proxies, the number of shares entitling a member to one or more votes, the mode of enforc- ing forfeitures of stock (where no mode is prescribed by statute), the number of directors and other officers, and the mode of choosing and compensating them, the transfer of stock, and the management and disposition of the corporate property.^ § 192. Who are affected by corporate by-laws. — Such by-laws are obligatory only upon the corporate body, its members and agents, and do not, as a rule, afEect the general public* Herein, as we shall here- (11th ed.) § 325. See, also, Taylor V. Griswold, 14 N. J. L. 222, 27 Am. Dec. 33 n; McCullough v. Annapolis R. Co. 4 Gill (Md.) 58; Rex v. Spencer, 3 Burr. 1827; State v. Mayor, &c. 33 N. J. L. 57; Ireland V. Globe Milling, &c. Co. 19 R. I. 180, 61 Am. St. 756. ° Kennebec, &c. R. Co. v. Kendall, 31 Me. 470, where it was undertaken to Impose a personal liability for calls not imposed by the charter. Carr v. St. Louis, 9 Mo. 191, where the corporation undertook to in- crease the salaries of the officers be- yond what the charter allowed. Mc- Cullough v. Annapolis R. Co; 4 Gill (Md.) 58, where the right of an of- ficer to vote was restricted to a casting vote in case of a tie. See, also, 1 Thomp. Corp. § 1011; Amer- ican Legion of Honor v. Perry, 140 Mass. 580, 5 N. B. 634; Kearney v. Andrews, 10 N. J. Bq. 70; Presby- terian, &c. Fund V. Allen, 106 Ind. 593, 7 N. E. 317; Durkee v. People, 155 111. 354, 46 Am. St. 340, 40 N. B. 626; People -v. Chicago, &c. Ex- change, 17.0 111. 556, 39 L. R. A. 373, 62 Am. St. 404, 48 N. B. 1062; Steiner v. Steiner, &c. Co. 120 Ala. 128, 26 So. 494. 'Angell & Ames Corp. (11th ed.) § 326. 'Stimson's Am. Stat. (1892) § 8071. ' Bank of Holly Springs v. Pinson, 58 IVIiss. 421, 38 Am. R. 330; Wait V. Smith, 92 111. 385; Walker v. Wil- mington, &c. R. Co. 26 S. Car. 80, 1 S. E. 366; Samuel v. Holladay, 1 Woolw. (U. S.) 400. They bind only members and officers or agents. Worcester v. Essex Bridge Co. 7 Gray (Mass.) 457; Susquehanna Ins. Co. V. Perrine, 7 Watts & S. (Pa.) 348; Mechanics' Bank v. Smith, 19 Johns. 115; Rathbun v. Snow, 123 N. Y. 343, 25 N. E. 379, 10 L. R. A. 355 ; Palmyra v. Morton, 25 Mo. 593; Bank of Wilmington v. Wollaston, 3 Harring. (Del.) 90. But see Bocock v. Alleghany, &c. Co. 82 Va. 913, 1 S. E. 325, 3 Am. R. 128. See, also, Moyer v. East Shore, &c. Co. 25 L. R..A. 48, and note. § 193] BY-LAWS, EULES AND EEGULATIOlfS. 294 after show, they differ from rules and regulations such as those pro- mulgated by common carriers to govern their dealings with the public. They are not evidence for the corporation- against strangers who deal with it, unless such by-laws are brought home to their knowledge and assented to by them.^ But the members of the company are affected by all binding statutes of the corporation from the time of their en- actment, without any formal notice of their existence.^" § 193. limits of power to make by-laws — Reasonableness a ques- tion for the court. — The power of the corporation to make by-laws is always limited by the requirement that they must not be inconsistent with the constitution and valid statutes of the United States or of the state in which it is established nor with the general policy and funda- mental principles of common law as it is therein aceepted.^^ Thus, it was held in a recent case that a by-law permitting bondholders to vote for directors was in conflict with the constitution of Illinois and the general policy of the state and therefore void.^^ The rule is often stated to be that by-laws must be reasonable^^ and not opposed to common right.^* The question as to the reasonableness of a by-law •Smith T. North Carolina R. Co. 68 N. C. 107; Moyer v. Bast Shore, &c. Co. 41 S. Car. 300, 19 S. E. 651, 44 Am. St. 709, 25 L. R. A. 48, and note. See, also, 1 Thomp. Corp. § 942. ^"Woodfin v. Ashevllle, &c. Ins. Co. 6 Jones Law (N. Car.) 558; Buffalo V. Webster, 10 "Wend. (N. Y.) 99; Susquehanna, &c. Co. v. Perrine, 7 Watts & S. (Pa.) 348; Arapahoe, &o. Co. v. Stevens, 13 Colo. 534, 22 Pac. 823; Bauer v. Sam- son Lodge, 102 Ind. 262, 1 N. B. 571; Frank v. Morrison, 58 Md. 423; Hun- ter V. Sun Mutual, &c. Co. 26 La. Ann. 13. "Angell & Ames on Corp. (11th ed.) § 332 et seq.; BuUard v. Bank, 18 Wall. (U. S.) 589; State v. Cin- cinnati, 23 Ohio St. 445; Illinois Cent. R. Co. v. Bloomington, 76 111. 447; People v. Chicago, &c. Ex- change, 170 111. 556, 48 N. E. 950, 62 Am. St. 404; Kennebec, &c. R. Co. V. Kendall, 31 Me. 470; State v. Curtis, 9 Nev. 325 ; Price v. Supreme Lodge, 68 Tex. 361, 4 S. W. 633; Sayre v. Louisville, &c. Ass'n, 1 Duv. (Ky.) 143, 85 Am. Dec. 613 n. "Durkee v. People, 155 111. 354, 40 N. B. 626, 46 Am. St. 340. See, also, Brewster v. Hartley, 37 Cal. 15, 99 Am. Dec. 237. ''Kent V. Quicksilver Min. Co. 78 N. Y. 159; Kennebec, &c. R. Co. v. Kendall, 31 Me. 370; Williams v. Great Western R. Co. 10 Exch. 15; Chandler v. Northern Cross R. Co. 18 111. 190; American Livestock Co. V. Chicago, &c. Exchange, 143 111. 210, 32 N. E. 274, 36 Am. St. 385. "Hayden v. Noyes, 5 Conn. 391. But see Goddard v. Merchants' Ex- change, 9 Mo. App. 290. By-laws which are vexatious, unequal, op- pressive, and manifestly detrimental to the interests of the corporation are void. Gosling v. Veley, 12 Q. B. 328; People v. Medical Society, 24 395 POWEE TO MAKE BY-LAWS — REASONABLENESS. [§ 193 is for the court, and it is held that the jury cannot hear evidence as to its effects offered in proof of the claim that it is unreasonable.^^ A by-law can' never be valid where it impairs the obligation of a con- tract,^" nor where it amounts to a retrospective or ex post facto rule,^'^' nor where it deprives the holder of any of his property rights.^* The right given by statute to vote by proxy is a substantial right and cannot be taken away, or even materially abridged, by any corporate by-law.^" Neither will a by-law be sustained if, under the guise of regulating Barb. (N. Y.) 570; Chicago v. Rumpff, 45 111. 90, 92 Am. Dec. 196. "' Commonwealtli v. Worcester, 3 Pick. (Mass.) 462; Morris, &c. R. Co. V. Ayres, 29 N. J. L. 393, 80 Am. Dec. 215; Illinois Cent. R. Co. v. Whittemore, 43 111. 420; Merz y. Mis- souri Pac. R. Co. 14 Mo. App. 459; People y. Throop, 12 Wend. (N. Y.) 182; 1 Elliott's Gen. Pr. § 436. Its unreasonableness must be demon- strated. Hibernla, &c. Co. v. Har- rison, 93 Pa. St. 264; Paxon v. Sweet, 13 N. J. L. (1 Green) 196. But see Day v. Owen, 5 Mich. 520, holding that the reasonableness of a by-law should be left to the jury under proper instructions from the court. See, also, Pittsburgh, &c. R. Co. v. Lyon, 123 Pa. St. 140, 16 Atl. 607, 10 Am. St. 517. Post, § 202. See, generally, Wuerfler v. Trustees, &c. 116 Wis. 19, 92 N. W. 433, 96 Am. St. 94; note in 43 Am. St. 147, 153; Carney v. New York, &c. Ins. Co. 162 N. Y. 453, 57 N. B. 78, 49 L. R. A. 471, 76 Am. St. 347.. " Such a by-law would be contrary to the constitution of the United States. U. S. Const. Art. 1, § 10; Stuyvesant v. New York, 7 Cowen (N. Y.) 588; Kennebec, &c. R. Co. V. Kendall, 31 Me. 470. See, also, Flint V. Pierce, 99 Mass. 68, 96 Am. Dec. 685, 691; note to Freeland v. McCuUough, 43 Am. Dec. 694; Berg- man V. St. Paul, &c. Ass'n, 29 Minn. 275; Northford, &c. Ass'n v. Per- kins, 93 Me. 235, 44 Atl. 893, 74 Am. St. 342. "U. S. Const, Art. 1, § 10; How- ard V. Savannah, T. Charlt. (Ga.) 173 (holding a municipal by-law void at common law for this rea- son) ; People V. Fire Department, 31 Mich. 458; Great Falls Ins. Co. v. Harvey, 45 N. H. 292. '*Kent V. Quicksilver Min. Co. 78 N. Y. 159, where preferred stock had been issued. Taylor v. Gris- wold, 14 N. J. L. 222, where an at- tempt was made to give a vote for each share of stock, and so deprive the small stockholders of an equal voice in the management of its af- fairs. See Stimson's Am. Stat. (1886) §§ 91, 92 and 93; Gray v. Portland Bank, 3 Mass. 364, 3 Am. Dec. 156; People v. Crockett, 9 Cal. 112; Budd V. Multnomah St. R. Co. 15 Greg. 413, 3 Am. St. 169, 15 Pac. 659. Long Island R. Co., In re, 19 Wend. (N. Y.) 37, 32 Am. Dec. 429. The last two cases hold a by- law forfeiting shares invalid. See Ireland v. Globe Milling Co. 21 R. I. 9, 79 Am. St. 769; People's Home Sav. Bank v. Superior Court. 104 Cal. 649, 38 Pac. 452, 29 L: R. A. 844 n, 43 Am. St. 147, 153, and note. "People's Home Sav. Bank v. Su- perior Court, 104 Cal. 649, 38 Pac. 452, 29 L. R. A. 844 n, 43 Am. St. 147; Matter of Lighthall Mfg. Co. 47 Hun (N. Y.) 258. §' 194] BY-LAWS, RULES AND EE6ULATI0KS. 396 the mode of transfer, it unreasonably restricts the power to transfer shares;^" or if it forbids the member to seek legal redress in the courts f^ for such by-laws would attack rights with which the states themselves are prohibited from interfering,''^ and a corporation can- not, under a grant of power from a state, do what the state itself has no power to do. And so the repeal of a by-law cannot divest rights acquired under it while it continued in force.^^ If tTie by-law be separable in its character, valid provisions contained in it may stand, although it contains others which are void.^* § 194. Power to make by-laws resides in stockholders — ^When di- rectors may make. — The power to make by-laws resides in the mem- bers of the corporation at large, where there is no law or valid usage to^ the contrary.'^^ But it is frequently provided by charter^^ or by general statute^^ that this power shall- be exercised by the directors; and where there is no provision on the subject the stockholders may delegate to the directors authority to make all necessary by-laws.^^ § 195, Formalities of enactment — Proof. — ^By-laws are not gener- ally required in this country to be enacted or promulgated in any par- ticular form, but only to be enacted at a legal meeting of the corpora- tion.^^ And it has been held that the jury may find a by-law, its terms ^ Sargent v. Franklin Ins. Co. 8 if the by-law must be taken as an Pick. (Mass.) 90; Moore v. Bank of entirety so that the Invalid part Commerce, 52 Mo. 377; Farmers', vitiates the whole. State v. Curtis, &c. Bank v. Wasson, 48 Iowa 336, 30 9 Nev. 325. Am. R. 398. ^ Morton G. R. Co. v. Wysong, 51 "Amesbury v. Bowditch, &c. Co. Ind. 4, 12; Martin v. Nashville, &c. 6 Gray (Mass.) 596; Bauer v. Samp- Ass'n, 2 Coldw. (Tenn.) 418; Bank . son Lodge, 102 Ind. 262, 1 N. E. 571, of Holly Springs v. Pinson, 58 Miss, and authorities there cited; Angell 421, 38 Am. R.' 330; Angell & Ames & Ames on Corp. (11th ed.) § 341. on Corp. (11th ed.) § 327. '^'U. S. Const., Art. 1, § 10. ' =" See Union Bank of Maryland v. 2^ Kent V. Quicksilver Min. Co. 78 Ridgely, 1 Harris & G. (Md.) 324. N. y. 159, 182. See, also. Wist v. and Fairfield Turnp. Co. v. Thorp, Grand Lodge, 22 Oreg. 271, 29 Pac. 13 Conn. 173. 610, 29 Am. St. 603; Supreme Lodge ^' Stimson's Am. St. (1892) K. P. V. Knight, 117 Ind. 489, 20 §§ 8073, 8537. N. E. 479, 3 L. R. A. 409 n; note =« State v. Overton, 24 N. J. L.' in 43 Am. St. 157, 158. 435; Willcocks, Ex parte, 7 Cow. (N. "Amesbury v. Bowditch, &c. Ins. Y.) 402, 17 Am. Dec. 625; Cahill v. Co. 6 Gray (Mass.) 596; Shelton v. Kalamazoo Mut. Ins. Co. 2 Doug. Mayor, 30 Ala. 540, 68 Am. Dec. (Mich.) 124, 43 Am. Dec. 457. 143; Rogers v. Jones, 1 Wend. (N. "1 Redfield on Railways (6th y.) 237, 19 Am. Dec. 493. But not ed.), 96. But the written assent of 397 AMEKDMENT AND REPEAL. [§ 196 and adoption, from the usage of the corporation, in the absence of other evidence, no particular form of adoption being prescribed,^" and it being shown that no record evidence of the adoption of such by-laws is in existence. But, in general, it is necessary, in order to prove what they are, that the by-laws themselves shall be produced, and where such is the case parol proof of their contents by an officer of the corporation is insufficient.^^ Where the charter or a general statute^^ prescribes the mode in which by-laws shall be made and adopted in order that they may be valid, that mode must be pur- sued.^^ Thus, in England, by-laws are generally required to be made under corporate seal,^* and in California and other states which fol- low its code, all by-laws adopted must be certified by a majority of the directors and by the secretary of the corporation, and copied in a legible hand in the "book of by-laws" to be kept in the corporate office for public inspection ; and no by-law shall take efEect until so copied.'^ When the books of the corporation, in which it is proved that the by- laws of the corporation are registered, are produced, they are held to be evidence of the existence and terms of such by-laws in all courts of justice.^^ § 196. Amendment and repeal. — Of course, the same body (whether stockholders or directors) that may enact by-laws may repeal them or enact others in their stead.^^ And it seems that the repeal of a by-law the holders of two-thirds of the capi- =^ See Stimson Am. St. Law tal stock is effectual to adopt a code (1892), § 8072. of by-laws without a meeting for '^Angell & Ames Corp. (11th ed.) that purpose in several of the states. § 328; Dunston v. Imperial Gas Stimson's Am. St. (1892) § 8072. Light Co. 3 Barn. & Add. 125. =° Union Bank v. Ridgely, 1 Har- =*Angell & Ames Corp. (11th ed.) ris & G. (Md.) 324. So they may § 328. find any act of the directors to have ^' Stimson Am. Stat. § 8072. been duly performed if the statute =' Case of Thetf ord, 1 Salk 192, 12 does not ' prescribe the manner of Vln. Abr. 90. In Maryland a copy its performance and that record evi- of a by-law of a corporation of that dence of such performance shall be state, under the corporate seal, and preserved. Langsdale v. Bonton, 12 purporting to be signed by the presi- Ind. 467; McCabe v. Board, &c. 46 dent, secretary, or treasurer of the Ind. 380. See Fairfield T. Co. v. corporation, is made prima facie Thorp, 13 Conn. 173. evidenc'e of its adoption and terms. 2' Lumbard v. Aldrich, 8 N. H. 31. Pub. Gen. Laws Md. 1888, Ch. 23, See also 3 Elliott Evidence, § 1941, § 4. and cases cited in note 93. " The power to make by-laws gen- § 197] BY-LAWS, RULES AND REGULATIONS. 398 may be proved by showiag a course of conduct inconsistent therewith in a manner similar to that by which its adoption is shown by usage.^' So, of course, amendments may be made in the by-laws.^® But by-laws upon the faith of which and under which vested rights have been ac- quired by a member cannot be so amended or repealed as to impair such rights.*" § 197. Enforcement of by-laws. — The power to make by-laws necessarily implies the power to enforce them by pecuniary penalties, competent and proportionable to the offense.*^ But such power is often specially conferred by charter or by statute.*^ The penalty must, however, be reasonable and certain,*^ and cannot be enforced by a forfeiture of shares** without statutory authority. § 198. . Kules and regulations in England. — ^In England rules for the government of the railroad employes, in their dealings with the public, and of the passengers and others transacting business with the company, are called by-laws;*^ and under many of the special charters granted in that country, as well as under the Companies' Clauses Consolidation Act of 1845, the railroad companies are author- ized to enact regulations which resemble the by-laws or ordinances of municipal corporations. Their control over persons coming upon erally implies the power to repeal United States Cement Co. (Ind. them. King v. Ashwell, 12 East. 22; App.) 73 N. E. 269. Kent V. Quicksilver, &c. Co. 78 N. "Angell & Ames on Corp. (11th Y. 159. But see Stevens v. Davison, ed.) § 360; 1 Purdy's Beach on Priv. 18 Gratt. (Va.) 819, 98 Am. Dec. Corp. § 166. €92. ^'Stimson's Am. Stat. (1892) ^ Attorney-General v. Middleton, 2 § 8071. Ves. Sen. 327. See, also, Henry v. *'Cahill v. Kalamazoo, &c. Co. 2 Jackson, 37 Vt. 431. Doug. (Mich.) 124, 43 Am. Dec. 457; »' Schrick v. St. Louis, &c. Co. 34 Mobile v. Yuille, 3 Ala. 137, 36 Am. Mo. 423. See, generally, as to Dec. 441; Grant Corp. 84; 1 Thomp. amendment and repeal, note in 43 Corp. § 1040. Am. St. 157, 158. « Long Island R. Co., Re, 19 Wend. "Kent V. Quicksilver, &c. Co. 78 (N. Y.) 37, 32 Am. Dec. 429; Budd N. Y. 159. Compare East Tenn. &c. v. Multnomah St. R. Co. 15 Oreg. R. Co. V. Gammon, 5 Sneed (Tenn.) 413, 15 Pac. 659, 3 Am. St. 169; 567. Ordinarily, however, minority Kirk v. Nowill, 1 Term R. 118. stockholders have no right, vested "Chilton v. The London, &c. R. or otherwise, which is infringed by Co. 16 M. & W. 212, 5 Bng. Railway the majority amending the by-laws and Canal Cas. 4. in the manner provided. Renn v. 299, BULBS AND REGULATIONS IN ENGLAND. [§ 198 their property and their right to regulate such faatters extend to the imposition of penalties for failure to observe such regulations, which may even be enforced by imprisonment.^* Such rules or by-laws must be made under the common seal of the corporation, and, so far as they affect those who are not officers or servants of the company, should be approved by the board of trade or railway commissioners.*' A copy of these by-laws must be furnished to every officer and serv- ant of the company liable to be affected thereby. And in many in- stances, power to bind parties dealing with the company is granted on condition that the by-laws or regulations adopted shall be written or printed, and copies of them prominently displayed at all sta- tions.*' While the rules are required to be so adopted and promulgated there is a tendency to hold the corporation not liable for acts of its servants done in contravention of such rules. Thus it was held that the company was not liable in a case where the station clerk informed the plaintiff that he could use his excursion ticket for return passage by a certain train, which, however, did not run clear through, and the plaintiff was arrested by the superintendent for refusing to pay the extra fare demanded for his passage on such train.*® And the company was also held not liable for the arrest by its inspector of an innocent man upon a charge of having no ticket, refusing to pay fare, being intoxicated, and assaulting the inspector, in violation of the company's regulations, even though the solicitor of the company at- tended to conduct the proceedings at the hearing before the magistrate, but without knowledge of the facts.^" But these cases would seem to be opposed to the rule which obtains generally throughout this eoun- *" Chilton V. London, &c. R. Co. 16 all but the first instance) forfeiture M. & W. 212. See Hodges, 453, for of the fare paid and eviction from the by-laws most generally adopted the company's premises. And any in England. person wilfully injuring the com- " Hodges Law of Railw. 552, 553. pany's carriages shall be liable to In the code of by-laws framed by the a penalty of not more than ;65, in board of trade and generally adopt- addition to the damage done, ed in England, it is provided that Hodges Law of Railw. 453. every person attempting to evade the " Great Western R. Co. ' v. Good- payment of all or a part of his fare, man, 11 Eng. L. & Eq. 546. and every person smoking, being in- *' Roe v. Birkenhead, &c. R. 7 Eng. toxicated, committing a nuisance, or L. & Bq. 546, 6 Eng. Railway and interfering with the comfort of Canal Cas. 795. other passengers, or obstructing the ™ Eastern Counties R. v. Broom, 2 company's servants in the discharge Eng. L. & Eq. 406; Roe v. Birken- of their duty, shall be liable to a head R. 7 Exch. 36. penalty of forty shillings, and (in § 199] BY-LAWS, RULES AND REGULATIONS. 300 try, that it maJies no difference, as to binding the company, that the agent disobeyed' his superior, even though it was willfully done, so long as he was acting within the scope of his employment."^ 61 § 199. Distinction between by-laws and rules and regulations — Bight of railroad company to make rules and regulations. — In this country there is a clearly recognized distinction between, on the one hand, by-laws for the government of the members and officers in their dealings with the corporation, which must be adopted by the body of stockholders, or by the directors; and, on the other hand, regulations for the government of the company's employes and servants engaged in operating the road and of passengers and others of the public transacting business with the company or dealing in any manner vrith the company's property,"^ which may usually be made by any officer or agent of the corporation duly authorized to control the business or property to which they relate."* A railroad company has an implied authority (which is necessarily almost absolute)"", to make and enforce all reasonable rules and regulations for the control of its trains and the persons thereon, of persons using its stations and grounds, and of those transacting business with it, in order to provide for the safety of its passengers and employes, and to protect itself from imposition and wrong."* "'Weed V. Panama R. Co. 5 Duer 596, 41 Am. Dec. 465, holding that (N. Y.) 193. Post, § 213. a superintendent of a railway sta- °' Philadelphia, &c. R. Co. v. Der- tion may make reasonable rules for by, 14 How. (U. S.) 468, 483; Hig- the control of the buildings and gins V. Watervliet, &c. R. Co. 46 N. grounds, and for the regulation of Y. 23, 7 Am. R. 293. Whether the conduct of persons coming upon agent was acting within the scope such grounds. Markham v. Brown, of his authority is generally for the 8 N. H. 523, 31 Am. Dec. 209, to jury to determine from the evi- the same effect. Vedder v. Fellows, dence. McKernan v. Manhattan E. 20 N. Y. 126, per Strong, J.: "The Co. 22 Jones and S. (N. Y. Super, conductors, in the absence of any Ct.) 354. directions from their superior offi- " State V. Overton, 24 N. J. L. 435, cers, have a right, and, indeed, it is 61 Am. Dec. 671; Morris, &c. R. Co. obligatory upon them, to adopt some V. Ayres, 29 N. J. L. 393; Common- rule relative to the surrender of the wealth V. Power, 7 Mete. (Mass.) tickets of the passengers." 596, 601, 41 Am. Dec. 465. =» Hibbard v. New York, &c. R. Co. " Smith V. Chamberlain, 38 S. C. 15 N. Y. 455. 529, 17 S. B. 371, 19 L. R. A. 710, ™ Crocker v. New London, &c. R. 32 Am. L. Reg. (N. S.) 747; Com- Co. 24 Conn. 249; Pittsburg, &c. R. monwealth v. Power, 7 Met. (Mass.) Co. v. McClurg, 56 Pa. St. 294; 301 EXAMPLES OF RULES ^PASSENGERS. [§ 200 § 200. Examples of rules and regulations which railroad compa- nies may make — ^Rules affecting passengers. — To this end they may regulate the purchase of tickets, the time and manner of procuring and paying for the same, and the time and manner of surrendering them; the manner and time of entering and leaving the cars; and the conduct of the passengers while upon the cars or at stations waiting for trains, as that they shall not be boisterous or disorderly, shall do nothing to obstruct the conductors or other employes in the discharge of their , duties, and shall be seated in the cars while the train is in motion.^' Thus, where a reasonable opportunity is afforded for the purchase of tickets, they may enact and enforce a rule requir- ing the payment of an additional sum by those who do not purchase tickets before entering the car, and a regulation providing that ten cents extra shall be paid in such a case over and above the regular ticket fare, is reasonable and valid.^^ It has also been held that a street railway company may adopt a rule that no bank bill or govern- ment note larger than two dollars need be accepted and changed on the car.^* So, a railroad company may require the production of a ticket and its exhibition to the conductor at proper times as evidence of the right to passage.®" And a rule requiring passengers to make a Southern R. Co. v. Kendrick, 40 Co. 132 Mass. 116, 42 Am. R. 432; Miss. 374, 90 Am. Dec. 332; Cleve- Forsee v. Alabama, &c. R. Co. '63 land, &c. R. Co. v. Bartram, 11 Ohio Miss. 67; State v. Hungerford, 39 St. 457; Stephen v. Smith, 29 Vt. Minn. 6, 38 N. W. 628; Hilliard v. 160; Reese v. Pennsylvania R. Co. Goold, 34 N. H. 230, 66 Am. Dec. 131 Pa. St. 422, 19 Atl. 72, 6 L. R. 765; State v. Goold, 53 Me. 279; A. 529, 1 Lewis Am. R." & Corp. Pullman Co. v. Reed, 75 lU. 125; Cas. 147; Dickerman v. St. Paul Stephen v. Smith, 29 Vt. 160; Snell- TJnion Depot Co. 44 Minn. 433, 46 haker v. Paducah, &c. R. Co. 94 N. W. 907, 3 Lewis' Am. R. & Corp. Ky. 597, 23 S. W. 509. See, also, Cas. 374, and note, 46 N. W. 907. Manning v. Louisville, &c. R. Co. See, also, Donovan v. Pennsylvania 95 Ala. 92, 11 So. 8, 36 Am. St. 225; Co. 199 U. S. 279, 26 Sup. Ct. 91. Ammons v. Southern R. Co. 138 N. " Hibhard v. New York, &c. R. Co. Car. 555, 51 S. B. 127. 15 N. y. 455, and cases in last note " Barker v. Central Park, &c. R. supra. Co. 151 N. Y. 237, 45 N. E. 550, 35 =' Reese v. Pennsylvania R. Co. 131 L. R. A. 489, 56 Am. St. 626. Pa. St. 422, 19 Atl. 72, 17 Am. St. "Van Dusan v. Grand Trunk R. 818, 1 Lewis Am. R. & Corp. R. 147; Co. 97 Mich. 439, 56 N. W. 848; Sage V. Evansville, &c. R. Co. 134 Northern Cent. R. Co. v. O'Conner, Ind. 100, 33 N. E. 771; Crocker v. 76 Md. 207, 24 Atl. 449, 35 Am. St. New London, &c. R. Co. 24 Cpnn. 422; Poole v. Northern Pac. R. Co. .249; Swan v. Manchester, &c. R. 16 Oreg. 261, 19 Pac. 107, 8 Am. St. 300] BY-LAWS, EULES AND REGULATIONS. 302 continuous trip, unless they procure a "stop-over" ticket or check, is reasonable and valid. "^ A railroad company may also make and enforce a rule forbidding passengers to be carried on freight trains,'^ where it sufficiently provides for their accommodation on passenger trains, and, if it permits passengers on freight trains, it may, after due notice of the rule, require such passengers to provide themselves with a particular kind of ticket which it has given them a reasonable op- portunity to obtain."^ It is likewise held, in the absence of any statu- tory provision to the contrary, that a railroad company may adopt rules providing that particular trains shall stop only at certain sta- tions, where it furnishes reasonable means of reaching all stations on its road by other trains, and that passengers are bound to take no- tice of such a rule as shown in the time-card published by the com- pany.°* Eules and regulations in regard to separate cars for ladies 289; Cresson v. Philadelphia, &c. R. Co. 11 Phila. (Pa.) 597; Nye v. Ma- rysvlUe, &c. St. R. Co. 97 Cal. 461, 32 Pac. 530; Chicago, &c. R. Co. v. Roger, 1 Bradw. (111.) 472; Balti- more, &c. R. Co. V. Blocher, 27 Md. 277; Frederick v. Marquette, &c. R. Co. 37 Mich. 342, 26 Am. R. 531; Downs V. New York, &c. R. Co. 36 Conn. 287, 4 Am. R. 77; Jerome v. Smith, 48 Vt. 230, 21 Am. R. 125; Crawford v. Cincinnati, &c. R. Co. 26 Ohio St. 580; Ripley v. New Jer- sey, &c. Co. 31 N. J. L. 388; Town- send V. New York, &c. R. Co. 56 N. Y. 295, 15 Am. R. 419; Standish v. Narragansett, &c. Co. Ill Mass. 512, 15 Am. R, 66; Duke v. Great West- ern R. Co. 14 Upper Can. Q. B. 369, 377. See Watkins v. Pennsylvania R. Co. 21 Dist. of C. 1, 52 Am. & Eng. R. Cas. 159, and note. «' Cheney v. Boston, &c. R. Co. 11 Met. (Mass.) 121, 45 Am. Dec. 190, and note; Yorton v. Milwaukee, &c. R. Co. 54 Wis. 234, 11 N. W. 482, 41 Am. R. 23; Beebe v. Ayres, 28 Barb. (N. Y.) 275; Johnson v. Con- cord R. 46 N. H. 213, 88 Am. Dec. 199. '"Chicago, &c. R. Co. v. Randolph, 53 111. 510, 5 Am. R. 60; Houston, &c. R. Co. V. Moore, 49 Tex. 31, 30 Am. R. 98; Eaton v. Delaware, &c. R. Co. 57 N. Y. 382, 15 Am. R. 513. '^ Evans v. Memphis, &c. R. Co. 56 Ala. 246, 28 Am. R. 771; St. Louis, &c. R. Co. V. Myrtle, 51 Ind. 566; Arnold v. Illinois, &c. R. Co. 83 111. 273, 25 Am. R. 383; Law v. Illinois, &c. R. Co. a2 Iowa 534; Kansas, &c. R. Co. V. Kessler, 18 Kan. 523; Bur- lington, &c. R. Co. V. Rose, 11 Neb. 177, 1 Am. & Eng. R. Cas. 253, 8 N. W. 433. . «* Texas, &c. R. Co. v. Ludlam (Tex. Civ. App.), 26 S. W. 430; Dietrich v. Pennsylvania, &c. R. Co. 71 Pa. St. 432, 10 Am. R. 711. "It is the duty of a party going upon a railroad train to inform himself when, where and how he can go or stop, according to the regulations of the railroad company." Ohio, &c. Co. V. Applewhite, 52 Ind. 540, 546; Pittsburgh, &c. Co. v. Lightcap, 7 Ind. App. 249, 253, 34 N. E. 243; Chicago, &e. R. Co. v. Randolph, 53 111. 510', 5 Am. R. 60; Gulf, &c. R. Co. V. Henry, 84 Tex. 678, 19 S. W. 870, 16 L. R. A. 318, 52 Am. & Eng. R. Cas, 233; Jackson v. Grand Ave. 303 EXAMPLES OF RULES — PASSENGERS. [§ 300 'and their escorts/ ° or providing for the separation of white from colored passengers/" have also been upheld as reasonable where equal accommodations were offered to all. So has a rule that none but hold- ers of first-class tickets shall ride on sleeping cars.*' Eailroad com- panies may also adopt and enforce rules prohibiting passengers from riding in the baggage or express cars or on the engines, platforms, or other improper places of danger,** and prohibiting disorderly con- duct on the cars.*' And they may exclude from their carriages and premises such persons as refuse to comply with their reasonable regu- lations.'" R. Co. 118 Mo. 199, 24 S. W. 192; Beauchamp v. International, &c. R. Co. 56 Tex. 239. " Peck V. New York, &c. R. Co. 70 N. Y. 587; Marquette v. Chicago, &c. R. Co. 33 Iowa 562 ; Bass v. Chicago, &c. R. Co. 36 Wis. 450, 17 Am. R. 495; Memphis, &c. R. Co. v. Benson, 85 Tenn. 627, 4 S. W. 5, 4 Am. St. 776. «= West Chester, &c. R. Co. v. Miles, 55 Pa. St. 209, 93 Am. Dec. 744; Green v. Bridgeton, 9 Cent. L. J. 206; Plessy, Ex parte, 45 La. Ann. 80, 11 So. 948, 18 L,. R. A. 639, and note. ■^Pullman Palace Car Co. v. Lee, 49 111. App. 75, and the company may charge extra compensation for ■a seat in a chair car, even to the holder of a first-class ticket. St. Louis, &c. R. Co. V. Hardy, 55 Ark. 134, 17 S. W. 711, 52 Am. & Bng. R. Cas. 224. ™ Florida Southern R. Co. v. Hirst, 30 Fla. 1, 52 Am. & Eng. R. Cas. 409, 11 So. 506, 16 L. R. A. 631, and note, 32 Am. St. 17 n; Rohertson V. New York, &c. R. Co. 22 Barb. (N. Y.) 91; O'Neill v. Lynn, &c. R. Co. 155 Mass. 371, 29 N. E. 630; Pennsylvania R. Co. v. Langdon, 92 Pa. St. 21, 37 Am. R. 651; Augusta R. &c. Co. V. Smith, 121 Ga. 29, 48 S. E. 681. "See Pittsburg, &c. R. Co. v. Pil- low, 76 Pa. St. 510, 18 Am. R. 424; New Orleans, &c. Co. v. Burke, 53 Miss. 200, 24 Am. R. 689; Jencks v. Coleman, 2 Sumn. (U. S.) 221. "Murphy v. Union R. Co. 118 Mass. 228 ; Putnam v. Broadway, &c. R. Co. 55' N. Y. 108, 14 Am. R. 190; Townsend v. New York, &c. R. Co. 56 N. Y. 295, 15 Am. R. 419; Mon- nier v. New York, &c. R. Co. 175 N. Y. 281, 67 N. B. 569, 62 L. R. A. 357, 96 Am. St. 619; Commonwealth v. Power, 7 Met. (Mass.) 596; Louis- ville, &c. R. Co. V. Johnson, 92 Ala. 204, 9 So. 269; McKernan v. Man- hattan R. Co. 54 N. Y. Super. Ct. 354; Louisville, &c. R. Co. v. Logan, 88 Ky. 232, 10 S. W. 655, 3 L. R. A. 80, 21 Am. St. 332; Pittsburg, &c. R. Co. V. Pillow, 76 Pa. St. 510, 18 Am. R. 424. A railroad company may, at its option, exclude all persons coming upon its premises for pur- poses other than transacting busi- ness with the company. Hotel run- ners, Commonwealth v. Power, 7 Met. (Mass.) 596, 41 Am. Dec. 465, and note; Landrigan v. State, 31 Ark. 50, 25 Am. R. 547; porters, Barney v. Oyster Bay, &c. Co. 67 N. Y. 301, 23 Am. R. 115; D. R. Martin, The, 11 Blatch. (U. S.) 233; omnibus driver. Barker v. Mid- land R. Co. 18 C. B. 46; Summitt V. State, 8 Lea (Tenn.) 413; Har- ris V. Stevens, 31 Vt. 79. See post. § 200a] BY-LAWS, EULES AND EEGULATIONS. 304 § 200a, Eules affecting shippers and freight. — Like reasonable rules may be made to govern the receipt, carriage, and delivery of freight and baggage, and the shipper may be compelled to conform to them in transacting business with the company.'* Thus, a railroad company may require persons hauling freight from its depot to take it from the platform, where it is delivered to them by the company's agents, and to transact business over the counter, without entering the warehouse to check ofE the freight.'" So, it is now established in most jurisdictions by the weight of authority, in accordance with the better reason, that it is competent for a railroad company to adopt and enforce a reasonable regulation, fixing the time within which a consignee shall unload his freight after notice of its arrival and pro- viding a reasonable charge per day thereafter for car service or by way of demurrage.'^ As will hereafter appear, however, a common car- rier can make no unreasonable and unjust discrimination between its customers,'* and some regulations that it might otherwise make are prohibited by the interstate commerce law. § 1678. But passengers are not always bound to know rules for employes and the like. New York, &c. R. Co. V. Winter's Adm'r, 143 U. S. 60, 70, 12 Sup. Ct. 356. Post- ing a rule in tbe car is evidence of notice. Baltimore, &c. Road v. Cason, 72 Md. 377, 20 Atl. 113. But see Coupland v. Housatonic R. Co. 61 Conn. 534, 541, 23 Atl. 870, 15 L. R. A. 534. " Southern R. Co. v. Kendrlck, 40 Miss. 374, 90 Am. Dec. 332; Pitts- burgh, &c. R. Co. V. Lyon, 123 Pa. St. 140, 16 Atl. 607, 2 L. R. A. 489, 10 Am. St. 517; Morris, &c. R. Co. V. Ayres, 29 N. J. L. 393; Randall V. Richmond, &c. R. Co. 108 N. Car. 612, 13 S. E. 137; Chicago, &c. R. Co. V. Colby, 69 Neb. 572, 96 N. W. 145. As to when the customer is not bound to take notice of rules see Central R., &c. Co. v. Skellie, 90 Ga. 694, 16 S. B. 657; Southern Exp. Co. V. Crook, 44 Ala. 468, 4 Am. R. 140; Atchison, &c. R. Co. v. Miller, 16 Neb. 661, 21 N. W. 451. "Such a regulation is reasonable. Donovan v. Texas, &c. R. Co. 64 Tex. 519, 29 Am. & Eng. R. Cas. 320. "Norfolk & Western R. Co. v. Adams, 90 Va. 393, 18 S. B. 673, 56 Am. & Eng. R. Cas. 330; Miller v. Georgia, &c. R. Co. 88 Ga. 563, 15 S. E. 316, 18 L. R. A. 323, 30 Am. St. 170; Miller v. Mansfield, 112 Mass. 260; Kentucky Wagon, &c. Co. V. Louisville, &c. Co. 11 Ry. & Corp. L. J. 49; post, § 1567. One dollar per day for each car was held rea- sonable in the first two cases above cited. But see Chicago, &c. R. Co. V. Jenkins, 103 111. 588; Burlington, &c. R. Co. V. Chicago Lumber Co. 15 Neb. 390, 19 N. W. 451. "See Chicago, &c. R. Co. v. Peo- ple, 56 111. 365, 8 Am. R. 690; Hays V. Pennsylvania, &o. Co. 12 Fed. 309; Logan V. Central R. Co. 74 Ga. 684; Rice V. Railroad Co. 3 Interstate Com. Com. R. 186; Cleveland, &c. R. Co. V. Closser, 126 Ind. 348, 26 N. B. 159, 9 L. R. A. 754 n, 22 Am. St. 593, and authorities there cited; 305 KULES APFECTING EMPLOYES. [§ 300b § 200b. Rules affecting employes. — ^Eules afEecting passengers and shippers are not the only rules which a railroad company has the power to make. It is not only the right, but it is also the duty of rail- road companies to promulgate and enforce reasonable and necessary rules for the safety of its employes, in the management and operation of its road.'^ It has also been held that the adoption of mere general rules may not relieve a company where emergencies demanded special rules.''^ This subject, however, will be fully considered hereafter. § 201. Enforcement of rules — ^Penalties. — Beyond exclusion from their premises and from the privilege of transacting business with them, railroad corporations have in this country very little authority to inflict penalties, for disobedience of their rules, except so far. as such penalties are prescribed by the statutes of the various states. But they are generally permitted, as we have seen, to exact a higher fare from passengers failing to procure tickets and seeking to pay their fare after getting upon the train,'^ provided such increased fare be reasonable. And the English courts have adjudged a by-law valid which required a passenger, not procuring or delivering up his ticket. Root V. Long Island R. Co. 114 N. Y. 300, 21 N. E. 403, 4 L.. R. A. 331 n, 11 Am. St. 643, and exhaustive note. Article in 16 Am. L. Rev. 818; note to Commonwealtli v. Power, 41 Am. Dec. 465, 484. ■"> Lewis V. Seifert, 116 Pa. St. 628, 11 Atl. 514, 3 Am. St. 631; Cor- coran V. Delaware, &c. R. Co. 126 N. Y. 673, 27 N. E. 1022; Morgan V. Hudson River, &c. Co. 133 N. Y. 666, 31 N. E. 234; Pittsburgh, &c. R. Co. V. Henderson, 37 Ohio St. 549; Chicago, &c. R. Co. v. Moranda, 93 111. 302, 34 Am. R. 168; Ohio, &c. R. Co. V. Collarn, 73 Ind. 261, 38 Am. R. 134; Ford v. Fitchburg R. Co. 110 Mass. 240, 14 Am. R. 598; Hough v. Railway Co. 100 IT. S. 213; post, § 1280. '« Sprague v. New York, &c. R. Co. 68 Conn. 345, 36 Atl. 791, 37 L. R. A. 638. But see where an employe acquiesces in the rules and their sufficiency. Berrigan v. New York, Ell. Raileoads — 20 &c. R. Co. 131 N. Y. 582, 30 N. E. 57; and see post, § 1280. See, also, Wolsey V. Lake Shore, &c. R. Co. 33 Ohio St. 227. As to notice to the employe and evidence thereof, see Sprong V. Boston, &c. R. Co. 58 N. Y. 56, and compare Shenandoah Val- ley R. Co. V. Lucado, 86 Va. 390, 10 S. E. 422; Galveston, &c. R. Co. v. Gormley, 91 Tex. 393, 43 S. W. 877, 66 Am. St. 894. " McGowen v. Morgan's Louisiana, &c. R. Co. 41 La. Ann. 732, 17 Am. St. 415; State v. Hungerford, 39 Minn. 6, 38 N. W. 561; Reese v. Pennsylvania R. Co. 131 Pa. St. 422, 19 Atl. 72, 6 L. R. A. 529, 17 Am. St. 818; 1 Lewis Am. R. & Corp. Cas. 147, citing numerous authori- ties and holding that an additional charge of ten cents Is not a "charge for transportation" within the mean- ing of a statute limiting the rate three and one-half cents per mile. Ante, § 200. § 303] BY-LAWS, EULES AND EEGDLATIONS. 306 to pay fare from the place where the train originally started/^ Such rules must be in accordance with the charter and not, it seems, in conflict with any of the numerous regulations prescribed by statute in the states through which the road runs or in which it does busi- ness,^' and must, moreover, be reasonable.'" § 202. Reasonableness of rules — ^When a question of fact and when a question of law. — ^The reasonableness of such regulations and of the manner of their enforcement in a given case has been held by some of the courts to be a question of fact for the jury.'^ But it would seem that this must be a question of law for the court to de- cide, if any fixed and permanent regulations are to be established, and the better authority holds it to be such ; since one jury in a given case might pronounce the rule reasonable, while another jury in an- other case might decide the same rule to be unreasonable.*^ Yet, as any given case is apt to depend in part upon the facts and circumstances which are themselves in dispute, some authorities hold that the ques- tion of the reasonableness of a rule as applied to the case in hand should be submitted to the jury, under proper instructions from the court, as a mixed question of law and fact,*^ and that it is for the " Chilton V. London, &c. R. Co. 16 Chicago, &c. R. Co. v. McLallen, 84 M. & W. 212, 5 Bng. Railw. and 111. 109 (holding, however, that its Canal Cas. 4. See, also. Manning v. adequacy or sufficiency is for the Louisville, &c. R. Co. 95 Ala. 392, jury); Hoftbauer v. Delhi, &c. R. 11 So. 8, 16 L. R. A. 55 n, 36 Am. St. Co. 52 Iowa 342, 3 N. W. 121, 35 Am. 225, 52 Am. & Eng. R. Cas. 213. R. 278; Louisville, &c. R. Co. v. "See ante, § 191. We do not Fleming, 14 Lea (Tenn.) 128; Ma- mean, however, that a state law will roney v. Old Colony, &c. R. Co. 106 control the authority of the United Mass. 153, 8 Am. R. 305; Yorton v. States over the road as an instru- Milwaukee, &c. R. Co. 54 Wis. 234, ment of interstate commerce. 11 N. W. 482, 41 Am. R. 23; Pitts- *' Chicago, &c. R. Co. v. Williams, burgh, &c. R. Co. v. Nuzum, 50 Ind. 55 111. 185, 8 Am. R. 641. Ante, 141, 19 Am. R. 703; Fertich v. Mich- § 193. ener. 111 Ind. 472, 481, 11 N. E. 605; ^ State V. Overton, 24 N. J. L. 435, 60 Am. R. 709; South Florida R. Co. 61 Am. Dec. 671; Morris, &c. R. Co. v. Rhoads, 25 Fla. 40, 6 So. 60, 3 V. Ayres, 29 N. J. L. 393; State v. L. R. A. 733 n, 23 Am. St. 506; Chovin, 7 Iowa 204; Texas, &c. R. Pierce v. Randolph, 12 Tex. 290; Co. V. Adams, 78 Tex. 372, 14 S. W. Vedder v. Fellows, 20 N. Y. 126; No- 666, 22 Am. St. 56; Prather v. Rail- Ian v. New York, &c. R. Co. 7 Conn, way Co. 80 Ga. 427, 9 S. E. 630, 12 159, 180, 39 Atl. 115, 43 L. R. A. 305; Am. St. 263. 1 Elliott's Gen. Pr. § 436. "" Illinois Central R. Co. v. Whitte- «" Day v. Owen, 5 Mich. 520, 72 more, 43 111. 420, 92 Am. Dec. 138; Am. Dec. 62; Bass v. Chicago, &c. 307 FAILURE TO ENFORCE RULES — WAIVER OR ABROGATION. [§' 303a court only where the facts are undisputed.** There are, douhtless, many cases in whieh the reasonableness of the rule depends, in the particular instance, upon disputed facts or circumstances, and, where this is true, it may, perhaps, be called a mixed question of law and fact; but, when the facts are undisputed, we think it is clear, both upon principle and according to the weight of authority, that the question is one of law for the court.'^ §' 202a. Failure to enforce rules — ^Waiver or abrogation. — ^By-laws may often be waived, and so, too, in some instances, at least, may a rule of a railroad company. By failing to enforce a rule the company may allow it to become a dead letter, and, in efEect, waive, abandon, or abrogate it. As will hereafter be shown, it is not every failure to en- force or carry out a rule by every employe, or in a few exceptional instances, that will ordinarily have this efEect, but there are instances in which both employes and others have been relieved from the oper- ation of a rule at one time promulgated by the company because it was no longer considered in force, and such, in general, is the effect or result where the company itself does not enforce it but kaowingly permits it to become a dead letter.*® R. Co. 36 Wis. 450; Brown v. Mem- Co. v. Fleming, 14 Lea (Tenn.) 128; phis, &c. R. Co. 4 Fed. 37; Redfield Wolsey v. Railroad Co. 33 Ohio St. ^on Railways (6th ed.), 82, 83; 227; Hoffbauer v. Railway Co. 52 Thompson on Carriers, § 335. See, Iowa 342, 3 N. W. 121, 35 Am. R. also, Clason v. Milwaukee, 30 Wis. 278, and authorities cited In note 82, 316; Christian v. First Div. St. Paul, supra. The construction of a writ- &e. R. Co. 20 Minn. 21. It is for the ten rule is for the court. Lake jury to ascertain the facts in such Shore, &c. R. Co. v. Peterson, 144 a case, but it is a question of law Ind. 214, 42 N. E. 480, 43 N. B. 1. whether upon such facts the rule is ™ See Sweetland v. Lynn, &c. R. reasonable. But see Devoe v. New Co. 177 Mass. 574, 59 N. E. 443, 51 York, &c. R. Co. 174 N. Y. 1, 66 N. L. R. A. 783; Greenfield y. Detroit, E. 568. &c. R. Co. 133 Mich. 557, 95 N. W. ** Commonwealth V. Power, 7 Met. 546; Montgomery, &c. Ry. Co. v. (Mass.) 596; Pittsburgh, &c. R. Co. Kolb, 73 Ala. 396, 49 Am. R. 54; V. Lyon, 123 Pa. St. 140, 16 Atl. 607, Chicago, &c. R. Co. v. Lowell, 151 2 L. R. A. 489, 10 Am. St. 517. U. S. 209. 219, 14 Sup. Ct. 281. This " St. Louis, &c. R. Co. V. Hardy, subject, especially with reference to 55 Ark. 134, 17 S. W. 711, 52 Am. employes, is hereafter considered. & Eng. R. Cas. 224; Old Colony R. See,, also. Northern Pac. R. Co. v. Co. V. Tripp, 147 Mass. 35, 17 N. E. Nickels, 50 Fed. 718, 1 C. C. A. 625. 89, 9 Am. St. 661; Louisville, &c. R. CHAPTEE XI. COEPOEATE EEPEESBNTATIVES. Sec. Sec. 203. Railroad corporations act through officers, agents or other representatives. 219. 204. Appointment of officers and agents — General doctrine. 220. 205. Statutory privileges bestowed on agents. 221. 206. Officers generally. 221a. 207. Qualifications of officers. 208. Election of officers — Generally. 209. Agents generally. 222. 210. Proof of the existence of the relation of principal and 223. agent. 224. 211. Proof of authority. 212. Agency inferred. 225. 213. Powers, duties aad authority of officers and agents gener- 226. ally. 227. 214. Authority of agent — Line of 228. , duty. 229. 215. Scope of authority — General 230. conclusions. 231. 216. Contracts by agents — General 217. 218. doctrine. Declarations of agents. Declarations gestae. and admissions of agent — ^Res 232. 233. Declarations must relate to transaction or event in con- troversy. Exercise of authority by agents — Illustrative cases. Scope of authority — Illustra- tive casesv Authority- of agent— -Emergen- cies and special circum- stances. Authority of agents — ^Employ- ment of surgeons. Physicians and surgeons. Delegation of power by di- rectors. Employment of sub-agents and servants. Notice to agents or officers. Ratification. Acts that may be ratified. Ratification — ^What constitutes. Compensation of officers. Liability of agents for their torts. Bonds of officers and agents. Sureties — Bonds of officers and agents. § 203. Bailroad corporations act througli officers, agents or other representatives. — It is elementary learning that corporations act through agents, officers, attorneys or servants. The nature of a cor- poration aggregate, as is well known, is such that it can only perform its corporate functions, duties and acts through the medium of natu- ral persons.^ The creation of a railroad corporation invests it with »New York, &c. Co. v. Schuyler,. 34 N. Y. 36; Lyman v. White River, 308 309 APPOINTMENT OP OPPIOEES AND AGENTS. [§ 304 power, without express words, to choose officers, agents, attorneys and servants.^ In other words, the creation of a railroad company invests it, as an incidental power, with the authority to appoint officers and agents. § 204. Appointment of officers and agents — General doctrine. — As a general rule agents or servants may be appointed by railroad corpo- rations in the same manner as agents and servants may be appointed by natural persons.^ It is, however, to be understood that where the charter or act of incorporation provides the mode in which officers or agents shall be appointed that mode must be pursued. There may be cases where a departure from the mode prescribed by the charter or act of incorporation would not prejudice the rights of third persons, but the general rule is that where the mode is expressly prescribed by the charter or the act of incorporation the appointment will not be valid if there is a substantial or material departure from the pre- scribed mode.* To prevent misunderstanding we say that we are here outlining general doctrines and are not stating specific rules. §205. Statutory privileges bestowed on agents. — ^Because of the entire reliance of a railroad corporation upon its servants for the discharge of its duties to the public, some of the older charters &c. Co. 2 Aik. (Vt.) 255, 16 Am. Fitch v. Lewiston Steam Mill Co. Dec. 705; Angel! & Ames Corp. (llth 80 Me. 34, 12 Atl. 732; Bank of Co- ed.) § 276. lumbia v. Patterson, 7 Cranch (XJ. "Protection Life Ins. Co. v. Foote, S.) 299; Randall v. Van Vechten, 19 79 111. 361, 368; Hurlbut v. Marshall, Johns. (N. Y.) 60, 10 Am. Dec. 193; 62 Wis. 590, 22 N. W. 852; Kitchen Reynolds v. Collins, 78 Ala. 94; Ban- v. Cape Girardeau, &c. Co. 59 Mo. croft v. Wilmington, &c. Academy, 5 514; Alabama, &c. Co. v. Kidd, 29 Houst. (Del.) 577. Ala. 221; Wood v. Ontario, &c. Co. * Henning v. United States Ins. Co. 24 U. C. C. P. 334. 47 Mo. 425, 4 Am. R. 332; Salem = Hamilton v. Newcastle, &c. Co. 9 Bank v. Gloucester Bank, 17 Mass. Ind. 359; Alabama, &c. Co. v. Kidd, 1, 9 Am. Dec. Ill; Badger v. Amer- 29 Ala. 221; Giles v. TafC Vale. R. ican, &c. Co. 103 Mass. 244, 4 Am. Co. 2 El. & Bl. 822; Goff v. Great R. 547; Beatty v. Marine Ins. Co. 2 Northern, &c. Co. 3 El. & Bl. 672, 30 Johns. (N. Y.) 109, 3 Am. Dec. 401; L. J. Q. B. 148; Santa Clara, &c. Co. Card v. Carr, 1 C. B. N. S. 197; Kirk V. Meredith, 49 Md. 389, 33 Am. R. v. Bell, 16 Q. B. 290; Gordon v. 264; Crowley v. Genessee, &c. Co. 55 Preston, 1 Watts (Pa.) 385; Chi- Cal. 273; White v. State, 69 Ind. cage, &c. Co. v. James, 22 Wis. 194. 273; Despatch Line, &c. v. Bellamy, See Bridgeport Bank v. New York, &c. Co. 12 N. H. 205, 37 Am. Dec. &c. Co. 30 Conn. 231. 203; Cook T. Kuhn, 1 Neb. 472; § 306] CORPORATE REPRESENTATIVES. 310 granted to them special privileges and exemptions. Privileges and exemptions granted corporate agents are generally regarded as be- stowed upon the corporation and not upon persons who chance to be the corporate agents. Thus, it is held that an exemption of the ser- vants of a corporation from military duty, serving on juries, and working on public roads, is not a mere personal privilege to the officers, agents and servants of the company, but is a right or privilege of the corporation, on which it may insist in favor of any servant whom it may employ.^ § 206. Officers generally. — The most important of corporate agents are, of course, the officers,^ without whom no business can be trans- acted by the corporation.^ Indeed, in most acts for the incorporation of railroad companies, a choice of officers is one of the essential steps toward incorporation.® The power to choose officers is inherent in a corporation and implied from the fact of incorporation without being specially granted.* This implied power is limited by the rule that the officers must be such as are necessary to the discharge of corporate functions and are necessary to enable the corporation to accomplish" the object for which it was created. » Johnson v. State, 88 Ala. 176, 7 692, 4 S. "W. 156; Gashwiler v. Wil- So. 253, 41 Am. & Bng. R. Cas. 275; lis, 33 Cal. 11, 91 Am. Dec. 607; Zimmer v. State, 30 Ark. 677. The Conro v. Port Henry, &c. Co. 12 grant of such a privilege was held Barb. (N. Y.) 27. unconstitutional in Tennessee. Nee- 'StimsonAm. Stat. (1892) §§8022, ly V. State, 4 Lea (Tenn.) 316. 8523, citing statutes of Pennsyl- "OflScers are but ministerial vania, Wisconsin, Iowa, Minnesota, agents of the corporation. Dis- Kansas, Nebraska, Maryland, Ken- patch Line, &c. v. Bellamy Mfg. Co. tucky, Texas, California, Nevada, 12 N. H. 205, 37 Am. Dec. 203; Burr Colorado, Washington, Dakota, v. McDonald, 3 Gratt. (Va.) 215. Idaho, Montana, Wyoming, Utah, Officers may be invested with very Florida, New Mexico, District of Co- comprehensive powers, but they are lumbia, Oklahoma, New Hampshire, not the corporation. A corporation Massachusetts, Maine, Vermont, may entrust the conduct of its busi- Connecticut, Indiana, Illinois, Mich- ness to its officers, and may be Igan, Arkansas, New York, Arizona, bound by their acts, but no matter New Jersey, North Carolina, Mis- how extensive the powers conferred souri, Georgia. upon corporate officers, they are ' Hurlbut v. Marshall, 62 Wis. 590, merely the representatives of the 22 N. W. 852; Terwilliger v. Gt. corporation, for that legal entity Western Tel. Co. 59 111. 249; Hughes is the principal, and its officers are v. Parker, 19 N. H. 181; Wheeler, its agents or representatives. Ex parte, 2 Abb. Pr. N. S. (N. Y.) ' Gulf, &c. R. Co. V. Morris, 67 Tex. 361. 311 QUALIFICATIONS OF OFFICERS. [§ 207 § 207. ftualifioations of officers. — It is, of course, competent for the legislature to prescribe by 'charter the qualifications of corporate offi- cers and to provide what persons shall or shall not be eligible to hold a corporate office. The legislative decision as to who shall be eligible is necessarily conclusive and not subject to review by the courts. The laws of several of the states prohibit any officer of a railroad corpo- ration from becoming an officer of a parallel or competing line,^" and some of the states make stockholders and owners of express and "transportation companies ineligible to hold office or act as agents in any railroad company.^ ^ Ordinarily, any one may be an officer of a corporation who is competent to transact business for another, unless special qualifications are required by the charter or by-laws.^^ § 208. Election of officers — Generally. — ^Where the mode of choos- ing officers is not prescribed by the charter, they must, as a general rule, be chosen by the body of the corporators, or in such a mode as the corporators acting in accordance with the charter may prescribe.** Officers can exercise only the powers granted to them either expressly by the charter or by the by-laws, enacted pursuant to the charter, or implied by a declaration of the purposes of their appointment, or such as by necessary implication are conferred upon them. It was held at common law that the power to appoint agents rests with the stock- holders at large, but this doctrine is almost entirely swept away as to mere agents. It was also held that the courts cannot judicially know that a particular board or body of a corporation not created by a public statute is authorized by the charter and by-laws to appoint agents, where no proof of the fact is introduced,** but this doctrine "Stlmson Am. Stat. (1892) § 8540, "Angell & Ames Corp. (11th ed.) citing laws of "Wisconsin, Missouri, § 277. It has been held that the Arkansas. court cannot judicially know the au- "Stimson Am. Stat. (1892) § 8540, thority and duties of officers of a citing laws of Pennsylvania, Wis- railroad corporation where they are consin, Missouri, Ohio. Pennsyl- not defined by law. Brown v. Mis- vania and Missouri make it a mis- souri, &c. R. Co. 67 Mo. 122. Nor demeanor for an officer or employe of agents. Wood v. Chicago, &c. R. of a railroad to be interested in the" Co. 59 Iowa 196, 13 N. W. 99; Mc- business of transportation as a com- Gowan v. St. Louis, &e. R. Co. 61 mon carrier over such road. Mo. 528; Southern R. Co. v. Hogan, '''People v. Webster, 10 Wend. (N. 103 Ga. 564, 29 S. E. 760. But see Y.) 554. See, also. Mobile, &c. R. Co. Louisville, &c. R. Co. v. McVay, 98 T. Owen, 121 Ala. 505, 25 So. 612. Ind. 391, 49 Am. R. 770, where the "State V. Ancker, 2 Rich. L. (S. court noticed the duties and powers C.) 245. of a "general manager" without 309] COHPOEATE EEPEESENTATIVES. 313 requires limitation and qualification. Principal governing officers, such as the members of the board of directors, must be chosen by the members of the corporation unless otherwise provided by the charter. AH of the states make provision by their statutes for the incorporation of railroads for the choice of a board of directors, who are charged with the immediate government and direction of the affairs of the corporation,^^ and of a president usually chosen by them.^® Many of the states provide that the directors shall also choose certain other officers, as vice-president,^^ secretary,^* and treasurer;^® while other states leave all officers and agents, as these states leave all but those enumerated, to be selected by the directors in accordance with the by- laws that may be adopted, or in response to the apparent needs of the corporation.^" §209. Agents generally. — Agents are sometimes appointed for a term certain, though they are more often appointed to serve at the pleasure of the directors or principal officers. Except where some other proof. And Sacalaris v. Eureka, &c. R. Co. 18 Nev. 155, 1 Pac. 835, 51 Am. R. 737, where tlie court did the same as to a "superintendent." "We think that the courts may take ju- dicial notice of the powers and du- ties of many classes of officers and agents of railroad companies. It may he true that courts will not take judicial notice of the particu- lar powers and duties of officers, but that they will take notice of the general scope and nature of the powers and duties of many classes of officers and agents is also true. See 1 Elliott Ev. § 72. "Stimson Am. Stat. (1892) §§ 8043, 8533. "Stimson Am. Stat. (1892) §§ 8044, 8533. "Stimson Am. Stat. (1892) §§ 8044, 8533, citing laws of Ohio, Wisconsin, Dakota, Georgia, Florida, Oklahoma, Nevada, Arizona, New Jersey, Pennsylvania and Utah. "Stimson Am. Stat. (1892) §§ 8044, 8533, citing laws of Massa- chusetts, Vermont, Connecticut, New York, Wisconsin, Nebraska, Mis- souri, Nevada, Utah, North Caro- lina, New Mexico, Dakota, Montana, Arizona, Georgia, Oklahoma, Dela- ware, California, New Hampshire, Ohio, Kansas, Arkansas, Colorado, Wyoming, District Columbia. "Stimson Am. Stat. (1892) §§ 8044, 8533, citing laws of Nevada, Arizona, Massachusetts, Vermont, Connecticut, New York, Wisconsin, Nebraska, Ohio, North Carolina, Maryland, Dakota, Montana, Utah, Georgia, Florida, Oklahoma, New Mexico, Delaware, California, Kan- sas, Arkansas, Idaho. ^Stimson Am. Stat. (1892) §§ 8044, 8533. Without express power granted to them, it is the right of the directors to appoint necessary officers and agents of the company, and to provide for the payment of compensation. Falki- ner v. Grand Junction R. Co. 4 Ont. Rep. 350. '313 PROOF OF EELATION OF PEINCIPAL AND AGENT. [§' 310 provision is contained in the charter or by-laws, the directors have implied power to remove at any time agents appointed by them, sub- ject to the rules which govern similar contracts between the agents of individuals and their principals.^^ But the authority of a duly ap- pointed agent does not, necessarily, cease with the termination of the- office of the board of directors by which he, was appointed ;^^ such authority, as a general rule, continues until revoked, unless a limit, was placed upon its duration when granted. § 210. Proof of the existence of the relation of principal and. agent. — The general rule is that the existence of the relation of prin- cipal and agent may be established by direct evidence or by facts and circumstances. Whether the relation exists is ordinarily, but not always, a question of fact.^* As is well known, the relation of prin- cipal and agent cannot be established by evidence of the declarations of the person claiming to act as agent,^* nor can it be established by evidence of a general understanding among business men.^' The agents of the corporation not expressly named in the charter are usually appointed by the directors under their general authority to direct the affairs of the corporation.^® Such an appointment should, when practicable, be proved by the records of the corporation, and cannot be established by the mere acts of the assumed agent as to the "^ Taylor Priv. Corp. (2d ed.) generally, on this subject, 3 Elliott. § 650. Ev. §§ 1626-1635. ^ Anderson v. Longden, 1 Wheat. "^ New England, &c. Co. v. Baxley,^ (U. S.) 85; Northampton Bank v. 44 S. Car. 81, 21 S. E. 444, 885-; Pepoon, 11 Mass. 288; Exeter Bank Burke v. Frye, 44 Neb. 223, 62- N.. V. Rogers, 7 N. H. 21. W. 476; Brady v. Nagle (Tex. App.), ^Waterbury v. New York, &c. Co. 29 S. W. 943; Taylor v. Second Ave. 21 Blatchf. 314; McDougall v. Co- &c. Co. 17 J. & S. (N. Y.) 513; Mar- vert, 18 U. C. C. P. 119; St. .Louis, vin v. Wilber, 52 N. Y. 270; Hlrsch- &c. Co. V. Hendricks, 48 Ark. 177, mann v. Iron Range, &c. R. Co. 97 2 S. W. 783, 3 Am. St. 220; Barrett Mich. 384, 56 N. W. 842; Columbus, V. Indianapolis, &c. Co. 9 Mo. App. &c. Co. v. Powell, 40 Ind. 37; Lind- 226; Missouri, &c. Co. v. Carpenter, say v. Central, &c. Co. 46 Ga. 477; 3 44 Kan. 257, 24 Pac. 462. See 1 El- Elliott Ev. § 1636. liott Gen. Pr. § 426. Where the == McGregor v. Hudson (Tex. facts are in controversy the ques- App.), 30 S. W. 489. See, also, 3 tion is for the jury. Franklin, &c. Elliott Ev. § 1638. Co. V. Mackey, 83 Hun (N. Y.) 511, ''For statute provisions to this 31 N.. Y. S. 1057; Baker v. Tibbetts, effect see Stimson Am. Stat. Law 162 Mass. 468, 39 N. E. 350. See, (1892), § 8533, citing the laws of twenty-two states. § 311] COKPORATE EEPRESENTATIVES. 314 particular matter in question without proof that they were adopted or ratified by the corporation.^^ But, as a general rule, no formal resolution of the board of directors is required to appoint an agent or define his powers.^* It is not, ordinarily, necessary that the agent's authority be conferred by writing.^" The fact of his agency may also be proved by showing what he has been accustomed to do for his principal with the latter's acquiescence.^" § 211. Proof of authority. — It is not enough, as a general rule, to prove the existence of the relation of principal and agent, but, or- dinarily, there must be some evidence of the authority and its scope. In the ease of general superior officers, as president, general manager, and the like, the court may infer, in a general way, the existence of authority. In the case of mere agents, where nothing has been done toward executing a contract made by one who assumes to act for the corporation, and damages for non-performance are sought to be re- covered, the plaintiff must affirmatively show that the agent had au- thority to bind the corporation.^^ Evidence that a person is an agent of the company is, ordinarily, not sufficient to establish his authority to bind the company by his acts, but, as a general rule, evidence that the relation of principal and agent exists must be supplemented by evidence showing the nature and extent of the agent's authority.*^ » Waterman Corp. 323; Hunts- Paris Mfg. Co. 39 Me. 316. His au- ville, &c. R. Co. v. Corpennlng, 97 thority may be implied from his Ala. 681, 12 So. 295; International, course of action and its ratification &c. R. Co. V. Prince, 77 Tex. 560, 14 by the corporation. Perkins v. S. "W. 171, 19 Am. St. 795; City Washington Ins. Co. 4 Cow. (N. Y.) Electric St. R. Co. v. First Nat. &c. 645; Elysville Mfg. Co. v. Okisko Bank, 62 Ark. 33, 34 S. W. 89, 31 L. Co. 1 Md. Ch. 392. See, also, 3 El- R. A. 535, 54 Am. St. 282. liott Ev. §§ 1633, 1634. =* Bank of Lyons V. Demmon, Hill ''Fister v. LaRue, 15 Barb. (N. & D. Supp. (N. Y.) 398; Goodwin Y.) 323; Atlantic Co. v. Vigilancia, v. Union Screw Co. 34 N. H. 378. 73 Fed. 452. See, also, 3 Elliott Ev. It may be made "by the ufeual §§ 1625, 1632. course of business." Bank of Mid- '"Bonnell v. State, 64 Ind. 498; dlebury v. Rutland, &c. R. Co. 30 Vt. Brown v. Missouri, &c. Co. 67 Mo. 159. 122; McGowan v. St. Louis, &c. Co. =^Bank of Middlebury v. Rutland, 61 Mo. 528; Highland Av. &c. Co. v. &c. R. Co. 30 Vt. 159; Nicholas v. Walters, 91 Ala. 435, 8 So. 57; Chat- Oliver, 36 N. H. 218; 3 Elliott Bv. tanooga, &c. Co. v. Liddell, 85 Ga. § 1628. 482, 11 S. B. 853, 21 Am. St. 169; ""Hamilton v. Newcastle, &c. R. Nail v. Louisville, &c. Co. 129 Ind. Co. 9 Ind. 359; Whitney v. South 260, 264, 28 N. E. 183, 611. 315 AGENCY INFERRED. [§312 §'212. Agency inferred. — The law will often infer an agency from the general character of the acts which one assuming to act for the corporation has heen permitted to do/^ although they do not come strictly within the terms of his employment, and the agent will be held to possess the power to bind his principal within the limits of the authority with which he has apparently been clothed by the prin- cipal in respect to the subject-matter.'*. The corporation will, as a general rule, be bound by the acts of an agent whom it has permitted to pursue a particidar line of conduct for a considerable period with- out objection.'^ Thus, where the board of managers of a railroad company permitted the president to assume entire control of the busi- ness of the company for three years, and to make such purchases for the company as he deemed necessary, giving notes and corporate secur- ities in payment, and at the end of the three years assumed control of the road, together with all the property so acquired, and continued to use it without questioning the manner in which it was obtained, the company was held bound by all the acts of the president during the time he held control of its road.** But, unless his authority is shown to have been enlarged by the course of business which the cor- poration has permitted him to pursue, or by ratifying acts not em- braced in his original authority,^' an agent under a general appoint- ment to do specified things has only limited special powers.'* =» Isbell V. Brinkman, 70 Ind. 118; 117, 10 Am. R. 566; Newell v. Smith, Hotchin v. Kent, 8 Mich. 526; Wash- 49 Vt. 255. "burn V. Nashville, &c. R. Co. 40 °= Caldwell v. National Mohawk Tenn. 638, 75 Am. Dec. 784; Ala- Valley Bank, 64 Barb. (N. Y.) 333. bama, &c. R. Co. v. Kidd, 29 Ala. See, generally, 3 Elliott Bv. §§ 1631, 221; Perkins v. Portland, &c. R. Co. 1633, 1634, 1635. A single recogni- 47 Me. 573, 74 Am. Dec. 507; Tanner tion of a single act of an assumed T. Oil Creek R. Co. 53 Pa. St. 411. agent, it sufficiently unequivocal, =* Pickering v. Busk, 15 East. 38; positive and comprehensive in its Columbus, &c. R. Co. v. Powell, 40 character, may be sufficient to estab- Ind. 37; Louisville, &c. R. Co. v. Mc- lish an agency to do other similar Vay, 98 Ind. 391, 49 Am. R. 770; acts. Wilcox v. Chicago, &c. R. Co. Alabama, &c. R. Co. v. Kidd, 29 Ala. 24 Minn. 269. 221; Covington v. Covington Bridge «=01cott v. Tioga R. Co. 27 N. Y. Co. 10 Bush (Ky.) 69; Mechanics' 546, 84 Am. Dec. 298. AndseeKelley Bank v. New York, &c. R. Co. 13 N. v. Newburyport, &c. Horse R. Co. 141 Y. 599. And authority to act in a , Mass. 496, 6 N. E. 745. certain matter will carry with it au- " Commonwealth v. Ohio, &c. R. thority to bind the corporation in Co. 1 Grants' Cas. (Pa.) 329, and all things incident thereto. Bodine cases cited in preceding notes. V. Exchange Fire Ins. Co. 51 N. Y. *' Wilson v. Genesee Mut. Ins. Co. 14 N. Y. 418. § 313] COEPOEATE EEPEESENTATIVES. 316 § 213. Powers, duties and authority of officers and agents gener- ally. — An attempt is made in some of the states to outline the duties of certain officers of railroad companies, but most of the states leave this matter to be controlled by the by-laws. As between themselves and the corporation, the officers and agents have only such powers as are directly or impliedly conferred upon them by the charter, or by the terms of their appointment.^* Where the charter provides that certain powers of the corporation shall be exercised by particular officers or agents, only such officers or agents may exercise them, and any attempt by other persons to bind the corporation by the exercise of such powers will ordinarily be voidable,*" but there may be cir- cumstances which will prevent the corporation from avoiding the acts of such officers or agents. The general rule is that where the duties of an officer or agent are defined by law, or prescribed in the charter or articles of association, or established by usage, a person dealing with the corporation is bound to know the limitations upon his au- thority thus determined.*^ It has been held by some of the courts that he must, in doubtful cases, acquaint himself with the extent of such authority, or submit to the consequences of an omission to do so.*^ As between the corporation end third persons, where the agent's power is not limited by the charter or by positive law, the corporation ""Angell & Ames Corp. (11th ed.) Memphis, &c. R. Co. 85 Tenn 703, 5 § 280. S. "W. 52, 4 Am. St. 798. " Union Mut. P. Ins. Co. v. Keyser, " Risley v. Indianapolis, &c. R. Co. 32 N. H. 313, 64 Am. Dec. 375. 1 Hun (N. Y.) 202, in which there " Adriance V. Roome, 52 Barb. (N. is a dictum to the effect that one Y.) 399, State v. Commercial Bank, contracting with an officer of the 14 Miss. 218, 45 Am. Dec. 280; Br- corporation must be informed as to nest V. Nicholls, 6 H. L. Cas. 401. his powers set forth in the by-laws. Persons dealing with the officers of But the principle upon which the a corporation, or with persons as- case is based is that one dealing suming to represent it, are charge- with a corporation must ascertain able with notice of the purpose of with certainty the authority 'of a its creation and its powers and with person professing to act for the cor- the authority, actual or apparent, of poration, unless he has been held out its officers or agents with whom by the corporation as possessing the they deal. Wilson v. JCings County powers in question or has before Blev. R. Co. 114 N. Y. 487, 21 N. E. acted for it in the same capacity; 1015, 24 N. Y. S. 81; Bocock v. AUe- and failing to do this he must abide jghany Coal & Iron Co. 82 Va. 913, 1 the consequences of his neglect. )S. B. 325, 3 Am. St. 128; Whitehurst Adriance v. Roome, 52 Barb. (N. Y.) iV. Whitehurst, 83 Va. 153, 1 S. B. 399; Salem Bank v. Gloucester 801; Memphis, &c. Elevator Co. v. Bank, 17 Mass. 1, 9 Am. Dec. 111. 3ir POWERS AND DUTIES OF OEFICEKS AND AGENTS. [§■ 313 "will generally be held bound by his acts performed within the scope of his apparent authority ; and this is true not only of his contracts, but of all his other acts and omissions.** Thus it is held liable for the frauds, the misrepresentations,** and even the torts,*° of its author- « Ranger v. Great Western R. Co. 6 H. L. Cas. 72; Reed v. Home Sav- ings Bank, 130 Mass. 443, 39 Am. R. 468; Chestnut Hill, &c. Co. v. Rutter, 4 Serg. & R. (Pa.) 6, 8 Am. Dec. 675; Washburn v. Nashville, &c. Co. 3 Head. (Tenn.) 638 ; Nashville, &c. Co. V. Carroll, 6 Heisk. (Tenn.) 347; Clouse V. Canada Southern, &c. Co. .4 Ont. 28, 14 Am. & Eng. R. Cases 456; Langan v. Great Western, &c. Co. 30 L. T. (N. S.) 173; Cedar Rapids, &c. Co. v. Stewart, 25 Iowa 115; New York, &c. Co. v. Bates, 68 Md. 184, 11 Atl. 705; Olcott v. Tioga, &c. Co. 27 N. Y. 546, 84 Am. Dec. 298; Hirschmann v. Iron Range, &c. Co. 97 Mich. 384, 56 N. W. 842; Eeker v. Chicago, &c. Co. 8 Mo. App. 223. If an agent is invested with the indicia of authority, the company will be liable to innocent third per- sons for the acts of the agent within the scope of the authority with which he appears to be clothed, al- though he may transcend his actual authority or violate instructions, but this rule does not prevail where the authority of the agent is prescribed by the corporate charter. Madison &c. Co. V. Norwich, &c. Society, 24 Ind. 457; American, &c. Co. v. Min- neapolis, St. Paul, &c. Co. 44 Minn. 93, 46 N. W. 143; GofE v. Toledo, &c. Co. 28 UK App. 529; Illinois, &c. Co. V. Jonte, 13 111. App. 424; Meyer v. Harnden, &c. Co. 24 How. Pr. (N. Y.) 290; Hull v. East Line, &c. Co. €6 Texas 619, 2 S. W. 831; Harrison V. Kansas City, &c. Co. 50 Mo. App. 332; Lake Shore, &c. Co. v. Foster, 104 Ind. 293, 4 N. E. 20, 54 Am. R. 319; Brooke v. New York, &c. Co. 108 Pa. St. 529, 1 Atl. 206, 56 Am. R. 235; Winchell v. National, &c. Co. 64 Vt. 15, 23 Atl. 728. "Bank of U. S. v. Davis, 2 Hill (N. Y.) 451; New York, &c. R. Co. v. Schuyler, 34 N. Y. 30. « Drake v. Kiely, 93 Pa. St. 492; Moore v. Fitchburg R. Corp. 70 Mass. 465, 64 Am. Dec. 83; White- man V. Wilmington, &c. R. Co. 2 Harr. (Del.) 514, 33 Am. Dec. 411; Evansville, &c. R. Co. v. McKee, 99 Ind. 519, 50 Am. R. 102; where the company's detective caused the ar- rest of an innocent person, and the company was held liable in dam- ages. Ranger v. Great Western, &c. Co. 5 H. L. Cases 72; Nolton v. West- ern R. Co. 15 N. Y. 444, 69 Am, Dec. 623; Miller v. Burlington, 8 Neb. 219; Brokaw v. New Jersey, &c. Co. 32 N. J. L. 328; Gillemater v. Madi- son, &c. Co. 5 Ind. 339; State v. Mor- ris, &c. Co. 23 N. J. L. 360; Quinn v. South Carolina, &c. Co. 29 S. Car. 381, 7 S. E. 614. 1 L. R. A. 682; Cohen v. Dry Dock, &c. 69 N. Y. 170; Pittsburgh, &c. Co. v. Kirk, 102 Ind. 399, 52 Am. R. 675; Hussey v. Nor- folk, &c. Co. 98 N. C. 34, 2 Am. St. 312; Payne v. Western, &c. Co. 13 Lea (Tenn.) 507, 49 Am. R. 666; Craker v. Chicago, &c. Co. 36 Wis. 657, 17 Am. R. 504; Smith v. Man- hattan, &c. Co. 45 N. Y. S. 865; Stewart v. Brooklyn, &c. Co. 90 N. Y. 588, 43 Am. R. 185; Northwest- ern, &c. Co. V. Hack, 66 111. 238; Ramsden v. Boston, &c. Co. 104 Mass. 117, 6 Am. R. 200; Sawyer v. Norfolk, &c. R. Co. (N. Car.), 54 S. E. 793. § 213] COKPOEATE KEPKESENTATIVES. 318 ized agents, eommittecl in the course of their employnient.*^ In an action of trespass against a railroad company and its president, who' was also the manager of a construction company, "s^hich had con- tracted with the railroad company to construct its road, it appeared that as such manager of the construction company, he made a contract with contractors to build a certain portion on a line, "as shown by a map designating the surveys, both on file in the office of the chief engineer" of the railroad, with such variations as should be determined on by the construction company ; that as such he notified the contract- ors to commence the work "as per contract," and that they underlet four sections to a contractor, who committed the. trespass ; the presi- dent also wrote the body of a letter purporting to be signed by the con- struction company to the contractors, stating that it was deemed ad- visable by the executive committee of the railroad (of which com- mittee he was a member) to change the line of survey at that place, and requesting them to await instructions, and suspend operations;. the contractors stopped work, but were paid for the work on plaintiff's land, on estimates approved by the chief engineer in drafts approved by the executive committee, and it was held that the testimony of a director of the railroad company that there was a contract with the construction company, together with the fact that the latter company was working under the railroad company's franchise, and with its consent, was enough to show a liability on the part of the railroad company for whatever the sub-contractors did bona fide and in the line of their employment/'^ The corporation is also liable for the negli- gence of its agents or servants resulting in the failure to perform duties imposed upon it for consequent injury to one to whom such '« The old common law doctrine tral, &c. Co. 11 Nev. 350, 21 Am. R. that a master is not liable for the 757; Ritchie v. Waller, 63 Conn. 155,, willful act of the servant, although 28 Atl. 2.9, 27 L. R. A. 161, and notes, performed within the line of duty, 38 Am. St. 361; Pennsylvania Co. v. has heen overthrown. Craker v. Chi- Weddle, 100 Ind. 138, and cases cago, &c. Co. 36 Wis. 657, 17 Am. R. cited. 504; Perkins v. Missouri, &c. Co. 55 "St. Louis, &c. R. Co. v. Drennan, Mo. 201; Heenrich v. Pullman, &c. 26 111. App. 263. A corporatipn can- Co. 20 Fed. 100; De Camp v. Missis- not, by its by-laws, or any constat- sippi, &c. 12 Iowa 348; Toledo, &c. ing instrument,, avoid liability for R. Co. V. Harmon, 47 111. 298, 95 Am. the wrongful acts of its officers or Dec. 489; Indianapolis, &c. Co. v. servants performed within the scope Anthony, 43 Ind. 183; Terre Haute, of their authority. Sherman v. Com- '&c. Co. V. Jackson, 81 Ind. 19, 6 Am. mercial Printing Co. 29 Mo. App. 31. & Eng. R. Cases 178 ; Quigley v. Cen- 319 AUTHORITY OF AGENT — LINE OF DUTY. [§ 314 duties are owing,*^ even though the servants were carefully selected •with reference to their competency.*" The employer's duty is not fully discharged in such a case when he exercises care in the selection of employes, although it is his duty to exercise such care,°° but he is liable for not seeing to it that his employes perform their duties with reasonable care, skill and diligence. As already suggested, the em- ployer is not exonerated, although the negligence consisted in diso- beying orders.^^ § 214. Authority of agent — ^Line of duty. — The principal is liable only for acts done within the scope of the agent's authority, express or implied.^^ Beyond the scope of authority or duty he is a stranger "Brown v. Chicago, &c. R. Co. 54 Wis. 342, 11 N. W. 356, 911, 41 Am. R. 41; Pennsylvania Co. v. Hoagland, 78 Ind. 203; Byrne v. Wilson, 15 Irish C. L. 332. This has heen held, although the passenger traveled free, under a contract whereby he as- sumed all risks of accidents. Ohio, &c. R. Co. V. Selby, 47 Ind. 471, 17 Am. R. 719; Johnson v. Missouri Pacific, &c. Co. 96 Mo. 340, 9 S. W. 790, 9 Am. St. 351. *» Gillenwater v. Madison, &c. R. Co. 5 Ind. 339, 61 Am. Dec. 101. See, generally, McClung v. Dearhorne, 134 Pa. St. 396, 19 Atl. 698, 8 L. R. A. 204, 19 Am. St. 708; Golden v. Newbrand, 52 Iowa 59, 35 Am. R. 257; New Orleans, &c. Co. v. Harri- son, 48 Miss. 112, 12 Am. R. 356; Baird v. Shipman, 132 111. 16. 23 N. E. 384, 7 L. R. A. 128, 22 Am. St. 514; Blake v. Ferris, 5 N. Y. (1 Sel- den) 48, 55 Am. Dec. 304; Georgia, &c. R. Co. V. Dougherty, 86 Ga. 744, 12 S. B. 747, 22 Am. St. 499. =° Western Stone Co. v. Whalen, 151 111. 472, 42 Am. St. 244; Hilts v. Chicago, &c. Co. 55 Mich. 437, 21 N. W. 878; Oilman v. Eastern, &c. Co. 92 Mass. 233, 87 Am. Dec. 635; Gil- man V. Eastern, &c. Co. 95 Mass. 433, 90 Am. Dec. 210; Monahan v. Wor- cester, 150 Mass. 439, 23 N. E. 228, 15 Am. St. 226; Grube v. Missouri, &c. Co. 98 Mo. 330, 11 S. W. 736, 4 L. R. A. 776, 14 Am. St. 645; Lee v. Michigan Central, &c. Co. 87 Mich. 574, 49 N. W. 909; Lake Shore, &c. Co. V. Stupak, 123 Ind. 210, 23 N. E. 246; Hatt v. Nay, 144 Mass. 186, 10 N. E. 807; Davis v. Detroit, &c. Co. 20 Mich. 105, 4 Am. R. 364; Chicago, &c. Co. V. Shannon, 43 111. 338; To- ledo, &c. Co. V. Bailey, 145 111. 159, 33 N. E. 1089; Wabash, &c. Co. v. Mc- Daniels, 107 U. S. 454, 2 Sup. Ct. 932; Union, &c. Co. v. Young, 19 Kans. 488; Wright v. New York, &c. Co. 25 N. Y. 562. " Philadelphia, &c. R. Co. v. Derby, 14 How. (U. S.) 468. A person seek- ing'to charge a corporation with the act of its officers or authorized agents is not affected by secret in- structions limiting the apparent powers of such officers or agents. Benesch v. John Hancock Mut. L. Ins. Co. (C. P.) 32 'N. Y. S. 73. '^ The general subject was well considered in the case of Chicago, &c. Co. V. Bryant, 65 Fed. 969, 974. The reporter in his head notes makes this statement of the case: "A yardmaster, after 6 p. m., on be- ing relieved from duty, took a pas- § 314] OOKPORATE EEPEESEN'TATIVES. 320 to his principal and cannot bind him. Very many cases hold that the master is not liable for a servant's willful and malicious trespass senger car and engine to give him- self and fellow-servants a free ride to and from a meeting of theirs, without notice or permission from any ofiBcer who had authority to per- mit the passage of such a train. Held that such act, not having been done in the course of his employ- ment, but for his own ends exclus- ively, and without authority to carry passengers for the company, and having no apparent authority, except possession of the train, the company was not liable as to a pas- senger for injury to one on the train." In the course of the opinion the court used this language: ■"Moreover, it is a fatal objection to the liability of this company for the acts of this yardmaster in operating this train that they were not in the course of his employment for the company, but for his own ends ex- clusively, while he was at liberty from his master's service. The mas- ter is not liable for an act done by a servant when he is free from his service and is not attempting to discharge any duty to his master im- posed upon him by his employment, but is pursuing his own ends ex- clusively, even though the act could not have been done without the facilities afforded by his relation to his master." In Mitchell v. Crass- weller, 13 C. B. 237, a carman, whose duty it was to put the horse and cart of his master in his stable after the day's work was completed, ob- tained the keys of the stable for that purpose, and then drove in an- other direction on his own business, without the consent of his master. On his return he drove his master's horse and cart against and injured a third person, but the master was held to be exempt from liability for this injury. In Cousins v. Hannibal, &c. Railroad Co. 66 Mo. 572, the su- perintendent of the company took an idle locomotive from its round- house in the night, and ran it two and one-half miles for a doctor for a sick neighbor. On the way he care- lessly drove the engine upon and killed the plaintiff's mule. But the supreme court of Missouri held that the company was not liable for the death of the mule. In Morier v. St. Paul, &c. R. Co. 31 Minn. 351-353, 17 N. W. 952, 47 Am. R. 793, a case in which an action was brought against the company for damages that resulted from a fire kindled by its sectlonmen on its right of way to cook their dinners on a day when they were working for the company, before and after their dinner. Judge Mitchell, of the supreme court of the state of Minnesota, states this rule in these words: "If the act be done while the servant is at liberty from the service, and pursuing his own ends exclusively, the master is not responsible. If the servant was, at the time when the injury was in- flicted, acting for himself, and as his own master, pro tempore, the mas- ter is not liable. If the servant step aside from his master's business, for however short a time, to do an act not connected with such business, the relation of master and servant is for the time suspended. Such, variously expressed, is the uniform doctrine laid down by all authori- ties. 1 Thomp. Neg. (2d ed.) § 522, et seq. 885, 886; Shear. & R. Neg. §§ 62, 63; Cooley Torts, 533, et seq.; Little Miami Railroad Co. v. Wet- 331 AUTHORITY OF AGENT LINE OF DUTY. [§■ 314 which he has neither commanded nor ratified and which was evidently perpetrated to gratify the private hate or malignity of the servant, although done under color of a discharge of the duty which he has un- dertaken for his employer.^^ Thus it is held that. where a person who applies to have his baggage checked, and by his abusive language provokes a quarrel with the baggageman, in the course of which the baggageman injures him with a hatchet, he cannot hold the railroad company liable for his injuries.^* The principle is one of wide sweep and is illustrated by many cases presenting divers phases.^^ It is held more, 19 Ohio St. 110, 2 Am. R. 373 Storey v. Ashton, L. R. 4 Q. B. 476 Mitchell v. Crassweller, 13 C. B. 237 McClenaghan V. Brock, 5 Rich. L. (S. Car.) 17." To the same effect are Campbell v. Providence, 9 R. I. 262, and Garretzen v. Duenckel, 50 Mo. 104, 107, 111, 11 Am. R. 405. See, also. Southern R. Co. v. Chambers (Ga.), 55 S. E. 37; Central of 'Georgia R. Co. v. Morris, 121 Ga. 484, 49 S. B. 606, 104 Am. St. 164; Obertoni v. Boston, &c. R. Co. 186 Mass. 481, 71 N. E. 980, 67 L. R. A. 422. "' McManus v. Crickett, 1 East 106; Evansville, &c. R. Co. v. Baum, 26 Ind. 70; Hibbard v. New York, &c. R. Co. 15 N. Y. 455; Illinois Central R. Co. v. Downey, 18 111. 259, and au- thorities cited in last preceding note. Where one agrees to supply a railroad company with timber for construction of its road, and em- ployes of subcontractors under him committed trespasses in getting tim- hers for such construction, the rail- road company is not liable under the statute providing that an em- ployer is not liable for torts of his employes, engaged in an independ- ent business, when there Is no evi- dence of a ratification by the com- pany. Parker v. Waycross & F. R. Co. 81 Ga. 387, 8 S. B. 871. '* Little Miami R. Co. v. Wetmore, 19 Ohio St. 110, 2 Am. R. 373. The Bix. Railroads — 21 weight of authority holds the em- ployer liable for willful injuries in a proper case. See post, §§ 1255, 1638. "= Walker v. Hannibal, &c. Co. 121 Mo. 575, 26 S. W. 360, 24 L. R. A. 363, 42 Am. St. 547; Garretzen v. Duenckel, 50 Mo. 104, 11 Am. R. 405; Cousins v. Hannibal, &c. Co. 66 Mo. 572; Mitchell v. Crassweller, 13 C. B. 237; Parber v. Missouri, &c. Co. 116 Mo. 81, 22 S. W. 631; Towanda, &c. Co. V. Heeman, 86 Pa. St. 418; McKenzie v. McLeod, 10 Bing. 385; Farber v. Missouri Pacific Co., 32 Mo. App. 378; McKeon v. Citizens', &c. Co. 42 Mo. 79; Walton v. New York, &c. Co. 139 Mass. 556, 2 N. E. 101; Cunningham v. Grand Trunk Railroad, 31 U. C. Q. B. 350; Steph- enson V. Southern, &c. Co. 93 Cal. 558, 29 Pac. 234, 15 L. R. A. 475, 27 Am. St. 226; Pittsburgh, &c. Co. V. Shields, 47 Ohio St. 387, 24 N. E. 658, 8 L. R. A. 464, 21 Am. St. 840. In many cases the question whether the act was performed within the scope of the agent's authority is one of fact. Kimball v. Cushman, 103 Mass. 194, 4 Am. R. 528; Redding v. South Carolina, &c. Co. 3 S. C. 1, 16 Am. R. 681; Ritchie v. Waller, 63 Conn. 155, 28 Atl. 29, 27 L. R. A. 161, 38 Am. St. 361. But the question is often one of law. Stone v. Hill, 45 Conn. 44, 29 Am. R. 635; Storey v. Ashton, L. R. 4 Q. B. 476. See, gen- erally. Rounds v. Delaware, &c. Co. 214] CORPORATE KEPKESENTATIVBS. 322 that an agent employed to control and supervise the lands of a railway corporation cannot render the company liable in damages for ma- licious prosecution by instituting a criminal prosecution for larceny of the company's property, even though the prosecution is shown to be malicious and without probable cause.^° So where a railroad in- spector imprisoned the plaintiff on a charge of drunkenness and. re- fusal to pay his fare, and preferred a charge against him before a magistrate by whom he was dismissed, the court held that the company was not liable in the absence of anything going to show that the in- spector was authorized to make the arrest or that the fact of the plaintiff being in custody was known to the company.^^ If, however. 64 N. Y. 129. 21 Am. R. 597; Cor- mack v. Digby, 9 I. R. C. L. 557; Burns v. Poulson, L. R., 8 C. P. 563; Sleath v. Wilson, 9 Carr. & P. 607; Whatman v. Pearson, L. R. 3 C. P. 422; Pollock says, "whether the servant is really bent on his mas- ter's affairs or not is a question of fact, but a question which may be troublesome." .Pollock Torts, mar- ginal page 71. This statement of the law is not entirely correct, for there are cases in which the court must determine, as matter of law, whether the agent was acting with- in the scope of his authority. °= Pressley v. Mobile, &c. R. Co. 15 Fed. 199. The same ruling was made in a somewhat similar case where a foreman and crew assaulted a party. Waller v. Great Northern R. Co. 18 S. Dak. 420, 100 N. W. 1097, 70 L. R. A. 731. But if it was part of the duty of a ticket agent of a corpora- tion to post in his office notices per- taining to the business carried on there, the corporation is liable for a libel contained in a notice posted by him, though in excess of his author- ity. Fogg V. Boston, &c. R. Co. 148 Mass. 513, 20 N. B. 109, 12 Am. St. 583. And the railroad company is liable for a malicious prosecution in- stituted by the general manager, although its charter did not author- ize his act. Gulf, &c. R. Co. v. James, 73 Tex. 12, 10 S. W. V44, 15 Am. St. 743. "Eastern Counties R. Co. v. Broem, 15 Jur. 297, 2 Bng. L. & Bq. 406. See, also, Daniel v. Atlantic Coast Line R. Co. 136 N. Car. 517, 48 S. B. 816, 67 L. R. A. 455; Allen v. London, &c. R. Co. L. R. 6 Q. B. 65, 23 L. T. 612. But where the agent is employed to detect and arrest per- sons who unlawfully interfere with its business, and while acting within the scope of his employment he ar- rests an innocent person, the corpo- ration is liable. Bvansville, &c. R. Co. V. McKee, 99 Ind. 519, 5 Am. R. 102; Galveston, &c. R. Co. v. Donahoe, 56 Tex. 162; Lynch v. Metropolitan, &c. R. Co. 90 N. Y. 77, 43 Am. R. 141; Pennsylvania Co. v. Weddle, lOO Ind. 138; Higgins v. Watervliet, &c. R. Co. 46 N. Y. 23, 7 Am. R. 293; Louisville, &c. Co. v. McKee, 92 Ind. 371, 47 Am. R. 193 ; Pierce Railroads 277; 2 Rorer Railroads 821. See Goff V. Great Northern R. Co. 30 L. J. Q. B. 148, holding a railroad com- pany liable for an arrest made by one of its servants under an author- ity to make arrests in certain cases, conferred upon railway employes by statute. There Is, however, a con- 333 SCOPE OF AUTHORITY GENERAL CONCLUSION. [§ 315 the act is within the scope of the agent's duty, and is performed in the line of service, the weight of authority is that the master is liable, although the act is willful. § 215. Scope of authority — General conclusion. — The conflict among the authorities to which we have referred makes it, we know, hazardous to venture to state a general conclusion, but we think that it is safe to affirm that, where cars or other equipments or appliances are owned and used for particular purposes and this is matter of gen- eral knowledge, no agent or servant of a railway company has author- ity to impose a duty upon the company by inviting a third person to use such equipments or appliances for his own pleasure or convenience, such person not being in the service of the company, having no busi- ness relations with it, and there being no emergency warrantmg a departure from the ordinary course of conduct or business. We have, indeed, stated our general conclusion in narrower terms than the best reasoned cases warrant, and are inclined to think the conclusion should be stated in broader terms. In our opinion, no agent or ser- vant of a railroad company has general authority to devote any of the property of the company to uses entirely different and foreign from that to which the property was devoted by the corporation. The most liberal view that can be justly taken in favor of one who acts upon an invitation given by an agent or servant of the company to use its property for a purpose essentially different from that to which the property is devoted by the company is that he is a bare licensee to whom the company owes no duty except that of doing him no willful injury. There is, in truth, strong reason for regarding such a person as a mere trespasser. The cases which hold that one who undertakes to render service for a railroad company upon the request of an agent or employe who has no authority to bind the company by such a re- quest is a mere volunteer to whom the company is responsible for will- flict of authority. The supreme thority for such action or it is rati- court of Maryland, in the case of fied by the company, citing Carter v. Central R. Co. v. Brewer, 78 Md. Machine Co. 51 Md. 290, 34 Am. R. 63, 28 Atl. 615, held that a street 311; Tolchester Co. v. Steimmier, 72 railway company is not liable for a Md. 313, 20 Atl. 188, 8 L. R. A. 846. malicious prosecution and false ar- The conflicting cases are collected in rest of an individual by its presi- a note to Ritchie v. Waller, 63 Conn, dent and superintendent on a charge 155, 28 Atl. 29, 27 L. R. A. 161, 38 of having passed counterfeit money. Am. St. 361. unless such officers have express au- § 316] COKPORATE EEPEESENTATIVES. 324 f ul wrongs, but not for injuries resulting from negligence, support the conclusion stated.^' § 216. Contracts by agents — General doctrine. — The general rules applicable to contracts by agents of corporations apply to contracts by agents of railroad companies, varied only by the peculiar facts or by the nature of the business to which the contracts relate. It is not our purpose to consider the subject of agency generally, but to treat it only so far as is necessary to the unity and completeness of the plan of our work. It may be said at the outset that an agent may bind the corporation by any contract which he may make within the scope of his apparent authority, although he exceeds his real authority, unless the party with whom he is dealing knows or ought to know the con- tract to be one which he is not authorized to make, but he cannot bind the company by an act outside of the real or apparent scope of his authority. °° It has been held that a railroad company can neither "' We cite a few of the many cases which by their direct judgments or by their reasoning sustain our con- clusion. Ream v. Pittsburg, &c. R. Co. 49 Ind. 93; Chicago, &c. R. Co. v. Bryant, 65 Fed. 969; Mitchell v. Crassweller, 13 C. B. 237; Cousins v. Railroad Co. 66 Mo. 572; Morier v. Railway Co. 31 Minn. 351, 353, 17 N. W. 952, 47 Am. R. 793 ; Campbell v. Providence, 9 R. I. 262; McClen- aghan v. Brock, 5 Rich. L. (S. Car.) 17; Wyllie v. Palmer, 137 N. Y. 248, 33 N. E. 381, 19 L. R. A. 285; Ara- smith V. Temple, 11 111. App. 39; Flower v. Pennsylvania Co. 69 Pa. St. 210, 8 Am. R. 251; Walton v. New York, &c. Co. 139 Mass. 556, 2 N. E. 101; Gulf, &c. Co. v. Dawkins, 77 Texas 228, 13 S. W. 932; Texas, &c. R. Co. V. Skinner, 4 Tex. Civ. App. 661, 23 S. W. 1001; Murray v. Currie, L. R. 6 C. P. 24; Louisville, &c. Co. V. Douglass, 69 Miss. 723, 11 So. 933, 30 Am. St. 583; Bverhart V. Terre Haute, &c. Co. 78 Ind. 292, 41 Am. R. 567; Mayton v. Texas, &c. Co. 63 Tex. 77, 51 Am. R. 637; Os- borne V. Knox, &c. R. Co. 68 Me. 49, 28 Am. R. 16; Pittsburgh, &c. v. Ad- ams, 105 Ind. 151, 5 N. E. 187; Mellor V. Merchants', &c. Co. 150 Mass. 362, 23 N. B. 100, 5 L. R. A. 792; Bairdv. Petit, 70 Pa. St. 477; Washburn v. Nashville, &c. R. Co. 40 Tenn. 638, 75 Am. Dec. 784; Gilshannon v. Storybrook, &c. Co. 10 Cush. (Mass.) 228 ; Wright v. Rawson, 52 Iowa 329, 3 N. W. 106, 35 Am. R. 275; Keating v. Michigan, &c. Co. 97 Mich. 154, 56 N. W. 346. See, also, post, §§ 1305, 1580, 1581, 1582. ™ Harrison v. Missouri Pacific R. Co. 74 Mo. 364, 41 Am. R. 318. Where the brakeman took up the tickets for the conductor and returned the wrong part of a return ticket to a passenger, thinking, as he testified, that "one-half of the ticket was good for a ride either way," the railroad was bound to accept such part of the ticket in payment for the return passage, and was held liable in dam- ages for a refusal so to do. Lake Erie, &c. R. Co. v. Fix, 88 Ind. 381, 45 Am. R. 464. Persons held out as the 325 DECLAEATIONS AND ADMISSIONS OF AGENTS. [§■ 21^ be bound by a contract made by a person who is not its agent, nor can it ordinarily enforce a contract made by a person who is not its agent."" We suppose, however, that the doctrine of the cases cited in the note must be qualified by the rule that an effective ratification is equivalent to precedent authority. Strictly speaking, the relation of principal and agent cannot exist in the absence of a contract, express or im- plied.®^ This doctrine sustains the decisions which adjudge that a volunteer cannot be regarded as the agent or employe of a railroad company, although he may, in fact, assume to perform acts in its service. § 217. Declarations and admission of agents. — The familiar rule is that a principal is not bound, as a general rule, by the declarations or admissions of an agent unless made in the course of business or line of duty of the agent and while "the transaction is depending." This rule is one of extensive application. An agent may bind the general agent and the state agent of a foreign corporation, who employ a general manager to assist them in its work, bind the corporation by their contract, if the other party is ignorant of the limitation on their authority. Equitable Endowment Assn. v. Fisher, 71 Md. 430, 18 Atl. 808. But an officer of a corporation not authorized to transact the gen- eral business of the company with third persons cannot bind the com- pany by certifying that the company has no lien on certain shares of stock. Kenton Ins. Co. v. Bowman, 84 Ky. 430, 1 S. W. 717; Katzen- stein V. Raleigh, &c. R. Co. 84 N. C. 688, 6 Am. & Eng. R. Cas. 464; Mont- gomery, &c. Co. V. Hurst, 9 Ala. 513; Chicago, &c. Co. v. Volk, 45 111. 175; Wood V. Ontario, &c. Co. 24 U. C. C. P. 334; Dye v. Virginia, &c. Co. 9 Mackey (D. C.) 63; Deming v. Grand Trunk, &c. Co. 48 N. H. 455; Fowlds V; Evans, 52 Minn. 551, 54 N. W. 743; Internationa!, &c. Co. v. Ragsdale, 67 Texas 24, 2 S. W. 515; Beattie v. Delaware, &c. Co. 90 N. Y. 643; St. Louis, &c. Co. v. Hendricks, 48 Ark. 177, 2 S. W. 783, 3 Am. St. 220 ; Neibles v. Minneapolis, &c, Co. 37 Minn. 151, 33 N. W. 332; Mont- gomery, &c. Co. V. Hardaway, 104 Ala. 100, 16 So. 29; London & North- western R. Co. V. Bartlett, 7 H. & N. 400; Poster v. Cleveland, &c. Co. 56 Fed. 434. •"Chicago, &c. Co. v. Estes, 71 Iowa 603, 33 N. W. 124, 30 Am. & Eng. R. Cas. 276; Estes v. Chicago, &c. Co. 72 Iowa 235, 33 N. W. 647. " Central Trust Co. v. Bridges, 57 Fed. 753, 57 Am. & Eng. R. Cas. 452; Fischer v. Merchants' Despatch, &c. Co. 13 Mo. App. 133; Kelly v. Le- high, &c. Co. 8 Daly (N. Y.) 291. In the case first cited the court said: "An agency is created — authority is actually conferred — very much as a contract is made, i. e., by an agree- ment between the principal and agent that such a relation shall ex- ist. The minds of the parties must meet in establishing the agency." This rule does not apply where the principal holds out another as his agent, for in such a case the liability rests upon the ground of estoppel. 318] CORPOKATE KEPEESENTATIVES. 336 corporation by his declarations and admissions made in and about the execution of the duties of his employment in the same manner that an agent of a private individual may bind his principal."^ It is, how- ever, essential to the competency of such declarations, as a general rule, that they be not narratives of past occurrences, but, in a sense at least, part of the res gestae. "'' § 218. Declarations of agent — ^Res gestae. — The settled rule is that the declarations of an agent made after the transaction is closed, or usually long after an event has happened, are not admissible against the principal."* The authorities are substantially agreed that the declara- tions are not competent unless made under such circumstances and at such a time and place as to be regarded as part of the res gestae f^ "' Whitworth v. Detroit, &o. R. Co. 81 Mich. 98, 45 N. Yi. 500; Malecek V. Tower Grove R. Co. 57 Mo. 17; Covington R. Co. v. Ingles, 15 B. , Mon. (Ky.) 637; Henderson v. Rail- road Co. 17 Tex. 560, 67 Am. Dec. 675; Montgomery R. Co. v. Hurst, 9 Ala. 513; Union, &c. Co. v. Hepner, 3 Colo. App. 313, 33 Pac. 72; Inter- national, &c. Co. V. Lewis, (Tex. Civ. App.) 23 S. W. 323; Ohio, &c. Co. v. Stein, 133 Ind. 243, 31 N. B. 180; 32 N. B. 831, 19 L. R. A. 773; Louis- ville, &c. Co. V. Buck, 116 Ind. 566, 19 N. B. 453, 2 L. R. A. 520, 9 Am. St. 883. "'To be admissible the declara- tions must be made by the agent act- ing within the scope of his author- ity, dum fervet opus. Bevis v. Balti- more, &c. Co. 26 Mo. App.. 19; Bens- ley V. Brockway, 27 111. App. 410; Corrister v. Kansas City, &c. Co. 25 Mo. App. 619; Southerland v. Wil- mington, &c. Co. 106 N. C. 100, 11 S. B. 189 ; Deere v. Bagley, 80 Iowa 197, 45 N. W. 557. See, also, Hogan v. Kelly, 29 Mont. 485, 75 Pac. 81; St. Louis, &c. R. Co. V. Carlisle, 34 Tex. Civ. App. 268, 78 S. W. 553; Axtell V. Northern Pac. R. Co. 9 Idaho 392, 74 Pac. 1075; 1 Elliott By. §§ 252, 564, 565. " Borland v. Nevada Bank, 99 Cal. 89, 33 Pac. 737, 37 Am. St. 32; Holt V. Spokane, &c. Co. 3 Idaho 703, 35 Pac. 39; Wendt v. Chicago, &c. Co. 4 S. Dak. 476, 57 N. W. 226; Belle- fontaine, &c. Co. v. Hunter, 33 Ind. 335, 5 Am. R. 201; St. Louis, &c. Co. V. McLelland, 62 Fed. 116; McCarthy V. Muir, 50 111. App. 510; Ft. Smith Oil Co. V. Slover, 58 Ark. 168, 24 S. W. 106; Weideman v. Tacoma, &c. Co. 7 Wash. 517, 35 Pac. 414; Chew- ning V. Ensly, &c. R. Co. 100 Ala. 493, 14 So. 204; Huntsville, &c. Co. V. Corpening, 97 Ala. 681, 12 So. 295; La Rue v. St. Anthony, &c. Co. 3 S. Dak. 637, 54 N. W. 806; Johnson v. Bast Tennessee, &c. Co. 90 Ga. 810, 17 S. B. 121; Ohio, &c. Co. v. Levy, 134 Ind. 343, 32 N. B. 815; Atchison, &c. Co. V. Parker, 55 Fed. 595;' Grisim v. Milwaukee, &c. Co. 84 Wis. 19, 54 N. W. 104; Chicago, &c. Co. v. Johnson, 36 111. App. 564; Petrie v. Columbia, &c. Co. 27 S. C. 63, 2 S. B. 837; Waldrop v. Greenwood, &c. Co. 28 S. C. 157, 5 S. B. 471; St. Louis, &c. R. Co. V. Kelley, 61 Ark. 52, 31 S. W. 884. » State V. Tilley, 3 Ired. L. (N. C.) 424; Vicksburg, &c. Ca v. O'Brien, 119 U. S. 99, 7 Sup. Ct. 118; Durkee V. Central Pacific, &c. Co. 69 Cal. 327 DBCLAEATIONS AS TO- TRANSACTIONS OE EVENTS. [§ 219 but there is much diversity of opinion as to what declarations can be considered as part of the res gestae. Some of the eases have unduly extended the rule and allowed prejudicial declarations to go to the j^py66 unmindful of the sound principle that declarations of a third person are generally incompetent and that the declarations of an agent are held competent as exceptions to the general rule. Other cases have erred, as we think, in allowing expressions of opinion to go in evi- dence as part of the res gestae.^' It seems to us that an opinion of a witness cannot be regarded as part of an occurrence or transaction, and that only the facts connected with the occurrence can be strictly said to form part of the res gestse. §219. Declarations must relate to transaction or event in con- troversy. — As a general rule, declarations of an agent not relating to the transaction or occurrence are not admissible against the principal, nor are declarations not connected with matters over which the agent has authority.'* It has been held that declarations of an agent, al- though made at the time of the occurrence, are not competent against 533, 11 Pac. 30, 58 Am. R. 562; State V. Pomeroy, 25 Kans. 349; Michigan, &c. Co. V. Coleman, 28 Mich. 440, 446; Southerland v. Wilmington, &c. Co. 106 N. C. 100, 11 S. E. 189; Martin v. New York, &c. Co. 103 N. Y. 626, 9 N. E. 505; Waldele T. New York, &c. R. Co. 95 N. Y. 274, 47 Am. R. 41; Luby v. Hud- son River, &c. Co. 17 N. Y. 131; Chi- cago, &c. Co. V. Becker, 32 Fed. 849; Cincinnati, &c. Co. v. Mara, 26 Ohio St. 185; Adams v. Hannibal, &c. Co. 74 Mo. 553, 41 Am. R. 333; Memphis, &c. Co. V. Womack, 84 Ala. 149, 4 So. 618 ; Pittsburgh, &c. Co. v. Theo- bald, 51 Ind. 246; Ohio, &c. Co. v. Stein, 133 Ind. 243, 31 N. B. 180, 32 N. B. 831. «= Omaha, &c. Co. v. Chollette, 41 Neb. 578, 59 N. W. 921; Linderberg- v. Crescent Co. 9 Utah 163, 33 Pac. 692; International, &c. R. Co. v. Smith, (Texas) 14 S. W. 642, 44 Am. & Eng. R. Gas. 324; Gulf, &c. Co. v. Compton, 75 Texas 667, 13 S. W. 667; Hooker v. Chicago, &c. Co. 76 Wis. 542, 44 N. W. 1085, 41 Am. & Eng. R. Cas. 498; Texas, &c. Co. v. Lester, 75 Texas 56, 12 S. W. 955; Gorman v. Minneapolis, &c. Co. 78 Iowa 509, 43 N. W. 303. For instances of declara- tions held admissible, see 1 Elliott Ev. §§ 564, 565, and 3 Elliott Ev. §' 2510. "Elledge v. National, &c. Co. 100 Cal. 282, 34 Pac. 720, 38 Am. St. 290. See Metropolitan, &c. Co. v. Collins, 1 App. D. C. 383; St. Louis, &c. Co. V. Paup (Ark.), 22 S. W. 213; Ala- bama, &c. Co. V. Hill, 90 Ala. 71, 8 So. 90, 9 L. R. A. 442, 24 Am. St. 764. »= Baltimore, &c. Co. v. Christie, 5 W. Va. 325; Missouri, &c. Co. v. Stults, 31 Kans. 752, 3 Pac. 522, 15 Am. & Eng. R. Cas. 97; Chillicothe V. Raynard, 80 Mo. 185; Wells v. Alabama, &c. Co. 67 Miss. 24, 6 So. 737; Kirby v. Great Western, &c. Co. 18 L. T. N. S. 658. See, generally, 1 Elliott Ev. § 252. 220] COEPOEATE REPEESENTATIVES. 328 the principal because not connected with it.'° It is important that the rule admitting declarations of agents be confined within its legitimate limits, as its extension is likely to result in unjust injury. § 320. Exercise of authority by agents — ^Illustrative eases. — As a general rule the authority of an agent extends to the doing of all subordinate acts which properly accompany the principal act which he is to do. Thus, a power given by a corporation to an agent to pur- chase property for the corporation necessarily carries with it the power to obligate the company to pay, notwithstanding the fact that a by- law forbids the contracting of any debt for a company except by order =» Butler V. Manhattan R. Co. 143 N. Y. 417, 38 N. B. 454, 26 L. R. A. 46, 42 Am. St. 738. We quote from the opinion the following: "We think there was error also In one of the rulings upon the admission of evidence. The plaintiff's wife testi- fied to the closing of the gate and the blow received, and stated that at the time the guard was looking in the opposite direction; that im- mediately after the blow she made an exclamation of pain. Then plaintiff's counsel then asked the witness 'What the guard said in re- ply to her exclamation of pain.' The question was objected to by the counsel for the defendant as incom- petent and hearsay, whereupon the plaintiff's counsel said: 'I intend to prove that the brakeman in charge of the brakes at the moment of the blow did not treat her (the plain- tiff's wife) with respect, but, on the contrary, insulted her.' The trial judge, after warning the plaintiff's counsel, finally allowed the question to be put, and the witness answered. He said: 'I can go to hell; shut up.' The defendant's counsel excepted to the evidence. The only claim made in support of the ruling of the court Is that the remark of the brakeman was part of the res gestae. We think the ruling cannot be supported upon this ground. The only circumstance upon which it can be claimed to have been part of the res gestae was its connection In point of time with the transaction under Investigation, viz.: The alleged Injury from the closing of the gate. While proximity in point of time with the act causing the Injury is, in every case of this kind, essential to make what was said by a third person competent evidence against another as part of the res gestae, that alone is InsuflS- cient, unless what was said may be considered part of the principal fact, and so a part of the act Itself. But, as In this case, the act was complete before the remark of the brakeman was made, although closely con- nected with it in point of time, and was not one naturally accompany- ing the act, or calculated to unfold its character or quality, it was not admissible as res gestae. It was as independent of the principal fact, and as incompetent as evidence, as though the act and the remark had been much further separated in point of time. Res gestae in a case like this implies substantial coinci- dence In time, but if declarations of third persons are not in their na- ture a part of the fact, they are not 329 ESEECISE OF AUTHOEITT BY AGENTS ILLUSTRATIVE CASES. [§' 330 of the directors."* If, however, he has never been clothed with any real or apparent authority by the corporation, the person who deals with him relying upon his representations as to his authority has no recourse on any one but the person who assumes to be the agent of the corpora- tion.''^ And where the acts done are outside of the ordinary duties of similar agents in corporations generally, the presumption will be that ' they were done without authority.'^ Accordingly, it is held that with- out a special authority conferred upon him in the particular instance, neither an assistant roadmaster nor a master of transportation can be presumed to have authority to represent a railroad company in claiming disputed titles.''* And it has also been held that the track- master of a railroad company, having charge of a section of its road- bed, which includes an ash-pit, has no authority to make a contract allowing one to have all the coals and ashes dumped by locomotives at the pit as compensation for keeping it clear.'* The fact that a civil engineer of a railroad, who had no special authority to employ men, told a man to see to delivering some freight which was on the steps of the freight house, and to look to things there, and remain until the company discharged him, creates no right of action against the com- pany; and such an employment does not become binding upon the admissible in evidence, however Fredricksburg, &c. R. Co. 27 Gratt. closely related in point of time. See (Va.) 119. An agency cannot be Waldele v. New York, &c. R. Co. 95 proved by proof of the oral declara- N. Y. 274, 47 Am. R. 41, and cases tlons of the supposed agent himself, cited. The remark of the brakeman Missouri Pacific R. Co. v. Stults, 31 was brutal, and for that reason was Kans. 752, 3 Pac. 522. calculated to prejudice the jury, but " Louisville, &c. R. Co. v. McVay, It had nothing to do with the ques- 98 Ind. 391, 49 Am. R. 770; Mar- tion at issue, viz., whether the quette, &c. R. Co. v. Taft, 28 Mich, plaintiff's wife sustained an injury 289. But see where the act is within through the defendant's negligence, the scope of the ordinary and appro- and, having been admitted against priate duties of such officers or the protests of the defendant's coun- agents. National State Bank v. Vigo sel, its admission was reversible County Nat. Bank, 141 Ind. 352, 40 error."' N. B. 799, 50 Am. St. 330; Eureka "Arapahoe Cattle & Land Co. v. Iron, &c'. Works v. Bresnehan, 60 Stevens, 13 Colo. 534, 22 Pac. 823, 28 Mich. 332, 23 N. W. 524; Lucky Am. & Bng. Corp. Cas. 12. Queen Min. Co. v. Abraham, 26 Oreg. " Talladega Ins. Co. v. Peacock, 67 282, 38 Pac. 65. Ala. 253; Rlsley v. Indianapolis, &c. ™ Drew v. Comstock, 57 Mich. 176, R. Co. 1 Hun (N. Y.) 202. Even in 23 N. W. 721. cases of negotiable instruments, "Little v. Kerr, 44 N. J. Eq. 263, those dealing with an agent must in- 14 Atl. 613. quire into his authority. Silliman v. § 331] CORPORATE REPRESENTATIVES. 330 company by being ratified by the station agent who is not shown to have had authority in the matter.'^ It is also apparently held in a recent case that a division superintendent had no authority to direct a section foreman to assist in unloading cattle-guard timber, that not being part of the foreman's duty, and that the foreman while so en- gaged was not an employe of the company.^^ So it has been held that a station agent has no authority to employ third persons to watch the station for burglars, and that no implication of authority to do so arises from the bare fact that the station agent himself had authority to do the acts.''^ § 221. Scope of authority — ^Ulustrative cases. — A person climbed upon a railroad train on which he was forbidden by the rules of the company to ride, and was compelled by an employe of the company, who had no authority over the train, to alight while it was in motion, and was thereby injured. The company was held not liable.'^* It has been held that a locomotive engineer, being subordinate to the con- ductor in charge of the train, has no authority to impose a duty upon a railroad company to persons whom he permits to ride on the train in violation of the rules of the company.' ° A similar doctrine is held with reference to the authority of the baggagemaster to permit persons to ride on a train,^" and a like doctrine was applied in a case where a person was riding on the train by invitation of a brakeman.*^ A " Willis V. Toledo, &c. R. Co. 72 ™ Towanda Coal Co. v. Heeman, 86 Mich. 160, 40 N. W. 205. But, see. Pa. St. 418; Marion v. Chicago, &c. Wilson v. Kings Co. El. R. Co. 114 R. Co. 59 Iowa 428, 13 N. W. 415, 44 N. Y. 487, 21 N. B. 1015. Am. R. 687. But if one with author- ™ Bryan v. International, &c R. ity to put him off the train should Co. (Tex. Civ. App.), 90 S. W. 693, do so in an improper manner and citing Freeman v. San Antonio thereby cause him to be injured, the Brew. Co. (Tex. Civ. App.), 85 S. W. company would be liable. Carter v. 1165, where it is held that a fore- Louisville, &c. R. Co. 98 Ind. 552, 49 man of one department had no au- Am. R. 780; Rounds v. Delaware, thority to order a workman in his &c. R. Co. 64 N. Y. 129; Benton v. department to work in another sep- Chicago, &c. R. Co. 55 Iowa 496, 8 arate department, and that the rela- N. W. 330. tion of master and servant did not " Chicago, &c. Co. v. Casey, 9 111. exist with respect to such work and App. 632, citing Chicago, &c. Co. v. the servant could not recover as a Mitchie, 83 111. 427. servant while injured in such sep- ^'Reary v. Louisville, &c. Co. 40 arate department. La. Ann. 32, 3 So. 390, 8 Am. St. 497, " Lipscomb v. Houston, &c. R. Co. 34 Am. & Bug. R. Cas. 277. 95 Tex: 5, 64 S. W. 923, 55 L. R. A. «^ Candiff v. Louisville, &c. Co. 42 869, 93 Am. St. 804. La. Ann. 477, 7 So. 601. 331 AUTHORITY OF AGENTS IN EMERGENCIES. [§ 221a somewhat different doctrine was held in a case where a person was invited to get on an engine/^ but the doctrine of the case referred to seems to ns to be unsound. An employe has no authority to invite persons to ride on the hand-car for their own pleasure or convenience.^^ It has, however, been held that a trainmaster has authority to invite persons to ride on a hand-car,** but in our opinion this decision is erroneous, for a hand-car, as every one is bound to know, is not kept or used by a railroad company for carrying persons not in its service or having business with it. In a well considered case it was held that a section foreman had no authority to invite persons to ride on a hand-car,* ° and the doctrine asserted in that case we regard as the true one. § 221a, Authority of agents — ^Emergencies and special circum- stances. — Special circumstances may sometimes give authority to an agent over a particular matter or to do an act in regard to which he would ordinarily have no authority either express or implied. That is to say, facts may exist which may greatly broaden an agent's or- dinary authority, and the special circumstances may be such that an act of an officer, or even of an agent who is not an ofiScer, may bind ^' Nashville, &c. Co. v. Erwin, common carriers, a section foreman (Tenn.) 3 Am. & Eng. R. Cas.' 465. with his handcar has no right to But see Ohio, &c. Co. v. AUender, 47 impose upon the defendant the oner- Ill. App. 484. ous responsibilities arising from '^ International, &c. Co. v. Cock, 68 that relation. He has no right to Texas 713, 5 S. W. 635, 2 Am. St. accept passengers for transportation 521. See Pool v. Chicago, &c. Co. 56 and bind the defendants for their Wis. 227, 14 N. W. 46. safe carriage, and every man may "International, &c. Co. v. Prince, safely be presumed to know this 77 Texas 560, 14 S. W. 171, 19 much. If the risk is much greater Am. St. 795, 44 Am. & Bng. R. Cas. by this mode of conveyance, the 294. See Prince v. International, &c. plaintiff's intestate, by adopting it, Co. 64 Texas 144. assumed the extra risk arising *= Hoar V. Maine Central Co. 70 therefrom, and must be held to abide Me. 65, 35 Am. R. 299. The court the unfortunate consequences. No cited the cases of Graham v. Toron- one becomes a passenger except by to, &c. Co. 23 U. C. C. P. 541; Sheer- the consent, express or implied, of man v. Toronto, &c. Co. 34 U. C. Q. the carrier. There is no allegation B. 451, and in the course of the opin- of express consent by the defend- ion said : "A master is bound by the ants, nor of anything from which acts of his servant in the course of consent can be implied that the his employment, but not by those ob- plaintiff's intestate should be car^ viously and utterly outside of the ried at their risk by this unusual scope of such employment. If not mode of conveyance." § 221a] CORPOKATB KEPEESENTATIVBS. 332 the company, when, under ordinary circumstances such of3Bcer or em- ploye would have no authority in the premises. Thus, an emergency may arise in which there is an absolute duty resting on the company to act at once, and in which, either because its own interests require It or because of such duty to others to be present by some representative and to act at once, or both, the highest agent on the ground, or some other agent, depending somewhat upon the circumstances of the par- ticular case, may act for and bind the company to the extent, at least, that the emergency requires. Such cases are, of course, exceptional, but is easy to suppose cases where a conductor, or an engineer, or even a brakeman or switchman, in the absence of any one else, would be authorized to do some act to save life, or the like, not or- dinarily within the scope of his employment or duty, and even to bind or make the company responsible. We suppose, for instance, that if the wires were down, and all communication were cut off because of a storm, and the engine should break down and human life would be endangered by delay and failure to repair, or even perishable freight ruined, the conductor, or, perhaps, the engineer, under some circum- stances, would have authority to purchase a small piece of material necessary to make temporary repairs, or that the conductor, under such circumstances, might employ necessary assistance to save perish- able freight in case of a wreck. Certainly if there were a wreck and passengers were caught under a car and injured, and in imminent dan- ger of being crushed to death, a conductor, being the highest repre- sentative present, would have authority to employ assistance, if neces- sary, to raise the car and rescue such passengers. Other illustrations might be given,*' but the question has usually arisen in regard to the " See post, § . 302. See, also, Cros- while in the absence of a superior Ban V. New England R. Co. 149 Mass. it may become broad and compre- 196, 21 N. E. 367, 3 L. R. A. 766, 14 hensive. An emergency may arise Am. St. 408; Baldwin Railroads, which will require the corporation 253. In the course of the opinion to act instantly, and if the conductor in Terre Haute, &c. R. Co. v. Mc- is the only agent present, and the Murray, 98 Ind. 358, 49 Am. R. 752, emergency is urgent, he must act it is said: "The' authority of an for the corporation, and if he acts agent is to be determined from the at all, his acts are of just as much facts of the particular case. Facts force as that of the highest officer may exist which will greatly broad- of the corporation. There are cases, en or greatly lessen an agent's au- where the train is distant from the thority. A conductor's authority in supervision of superior officers, the presence of a superior agent where the conductor must act, and may dwindle into insignificance, act for the company, and where, for 333 AUTHOKITT OP AGENTS EMPLOYMENT OF SURGEONS. [§' 333 employment of physicians and surgeons, and that branch of the sub- ject merits more than a general reference. It will be considered in the following section. §222. Authority of agents — ^Employment of surgeons. — It may be affirmed that the employment of a physician or surgeon is not or- dinarily within the scope of the authority of a subordinate agent or em- ploye, but that there may be extraordinary eases giving authority to employ a surgeon or physician. Neither a roadmaster,''' section agent,®* yardmaster,** nor stationmaster,'" will be presumed to have the time, and under the exigencies of the occasion, he is its sole repre- sentative, and if he be its only rep- resentative, he must, for the time and the exigency, be its highest rep- resentative. Simple examples will prove this to be true. Suppose, for Illustration, that a train is brought to a halt by the breaking of a bolt, and that near by is a mechanic who can repair the broken bolt and en- able the train to proceed on its way, may not the conductor employ the mechanic? Again, suppose a bridge is discovered to be unsafe, and that there are timbers at a neghboring mill which will make it safe, may not the conductor, in behalf of his principal, employ men to haul the timber to the bridge? Once more, suppose the engineer of a locomo- tive to be disabled, and that it is necessary to at once move the train to avoid danger, and there is near by a competent engineer, may not the conductor employ him to take the train out of danger?" " Louisville, &c. R. Co. v. McVay, 98 Ind. 391, 49 Am. R. 770. ^Tucker v. St. Louis, &c. R. Co. 54 Mo. 177. ™ Marquette, &c. R. Co. v. Taft, 28 Mich. 289. "Cox V. Midland, &c. R. Co. 3 Exch. 268. See, also, Godshaw v. J. N. Struck & Bro. 109 Ky. 285, 58 S. W. 781, 51 L. R. A. 668. A rail- road company will be held to be le- gally liable to furnish necessary medical attendance and care to pas- sengers injured by its fault, since it has contracted to carry them safely, and is liable for any failure to do so. But no such liability attaches when they are hurt by an inevitable accident, such as the derailment of a train by a cyclone. Union Pacific ■ R. Co. V. Beatty, 35 Kans. 265, 10 Pac. 845, 57 Am. R. 160. And a rail- road company will be held liable for any necessary care bestowed upon an injured employe at the instance and request of the principal agent, which it may have upon the ground and in a position to engage such care, in an emergency calling for immediate action. Since an em- ployer does not stand to his serv- ants as a stranger, but owes them the duty imposed by the dictates of humanity. Terre Haute, &c. R. Co. V. McMurray, 98 Ind. 358, 49 Am. R. 752; Terre Haute, &c. R. Co. v. Brown, 107 Ind. 336, 8 N. E. 218. But such authority by implication from necessity will not be extended any further than the necessities of the case require. Louisville, &c. R. Co. V. Smith, 121 Ind. 353, 22 N. B. 775, 6 L. R. A. 320. § 323] OOEPOEATE EBPRESENTATIVES. 334 authority to employ a physician to attend a servant of the company injured in the line of his duties. So, also, it is held that there is noth- ing in the duties of the company's solicitor,*^ or surgeon,®^ or en- gineer,®® or conductor'* from which such authority can be presumed. " Neither a conductor nor a solic- itor of a railroad company can ordi- narily contract for surgical attend- ance upon an injured passenger or employe, so as to bind the company. St. Louis, &c. R. Co. V. Hoover, 53 Ark. 377, 13 S. W. 1092. "■^Mayberry v. Chicago, &c. R. Co. 75 Mo. 492; Terre Haute, &c. R. Co. V. Brown, 107 Ind. 336, 8 N. B. 218. ^ In an action by a physician against a railroad company for pro- fessional services rendered to an employe of the company who had sustained an injury on its cars, it was held that evidence that, the en- gineer of the train, on which the in- jury happened, telegraphed to a sta- tion agent to have a doctor at the station when the train arrived, does not show an employment of the plaintiff by the company, in the ab- sence of evidence of the authority of the engineer to bind the com- pany. Cooper V. New York Central, &c. R. Co. 13 N. Y. Sup. Ct. 276. But it would seem that evidence that he was in sole charge of the train, and the employe's injuries required im- mediate attention would be sufiScient to show his authority. Terre Haute, &c. R. Co. V. McMurray, 98 Ind. 358, 49 Am. R. 752; Marquette, &c. R. Co. V. Taft, 28 Mich. 289, per Cooley, J. The doctrine of these cases last cited is to be carefully limited and rigidly confined to cases where there is pressing and urgent emergency requiring immediate action. There is, of course, no general duty rest- ing on the employer to care for sick or wounded employes, and the duty to obtain the services of a surgeon is not a general one, but a transient one arising out of and only exist- ing during an emergency. An agent can not do more than the immediate urgency requires without exceeding his authority. "St. Louis, &c. R. Co. y. Hoover, 53 Ark. 377, 13 S. W. 1092; Tucker V. St. Louis, &c. R. Co. 54 Mo. 177; Terre Haute, &c. R. Co. v. McMurray, 98 Ind. 358, 49 Am. R. 752. See, also. Wills V. International, &c. R. Co. (Tex. Civ. App.) 92 S. W. 273. See Northern Central R. Co. v. State, 29 Md. 420, 96 Am. Dec. 545. In Hays v. "Wabash R. Co. (Mo. App.) 95 S. W. 299, the defendant railroad company had a book of rules, one of which had been delivered to the plaintiff, a local surgeon retained by the de- fendant, and one of such rules pro- vided that in cases of wrecks or ac- cidents, where either passengers or employes are injured, the nearest competent surgeon should be sum- moned and the nearest hospital and the chief officers of the road should be notified by wire, giving the name and whereabouts of the injured per- sons, the name of the surgeon in at- tendance, and the like. Plaintiff was wired by the conductor of the train to meet the same at a certain sta- tion and take care of a passenger who had been injured, and on the arrival of the train met and con- ducted the passenger to a hospital, where he performed an operation and subsequently cared for him. The court held that the plaintiff was at least entitled to recover the rea- sonable value of his services in treating such passenger for a rea- 335 AUTHORITY OP AGENTS ^EMPLOYMENT OF SURGEONS. [§ 223 But an emergency calling for immediate action in order to save life or prevent suffering may be sufficient to confer authority upon the subordinate to employ necessary surgical aid, if he is the highest representative of the company on the ground. "= There may be cases of immediate urgency when it will be within the scope of the agent's employment to render those imperative services which the dic- tates of justice and humanity hold to be due from an employer to a servant injured while engaged in his service f^ and not only this, but in cases of urgent emergency it may become his duty to talce such measures as will prevent needless suffering and loss of life."" And sonable time until the defendant's claim agent could have been notified and his answer returned. "'Terre Haute, &c. R. Co. v. Mc- Murray, 98 Ind. 358, 49 Am. R. 752; Arkansas Southern R. Co. v. Lough- ridge, 65 Ark. 300, 45 S. W. 907. "Terre Haute, &c. R. Co. v. Mc- Murray, 98 Ind. 358, 49 Am. R. 752. In Marquette, &c. R. Co. v. Taft, 28 Mich. 289, Judge Cooley says: "We shall not stop to prove that there is a strong moral obligation resting upon any one engaged in a danger- ous business, to do what may be immediately necessary to save life or prevent an injury becoming ir- reparable, when an accident happens to a person in his employ. We shall assume this to be too obvious to require argument * * *. There can be no doubt that it is within the scope of somebody's employment for a railway company to cause a beast which is injured in carriage or run over at a crossing to be picked up and have the attention proper and suitable to its case; and if no one is authorized to. do as much for the faithful servant of the company who is in like manner injured, but all persons in its employ are impliedly forbidden to incur any expense be- yond what may be necessary to re- move him out of the way of their trains and machinery — even to con- vey him to his house, or to save his life by binding up a threatening wound — then, if such is the law, the courts must not hesitate to apply It, even though it be impossible to avoid feeling that it ought not to be the law, and that no business of this extensive and hazardous nature ought to be suffered to be carried on with no one for the major part of the time empowered to recognize and perform a duty which, at least on moral grounds, is so obvious and imperative. But we do not think such is the law." " In the case of Northern Central R. Co. V. State, 29 Md. 420, 96 Am. Dec. 545, a man was so injured by a collision with the defendant's train as to become unconscious. The company's agents believing him to be dead, but, without care- ful examination, laid him upon a box in a tool house and left him without care over night. The man recovered consciousness in the night, but, because of the lack of attention to his wounds, bled to death. The court held that it is the duty of agents in charge of a rail- road train to take care of one in- jured by the train which they are operating, and to do" it with a proper regard to his safety and the laws of humanity. And that the above facts were evidence that he came 332] CORPOEATE EEPKESENTATIVES. 336 even though the agent had no authority to engage a physician, such an employment may be ratified, and it is held that a physician employed ty the conductor of a train to care for a man injured by the train can recover against the railroad company for his services if, after knowledge of his employment by the conductor, the company failed to notify him that it would not be responsible.®* The authority of such a subordinate agent, however, arises only with the emergency which makes it necessary for him to possess it, and ends with such emergency."* And neither a conductor,^"" a roadmaster,^"^ a section agent,^"^ a station agent,^"^ nor the company's physician possessing authority to purchase medicines on the company's credit,^"* can bind to his death by the negligence of the company's servants, although he may have been negligent in get- ting upon the track in the first place. »» Terre Haute, &c. R. Co. v. Stock- well, 118 Ind. 98, 20 N. E. 650. To the same effect see Toledo, &c. R. Co. v. Rodrigues, 47 111. 188, 95 Am. Dec. 484, where a letter was written to the general superintendent by thp station agent, by whom a nurse and physician were employed, stating the facts, and he did not disclaim liabil- ity for the company. Toledo, &c. R. Co. V. Prince, 50 111. 26, holding that the superintendent, to escape liabil- ity, should repudiate the station agent's act in such a case and direct him to apprise the surgeon of such dissent. Louisville, &c. R. Co. v. McVay, 98 Ind. 391, 49 Am. R. 770, holding the company bound by a ratification by the general manager of a contract for nursing made by the roadmaster. Indianapolis, &c. R. Co. V. Morris, 67 111. 295. "•Louisville, &c. R. Co. v. Smith, 121 Ind. 353, 22 N. E. 775, 6 L. R. A. 320; Ohio, &c. R. Co. v. Brly, 141 Ind. 73, 40 N. E. 257, 28 L. R. A. 546, and note; St. Louis, &c. R. Co. V. Hoover, 53 Ark. 377, 13 S. W. 1092. ™ Indianapolis, &c. R. Co. v. Mor- ris, 67 111. 295; St. Louis, &o. R. Co. V. Hoover, 53 Ark. 377, 13 S. W. 1092; Sevier v. Birmingham, &o. R. Co. 92 Ala. 258, 9 So. 405. A conductor having procured or con- sented to the attendance of a com- petent surgeon upon an injured brakeman cannot bind the company by engaging additional surgeons. Louisville, &c. R. Co. v. Smith, 121 Ind. 353, 22 N. E. 775. 6 L. R. A. 320. '"Louisville, &c. R. Co. v. McVay, 98 Ind. 391, 49 Am. R. 770. '"^ Tucker v. St. Louis, &c. R. Co. 54 Mo. 177. But see Bigham v. Chi- cago, &c. R. Co. 79 Iowa 534, 44 N. W. 805. "'Atlantic, &c. R. Co. v. Reisner, 18 Kans. 458, where the court says: "The authorities cited sustain the proposition that a station agent of a railroad company is not author- ized, by virtue of his position as such agent, to employ a hotel- keeper, at the expense of the com- pany, to attend to one of its brake- men, injured while working for the company, nor to furnish such em- ployes with board and lodging while disabled." See, also. Tucker v. St. Louis, &c. R. Co. 54 Mo. 177. "* Mayberry v. Chicago, &c. R. Co. SSY AUTHOEITT OF AGENTS ^EMPLOYMENT OE SURGEONS. [§' 332 it by a contract for nursing and care bestowed on an employe during a protracted illness, though such contracts may be ratified by the company'^"^ and made binding upon it if it owes either a legal or moral obligation to the injured party.^"® In the case of officers and superior agents having general authority to enter into contracts for the com- pany, however, the courts hold that authority to procure care and medical attendance of an injured employe is incident to such general authority. Accordingly it is held that the general manager,^"'' or the general superintendent,^"* or an assistant superintendent,^"* having general supervising authority over the interests of a railroad company 75 Mo. 492, 11 Am. & Bng. R. Cas. 29. i°5 Indianapolis, &c. R. Co. v. Mor- ris, 67 III. 295; Louisville, &c. R. Co. V. McVay, 98 Ind. 391, 49 Am. R. 770. "* In Louisville, &c. R. Co. 'v. Mc- Vay, 98 Ind. 391,- 49 Am. R. 770, the court says: "There is, no evidence as to how Barnett was injured; hut inasmuch as the general manager ratified contracts for taking care of him, and the company paid for such service (except the claim of ap- pellee), it should be presumed — there being no evidence to the con- trary — that the injury was so in- flicted as that the contract for his care was not ultra vires." '"Atlantic, &c. R. Co. v. Reisner, 18 Kans. 458; Walker v. Great West- ern R. Co. L. R. 2 Exch. 228. In this case. Chief Baron Kelley, in the course of the argument, inquired, "Must a board be convened before a man who has both legs broken can have medical assistance?" Louis- ville, &c. R. Co. V. McVay, 98 Ind. 391, 49 Am. R. 770, where it is held that the courts will presume a gen- eral authority on the part of one holding the position of "general manager." But it has ' been held otherwise as to the general manager of an ordinary private corporation. J. F. Spelman v. Gold Mine, &c. Co. Ell. Railroads — 22 26 Mont. 76, 66 Pac. 597, 55 L. R. A. 640, 91 Am. St. 402. See, also. Holmes v. McAllister, 123 Mich. 493, 82 N. W. 220, 48 L. R. A. 396. "'Cincinnati, &c. R. Co. v. Davis, 126 Ind. 99, 25 N. B. 878, 9 L. R. A. 503; Terre Haute, &c. R. Co. v. Stockwell, 118 Ind. 98, 20 N. B. 650; Atchison, &c. R. Co. v. Reecher, 24 Kans. 228; Cairo, &c. R. Co. v. Ma- honey, 82 111. 73, 25 Am. R. 299; Toledo, &c. R. Co. v. Rodrigues, 47 111. 188, 95 Am. Dec. 484. Contra, Stephenson v. New York, &c. R. Co. 2 Duer (N. Y.) 341. See Marquette, &c. R. Co. V. Taft, 28 Mich. 289, where a divided court, in an opinion written by Judge Cooley, Chris- tiancy, C. J., concurring, held that he has such power. Graves and Campbell, J. J., dissenting. ™ Bigham v. Chicago, M. & St. P. R. Co. 79 Iowa 534, 44 N. W. 805; Pacific R. Co. V. Thomas, 19 Kans^ 256. See Brown v. Missouri, &c. R. Co. 67 Mo. 122, holding that a di- vision superintendent would not be presumed to have power to bind the company for a "small bill of drugs furnished a woman who had been hurt by a locomotive or cars of the company." The court says: "No proof was offered as to the duties of such ofiBcer, and the courts can- not take judicial notice of them." 233] COEPOEATE KEPKESENTATIVBS. 338 possesses authority to make such contracts on behalf of the eom- pany.^^" And in England it is held that the sub-inspector of railway police has implied power to employ surgical aid for an injured em- ploye.^^^ If the railroad company assumes to furnish a physician or surgeon to treat an injured passenger^^^ or employe,^^' it takes upon "° See Trenor v. Central Pacific R. Co. 50 Cal. 222; Cox v. Midland Counties R. Co. 3 Exch. 268; Tucker V. St. Louis, &c. R. Co. 54 Mo. 177; Indianapolis, &c. R. Co. v. Morris, 67 111. 295. ^" Langan v. Great Western R. Co. 30 L. T. N. S. 173. ••^ In Secord v. St. Paul, &c. R. Co. 18 Fed. 221, 224, Shiras, J., says: "If it assumes the responsibility of engaging a surgeon, and placing him in charge of parties that may be in- jured, then It is responsible thus far; that the person it selects must be a competent man; he must be reasonably fitted for the duties which he is called upon to perform. In other words, it will not do for the company to take up some in- competent man, who is not fit by education or experience to under- take the responsibilities of any case that may be placed in his hand. If it does engage a physician and sur- geon who is sufficiently experienced, that is all that can be expected of the railroad company, and is all of its liability." ™ In the case of South Florida R. Co. V. Price, Notes of Cases, October, 1893, the supreme court of Florida says: "The plaintiff, however, in this case undertakes in his declara- tion to fasten liability upon the de- fendant company upon a further charge that a surgeon, who was em- ployed by said company to render medical and surgical aid to Injured employes, did, in the exercise of his 'duty as such physician and surgeon, set the injured arm of plaintiff in. such an unskilled and negligent manner as to render it ill-shaped and forever useless to him In the performance of any manual labor. There Is no allegation or proof that the physician and surgeon so al- leged to have been employed by the defendant company was not compe- tent and skilled in the line of his profession; and, in the absence of such allegation and the proof to sus- tain itj the defendant is not liable for any negligent exercise by such surgeon of his profession in the treatment of the plaintiff. Even though we should admit it to be within the corporate powers of such a company to obligate itself to the rendition of medical or surgical aid to Its sick or injured employes, by assuming it as a duty or otherwise, or to become liable under any cir- cumsttances for any negligence of any such surgeon acting in the line of his profession, still it seems to be well settled that it will have per- formed Its entire duty in that re- spect when it employs a person of ordinary competence and skill in that profession; and tjiat, having done so, it cannot be held liable for the carelessness or negligence of such surgeon in the performance of his duties as such. Secord v. Rail- way Co. 18 Fed. 221; McDonald v. Mass. &c. Hospital, 120 Mass. 432, 21 Am. R. 529; O'Brien v. Cunard Steamship Co. 154 Mass. 272, 28 N. E. 266, 13 L. R. A. 329; Laubheim V. De Koninglyke N. S. Co. 107 N. Y. 228, 13 N. E. 781, 1 Am. St. 815. From what has been said it becomes 339^ PHYSICIANS/ AND SURGEONS. [§ 323 itself only the obligation to furnish, a competent man, skilled in his profession, and having done so is not responsible if he proves negli- gent in earing for this particular patient. In the absence of an ex- press contract entered into on behalf of the company by some one au-. thorized to represent it, a physician can have no claim against the company for services rendered to an injured employe or passenger. He can not render the services gratuitously and then sue the railway company upon an implied assumpsit.^^* And even though the com- pany's representative may have promised on behalf of the company that his bill should be paid, a physician cannot hold it liable where it does not appear that the services were rendered in reliance upon such promise or upon the credit of the eompany.^^^ § 223. Physicians and surgeons. — If a railroad exercises reasona- ble care in selecting a physician or surgeon to treat an injured employe it is not liable for the acts of such surgeon or physician.^^* The physi- cian or surgeon so employed does not become the agent of the com- pany. As we have elsewhere said, there is no general duty to care for unnecessary to notice the errors as they are specifically assigned." See, also, Ohio, &c. R. Co. v. Early, 141 Ind. 73, 40 N. B. 257, 28 L. R. A. 546, and note; Atchison, &c. R. Co. v. Zeiller, 54 Kans. 340, 38 Pac. 282; South Florida R. Co. v. Price, 32 Fla. 46, 13 So. 638. "* Toledo, &c. R. Co. v. Rodrigues, 47 111. 188, 95 Am. Dec. 484; Ellis v. Central Pacific R. Co. 5 Nev. 255. '"^ Northern Central R. Co. v. Pren- tiss, 11 Md. 119; Canney v. South Pacific Coast R. Co. 63 Cal. 501, where the court says: "The plain- tiff, in his testimony and on the trial, admitted, and his witnesses proved, that the services were ren- dered in pursuance of his original employment by those who were wounded, and' not otherwise. There was, therefore, no contract; express or implied, between the plaintiff and the defendant In relation to the services which are the subject of the suit, and as there is no prejudi- cial error in the record the judg- ment and order are affirmed." "'Pittsburgh, &c. Co. v. Sullivan, 141 Ind. 83, 40 N. B. 138, 27 L. R. A. 840, 50 Am. St. 313; Laubheim V. De Koninglyke, &c. Co. 107 N. Y. 228, 13 N. E. 781, 1 Am. St. 815; Eighmy v. Union Pac. R. Co. 93 Iowa 538, 61 N. W. 1056; McDonald v. Mass. &c. Hospital, 120 Mass. 432, 21 Aril. R. 529; Secord v. St. Paul, &c. R. Co. 18 Fed. 221; Union Pac. Rail- way Co. V. Artist, 60 Fed. 365; Fire Insurance Patrol v. Boyd, 120 Pa. St. 624, 15 Atl. 553, 1 L. R. A. 417, 6 Am. St. 745; O'Brien v. Cunard Steamship Co. 154 Mass. 272, 28 N. E. 266, 13 L. R. A. 329; Haas v. Mis- sionary Society, &c. 6 Misc. (N. Y.) 281, 26 N. Y. S. 868; Van Tassell v. Manhattan, &c. Hospital, 60 Hun (N. Y.) 585, 15 N. Y. S. 620; Allan V. State Steamship Co. 132 N. Y. 91, 30 N. E. 482, 15 L. R. A. 166, 28 Am. St. 556; 'South Railroad Co. v. Price, 32 Fla. 46, 13 So. 638. § 334^ CORPOEATB EEPKESENTATIVES. 340 sick or injured employes or to employ surgeons to attend them.^^'' There are exceptional cases where an urgent emergency imposes upon the company a special duty to secure surgical attention, but, as else- where said, such a duty is transient and special, coming into existence with the emergency and with the emergency expiring.^^* § 224. Delegation of power by directors. — The directors are held to be superior officers and as such possessors of very extensive powers, and they may delegate to agents or employes authority of -wjide seope,^^® but they canuot delegate powers which they are specially required to exercise by the provisions of the charfcer,^^" or by neces- sary implication. The powers which they are held by implication to be unable to delegate are generally said to be such as require the exer- cise of judicial or personal discretion as a board,^^^ such as declaring dividends, making calls, leasing the franchises and property of the company or executing a mortgage upon them, or entering into a con- solidation agreement with another company, where sucb powers are lodged in the directors.^^" What powers are and what are not specially enjoined upon the directors personally and required to be executed by them in person must generally be ascertained from the charter or act "'Smith Master & Servant New York, fic.'R. Co. v. Smith, 20 (Blacks' ed.) 302; Wennell v. Ad- R. I. 134, 37 Atl. 636; Davis v. Mem- ney, 3 B. & P. 252; Cooper v. Phil- phis City R. Co. 22 Fed. 883. The lips, 4 C. & P. 581; Sellen v. Nor- directors may appoint all necessary man, 4 C. & P. 80; Newby v. Wilt- subordinate officers. Kitchen v. shire, 2 Esp. 739; Sevier v. Birming- Cape Girardeau, &c. R. Co. 59 Mo. ham, &c. Co. 92 Ala. 258, 9 So. 405; 514. Toledo, &c. Co. v. Rodrigues, ^7 111. ""County Palatine Loan, &c. Co., 188, 95 Am. Dec. 484; Toledo, &c. Cartmell's Case, In re, 43 L. J. Bq. Co. V. Prince, 50 111. 26; Cairo, &c. 588; Silver Hook Road v. Greene, 12 Co. V. Mahoney, 82 111. 73, 25 Am. R. R. I. 164; Farmers' Mut. Ins. Co. T. 299; Union, &c. Co. v. Beatty, 35 Chase, 56 N. H. 341; York, &c. R. Kans. 265, 10 Pac. 845, 57 Am. R. Co. v. Ritchie, 40 Me. 425; Read v. 160. Memphis, &c. Co. 9 Heisk. (Tenn.) ™ Pittsburgh, &c. Co. v. Sullivan, 545. 141 Ind. 83, 40 N. E. 138, 27 L. R. A. ^ Farmers' Mut. Ins. Co. v. Chase, 840, 50 Am. St. 313. 56 N. H. 341; Silver Hook Road v. »»» Hoyt V. Thompson, 19 N. Y. 207; Greene, 12 R. I. 164; Percy v. Millau- Burrlll V. Nahant Bank, 43 Mass. don, 3 La. 568; Patterson v. Port- 163, 35 Am. Dec. 395; Saltmarsh v. land Smelting Works," 35 Oreg. 96, Spaulding, 147 Mass. 224, 17 N. E. 56 Pac. 407. 316; Manchester, &c. R. Co. v. Fisk, ™See ante under the various ti- 33 N. H. 297. See, also, Lewis v. ties of dividends, calls, etc. Albemarle, &c. R. Co. 95 N. Car. 179; 341' EMPLOYMENT OE SUB-AGENTS AND SERVANTS. [§' 225 of incorporation. Powers of a legislative or judicial nature necessarily exercised in governing the corporation cannot be delegated unless the statute by express words or fair implication confers a right to delegate them. § 225. Employment of sub-agents and servants. — The general rule is that the authority of an agent cannot be delegated unless power to delegate is expressly or impliedly conferred upon him. Authority to employ sub-agents may often be implied from the rank and position of the agent, but, as a rule, agents of inferior rank and limited author- ity cannot rightfully employ other agents or servants. Ordinarily a mere agent cannot, without the authority or consent, express or im- plied, of the corporation, employ another to perform the duties re- quired of him so as to bind" the corporation, especially ia anything which requires the exercise of judgment and discretion, '^^^ or of skill,^^* in its performance. But in the case of superintendents, man- agers and agents invested with general powers, an authority to employ subordinate agents is implied from necessity and custom, even if not expressly given.^^^ § 326. Notice to agents or officers. — ^Notice given to, or knowledge acquired by an officer^^" or an agent of a corporation, when acting for the corporation within the scope of his authority,^^^ concerning matters "'Brewster v. Hobart, 15 Pick, railroad, with all of an employe's (Mass.) 302; Gillis v. Bailey, 21 N. rights. Sloan v. Central R. Co. 62 H. 149; Silver Hook Road v. Greene, Iowa 728, 16 N. W. 331. 12 R. I. 164; York, &c. R. Co. v. ""Notice to the president when Ritchie, 40 Me. 425. acting for the corporation is notice "* Bverhart v. Terre Haute, &c. to the corporation. Hoffman, &c. Co. R. Co. 78 Ind. 292, 41 Am. R. 567, v. Cumberland, &c. Co. 16 Md. 456, where a brakeman employed plain- 77 Am. Dec. 311; First Nat. Bank tiff to perform some of his duties, v. Gifford, 47 Iowa 575; Barnes v. and the plaintiff being injured by Trenton Gas Co. 27 N. J. Eq. 33. the company's negligence, the com- But the notice or Information must pany was held not liable. Kent Com. be given or acquired while he was (9th ed.), 854, 856. acting as president. Winchester v. i^'Wood Field Priv. Corp. (1883), Baltimore, &c. R. Co. 4 Md. 231; § 183. When the regular brakeman Miller v. Illinois Central R. Co. 24 is absent, and the proper and safe Barb. (N. Y.) 312. So notice to the management of the train so re- secretary was held sufllcient. Tren- quires, the conductor has authority ton Banking Co. v. Woodruff, 2 N. J. to supply the place of the absent Eq. 117. brakeman, and, for the time being, "' Schenck v. Mercer County Mut. such person is an employe of the Ins. Co. 24 N. J. L. 447; Goodall v. § 226], COEPOEATE EBPEESENTATIVES. 343 about which he is acting or has authority to act, will be imputed to the eorporation.^^^ But the knowledge must be shown to relate to the business of his agency, and must not be merely casual knowledge, but must usually be knowledge acquired while acting as agent.^^° And the corporation will be chargeable with notice of all facts within the knowledge of a person assuming to act for it, relative to the business in hand, in case it ratifies and adopts his aets.^^° Notice to or notice acquired by an individual stockholder will not bind the corporation,^'^ and the fact that he afterwards becomes an officer will not render it binding.^'^ There are many decisions to the effect that notice to an agent at some previous time and when he was engaged in a different business will not bind his principal unless it is shovni to have been actually disclosed to him,^^^ and the better reason, we are inclined to New Eng. Mut. Fire Ins. Co. 25 N. H. 169; Marine Mfg Co. v. Harding, 155 Ind. 648, 58 N. B. 194. But such knowledge should be imputed to the corporation only so long as the agency remains; and where an agent possessing knowledge not acquired by any usage, custom or course of business of the company, such as knowledge of the arbitrary mark of a consignee of goods shipped by railroad, ceases to serve as agent, the company cannot be charged with such knowledge. Great "Western Railway v. Wheeler, 20 Mich. 419. See, generally, Pittsburgh, &c. Co. v. Ruby, 38 Ind. 294, 10 Am. R. Ill; Ohio, &c. Co. v. Coliarn, 73 Ind. 261, 38 Am. R. 134. ^2 Purdy's Beach Priv. Corp. § 769. It is essential that notice should relate to matters over which the authority of the agent extends and should be more than mere cas- ual information gathered as an in- dividual. Day V. Wamsley, 33 Ind. 145. '^ Brown V. Bankers', &c. Co. 30 Md. 39; Goodloe v. Godley, 13 S. & M. (Miss.) 233, 51 Am. Dec. 159, Willard v. Denise, 50 N. J. Eq. 482, 26 Atl. 29, 35 Am. St. 788; notes in 24 Am. St. 228-233, and 38 Am. St. 770. ""Hovey T. Blanchard, 13 N. H. 145. ^'' Danville Bridge Co. v. Pomeroy, 15 Pa. St. 151; Nashville, &c. R. Co. V. Elliott, 1 Coldw. (Tenn.) 611, 78 Ami Dec. 506; Black v. Camden, &c. R. Co. 45 Barb. (N. Y.) 40. "^Housatonic Bank v. Martin, 42 Mass. 294; Union Canal Co. v. Loyd, 4 W. & S. (Pa.) 393. See, also, Brennan v. Emery, &c. Co. 99 Fed. 971; Casco Nat. Bank v. Clark, 139 N. Y. 307, 34 N. E. 908, 36 Am. St. 705; Kearny Bank v. Froman, 129 Mo. 427, 31 S. "W. 769, 50 Am. St. 456. "= Miller v. Illinois Central R. Co. 24 Barb. (N. Y.) 312; Reed's Appeal, 34 Pa. St. 207; Keenan v. Missouri Ins. Co. 12 Iowa 126; Pepper v. George, 51 Ala. 190; United States Ins. Co. V. Shriver, 3 Md. Ch. 381; Winchester v. Baltimore, &c. R. Co. 4 Md. 231; Plympton v. Preston, 4 La. Ann. 356; Washington Bank v. Lewis, 22 Pick. (Mass.) 24; Astor V. Wells, 4 Wheat. (U. S.) 466; Trenton v. Pothen, 46 Minn. 298, 49 N. W. 129, 24 Am. St. 250. In Mc- Comb T. Chicago, &c. R. Co. 7 Fed. 343 EATIFICATION. [§ 337 think, •supports this rule. Very respectable authority, however, holds that notice or knowledge received by an agent before he was appointed as such is imputable to the principal in regard to matters in which he is afterward employed, if it can be shown that the facts were then present in the agent's mind, or that knowledge of them was so re- cently acquired that it should be presumed that he still had it in mind ;^^* but this doctrine we are inclined to regard as unsound. The rule in England^^^ is that which we have said we believe to be sup- ported by the better reason.^^^ So, if the agent is acting adversely to the corporation, and his interests are adverse, there is no presump- tion that he will inform the corporation in regard to such matter, and his notice or knowledge in that regard is not, therefore, imputed to the corporation in such a case.^^^ § 227. Ratification. — Even though the agent is not shown to have received any authority from the corporation, and it does not appear 426, it was held that an officer could not he made a party to a hill of dis- covery when he did nqt derive his information in his official capacity, but derived it from a participation in the creation of the corporation. «*The Distilled Spirits, 11 Wall. (XJ. S.) 356; Fairfield Savings Bank V. Chase, 72 Me. 226, 39 Am. R. 319; Ingalls V. Morgan, 10 N. Y. 178; Hovey v. Blanchard, 13 N. H. 145; Lebanon Savings Bank v. Hollen- beck, 29 Minn. 322, 13 N. W. 145. See, also, note in 24 Am. St. 229, . 230, where this view is taken and additional authorities are cited up- on both sides. "" Dresser v. Norwood, 17 C. B. N. S. 466. But the older cases hold to the other rule. Preston v. Tubbin, 1 Vern. 286; Lowther v. Carlton, 2 Atk. 242; Hiern v. Mill, 13 Ves. 114. "° For cases forming exceptions to the general rule that notice to the agent is notice to the principal, see Thompson, &c. Co. v. Capitol, &c. Co. 65 Fed. 341; Allen v. South R. Co. 150 Mass. 200, 22 N. E. 917, 5 L. R. A. 716, 15 Am. St. 185; Kennedy v. Green, 3 Mylne & K. 699; Bspin V. Pemberton, 3 De Gex & J. 547; Holland v. Hart, L. R. 6 Ch. App. 678; Cave v. Cave, L. R. 15 Ch. Div. 639; Kettlewell v. Watson, L. R. 21 Ch. Div. 685, 707; Innerarity v. Bank, 139 Mass. 332, 1 N. B. 282, 52 Am. R. 710; De Kay t. Hackensack Water Co. 38 N. J. Eq. 158; Frankel V. Hudson, 82 Ala. 158, 2 So. 758, 60 Am. R. 736. The doctrine of the cases cited is that when the agent is- attempting to defraud his princi- pal notice to him is not notice to the principal. "' Lamson v. Beard, 94 Fed. 30, 36 C. C. A. 56; Corcoran v. Snow Cattle Co. 151 Mass. 74, 23 N. B. 727; Mer- chants' Nat. Bank v. Lovitt, 114 Mo. 519, 21 S. W. 825, 35 Am. St. 770, and note; Grinster v. Scranton, &c. Co. 181 Pa. St. 327, 37 Atl. 550, 59 Am. St. 650; Booker v. Booker, 208 111. 529, 70 N. E. 709, 100 Am. St. 250; Camden Safe, &c. Co. v. Lord, 67 N. J. Eq. 489, 58 Atl. 607. § 327] COKPOEATE REPRESENTATIVES. 344 that he has been held out to the world as possessing any such, author- ity, and no former acts of his are shown from which his authority as an agent could be presumed, yet the corporation will be bound if it is shown to have knowingly ratified the particular act in question^ ^' by express adoption of the contraet,^^* either in whole or in part,^*° by availing itself of the proceeds or benefits arising from an execution of the contract by the other party,^*^ or by neglecting to disavow and ac- tively condemn the unauthorized act for a long time and until innocent third persons have been thereby induced to put themselves in a position from which they cannot be taken without loss if the act should be held invalid.^*^ Wha,t is a reasonable time in which to disavow an act of the agent after being informed of what he has done will depend upon the particular circumstances of the case. If the corporation and its officers have knowledge that the other contracting party is making large expenditures on the faith of the contract, they must act promptly if they would disaffirm it.^^^ Eatification from long silence has been held a question for the jury.^^* But ratification should not be lightly presumed, especially where the act is wholly beyond the "« Stuart V. London, &c. R. Co. 16 Jur. 209, 10 Eng. L. & Eq. 57. Evi- dence that representatives of a cor- poration agreed that certain land should be used as a highway and that such agreement was afterward ratified Is not rendered inadmissible by the fact that no such authority was given the representatives in the resolution authorizing the purchase Of the land. People v. Eel River, &c. R. Co. 98 Cal.. 665, 33 Pac. 728. ""McLaughlin v. Detroit, &c. R. Co. 8 Mich. 99. >" United States Rolling Stock Co. V. Atlantic, &c. R. Co. 34 Ohio St. 450, 32 Am. R. 380. "'Bangor, &c. R. Co. v. Smith, 47 Me. 34; Scott v. Middletown, &c. R. Co. 86 N. Y. 200; Oilman, &c. R. Co. V. Kelly, 77 111. 426; Davidson v. Bridgeport, 8 Conn. 472; Hilliard v. Goold, 34 N. H. 230, 66 Am. Dec. 765; Klckland v. Menasha, &c. Co. 68 Wis. 34, 31 N. "W. 471, 60 Am. R. 831. When a corporation receives, with- out objection, the benefit of a con- tract made by any agent in its be- half, for a purpose authorized In its charter, it may be presumed to have authorized or ratified the contract. Pittsburgh, &c. R. Co. v. Keokuk, &c. Co. 131 U. S. 371, 9 Sup. Ct. 770. '" Sheldon, &c. Co. v. Eickemeyer, &c. Co. 90 N. Y. 607; Hazlehurst v. Savannah, &c. R. Co. 43 Ga. 13; United States, &c. Stock Co. v. At- lantic, &c. R. Co. 34 Ohio St. 450, 32 Am. St. 380; Indianapolis Rolling Mill Co. V. St. Louis, &c. R. Co. 120 U. S. 256, 7 Sup. Ct. 542. See, also, Kelly V. Newburyport, &c. R. Co. 141 Mass. 496, 6 N. E. 745. '"United States, &c. Stock Co. v. Atlantic, &c. R. Co. 34 Ohio St. 450, 32 Am. St. 380. '"First Nat. Bank v. Reed, 36 Mich. 263. See 1 Elliott Gen. Pr. § 426; Arkansas, &c. R. Co. v. Dick- inson (Ark.), 95 S. W. 802; Hall V. New York, &c. R. Co., 27 R. L. 525, 65 Atl. 278. 345 ACTS THAT MAT BE RATIFIED. [§' 328 ordinary duties of the officer or agent performing it;^*^ for no in- dividual member can represent the corporation in its aggregate ca- pacity, except by consent. Thus, proof that the plaintifE's men were seen at work upon a turnpike road by difEerent members of the cor- poration owning it, and by its agent who was authorized to bind the corporation only by written contracts, was held insufficient to establish a claim for pay for such work, where it was not shown that any author- ized agent of the coroporation, or any one who had previously acted for the corporation in such matters, had requested that the work should be done or promised to pay for it.^^° § 228. Acts that may be ratified. — ^It is competent for a railroad company to ratify any act of an agent performed within the scope of the corporate power. The general rule is that a corporation can only ratify contracts which it has power to enter into,^*^ and it is powerless to ratify one which it is prohibited from making by its charter, by public policy or by general statute.^** It is, in general, true that a void act cannot be ratified. A recovery may be had on the quantum meruit in many cases for the value of the property actually received by the company. Such a recovery does not, as a general rule, rest upon the void contract, but there are cases which hold that a re- covery can be had on the contract.^*' '"'Kersey Oil Co. v. Oil Creek, &c. v. Lafayette, &c. R. Co. 50 Ind. 85; R. Co. 12 Phila. (Pa.) 374. Miller v. Rutland, &c. Co. 36 Vt. 452. "° Hayden v. Middlesex Turnp. Co. '* Such a contract is as if no con- 10 Mass. 397, 6 Am. Dec. 143. See tract had ever been made, and, of Cox V. Midland R. Co. 18 Law J. N. course, incapable of ratification. AP S. Exch. 65. But where an engineer exander v. Cauldwell, 83 N. Y. 480; who had previously made such con- Davis v. Old Colony R. Co. 131 Mase. tracts which had been ratified by 258, 41 Am. R. 221; Martin v. Zeller- the corporation, promised that par- bach, 38 Cal. 300, 99 Am. Dec. 365; ties furnishing materials to build a Taymouth Tp. v. Koehler, 35 Mich, bridge for the company should be 22. paid, it was held bound by such "° Hitchcock v. Galveston, 96 U. S. promise. Beattie v. Delaware, &c. 341; Dill v. Wareham, 7 Metcf. R. Co. 90 N. Y. 643. (Ky.) 438; Schipper v. Aurora, 121 »' Scott V. Middletown, &c. R. Co. Ind. 154, 158, 22 N. E3. 878, 6 L. R. A. 86 N. Y. 200; United States, &c. 318; State Board, &c. Co. v. Citi- Stock Co. V. Atlantic, &c. R. Co. 34 zens', &c. Co. 47 Ind. 407, 17 Am. R. Ohio St. 450, 32 Am. St. 380; Bos- 702; Bissell v. Michigan, &c. Co. 22 ton, &c. R. Co. V. New York, &c. R. N. Y. 258; DeGroft v. American, &c. Co. 13 R. I. 260; Pacific R. Co. v. Co. 21 N. Y. 124; Missouri Pacific Thomas, 19 Kans. 256; Board, &c. Co. v. Sidell, 67 Fed. 464; Whitney § 339] CORPORATE REPRESENTATIVES. 346 § 229. Eatification— What constitutes.^A ratification will be pre- sumed only in ease the corporation was aware of all the material facts and circumstances which would influence it in adopting or rejecting the contract/^" or had such means of knowing that it was chargeable with negligence in not being informed of them.^'^ The rule stated is a familiar one, and little else than its bare statement is required. We refer in the note to a few of the great number of cases which as- sert and apply the rule.^" § 230. Compensation of officers. — ^As a general rule there is no im- plied promise to pay corporate officers anything for their services, but they are presumed to serve without compensation unless some provision for payment is made by statute, by contract, or by resolu- tion of the board of directors.^ ^^ Where a certain compensation is agreed upon before the services are rendered, payment of it will be enforced. Accordingly, it is held that a by-law of a corporation, pro- viding that "no debts shall be contracted by the company unless there Arms Co. v. Barlow, 63 N. Y. 62, 20 Am. R. 504; Railway Co. v. McCar- thy, 96 U. S. 258; Bank v. Patterson, 7 Cranch (U. S.) 299; Pennsylvania R. Co. V. Keokuk, &c. Co. 131 U. S. 371, 9 Sup. Ct. 770; Bavls v. 01d,(Col- ony R. Co. 131 Mass. 258, 41 Am. R. 221; Louisiana v. Wood, 102 U. S. 294; Parkersburg v. Brown, 106 U. S. 487, 1 Sup. Ct. 442; Pennsylvania, &c. Co. V. St. Louis, &c. Co. 118 U. S. 290, 6 Sup. Ct. 1094. ""Oilman, &c. R. Co. v. Kelly, 77 111. 426. "'Hotchin v. Kent, 8 Mich. 526; Exchange Bank v. Monteath, 17 Barb. (N. Y.) 171. "'Western, &c. Bank v. Arm- strong, 152 U. S. 346, 14 Sup. Ct. 572; Battaglia v. Thomas, -5 Tex. Civ. App. 563, 23 S. W. 1118; First Nat. Bank v. Badger, &c. Co. 54 Mo. App. 327; Russ v. Telfener, 57 Fed. 973; Sherrill v. Weisiger, &c. Co. 114 N. C^ 436, 19 S. B.-365; W. O. Johnson & Sons v. Des Moines, &c. R. Co. (Iowa) 105 N. W. 509. It is familar and established law that the act of an agent must be ratified in toto or entirely repudiated. Ra- der V. Maddox, 150 U. S. 128, 14 Sup. Ct. 46; Nicklase v. Griffith, 59 Ark. 641, 26 S. W. 381; Stanard Mill- ing Co. V. Flower, 46 La. Ann. 315, 15 So. 16; Brown v. Parsons, 10 Utah 223, 37 Pac. 346; GrafC v. Calla- han, 158 Pa. St. 389, 27 Atl. 1009; Tallman v. Kimball, 74 Hun (N. Y.) 279, 26 N. Y. S. 811. A principal who seeks to escape liability for the unauthorized act of the agent must repudiate it within a reasonable time after it comes to his knowl- edge. Swartz V. Buncan, 38 Neb. 782, 57 N. W. 543. "' Officers of corporations are pre- sumed to perform the duties of their trust gratuitously, unless otherwise provided by a statute or a contract. ,Smith V. Putnam, 61 N. H. 632; Bar- ril V. Calendar Insulating, &c. Co. 50 Hun (N. Y.) 257, 19 N. Y. S. 877; Toponce v. Corinne Mill, C. & S. Co. 6 Utah 439, 24 Pac. 534. There is no Si? INDIVIDUAL LIABILITY OF AGENTS FOE THEIE TOETS. [§ 331 are funds in the treasury to meet the same," does not apply to the salary of the secretary of such corporation, especially when it has received the consideration for the indebtedness contracted.^^* And a by-law or resolution adopted by the directors of a corporation that the salary of the president shall be paid monthly out of the money 'that may come into the hands of the treasurer from the first sale of bonds is held not to exempt the corporation from liability therefor in case the bonds are not sold.^^^ Officers and agents, of whom active duties are required, not chosen from among the directors are, ordi- narily, entitled to a reasonable compensation for services rendered at the request of the corporation or of its authorized representatives.^^® Payment for labor as well as for materials useful in carrying on the business of the corporation may usually be made in money or its equivalent ; and, if in the latter, the transaction cannot be impeached for error of judgment on the part of the officers as to the value of the services or property.^°^ §231. Individual liability of agents for their torts. — ^Although the corporation becomes bound to answer for any wrongs committed by an agent in the course of his employment, the agent is not thereby discharged from liability. He must answer for his frauds,^ °' mis- implied promise to pay the presi- a corporation, a man became its dent of a private corporation for his general agent and purchased a large services. McAvity v. Lincoln Pulp, number of shares of its capital &c. Co. 82 Me. 504, 20 Atl. 82. See stock, and gave active and valuable McMullen v. Ritchie, 64 Fed. 253; service to the company, expecting Starbuck v. Housatonic R. Co. 83 that when it became prosperous he Hun (N. Y.) 534, 32 N. Y. S. 87; would have a large salary for the Potts V. Rose Valley Mills, 167 Pa. future, with some compensation for St. 310, 31 Atl. 655. the past, but with no agreement as '"McCracken v. Halsey Fire En- to salary — the fact that he stated gine Co. 57 Mich. 361, 24 N. "W. 104. several times to other stockholders '^ Indianapolis, &c. R. Co. v. Hyde, that he was serving without com- 122 Ind. 188, 23 N. B. 706. But a pensation will not defeat his right resolution fixing the salary of a to reasonable pay for his services charter officer elected for one year when the corporation has become in- at a sum certain per month does not solvent. Bard v. Banigan, 39 Fed. necessarily fix that rate for the 13. year. Bennett v. St. Louis Car Roof- "' Arapahoe Cattle & Land Co. v. ing Co. 23 Mo. App. 587. Stevens, 13 Colo. 534, 22 Pac. 823, 28 '™ Rogers v. Hastings, &c. R. Co. Am. & Eng. Corp. Cas. 12. 22 Minn. 25; Missouri River R. Co, "*Dodgson Case, 3 De Gex & S. V. Richards, 8 Kans. 101; St. Louis, 85; Att'y-Gen. v. Leicester, 7 Beav. &c. R. Co. V. Grove, 39 Kans. 731, 18 176. Pac 958. Where, at the request of § 333] COBPOEATE EEPKESENTATIVES. 348. representations/^' and other wrongful acts/"" even though, he does- them by the express direction of a superintendent or other superior officer of the corporation. ^°^ § 232. Bonds of officers and agents. — The officers and agents of a corporation are liable to it for any losses occasioned by their miscon- duct or neglect,"^ and it is competent for the corporation to take a bond from an officer or agent to secure the faithful performance of his duty. The right to require such a bond is given by statute in many states/^ ^ but such statutes are but an affirmance of the common laWj^^* and any corporation may pass a valid by-law requiring security to be given by its agents. ^°° Even though the charter prescribes the security to 'be taken, such provision will be held merely directory and a different bond may be enforced against the sureties in case of the agent's default.^^' If the bond is executed and delivered to the cor- poration, and the officer enters upon the discharge of his duties, it may be enforced against the sureties upon a breach of its conditions without showing any formal acceptance of it by the directors.^*^ A total fail- ure to execute any bond whatever will not prevent the person ap- ^=° Salmon v. Richardson, 30 Conn. 360, 79 Am. Dec. 255 ; Meyer v. Ami- don, 45 N. Y. 169; Fusz v. Spatin- horst, 67 Mo. 256; Henderson v. La- con, L. R. 5 Eq. 249. See, also, Ty- ler V. Savage, 143 U. S. 79, 12 Sup. Ct. 340. ""Horner v. Lawrence, 37 N. J. L. 46; Harrlman v.- Stowe, 57 Mo. 93; Crane v. Onderdonk, 67 Barb. (N. Y.) 47; BerghofC v. McDonald, 87 Ind. 549; Elmore v. Brooks, 6 Heisk. (Tenn.) 45; Richardson v. Kimball, 28 Me. 463; Cameron v. Kenyon, &c. Co. 22 Mont. 312, 56 Pac. 35?, 74 Am. St. 602. "" Duluth V. Mallett, 43 Minn. 204, 45 N. W. 154, where the conviction of an engineer for obstructing a crossing was upheld, though it ap- peared that he acted only in obedi- ence to orders. "2 Pontchartrain R. Co. v. Pauld- ing, 11 La. 41; Lexington R. Co. v. Bridges, 7 B. Mon. (Ky.) 556; Briggs V. Spaulding, 141 U. S. 132, 11 Sup. Ct. 924; March v. Eastern R. Co., 43 N. H. 529. "=Stimson Am. Stat. (1892) §§ 8046, 8533, citing laws of Massa- chusetts, Vermont, Connecticut, New ~York, Pennsylvania, Arkansas, West Virginia, Texas, Nevada, Utah, Indi- ana, Michigan, Illinois, Arizona, Col- orado, Montana, Wyoming, District of Columbia. ^"Angell & Ames (8th ed.), § 285. ^"^ Bank v. United States v. Dand- ridge, 12 Wheat. (U. S.) 64. See Bank of North Liberties v. Cresson, 12 Serg. & R. (Pa.) 306; Peppin v. Cooper, 2 B. & Aid. 431. "" As where the charter prescribed a bond with two sureties, and a bond with only one surety was taken. Bank of Northern Liberties V. Cresson, 12 Serg. & R. (Pa.) 306. ^"Amherst Bank v. Root, 2 Mete. (Mass.) 522. 349 BONDS OF OFFICERS AND AGENTS. [§' 233 pointed to an office from being a legal agent of the corporation, even where the charter provides that he shall "give bond before he enters upon the duties of his office,"^'* although a failure to require a bond may render the officers whose duty it was to require the bond liable for any loss resulting from their failure to do so.^'® A bond is not void as to the obligors because it is signed by the officers who should examine and approve it/^" nor because the officer neglected to be sworn.^^^ But, if the principal knows of some fact which will ma- terially affect the liability of the sureties,^'^ as that he is being cheated by an agent,^'^ and applies for security for the good conduct of the agent, but conceals this fact from the one who, in ignorance of it, becomes a surety for the agent, the obligation so obtained may be avoided by the surety. The corporate representative must, if fit oppor- tunity offers, inform the surety of any material facts within his knowledge relative to the trustworthiness of the officer, such as prior defaults and the like, or the surety will not be bound.^'* And the corporation cannot, upon misconduct of the agent amounting to a substantial breach of the bond after it is executed, retain him in its employ and yet hold the sureties liable for his future defaults, unless notice is given to the sureties and they expressly or impliedly consent to the agent's retention.^'® The fact that the agent is retained will not relieve the surety from a liability already accrued.^^* As a gen- eral rule the corporation is not bound upon discovering that an officer ^^ Bank, of United States v. Dand- time of signing the official bond is ridge, 12 Wheat. (U. S.) 64. But if in default, and the sureties are not the charter especially provided that informed of that fact, they will not he should not be deemed for any be bound. Wilmington, &c. R. Co. purpose in his office until an ap- v. Ling, 18 S. C. 116. proval of his bond- by the proper "* Western, &c. Ins. Co. v. Clinton, board, any acts which he did before 66 N. Y. 326; ^tna Life Ins. Co. v. such approval would be utterly void. Mabbett, 18 Wis. 667; Franklin Bank of United States v. Dandrldge, Bank v. Cooper, 36 Me. 179; Dins- 12 Wheat. (U. S.) 64, per Story, J. more v. Tldball, 34 Ohio St. 411; "' Pontchartraln R. Co. v. Pauld- Graves v. Lebanon Nat. Bank, 10 ing, 11 La. 41. Bush (Ky.) 23, 19 Am. R. 50; State ""Amherst Bank v. Root, 2 Mete. v. Atherton, 40 Mo. 209. (Mass J 522. ""Phillips v. Foxall, L. R. 7 Q. B. "'State Bank v. Chetwood, 8'N. J. 666; Taylor v. Bank of Kentucky, 2 L. 1. J. J. Marsh (Ky.) 564; Wilmington, "2 Franklin Bank v. Stevens, 39 &c. R. Co. v. Ling, 18 S. C. 116. Me. 532. ™ State Bank v. Chetwood, 8 N. "'Maltby's Case, cited in 1 Dow. J. L. 1; Union Bank v. Forstall, 11 294. Where a station agent at the La. 211. § 233] COHPOEATB EEPEESENTATIVBS. 350 is in default to dismiss the officer and notify the sureties in order that they may take measures to protect themselves.^'' And where the officer or employe was a defaulter at the time of giving the bond, but this fact was unknown to the company, or where the corporation retains him in its employ after his default, but in ignorance of his miscon- duct, the surety is not thereby discharged, even though such ignorance arises from the negligence of officers of the corporation in failing to examine into the accounts of the person under bond.^'* The mere fact that a balance was due from the agent to the principal on account of money received by him, where it did not carry an imputation of misconduct on the part of the agent, was held not a material fact, the concealment of which would reledse the surety.^'" And the fact that a balance is found to be due from the agent to the corporation, and he is afterward allowed to continue in its employ will not necessarily release the sureties, for it is only where the default is evidently a dis- honest one, amounting to a breach of the bond, that the corporation is bound to discharge the delinquent.^*" A bond will be presumed to be executed with reference to the time for which the officer or agent is appointed, if for a term certain, and the sureties cannot be held liable for his misconduct in any subsequent terms for which he may be chosen.^ ^^ But they may, by the use of apt words in the bond, bind themselves for an indefinite number of successive terms during which he may hold his position. ^^^ Where one gives a bond as an officer of a corporation whose charter will soon expire, his bondsmen cannot be held liable for his defalcations while acting as an officer ""Pittsburg, &c. R. Co. v. Shaef- 196. See Vilwjg v. Baltimore, &c. fer, 59 Pa. St. 350; Morris Canal, &c. R. Co. 79 Va. 449. Co. V. Van Vorst, 21 N. J. L. 100; ™ Atlantic, &c. Tel. Co. v. "Barnes, Peel V. Tatlock, 1 Bos. & Pull. 419; 64 N. Y. 385, 21 Am. R. 621; Rich- Grocers' Bank v. Kingman, 16 Gray mond, &c. R. Co. v. Kasey, 30 Gratt. (Mass.) 473. (Va.) 218. ™ Bowne v. Mt. Holly Nat. Bank, "^^ Chelmsford Co. v. Demarest, 7 45 N. J. L. 360; Watertown, &c. Ins. Gray (Mass.) 7; Manufacturers', &c. Co. V. Simmons, 131 Mass. 85, 41 Loan Co. v. Odd Fellows' Hall Ass'n, Am. R. 196; Atlas Bank v. Birownell, 48 Pa. St. 446; Exeter Bank v.' Rog- 9 R. I. 168, 11 Am. R. 231; Black ers, 7 N. H. 21. V. Ottoman Bank, 15 Moore P. C. "''Middlesex Manf. Co. v. Law- 472. rence, 1 Allen (Mass.) 339. See Lex- "= Guardians, &c. v. Strother, 24 ington, &c. R. Co. v. Elwell, 8 Allen Eng. Law & Eq. 183, 22 L. T. 84; (Mass.) 371; Eastern R. Co. v. Lor- Wilmington, &c. R. Co. v. Ling, 18 ing, 138 Mass. 381; Consolidated S. Car. 116; Watertown, &c. Ins. Co. Nat. Bank v. Fidelity, &c. Co. 67 v. Simmons, 131 Mass. 85, 41 Am. R. Fed. 874. 351 StJEETIES BONDS OF OFFICERS AND AGENTS. [§ 333 under an extension of the charter.^^* But the adoption of a by-law changing the time for holding the annual meeting, or changing the mode of conducting the business of the corporation after the termina- tion of a lease of its property will not discharge the sureties.^** It has also been held that the obligation of a bond is not avoided by the amalgamation of the company to which it was given with another under an act of parliament providing that all the securities of the old companies should be vested in the new, and the duties of the officer were unchanged.^*" §233. Sureties — Bonds of ofB.cers and agents. — The rules which govern as to the effect of changes in obligations of sureties apply to sureties on the bonds of corporate officers and agents. We shall not discuss the subject at length, but will refer to some general rules. A change in the contract in any material part, without the consent of the surety, will discharge him from his obligation,'*" as where one who is working for a salary goes to work on a commission,' ^^ or where one who gives bond as agent for an insurance company which has no authority to engage in banking is intrusted by it with the business of banking for the corporation, and embezzles funds intrusted to him for that purpose.'*' But a surety on the bond of a ticket seller, conditioned for his faithful performance of "all the duties of the said office which are or may be imposed upon him under this or any future appointment," is not released by the fact that the capital stock of the corporation is increased, that the travel becomes much greater, and that the ticket agent's salary is nearly doubled after the bond is given."' The sureties on the official bond of an officer or agent of a private corporation conditioned for the faithful performance of his duties will not be held to any greater liability than would attach to the agent if no bond were given, unless the language of the bond clearly requires it.'°° Such a bond has reference to the agent's hon- "= Thompson v. Young, 2 Ohio 334. "" Blair v. Perpetual Ins. Co. 10 ^" Lexington, &c. R. Co. v. BIwell, Mo. 559, 47 Am. Dec. 129. 8 Allen (Mass.) 371. ""Eastern R. Co. v. Loring, 138 ™ Eastern Union R. Co. v. Coch- Mass. 381; Strawbridge v. Baltimore, rane, 24 Eng. L. & Eq. 495; London, &c. R. Co. 14 Md. 360, 74 Am. Dec. &c. R. Co. V. Goodwin, 3 Exch. 320. 541. See, also. Bank of Wilmington «= Miller V. Stewart, 9 Wheat. (U. v. Wollaston, 3 Harr. (Del.) 90; S.) 680. Morris Canal & Banking Co. v. Van '"^ Northwestern R. Co. v. Whin- Vorst, 21 N. J. L. 100. ray, 26 Eng. L. & Eq. 488. ''» Chicago, &c. R. Co. v. Bartlett, § 233] OORPOKATE EEPEESENTATIVES. 352' esty/'^ and binds him only to the reasonable skill and ordinary dili- gence ,in performing the duties of his office^ °^ to which he is bound by the terms of an ordinary employment. And where a sum of money belonging to the corporation is stolen from the agent without his fault, his sureties cannot be held liable upon a bond which prdvides that he shall "well, truly and faithfully perform the duties required of him * * * and promptly pay over and promptly account for all moneys belonging to said company which shall be received by him as such agent."^'^ The corporation cannot, without the unanimous consent of the stockholders, condone gratuitously the fraud of its officers."* 120 111. 603, 11 N. E. 867; Baltimore, &c. R. Co. V. Jackson, 33 Alb. J. (N. Y.) 239; Planters', &c. Bank v. Hill, 1 Stew. (Ala.) 201, 18 Am. Dec. 39. "'Union Bank v. Clossey, 10 Johns. (N. Y.) 271, 11 Johns. (N. y.) 182. ''"' American Bank v. Adams, 12 Pick. (Mass.) 303. An officer of a private corporation is liable only for the care required of an ordinary trustee or bailee for hire, and is not ah insurer of property coming into his hands. Mowbray v. Antrim, 123 Ind. 24, 23 N. B. 858; Wayne Pike Co. V. Hammons, 129 Ind. 368, 27 N. E. 487. '■^ Chicago, &c. R. Co. v. Bartlett, 120 111. 603, 11 N. B. 867; Baltimore, &c. R. Co. V. Jackson, 33 Alb. L. J. (N. Y.) 239. So where property is lost without his fault. Mowbray v. Antrim, 123 Ind. 24, 23 N. E. 858. '»* Hazard v. Durant, 11 R. I. 195. See, as to right of stockholders to sue, notes in 97 Am. St. 30, et set}. See, also, Greathouse v. Martin (Tex.), 94 S. W. 322. CHAPTER XII. DIEECTOKS. Sec. Sec. 234. Different classes of officers — 254. Generally. 235. The governing board — Gener- 255. ally. 236. Governing board not the cor- 256. poration. 257. 237. The board of directors repre- sents the corporation. 258. 238. Directors — Generally. 239. Number of directors. 259. 240. Directors — How chosen — Gen- erally. 260. 241. Eligibility to the office of di- 261. rector. 242. Ineligibility because of eon- 262. nection with competing 263. lines. 243. Election of ineligible person 264. to office of director. 244. Officers de facto — Generally. 265. 245. Election of ineligible person — Who may question right to 266. office. 246. Directors de facto— lUustra- 267. tive cases. 247. De facto directors — Two 268. boards. 269. 248. . Holding over — Failure to elect. 249. Powers of directors — Source 270. Of. 250. Powers of directors — Gener- 271. ally. 251. Powers of directors — lUustra- 272. tive cases. 273. 252. Directors — Powers of — Organic changes. 274. 253. Directors — ^Extent of author- 275. . ity — Generally. Powers of directors, general conclusion. Directors — Official action — Preliminary. Directors — Official action. Directors — Delegation of au- thority. Directors — Delegation of au- thority — Illustrative cases. Directors — ^Action where the mode is prescribed. Directors — Meetings. Directors — Meetings — S t a ted and special. Directors — Meetings — Notice. Directors — Meetings — Proxies — Quorum. Directors — Meetings outside of the state. Directors — ^Proceedings — Rec- ord. Directors — Corporate records as evidence. Proof of the proceedings of the board of directors. Notice to directors. Directors — Adnlissions and declarations. Ratification of the acts of di- rectors. Directors — Removal from of- fice. Compensation of directors. Directors — Relation to stock- holders — Preliminary. Directors considered trustees. Directors as trustees — Illustra- tive cases. Eix. Raileoads — 23 353 § 234] DIEECTOES. 354 Sec. Sec. 276. Directors — Dealings with cor- 280. Directors — ^Errors of judg- poration. ment. 277. Termination of fiduciary rela- 281. Directors — ^Liability for negli- tions. gence. 278. Directors — Liability of — Gen- 282. Directors — ^Fraud on third per- erally. sons. 279. Directors — Liability in matter of contract. § 234. Different classes of officers — Generally. — ^In the preceding chapter we have in a general way treated of the officers and agents of railway companies and shall now consider that class of corporate of- ficers that may be said to be the governing officers of the corporation. Some of these officers are invested with powers that resemble gov- ernmental, legislative and judicial powers, while others are executive of ministerial officers. The common-law rule was quite strict, and under it only the members of the board of directors, or the governing board by whatever name designated, were regarded as officers of such superior rank and au'Ehority as to constitute them very much more than agents and servants,^ but this doctrine has been greatly limited. § 235. The governing board — Generally. — The power of corporate government is vested in a board of officers generally denominated ''board of directors" or '^board of trustees." The governing board is the highest representative of the corporation. The members of the board are the officers in whom are lodged the primary and highest corporate powers. They actively exercise the powers of the corpora- tion, and, while it is true that the powers they exercise are in a sense delegated to them, yet their powers are not delegated powers in the same sense as are the powers conferred upon agents, attorneys or em- ployes.^ The governing board must, under many statutes, exercise all ^Priestley v. Fowler, 3 M. &W. 1; Conro v. Port Henry, &c. Co. 12 Hutchinson v. York, &c. Co. 5 Exch. Barb. (N. Y.) 27; Union, &c. Co. v. 343; Murray V. South Carolina R. Co. Rocky Mountain, &c. Co. 2 Colo. 1 McMullan (S. C.) 385; Farwell v. 565; McCullough v. Moss, 5 Den. Boston, &c. Co. 45 Mass. 49, 38 Am. (N. Y.) 567, 575; Dana v. Bank of Dec. 339; McFarlane v.. Caledonian, United States, 5 Watts & S. (Pa.) &c. Co. 6 Macph. (Sc. Ct. of Ses- 223; United Soc. v. Underwood, 9 sions, 3d Ser.) 102; Bartonshill, &c. Bush (Ky.) 609,, IB Am. R. 731; Co. V. Reld, 3 Macq. 266. Nashua, &c. R. Co. v. Boston, &c. R. "Bliss V. Kaweah, &c. Co. 65 Cal. Co. 27 Fed. 821; Mahoney Min. Co. 502, 4 Pac. 507. See, generally, v. Anglo-Californla Bank, 104 U. S. 355 GOVERNING BOAED NOT THE COEPOEATION. [| 336 corporate po-jvers, for, wMle the shareholders select the members of the board, the board exercises powers which those who put them in office cannot rightfully exercise. As a rule corporate powers must be exercised by the governing board, or through agents and servants ap- pointed directly or indirectly by it. Where the act of incorporation requires corporate powers to be exercised by the governing board they cannot be exercised by any other corporate department officers or agents, for where the mode of corporate action is prescribed it must be pursued.* The members of the governing board are usually desig- nated as the directors, and we shall employ that term as a generic one denoting the officers invested with the principal governmental powers. ' § 236. Governing board not the corporation. — The board of direct- ors is not- in strictness the corporation unless made so by the act of incorporation.* Statements are found in some of the books and cases which seem to indicate that the board of directors constitute the cor- poration." These statements, as we believe, assert an erroneous doc- trine, for broad and comprehensive as are the powers of the board of directors, the body politic and corporate is distinct from the board, and there are corporate powers which the board cannot exercise. The board cannot, unless expressly authorized by the act of incorporation, prescribe the qualifications of its own members, enact by-laws, amend 192; Beveridge v. New York Bl. B. Y. 207; Beveridge v. New York El. Co. 112 N. Y. 1, 19 N. B. 416. R. Co. 112 N. Y. 1, 19 N. E. 416; ' Beatty v. Manne Ins. Co. 2 Johns. Leavitt v. Oxford, &c. Co. 3 Utah (N. Y.) 109, 3 Am. Dec. 401; People 265, 1 Pac. 356, 4 Am. & Eng. Corp. V. Utica, &c. Co. 15 Johns. (N. Y.) Cas. 234; Miller v. Rutland, &c. R. 358, 383, 8 Am. Dec. 243; New York, Co. 36 Vt. 452; Cleveland, &c. R. Co. &c. Co. V. Ely, 2 Cow. (N. Y.) 678; v. Hlmrod, &c. Co. 37 Ohio St. 321, Willcocks, Ex parte, 7 Cow. (N. Y.) 41 Am. R. 509. Judge Redfield 402, 17 Am. Dec. 525; Hosack v. says: "As a general rule it may he College, &c. 5 Wend. (N. Y.) 547. safely affirmed that the hoard of di- See, also, Flagg v. Manhattan R. rectors have all the power which Co. 20 Blatchf. (U. S.) 142. resides in the corporation, subject * Grant Corporations, 365; Reg. v. to such restrictions only as are im- Paramore, 10 A. & E. 286; Regina posed upon by the charter and by- V. New York, 2 Q. B. 847 ; Mayor, &c. laws of the corporation." Redfield V. Simpson, 8 Q. B. 65; TifEets v. Railways, 136. This statement, we Walker, 4 Mass. 597. venture to say, with deference to " Maynard v. Firemen's Ins. Fund, its learned author, is somewhat too 34 Cal. 48, 91 Am. Dec. 672. See, broad and requires limitation, generally, Hoyt v. Thompson, 19 N. §■ 237] DIRECTOES. 356 articles of association, increase capital stock or effect a consolidation with another conipany, for power to do these things, and others, dwells elsewhere.' §237. The board of directors represents the corporation. — ^When duly organized and ofiBeially acting within the scope ©f the authority conferred upon it by the charter &t the valid by-laws of the corporate body, the board of directors represents and acts for the corporation to the exclusion of the individual stockholders. As we have elsewhere said, action by the stockholders where the charter, ©r act of incorpora- tion, requires action by the board of directors, is ineffective. In such cases the stockholders are substantially strangers to the corporation so far as corporate action is concerned. They elect the directory, but they cannot perform the duties or exercise the funetions enjoined upon the board of directors by law. The stockholders are not co-owners of the corperate property, and hence cannot act in regard to it as joint- owners of property can do where the title is in natural persons.' » State V. Adams, 44 Mo. 570 ; Day- ton, &c. R. Co. V. Hatch, 1 Disney (Ohio) 84; Commonwealth r. Cul- len, 13 Pa. St. 133, 53 Am. Dec. 450; Chicago, &c. Co. v. Allerton, 18 Wall. (U. S.) 233. In Nashua, &g. Co. v. Boston, &c. Co. 27 Fed. 821: "The general power of the feoard of di- rectors to perform all corporate acts refers to ordinary transactions and not to fundamental and organic changes, like increasing its capital stock or leasing its plant," citing Cass V. Manchester, &c. Co. 9 Fed. 640; Thomas v. Railroad Go. 101 U. S. 71. See, also, Bedford R. Go. v. Bowser, 48 Pa. St. 29. ' Williamson v. Smoot, 7 Mart. (La.) O. S. 31, 12 Am. Dec. 494; Mickles v. Rochester, &c. Bank, 11 Paige (N. Y.) 118, 42 Am. Dec. 103; Spurlock v. Missouri Pacific R. Co. 90 Mo. 199, 12 S. W. 219; Burrall v. Bushwick R. Co. 75 N. Y. 211. See, also, Lawson v. Black Diamond, &c. Co. (Wash.), 86 Pac. 1120. In the case of American, &c. Co. v. Norris, 43 Fed. 71-1, ther court said;- "It is the familiar law that a corporation has a personality of its own dis- tinct from that of its stockholders, that it is not affected in the re- motest degree by contracts made by its stockhttlders with third parties, whether they own much or little of its capital stock, and is not bound to discharge any personal obliga- tions assumed by its stockholders." The court cited Pullman, &c. Co. v. Missouri Pacific Co. 115 U. S. 587, 6 Sup. Ct. 194; Moore, &c. Co. v. Towers, &c. Co. 87 Ala. 206, 6 So. 41, 13 Am. St. 23; Davis, &c. Co. v. Da- vis, &c. Wagon Co. 20 Fed. 699. The court also distinguished the case from that of Beal v. Chase, 31 Mich. 490. The case of American, &c. Co. V. Taylor Manuf. Co. 46 Fed. 152, is the same case as that from which we have quoted and was heard upon an amended bill. See, generally, Hancock v. Holbrook, 9 Fed. 353; Railroad Co. v. Howard, 7 Wall. (U. S.) 392. 357 DIEECTOES — GENEEALLY. [§ 338 Shareholders cannot convey the corporate real estate for the reason that the title is in the corporation,^ and conveyances must be made by the authorized representatives of the corporation. A conveyance made by all the stockholders may be upheld in equity where facts are al- leged and proved sufficient to invoke the assistance of the court of conscience, but the conveyance in and of itself is not effective to carry the title.' In various modes the question as to the authority of the stockholders to act for the corporation has been presented and the conclusion generally declared is that it is only in exceptional cases that their acts can be regarded as those of the corporation.^" A stock- holder may, of course, be appointed an agent of the corporation and his acts, within the scope of his authority, will be binding on the cor- poration, but his authority will be attributable to his appointment and not to his position as a shareholder.^^ § 238, Directors — Generally. — ^The principal officers of a private corporation are, as already indicated, the directors. A choice of di- rectors is an essential step in its organization, ajid in many of the states it is specified that the corporate powers are to be exercised by them.^^ It is competent for the legislature to constitute the board of directors the corporation, and where there is a statute making the di- rectors the corporation, they are necessarily the possessors of the whole corporate power not elsewhere lodged. But, as a rule, directors are elective officers, chosen as the chief representatives of the corporation. § 239. Number of directors. — The number of directors is fixed by charter or by the law providing for the incorporation of railroads, or is left to be determined by the stockholders within certain limits. Where the number is not fixed by the charter, or the statute under which the company is organized, it may be fixed by the stockholders '"Wheelock v. Moulton, 15 Vt. 519; 124; Gillett v. Bowen, 23 Fed. 625; Myers v. Perigal, 2 DeGex, M. & G. Whitman v. Cox, 26 Me. 335; Lang- 599; Edwards v. Hall, 6 DeGex, M. don v. Hillside, &c. Co. 41 Fed. 609; & G. 74, 92; Baldwin v. Canfleld, 26 Tomllnson v. Bricklayers' Union, 87 Minn. 43, 1 N. W. 261. See, gen- Ind. 308. erally, Harris v. Muskingum, &c. Co. " American, &c. Co. v. Taylor, &e. 4 Blackf. (Ind.) 267, 29 Am. Dec. Co. 46 Fed. 152; Society, &c. v. Ab- 372; Carothers v. Alexander, 74 Tex. bott, 2 Beav. 559. 309, 12 S. W. 4; Shay v. Terolumie, "Gordon v. Swan, 43 Cal. 564. &c. Co. 6 Cal. 73; Smith v. Hurd, 12 "Taylor Priv. Corp. § 187. Mete. (Mass.) 371, 46 Am. Dec. 690; ""Stimson Am. Stat. (1892) § 8060. MofEat V. Winslow, 7 Paige (N. Y.) § 340] DIEEOTOES. 358 by appropriate action. Where the number is fixed definitely by the constating articles or articles of association it cannot be changed ex- cept in the manner provided by law, or by an authorized change or amendment of such articles.^^ § 240. Directors — ^How chosen — Generally. — ^Directors are usually chosen by the stockholders.^* In the absence of statutory provisions vesting the power elsewhere it properly resides in the stockholders of the company. The members compose the corporation and it is for them to choose their representatives in some authorized or appropriate mode, unless the statute prescribes the mode ; but in the event that a mode is prescribed the stockholders cannot rightfully pursue any other. As we shall see presently, an immaterial or unsubstantial deviation from the mode prescribed will not vitiate the election. § 241. Eligibility to the office of director. — Where the act of in- corporation requires that, to render a person eligible to the office of director, he shall possess certain prescribed qualifications, he cannot be rightfully chosen to the office unless he possesses the required qualifications. In this, as in all other matters, the act under which the company is incorporated constitutes the paramount law.^^ At common law, any person capable of acting as the business agent for another may be a director.^® Persons under the disability of coverture or infancy are eligible to the office of director unless the statutory law interdicts the selection of such persons. Non-residents may, in the absence of statutory prohibition, be eligible to the office of director,^'' but if residence is required by the statute a non-resident is ineligible'. Where the statute does not make the ownership of stock essential to eligibility to the office of director a person who is not a stockholder "Stimson Am. Stat. (1892) § 8532. 24 L. R. A. 252, 29 W. L. Bull. 160, " Stimson Am. Stat. § 8532, citing 29 Ohio L. J. 160. laws of Connecticut, Vermont, New " People v. Webster, 10 Wend. (N. York, New Jersey, Pennsylvania, In- Y.) 554. diana, Illinois, Minnesota, Nebraska, " Commonwealth v. Hemingway, Maryland, West "Virginia, North Car- 131 Pa. St. 614, 18 Atl. 992, 7 L. R. olina, Arkansas, Texas, Montana, A. 357; Commonwealth v. Detwiler, Utah, Georgia, Alabama, New Mex- 131 Pa. St. 614, 18 Atl. 990, 7 L. R. ico, Arizona, Oklahoma. A. 357; McCall v. Byram Mfg. Co. 6 "Horton v. Wilder, 48 Kans. 222, Conn. 428. See State v. Smith, 15 29 Pac. 566; State v. Manufacturers', Oreg. 98, 14 Pac. 814; and note in 24 &0. Co. 50 Ohio St. 45^ 33 N. E. 401, L. R. A. 252. 359 INELIGIBILITY OF DIEECTOE OF COMPETING LINE. [§ 243 may be elected.^® If the charter or by-laws enacted in accordance with it require that directors shall be stoekholderSj then the persons chosen must be the owners of stock.^° It has been held that where one is appointed director by the articles of association he is a de jure officer, although he did not at the time of his appointment own the number of shares required by the articles of association.^" The conclusion reached in the case cited in the note is placed upon the ground that the articles of association only relate to officers appointed in the future. § 242. Ineligibility because of connection with competing lines. — It is held that a director of one company is incompetent to serve as director of a company having adverse interests, and, if chosen, the court will remove him and replace him by trustees of its own ap- pointing.^^ The decisions to which we refer seem to be supported by sound reason. Directors occupy fiduciary relations to the corporation " Wight V. Springfield, &c. Co. 117 Mass. 226, 19 Am. R. 412; Spering's Appeal, 71 Pa. St. 11, 10 Am. R; 684; St. Lawrence Steamboat Co., In re, 44 N. J. 529; Stock, Ex parte, 33 L. J. Ch. 731; Kerchner v. Gettys, 18 S. Car. 521; British, &c. Ass'n, Re, L. R. 5 Ch. Div. 306. See Penobscot, &c. Co. v. Dummer, 40 Me. 172, 63 Am. Dec. 654; Despatch Line v. Bel- lamy, &c. Co. 12 N. H. 265,-37 Am. Dec. 203; Fey v. Peoria, &c. Co. 32 111. App. 618; Corporate Directors, Re, 7 Pa. Co. Ct. 178. See, generally, Trisconi v. Winship, 43 La. Ann. 45, 9 So. 29, 26 Am. St. 175; Beardsley v. Johnson, 121 N. Y. 224, 24 N. E. 380. "Bartholomew v. Bently, 1 Ohio St. 37. It is held that actual bene- ficial ownership is requisite. Bain- brldge v. Smith, L. R. 41 Ch. Div. 462, 33 Am. & Eng. Corp. Cases 172; Stock, Ex parte, 33 L. J. Ch. 731; Newcomb, Matter of, 63 Hun 633, 18 N. Y. S. 549. See Cumming v. Pres- cott, 2 Younge & C. Exeh. 488; Chemical, &c. Bank v. Colwell, 132 N. Y. 250, 30 N. E. 644; Common- wealth V. Detwiller, 131 Pa. St. 614, 18 Atl. 990, 7 L. R. A. 357; Nathan v.. Tompkins, 82 Ala. 437, 2 So. 747; Richards v. Attleborough, &c. Bank, 148 Mass. 187, 19 N. E. 353, 1 L. R. A. 781; Hazelhurst v. Savannah, &c. R. Co. 43 Ga. 13 ; Argus Printing Co. 1 N. Dak. 434, 48 N. W. 347, 26 Am. St. 639; Pulbrook v. Richmond, &c. Co. L. R. 9 Ch. Div. 610. "Karuth's Case, L. R. 20 Eq. 506; Portal V. Emmens, 1 Com. PI. Div. 664. =^ Pearson v. Concord R. Co. 62 N. H. 537, 13 Am. St. 590. In "West Virginia a corporation may provide by by-law that no person who is at- torney against It in a suit shall be eligible to serve as director. Cross V. West Virginia Central, &c. R. Co. 37 W. Va. 342, 16 S. B. 587, 18 L. R. A. 582. But the mere fact that one is a director in two companies is not necessarily a disqualification where the duties or interests do not conflict. Mobile, &c. R. Co. v. Owen, 121 Ala. 505, 25 So. 612. §' 243] DIEECTOES. 360 and they ought not to be interested adversely to the corporation. It has, however, been held that the fact that a stockholder intends, if elected a director, to vote for an arrangement by which another cor- poration will control the company cannot, thQugh such an arrangement be illegal, afEect the validity of his election.^^ § 243. Election of ineligible person to office of director. — It is generally held that the election of an eligible person to the office of director is voidable only and not absolutely void.^' If the election is not void, but merely voidable, it would seem to follow that the per- son chosen is invested with color of office and, ordinarily, is not to be regarded as a mere usurper. He is not, to be sure, an officer de jure, but it seems to us that he is to some extent and for some purposes a corporate representative; but there are authorities holding that an ineligible person cannot be a de facto officer.^* It is also held that votes cast for an ineligible candidate are "thrown away."^° For the reasons given and upon the authorities referred to, in the next para- graph, we are inclined to the opinion that an ineligible candidate formally elected and inducted into office may be an officed de facto.'^ § 244. Officers de facto — Generally. — ^Where the rights of third persons are involved an officer may be such de facto, although in strict right he is not eligible to the office and has not been legally elected. It would be a hardship upon third persons who deal with corporations to require them at their peril to determine whether persons acting as corporate officers under color of right are in fact the officers of the corporation. The question is essentially different in cases where third persons are concerned from what it is in cases where the person claiming to be an officer asserts some right by virtue of the =^Ohio & M. R. Co. V. State, 49 officer and may be ousted by legal Ohio St. 668, 32 N. E. 933. See, also, proceedings." Cook Stockholders Stanley v. Luse, 36 Oreg. 25, 58 Pac. (3d ed.) 620. See Schmidt v. Mitch- 75. ell, 101 Ky. 570, 41 S. W. 929, 72 Am. "'The doctrine goes back to the St. 427; Tramways Co. In re, 5 Ch. case of Crawford v. Powell, 2 Burr. D. 9€3. 1013. See, also, note in 15 L. R. A. ^ Horton v. Wilder, 48 Kans. 222, 418- 29 Pac. 566. See, also. Burr v. Mc- ^ People V. Albany, &c. R. Co. 55 Donald, 3 Gratt. (Va.) 215; note in Barb. (N. Y.) 344; Craw v. Easterly, 15 L. R. A. 418. As to when they 54 N. Y. 679 ; Easterly v. Barber, 65 are not de facto officers, see Water- N. Y. 252. man v. Chicago, &c. R. Co. 139 III. ^Mr. Cook says: "Votes cast for 658, 29 N. B. 689, 15 L. R. A, 418, a person not eligible to office cannot and note, elect him. He is not even a de facto 361 iiteli6ibl1<; officer — who mat question eight. [§' 245 office. Where there is color of right under a corporate election and corporate recognition of the acts of the person claiming to be a di- rector, third persons who in good faith act upon the belief that he is an ofKcer are entitled to protection. The same principle which pro- tects persons who deal with persons haying color of right to a public office should protect those who deal with representatives of corpora- tions, for it would be unjust to require persons dealing with corporate representatives acting as officers under color of right to investigate and decide whether the claim to office is well founded. The same prin- ciple which upholds acts of corporations de facto ought to be sufficient to uphold the acts of persons who with color of right assume the func- tions of corporate officers. We believe the conclusion we. have stated to be supported by principle and authority.^^ § 245. Election of ineligible person — ^Who may question right to office. — A private person who has no interest whatever in the affairs of a railroad corporation cannot successfully challenge the right of an ineligible person to hold the office to which he was chosen, except in cases where it is otherwise provided by statute. One who actively and knowingly participates in securing an illegal election and the choice of persons not qualified, cannot be heard to complain of the ^ Selma, &c. Co. v. Tipton, 5 Ala. and his place is filled by election, 787, 39 Am. Dec. 344; Despatch Line, he is not even a director de facto, &c. V. Bellamy, 12 N. H. 205, 37 Am. and service of process on him is Dec. 203; "Wallace v. Walsh, 125 N. void. There is, as every one knows, Y. 26, 25 N. B. 1076, 11 L. R. A. 166 ; an essential difference between cases Demarest v. Flack, 128 N. Y. 205, 28 where the rights of innocent third N. E. 645, 13 L. R. A. 854; Atlantic, persons are involved and cases &c. .Co. V. Johnston, 70 N. C. 348; where the rights of the claimant are Moses V. Tompkins, 84 Ala. 613, 4 asserted by him, and so there is be- So. 763; Burr v. McDonald, 3 Gratt. tween cases involving rights of (Va.) 215; Cahlll v. Kalamazoo, &c. third persons and cases where the Co. 2 Dougl. (Mich.) 124, 43 Am. state assails the right of the claim- Dec. 457; Rockville, &c. v. Van Ness, ant to the oflSce. Bbaugh v. German, 2 Cranch (U. S.) 449; Mahoney &c. Church, 3 B. D. Smith (N. Y.) Min. Co. V. Anglo-California Bank, 60; County, &c. Co., In re, L. R. 5 104 U. S. 192; Tucker v. Aiken, 7 N. Ch. App. 288; People v. Albany, &c. H. 113,135; Atlas Nat. Bank v. Gard- Co. 55 Barb. (N. Y.) 344. See, gen- ner, &c. Co. 8 Biss. 537. Contra, New- erally. Cooper v. Curtis, 30 Me. 488; comb. In re, 42 N. Y. St. 442, 18 N. Mechanics', &c. Bank v. Burnet, &c. Y. S. 16. In Beardsley v. Johnson, Co. 32 N. J. Eq. 236; Atlantic, &c. 121 N. Y. 224, 24 N. E. 380, it was Co. v. Johnston, 70 N. C. 348; Char- held that if a person elected to the itable Assn. v. Baldwin, 1 Metcf. oflBce of director becomes ineligible (Mass.) 359. 346] DIRECTOES. 3G2 result of the election. If the complainant has been guilty of an in- tentional wrong he is not in a situation to invoke the assistance of the courts.^* §246. Directors de facto — Ulustrative cases. — Persons acting as officers although their term of office had expired and they were hold- ~ ing over have been held to be officers de facto, but it seems to us that they should be regarded as officers de jure.^^ Officers chosen at a day other than that specified are at least officers de facto, and there is au- thority as well as reason for holding them to be officers de jure in the just sense of the term.^" It has been held that a director elected by a minority of the stockholders is a de facto direetor.^^ So -an officer elected under an unconstitutional statute has been held to be an officer de facto.^^ Officers elected at a meeting held outside of the state have been held to be de facto officers.^* Directors discharging the functions of office and holding under color of appointment by the legislature are de facto directors.^* It has been adjudged that directors may be such de facto although the corporation was illegally or irregularly organ- ized.^° We suppose, however, that there can be no officers de facto. "^Wiltz V. Peters, 4 La. Ann. 339. Application of Syracuse, &c. Co., Matter of, 91 N. Y. 1. =» Thorlngton v. Gould, 59 Ala. 461. ^ In Beardsley v. Johnson, 121 N. Y. 224, 24 N. E. 3,80, the provisions of a statute requiring the corporate election to he held on a designated day were directory, and directors chosen on a day different from that specified were held officers de jure. °' Delaware, &e. Co. v. Pennsyl- vania, &c. Co. 21 Pa. St. 131. See, also, Baird v. Bank of Washington, 11 S. & R. (Pa.) 411. ^'^ Leach V. People, 122 111. 420, 12 N. B. 726. See, generally, Mallett V. Uncle Sam, &c. Co. 1 Nev. 188, 90 Am. Dec. 484; Plymouth v. Painter, 17 Conn. 585, 44 Am. Dec. 574; State v. Curtis, 9 Nev. 325; Hamlin v. Kassafer, 15 Oreg. 456, 15 Pac. 778, 3 Am. St. 176. ""Ohio, &e. R. Co. v. MePherson, 35 Mo. 13, 86 Am. Dec. 128, citing Trustees, &c. v. Hill, 6 Cow. (N. Y.) 23, 16 Am. Dec. 429; All Saint's Church V. Lovett, 1 Hall (N. Y. S. Ct.) 191; John v. Farmers', &c. Bank, 2 Blkf. (Ind.) 367; 20 Am. Dec. 119; Mining Co. v. Anglo-Cali- fornian, &c. Bank, 104 U. S. 192. See Anglo-Californian, &c. Bank v. Mahoney, &c. Co. 5 Sawy. (U. S.) 255, 258. See, also. Commonwealth y. Milton, 12 B. Mon. (Ky.) 222, 54 Am. Dec. 522; Aspinwall v. Ohio, &c. Co. 20 Ind. 329, 83 Am. Dec. 329; Bradford v. Frankfort, &c. R. Co. 142 Ind. 383, 40 N. B. 741, 41 N. B. 819. "Ellis V. North Carolina, &c. 68 N. C. 423. See, generally. Smith v. Bank of the State, 18 Ind. 327 Humphreys v. Mooney, 5 Colo. 282 Savage v. Ball, 17 N. J. Eq. 142 Smith V. Brb, 4 Gill. (Md.) 437 People V. Staton. 73 N. C. 546, 21 Am. R. 479. " Hackensack, &c. Co. v. DeKay, 36 N. J. Bq. 548. 363 DE FACTO DIKEOTOES TWO BOARDS. [§ 347 and, of course, no oflBcers de jure, where there is no statute authoriz- ing the organization of the corporation, for in such a case there could be no color of right, and color of right is essential to create an officer de facto. Mere irregularities in the mode of conducting an election ■will not, unless very material and substantial, impair the title of the persons chosen as directors, and as to third persons, officers chosen will be de facto officers, although there may be many irregularities and errors in conducting the election. § 247. De facto directors — Two boards. — If there are two boards of directors the question as to whether there can be de facto directors is perplexing. If those claiming to be directors have color of title, are not mere usurpers, and have acted as directors for a considerable length of time, we think that as to third persons, acting in good faith and without notice, in the ordinary course of business, they should be regarded as directors de facto.^^ The question is, of course, radically different where it arises iu a suit or action by innocent third persons from what it is when it arises in a suit or action by one claim- ing rights as an officer, or in a suit or action by one who actively par- ticipates in giving the claimants color of office and seeks to obtain personal benefit through the acts of such persons, for in such cases there is reason for holding that the corporation is not bound, by the acts of the claimants of the office. ^^ § 248. Holding over — ^Failure to elect. — Where officers are elected for a designated term and the stockholders fail to elect at the time fixed for the election, the officers will hold over, unless the statute otherwise provides, and their official acts will bind the corporation.^* A failure to elect officers at the time prescribed does not work a dis- '" Lebanon, &c. Co. v. Adair, 85 98 Pa. St. 444; Moses v. Tompkins, Ind. 244; Waterman v. Chicago, &c. 84 Ala. 613, 4 So. 763. Co. 139 111. 658, 29 N. E. 689, 15 L. ^Cassell v. Lexington, &c. Co. R. A. 418, 32 Am. St. 228; Genesee (Ky.) 9 S. W. 701; Thorington v. Tp. V. McDonald, 98 Pa. St. 444. Gould, 59 Ala. 461; Currie v. Mu- ^'Hildretli v. Mclntire, 1 J. J. tual, &c. Co. 4 Hen. & M. (Va.) 315, Marsh. (Ky.) 206, 19 Am. Dec. 61; 4 Am. Dee. 517; Huguenot, &c. Bank Conway v. St. Louis, 9 Mo. App. v. Studwell, 6 Daly (N. Y.) 13; 01- 488. See, also. Waterman v. Chi- cott v. Tioga, &c. Co. 27 N. Y. 546, cago, &c. R. Co. 139 111. 658, 29 N. E. 84 Am. Dec. 298; South Bay, &c. Co. 689, 15 L. R. A. 418, 32 Am. St. 228; v. Gray, 30 Me. 547. See, also, Pen- Genesee School Dist. v. McDonald, ohscot, &c. R. Co. v. Dunn, 39 Me. 587. § 249] DIRECTORS. 364 solution, unless the statute expressly or impliedly makes such failure operate as a dissolution.^' Where the stockholders refuse or neglect to elect officers and corporate affairs are put in jeopardy by such fail- ure, or the rights of property are thereby prejudiced the court may, upon the suit of a party who shows equity, and makes it appear that his rights are in danger of being impaired or destroyed, appoint a re- ceiver to take charge of the affairs of the corporation.*" § 249. Powers of directors — Source of. — The statute under which a railroad company is organized is the source of power and the stock- holders cannot invest the persons chosen as directors with powers not conferred upon the corporation by the charter.*^ The stockholders have authority to select the persons to whom such powers are to be intrusted, but individual stockholders do not stand in the relation of principals." The corporation, however, does o'ccupy the position of a principal, for the directors are its agents or representatives. § 250. Powers of directors — Generally. — As a general rule, except so far as their action is controlled by special provisions of the charter, or of by-laws adopted under its authority, the directors may do any act within the general range of the ordinary business of the company which the company itself may do.** As elsewhere said, the board of =» Cahlll v. Kalamazoo, &c. Co. 2 « Bank of Middlebury v. Rutland, Dougl. (Mich.) 124, 43 Am. Dec. &c. R. Co. 30 Vt. 159; "Wright v. 457; Philips y. Wickham, 1 Paige Oroville, &c. Co. 40 Cal. 20. See, (N. Y.) 590; Knowlton v. Ackley, 8 also, Reichwald v. Commercial Ho- Cush. (Mass.) 93. tel Co. 106 111. 439; Eastern R. Co. *■ Lawrence v. Greenwich, &c. Co. v. Boston, &c. Co. Ill Mass. 125, 15 1 Paige (N. Y.) 587; Ward v. Sea, Am. R. 13; Phillip v. Aurora Lodge, &c. Co. 7 Paige (N. Y.) 294. 87 Ind. 505; Beveridge v. New York "It is not necessary, however. El. R. Co. 112 N. Y. 1, 19 N. E. 489. that all powers he expressly con- Where two railroads in adjoining f erred upon the corporation by the states are operated together, and ad- charter, for many powers exist by ditional land and depot buildings necessary implication. are necessary in one of the states '^Bank of Middlebury v. Rutland, to enable them to retain their in- &c. R. Co. 30 Vt. 159; Dayton, &c. creased business, the directors of R. Co. v. Hatch, 1 Disney (Cin. Sup. the railroad in the other state have Ct.) 84; Wood Hydraulic, &c. Co. v. power to contract to pay a proper King, 45 Ga. 34; Shaw v. Norfolk portion of the cost of these extend- County R. Co. 16 Gray (Mass.) 407; ed business facilities, though, as a Chetlaln v. Republic, &c. Ins. Co. 86 general rule, they have no authority 111. 220. to expend money upon buildings 365 POWEKS OF DIRECTOES — GENERALLY. [§' 250 directors is the governing department of the corporation and it is through the board or those acting under it, that ordinary corporate affairs are managed and the usual corporate business transacted. The implied powers of the directors generally have merely as wide a range as the implied powers of the corporation itself. Comparatively few powers are reserved to the stockholders of railroads in this country. The right to elect the directors, and to pass upon questions of leasing or selling the franchises and property, of increasing or decreasing the capital stock, of consolidating with other corporations,** and other matters of a fundamental or organic nature do not, however, properly belong to the directors, for tjiose powers properly belong to the stock- holders.*' The board of directors is the proper agency to make ordi- nary corporate contracts. Its power in this respect is very broad and comprehensive. The board, unless so required by statute, is not bound to make all contracts itself, but may in most instances empower officers, or agents to make ordinary business contracts. Contracts entered into by the board of directors will always be binding upon the company, where the contracts are within the scope of the corporate powers, and are made in pursuance of some object embraced by the charter.** The rule stated is a general one of wide sweep, but, wide as the rule is, it is always to be understood that the power to contract, its extent and limitations, must be ascertained from the act of incorporation. The outside the states in which their tion or object cannot be made by road is located, without the consent the directors except where the char- of the stockholders. Nashua & L. ter authorizes the directors to make R. Corp. V. Boston & L. R. Corp. 136 such changes. There is an impor- U. S. 356, 10 Sup. Ct. 1004, 34 L. Ed. tant distinction between conducting 363, 42 Am. & Eng. Cas. 688. and managing general corporate af- "Stimson Am. Stat. (1892) fairs and making changes ol the na- §§ 8453, 8732, 8721, 8722, 8611; ture of those mentioned. Wood Ry. Law 400. See Dayton, "Bank of Middlebury v. Rutland, &c. R. Co. V. Hatch, 1 Dis. (Cin. &c. R. Co. 30 Vt. 159; Dayton, &c. Super. Ct.) 84. The stockholders R. Co. v. Hatch, 1 Dis. (Cin. Sup. and not the directors are the proper Ct.) 84; Record v. Central Pac. Co. parties to increase the capital stock 15 Nev. 167; -Packiner v. Grand where no provision is made as to Junction R. Co. 4 Ont. R. Ch. Div. how it is to be done. Wheeler, In re, 350; Hodder v. Kentucky, &c. R. 2 Abb. Pr. (N. Y.) N. S. 361. Or to Co. 7 Fed. 793; Union Mut. Ins. Co. agree to an amendment of the char- v. Keyser, 32 N. H. 313, 64 Am. Dec. ter. Witter v. Mississippi, &c. R. 375; Cicotte v. Anciaux, 53 Mich. Co. 20 Ark. 463. 227; Protection L. Ins. Co. vrFoote, " Organic or fundamental changes 79 111. 361. in the corporate body, its organiza- §' 351] DIEBCTOES. 366 action of the I)oard of directors in making contracts cannot be eon- trolled even by a majority of the stockholders, where the power to contract is conferred upon the board by the act of incorporation*^ and where they act in good faith, that is^ the action cannot be controlled directly. It may, however, often be controlled indirectly by voting the directors out of office, in a legal mode. Where the rights of third persons have intervened the stockholders cannot annul the action of the directors, unless they have violated the provisions of the charter or transcended their authority; and not always, even in such cases, for there may be conduct or acts constituting an estoppel which will preclude the stockholders from successfully assailing the action of their representatives. The authority and discretion of the directors, being intrusted to them by the efEective agreement of all the stock- holders expressed in the charter or articles of association, can be con- trolled by the majority or by any other agent in comparatively very few cases.** § 251. Powers of directors — ^Illustrative cases. — Where two rail- way corporations of different states whose lines connected entered into an agreement to operate and manage their road as one system, it was held that the directors of one company were authorized without the previous approval of the stockholders to pay for the construction of a passenger station in the state foreign to that in which it was created, and into which its line did not extend, where it appeared that the con- " Warden V. Union Pac. R. Co. 103 den, &c. R. Co. 36 N. J. Eq. 241; IT. S. 651; Flagg v. Manhattan R. Bardstown, &c. Tump. Co. v. Rod- Co. 20 Blatchf. (U. S.) 142. Di- man (Ky.), 13 S. "W. 917; Banet v. rectors do not exceed their powers Alton, &c. R. Co. 13 111. 504; Oglesby by making an agreement, with ap- v. Attrlll, 105 U. S. 605. But If they parently good reasons and In good act in matters where their private faith, to reduce the amount of Interests are concerned any stock- money payable under a lease of holder may have their action set their corporation, especially if near- aside. Hedges v. Paquett, 3 Oreg. ly nine-tenths of the stockholders 77. A tripartite agreement between have acquiesced. Beveridge v. New three corporations having been ad- York El. R. Co. 112 N. Y. 1, 19 N. judged void as to one, the directors E. 489, 2 L. R. A. 648. , of the other companies may, in their *'Morawetz Priv. Corp. (2d ed.) honest discretion, bring action to § 511; Karnes v. Rochester, &c. R. sever the contractual relations. Bev- Co. 4 Abb. Pr. N. S. (N. Y.) 107; eridge v. New York Elevated R. Co. Belfast, &c. R. Co. v. Belfast, 77 Me. 112 N. Y. 1, 19 N. E. 489, 2 L. R. A 445, 1 Atl. 350; Sims v. Street R. 648. Co. 37 Ohio St. 556; Elkins v. Cam- 367 POWERS OF DIEECTOES ILLUSTEATIVE CASES. [§ 351 stnietion of the passenger station was for the purpose of enabling the joint .management to retain and extend its increasing business.*' Di- rectors usually have power to fix and provide for the payment of the salaries of the ofBcers of the company.^" So, it has been held that they have power to pay part of the corporate indebtedness in stock of the company,^ ^ and authority to compensate one of their number for ser- vices rendered the company not within the line of his duties as direc- tor/^ and to issue bonds to pay debts contracted for constructing and completing the road and to mortgage the corporate property to secure the payment of the same.^^ The directors of a railroad company have no authority, implied or general, to appropriate its bonds to aid in the construction of the line of another corporation. °* ISTor have they power to postpone the time of an annual election of officers, so as to con- tinue themselves in office.'^ Directors have power to borrow money to conduct the business of the corporation, and ordinarily, they may pledge its personal property or mortgage its real estate to secure money borrowed for corporate purposes.^' They have power, except where the law otherwise provides, to make contracts for the transportation "Nashua, &c. Co. v. Boston, &c. Co. 136 U. S. 356, 10 Sup. Ct. 1004. "' St. Loul-s, &c. Co. V. Tiernan, 37 Kans. 606, 15 Pac. 544, 40 Am. & Eng. R. Gas. 525; Falkiner v. Grand Junction, &c. Co. 4 Ont. R. Ch. Div. 350, 16 Am. & Eng. R. Cas. 591. °' County Court v. Baltimore, &c. Co. 35 Fed. 161. "^Ten Eyck v. Pontiac, &c. Co. 74 Mich. 226, 41 N. W. 905, 3 L. R. A. 378, 16 Am. St. 633, 37 Am. & Eng. R. Cas. 273. "'McLane v. Placerville, &c. Co. 66 Cal. 606, 6 Pac. 748, 26 Am. & Eng. R. Cas. 404. " Starbuck v. Mercantile Trust Co. 9 Ry. & Corp. L. J. 203. See, also. Western Md. R. Co. v. Blue Ridge Hotel Co. 102 Md. 307, 62 Atl. 351, 3 L. R. A. (N. S.) 887. ■» Blkins V. Camden, &c. R. Co. 36 N. J. Eq. 467. "'Ridgway V. Farmers' Bank, 12 S. & R. (Pa.) 256, 14 Am. Dec. 681; Davis V. Flagstaff, &c. Co. 2 Utah 74; Wood v. Wheelan, 93 111. 153; Burrell v. Nahant Bank, 43 Mass. 163, 35 Am. Dec. 395; Hendee v. Pinkerton, 14 Allen (Mass.) 381; Saltmarsh v. Spaulding, 147 Mass. 224, 17 N. E. 316; Tupp v. Swanzey, &c. Co. 20 Mass. 291, 15 Am. Dec. 209; Hopson v. ^tna, &c. Co. 50 Conn. 597; Taylor v. Agricultural, &c. Co. 68 Ala. 229. See, generally, , West of England Bank, In re, L. R. 14 Ch. Div. 317; Bank of South Australia v. Abrahams, L. R. 6 P. C. 265; Plagg v. Manhattan, &c. Co. 10 Fed. 413; Hoyt v. Thompson, 19 N. Y. 207, 216; McCullough v. Moss, 5 Denio (N. Y.) 567, 575; Sheffield, &c. Co. V. Unwin, L. R. 2 Q. B. Div. 214; Chamberlain v. Bromberg^ 83^ Ala. 576, 3 So. 434; Descombes v. Wood, 91 Mo. 196, 60 Am. R. 239; Union Bank v. EUicott, 6 G. & J. (Md.) 363; Sheldon, &c. Co. v. Eickemeyer, &c. Co. 90 N. Y. 607; Duncomb v. New York, &c. Co. 88 N. Y. 1. §' 351] DIRECTORS. 368 of property,^^ and, as it has been held, to make a contract with another company to divide the earnings of the two companies."* It has been held that directors have no authority to organize a second company in another state and impose the expense upon the home company. °° It has been adjudged that where the directors and shareholders are not identical, the directors have no authority to bind the corporation by an agreement with a designated person that he shall be a director."" Unless authority is granted by the act of incorporation to the board of directors to invest corporate funds in the stock of other corporations, the board has no power to make such an investment.*"^ There are ex- ceptions to this general rule, but they are very rare. Stock of other corporations may be acquired as a security for, or in payment of, a debt; for a railway company, unless its charter otherwise provides, is entitled to secure payment of claims owing to it, in the same man- ner as may be done by other business corporations, or by natural persons."^ The directors of a corporation invested with authority to dispose of corporate funds may, as it has been held, accept stock of other corporations in payment,** but we regard the doctrine asserted by the eases referred to as one to be very cautiously received and very carefully applied. Where the statute authorizes the consolidation of "Railroad Co. v. Furnace Co. 37 Marcy, 3 Woodb. & M. (U. S.) 105; Ohio St. 434. Central R. Co. v. Collins, 40 Ga. 582; ■^Elklns v. Camden, &c. R. Co. 36 Hazlehurst v. Savannah, &c. R. Co. N. J. Bq. 241. 43 Ga. 13, 58; People v. Chicago, &c. '"Eakins v. American White Co. 130 III. 268, 22 N. E. 798, 17 Am. Bronze Co. 75 Mich. 568, 42 N. W. St. 319; Memphis, &c. R. Co. v. 982. Woods, 88 Ala. 630, 7 So. 122, 16 "Seymour v. Detroit Rolling Am. St. 81; Basun v. Buckeye, &c. Mills, 56 Mich. 117, 22 N. W. 317, 23 Co. 51 Fed. 156; Mackintosh v. N. W. 186. Flint, &c. R. Co. 34 Fed. 582; Pear- "^ Joint Stock, &c. Co. v. Brown, son v. Concord R. Co. 62 N. H. 537, Law 8 Eq. Cases 381; Commercial, 13 Am. St. 590. &c. Co. v. Board, &c. 99 Ala. 1, 14 «= Memphis, &c. R. Co. v. Woods, So. 490, 42 Am. St. 1; Bank v. Hart, 88 Ala. 630, 7 So. 122, 16 Am. St. 81. 3.7 Neb. 197, 40 Am. St. 479; Denny, See, generally. National Bank v. &c. Co. v. Schram, 6 Wash. 134, 32 Case, 99 XJ. S. 628; County Court, Pac. 1002, 36 Am. St. 130; Valley, &c. v. Baltimore, &c. R. Co. 35 Fed. &c. Co. V. I^ake Erie, &c. Co. 46 161; Holmes, &c. Co. v. Holmes, &c. Ohio St. 44, 18 N. E. 486; Central Co. 127 N. Y. 252, 27 N. E. 831, 24 R. Co. V. Pennsylvania R. Co. 31 N. Am. St. 448. J. Bq. 475; Franklin, &c. Co. v. "Treadwell v. Salisbury, &c. Co. Lewiston, &c. 68 Me. 43, 28 Am. R. 7 Gray (Mass.) 393, 66 Am. Dec. 9; Mechanics', &c. Co. v. Meridean, 490; Hodges v. New England, &c. &c. Co. 24 Conn. 159; Sumner v. Co. 1 R. I. 312, 53 Am. Dec. 624! 369 DIEECTOKS — POWERS OF — ORGANIC CHANGES. [§ 353 railway corporations, and the purchase of the stock of the one com- pany by the other, and a consolidation is rightfully effected, the pur- chase of stock may be made by the board.'* § 252. Directors — Powers of — Organic changes. — ^Directors have no general authority to make any fundamental changes in the pur- poses and objects of the corporation,*^ nor to accept an amendment to the charter making such changes,®" unless, perhaps, where such power is clearly lodged in them by the charter.®'' It has, however, been held that the power to accept amendments is lodged with the directors when it is given in general terms to the corporation, and the directors are intrusted with all of the corporate powers.®' But we suppose that the "Atchison, &c. R. Co. v. Fletcher, 35 Kans. 236, 10 Pac. 596; State v. Atchison, &c. R. Co. 24 Neb. 143, 38 N. W. 43, 8 Am. St. 164; Atchison, &c. R. Co. V. Cochran, 43 Kan. 225, 19 Am. St. 129; Ryan v. Leaven- worth, &c. Co. 21 Kans. 365; Hill v. Nisbet, 100 Ind. 341. ■"Witter V. Mississippi, &c. R. Co. 20 Ark. 463; Railway Co. v. Aller- ton, 18 Wall. (U. S.) 233; Fry v. Lexington, &c. R. Co. 2 Met. (Ky.) 314; Commonwealth v. Cullen, 13 Pa. St. 133, 53 Am. Dec. 450; At- lantic, &c. R. Co. V. St. Louis, 66 Mo. 228; Goodin v. Evans, 18 Ohio St. 150; Joy v. Jackson, &c. Plank Road Co. 11 Mich. 155 ; Black v. Delaware & R. Canal Co. 22 N. J. Bq. 130; Durfee v. Old Colony R. Co. 5 Allen (Mass.) 230; Baker's Appeal, 109 Pa. St. 461; Marlborough, &c. Co. v. Smith, 2 Conn. 579; Hope, &c. Co. V. Beckmann, 47 Mo. 93; Mississippi, &c. R. Co. V. Caster, 24 Ark. 96; Venner v. Atchison, &c. Co. 28 Fed. 581; Era, &c. Co., In re, 30 L. J. Eq. 137; Blatchford v. Ross, 5 Abb. Pr. R. (N. S.) 434; Starbuck v. Mer- cantile Trust Co. 9 Corp. & Ry. L. J. 203; Elkins v. Camden, &c. R. Co. 36 N. J. Bq. 233. "'Mobile, &c. Co. v. Stelner, 61 Ala. 559; Baker's Appeal, 109 Pa. Ell. Raileoads — 24 St. 461; Commonwealth v. Cullen, 13 Pa. St. 133, 53 Am. Dec. 450; Brown v. Fairmount, &c. Co. 10 Phila. 32; Marlborough, &c. Co. v. Smith, 2 Conn. 579; Hope, &c. Co. V. Beckmann, 47 Mo. 93 ; Mississippi, &c. R. Co. V. Caster, 24 Ark. 96. " In Dayton, &c. R. Co. v. Hatch, 1 Disney (Cin. Super. Ct.) 84, the court said: "That both the special charter of the plaintiff and the gen- eral railroad law contemplated that all corporate acts, including an as- sent to such an amendment as the one authorized, should be done by the board of directors, appears to be clear." In the note which fol- lows we have ventured to question the soundness of the decision in the case here cited. Our judgment is that amendments which are funda- mental in their nature must be ac- cepted by all the stockholders ex- cept in cases where the statute ex- pressly vests the whole corporate power in the directors or provides that amendments may be accepted by them. Bufealo, &c. R. Co. v. Dud- ley, 14 N. Y. 336; Kenosha, &c. R. Co. V. Marsh, 17 Wis. 13; Sprigg v. Western Tel. Co. 46 Md. 67; Venner V. Atchison, &c. Co. 28 Fed. 581. » Dayton, &c. R. Co. v. Hatch, 1 Disney (Cin. Super. Ct.) 84. We § 252] DIKECTOES. 370 doctrine of the case referred to can only apply where the statute im- pliedly or expressly vests the board with power to accept amendments, for that power properly resides in the stockholders. When the amend- ment is immaterial and does not work a fundamental change impair- ing the rights of the stockholders, or, possibly, where the legislature has reserved the right to amend, the directors may act upon the amend- ment.'^' If the legislature has reserved the power to amend, then an immaterial amendment cannot be justly said to impair the rights of stockholders, but it would be otherwise if the amendment were a ma- terial one and power to amend were not reserved.^" Directors, al- though entrusted with extensive powers in the management of the corporation business, have, ordinarily, no authority to apply to the legislature for an enlargement of the corporate powers nor to accept a grant of such powers made upon their application.''^ Directors can- not, in the absence of any provisions of the charter giving them power, increase the capital stock, ''^ since this is a change of a fundamental character, which, by introducing additional votes into the corporate body, would change the relative influence, control and profit of each member, and have the effect of making the stockholders members of a company in which they never consented to become members. E"or can they dispose of the company's property which is necessary to the transaction of its business, and wind' up its affairs without special authority from the stockholders.'^ The rule just stated as to the dis- think that the doctrine of the case 83 Ga. 61, 9 S. E. 1104. See to the cited is broader than principle or effect that the directors cannot bind authority will justify; at all events, the stockholders by their acceptance some of the expressions in the opin- of an amendment to the charter, ion require qualification and limita- where the legislature had not re- tion. The doctrine laid down in served the power to amend. Witter Railway Co. v. AUerton, 18 Wall. v. Mississippi, &c. R. Co. 20 Ark. (TJ. S.) 233, is the true one in bur 463; Commonwealth v. Cullen, 13 judgment. Pa. St. 133, 53 Am. Dec. 450. See ™ New Haven, &c. R. Co. v. Chap- ante, § 45. man, 38 Conn. 56; Pacific R. Co. v. "Eidman v. Bowman, 58 111. 444, Hughes, 22 Mo. 291; Bedford R. Co. 11 Am. R. 90; 'Wheeler, In re, 2 Abb. V. Bowser, 48 Pa. St. 29; Delaware, Pr. (N. Y.) N. S. 361. See Durfee &c. R. Co. V. Irick, 23 N. J. L. 321; v. Old Colony R. Co. 5 Allen (Mass.) Bailey v. HoUister, 26 N. Y. 112. 230; Atlantic, &c. R. Co. v. St. Louis, '° See ante, § 45. 66 Mo. 228. "Marlborough Mfg. Co. v. Smith, "Rollins v. Clay, 33 Me. 132; Ab- 2 Conn. 579. Any such action on bot v. American, &c. Co. 33 Barb, their part would not bind the stock- (N. Y.) 578. holders. Snook v. Georgia Imp. Co. 371 DIKECTOES — EXTENT OF AUTHORITY GENERALLY. [§ 253 position of property is a general one, but is not without exceptions. There may be cases, as for instance, where it is necessary to preserve corporate property and interests by an assignment, in which the di- rectors may dispose of corporate property. The general rule is that the authority conferred upon the directors is granted them in order that they may carry forward the purposes for which the corporation was organized, and not that they may terminate its existence.''* Where no special authority''^ to do so is contained in the charter,, the directors of a railroad company cannot execute a lease of the company's prop- erty without being directed by a regularly called meeting of the stock- holders to do so.''^ §253. Directors — ^Extent of authority — Generally. — ^The author- ity of the board of directors extends to contracting debts in pursuance of the business and purposes of the corporation and pledging or con- veying real or personal property in payment or as security.'' '^ It is held that the board may make an assignment of the property of the corporation for the benefit of its creditors, without the express author- ity or consent of the stockholder,'^ if it acts in good faith. The direct- ors can, of course, only bind the corporation, as a rule as to corporate matters and by acts within the scope of the powers conferred upon the company.''* " Bank Commrs. v. Bank of Brest, Mfg. Co. 12 N. H. 205, 37 Am. Deei 1 Harr. Ch. (Mich.) 106. 203. Unless specially prohibited " Under this general doctrine it is the directors may mortgage the cor- held that authority to manage the porate property to secure a debt business does not include power to which they may create. County lease the road. Metropolitan El. R. Court of Taylor Co. v. Baltimore, Co. v. Manhattan El. R. Co. 11 Daly &c. R. Co. 35 Fed. 161; Reichwald (N. Y.) 373, where it is held that v. Coinmercial Hotel Co. 106 111. the directors could not lease the 439; Ellis v. Boston, &c. R. Co. 107 road, although the corporation was Mass. 1. specially empowered to do so. "DeCamp v. Alward, 52 Ind. 468; "Martin v. Continental Pass. R. Dana v. Bank of U. S. 5 Watts & Co. 14 Phila. (Pa.) 10, holding this Serg. (Pa.) 223. Of course it could to be true where the directors hold only do so where the corporation a majority of the stock'. But where itself is not prohibited from mak- the directors owned all the stock, ing such an assignment. Dana v. it was said that there was no one Bank of U. S. 5 Watts & Serg. (Pa.) in a situation to complain. Barr v. 223. New York, &c. R. Co. 96 N. Y. 444. ™ Ricord v. Central Pac. R. Co. 15 " Miller v. Rutland, &c. R. Co. 36 Nev. 167. Vt. 452; Despatch Line v. Bellamy § 354] DIRECTORS. 373 § 254. Powers of directors — General conclusion. — ^It may be safely aflBrmed that the general rule is that all the ordinary affairs and busi- ness of a railway company are under the control and management of the board of directors and that in conducting that business and man- aging those affairs the board of directors is in effect the corporation, but is not the corporation so far as concerns matters beyond the ordi- nary corporate business and affairs. The difficulty is in determining what shall be considered as the ordinary affairs and business of the corporation.'" It is evident, from the authorities to which we have referred, that a change of the scheme of the corporate organization, or of the nature of the corporate business or objects, is not within the meaning of the cases which hold that the ordinary affairs and business of the corporation are to be managed and controlled by the board of directors. The shareholders cannot manage or control the ordinary corporate affairs, for the power over those affairs being vested in the board of directors necessarily excludes the shareholders. But the share- holders, although excluded from the management and control of ordi- nary corporate matters, do control all matters of a fundamental or organic nature. § 255. Directors — Official action — ^Preliminary. — ^In discharging the duties and exercising the functions imposed by law upon the direct- ors as the governing officers of the corporation they should act as a body, duly convened in session as an official board. What may be called governmental powers cannot be delegated, and powers that can- not be delegated must be exercised by the board of directors acting as a body. Individual and separate action is not official action. These governmental powers are in their nature legislative or judicial and require for their proper and rightful exercise deliberation and dis- cussion. It is necessary, therefore, that such powers should be exer- cised by the board of directors so that there may be a comparison of views and an exercise of judgment and discretion by all the members of the board. § 256. Directors — Official action. — ^Directors should act together as a board, and, upon principle, action by them separately is not valid or effective. A corporate act required to be performed by the directors is ™Hoyt V. Thompson, &c. 19 N. Y. 651. The first of these cases goes 207, 217; Bathe v. Decatur, &c. Co. too far. 73 Iowa 11, 34 N. W. 484, 5 Am. St. 373 DIEEOTOES — ^DELEGATION OF AUTHORITY. [§' 357 not effectively, performed unless the directors convene as a body in obedience to the requirements of the charter or in accordance with the provisions of a by-law enacted under authority conferred by the charter or act of incorporation. Separate action of a majority of the directors is not the action of the board of directors. The members of the board, when acting together, are the authorized governing ofScers of the company, but the members acting separately are not.'^ The rule just stated applies, although a majority of the directors may separately assent to a given measure or contract.*^ § 257. Directors — ^Delegation of authority. — The directors cannot rightfully delegate to other corporate officers or agerits powers which the law requires them to exercise.'* The directors may appoint agents to perform duties of a ministerial and executive character, but it does not follow from this that they can entrust to others the duties im- posed upon them by law. There is an essential difference between ap- pointing agents to perform duties not required of the board of direct- ors, and assuming to delegate to others, authority vested in the direct- ors as the governing board of the corporation. In many instances duties may be delegated to other agents or officers, but duties of a judicial or legislative nature which the law requires the directors to «^Filon v. Miller, &c. Co. 15 N. Y. Conn. 335; D'Arcy v. Tamar, &c. Co. S. 57; Bank of Healdsburg v. Bail- 4 Hurls. & Colt. 463; Bosanquet v. hache, 65 Cal. 327, 4' Pac. 106; Kup- Shortridge, 4 Exch. 699; Cannon fer V. South Parish, 12 Mass. 185; River, &c. Co. v. Rogers, 51 Minn. Browning v. Hinkle, 48 Minn. 544, 388, 53 N. W. 759. 51 N. W. 605, 31 Am. St. 691; Lock- "There is conflict in the adjudged wood V. Thunder, &c. Co. 42 Mich, cases as to what powers are inca- 536, 4 N. W. 292; Readrich v. Wil- pable of delegation, and some of son, 8 Baxt. (Tenn.) 108; AUemong the cases go very far in restricting V. Simmons, 124 Ind. 199, 23 N. E. the right to delegate, while others 768; Harris v. Muskingum, &c. Co. go to the extreme in the other di- 4 Blackf. 267, 29 Am. Dec. 372; rection. Against authority to dele- Gash wiler V. Willis, 33 Colo. 11; gate, see Weidenfeld v. Sugar R. Tileston v. Newell, 13 Mass. 406; Co. 48 Fed. 615; Pike v. Bangor, &c. New Haven, &c. Co. v. Hayden, 107 R. Co. 68 Me. 445. Upholding dele- Mass. 525; Tennessee, &c. R. Co. v. gation to executive committee, see East Alabama R. Co. 73 Ala. 426; Union Pac. R. Co. v. Chicago, &c. R. Kansas City, &c. Co. v. Devol, 72 Co. 163 U. S. 564, 597, 16 Sup. Ct. Fed. 717; Roberts v. Button, 14 Vt. 1173; Hoyt v. Thompson, 19 N. Y. 195; Barcus v. Hannibal, &c. Co. 26 207; Black River Imp. Co. v. Hol- Mo. 102. way, 85 Wis. 344, 55 N. W. 418. «= Butler V. Cornwall, &c. Co. 22 § 357] DIRECTORS. 374 perform as a body, cannot be delegated. There are, no doubt, duties that may be performed through the medium of committees. The board may appoint a committee of its number to discharge cer- tain duties, such as auditing the accounts of the financial offi- cers, or arranging the terms of a lease or mortgage, but it has been held that the acts of the committee must be passed upon, or in some method adopted or ratified, by the board to make them binding on the corporation.** In other words, the action of the committee must in some appropriate mode be made that of the board of directors, either by precedent authority or subsequent ratification.^^ Some cases hold that ministerial or executive acts, the performance of which may be delegated, may be authorized or ratified by the assent of a majority of the board given separately, especially, if that has been the usage.*^ And it is also held that the concurrent action of a majority of the directors is sufficient in such a case,*^ '*Waite V. Windham Co. Mining stances if the contract was one Co. 3.6 Vt. 18. which the corporation could make *" Berks, &c. Road v. Myers, 6 it was fully authorized and duly ex- Sergt. & R. (Pa.) 12, 9 Am. Dec. ecuted and binding." 402 ; Sheridan Electric Light Co. v. " Bee v. San Francisco, &c. R. Co. Chatham, &c. Bank, 127 N. Y. 517, 46 Gal. 248; Foot v. Rutland, &c. R. 28 N. E. 467; Union, &c. Co. v. Chi- Co. 32 Vt. 633; Estes v. German Nat. cago, &c. Co. 51 Fed. 309; Tippets v. Bank, 62 Ark. 7, 34 S. W. 85. See Walker, 4 Mass. 595. Power to ap- Rogers v. Hastings, 22 Minn. 25, point a committee and to invest where the corporation was held lia- them with authority to contract ble to compensate an agent em- may be conferred upon the board of ployed by the directors without directors by the act of incorpora- formal action by the board. See, tion. In Chicago v. Union, &c. Co. also, Tenney v. East Warren Lum- 47 Fed. 15, 17, the court said: "Sum- ber Co. 43 N. H. 343, where it was ming up this question, the Instru- held sufficient proof of the concur- ment was signed and attested by rence of the board to show that they the proper officers. It was approved assented separately, by the executive committee, which '' Despatch Line, &c. v. Bellamy executive committee was granted ad Mfg. Co. 12 N. H. 205, 37 Am. Dec. interim by the board of directors 203; Edgerly v. Emerson, 23 N. H. all the power of that board; au- 555, 55 Am. Dec. 207; Dey v. Jer- thority to make such delegation of sey City, 19 N. J. Eq. 412; Stoys- 'power was given to the board by the town, &c. Turnp. Co. v. Craver, 45 by-laws. Power to make such by- Pa. St. 386; Ross v. Crockett, 14 La. laws was bestowed by the act of in- Ann. 811; Yellow Jacket Min. Co. v. corporation upon the stockholders. Stevenson, 5 Nev. 224. See Lynde- At the regular meeting the contract borough Glass Co. v. Massachusetts was approved by all the stockhold- Glass Co. Ill Mass. 315, where the 6rs present Under these circum- superintendent acted with the 375 DIRECTORS DELEGATION" OF AUTHORITY. [§ 258 without the formality of a meeting, but it is held that the action should, in such case, be taken by them as directors, and not in some other capacity, and that it should clearly appear that a majority of the board consented.*^ It is to be said that some of the cases trench upon the rule forbidding the delegation of authority as well as upon the rule requiring the directors to act as a board, and so far as they do run counter to these rules they are of doubtful soundness. § 258. Directors — Delegation of authority — ^Illustrative cases. — ^It is generally held that the directors cannot delegate the authority to make assessments, . but it is also held that they may ratify an assess- ment made without adequate authority by an agent.*' Some of the cases hold that the power to execute mortgages and leases of cor- porate property cannot be delegated, but on this point the authorities are in conflict.'" Our opinion is that as to property not required to enable the corporation to exercise its corporate functions and dis- charge its duties to the public, the board of directors has power to delegate the authority to sell or lease. The board of directors may effectively authorize corporate officers or agents to sell and assign notes, bonds or other securities, belonging to the corporation.'^ § 259. Directors — Action where the mode is prescribed. — If the statute prescribes the formalities to be observed by the directors in knowledge of all of the directors "Female, &c. Asylum v. Johnson, except one in making a purchase, 43 Me. 180; Gillis v. Bailey, 21 N. H. and that one learned of the super- 149; Burrill v. Nahant Bank, 2 intendent's act soon afterward, hut Metof. (Mass.) 163, 35 Am. Dec. no action repudiating the purchase 395; Leeds, &c. Co., Re, 1 L. R. Ch. was ever taken. In a suit to re- App. 561; Emerson v. Providence, cover the purchase price the court &c. Co. 12 Mass. 237, 7 Am. Dec. 66; "held that the purchase was author- Manchester, &c. R. Co. v. Fisk, 33 N. ized by the company. Directors H. 297; Lyon v. Jerome, 26 Wend, holding a majority of the stock have (N. Y.) 485, 37 Am. Dec. 271; Dana power to agree that an individual v. Bank of United States, 5 Watts may have the full amount that he & S. (Pa.) 233; Whitney v. Union, can collect of a claim against a &c. Co. 65 N. Y. 576. third person. Delaware City, &c. "Fleckner v. Bank of United Nav. Co. V. Reybold, 8 Houst. (Del.) States, 8 Wheat. (U. S.) 338; Ridg- 203, 14 Atl. 847. way v. Farmers' Bank, 12 Sergt. & ''Junction R. Co. v. Reeve, 15 R. (Pa.) 256, 14 Am. Dec. 681; Ind. 236. Northampton Bank v. Pepoon, 11 '"Ante, § 175; Winsor, Ex parte, 3 Mass. 288; Stevens v. Hill, 29 Me. Story (U. S.) 411; Silver Hook 133. Road V. Greene, 12 R. I. 164. § 259] DIKECTOKS. 376 doing a given act, they must comply therewith, or their act may be voidable.®^ This rule applies to cases where observance of the for- malities is expressly declared by statute to be a necessary condition precedent,'^ and to all cases in which the effect of the act will be to destroy pre-existing rights,®* or to impose burdens upon persons whose willingness to assume them depends on their assent to such formali- ties.®^ In such cases, all persons are bound at their peril to know whether the formalities have been observed or not. But with regard to formalities which are merely directory, a different rule is estab- lished. A substantial compliance in such a case is sufficient, and where the material formalities have been observed, a failure to comply with those which are not material will not invalidate the acts, at least as to innocent parties.®^ The failure to observe a formality cannot be set up by one who is bound to see to its observance, against those who have no knowledge of such failure," unless they bore such a relation to the company that they knew or were bound to know that such for- mality was necessary and, had the means 'of ascertaining whether it had been observed.®^ If the directors have general authority to do an act, all persons dealing with them in reference to such act may assume that it was regularly done, and that all necessary formalities were ob- served,®® unless something appears on the face of the transaction to "^Leominster Canal Co. v. Shrews- 84 III. 292; Concord v. Portsmouth bury, &c. R. Co. 3 K. & J. 654; Savings Bank, 92 U. S. 625; Leav- Leavensworth R. Co. v. County enworth R. Co. v. County Court, Court, 42 Mo. 171; Pittsburgh, &c. 42 Mo. 171. R, Co. V. Clarke, 29 Pa. St. 146. °» Mott v. United States Ins. Co. 19 "= Leominster Canal Co. v. Shrews- Barb. (N. Y.) 568; Town of Venice bury, &c. R. Co. 3 K. & J. 654; v. Murdock, 92 U. S. 494; Lane v. Homersham v. Wolverhampton Schomp, 20 N. J. Eq; 82; Bissell v. Water Works, 6 Exchq. 137. Michigan, &c. R. Co. 22 N. Y. 258. "'As' where shares are forfeited "New Castle, &c. Marine Ins. Co., for non-payment. Portland, &c. R. In re, 19 Beav. 97; Galveston R. Co. V. Graham, 52 Mass. (11 Mete.) Co. v. Cowdrey, 11 Wall. (U. S.) 1; Lewey's Island R. Cp. v. Bolton, 459. 48 Me. 451, 77 Am. Dec. 236; Gar- °» Jackson Ins. Co. v. Cross, 9 den Gully, &c. Co. v. McLister, L. Heisk. (Tenn.) 283; European R, R. 1 App. Cases 39. Co., In re, L. R. 8 Eq. 444; Mott v. '"' As where the corporation is au- United States Trust Co. 19 Barb. (N. thorlzed to incumber or transfer its Y.) 568. property, if the stockholders vote to '" Conn. Mut. Life Ins. Co. v. do so, or where aid may be levied Cleveland, &c. R. Co. 41 Barb. (N. by municipal corporations if the Y.) 9. See, also, Bissell v. Michigan, taxpayers so vote. Eagle v. Kohn, &c. R. Co. 22 N. Y. 258; Zabriskie v. 377 DIRECTOKS MEETINGS. [§ 26(> suggest inquiry.^"" Thus a railroad corporation cannot dispute the va- lidity of a mortgage given to secure its bonds that are owned hj bona fide holders upon the ground that its directors authorized its- execution at a meeting held outside of the state.^"^ Nor can a cor- poration dispute the validity of acts authorized by its directors at a special meeting, upon the ground that proper notice of such special meeting was not given, where no objection to their validity was made by any director or stockholder until after the rights of innocent third parties had intervened.'^"^ When the mode of action and formalities to be observed are prescribed, by the by-laws, even more liberal rules obtain in determining the rights of persons claiming by virtue of the acts of the directors. Such rule may be varied by usage,^"* at least where the by-laws are made by the directors.^"* And persons dealing" with the corporation will not be held to so strict a knowledge of limi- tations and restrictions upon the general authority of the directors contained in the by-laws as of those contained in public statutes.^"'* The observance of required formalities may be waived, and the cor- poration may become bound by acquiescence in informal acts,^''^ ex- cept where the charter or public statutes make the observance of the formalities a condition precedent to the directors' authority to act.^"^ § 260. Directors — ^Meetings. — The official action of directors is taken in regular or special meetings convened in accordance with the provisions of the charter or by-laws. Strictly speaking, the functions of directors can only be exercised at such meetings. The rule is that the directors can exercise the powers specially intrusted td them only as a board convened in regular session as a board.^"* Thus, where the , Cleveland, &c. R. Co. 23 How. (U. as to cease to be operative. Walton,, S.) 381; Royal British Bank v. Tur- Ex parte, 26 L. J. Gh. 545. quand, 6 E. & B. 327. "° Blssell v. Michigan Southern R. »" Eagle Ins. Co. Ex parte, 4 K. & Co. 22 N. T. 258. J. 549. ™ Zabrlskie v. Cleveland, &c. R. ^"'Galveston, &c. R. Co. v. Cow- Co. 23 How. (U. S.) 381; Bargate v. drey, 11 Wall. (U. S.) 459. Shortridge, 5 H. L. Gas. 297; Wal- '"^ Samuel v. Holladay, 1 Woolw. ton. Ex parte, 26 L. J. Ch. 545. ;(U. S.) 400. ^"Walton, Ex parte, 26 L. J. Ch. ^ Pittsburgh, &c. R. Co. v. Clarke, 545; Pittsburgh, &c. R. Co. v. Clarke, 29 Pa. 146. 29 Pa. St. 146. "'Samuel v. Holladay, 1 Woolw. "'Johnston v. Jones, 23 N. J. Eq. (U. S.) 400. And a formality de- 216; Schackelford v. New Orleans,, clared to be imperative may be so &c. R. Co. 37 Miss. 202; Junction R. long and so universally disregarded Co. v. Reeve, 15 Ind. 236; Stoystown,. § 361] DIRECTORS. 378 directors took part in a stockholders' meeting, at which the body of the stockholders executed a lease, the action was held void as beyond the powers of the stockholders, and the court said : "It is no answer, that individual stockholders who were present at the meeting when the lease was ordered, were also directors. They did not meet or act as directors, but as stockholders."^"^ A majority of those present at a regularly convened meeting may act for the corporation,^^" but in order to constitute a regular meeting it is necessary that a quorum be pres- ent. In the absence of any special regulations,^^^ a majority of the board is necessary to constitute a quorum.^^^ §361, Directors — ^Meetings — Stated and special. — ^The charter sometimes provides for stated or general meetings of the board of di- rectors, and also for the calling and holding of special meetings. It is barely necessary to suggest that where provisions are made by the charter for the time and place of holding stated meetings and for the &c. Turnp. R. Co. v. Graver, 45 Pa." St. 386; Buttrlck v. Nashua, &c. R. Cb. 62 N. H. 413, 13 Am. St. 578; King V. Great Marlow, 2 Bast. 244; Yellow Jacket Mln. Co. v. Stevenson, 5 Nev. 224; Green v. Miller, 6 Johns. (N. Y.) 38; Morrison v. Wilder Gas Co. 91 Me. 492, 40 Atl. 542, 64 Am. St. 257; Calumet Paper Co. v. Has- kell, &c. Co. 144 Mo. 331, 45 S. B. 1115, 66 Am. St. 425; Marseilles Ex- tension R. Co., In re, L. R. 7 Ch. App. 161. But see Bank of Middle- bury v. Rutland, &c. R. Co. 30 Vt. 159, holding that the directors may give their assent separately if that is their usual practice. "° Conro V. Port Henry Iron Co. 12 Barb. (N. Y.) 27. "" Hax V. R. T. Davis Mill Co. 39 Mo. App. 453; Despatch Line v. Bel- lamy Mfg. Co. 12 N. H. 205, 37 Am. Dec. 203; Smith v. Los Angeles Im-., &c. Assn., 78 Cal. 289, 20 P. 677, 12 Am. St. 53; Stimson Am. Stat. Law (1892), § 8063, citing laws of New York, Maryland, Missouri, Texas, California, Nevada, Washington, Da- kota, Idaho, Utah, Florida, New Mexico, Oklahoma. Provided, of course, that they are a majority of those present and voting. And even though an equal number he present who refrain from voting, still the votes of a majority of the number necessary to form a quorum will carry a measure where there are no dissenting votes. Rushville Gas Co. V. Rushville, 121 Ind. 206, 23 N. E. 72, 6 L. R. A. 315, 16 Am. St. 388. Contra, Lawrence v. IngersoU, 88 Tenn. 52, 12 S. W. 422, 6 L. R. A. 308, 17 Am. St. 870. "'This rule is prescribed by stat- ute in most of the states. Stimson Am. Stat. (1892), § 8063, subject, however, to alteration by the by- laws in some of the states. Stimson Am. Stat. (1892), § 8071. "" Price V. Grand Rapids, &c. R. Co. 13 Ind. 58; Edgerly v. Emerson, 23 N. H. 555, 55 Am. Dec. 207; Cram V. Bangor House Proprietary, 12 Me. 354; Foster v. MuUanphy Planing Mill Co. 92 Mo. 79, 4 S. W. 260. 379 DIEECTOES — MEETINGS — NOTICE. [§ 363 mode of holding special meetings, those provisions must be sub- stantially complied with in all material respects. Notice of special meetings must be given in the mode prescribed by the charter or cor- porate by-laws ;^^^ but of stated or regular meetings provided for by the charter or by-laws notice need not be given, as it is the duty of the directors to take notice of the provisions of the charter and by-laws of the company. § 262. Directors — ^Meetings — Notice. — Where stated meetings are held by the board at prescribed times fixed by the charter, or by-laws, or by resolution, all the directors are bound to take notice of the time and place of holding them.^^* The presumption is in favor of the regularity of the meetings of corporate directors and the burden is on the party who assails their regularity to show that there were irregu- larities in calling, holding or conducting the meeting,^^^ and where a quorum is present the presumption is that all were notified.^^* In order that special meetings held at other times or places may be such meetings as will empower the directors present to act for the corpora- tion, all the directors must have proper notice of the time of meeting ; but, if all the directors are present and participate in the proceed- ings the fact that notice has not been formally given is unimportant. If notice has not been given and the directors are not all in attend- ance at the meeting a very different question is presented. If some of "=Hunt V. School District, 14 Vt. 896; Sargent v. Webster, 12 Metcf. 300, 39 Am. Dec. 225; Stow v. Wyse, (Mass.) 497; Leavitt v: Oxford, &c. 7 Conn. 214, 18 Am. Dec. 99; Long Co. 3 XJtali 265, 1 Pac. 356; Lane v. Island. &c. R. Co., Matter of, 19 Brainerd, 30 Conn. 565; Chouteau, Wend. (N. Y.) 37, 32 Am. Dec. 429; &c. Co. v. Holmes, 68 Mo. 601, 30 Am. Hatch V. Johnson, &c. Co. 79 Fed. R. 807; Stockton Combined Harves- 828; Doerubecher v. Columbia, &c. ter Works v. Houser, 109 Cal. 1, 41 Co. 21 Oreg. 573, 28 Am. St. 766. Pac. 809; Hardin v. Iowa, &c. Co. 78 "'Warner v. Mower, 11 Vt. 385; la. 726, 43 N. W. 543, 6 L. R. A. 52. People V. Peck, 11 Wend. (N. Y.) "«McCall v. Byram, &c. Co. 6 604, 27 Am. Dec. 104; Rex v. Hill, 4 Conn. 428; Leavitt v. Oxford, &c. Co. Barn. & Cress. 436; Sampson v. Bow- 3 Utah 265, 1 Pac. 356; Wells v. Rah- doinham, &c. Co. 35 Me. 78; People way, &c. Co. 19 N. J. Eq. 402. See V. Batchelor, 22 N. Y. 128; Atlantic, for an extreme case Arms v. Conant, &c. Co. V. Sanders, 36 N. H. 252. See, 36 Vt. 744. See, generally. Wood, &c. also Western Imp. Co. v. Des Moines Co. v. King, 45 Ga. 34; Wood v. Nat. Bank, 103 la. 455, 72 N. W. 657. Boney, (N. J.) 21 Atl. 574; Chase v. ''^ Wells V. Rodgers, 60 Mich. 525, Tuttle, 55 Conn. 455, 12 Atl. 874, 3 27 N. W. 671; Budd v. Walla Walla, Am. St. 64. &c. Co! 2 Wash. Ter. 347, 7 Pac. 262] DIKECTOES. 380 the directors are not notified the proceedings will not, as a rule, be effective, although a quorum be present at the meeting and concur in the proceedings.^^^ Notice of special meetings should be given to all the members of the board as the charter or by-laws provide, or, if no provision is made, the directors should be notified personally.^^* As we have already indicated, the rule is that if all the directors attend at the meeting any irregularities in the manner of giving notice will be held to have been waived ;^^* and this, it has been held, will be true if those who were not present duly acquiesce in the action of those who attended the meeting, provided there was a quorum -present at the meeting. ^^* Eatifieation of the proceedings of a meeting previously held will give them validity, although notice of the previous meeting may have been insuffieient.^^^ It has been held that if no objection is made to the regularity of a meeting until an act ordered thereat "'Bank of Little Rock v. McCar- thy, 55 Ark. 473, 18 S. W. 759, 29 Am. St. 60; Simon v. Sevier, &c. Co. 54 Ark. 58, 14 S. W. 1101; School Dist. V. Bennett, 52 Ark. 511, 13 S. W. 132; Paola, &c. R. Co. v. Com- missioners, 16 Kans. 302; Baldwin v. Canfield, 26 Minn. 43, 1 N. W. 261; Harding v. Vandewater, 40 Cal. 77; Chouteau, &c. Co. v. Holmes, 68 Mo. 601, 30 Am. R. 807; Stevens v. Eden, &c. 12 Vt. 688; Gordon v. Preston, 1 Watts (Pa.) 3.85, 26 Am. Dec. 75; Jackson v. Hampden, 16 Me. 184; Farwell v. Houghton, &c. Works, 8 Fed. 66; State v. Ferguson, 31 N. J. L. 107; Pike County v. Rowland, 94 Pa. St. 238; Covert v. Rogers, 38 Mich. 363, 31 Am. R. 319. Compare Edgerly v. Emerson, 23 N. H. 569, 55 Am. Dec. 207; Bank v. Flour Co. 41 Ohio St. 552; Halifax, &c. R. Co. v. Francklyn, 8 Ry. & Corp. L. J. 91; Chase v. Tuttle, 55 Conn. 455, 12 Atl. 874, 3 Am. St. 64. Mr. Taylor says that the decision in Edgerly X- Emerson, supra, is erroneous. Tay- lor Corp., 260 n. We concur in his view. Stow V. Wyse, 7 Conn. 214, 18 Am. Dec. 99. ""Morawetz Priv. Corp. (2d ed.) § 532. Those present cannot bind the property of the corporation against the wishes of others not no- tified. Doyle V. Mizner, 42 Mich. 332, 3 N. W. 968; Kersey Oil Co. v. Oil Creek, &c. R. Co. 5 W. N. C. (Pa.) 144. But see Edgerly v. Emerson, 23 N. H. 555; Bank v. Flour Co., 41 Ohio St. 552, 55 Am. Dec. 207. If the notice he sent in the prescribed man- ner, but directors who are out of ithe state fail to receive it, the action of the other directors is not thereby nullified. Chase v. Tuttle, 55 Conn. 455, 12 Atl. 874, 3 Am. St. 64. "°Judah V. American, &c. Co. 4 Ind. 333; Jones v. Milton, &c. Co. 7 Ind. 547; People v. Peck, 11 Wend. (N. Y.) 604, 27 Am. Dec. 104; Stobo V. Davis Provision Co. 54 111. App. 440. ""• Reed v. Hayt, 109 N. Y. 659, 17 N. E. 418. ™In absence of fraud or con- spiracy, defect in notice to directors, of a special meeting, is cured by sub- sequent ratification of the action there taken. County Court, &c. v. Baltimore & O. R. Co. 35 Fed. 161. See, also, Portugese, &c. Mines, In re, 45 Ch. D. 16, 63 L. T. 423. 381 DIKECTOES — MEETINGS — PROXIES — QUORUM. [§■ 363 has been fully performed, the legality of such act cannot afterward be questioned in a court of equity on the ground of failure to give notice j^''^ but this doctrine cannot prevail except in cases where in- justice would result to innocent parties if it were not applied. § 263. Directors — Meetings — ^Proxies — Quorum. — The rule pro- hibiting the delegation of authority requires the personal presence of directors at all meetings of the board and forbids voting by proxy. Where a deiinite number^ ^' constitutes a body intrusted with cor- porate duties or functions, it is necessary to effective action that a ■quorum of members be present, and a quorum consists of a majority ■of the members, unless the statute provides otherwise.^^* Proceedings at a meeting where there is not a quorum of the directors present are voidable but not absolutely void, and as they are not void they may be ratified.^^^ Where a quorum is present a majority may effectively aet.^^® It has been held that where the act of incorporation does not designate the number that shall constitute a quorum and confers power upon the board to enact by-laws the by-laws may fix the num- ber at less than a majority.^^' There is reason, we venture to sug- "^ Samuel v. Holladay, 1 Woolw. (U. S.) 400. See, also. Reed v. Hayt, 51 N. Y. Sup. Ct. 121. ™ Where the body is composed of an indeflnite number the rule is dif- ferent. Ante, § 161. "* St. Louis, &c. Association v. Hennessy, 11 Mo. App. 555; Cram v. Bangor House, 12 Me. 354; Wicker- sham v. Crittenden, 93 Cal. 17, 28 Pac. 788. Willcocks, Ex parte, 7 ■Cow. (N. Y.) 402, 17 Am. Dec. 525; Hax V. Davis, &c. Co. 39 Mo. App. 453; Price v. Grand Rapids, &c. Co. 13 Ind. 58; Stringham v. Oshkosh, &c. Co. 33 Wis. 471; Tennessee, &c. Co. V. East Alabama, &c. R. Co. 73 Ala. 426. ■^^ Samuel v. Holladay, 1 Woolw. (U. S.) 400; Hanson v. Dexter, 36 Me. 516; Atlantic, &c. Co. v. Sanders, 36 N. H. 252. A different doctrine is asserted in Price v. Grand Rapids R. Co. 13 Ind. 58, but that case was wrongly decided. If the act was be- yond the power of the directors it would be void, and if void, not capa- ble of ratification. ^"Cotton V. Davis, 1 Stra. 53; Buell v. Buckingham, 16 Iowa 284, 85 Am. Dec. 516, citing 2 Kent's Com. 293, 5 Dane's Abr. 150; Cahill V. Kalamazoo, &c. Co. 2 Dougl. (Mich.) 124, 43 Am. Dec. 457; Sar- gent V. Webster, 13 Mete. (Mass.) 497, 46 Am. Dec. 743. In the opinion of Judge Dillon in Buell v. Bucking- ham are cited Rex v. Monday, Cowp. 530; Union, &c. Co. In re, 22 Wend. (N. Y.) 591; Rogers, Ex parte, 7 Cow. (N. Y.) 526; Southworth v. Palmyra R. Co. 2 Mich. 287; State V. McBride, 4 Mo. 303, 29 Am. Dec. 636; Green v. Weller, 32 Miss. 650; People V. Auditor, 33 111. 9. ™ Hoyt V. Thompson, 5 N. Y. 320. But this is certainly not true where the charter requires a majority. State V. Curtis, 9 Nev. 325. § 264] DIEECTOES. 383 gest, for doubting the soundness of the doctrine declared in the case referred to. We think that as the rule requiring a majority in order to constitute a quorum is well established, the conclusion must be that the statute is to be considered in connection with that rule and not as a detached or fragmentary part of the law, and that silence upon the subject means that the usual and established rule of law shall prevail. A director whose presence is- necessary to make a quorum cannot effectively vote upon a question in which he is individually, materially and directly interested, as, for instance, upon a contract with himself and the corporation, so that as to such a question there is no quorum present since the interested person is not as to the par- ticular matter competent to act as a director. ^^* When the president is a member of the board of directors it is proper to count him in ascertaining whether a quorum is present, but if he is not a director then he cannot be counted unless the act of incorporation so provides.^^® § 264. Directors — Meetings outside of the state. — ^It is generally held that where there is no express provision to the contrary in the charter or in some general statute, the directors may meet outside of the state by which the corporation is created, and there transact ordi- nary corporate business.^^" It seems, indeed, that they may even meet in a foreign country.^^^ We have qualified our statement that meet- ings may be held outside of the state which created the corporation by saying, that such meetings may be held for the transaction of ordi- nary corporate business. This we have done because it is intimated '=* Van Hook v. SomervlUe, &c. Co. v. Byram, &c. Co. 6 Conn. 428; Arms 5 N. J. Bq. 137; Miner v. Belle Isle, v. Conant, 36 Vt. 744; Wood, &c. &c. Co. 93 Mich. 97, 53 N. "W. 218; Company v. King, 45 Ga. 34; Bel- Foster V. Mullanphy, &c. Mill, 92 Mo. lows v. Todd, 39 Iowa 209; Thomp- 79, 4 S. W. 260; Buell v. Bucking- son v. Natchez, &c. Co. 68 Miss. 423, ham, 16 Iowa 284, 85 Am. Dec. 576; 9 So. 821; Smith v. Silver Valley, &c. St. Louis V. Alexander, 23 Mo. 483; Co. 64 Md. 85, 20 A. 1032, 54 Am. R. Bassett v. Fairchild, 132 Cal. 637, 64 760; Bassett v. Monte Christo, &c. Pac. 1082. But see where there were Co., 15 Nev. 293; Reichwald v. Corn- enough competent directors voting, mercial, &c. Co. 106 111. 439, 450; Foster v. Mullanphy, 92 Mo. 79; 4 S. Smith v. Alvord, 63 Barb. (N. Y.) W. 260; Leavitt v. Oxford, &c. Co. 3 415; Missouri, &c. Co. v. Reinhard, Utah 265, 1 Pac. 356. 114 Mo. 218, 21 S. W. 488, 35 Am. St. ^^ Glens Falls, &c. Co. v. White, 746; Galveston, &c. R. Co. v. Cow- 18 Hun (N. Y.) 214; Bank of Mary- drey, 11 Wall. (U. S.) 459. land V. Ruff, 7 Gill & J. (Md.) 448. ^"'Bank of Augusta v. Earle, 13 ™Ohio, &c. R. Co. V. McPherson, Pet. (U. S.) 519. 35 Mo. 13, 86 Am. Dec. 128; McCall 383 ' DIRECTORS PROCEEDISTGS RECORD. [§ '365 by high authority that there are acts which cannot be rightfully done outside of the state.^^^ It is, however, not easy to conceive what acts within the power of the board of directors may not be as well per- formed in one state as in another.^^* Some of the authorities make a distinction between the acts of the corporation itself and the acts of its officers and agents, holding that corporate acts which the corpora- tion itself must do should be performed within the limits of the state by which it was created. § 265. Directors — ^Proceedings — Record. — The statutes of many of the states require the directors to cause a record of their proceedings to be kept, and where such statutes exist it is the duty of the directors to cause a record of their proceedings to be made. Where there is no such statute, sound business policy requires a record of all the pro- ceedings to be kept. But the failure or neglect of corporate officers to keep a record of their proceedings cannot, as a rule, prejudice the rights of third persons. Where a record is made and third persons have in good faith acquired rights upon the faith thereof the com- pany will be estopped, provided the acts evidenced by the record were not ultra vires.^^* As a rule entries of record duly made in regular course are prima facie evidence of the facts recited.^^^ The familiar ™ In Galveston Railroad v. Cow- v. Adams, 1 Parson Bq. Cas. (Pa.) drey, 11 Wall. (N. Y.) 459, 476, the 534; Freeman v. Macliias, &c. Co. 38 court said: "No doubt it may be Me. 343. true, in many cases, that the extra ^ In Wright v. Bundy, 11 Ind. 398, territorial acts of directors would 404, the court said : "The mere place be held void, as in the case cited where the active agents of a corpor- from the Fourteenth New Jersey ation enter into a contract must,- in Chancery Reports, 383, where a set general, be immaterial. The ma- of directors of a New Jersey cor- terlal question must be one of power, poration met in Philadelphia, not of place." against a positive prohibitory stat- ™ Stratton v. Lyons, 53 Vt. 130. A ute of New Jersey, and improperly corporation is not bound where voted themselves certain shares of fraudulent interpolations have been stock. And other cases may be put made in its records without any where their acts would be held void fault on its part or that of its agents without a prohibitory statute, and it or officers. Holden v. Hoyt, 134 Mass. is generally true that a corporation 181. It would be otherwise if the exists only within the jurisdiction corporation were in fault, of the territory that created it." See ™ Heintzelman v. Druids', &c. Hilles V. Parrish, 14 N. J. Bq. 380; Assn. 38 Minn. 138, 36 N. W. 100; Warren, &c. Co. v. .^tna, &c. Co. 2 McDaniels v. Flower Brook, &c. Co. Paine (U. S.), 501; Bank of Virginia 22 Vt. 274; Sanborn v. School Dis- 266] DIRECTORS. 384 general rule is that stockholders have a right to inspect the corporate records,^'" and it is held that it is no excuse for refusing to permit an inspection that the shareholder proposes to be assisted in the ex- amination by his attorney. '^^^ Eecord entries, duly made and signed, may be sufficient evidence of a contract so as to take a case out of the statute of frauds.^^* § 266. Directors — Corporate records as evidence. — The primary evidence of the proceedings of the board of directors is the record;^'* but, as elsewhere shown, the rights of third persons are not prejudiced by the failure to keep a record, nor will the failure to keep a record preclude resort to parol testimony in the proper case.^*" Entries duly made are held competent evidence to prove payments to an employe of the company, ^*^ but it is held that corporate records are not com- petent to prove a claim against strangers to the company.^*^ We sup- trict, 12 Minn. 17; Isbell v. New York, &c. Railroad Co. 25 Conn. 556; Hawkshaw v. Supreme Lodge, &c. 29 Fed. 770; Beardsley v. Johnson, 49 Hun (N. Y.) 607, 1 N. Y. S. 608; Hathaway v. Addison, 48 Me. 440; Rollins V. Shaver, &c. Co. 80 Iowa 380, 45 N. W. 1037, 20 Am. St. 427; Mcllhenny v. Beriz, 80 Tex. 1, 13 S. W. 655, 26 Am. St. 705. As to being the best evidence, see 3 Elliott Bv. § 1941, and see, gener- ally, § 1943. ""Commonwealth v. Phoenix, &c. Co. 105 Pa. St. Ill, 51 Am. R. 184, 23 Am. L. Reg. (N. S.) 388, 23 Cent. L. J. 584, and notes; Redfleld on Rail- ways (6th ed.), § 60a; Grant Corp. 311, Beach Railways, § 406; Angell & Ames Corp. (11th ed.), § 681; Wharton Evidence, § 746; Morawetz Corp. (2d ed.) § 473. "'People V. Nassau, &c. Co. 86 Hun (N. Y.) 128, 33 N. Y. S. 244. Ante, § 172. "» Jones V. Victoria, &c. Co. L, R. 2 Q. B. D. 314; Argus Co. v. Mayor, 55 N. Y. 495, 14 Am. R. 296. ^"•Dial V. Valley, &c. Assn. 29 S. Car. 560, 8 S. B. 27; Bowick v. Mil- ler, 21 Ore. 25, 26 Pac. 861; Bun- combe, &c. Co. V. McCarson, 1 Dev. & B. (N. C.) 306; Owings v. Speed, 5 Wheat, (U. S.) 420, 424; Thayer V. Middlesex, &c. Co. 10 Pick. (Mass.) 326; Clark v. Farmers', &c. Co. 15 Wend. (N. Y.) 256; Wells v. Rah- way, &c. Co. 19 N. J. Eq. 402 ; Haven V. New Hampshire Asylum, 13 N. H. 532, 38 Am. Dec. 512. See 3 Elliott on Ev. §§ 1941, 1943. ""Post, § 267; AUis v. Jones, 45 Fed. 148; Melledge v. Boston, &c. Co. 5 Cush. (Mass.) 158; Pickett v. Ab- ney, 84 Tex. 645, 19 S. W. 859; Mor- rill V. C. T. &c. Co. 32 Hun (N. Y.) 543; Nashua, &c. R. Co. v. Boston, l&c. R. Co. 27 Fed. 821; Whiting v. Wellington, 10 Fed. 810; Bay View, &c. Co. V. Williams, 50 Cal. 353. ^"Ganther v. Jenks & Co. -76 Mich. 510, 43 N. W. 600. See Humphrey v. People, 18 Hun (N. Y.) 393; Hunt- ington V. Attrill, 118 N. Y. 365, 23 N. B. 544. ^" Graville v. New York, &c. Co. 34 Hun (N. Y.) 224; Blair v. St. Louis, &c. R. Co. 125 Fed 684. See, also, 385 PROOF OP DIEECTORS PEOCEEDINGS. [§ 367 pose, however, that for some purposes corporate records are admissible even as against third persons, as, for instance,, to show that a meeting 'oi the directors was held on a certain day, or the like. Eecord entries are generally competent evidence against officers of the company,^*^ but are not, of course, always conclusive upon them. A fraudulent entry may be attacked,^^* or the good faith of the directors' acts may he inquired into by giving parol proof as to what they really did.^*^ § 267. Proof of the proceedings of the board of directors. — Where the act of incorporation prescribes the mode in which the proceed- ings of the board of directors shall be proved, the mode prescribed is generally exclusive. Where there is a record, of course that is the best evidence, and must be produced or some excuse shoA^n justify- ing a resort to secondary evidence. But where it is not in conflict with some provision of the charter, the acts of the directors of a corpora- tion, if not recorded, may be proved by parol.^*^ Where records are lost, parol evidence of their contents is competent.^^^ It has also been held that omissions in the records may be supplied by parol proof.^*' Chesapeake, &c. R. Co. v. Deepwater R. Co. 57 W. Va. 641, 50 S. E. 890; 3 Elliott Ev. § 1945. ^*= First Nat. Bank v. Tisdale, 84 N. Y. 655; Allison v. Coal Co. 87 Tenn. 60, 9 S. W. 226. See Wallace V. Lincoln, &c. Bank, 89 Tenn. 630, 15 S. W. 448; Spellier, &c. Co. v. Geiger, 147 Pa. St. 399, 23 Atl. 547; Eudd V. Robinson, 126 N. Y. 113, 26 N. E. 1046, 12 L. R. A. 473, 22 Am. St. 816; Rudd v. Robinson, 54 Hun (N. Y.) 339, 7 N. Y. S. 535; Olney T. Chadsey, 7 R. I. 224. ^** Thorne v. Travellers' Ins. Co. 80 Pa. St. 15, 21 Am. R. 89. '*=Waite V. Windham Co. Mining Co. 36 Vt. 18. ^"Langsdale v. Bonton, 12 Ind. 467; Junction R. Co. v. Reeve, 15 Ind. 236; Weber v. Fickey, 52 Md. 500. In the case of Ten Eyck v. Pon- tiac, &c. R. Co. 74 Mich. 226, 41 N. W. 905, 3 L. R. A. 378, 16 Am. St. 633, 37 Am. & Eng. R. Cases, 273, Bix. Railkoads-25 the court said: "What is resolved upon at a meeting of a board of di- rectors of a private corporation may be proven by the record of the pro- ceedings of the board, if one is kept, and the proceedings entered, but if a record is not kept or the proceed- ings not recorded, parol evidence is admissible to show what was re- solved upon, and by what vote it was carried." See Cram v. Bangor, &c. 12 Me. 354; Edgerly v. Emerson, 23 N. H. 555, 55 Am. Dec. 207; Mc- Call V. Byram, &c. Co. 6 Conn. 428; Zihlman v. Cumberland, &c. Co. 74 Md. 303, 22 Atl. 271; Great North- ern, &c. Co., In re, 62 L. T. R. 231; Bank of Yolo v. Weaver (Cal.), 31 Pac. 160; 3 Elliott Bv. § 1947. "'Dix V. Akers, 30 Ind. 431; 3 Elliott Ev. §§ 1941, 1947. ^•'Taymouth v. Koehler, 35 Mich. 22; RatclifE v. Teters, 27 Ohio St. 66. 268] DIEECTOKS. 386 § 268. Notice to directors. — Notice to the directors, when acting in their official capacity, is notice to the company.^*' Notice to in- dividual directors when not acting for the corporation is not, ordi- narily, effective as notice to the corporation.^^" If the notice is effective upon directors in office it is effective upon their successors in office.^^^ "'Fulton Bank v. New York, &c. Canal Co. 4 Paige (N. Y.) 127; Cra- gie v. Hadley, 99 N. Y. 131, 1' N. E. 537, 52 Am. R. 9; National Sec. Bank v. Cushman, 121 Mass. 490; Smith v. South, &c. Bank, 32 Vt. 341, 76 Am. Dec. 179. ^™Gridley v. Lafayette, &c. Co. 71 111. 200 ; German Mining Co., In re, 4 DeG. M. & G. 19; Farrel Foundry v. Dart, 26 Conn. 376; Goodloe v. God- ley, 13 S. & M. (Miss.) 233, 51 Am. Dec. 159; Westfleld Bank v. Cornen, 37 N. Y. 320, 93 Am. Dec. 573. But see Fairfield, &c. Bank v. Chase, 72 Me. 226, 39 Am. R. 319. ^'United, &c. Co. v. Shriver, 3 Md. Ch. 381; Washington Bank v. Lewis, 22 Pick. (Mass.) 24; Farm- ers', &c. Bank v. Payne, 25 Conn. 444, 68 Am. Dec. 367; Fulton Bank T. New York, &c. Co. 4 Paige (N. Y.) 127; Louisiana, &c. Bank v. Senecal, 13 La. 525; Edwards v. Grand Junction R. Co. 1 Myl. & Cr. (13 Eng. Ch. 559) 650; Lancey v. Bryant, 30 Me. 466; P«migewassett Bank v. Rogers, 18 N. H. 255. The settled rule is that directors acting as individuals merely cannot bind the company in any way, and the fact that one or two directors, con- stituting a minority of the board, have knowledge as individuals of certain facts is insufficient to prove notice to the corporation. Winches- ter V. Baltimore, &c. R. Co. 4 Md. 231; Mercier v. Canonge, 8 La. Ann. 37; Fulton Bank v. New York, &c. Canal Co. 4 Paige (N. Y.) 127; Pe- ruvian R. Co. V. Thames, &c. Ins. Co. L. R. 2 Ch. App. Cas. 617. No- tice given to a director as an official to be communicated to the board has been held to bind the corpora- tion. Boyd V. Chesapeake, &c. Canal Co. 17 Md. 195, 79 Am. Dec. 646; National Bank v. Norton, 1 Hill (N. Y.) 572. It would seem that any knowledge of facts which comes to a director or directors privately, or by public rumor, but which is not communicated by them to the board will not bind the corporation. U. S. Ins. Co. V. Shriver, 3 Md. Ch. 381; Commercial Bank v. Cunningham, 41 Mass. 270, 35 Am. Dec. 322. Though if such knowledge is actu- ally imparted by such director to the board at a regular meeting, the corporation is bound. Bank of Pitts- burgh V. Whitehead, 10 Watts 397, 36 Am. Dec. 186. It is held in a few cases that the knowledge of a di- rector who acts upon the matter as to which he has such knowledge, is the knowledge of the board, without regard to the manner in which he acquired it, and even though he did not communicate it to his fellows. Bank of U. S. v. Davis, 2 Hill (N. Y.) 451; North River Bank v. Aymar, 3 Hill (N. Y.) 262. But this principle is opposed by the weight of authority, and it has been held repeatedly, that where the interests of a director are opposed to those of the corporation no knowledge possessed by him will be imputed to it. Hatch V. Ferguson, 66 Fed. 668, 676; Winchester v. Baltimore, &c. R. Co. 4 Md. 231; Frenkel v. Hud- 387 DIIIECTOES — ^ADMISSIOSrS AND DECLAEATIONS. [§ 369 §■ 269. Directors — ^Admissions and declarations. — Substantially the same rules that prevail in regard to officers and agents generally gOT- ern the subject of admissions and declarations by directors, but there is this important exception, namely, the directors, in order to bind the company, should act as a board duly convened. Admissions and representations must, as a rule, be made by at least a quorum of the directors acting as a body, in order to bind the corporation, unless special authority is shown.^^^ When made at a time the board is not in session, they are the statements of individuals, and not- of corporate representatives, except in cases where they are authorized to act as agents. It follows from the general rule we have stated that neither one director, nor any number of directors, except in cases where there is special authority from the company, can bind it by admissions or declarations.^ °^ Where, however, a director has special authority to act as an agent for the company, he can, of course, bind it by his acts and admissions like any other agent,^^* but his acts bind the com- pany because of the special authority, and not simply because of his position as a director. In a ease where a director is invested with son, 82 Ala. 158, 2 So. 758, 60 Am. R. 736; Wickersham v. Chicago Zinc Co. 18 Kans. 481, 26 Am. R. 784; First Nat. Bank v. Gilford, 47 Iowa 575; Barnes v. Trenton Gas. L. Co. 27 N. J. Bq. 33; Innerarity v. Bank, 139 Mass. 322, 1 N. E. 282, 52 Am. R. 710; Commercial Bank v. Cun- ningham, 24 Pick. (Mass.) 270, 35 Am. Dec. 322. And knowledge by the directors of their own misman- agement will not be imputed to the corporation to raise the bar of the statute of limitations in a suit against them by the corporation or its stockholders. Ryan v. Leaven- worth, &c. R. Co. 21 Kans. 365, 404. "^ Huntingdon, &c. R. Co. v. Deck- er, 82 Pa. St. 119; Soper v. Buffalo, &c. R. Co. 19 Barb. (N. Y.) 310; Thew V. Porcelain Mfg. Co. 5 S. C. 415; Michigan, &c. R. Co. v. Gougar, 55 III. 503; Vicksburg, &c. R. Co. v. Ragsdale, 54 Miss. 200; Low v. Con- necticut, &c.'R. Co. 45 N. H. 370. See Titus v. Cairo, &c. Bank, 37 N. J. L. 98; Meux's Case, 2 DeGex, M. & G. 522; Tottendell v. Pareham, &c. Co. L. R. 1 C. P. 674; St. Louis, &c. R. Co. V. Drennan, 26 111. App. 263. "^Michigan Cent. R. Co. v. Gou- gar, 55 111. 503; Low v. Connecticut, &c. R. Co. 45 N. H. 370; Fairfield County Turnp. Co. v. Thorp, 13 Conn. 173; Smith v. North Carolina R. Co. 68 N. C. 107; Charleston, &c. R. Co. V. Blake, 12 Rich. L. (S. C.) 634; Matteson v. New York Cent. R. Co. 62 Barb. (N. Y.) 364; Pennsyl- vania R. Co.'s Appeal, 80 Pa. St. 265. See, also, (juillaume v. Fruit Land Co. (Oreg.) 86 Pac. 883. Al- though a director of a railroad company owns a majority of the stock he cannot bind the company by a contract. Allemong v. Sim- mons, 124 Ind. 199, 23 N. E. 768, 7 R. & Corp. L. J. 416. "• Burnes v. Pennell, 2 H. L. Cases 497; Meux's Case, 2 DeG., M. & G. 522. § 370] DIKECTOES. 388 special authority, then as to such matters as his authority covers notice to or knowledge acquired by him, is notice to the board of di- rectors and the corporation.^^^ § 270. Ratification of the acts of directors. — The ordinary rules respecting the ratification of the acts of agents apply to the acts of directors. Some of the authorities indicate that as directors are officers of superior rank, ratification will be presumed upon less evi- dence than is required in cases where the acts are those of subordi- nate agents. Any acts which the corporation can authorize the di- rectors to perform may be made valid by subsequent ratification, al- though they were outside of the directors' powers when performed.^^" The state may, by a subsequent legislative enactment, give validity to their unauthorized acts.^'*^ But we suppose that where the acts of the directors are entirely outside of the scope of their authority the state could not impose new and additional burdens upon the stock- holders, thereby essentially changing the charter, without the con- sent, express or implied, of the stockholders of the company. § 271. Directors — Removal from office. — The general rule is that a board of directors has no implied power to remove one of the di- rectors and declare his office vacant. The power of removal may, of course, be given by the act of incorporation or by corporate by-laws en- acted in accordance therewith, but the power is not inherent or implied. A director cannot, as a rule, be deprived of his office nor excluded by the board from taking part in its proceedings i"^ but we are inclined >'" Hoover V. Wise, 91 U. S. 308; that acts which as to the corpora- Fairfleld Savings Bank v. Chase, 72 tion itself are ultra vires can be rat- Me. 226, 39 Am. R. 319; Fulton ifled. Bank v. Canal Co. 4 Paige Ch. (N. "'Coe v. New Jersey Midland R. Y.) 127; Gen. Ins. Co. of Md. v. U. S. Co. 31 N. J. Eq. 105. Ins. Co. of Baltimore, 10 Md. 517, "» If they were to attempt to 69 Am. Dec. 174. wrongfully exclude a director, he is '°° McLaughlin v. Detroit, &c. R. entitled to an order restraining Co. 8 Mich. 99; Farmers', &c. Co. v. them from so doing. Pulbrook v. Toledo, &c. R. Co. 67 Fed. 49. See Richmond, &c. Co. L. R. 9 Ch. Div. Higgins V. Lanslngh, 154 111. 301, 610. See, generally. Mobile, &c. R. 40 N. E. 362. See, also, Kessler v. Co. v. Owen, 121 Ala. 505, 25 So. 612; Ensley, 123 Fed. 546; Greenleaf,v- Deposit Bank v. Hearne, 104 Ky. Norfolk, &c. R. Co. 91 N. Car. 33; 819, 46 S. W. 160; Commonwealth v. 2 Purdy's Beach Priv. Corp. § 773. Detwiller, 131 Pa. St. 614, 18 Atl. We do not mean, of course, to say 990, 7 L. U.M. 357. 389 DIEECTOES — ^REMOVAL FEOM OFFICE. [§ S?! to believe that there may be extraordinary eases where there is a clear and undoubted betrayal of trust in which the board would be justified in excluding one of its members from taking part in its proceedings.^^* A director cannot, according to many of the decided eases, be removed by a majority of the stockholders themselves,^^" un- less the power to remove is given by the charter or by-laws.^°^ It is said that to allow a majority of the stockholders to remove the direct- ors at will would, to a "very considerable extent, nullify the well-set- tled rule that the discretion of the directors cannot be controlled by the stockholders; but this line of reasoning is not very satisfactory. We can see no sufficient reason why the power of removal may not be vested in those who actually own the corporation and are primarily and principally interested, nor can we avoid the conclusion that some of the courts have been misled by the early decisions regarding chari- table corporations. The rules which apply to charitable corporations cannot apply in all their vigor to business corporations such as rail- way companies. It is reasoned in other cases that the interests of shareholders may be protected without the exercise of this power, since the directors, being trustees for the stockholders, may be re- moved by the court for an abuse of their powers, upon application to "" Some of the courts hold that a right to his office being forfeited by director cannot be prevented from his misconduct, he may be removed examining corporate records and by thp stockholders, books, but may secure an examlna- "'Mr. Taylor says: "The by-laws tion by mandamus, although the op- may, and to avoid controversy, cer- posing directors regard him as act- talnly should provide for removals ing in opposition to the corporate from office," citing Hunter v. Sun rights and interests. People v. Mott, Mut. Ins. Co. 26 La. Ann. 13; Tay- 1 How. Pr. (N. Y.) 247; People v. lor Priv. Corp. (5th ed.) § 649. The Throop, 12 Wend. (N. Y.) 183. But general laws of a number of the we believe that there may be ex- states provide for the removal of treme cases where a director can be directors from office. Stlmson Am. denied the right of inspection. State Stat. (1892) § 8048. By-laws of V. Einstein, 46 N. J. L. 479. a corporation providing that when '^ Imperial, &c. Co. v. Hampson, L. any director shall die, resign, neg- R. 23 Ch. Div. 1, 7; State v. Bryce lect to serve, or remove out of 7 Ohio (2d pt.) 82; Powers v. Blue the county, the board may proceed &c. Ass'n, 86 Fed. 705; Johnston v. to supply the vacancy, do not au- Jones, 23 N. J. Bq. 216. But see thorlze a director to be ousted by a Bay less v. Orne, Freem. Ch. (Miss.) vote of the board of directors on 161, 176; Adamantine Brick Co. v. the ground of ineligibility. Com- WoodrufE, 4 McArthur (D. C.) 318; monwealth v. Detwiller, 131 Pa. St. Burr V. McDonald, 3 Gratt. (Va.) 614, 18 Atl. 990, 7 L. R. A. 357, 28 215, 224, holding that the director's Am. & Eng. Corp. Cas. 669. § 373] DIEEOTOKS. 390 it by the parties in interest, and hence the stockholders should not be invested with power of removal.^"^ Where power is given to the stockholders by the charter or by-laws to remove directors for a rea- sonable cause, the court will not, ordinarily, inquire into the suffi- ciency of a cause upon which they have acted,^"* nor will it interfere to control the actions of the directors under such conditions, but will leave the stockholders to depose them in case they do not perform their duties properly.^®* §272. Compensation of directors. — ^We have elsewhere treated in a general way of the compensation of corporate officers,^*^ and we shall not again discuss the general subject. It may be said by way of preface that, ordinarily, directors are not entitled to compensation for services rendered in the capacity of directors upless provision is made for the payment of compensation by the charter or by-laws, nor will a contract to pay for such services be implied. Where, however, a director performs services under a contract that are clearly beyond the range of his official duties he is entitled to such compensation, in the absence of anything to the contrary, as a stranger performing similar services would be entitled to receive.^** Unless the compen- "=Ward V. Davidson, 89 Mo. 445, 1 ney, 87 111. 446; Hodges v. Rutland, S. W. 846. Making use of his posi- &c. R. Co. 29 Vt. 220. A director tion to further his private gains, or who performs services for the cor- ceasing to hold the requisite num- poratlon at the request of the board her of shares, will cause a director of directors is entitled to recover, to cease to hold his office in Eng- on an implied contract, what the land. Companies Clauses, Act of services are reasonably worth, so 1845, 8 Vict. Ch. 16, § 86. far as the amount has not been fixed ^^ Inderwick v. Snell, 2 Macn. & by resolution of the board. Ten G. 216. ' Byck v. Pontiac, &c. R. Co. 74 Mich. ^" Moses V. Tompkins, 84 Ala. 613, 226, 41 N. W. 905, 3 L. R. A. 378, 16 622, 4 So. 763; Hattersley v. Earl of Am. St. 633. A director who, inde- Shelburne, 10 Week. R. 881, 31 L. J. pendently of his duties as director, Ch. 873. See, also, Hedges v. Pa- performs services for, and furnishes quett, 3 Oreg. 77; Neal v. Hill, 16 materials to, the corporation, which Cal. 145, 76 Am. Dec. 508. are necessary and proper, has the ^'"Ante, § 230. same right as other persons to re- "" Jackson v. New York Central cover upon an implied contract for R. Co. 2 Thompson & C. (N. Y.) such services and materials. Greens- 653; New York, &c. R. Co. v. Ketch- boro, &c. Turnp. Co. v. Stratton, um, 27' Conn. 170; Shackelford v. 120 Ind. 294, 22 N. E. 247. To enti- New Orleans, &c. R. Co. 37 -Miss, tie him to pay there must have been 202; Lafayette, &c. R. Co. v. Chee- an expectation at the time, on the 391 COMPENSATION 05 DIEEOTOES. !§• 27a sation is fixed by resolution or by-law before the services are rendered, a director is, as a rule, not entitled to pay for his services.^"' The fact that a director expected to be paid for his services will not alter the rule,^"* and it has been held that a subsequent promise to pay for them is ineffective for lack of consideration.^®* The compensation which has been fixed by the board may be increased by a vote of the board during his term, and will entitle him to such increased com- part of the corporation, to pay there- for. Gill V. New York Cab Co. 48 Hun (N. y.) 524, 16 N. Y. S. 236. In Shackelford v. New Orleans, &c. R. Co. 37 Miss. 202, it was held that attendance on the board meetings is the only service which a director will be presumed to render gratui- tously. In Rogers v. Hastings, &c. R. Co. 22 Minn. 25, it was held that a director who rendered special serv- ices as attorney and land commis- sioner at the request of the other directors might recover therefor. The question whether or not the services rendered were special, so that he is entitled to pay therefor, depends upon whether they were such as could be rendered by a per- son other than a director. Henry v. .Rutland, &c. R. Co. 27 Vt. 435. And a director may recover for services rendered by him as agent of the company at its request, but not in his character as director. Chandler v. Monmouth Bank, 13 N. J. L. 255. But it has been held that a director cannot, in the absence of contract, claim a commission for the sale of the corporation bonds. Hodges V. Rutland, &c. R. Co. 29 Vt. 220. And that he cannot claim pay for services as managing director. Bolt & Iron Co., Re, 14 Onta. R. 211. 19 Am. & Eng. Corp. Cas. 165. And that even a director who serves without compensation cannot re- cover a reward offered by the corpo- ration for the recovery of stolen property and the detection ' of the thief, since he only did his duty if he accomplished both. Stacy v. State Bank, 5 111. (4 Scam.) 91; Col- lins V. Godef roy, 1 Barn. & Adol. 950. "'Kilpatrick v. Penrose Ferry Bridge Co. 49 Pa. St. 118, 88 Am. Dec. 497; New York, &c. R. Co. v. Ketchum, 27 Conn. 170; Hodges v. Rutland, &c. R. Co. 29 Vt. 220; Cole- man V. Second Ave. R. Co. 38 N. Y. 201. It is presumed that a stock- holder, not a director of the corpo- ration, who assumes the duties of the office and performs them with- out any agreement or provision for compensation, performs the official services gratuitously. Mather v. Eureka Mower Co. 118 N. Y. 629, 23 N. E. 993. An officer of a corpora- tion, in order to recover compensa- tion for his services, must show that he is an officer de jure. Waterman V. Chicago & I. R. Co. 34 111. App. 268, affirmed in 139 111. 658, 29 N. B. 689, 15 L. R. A. 418, 32 Am. St. 228. "«»New York, &c. R. Co. v. Ketch- am, 27 Conn. 170. ™ Maux Perry G. R. Co. v. Brane- gan, 40 Ind. 361; Loan Assn. v. Stonemetz, 29 Pa. St. 534; Dunston V. Imp. Gas Co. 3 B. & Ad. 125. He may receive pay for services ren- dered before he became a director, under a resolution passed by the other members of the board. Branch Bank v. Collins, 7 Ala. 95; New York, &c. R. Co. v. Ketchum, 27 Conn. 170. §■ 373] DIRECTOES. 392 pensation for all services thereafter rendered.^'" But while it is com- petent for the board to fix the compensation to be given to directors as well as that of other officers and agents/'^ unless the by-laws or statute expressly provide otherwise, a director may also fill another office of the corporation ;^^^ yet where a director fills such other office, he will be entitled only to such compensation therefor as is fixed or agreed upon before the services are rendered. ^^* § 273. Directors — ^Relation of to stockholders— Preliminary. — ^The directors of a railroad company occupy fiduciary relation to the stock- holders. The relation is essentially one of trust and confidence; but directors are not trustees in the strict or technical sense, since they do not hold the legal title to the corporate property and may in some cases deal with the corporation where their own individual interests are con- cerned. They are, however, trustees in the sense in which the term "trustees" is often used. The courts and text writers generally speak of them as trustees, and correctly so; but the use of the term trustees seems to have misled some judges and writers, for they have applied stricter rules to directors than authority sanctions or principle war- rants. In the sense in which the term "trustees" is used in reference to the functions and duties of persons occupying fiduciary relations directors are trustees in all that term implies and are subject to the rules which govern that clqss of persons, but (they are not trustees in "° It having been understood by the president should be fixed by him the board of directors, of a corpora- and another director,- who togetHer tlon that Its ofBcers were to be paid owned nearly all the stock, and that for their services, the board may the contract was ratified by the afterwards fix and pay a reasonable board of directors, is such an exer- sum. Stewart v. St. Louis, &c. R. else of the board's authority to fix Co. 41 Fed. 736. his salary as to constitute a contract ™ Hodges V. Rutland, &c. R. Co. on which he can recover. Bagaley 29 Vt. 220. v. Pittsburgh & L. S. Iron Co. 146 ^"A director may also be treas- Pa. St. 478, 23 Atl. 837. We think urer. Sargent v. "Webster, 54 Mass. that the case referred to Is well de- 497, 46 Am. Dec. 743. cided, for the reason that there was ™ Holder v. Lafayette, &c. R. Co. an effective ratification of the acts 71 111. 106, 22 Am. R. 89, where the of the president and the director director served as treasurer. Rog- authorized to act in conjunction ers V. Hastings, &c. R. Co. 22 Minn, with him, but if it were not for the 25, where he served as secretary, element of ratification we should It has been held that the action of think there could be no recovery in the board of directors of a corpora- such a case, tion, in providing that the salary of 393 DIREOTOES CONSIDERED TRUSTEES. [§ 274 the same sense as persons are who hold the legal title to property for the benefit of other persons, nor are they trustees for third persons who deal with the company.^^* § 274. Directors considered trustees. — ^It is held in a very great number of cases that a director occupies the position of a trustee for the stockholders,^'^ and as such is prohibited from making use of his position or of the knowledge acquired by reason of holding the same to promote, either directly or indirectly, his private advantage at the expense of the corporation. The rule governing trustees generally, which prohibits them from using trust property for their own profit, applies to directors. Directors are bound to exercise the utmost good faith,^'® but are not absolutely prohibited from dealing with the cor- poration. Directors are bound to exercise their powers to promote the corporate interests and it is a breach of duty for them to make use of their powers to injure the corporate interests or impair corporate "*In Brlggs V. Spaulding, 141 IT. S. 132, 11 Sup. Ct. 924, the court said: "Bank directors are often styled 'trustees,' but not in any technical sense. The relation be- tween the corporation and them is rather that of principal and agent; certainly so far as creditors are con- cerned the relation is that of con- tract and not of trust. But, un- doubtedly, under circumstances they may be treated as occupying the po- sition of trustees to cestui que trust." Spering Appeal, 71 Pa. St. 11, 10 Am. R. 684. See, also. Beach V. Miller, 130 111. 162, 22 N. E. 464, 17 Am. St. 291, and note; McCourt V. Singers, 145 Fed. 103. ""Robinson v. Smith, 3 Paige (N. y.) 222, 24 Am. Dec. 212; Stewart V. Lehigh Valley R. Co. 38 N. J. L. 505; European, &c. R. Co. v. Poor, 59 Me. 277; Blake v. Buffalo Creek R. Co. 56 N. Y. 485; Ward v. Salem St. R. Co. 108 Mass. 332; Covington, &c. R. Co. V. Bowler, 9 Bush (Ky.) 468; San Francisco, &c. R. Co. v. Bee, 48 Cal. 398; Paine v. Lake Erie R. Co. 31 Ind. 283; Great Luxem- bourg R. Co. V. Magnay, 25 Beav. 586; Aberdeen R. Co. v. Blakie, 1 Macq. 461; Koehler v. Black River Falls Co. 2 Black (U. S.) 715; Mich- igan 4.ir Line R. Co. v. Mellen, 44 Mich. 321, 6 N. W. 845; Verplanck T. Mercantile, &c. Co. 1 Edw. Ch. 84; Simons v. Vulcan, &c. Co. 61 Pa. St. 202, 100 Am. Dec. 628; Bradbury v. Barnes, 19 Cal. 120; Hale v. Repub- lican, &c. Co. 8 Kans. 466; Koehler V. Black River, &c. Co. 2 Black. (U. S.) 715; York, &c. Co. v. Hudson, 16 Beav. 485; Imperial, &c. Assn. v. Coleman, L. R. 6 H. L. 189; Albion, &c. Co. V. Martin, 1 Ch. Div. 580; Bennett's Case, 5 DeGex, M. & G. 284; Williams v. Page, 24 Beav. 654; Memphis, &c. R. Co. v. Woods, 88 Ala. 630, 7 So. 108, 16 Am. St. 81. "« See cases in preceding note. The fact that a person has relatives on the board of directors of a cor- poration will not defeat his valid claim against the corporation. Rol- lins V. Shaver Wagon & C. Co. 80 Iowa 380, 45 N. W. 1037, 20 Am. St. 427. § 375] DIEEOTOES. 394 rights. They are guilty of a breach of trust if they make use of cor- porate property or funds for their individual gain.^^' A director can- not, without an inexcusable breach of trust, place- himself in a position which will render him unable to exercise his powers for the promotion of the corporate welfare.^'* Directors are under a strict obligation to exercise care and diligence to preserve the property and money of the company. They have no right to make gifts of corporate property,^'* nor to allow unjust or illegal claims to be enforced against the com- pany.^^" § 275. Directors as trustees — ^niustrative cases. — As we have said in another place, directors are considered as trustees of the corporation and its shareholders, but not of third .persons.^*^ The scope and ap- plication of the general doctrine is better shown by reference to the adjudged cases than by general statements, and we shall refer to some of the many decisions of the court upon the subject. Directors may, in good faith, and for a fair, valuable consideration, sell corporate property to one of their number, but^uch a transaction will be closely scrutinized and if not entirely, fair and free from fraud will be set aside.^^^ A director cannot purchase property for the corporation, treat it as a purchase by himself and charge the corporation a profit.^*^ The "'Ward v. Davidson, 89 Mo. 445, 8 Mo. App. 580. See Williams v. 1 S. W. 846; Warden v. .Railroad Page, 24 Beav. 654; Minor v. Me- Co. 103 U. S. 651; Cook v. Sherman, chanics' Bank, 1 Pet. (U. S.) 46; 20 Fed. 167, and note; Smith v. Brown v. De Young, 167 111. 549, 47 Smith, 3 Des. Eq. (S. Car.) 557; N. E. 863; McCuIlough v. Ford, &c. Goodin v. Cincinnati, &c. Co. 18 Co. 213 Pa. St. 110, 62 Atl. 521. Ohio St. 169 ; Morawetz Corp. 182, ^° Lowndes v. Garnett, &c. Co. 33 183 ; Peirce Railroads, 36. L. J. Ch. 418. See, also. Young v. ™ Attaway v. Third Nat. Bank, 93 Naval, &c. Society, 74 L. J. K. B. Mo. 485, 5 S. W. 16. Primarily the 302 (1905), 1 K. B. 687. breach of duty by a director is a ™Briggs v. Spaulding, 141 U. S. wrong Inflicted upon the corpora- 132, 11 Sup. Ct. 924; Landis v. Sea tion, but a breach of duty may also Isle, &c. Co. (N. J. Eq.) 31 Atl. 755. be Injurious to third persons; thus ^''Mish v. Main, 81 Md. 36, 31 Atl. where a director sells his influence 799. See, also, Millsap v. Chapman, in such a way as to give one cred- 76 Miss. 942, 26 So. 369, 71 Am. St. Itor of the corporation an advantage 547, and note. over its other creditors, his action ™ Blair, &c. Co. v. Walker, 50 Is unlawful. Berr'yman v. Cincin- Iowa 376; McElhenny's Appeal, 61 nati, &c. R. Co. 14 Bush (Ky.) 765; Pa. St. 188; Averill v. Barber, 53 Bliss V. Matteson, 45 N. Y. 22. Hun (N. Y.) 636, 6 N. Y. S. 255; Si- "»St. Louis, &c. Co. V. Partridge, mons v. Vulcan Oil Co. 61 Pa. St. 395 DIHECTOES AS TEUSTEfe — ILLUSTRATIVE CASES. [§ 275 decisions authorize the conelusion that directors may engage in a com- peting business on their individual account/** and this doctrine, if iept within reasonable limits, we regard as sound, but, as we believe, a director cannot engage in a competing business if the necessary and natural effect of his engaging in that business is to impair his power to discharge his duty to the company of which he is a director, or to detract from his fidelity to that company. The doctrine of the case referred to is one to be limited, not extended, and if it appears in such a case that the director is in any way using his official position to the injury of the company or its business, for the advancement of his own business or that of a rival of his company of which he is a director, a stockholder should be awarded relief, for it is certainly the duty of the director to do all that he reasonably can to promote the interests of the company of which he is such ofReer.^*" It has been adjudged that an order of a board of directors awarding compensation to one of their number is voidable where it required the vote of the director to make the order,^*" but we suppose it is competent to provide compensation where the services are rendered outside of the duties of the director and the order is adopted by a sufficient vote, exclusive of that of the interested director. Contracts between directors that they should have a percentage upon all money secured by means of a bond of indemnity executed by them, providing against the future indebtedness of the company are voidable.^*' A director cannot rightfully enter into any 202, 98 Am. Dec. 215; Getty v. Dev- 217; Blake v. Buffalo, &c. Co. 56 N. Hn, 54 N. Y. 403; Benson v. Hea- Y. 485; Hufeman, &c. R. Co. v. Cum- thorn, 1 Y. & C. 326; Rice's Appeal, berland, &c. Co. 16 Md. 456; Cum- 79 Pa. St. 168; 'Great Luxembourg berland, &c. Co. v. Sherman, 30 R. Co. V. Magnay, 25 Beav. 586. See, Barb. (N. Y.) 553; Cumberland, &c. generally, European, &c. R. Co. v. Co. v. Parish, 42 Md. 598; Union Poor, 59 Me. 277; GifEord v. New Bank v. Jones, 4 La. Ann. 236; Jersey R. Co. 10 N. J. Bq. 171; Ste- Paine v. Lake Erie, &c. Co. 31 Ind. yens v. Rutland, &c. R. Co. 29 Vt. 283; Gallery v. National, &c. Bank, 545; Ware v. Grand Junction, &c. 41 Mich. 169, 2 N. W. 193, 32 Am. R. Co. 2 Russ. & M. 470; Dodge v. 149 ; Fitzgerald v. Fitzgerald, &c. Co. Woolsey, 18 How. (U. S.) 331. 44 Neb. 463, 62 N. W. 899. See, also, "*Barr v. Pittsburg, &c. Co. 51 Ritchie v. McMuUen, 79 Fed. 522, 25 Fed. 33. See, also, Barr y. Pitts- C. C. A. 50. burg, &c. Co. 40 Fed. 412; Lagarde ™Wickersham v. Crittenden, 106 V. Anniston, &c. Co. 126 Ala. 496, Cal. 327, 39 Pac. 602. See, also, 28 So. 199. Thomas v. Bonnville R. Co. 109 U. S. '»" Keokuk, &c. Co. v. Davidson, 95 522, 3 Sup. Ct. 315. Mo. 467, 8 S. W. 545; Perry v. Tus- "'Butler v. Cornwall Iron Co. 22 caloosa, &c. Co. 93 Ala. 364, 9 So. Conn. 335. 375] DIKBCTOES. 396 engagement or contract which is prejudicial to the corporation or its shareholders, since his duty requires of him that he shall exercise his powers for the promotion of the corporate interests/^^ but this general rule does not go to the extent of interdicting him for making an open, fair and honest contract with the corporation, although such a con- tract may yield him a personal benefit. A well considered case holds that the purchase of a railroad by one of the directors without the con- sent of the company will be set aside upon re-payment to the director of the money expended by him in making the purchase.^^° Directors cannot rightfully make unjust or unfair discrimination in favor of particular stockholders.^'" The cases generally assert that directors cannot buy claims against the corporation at less than their face,, and recover the full value of the corporation,^'^ but we think this rule is subject to exceptions, for if the purchase is openly, honestly and fairly made with the full knowledge of the corporation, we can see no reason why it may not be enforced, but if there be any concealment, fraud or deception, the director should not at the utmost be allowed to re- cover anything more than the amount actually paid for the claims.^'^ '*= "Woodstock Iron Co. v. Eich- mond, &c. Co. 129 U. S. 643, 9 Sup. Ct. 402; citing Linder v. Carpenter, 62 111. 309; St. Louis, &c. Railroad Co. v. Mathers, 71 111. 592, 22 Am. R. 122; Holladay v. Patterson, 5 Oreg. 177; Pacific Railroad Co. v. Seely, 45 Mo. 212, 100 Am. Dec. 369; Ra- cine, &c. Bank v. Ayres, 12 "Wis. 570 ; Fort Edward, &c. Plank Road Co. v. Payne, 15 N. Y. 583. It may not be improper to observe that a contract by which any person undertakes to do an act forbidden by public policy is voidable, and that the fact that persons who enter into such con- tracts are directors of a railroad company is not important where public policy is violated, but the po- sition of director sometimes creates the public policy, for it is public policy not to permit corporate offi- cers to make contracts which may tempt or influence them to betray their trusts. 1™ Covington, &c. R. Co. v. Bowler, 9 Bush (Ky.) 468. See Bill v. West- ern Union Tel. Co. 16 Fed. 14; Jones V. Arkansas, &c. Co. 38 Ark. 17; Bent v. Priest, 10 Mo. App. 543; Dorris v. French, 4 Hun (N. Y.) 292. ""Chase v. Vanderbilt, 62 N. Y. 307. ">! McDonald v. Haughton, 70 N. C. 393; Brewster v. Stratman, 4 Mo. App. 41; Holladay v. Patterson, 5 Oreg. 177; Holladay v. Davis, 5 Oreg. 40; Duncomb v. New York, &c. R. Co. 84 N. Y. 190. "^Analogous cases sustain the statement of the text. Smith v. Lansing, 22 N. Y. 520; Ashurst's Appeal, 60 Pa. St. 290; Chester v. Dickerson, 54 N. Y. 1, 13 Am. R. 550; Getty v. Devlin, 54 N. Y. 403. Seymour v. Spring Forest, &c. Ass'n, 144 N. Y. 333, 39 N. E. 365, holds, and, as we think, correctly, that there are cases in which evidences of corporate indebtedness may be bought by directors. 397 DIRECTORS — ^DEALINGS WITH CORPORATION. [§' 276 Directors have no general right to loan the credit of the company, or to issue mere accommodation paper in the name of the company, where no consideration is yielded the company,^"' except in eases where the act of incorporation empowers them to do so, or, perhaps, where from long usage the power may be inferred. Contracts entered into by di- rectors prejudicial to corporate interests, or for the sole purpose of enabling them to retain control of the corporate affairs, are Toidable.^'* Directors cannot, of course, enter into combinations with other per- sons for the purpose of securing to such persons or themselves a gain, profit or advantage at the expense of the corporation.^"^ It is a familiar rule, illustrated by cases much too numerous for citation, that all dealings between directors and the corporations are scrutinized with great care and avoided, if there be any undue advantage taken by the directors, or any concealment or deception, and this general rule applies to dealings between two corporations in cases where the di- rectors of one are also directors of the other.^'® §276. Directors — ^Dealings with corporation. — ^Directors are not, under all circumstances, prohibited from dealing with the company of which they are the representatives. If there is entire good faith and no taint of fraud, a transaction with the company will generally be sustained.^"^ Contracts made by a director with the company, "'Hutchinson v. Sutton, &c. Co. 226; Boerum v. Schenck, 41 N. Y. 57 Fed. 998. 182; Hoyle v. Pittsburg, &c. Co. 54 ""Northern, &e. Co. v. Concord R. N. Y. 314, 13 Am. R. 595. Co. 50 N. H. 166; Bliss v. Matteson, ™ Paine v. Lake Erie, &c. Co. 31 45 N. Y. 22. Ind. 283; Polar Star Lodge v. Polar ™ Jackson v. Ludeling, 21 Wall. Star Lodge, 16 La. Ann. 76.; Abbot (U. S.) 616; Nelson v. Luling, 62 N. v. American, &c. Co. 33 Barb. (N. Y. 645. See, generally, Drury v. Y.) 578. See, also, Wardell v. Union Cross, 7 Wall. (U. S.) 299; Cook v. Pac. R. Co. 103 U. S. 631; Bill y. Berlin, &c. Mill Co. 43 Wis. 433; Western Un. Tel. Co. 16 Fed. 14; Fuller V. Dame, 18 Pick. (Mass.) Memphis, &c. R. Co. v. Woods, 88 472; Stark Bank v. United States, Ala. 630, 7 So. 108, 7 L. R. A. 605, &c. Co. 34 Vt. 144; Andrews v. Pratt, 16 Am. St. 81; Pearson v. Concord 44 Cal. 309; San Diego v. San Diego, R. Corp. 62 N. H. 537, 13 Am. St. &c. R. Co. 44 Cal. 106; Richardson 590; Parker v. Niqkerson, 112 Mass. V. Green, 133 U. S. 30, 10 Sup. Ct. 195. 280; McMurtry v. Montgomery, &c. ^"Wardell v. Railroad Co. 103 U. Co. 86 Ky. 206, 5 S. W. 570; Dun- S. 651; Ryan v. Railroad Co. 21 comb V. New York, &c. Co. 88 N. Y. Kans. 365; Koehler v. Iron Co. 2 1; Twin Lick, &c. Co. V. Marbury, 91 Black. (U. S.) 715; Michoud v. U. S. 587; Harts v. Brown, 77 111. Girod, 4 How. (U. S.) 502; Hotel Co. § 376] DIRECTORS. 398 which upon close senjtiny appear to be entirely fair, open and honest, •will be upheld by the courts.^"* The weight of authority is that such contracts are not void, nor always even voidable,^"^ although there is conflict of authority. It is held by some of the courts that, while ex- ecutory, such contracts are voidable at the instance of the corpora- tion,^"" or of a dissenting stockholder.^"^ Contracts with directors may, as a rule, be set aside upon very slight grounds, at the suit of any one injured thereby.^"^ Some of the cases hold that voidable contracts V. Wade, 97 U. S. 13; Van Cott v. Van Brunt, 82 N. Y. 535; Densmore Oil Co. V. Densmore, 64 Pa. St. 43. See Bristol, &c. Co. v. Probasco, 64 Ind. 406; Greensboro, &c Co. v. Stratton, 120 Ind. 294, 22 N. E. 247; Wfird V. Polk, 70 Ind. 309; Rogers V. Hastings R. Co. 22 Minn. 25; Santa Clara, &c. Co. v. Meredith, 49 Md. 389, 33 Am. R. 264; Chandler V. Monmouth Bank, 1 Green (N. J.) 255; Shackelford v. New Orleans, &c. R. Co. 37 Miss. 202; New Orle- ans, &c. Co. V. Brown, 36 La. Ann. 138, 51 Am. R. 5; Cheeney v. La- fayette, &c. R. Co. 68 111. 570, 18 Am. R. 584; Henry v. Rutland, &c. R. Co. 27 Vt. 435. But contracts with a director must be entirely free from fraud. Parker v. Nickerson, 137 Mass. 487; Hotel Co. v. Wade, 97 tJ. S. 13. •»8 European, &c. R. Co. v. Poor, 59 Me. 277; Stark Bank v. U. S. Pot- tery Co. 34 Vt. 144; Ashurst's Ap- peal, 60 Pa. St. 290. ™ Claflin V. South Carolina R. Co. 8 Fed. 118; Sims v. Street R. Co. 37 Ohio St. 556; Central, &c. Rail- road Co. V. Claghorn, 1 Speers' Eq. (S. C.) 546; Stratton v. Allen, 16 N. J. Eq. 229; Hallam v. Indianola Hotel Co. 56 Iowa 178, 9 N. W. Ill; Stewart v. St. Louis, &c. Co. 41 Fed. 736. ™Munson V. Syracuse, &c. R. Co. 103 N. Y. 58, 18 N. E. 355; Aberdeen R. Co. v. Blakie, 1 Macq. 461. "'■ Ward V. Salem St. Railway, 108 Mass. 332; Flint, &c. R. Co. v. Dew- ey, 14 Mich. 477; York, &c. R. Co. v. Hudson, 16 Beav. 485; Wardell v. Railroad Co. 103 TJ. S. 651; Little Rock, &c. R. Co. V. Page, 35 Ark. 304; Houston, &c. R. Co. v. Van Al- styne, 56 Tex. 439; Duncomb v. New York, &c. R. Co. 84 N. Y. 190. Where there was no fraud a sale by a di- rector of property to a corporation, which is approved by the board of directors and ratified by the stock- holders, will not be held invalid simply because the sale was made for a sum greatly in excess of the cost of the property to the director. Stewart v. St. Louis, &c. R. Co. 41 Fed. 736. In the case cited the court said, speaking of the directors, that "When the sale to the company was made they did hold a position of trust, and were bound in their oflB- cial action to faithfully and honest- ly execute their duties, and not to make a deal where their personal interest should be served at the expense of the company they repre- sented." ""Twin Lick Oil Co. v. Marbury, 91 U. S. 587, and numerous cases cited. It is held that a purchase by a corporation will not be set aside because of the interest of one of the directors, where the complaining stockholder has suffered no damage. Hill V. Nisbet, 100 Ind. 341. A con- tract made by the directors with 399 DIEECTOES — ^DEALINGS WITH COEPOEATION. [§ 376 with a director may be ratified by acquiescence.^"* It is also held that if the director has done anything toward executing the contract, it cannot be avoided by the corporation without restoration to him of what the corporation received under it.^"* Where they act in entire good faith, and the transaction is open and fair, directors may pur- chase the corporate property.^"^ It has been adjudged that they may even purchase the corporate indebtedness, and enforce a judicial sale of the property to themselves, if they have acted in good faith and given the stockholders a full opportunity to make advances to relieve the corporation from embarrassment, and they have refused to do so.^"" Where a director has necessarily expended money in good faith for the corporation, he is usually entitled to be reimbursed.^"^ So a di- two of their number, when only four were present, is invalid. Ailing v. Wenzell, 27 111. App. 511. ^"^Kelley v. Newburyport, &c. R. Co. 141 Mass. 496, 6 N. E. 745; Union Pac. R. Co. V. Credit Mobilier, 135 Mass. 367; Ashurst's Appeal, 60 Pa. St. 290. Generally a party who seeks to avoid a voidable contract must act with promptness. Sey- mour V. Spring Forest Cemetery Ass'n, 144 N. Y. 333, 39 N. B. 365, 26 L. R. A. 859. '"Duncomb v. New York,. &c. R. Co. 84 N. Y. 190, 88 N. Y. 1. If the officers, directors and stockholders consent to a contract between the corporation and a director and keep the property thus acquired, the con- tract will not be voidable merely because made with a director. Bat- telle V. Northwestern Cement & Concrete Pavement Co. 37 Minn. 89, 33 N. W. 327. '»» Ellis T. Boston, &c. R. Co. 107 Mass. 1; Kitchen v. St. Louis, &c. R. Co. 69 Mo. 224; Buell v. Bucking- ham, 16 Iowa 284, 85 Am. Dec. 516; Little Rock, &c. R. Co. v. Page, 35 Ark. 304. See Hoyle v. Plattsburgh, &c. R. Co. 54 N. Y. 314, 13 Am. R. 595. A purchase by a director of a corporation, without an order of the board of directors, of property of the corporation in satisfaction of his own debt, is ratified if the corpora- tion takes up, cancels and retains the notes held by him. Beach v. Miller, 130 111. 162, 22 N. B. 464, 17 Am. St. 291, 28 Am. & Eng. Corp. Cas. 468. But in order that such a transaction may repel an assault by a stockholder or creditor prejudiced thereby it must 1e entirely free from fraud. Courts are reluctant to permit the purchase of corporate property by any of . the corporate officers and scrutinize such transac- tions very carefully. Slade v. Van Vechten, 11 Paige (N. Y.) 21; Mun- son v. Syracuse, &c. Co. 103 N. Y. 50, 8 N. E. 355. '" Harts v. Brown, 77 111. 226. See, also, Patterson v. Portland Smelting Works, 35 Oreg. 96, 56 Pac. 407. But he can neither buy nor sell against the wish of the corporation or the stockholders, excepting by judicial process in pursuance of a fair con- tract made with their approbation, since he is a trustee, and no trustee can purchase of himself nor sell to himself over the objections of his cestui que trust. Pearson v. Con- cord R. Co. 62 N. H. 537, 13 Am. St. 590, and numerous cases cited. ^"Rogers v. Hastings, 22 Minn. 25; Missouri R. Co. v. Richards, 8 § 277] DIEECTOES. 400 rector may loan money to tlie corporation, where it is needed for its tenefit, if he act fairly and openly, and may purchase the corporate property at a public sale, under a trust deed given to secure it.^"* Di- rectors acting in good faith are in many cases entitled to the same rights as other creditors.^"® But in making purchases or sales for the corporation, they cannot directly or indirectly speculate, to the injury of the company, for their own advantage.^^" It is held that contracts with railroad directors, whereby they undertake, for a compensation given to themselves, to alter or establish their road, depots or works so as to promote private interests, are void, as contravening public poliey.^^^ Such cases belong to the class which equity writers char- acterize as cases of constructive fraud. § 277. Directors — Termination of fiduciary relations. — ^The fidu- ciary relation may, of course, be terminated by resignation, removal Kans. 101. Delivery of corporate stock and execution of a mortgage on corporate property by a board of directors, in payment of- corporate indebtedness, is not rendered void by the fact that several directors became guarantors for further ad- ■ vances to the corporation after Its credit had been exhausted, and which were to be paid by the deliv- ery of the stock. Taylor County v. Baltimore &c. R. Co. 35 Fed. 161. ^"^ Saltmarsh v. Spauldlng, 147 Mass. 224, 17 N. B. 316; Twin Lick Oil Co. V. Marbury, 91 U, S. 587. See, also, Richardson v. Green, 133 U. S. 30, 10 Sup. Ct. 280; Taylor County Court v. Baltimore, &c. R. Co. 35 Fed. 161. But if he attempts to take an undue advantage, his mortgage cannot be enforced. Sut- ter St. R. Co. V. Baum, 66 Cal. 44, 4 Pac. 916. A director of a railroad may properly own its bonds and may enforce payment in case of de- fault by foreclosure. Duncomb v. New York, &c. R. Co. 84 N. Y. 190, 88 N. Y. 1; Harpending v. Munson, 91 N. Y. 650. An officer or agent of the corporation, capable of becom- ing its creditor, may enforce the lia- bility of creditors notwithstanding his relation to the corporation. Hall V. Klinck, 25 S. C. 348. 60 Am. R. 505. «"> Claflin V. South Carolina R. Co. 8 Fed. (4 Hughes 12) 118. A stock- holder, and even a director, may be- come a creditor of a corporation in absence of fraud. Borland v. Ha- ven, 37 Fed. 394. ''""Manufacturers' Sav. Bank v. Big Muddy Iron Co. 97 Mo. 38, 10 S. W. 865; Port v. Russell, 36 Ind. 60, 10 Am. R. 5; Wayne Pike Co. v. Hammons, 129 Ind. 368, 27 N. E. 487. ''"Union Pac. R. Co. v. Durant, 1 Cent. ,L. J. 581; Pacific R. Co. v. Seely. 45 Mo. 212. 100 Am. Dec. 369; Bestor v. Wathen, 60 111. 138. It is the duty of a director to manage the corporate business for the profit of the stockholders, and he cannot so deal with Its property as to make profit for himself. Schetter v. Southern Oregon Co. 19 Oreg. 192, 24 Pac. 25; Pearson v. Concord R. Corp. 62 N. H. 537, 13 Am. St. 590; Hart V. Brockway, 57 Mich. 189, 23 N. W. 725. 401 DIEEOTOES — LIABILITY OF — GENEEALLT. [§ 378 from office, or the like. It may also be terminated by operation of law. So, too, conditions may so change as to sever the relation and leave the director as free to act as if the relation had never existed.^^'' § 278. Directors — Liability of — Generally. — In considering the personal liability of directors, it is important to keep in mind the dis- tinction, heretofore mentioned, between the duties of the directors to the corporation and its share holders, and their duties to third per- sons.^^^ As to the corporation they are, as we have said, trustees, but as to third persons they are not trustees, simply because of their official relation to the corporation and its stockholders, although they may doubtless become such in particular instances.^^* Where there is a breach of duty in the discharge of duties owing to the corporation there is a breach of trust, but as to third persons a breach of duty is not always a breach of trust. Prom the doctrine that there is an essen- tial difference between the duty to the corporation and the duty to third persons, consequences of importance, result. It is obvious that there may be a liability to the corporation or stockholders, where there would be none to third persons, and that the evidence required in the one class of cases is very different from that required in the other class. So, too, the duty in the one class of cases is stricter than in the other, and the obligation to exercise good faith much higher. Some of the cases discriminate between officers to whom compensation is paid, and those who receive no pay for their serviees,^^° but where persons undertake to serve a business corporation, such as a railway =*=The entire plant and assets of Reid, Murdock & Co. 159 Ind. 614, a corporation, having been sold un- 64 N. E. 870, 59 L. R. A. 199, where der an assignment for the benefit of the authorities on both sides are creditors, a stockholder, who was a cited in the prevailing and in the director and the treasurer of the dissenting opinions, corporation, is no longer a trustee ^"Wilkinson v. Bauerle, 41 N. J. or in any fiduciary relation to the Eq. 635, 7 Atl. 514. See Loverin v. corporation, which will prevent him McLaughlin, 161 111. 417, 44 N. B. 99. from taking an assignment to him- ^"Austin v. Daniels, 4 Denio (N. self of corporate debts, which he has Y.) 299; Commercial Bank 'v. Ten paid personally, and participating Byck, 48 N. Y. 305; East New York, with the. other creditors in the dis- &c. Co. v. Elmore, 5 Hun (N. Y.) tribution of the fund. Hammond's 214; Pangborn v. Citizens', &c. Assn. Appeal, 123 Pa. St. 503, 16 Atl. 419. 35 N. J. Eq. 341; First National ™Ante, § 273; Briggs v. Spauld- Bank v. Reed, 36 Mich.' 263; Beach ing, 141 U. S. 132, 11 Sup. Ct. 924, Railways, § 486; Taylor Corpora- See, as to preferring themselves as tions (5th ed.), § 618. creditors, Nappanee Canning Co. v. Ell. Railroads — 26 §• 279] DIEECTOES. 402 company, it seems to us they are under an obligation to the corpora- tion and stockholders, to exercise at least ordinary care and diligence, whether their services are or are not paid for by the corporation. It is no doubt true that in determining whether ordinary care and dili- gence has been exercised, it is proper to consider the time and atten- tion that directors are, under the circumstances of the particular case, bound to give the corporate affairs, but this does not lead to the con- clusion that the directors may be guilty of negligence, and, neverthe- less, be exonerated from liability, for the failure to exercise ordinary care and diligence is negligence. Whether ordinary care and diligence has been exercised must usually, but not always, be a question of fact to be determined by the jury, under the instructions of the court.^^* It may be said, by the way, that it is only just and natural that officers who are paid for devoting their time and attention to the corporate affairs, should be held to a higher degree of care and diligence, than those who serve without compensation, or those who undertake to give only a part of their time and services to the corporation, but this does not authorize the conclusion that any corporate officer, whether paid or not paid for his services, may neglect the duties he has assumed, and yet not be held liable for the consequences of his negligence. The effect to be ascribed to the fact that no compensation is paid is that it is in all cases an important factor in determining whether ordinary diligence was exercised, and in many cases a controlling one. § 279. Directors — liability in matter of contract. — Substantially the same rules that apply to corporate officers and agents generally, re- '^^ Spering's Appeal, 71 Pa. St. 11, cepting the position of director of 10 Am. R. 684; Hun v. Gary, 82 N. a business corporation men do so Y. 65, 37 Am. R. 546, citing Scott knowing that corporate affairs re- v. De Peyster, 1 Edw. Ch. 513, 543; quire time and attention as well as Hodges v. New England, &c. Co. i the exercise of reasonable business R. I. 312, 53 Am. Dec. 624; Liquida- care and diligence, and they, there- tors, &c. V. Douglas, 22 Sess. Cases fore, impliedly, at least, undertake (2d series) (Scotch) 447, 32 Scotch to exercise that diligence and care. Jur. 212; Charitable Corporation v. In regard to corporate affairs as Sutton, 2 Atk. 405; Litchfield v. well as in all other matters the ques- "White, 7 N. Y. 438, 57 Am. Dec. 534. tion of negligence or no negligence It seems to us that there is an essen- must, in a very great measure, de- tial difference between cases where pend upon the facts of the partlcu- persons serve as directors of a char- lar case. First National Bank v. itable corporation and cases where Ocean National Bank, 60 N. Y. 278, they assume the duties of directors 19 Am. R. 181, and authorities cited, of a business corporation. In ac- 403 DIRECTORS — LIABILITY IN "MATTER OF CONTRACT. [§ 279 specting personal liability in matters of contract, govern cases where a personal liability is sought to be imposed upon the directors of a rail- road company. The familiar general rule is that where an officer or agent enters into a contract for the corporation, in its name and by its authority, his principal alone is bound and he incurs no personal lia- bility. If the agent exceeds his authority he may incur a personal lia- bility. So, if an agent executes the contract in his own name he may be bound to the person with whom he contracts."^' The general doc- trine is that directors, so long as they act within the scope of their powers, bind the corporation and it alone; yet their acts done in ex- cess of such powers may in some cases bind them personally.^^^ As we have elsewhere said, directors are not liable for the consequences of mistakes which they may make, however gross, so long as they act in good faith and with reasonable care,^^" and keep within the scope of their powers.^^" It is often said that the directors are liable for any loss resulting from their acts if they exceed or abuse their powers; but this is, perhaps, rather a broad statement of the rule and is not to be taken without some qualification.^^^ ''"Vincent v. Chapman, 10 Gill & J. (Md.) 279; Mott v. Hicks, 1 Cowen (N. y.) 513; Johnson v. Gib- son, 78 Ind. 282. ^'» Smith T. Poor, 3 Ware (U. S.) 148; Land Credit Co. v. Lord Fer- moy, L. R. 8 Eq. 7. See, also. Inter- national Contract Co., In re, L. R. 6 Ch. App. 525; County Palatine Loan and Discount Co., In re, L. R. 9 Ch. App. 691. ''"As where they are misled by counsel whom they have employed. Spering's Appeal, 71 Pa. St. 11, 10 Am. R. 684; Van Dyck v. McQuade, 86 N. Y. 38. The measure of care and diligence required of the . di- rectors of a corporation is generally such as a prudent man exercises in his own affairs, but must be deter- mined in each case in view of all the circumstances. Horn Silver Min. Co. V. Ryan, 42 Minn. 196, 44 N. "W. 56, 28 A. & E. Corp. Cas. 657. '^ Percy v. Millaudon, 8 Martin N. S. (La.) 68; Hodges v. New Eng- land Co. 3 R. I. 9; Dunn v. Kyle, 14 Bush (Ky.) 134; Vance v. Phoenix Ins. Co. 4 Lea (Tenn.) 385. =^ National Exchange Bank v. Sib- ley,' 71 Ga. 726; Cole v. Cassidy, 138 Mass. 437, 52 Am. R. 284; Paddock v. Fletcher, 42 Vt. 389; Morgan v. Skiddy, 62 N. Y. 319. Directors who vote for a resolution to illegally is- sue and negotiate notes of the cor- poration, incur a personal liability to the corporation where such notes come into the hands of bona fide purchasers. Metropolitan Elev. R. Co. V. Kneeland, 120 N. Y. 134, 24 N. E. 381, 8 L. R. A. 253, 17 Am. St. 619. Directors of a company which has received the assets of another company and has assumed Its debts, who misapply the assets of the old company, thereby render themselves individually liable to its creditors. Nat. Bank of Jefferson v. Texas In- vest. Co. 74 Tex. 421, 12 S. W. 101. § 380] DIRECTORS. 404 §280. Directors — ^Errors of judgment. — ^Where directors act in good faith and with reasonable care and diligence, not going beyond the scope of their authority, they are not personally liable for losses that may occur although they may not have wisely exercised their dis- cretion or may have erred in judgment. They are required to act in good faith and to exercise reasonable care and diligence, but their duty imposes upon them no higher or greater obligations. Mistake of judgment or bad business management is not of itself sufficient to create a personal liability.^^^ § 281. Directors — ^Liability for negligence. — We have elsewhere said that directors are bound to exercise ordinary or reasonable care and diligence in the discharge of their duties ; that the failure to do so is negligence, but that what shall be deemed negligence depends, as a rule, upon the facts of the particular case. At this place our pur- pose is to direct attention to some of the cases enforcing and applying the doctrines stated. A director is personally liable for any acts of the board of which he is a member constituting culpable negligence,^^^ or amounting to a fraudulent breach of trust,^^* unless he can show that he sought to prevent such action, if present when the action was taken,^^^ or that he labored to avert its injurious consequences after it came to his knowledge.^^^ «^Hun V. Gary, 82 N. Y. 65, 37 R. A. 534, 17 Am. St. 84, and note Am. R. 546; Excelsior, &o. Co. v. reviewing authorities. Directors of Lacey, 63 N. Y. 422; Spering's Ap- a corporation are personally liable peal, 71 Pa. St. 11, 10 Am. R. 684; for permitting the corporate funds Overend v. Gurney, L. R. 4 Ch. 701; or property to be wasted or lost by Overend v. Gibb, L. R. 5 H. L. 480; inexcusable negligence or inatten- Turquand v. Marshall, L. R. 4 Ch. tion to the duties they assume in 376 ; Vance v. Phoenix, &c. Co. 4 Lea accepting the office of director. (Tenn.) 385; Godbold v. Branch Horn Silver Min. Co. v. Ryan, 42 Bank, &c. 11 Ala. 191, 46 Am. Dec. Minn. 196, 44 N. W. 56, 28 Am. & 211; Citizens', &c. Assn. v. Corlell, Eng. Corp. Cas. 657. 34 N. J. Eq. 383; Charitable Cor- =^Sims v. Street R. Co. 37 Ohio poration v. Sutton, 2 Atk. 400; St. 556; Colquitt v. Howard, 11 Ga. Percy v. Millaudon, 8 Mart. N. S. 556; Smith v. Poor, 40 Me. 415, 63 (La.) 68. Am. Dec. 672; Hazard v. Durant, 11 '^ Beal V. Osborne, 72 Cal. 305, 13 R. I. 195. Pac. 871; Myer v. Caperton, 87 Ky. "^^ Unless, being present through 306, 8 S. "W. 885, 12 Am. St. 488; only part of the session, he had no Cady V. Sanf ord, 53 Vt. 632 ; Sper- knowledge of the facts. Land Credit ing's Appeal, 71 Pa. St. 11, 10 Am. Co. v. Fermoy, L, R. 5 Ch. 763. R. 684; Marshall v. Farmers', &c. """ Metropolitan R. Co. v. Knee- Bank, 85 Va. 676, 8 S. E. 586, 2 L. land, 120 N. Y. 134, 24 N. E. 381, 8 405 FRAUD ON THIED PEESONS. [§ "282 § 282. Directors — Fraud on third persons. — ^Directors who make false and fraudulent representations of fact, thereby causing loss to innocent third persons who act upon the faith of the truth of the representations, are personally liable to such persons.''^^ It is essential to a recovery in such eases that it be proved by the plaintiff that the: representations were false. But it is held, with good reason and upon authority, that it is not necessary that the plaintiff should show that the representations were made with intent to defraud.^^* The representations may be made in various forms. The form in which they are made is not regarded as material, for if they were made and' did result in defrauding a right-doing third person he is entitled to recover. The question has arisen in many forms; thus, where the di- rectors knowingly issued fraudulent stock or bonds, they were held to be individually liable to any purchaser or subsequent transferee in good faith and without notice of the fraudulent character of the stock or bonds.^^^ So, the making of false and fraudulent statements as to L. R. A. 253, 17 Am. St. 619; Black T. Delaware, &c. Canal Co. 22 N. J. Eq. 130, 420; Percy v. MlUaudon, 3 La. 568; Shea v. Mabry, 1 Lea (Tenn.) 319. '''"Tyler t. Savage, 143 U. S. 79, 12 Sup. Ct. 340; Tate v. Bates, 118 N. Car. 287, 24 S. E. 482, 54 Am. St. 719; Salmon v. Richardson, 30. Conn. 360, 79 Am. Dec. 255; Prescott v. Haughey, 65 Fed. R. 653. In the last case cited. Baker, J., delivered a strong and well-reasoned opinion, in the course of which it was said: "The fraudulent representations charged in the complaint, if made under color of their office, were en- tirely outside of the official duties of the directors. Neither the law, nor the obligations of their office made it any part of their duty to utter and publish false and fraudu- lent statements and reports in re- gard to the condition of the bank. The tort for which they are sued was committed in their private and personal capacity, because the law does not confer upon such officers any authority to commit frauds of the character complained of. These directors have used their official po- sition to enable them to perpetrate a fraud on the plaintiff entirely out- side of the legitimate scope of their duties." The court discriminated between the case before it for judg- ment and that of Bailey v. Mosher, 11 C. C. A. 304, 63 Fed. 488. =^ Seale v. Baker, 70 Tex. 283, 7 S. W. 742, 8 Am. St. 592. =» Hornblower v. Crandall, 78 Mo; 581; Bruff v. Mali, 36 N. Y. 200; National Bxch. Bank v. Sibley, 71 Ga. 726. Acts 16th Gen. Assem. Iowa, c. 123, § 6, provides that if the directors of any railroad of three-feet gauge receiving taxes voted in aid thereof under the act shall vote to mortgage or incumber the road for more than $16,000 per mile, they, or those voting in the affirmative, shall be liable to each stockholder in an amount double the par value of his stock, if the stock is rendered less valuable there- by. Under this statute It was held 282] DIRECTORS, 406 the value of the stock or condition of the business of the corporation, or other matters peculiarly within their knowledge,^'" will render the directors liable to the parties to whom they were made and who acted upon them for all damages which they sustain thereby. Actionable false and fraudulent representations may be made in a prospeetus^^^ or report^*^ officially issued, and, as a general rulfe, all persons into whose hands such prospectus or statement may come, have a right to rely upon them and to hold the directors personally responsible for losses sustained by reason of acting upon a belief in their truth.^^^ As a general rule only those directors who participated in the fraud are personally liable,^'* and to entitle a plaintiff to recover, such partici- pation or at least knowledge and acquiescence therein must be proved,^^" since the court will not, in the absence of evidence, indulge the presumption that a director knows of the frauds of his associates. The authorities are numerous upon the general question and support the general statement of the opening sentence of this section.^^° In that persons receiving shares for taxes voted and paid after a mort- gage for more than $16,000 per mile had been executed and recorded could not recover against the, di- rectors who voted the same. Walker V. Birchard, 82 Iowa 388, 48 N. W. 71. '"'Seale v. Baker, 70 Tex. 283, 7 S. W. 742, 8 Am. St. 592, and note; Morgan v. Sklddy, 62 N. Y. 319; Vreeland v. New Jersey, &c. Co. 29 N. J. Eq. 188. If the statements he as to matters of law and mere opin- ion, the directors are not bound. New Brunswick, &c. R. Co. v. Cony- bear, 9 H. L. Cas. 711; Rashdall v. Ford, L. R. 2 Eq. 750; Morgan v. Skiddy, 62 N. Y. 319. ==> Morgan v. Skiddy, 62 N. Y. 319; United Society v. Underwood, 9 Bush (Ky.) 609, 15 Am. R. 731. "^^ Salmon v. Richardson, 30 Conn. 360, 79 Am. Dec. 255; "Warren v. Para, &c. Co. 166 Mass. 97, 44' N. B. 112. ™Peek V. Gurney, L. R. 6 H. L. 377; Vreeland v. N. J. Stone Co. 29 N. J. Eq. 188. The rule stated would not apply if the persons into whose hands such instruments came knew that the statements were not true, or if they were guilty of such neg- ligence as would, under the ordinary rules of law, prevent a recovery for a loss caused by fraudulent repre- sentations. ™Cargill V. Bower, L. R. 10 Ch. Div. 502. ''^ Arthur v. Griswold, 55 N. Y. 400. ^'United Society v. Underwood, 72 Ky. 609, 15 Am. R. 731; Graves V. Bank, 73 Ky. 23, 19 Am. R. 50; Bartholomew v. Bentley, 15 Ohio 659, 45 Am. Dec. 596; Cross v. Sackett, 6 Abb. Pr. (N. Y.) 247; Cazeaux v. Mali, 25 Barb. (N. Y.) 678; Morgan v. Skiddy, 62 N. Y. 319; Johnson v. Gorlett, 3 C. B. (N. S.) 569; Clarke v. Dickson, 6 C. B. (N. S.) 452; Peek v. Derry, L. R. 37 Ch. Div. 541, 585; Delano v. Case, 121 111. 247, 12 N. E. 676, 2 Am. St. 81; Neall v. Hill, 16 Cal. 145, 76 Am. Dec. 508; Marshall v. Bank, 85 Va. 407 DIRECTORS FRAUD ON THIRD PERSONS. [§ 282 many of the states the directors are by statute made personally liable for corporate debts created beyond their subscribed capital stock,^^^ and are also made liable for debts in case they declare and pay div- idends unlawfuUy.^^* The making of a report as to the business and financial condition of a railroad corporation which is false in any material representation renders the officers signing it liable for all debts of the corporation contracted while they are such officers thereof in Arkansas, Texas and Nevada ; and renders them liable to a penalty in Michigan ; and making such a report is a misdemeanor in Nevada and Minnesota.^^® 676, 8 S. B. 586, 2 L. R. A. 534, 17 Am. St. 84; Wallace v. Bank, 89 Tenn. 630, 15 S. W. 448, 24 Am. St. 625; Salmon v. Richardson, 30 Conn. 360, 79 Am. Dec. 255; Morawetz Corp. (2d ed.) § 573; Taylor Corp. (5tli ed.) § 616; Cooley Torts (3rd ed.), 578, 579. See, generally, Clark v. Edgar, 84 Mo. 106, 54 Am. R. 84; Nat. Exchange Bank v. Sibley, 71 Ga. 726; Peck v. Cooper, 112 111. 192, 54 Am. R. 231; Wyandotte v. Corrl- gan, 35 Kans. 21; Peek v. Gurney, Law R. 6 H. L. 377. =^'Stimson Am. Stat. (1892) § 8232; Cal. Civ. Code, § 309, making directors of corporations individu- ally liable for debts created beyond their subscribed capital stock, was held applicable to all the subscribed capital stocks, irrespective of the mode of disposition, and whether paid in or not. But the debts re- ferred to did not include capital stock paid for corporate property. Moore v. Lent, 81 Cal. 502, 22 Pac. 875. =»»Stimson Am. Stat. (1892) §§ 8161, 8634. Other states make the directors liable to a penalty. Stimson Am. Stat. (1892) §§ 8161, 8634. ^"Stimson Am. Stat. (1892) § 8544. See Niles v. Dodge, 70 Ind. 147; State v. Cox, 88 Ind. 254; Fair- banks, &e. Co. V. Macleod, 8 Colo. App. 190, 45 Pac. 282; Lehman v. Knapp, 48 La. 1148, 20 So. 674. See, generally. Stone v. Kellogg, 62 111. App. 444; Rose v. Eclipse, &c. Co. 60 Mo. App. 28; Greenville, &c. Co. V. Reis, 54 Ohio 549, 44 N. E. 271; Solomon v. Bates, 118 N. C. 311, 24 S. B. 478, 54 Am. St. 725. Rights of directors under statutes prefer- ring claims of laborers. Consoli- dated, &c. Co. V. Keystone, &c. Co. 54 N. J. 309, 35 Atl. 157. As to who are proper parties where the right to the office of director Is involved, see Dusenbury v. Looker, 110 Mich. 58, 67 N. W. 986, CHAPTEE XIII. EXECUTIVE AND MINISTERIAL OEFICEES AND AGENTS. Sec. Sec. 283. President— Generally. 293. Treasurer — Duties — Liabili- 284. President— Incidental powers ties. 1 of. 294. Treasurer — Care of corporate 285. President — Implied powers. funds. 286. President — P o w e r s Implied 295. Secretary. from grant of authority by 296. Managing agents. the board of directors. 297. Superintendent. 287. President — Influence of usage. 298. Superintendent — General con- 288. President — Apparent author- clusion. ity. 299. Intermediate agents. 289. President — Ratification of un- 300. Intermediate agents — ' Agent authorized acts. for one purpose not for an- 290. President — Dealings with cor- other. poration. 301. Intermediate agents and serv- 291. President — Relation to share- ants distinguished. holders. 302. Conductors. 292. Treasurer — Generally. 303. Station agents. § 283. President — Generally. — Eailroad companies are generally required to elect a president/ who is, ordinarily, the chief executive officer of the company.^ It can hardly be said that the powers and duties of a president of a railway company are prescribed and defined by the general principles of law, for, as- a rule, recourse must be had to the act of incorporation or to the corporate by-laws to ascertain what ^ The president must be chosen by the body to which the act of incor- poration grants the right to elect. An election by the stockholders, where the charter requires the board of directors to elect, is a nul- lity. Walsenburg, &c. Co. v. Moore, 5 Colo. App. 144, 38 Pac. 60. "Provision is often made for the election of a vice-president, but, as a rule, he only acts in the absence of the president, although active, Independent duties may be required of him, if the company so desires and no provision of the charter for- bids. Colman v. West Virginia, &c, Co. 25 W. Va. 148; Chicago, &c. Co, v. James, 22 Wis. 194; Chicago, &c, Co. V. James, 24 Wis. 388; Richards v. Osceola, 79 Iowa 707, 45 N. "W, 204. 408 409 PRESIDENT— GENEKALLY. [§■ 283 these powers and duties are. Some of the cases hold that he has no greater powers by virtue of his office than any other director except that he is the presiding officer at the meetings of the board of direct- ors.^ It seems to us, however, that the powers of the president are greater and more comprehensive than those of an individual director, for he may act for the company in ordinary business affairs, and this an individual director cannot do; but the president cannot, of course, effectively exercise powers which belong to the board of directors. We think it may be safely said that in ordinary routine business matters the president may act for the company unless his powers are so cir- cumscribed and limited by the act of incorporation 'or the corporate by-laws as to exclude the operation of the general rules of law. We know that the authorities are in conflict upon this question, but we believe that the trend of modern authority is strongly in favor of the conclusion we have stated. Some of the decisions contain loose general statements that cannot justly be regarded as authoritative, but must be taken to be mere dicta. There is, however, a sharp conflict in the authorities which it is not possible to reconcile.* While the president of a railroad may, as we believe, act for the corporation in ' Dabney v. Stevens, 10 Abb. Pr. (N. S.) 39; Adriance v. Roome, 52 Barb. (N. Y.) 399; Risley v. Indi- anapolis, &c. 1 Hun (N. Y.) 202; Titus T. Cairo, &c. R. Co. 37 N. J. L. 98. See, generally, Chicago, &c. Co. v. James, 22 Wis. 194; Hodges V. Rutland, &c. 29 Vt. 220; Bacon V. Mississippi, &c. Co. 31 Miss. 116; Templen v. Chicago, &c. Co. 73 Iowa 548, 35 N. W. 634, 34 Am. & Eng. R. Cas. 107. * Sustaining the doctrine of the text. Sherman, &c. Co. v. Swigart, 43 Kans. 292, 23 Pac. 569, 19 Am. St. 137; Mitchell v. Deeds, 49 111. 416, 95 Am. Dec. 621; Washburn v. Nash- ville, &c. Co. 3 Head (Tenn.) 638, 75 Am. Dec. 784; Chicago, &c. Co. v. Coleman, 18 111. 297, 68 Am. Dec. 544; Blen v. Bear River, &c. Co. 20 Cal. 602, 81 Am. Dec. 132; Ceeder v. , Loud, &c. Co. 86 Mich. 541, 49 N. W. 675, 24 Am. St. 134; Oakes v. Cattaraugus, &c. Co. 143 N. Y. 430, 38 N. B. 461, 26 L. R. A. 544; Thomas v. City, &c. Bank, 40 Neb. 501, 58 N. W. 943, 24 L. R. A. 263; Los Angeles, &c. Co. v. Los Angeles, 106 Cal. 156, 39 Pac. 535; Hawley v. Gray Bros. &c. Co. 106 Cal. 337, 39 Pac. 609; Gray v. Waldron, 101 Mich. 612. 60 N. W. 288. Contra, Lyndon, &c. Co. v. Lyndon, &c. Inst. 63 Vt. 581, 25 Am. St. 783; Wait v. Nashua, &c. Association, 66 N. H. 581, 23 Atl. 77, 14 L. R. A. 356, 49 Am. St. 630, 34 Cent. L. J. 119; Mount Sterling, &c. Co. v. Looney, 1 Mete. (Ky.) 550, 71 Am. Dec. 491; Brooklyn, &c. Co. v. Slaughter, 33 Ind. 185. A valuable article, rich in authority, by Judge Seymour D. Thompson, in 39 Cent. L. J. 200, presents both sides of the question very fully. Copious notes will be found in Wait v. Nashua, &c. Assn. 14 L. R. A. 256, and in Templen v. Chicago, &c. 73 Iowa 548, 35 N. W. 634, 34 Am. & Eng. R. Cas. 107. § 284] EXECUTIVE AND MINISTERIAL OEFIOEES AND AGENTS. 410 ordinary matters of routine business, he is merely an officer and not the corporation.^ He cannot perform the duties of the board, of direc- tors, nor can he perform those conferred upon other corporate offi- cers by the act of incorporation or the by-laws, neither can he ef- fectively perform acts outside of the ordinary business affairs or trans- actions of the company.* § 284. President — ^Incidental powers of. — ^As indicated in the pre- ceding section, our opinion is that the president of U railroad company possesses incidental powers of considerable scope in all cases, except, perhaps, in those where the act of incorporation or the by-laws so clearly and fully prescribe and define his powers as to exclude all im- plied power. The rule applied to charitable corporations cannot, it seems to us, be applied to railway companies, so that the cases laying down the law as to the powers of the president of educational, literary, benevolent corporations, or the like, ought not to be unqualifiedly ac- cepted as authoritatively declaring the law applicable to the presidents of railroad companies. Judges know ex officio that in the conduct and management of railway companies there are matters requiring daily at- tention and that of those matters disposition must be made promptly and effectively without calling together the board of directors for for- mal action. So, too, it is a matter of judicial knowledge that railroad companies are often consolidated, that interests of great magnitude are combined, that many miles of railroad are placed under one manage- ment, and that directors often reside far apart and far distant from the principal office. In view of these considerations, and others which might be suggested, it is but reasonable and natural to hold that in many respects the powers of the chief executive or ministerial officers of a railroad company are more comprehensive than those of a corporation of a different nature, such as a manufacturing, mining or banking company, although in other respects, as the borrowing of money, or the °Bl-Spool, &c. Co. V. Acme, &c. Co. Dec. 116; Bliss v. Kaweah, &c. Co. 153 Mass. 404, 26 N. E. 991. 65 Cal. 502, 4 Pac. 507; Leggett 'Blen V. Bear River, &c. Co. 20 v. New Jersey, &c. Co. 1 N. J. Eq. Cal. 602, 81 Am. Dec. 132; Slebe v. 541. 23 Am. Dec. 728. See, also, Yel- Joshua, &c. Co. 86 Cal. 390, 25 Pac. low Jacket, &c. Mm. Co. v. Steven- 14; Castle v. Belfast, &c. Co. 72 Me. Son, 5 Nev. 224; AUentown First 167; Risley v. Indianapolis, &c. Co. Nat. Bank v. Hoch, 89 Pa. St. 324, 1 Hun (N. Y.) 202; Walworth 33 Am. R. 769. The doctrine is car- County Bank v. Farmers', &c. Co. ried very far in the case oif Asher 14 Wis. 325; Crump v. United States, v. Sutton, 31 Kans. 286, 1 Pac. 535. &c. Co. 7 Gratt. (Va.) 352, 56 Am. 411 PRESIDENT IMPLIED POWERS. [§ 385 like, they are not so comprehensive as those of a president of a cor- pt)ration of that class. It is safe, at all events, to affirm that the presi- dent of a railroad company does possess implied or incidental powers, and that his powers extend beyond those expressly conferred upon him by the board of directors. He may do many acts without direct or ex- press authority from the board of directors of the company. § 285. President — Implied powers. — It is difficult in some cases to determine what powers the president possesses as incident to the office bestowed upon him, or as implied from the general nature of the au- thority conferred upon him by the company. A contract of an unusual character, as, for instance, a contract for the construction of the road, he has no implied power to make, since that is a contract of an extraor- dinary character, at least it is one beyond the range of ordinary cor- porate business.'' He cannot rightfully sell all the personal property of the corporation, nor, perhaps, any very considerable part of it, un- less authorized by the board of directors;* but we venture to affirm, notwithstanding some decisions to the contrary, that he may sell par- ticular articles of personal property without express authority from the board, as, for example, a car or a locomotive. The president does not merely by virtue of his ofQce, possess authority to dispose of all of the assets of the company, for such an act is one beyond the scope of his authority.^ Some of the cases assert that the president cannot pur- chase property for the corporation,^" but we think that he may within reasonable limits purchase property required for use in the ordinary course of the corporate business, but that the authority to purchase is a limited one. The president, under ordinary circumstances, has no implied power to release parties from liability to the corporation.^^ 'Griffith V. Chicago, &c. R. Co. 74 98; Asher v. Sutton, 31 Kans. 286, Iowa 85," 36 N. W. 901; Templin v. 1 Pac. 535. As suggested in the pre- Chicago, &c. R. Co. 73 Iowa 548, 35 ceding section, we are inclined to N. W. 634; Risley v. Indianapolis, think that cases such as those cited &c. R. Co. 1 Hun (N. Y.) 202; Cen- in this note cannot apply with full tral, &c. Co. V. Condon, 67 Fed. 84. force to railroad companies. See Fitzgerald v. Fitzgerald, &c. Co. ' Titus v. Cairo, &c. Co. 37 N. J. 41 Neb. 374, 62 N. W. 899. L. 98, 102. See McCuUough v. Moss, 8 Walworth County Bank v. Farm- 5 Denio (N. Y.) 567. ers', &c. Co. 14 Wis. 325; Bliss v. "Bliss v. Kaweah, &c. Co. 65 Cal. Kaweah, &c. Co. 65 Cal. 502, 4 Pac. 502, 4 Pac. 507; Blen v. Bear River, 507; Fulton Bank v. New York, &c. &c. Co. 20 Cal. 602, 81 Am. Dec. 132. Co. 4 Paige (N. Y.) 127. See, also, "Risley v. Indianapolis, &c. Co. 1 Titus V. Cairo, &c. R. Co. 37 N. J. L. Hun (N. Y.) 202; Soper v. Buffalo, § 285] EXECUTIVE AND MINISTERIAL OFEICEES AND AGENTS. 413 Authority to mortgage the corporate property cannot be implied, but must be conferred by the board of directors or by that branch of the corporate government in which power to authorize the execution of mortgages is lodged.^^ Unless otherwise provided in the act of incor- poration or by-laws, the president of a railroad company has a general supervision and authority over the subject of employing and discharg- ing corporate agents and servants.^^ There is a conflict of authority upon the question as to whether he has the power to commence an ac- tion on behalf of the company;^* but, for our part, we can see no suffi- cient reason why he may not do so in ordinary cases. He may employ counsel to defend an action or suit against the company.^^ He has no implied power to bind the company by consenting to the appointment of a receiver,^" nor has he power to make an assignment of the cor- porate assets for the benefit of creditors.^'' &c. Co. 19 Barb. (N. Y.) 310; MUler V. Rutland, &c. Co. 36 Vt. 452. "Luse V. Isthmus, &c. R. Co. 6 Oreg. 125, 25 Am. R. 506; England V. Dearborn, 141 Mass. 590, 6 N. E. 837. See, generally, Davis v. Rock Creek, &c. Co. 55 Cal. 359, 36 Am. R. 40; Alta, &c. Co. v. Alta Mining Co. 78 Cal. 629, 21 Pac. -373; Jesup V. City Bank, 14 Wis. 331. "Arapahoe, &c. Co. v. Stevens, 13 Colo. 534, 22 Pac. 823. "Recamier, &c. Co. v. Seymour, 24 N. Y. St. 54, 5 N. Y. S. 648; Cai- man V. West Virginia, &c. Co. 25 W. Va. 148; Bright v. Metairle, &c. Assn. 33 La. Ann. 58; Reno, &c. Co. V. Leete, 17 Nev. 203, 30 Pac. 702; Davis V. Memphis, &c. R. Co. 22 Fed. 883; American, &c. Co. v. Oak- ley, 9 Paige (N. Y.) 496, 38 Am. Dec. 561; Wetherbee v. Fitch, 117 111. 67, 7 N. E. 513; Oakley v. Work- ingmen's, &c. Soc. 2 Hilt. (N. Y.) 487; Potter v. New York, &c. Co. 44 Hun (N. Y.) 367; Ashuelot, &c. Co. V. Marsh, 1 Cush. (Mass.) 607; Globe Works v. Wright, 106 Mass. 207; White v. Westport, &c. Co. 1 Pick. (Mass.) 215, 11 Am. Dec. 168; Bailey v. Snyder, 61 111. App. 472. " Sarimento v. Davis Boat, &c. Co. 105 Mich. 300, 63 N. W. 205, 55 Am. St. 446; Wetherbee v. Fitch, 117 111. 67, 7 N. E. 513. "Walters v. Anglo-Saxon, &c. Co. 50 Fed. 316. "Asher v. Sutton, 31 Kans. 286, 1 Pac. 535; Gibson v. Goldthwaite, 7 Ala. 281, 42 Am. Dec. 592; Hallo- well, &c. Bank v. Hamlin, 14 Mass. 178; Luse v. Isthmus, &c. R. Co. 6 Oreg. 125, 25 Am. R. 506. The presi- dent of an ordinary private corpo- ration may be authorized by the governing board to make an assign- ment. Vanderpoel v. Gorman, 140 N. Y. 563, 35 N. B. 932, 24 L. R. A. 548, 37 Am. St. 601. For cases de- claring and enforcing the general doctrine as to the implied powers of a president of a corporation, see Smith T. Smith, 62 111. 493; Bank of Healdsburg v. Bailhache, 65 Cal. 327, 4 Pac. 106; Rhodes v. Webb, 24 Minn. 292; Northern Central, &c. R. Co. V. Bastian, 15 Md. 494; Indian- apolis, &c. Co. V. St. Louis, &c. R. Co. 26 Fed. 140; Duncomb v. New York, &c. Co. 88 N. Y. 1, 13 Am. & Bug. R. Cas. 84; Stow v. Wyse, 7 Conn. 214, 18 Am. Dec. 99; Chicago,. 413 POWEES IMPLIED PROM GRANT OF AUTHORITY. [§' 386 § 286. President — Powers implied from grant of authority by the board of directors. — It seems proper, in order to prevent a possible misunderstanding, that we should say, by way of explanation, that in discussing the incidental and implied powers of the president we have had reference only to the powers incident to the office bestowed upon him, and to those implied from the nature of the office itself. The board of directors may materially extend the powers of the president and invest him with authority much beyond that inherent in the office of president.^ ^ Where the directors rightfully invest the president with a principal power, he takes it with all the incidental powers essential to a proper exercise of the principal power conferred upon him.^^ § 287. President — ^Influence of usage. — The usage of a railway company is an important factor in determining the power of its presi- dent. The president may often be invested with authority by corporate usage. It is not possible to lay down any definite rules upon this sub- ject, but it may be safely said that long continued usage may confer authority upon the president much greater than that inherent in his office and essentially greater than that expressly conferred upon hini by the board of directors or the stockholders of the corporation.'"' &c. R. Co. V. James, 24 Wis. 388; Stockton, &c. E. Co. 130 Cal. 100, 62 Greig v. Riordan, 99 Cal. 316, 33 Pac. 267. Pac. 913; Nichols v. Scranton, &c. "Baker v. Cotter, 45 Me. 236; Co. 137 N. Y. 471, 33 N. E. 561; Rowland v. Myer, 3 N. Y. 290 ; Hatch Oakes v. Cattaraugus, &c. Co. 143 v. Coddington, 95 U. S. 48; Irwin N. Y. 430, 38 N. B. 461; Crowly v. v. Bailey, 8 Biss. (U. S.) 523. But Genesee, &c. Co. 55 Cal. 273 ; Jour- the implied power is only such as is dan V. Long Island R. Co. 115 N. Y. necessary to effectuate the principal 380, 22 N. B. 153; Sherman, &c. Co. power. Second, &c. R. Co. v. Mehr- T. Swigart, 43 Kans. 292, 23 Pac. bach, 17 Jones & S. (N. Y.) 267. 569, 19 Am. St. 137, 2 Lewis Am. R. *• Minor v. Mechanics' Bank, 1 Pet. & Corp. 158. (U, S.) 46; Mount Sterling, &c. R. " Smith V. Smith, 62 111. 493, 496; Co. v. Looney, 58 Ky. 550, 71 Am. Seeley v. San Jose, &c. Co. 59 Cal. Dec. 491; Northern Cent. R. Co. v. 22; Lee v. Pittsburgh, &c. Co. 56 Bastian, 15 Md. 494; Walker v. De- How. Pr. (N. Y.) 373; Castle v. troit, &c. Co. 47 Mich. 338, 11 N. W. Belfast, &c. Co. 72 Me. 167; Mitchell 187; Merchants', &c. Bank v. Citi- V. Deeds, 49 111. 416, 95 Am. Dec. zens', &c. Co. 159 Mass. 505, 34 N. 621; Lucky, &c. Co. v. Abraham, 26 E. 1083, 38 Am. St. 453. See, gen- Oreg. 282, 38 Pac. 65; Hawly v. erally, Moyer v. Bast Shore, &c. Co. Gray Bros. &c. Co. 103 Cal. 337, 39 41 S. C. 300, 19 S. B. 651, 25 L. R. Pac. 609; State v. Heckart, 62 Mo. A. 48, 44 Am. St. 709; Bell v. Han- App. 427. See, also, McCormick v. over, &c. Bank, 57 Fed. 821; Mining ■§ 388] EXECUTIVE AND MINISTERIAL OFFICEES AND AGENTS. 414 § 288. President — ^Apparent authority.— The authority with which the corporation ostensibly invests its president is as to persons dealing in good faith and without notice of his actual authority, the authority which he possesses ; but it is not his authority in cases where the per- son dealing with him has notice of his actual authority.^^ The question in such cases is as to the ostensible authority with which the president has been invested, not as to the authority actually conferred upon him. In most cases the question as to whether the presideht has been clothed with authority to perform the act upon which the claims or corporate liability is based is one of fact. Where the persons dealing with the president has notice that the president is acting for himself, or knows that the business he is engaged in is not corporate business, the cor- poration is not bound.^^ § 289. President — ^Ratification of unauthorized acts. — The acts of the president, like those of any other agent, although beyond the scope of his authority, may, of course, be ratified by the corporation.^^ There is, it is barely necessary to suggest, no doubt as to the general rule that unauthorized acts may be ratified, but it is not always easy to say what Co. T. Anglo Californlan Bank, 104 U. S. 194; Martin v. "Webb, 110 U. S. 7, 3 Sup. Ct. 428; Western, &c. Co. V. Bayne, 11 Hun (N. Y.) 166. ^The rule upon this subject is substantially the same whether the agent of the corporation be the pres- ident or some other agent. Manhat- tan, &c. Co. V. Forty-second, &c. R. Co. 139 N. Y. 146, 34 N. B. 776; Bank of Batavia v. New York, &c. R. Co. 106 N. Y. 195, 12 N. B. 433, 60 Am. R. 440; Fifth Ave. Bank t. Forty- second, &c. R. Co. 137 N. Y. 231, 33 N. E. 378, 19 L. R. A. 331, 33 Am. St. 712. ^^ Stone V. Hayes, 3 Denio (N. Y.) 575; Bentley v. Columbia, &c. Co. 17 N. Y. 421; Claflin v. Farmers', &c. Bank, 25 N. Y. 293; Wilson v. Met- ropolitan, &c. R. Co. 120 N. Y. 145, 24 N. B. 384, 17 Am. St. 625; Moores V. Citizens' Nat. Bank, 111 U. S. 156, 4 Sup. Ct. 345; Farrington v. South Boston R. Co. 150 Mass. 406, 2i N. B. 109, 5 L. R. A. 849,. 15 Am. St. 222; Manhattan, &c. Co. v. Forty- second, &c. R. Co. 139 N. Y. 146, 151, 34 N. B. 776. ^ Olcott V. Tioga R. Co. 27 N. Y. 546, 84 Am. Dec. 298; Pixley v. Western Pao. R. Co. 33 Cal. 183, 91 Am. Dec. 623; Pittsburgh, &c. R. Co. T. Woolley, 12 Bush (Ky.) 451; Southgate v. Atlantic, &c. R. Co. 61 Mo. 89. When the president of a corporation executes, in its behalf and within the scope of its charter, a contract which requires the con- currence of the board of directors, and the board, having full knowl- edge of his act, does not dissent within a reasonable time, it will be presumed to have ratified the con- tract. Pittsburgh, &c. Co. v. Keo- kuk, &c. Co. 131 U. S. 371, 9 Sup. Ct. 770. 415 PKESIDENT DEALINGS WITH COKPOKATION. ' [§ 290 will be deemed a ratification.^* Acts clearly and entirely beyond the corporate power cannot be ratified. § 290. President — ^Dealings with corporation. — Essentially the same rules apply to transactions by the president with the corporation as those which govern transactions between the corporation and the directors. The president acts in a fiduciary capacity, and is bound to exercise the utmost good faith in dealing with the corporation. He may deal with it, but his course must be open, honest and fair or else the courts will set the transaction aside or hold him responsible in damages at the suit of one having a right to invoke judicial assist- ance.^° § 291. President — ^Relation to shareholders. — In our judgment the president is a trustee for the shareholders, although he may not be a trustee in the full sense of the term.^^ He unquestionably occupies fiduciary relations to the stockholders of the corporation. While the cases generally concede that a fiduciary relation exists between him and the shareholders, yet they discriminate between the relationship and that of one who is in the strict sense a trustee.^^ It has been held that ^ Jourdan^v. Long Island, &o. R. Smith v. Hurd, 53 Mass. 371, 46 Am. Co.- 115 N. Y. 380, 22 N. E. 153; Dec. 690; Carpenter v. Danforth, 52 Gutta Percha, &c. Co. v. Village of Barb. (N. Y.) 581. See, generally, Ogalla, 40 Neb. 775, 59 N. W. 513, Johnson v. Laflin, 5 Dill. (U. S.) 42 Am. St. 696; Alabama, &c. Co. v. 65; Deaderick v. Wilson, 8 Baxt. South, &c. R. Co. 84 Ala. 570, 3 So. (Tenn.) 108; Gilbert's Case, L. R. 286, 5 Am. St. 401; Dorenbecker v. 5 Ch. App. 559; Heman v. Britten, Columbia C. L. Co. 21 Oreg. 573, 28 14 Mo. App. 121; Crowell v. Jack- Pae. 899, 28 Am. St. 766; Currie v. son, 53 N. J. L. 656, 23 Atl. 426; Bowman, 25 Oreg. 364, 35 Pac. 848; Perry v. Pearson, 135 111. 218, 25 N. Taylor v. Albemarle, &c. Co. 105 N. E. 636; Scott v. De Pyster, 1 Edw. C. 484, 10 S. E. 897; Chateau v. Al- Ch. 513. Several of the cases cited len, 70 Mo. 290. hold that the president may buy '^ Ante, § 276 ; Baker v. Harpster, stock of the shareholder, and if he 42 Kans. 511, 22 Pac. 415; Bensiek does not. actually mislead the per- V. Thomas, 66 Fed. 104; Krohn v. son with whom he deals the sale Williamson, 62 Fed. 869; Bristol v. will be valid. If, however, there is Scranton, 63 Fed. 218; Bristol v. a positive misrepresentation the Scranton, 57 Fed. 70, and cases transaction will be voidable. Fish cited. V. Budlong, 10 R. I. 525 ; Prewett v. =° Board v. Reynolds, 44 Ind. 509, Trimble, 92 Ky. 176, 17 S. W. 356, 15 Am. R. 245. 36 Am. St. 586. "Allen V. Curtis, 26 Conn. 456; § 393] EXECUTIVE ABTD MINISTEEIAL OFFICERS AND AGENTS. 416 as the powers of the president are so limited the same person may fill the office of president of two distinct corporations, and such identity does not of itself invalidate dealings between the two corporations/* but we suppose that this doctrine is to be taken with pome qualification, for no officer can rightfully accept a position that requires of him acts .adverse to the corporation he represents. § 292. Treasurer — Generally. — The treasurer of a railway com- pany is, as a rule, the officer who has custody of its funds, upon whom vrarrants are drawn, and by whom corporate funds are disbursed. The authority of the treasurer is generally prescribed by the charter or de- fined by the corporate by-laws. He necessarily possesses some incidental authority, but it is narrow in its scope. He has no general implied power to purchase property for the company, nor has he implied power to sell corporate property, neither has he implied power to borrow money on the credit of the corporation.^' The corporation may enlarge the authority of the treasurer, and usage may so extend the scope of his authority as to carry it beyond that which is inherent in the office itself. By continued usage the powers of the treasurer may be enlarged, .and he may bind the corporation by acts performed within the scope of the agency created or sanctioned by usage. ^'' It has been held that drafts accepted by the treasurer are presumed to be properly ae- cepted.^"- The treasurer, unless specially authorized, or unless author- ized by usage, cannot bind a railway corporation by the acceptance of accommodation drafts. As we have said, the treasurer has no general authority to borrow money for the company, and it is held that even though he borrows money, which is used for the purposes of the cor- poration, the lender cannot recover it from the corporation, where it appears that it was used instead of other money which the treasurer had embezzled, and that the primary object in borrowing it was to con- ceal his default.'^ There is, it is "obvious, an essential difference be- =^ Leathers v. Janney, 41 La. Ann. 34; Page v. Fall River, &c. R. Co. 1120, 6 So. 884, 6 L. R. A. 661. 31 Fed. 257; Merchants' Bank v. " Craft V. South Boston, &c. Co. State Bank, 10 Wall. (U. S.) 604. 150 Mass. 207, 22 N. E. 920, 5 L. R. « Credit Co. v. Howe, &c. Co. 54 A. 641; Chemical National Bank v. Conn. 357, 8 Atl. 472, 1 Am. St. 123. Wagner, 93 Ky. 525, 20 S. W. 535, But we suppose that this presump- 40 Am. St. 206. See, also, Taylor tion is at most a rehuttable one. V. Taylor, 74 Me. 582; Stevens v. ''Craft v. South Boston R. Co. 150 Carp River, &c. Co. 57 Mich. 427, 24 Mass. 207, 22 N. E. 920, 5 L R A N. W. 160. 641. "Lester v. Webb, 1 Allen (Mass.) 417 TKEASUEER — ^DUTIES LIABILITIES. [§' 393 tween the authority of the treasurer of a trading corporation in the habit of borrowing money for corporate use and the treasurer of a rail- road company, and the authority of the treasurer of a trading corpora- tion in this respect is broader and less limited than that of a railroad company. ^^ The treasurer of a corporation has no power as such to confess judgment for it,^* nor, as a rule, can he conduct litigation for the corporation. It is held, however, that he has authority to compro- mise a disputed claim which he is authorized to collect.'' While the general rule is that the treasurer, by virtue of his office, has no author- ity to conduct litigation for the corporation, yet such authority may be implied in particular instances ; thus, if a promissory note is placed in his hands for collection, he may cause suit to be brought upon it.'* Unless the authority to execute accommodation paper is specially conferred upon the treasurer or is vested in him by usage, he cannot bind the corporation by the execution of such paper.'^ General au- thority to act for the corporation may, if not forbidden by the charter, be conferred on the treasurer, and where such authority is conferred his acts within its scope will bind the corporation.'* § 293. Treasurer — Duties — ^Liabilities. — The treasurer, it is obvi- ous, occupies a fiduciary relation toward the corporation, and is pro- hibited from making use of his position to further his own intei^ests. He cannot rightfully do any act adverse to the interests of the com- pany. The rule stated is applied with much strictness by some of the courts. Thus, it is held that he has no authority to pay himself a claim he holds against it, unless the claim has been approved and its payment authorized by the corporation.'* The authorities recognize his right to deal with the corporation, but they require that in all his dealings with the corporation he shall exercise the utmost good faith. «' Craft v. South Boston R. Go. 150 " Usher v. Raymond Skate Co. 163 Mass. 207, 22 N. B. 920, 5 L. R. A. Mass. 1, 39 N. E. 416. 641. See Merchants', &c. Bank v. ''Parmelee v. Associated, &c. 11 Citizens', &c. Co. 159 Mass. 505, 34 Misc. 363, 32 N. Y. S. 149. In Hotch- N. E. 1083, 38 Am. St. 453. kiss, &c. Co. v. Union, &c. Bank, 68 ** Stevens v. Carp River, &c. Co. Fed. 76, it is held that notice to the B7 Mich. 427, 24 N. W. 160. treasurer, given while engaged in ^ Gafford v. American, &c. Co. 77 transacting business for the corpo- lowa 736, 42 N. W. 550. ration, is notice to the principal. =" North Brookfield, &c. Bank v. =» Wayne Pike Co. v. Hammons, Flanders, 161 Mass. 335, 37 N. E. 129 Ind. 368, 27 N. E. 487; Aberdeen ■ 307. R. Co. V. Blakie, 1 Macq. 461; Peter- borough R. Co. V. Wood, 61 N. H. Ell. Raelkoads — 27 418. § 294] EXECUTIVE AND MIBTISTERIAL OEEICERS AND AGENTS. 418 §294. Treasurer — Care of corporate funds. — The treasurer is bound to exercise ordinary care, prudence and diligence in protecting and preserving the corporate funds placed in his charge. He is not absolutely responsible for the loss of corporate funds, but will be ex- onerated if it appears that he exercised reasonable care, prudence and diligence,*" and if, without his fault or negligence, they are lost, stolen or destroyed, he cannot be held accountable ;*^ but the loss falls upon his principal. This general rule applies to cases where the money is deposited for the company in a bank which the treasurer has reason to believe is sound, but which subsequently fails. It has been held that where a railroad company was notified by its treasurer of his expected absence, with a request that remittances be made to the firm of which he was a member, and remittances were made accordingly to the firm, and reports to- stockholders made that funds were in the hands of such firm as "financial agents," the act of the treasurer in selecting the place of deposit was ratified, and he was absolved from liability in that regard ;*^ but we suppose that in such a case it devolves upon the treas- urer to show that he acted with reasonable prudence and in good faith, § 295. Secretary. — The secretary of a railroad company has by virtue of his ofSce very limited powers indeed, so far as concerns the conduct of the active business of the corporation. In the matter of making contracts he has, perhaps, some implied or incidental author- ity, but it is very narrowly circumscribed. He certainly has no gen- eral authority to make contracts for the company,*' but contracts made by him may be so ratified as to bind the company.** He has no authority to bind the corporation by executing evidences of indebted- ness ;*° nor, indeed, by any ordinary business contracts. He niay, of course, be invested by the board of directors, with power to contract,' 4S *New York, &c. R. Co. v. Dixon, App. DIv. (N. Y.) 522, 73 N. Y. S. 114 N. Y. 80, 21 N. E. 110; Mowbray 313. V. Antrim, 123 Ind. 24, 23 N. E. 858. *> Holden v. Phelps, 141 Mass. 456, " Mowbray v. Antrim, 123 Ind. 24, 5 N. K 815. See, also, Jewett v. 28, 23 N. B. 858; Wayne Pike Co. V. "West Somerville, &c. Bank, 173 Hammons, 129 Ind. 368, 379, 27 N. Mass. 54, 52 N. E. 1085, 73 Am. St. E. 487. 259; Gregory v. Lamb, 16 Neb. 205, "''New York, &c. R. Co. v. Dixon, 20 N. W. 248. It was held In Mo- 114 N. Y. 80, 21 N. E. 110. shannon, &c. Co. v. Sloan, 109 Pa. St. «Blanding v. Davenport, &c. Co. 532, 7 Atl. 102, that the secretary 88 Iowa 225, 55 N. W. 81. has no authority to release a debtor. " Nebraska, &c. Co. v. Bell, 58 Fed. "» JefCerson v. Hewitt, 103 Cal. 624, 326. See, also, Hess v. Sloane, 66 37 Pac. 638. See, generally, Mer- 419 MANAGING AGENTS. [§ 29G but in such a case the source of his power is the action of the boaid and not the office of secretary. Where the secretary has power to bind the company and he acts within the scope of his power, the same gen- eral rules as to the effect of admissions and declarations apply that prcTail in other eases of agency.*' § 296. Managing agents. — There is a class of agents called "gen- eral managers," "superintendents," or the like, whose powers and au- thority are very broad and comprehensive. They are not in strict- ness corporate officers except where made so by the charter or by-laws ; but their powers are really more extensive in many respects than those of some of the chief officers of the corporation. A general manager or superintendent cannot, of course, exercise the powers or functions devolved upon the directors or other officers of the corporation,*' but in conducting the actual business of the corporation he exercises very broad and comprehensive authority. The name or designation be- stowed upon a managing agent does not necessarily determine the scope of his authority, but, within limits, indicates in a general way the nature of his authority. As we have elsewhere said the scope of his authority is ordinarily a question of fact to be determined from the evidence in the particular case.*' We think, however, that where a railroad company holds out an agent as general manager or superin- tendent, the courts may take judicial notice of the general scope of his authority, but that the precise nature of his authority must, as a general rule, be determined from the facts and circumstances of the case in which the question arises.^" chants', &c. Bank v. Hervey, &c. Co. could make the appellant a common 45 La. Ann. 1214, 14 So. 139; Ne- carrier for hire and the appellee a braska, &c. Co. v. Bell, 58 Fed. 326, passenger." 7 C. C. A. 253; Moore v. H. Gaus, "Ante, § 211. Gamacho v. Hamil- &c. Co. 113 Mo. 98, 20 S. W. 975; ton Co. 73 N. Y. St. 457, 37 N. Y. S. Famous Shoe, &c. Co. v. Eagle, &c. 725. Works, 51 Mo. App. 66. " See, generally, Trephagen v. "Kraniger v. People's &c. Assn. South Omaha, 69 Neb. 577, 96 N. W. 60 Minn. 94, 61 N. "W. 904. 248; Ceeder v. Loud, &c. Co. 86 *'In the case of Evansville, &c. Mich. 541, 49 N. W. 575, 24 Am. St. Co. v. Barnes, 137 Ind. 306, 36 N. B. 134; Green Co. v. Blodgett, 55 111. 1092, the court held that a super- App. 556, 159 111. 169, 42 N. E. 176, intendent of construction had no 50 Am. St. 146; St. Louis, &c. R. authority to open the road for the Co. v. Grove, 39 Kans. 731, 18 Pac. carriage of passengers, saying, "The 958; Langan v. Great Western R. board of directors and the estab- Co. 30 L. T. (N. S.) 173. lished rules of the company alone § 297] EXECUTIVE AND MINISTEEIAL OFFICERS AND AGENTS. 430 § 297. Superintendent. — The actual authority of a superintendent or general manager of a railroad or one of its divisions depends in a great degree upon the provisions of the charter and by-laws and the resolutions passed by the board of directors relative to such employ- ment. As between the company and persons having knowledge of the terms of his employment, he will, as a general rule, be held to have only such powers as have been thereby expressly or impliedly con- ferred upon him."'^ But as to persons having no notice of his actual authority the rule is otherwise, for as to such persons he will be deemed to have the authority evidenced by the indicia of authority with which the corporation has invested him.^^ Where the duties of the office have not been defined, but the superintendent is simply given general authority to manage the business of the corporation, he will ordinarily be held to have such powers as appertain to the office by usage of the company by which he is employed,''^ and other companies of a similar character.^* But it is essential in order to make the corporation liable for the acts of a general superintendent ■ or general manager that the acts be performed in transacting the business of the corporation.^^ The superintendent. of a railroad com- pany, clothed with general power and authority in regard to the management of trains, is held to be the immediate representative and executive ofiBcer of the corporation, and his negligent and improper order, which causes an injury, renders the company liable as much as if it had emanated directly from the directors themselves in their "^ A director of a corporation, con- Y. S. 44; Merrill v. Hurley, 6 S. tracting with another director of the Dak. 592, 62 N. W. 958, 55 Am. St. corporation concerning the corpo- 859. rate property, who is also business °^ Olcott v. Tioga, &c. R. Co. 27 N. manager with enumerated and lim- Y. 546, 84 Am. Dec. 298. See, gen- ited powers, is chargeable with no- erally, Ecker v. Chicago, &c. Co. 8 tice of any defect in the manager's Mo. App. 223, 1 Am. & Bng. R. Cas. authority to make said contract. 357; Madison, &c. Co. v. Norwich, Schetter v. Southern Oregon Co. 19 &c. Society, 24 Ind. 457; Mayall v. Oreg. 192, 24 Pac. 25. See, general- Boston, &c. Co. 19 N. H. 122, 49 Am. ly, Walrath v. Champion, &c. Co. 63 Dec. 149; Sarimento y. Davis, &c. Fed. 552; Smith v. Co-operative, &c. Co. 105 Mich. 300, 63 N. W. 205, 55 Ass'n, 12 Daly (N. Y.) 304. Am. St. 446; Matson v. Alley, 141 ""We have considered in another 111. 284, 31 N. E. 419. connection the authority of manag- "Louisville, &c. R. Co. v. McVay, Ing agents, such as superintendents 98 Ind. 391, 398, 49 Am. R. 770. and the like. Ante, § 222. See, gen- " Cosh Murray Co. v. Adair, 9 erally. Railway, &c. Co. v. Lincoln, Wash. 686, 38 Pac. 749. &c. Bank, 82 Hun (N. Y.) 8, 31 N. 421 SUPERINTENDENT.. [§' 397 ofiBeial capacity." ° In his dealings with third persons a superintend- ent, like any other agent, will be held to have power to bind the cor- poration within the limits of his apparent authority. And it is held that a general manager should be presumed to have the general control and direction of all matters connected with the operation of the railroad which the tprm indicates until the contrary is shown.^^ Ac- cordingly, a railroad company is, it has been held, liable for the serv- ices of an attorney retained by its general manager to attend to its legal business, unless the attorney knew or might have known by using ' ordinary diligence that the manager had no authority to employ him."* It was held in another case that a railroad superintendent may bind the company by issuing a circular offering a general, standing reward for the arrest of train wreckers, although no special authority to do so has been granted him by the directors."^ A railroad com- pany has power, for the protection of its property,"" to offer a general, standing reward for the arrest of train wreckers, and it may well be held that a superintendent invested with the general authority per- taining to that position may bind the company by offering a reward for the detection of persons who injure or destroy the property of the company.*^ In one case the court presumed that the general superintendent had authority to contract for fencing the company's road;^^ in another, that he acted by the company's authority in deny- ing an owner the right to remove his property from the company's premises f^ in another it was held that he has authority to withdraw a notice to terminate a lease of the company's property;"* and in another case it was held that he may bind the company by his deelara- ™ Washburn v. Nashville, &c. R. 39 Kans. 731, 18 Pac. 958. See, also, Co. 40 Tenn. 638, 75 Am. Dec. 784. Ceeder v. Loud, &c. Co. 86 Mich. " Sacalaris v. Eureka, &c. R. Co. 541, 49 N. W. 575, 24 Am. St. 134. 18 Nev. 155, 1 Pac. 835, 51 Am. R. ™ Central R. & Bkg. Co. v. Cheat- 737; Louisville, &c. R. Co. v. McVay, ham, 85 Ala. 292, 4 So. 828, 7 Am. 98 Ind. 391, 399, 49 Am. R. 770; Sax St. 48. V. Detroit, &c. R. Co. 125 Mich. 252, ' " Ricord v. Central Pacific R. Co. 84 N. W. 314, 315, 84 Am. St. 572, 15 Nev. 167; American Express Co. citing text. A promissory note, in- v. Patterson, 73 Ind. 430. dorsed by a manager, must have "'Toledo, &c. Co. v. Rodrigues, 47 been previously authorized or sub- 111. 188, 95 Am. Dec. 484. sequently ratified as evinced by gen- °^ New Albany, £c. R. Co. v. Has- eral course of business or resolu- kell, 11 Ind. 301. tion in order to render a business «= Giles v. TafC Vale R. Co. 2 E. & corporation liable upon it. Hunt- B. 822. ington v. Attrill, 118 N. Y. 365. " Patrick v. Richmond, &c. R. Co. ^ St. Louis, &c. R. Co. V. Grove, 93 N. C. 422. § 398] EXBOUTIVE AND MINISTERIAL OFFICERS AND AGENTS. 423 tions relative to the purchase of fuel for the use of its locomotives.'^^ We think the ruling in the case last cited is correct, because such a contract is one made in the course of the ordinary business of the company; but the authority to m&ke such contracts may be specially conferred upon some other officer or agent, and in that event it could not be rightfully exercised by the superintendent. The decisions gen- erally go upon the principle that the corporation cannot deny the general authority of one whom it holds out as a general agent. But a superintendent's or manager's authority usually extends only to the management of the ordinary business of the corporation, and it is accordingly held that a sale of the property of a railroad corporation by the superintendent, unauthorized by the directors, passes no title.'* Necessarily the question as to whether the superintendent is held out as possessing the authority asserted must be a question of fact in most instances, so that no general rule can be laid down as to the extent of his authority ; but it may be safely said that he has no im- plied authority to make unusual or extraordinary contracts. §298. Superintendent — General conclusion. — Decisions as to the authority of such oflfieers, as managers and superintendents, depend so much upon the circumstances of the particular cases and there is such a wide range in the duties which the superintendents of different roads are required to perform, and in the powers which they are per- mitted to exercise, that no definite rule as to the precise extent of their authority can be safely stated. It is safe to say, however, that the authority of such an officer will be extended by implication to cover a very broad field where it is necessary to protect the interests of innocent parties dealing with him-, but not in favor of persons having knowledge of the real extent of his powers and duties. The courts cannot, of course, invest him with authority, but they can adjudge what, under the facts of the particular ease, is the authority ■conferred upon him by the company. The nature of the business of conducting and managing a railroad is a matter of which the courts take judicial notice in a general way, and if they do take judicial no- tice of such a ibatter they must of necessity take notice that some general ministerial agent is required who can actively supervise and manage the ordinary details of the operation of the road.''' We do ""Sacalaris v. Eureka, &c. R. Co. 62 N. H. 502. See, also. Stow v. 18 Nev. 155, 1 Pac. 835, 51 Am. R. Wyse, 7 Conn. 214, 18 Am. Dec. 99. 737. ""Courts take judicial notice of ™ Bowen v. Mt. Washington R. Co. . the hazardous nature of the busi- 423 INTERMEDIATE AGENTS. [§ 299 not, however, mean to be understood as saying that eoiirts will take judicial notice of the scope of the superintendent's authority in a particular case or where it is asserted to embrace a subject not clearly within the general scope of the authority of that class of agents. § 299. Intermediate agents. — In order to perform its duty to the public and properly conduct its corporate affairs it is necessary that a railroad company should have general implied power to appoint intermediate agents, and the courts recognize the existence of this power and hold railroad companies responsible for the acts of such agents when performed within the scope of their authority or within the line of their duty. It is only, however to a very limited extent that the courts can Judicially know the nature of the authority of such subordinate agents. In most cases the nature and extent of their authority is to be determined as a question of fact from the evidence in the particular case, but, as we believe, the courts may in some cases take judicial notice of the general and ordinary authority of subordi- nate agents. We have elsewhere referred to eases showing the nature of the authority of subordinate agents."* § 300. Intermediate agents — ^Agent for one purpose not for an- other. — It may happen that a person may be a corporate agent for one purpose and yet not for another. Thus, a foreman may be an agent for the purpose of hiring and discharging section men, but as to work on the track be a mere servant.*^ It. is obvious that the person assum- ness of operating railway trains, R. 737; Sax v. Detroit, &c. R. Co. and of the authority of a superin- 125 Mich. 252, 84 N. W. 314, 84 Am. tendent in relation to such matters. St. 572; 1 Elliott Ev. § 72. Union Pac. R. Co. v. Wlnterboth- «=Ante, §§ 220, 221, 222. am, 52 Kans. 433, 34 Pac. 1052, ™ Justice v. Pennsylvania Co. 130 59 Am. & Eng. R. Cas. 75, citing Ind. 321, 30 N. E. 303. We do not. Union Pac. Co. v. Beatty, 35 Kans. at this place, enter upon a consid- 265, 10 Pac. 845, 57 Am. R. 160, 26 eration of the vexed question of Am. & Eng. R. Cas. 84; Pacific Rail- whether the authority to hire and road Co. v. Thomas, 19 Kans. 256; discharge, constitutes the person Railroad Co. v. Beecher, 24 Kans. clothed with that authority an 228; Cincinnati, &c. Railroad Co. v. agent for all purposes connected Davis, 126 Ind. 99, 25 N. E. 878, 9 L. with his line of service under his R. A. 503, 44 Am. & Eng. R. Cas. contract of employment, but else- 459. See, also, Louisville, &c. R. where consider that question. See Co. V. McVay, 98 Ind. 391, 49 Am. Mealman v. Union Pac. R. Co. 37 R. 770; Sacalaris v. Eureka, &c. R. Fed. 189, 2 L. R. A. 192, and notes. Co. 18 Nev. 155, 1 Pac. 835, 51 Am. § 301] EXECUTIVE AND MINISTERIAL OFEICEKS AND AGENTS. 434 ing to act as an agent is only an agent when performing the duties of an agent, and in performing other duties is a servant or employe, although he may be acting in all he does under a contract of employ- ment. The acts of a servant or employe are in many respects essen- tially different from those of an agent, and this difference, as we shall hereafter show, leads to important results. § 301. Intermediate agents and servants distinguished. — The ad- judged cases distinguish between subordinate agents and servants, and the distinction often becomes one of importance. It is very difficult, indeed it is impossible, in the present state of the authorities, to accu- rately discriminate between agents and servants. It is, perhaps, safe to say that when a duty personal to the master is intrusted to an em- ploye, the employe is as to that duty an agent, although as to other duties he may be a servant ; if, however, the duty is not one personal to the employer the relationship between employer and employe is ordinarily not that of principal and agent, but is that of master and servant. The employer may, of course, by custom and usage, confer authority upon a servant beyond that appertaining to such relation, but ordinarily a servant has no authority to make contracts for the master. §■ 302. Conductors. — The authority of the conductor ordinarily ex- tends to the control of the movements of his train, and to the imme- diate direction of the movements of the employes engaged in operating the train, and he is, to a great extent, the representative of the com- pany in such dealings as it may be necessary for the passengers to have with it while en route. Consequently the company is liable to passengers, and, in some cases, to third persons if he fails to take proper precautions to guard against injury from any defects in cars, engines, or equipments, which are discoverable,'" or permits employes to move the cars in such a manner as to cause an injury;''^ or is guilty of any improper or unfair conduct toward the passengers in his charge.'^ It is responsible for his acts done in the line of his em- '» Mad River, &c. R. Co. v. Barber, " Rauch v. Lloyd, 31 Pa. St. 358, 5 Ohio St. 541, 67 Am. Dec. 312. 72 Am. Dec. 747. Ordinarily the conductor is, accord- "As where he exacts illegal fare, ing to the weight of authority, a fel- Porter v. New York Central R. Co. low servant of other employes en- 34 Barb. (N. Y.) 353. Or assaults gaged in the management and op- a passenger, Ramsden v. Boston, &c. eration of trains. R. Co. 104 Mass. 117, 6 Am. R. 200; 435 CONDUCTORS. [§' 303 ployment, although they were done wilfuUy^^ and in direct opposition to the instructions and orders of his employers.'* His authority does not, ordinarily, extend to making contracts on behalf of the company, but there may be cases of urgent emergency where he may make a contract for the company. He is to administer the rules of the com- pany rather than make contracts for it. It has been held that, acting under a general authority, he may, in his discretion, relax or apply these rules within reasonable bounds, according to circumstances,'* but this doctrine, as it seems to us, is one to be cautiously applied and kept within strict limits, for there is certainly no general author- ity to alter or suspend the established rules and regulations of the company. The establishment or alteration of rules and regulations is not, ordinarily, within the authority of a conductor, sinc^ it is his duty to obey and carry into effect the rules and regulations of the company. As we have said, the conductor ha!fe no general authority to make contracts on behalf of the company, but he may in rare cases of necessity, when circumstances demand it, bind the company by such contracts as axe clearly necessary to enable him to carry out his prescribed duties.'" In order that contracts made by him shall be ob- ligatory upon the company they must be made to enable him to per- form the duties required of him and must not relate to collateral mat- ters nor be outside of the line of the duty assigned him. Thus, he may, where other provision has not been made, employ mechanics to repair a break of the cars or machinery which must be repaired before the train can proceed to its destination, and may engage men and teams to render the roadway or bridges secure for the passage of his train, Craker v. Chicago, &c. R. Co. 36 Wis. 259, 52 Am. St. 579; New York, &c. 657, 17 Am. R. 504; JefCersonville, R. Co. v. Winter's Adm'r, 143 U. S. &c. R. Co. V. Rogers, 38 Ind. 116, 10 60, 70, 12 Sup. Ct 356. Am. R. 103. ™Terre Haute, &c. R. Co. v. Mc- " JefEersonville R. Co. v. Rogers, Murray, 98 Ind. 358, 49 Am. R. 752; 38 Ind. 116, 10 Am. R. 103; Craker Goff v. Toledo, &c. Co. 28 III. App. V. Chicago, &c. R. Co. 36 Wis. 657, 529. In Wright v. Glens Falls, &c. 17 Am. R. 504. R. Co. 24 App. Div. (N. Y.) 617, 48 " Porter v. New York Central R. N. Y. S. 1026, it is held that a street Co. 34 Barb. (N. Y.) 353. car conductor may bind the com- " O'Donnell v. Allegheny Valley R. pany by his statement of the rate of Co. 59 Pa. St. 239, 98 Am. Dec. 336. fare made by a prospective passen- See, also, on the general subject, ger before taking passage so as to Carroll v. New York, &c. R. Co. 1 entitle the passenger to recover Duer (N. Y.) 571; Vedder v. Fel- when ejected for not paying a lows, 20 N. Y. 126; Thompson v. higher rate. See post, §§ 1594, 1637. Truesdale, 61 Minn. 129, 63 N. W. § 303] BXECUTIVB AND MINISTERIAL OEFIOEKS AND AGENTS. 426 when weakened or partially swept away by unforeseen causes ; but in such cases the authority to contract does not exist unless there is an urgent necessity for immediate action. It is the necessity which con- fers authority, not simply the position of conductor.''' Doubtless he may, in case of the sudden death or disability of the engineer, eiigage a competent engineer to take the train to a point where another engi- neer in the employ of the company can be obtained, if such employ- ment be an urgent necessity and required to avoid disaster or serious injury to the company. It has been held that the conductor has author- ity, when the regular brakeman is sick or absent, and the proper and safe management of the train so requires, to supply the place of the sick or absent brakeman, and render the substitute so employed an employe of the company for the time being,'* but we suppose this doc- trine can only apply in very rare eases, for, as a general rule, a con- ductor has no authority to employ agents or servants for the com- pany. The authority of the conductor to enter into contracts for the company is created by the necessity for the exercise of such authority, and as soon as the emergency is past the authority usually termi- nates.'* In one of the decided cases it seems to be held that a con- ductor may bind the company by a contract to carry a passenger to a particular place on the line of the road,^" and if the case is to be un- derstood as so deciding we think it must be regarded as unsound ; if, however, it is to be regarded as deciding that the place was one at " Terre Haute, &c. R. Co. v. Mc- ploy a brakeman exists only in cases Murray, 98 Ind. 358, 49 Am. R. 752. of urgent necessity, for the author- See ante, § 221a. ity to employ agents or servants is ™ Sloan V. Central Iowa R. Co. 62 no part of a conductor's general au- lowa 728, 16 N. W. 331; Georgia thority. If there is no emergency Pacific R. Co. V. Propst, 83 Ala. 518, there is no authority to employ 3 So. 764, 85 Ala. 203, 4 So. 711, 90 servants, and it is only in'very rare Ala. 1, 7 So. 635. On the second and exceedingly clear cases that appeal of this case it was held that such authority can exist. Church v. evidence that the plaintiff, a night Chicago, &c. Co. 50 Minn. 218, 52 watchman, was riding to his home N. W. 647; Jewell v. Grand Trunk on the train, when, one of the brake- Railway, 55 N. H. 84. men being sick, the conductor asked " Louisville, &c. R. Co. v. Smith, plaintiff to make a coupling for him, 121 Ind. 353, 22 N. E. 775, 6 L. R. did not show such a necessity as A. 320, and authorities cited. Ante, conferred upon the conductor an au- § 222, note 99. thority to employ the brakeman, nor «° Hull v. East Line, &c. R. Co. 66 did it show any employment at all, Tex. 619, 28 Am. & Eng. R. Cas. 221. either with or without authority. But see Ohio, &c. R. Co. v. Hatton, We suppose that the right to em- 60 Ind. 12. 427 STATION" AGENTS. [§ 303 ■whieli the conductor was authorized to stop the train if he so elected, then ve think that the decision correctly declares the law. In our judgment a conductor has no authority to stop trains at places not provided for by the rules or time schedules of the company, unless a discretion as to stopping is vested in him. The safety of the public, as well as the interests of the railroad company, requires that stops should be made only at places authorized by the company. The con- ductor has no general authority to designate the places where the trains shall stop, and he cannot bind the company by a contract to stop at a certain place unless he is authorized to stop at that place by the rules, regulations or custom of the company. We have at this place merely outlined the authority and duties of a conductor as we have treated of his duties and powers with regard to passengers in the dis- cussion of the subject of the duties and liabilities of a railroad com- pany as a carrier of passengers.*^ § 303. Station agents. — It is held that the courts cannot take ju- dicial notice of the powers of a station agent,*^ but we suppose they may in a very general way take notice of the authority of such an agent. They certainly do take notice that he has no authority to change the rules of the company as to the places where trains shall stop to discharge passengers.*^ Proof of his general authority to make contracts for the shipment of freight over the line of a railroad is sufficient evidence from which to infer his authority to contract with reference to all the necessary and ordinary details of the business.** ^ Judicial notice has been taken 149 ; Illinois, &c. Co. v. Jonte, 13 111. in a general way as to the ordinary App. 424; Brown v. Louisville, &c. authority of a conductor. Condran Co. 36 111. App. 140; Merchants', &c. V. Chicago, &c. R. Co. 67 Fed. 522, Co. v. Joesting, 89 111. 152; London, 523; 1 Elliott Ev. § 72. &c. R. Co. v. Bartlett, 7 H. & N. 400; "'Wood V. Chicago, &c. R. Co. 59 Lewis v. Great Western, &c. Co. 5 Iowa 196, 13 N. W. 99. But see H. & N. 867; Squire v. New York, Brown v. Minneapolis, &c. R. Co. 31 &c. Co. 98 Mass. 239; Congar v. Ga- Minn. 553, 18 N. W. 834. lena, &c. R. Co. 17 Wis. 477. It is >» White V. Bvansville, &c. R. Co. held in Marsh v. Chicago, &c. Co. 79 133 Ind. 480, 33 N. B. 273. Iowa 332, 44 N. W. 562, that an " Blodgett' r. Abbot, 72 Wis. 516, agent having authority to make spe- 40 N. W. 491, 7 Am. St. 873; Wood cial rates may agree to give a re- V. Chicago, &c. R. Co. 68 Iowa 491, bate. It is held in the Province of 27 N. W. 473, 56 Am. R. 861. See, Ontario that a station agent is an generally, Mayall v. Boston, &c. "officer" within the meaning of a Railroad, 19 N. H. 122, 49 Am. Dec. statute providing that "any of the § 303] 'EXECUTIVE AND MINISTERIAL OFFICBES AND AGENTS. 438 His admissions and declarations, made within the scope of his author- ity, are, of course, binding upon the company, like those of any other agent ; but it is held to be error in an action for a penalty for delay in shipping local freight to admit the declarations of a station agent whose agency is unconnected with the through freight business, to the effect that the company during a certain season used most of its ears in transporting through freight.*^ His general authority being es- tablished, it has been held that he will be held to possess authority to bind the company by a contract to furnish cars by a certain day,**' or to carry the freight to its destination and deliver it within any rea- sonable time agreed upon*^ or to deliver goods at an unusual place- upon its own line.** But in the absence of a custom authorizing it, an undertaking by a station agent at the request of the consignee after a car has reached its destination to deliver it at another place or to another person has been held to be nothing more than a personal accommodation on the part of the agent, not rendering the company liable. *° Where he is given charge of the depot building and station grounds it has been held that he may make reasonable rules for the regulation of persons having business to transact with the company,, and may exclude persons who refuse to conform to such regulations,, and others who come to the station for purposes of their own not connected with the company's business.'" And station agents will, in officers" of a body corporate may be 823. Provided the shipper has no examined touching the matters in actual knowledge of a defect in the question in an action, at least where agent's authority which prevents- the action is based upon a contract him from making such a contract executed by such station agent on that shall bind the company. Har- behalf of the company. Ramsay v. rison v. Missouri Pac. R. Co. 74 Mo. Midland R. Co. (Ont.) 16 Am. & 364, 41 Am. R. 318. Eng. R. Cas. 594. ^'Deming v. Grand Trunk R. Co. «> Branch v. Wilmington, &c. R. 48 N. H. 455, 2 Am. R. 267. See, Co. 88 N. Car. 573. also, Harrell v. Wilmington, &c. R. "Wood V. Chicago, &c. R. Co. 68 Co. 106 N. Car. 258, 11 S. E. 286. Iowa 491, 27 N. W. 473, 56 Am. R. ^Southern Express Co. v. Mc- 861; Easton v. Dudley, 78 Tex. 236, Veigh, 20 Gratt. (Va.) 264; Phillips. 14 S. W. 583. See, also, Stoner v. v. North Carolina R. Co. 78 N. C. Chicago, &c. R. Co. 109 Iowa 551, 80 294; Mann v. Birchard, 40 Vt. 326, N. W. 569; Gulf, &c. R. Co. v. Irvine 94 Am. Dec. 398; Webber v. Great (Tex. Civ. App.), 73 S. W. 540. But Western R. Co. 3 H. & C. 771. not to furnish cars at another sta- =" Melbourne v. Louisville, &c. R. tion. Gulf, &c. R. Co. v. Hodge, 10 Co. 88 Ala. 443, 6 So. 762. Tex. Civ. App. 543, 30 S. W. 829 ; «' Commonwealth v. Power, 7 Met. Voorhees v. Chicago, &c. R. Co. 71 (Mass.) 596, 41 Am. Dec. 465. Iowa 735, 30 N. W. 29, 60 Am. R. 439 STATION AGENTS. [§■ 303 general, be held to have such additional powers as may be conferred upon them, either expressly or by implication from the usual course of business. A station agent may bind his principal within the limits of his apparent authority, even though that authority is restricted by secret instructions, which are unknown to the other contracting party.'^ The court will not, however, presume that the agent had authority to bind the company by contract for carriage beyond its own line,®^ since a common carrier is not required to deliver goods at a point be- yond its line.°^ Where a station agent signed receipts furnished in "Wood V. Chicago, &c. R. Co. 68 Iowa 491, 27 N. "W. 473, 56 Am. R. 861; Pruitt v. Hannibal, &c. R. Co. 62 Mo. 527, where it is held that no- tice of restrictions upon the agent's authority must be conveyed to the public in such a manner as to au- thorize the inference that shippers are apprised of them. See, also, Harrison v. Kansas City, &c. R. Co. 50 Mo. App. 332; Lake Shore, &c. Co. v. Foster, 104 Ind. 293, 4 N. E. 20, 54 Am. R. 319; Brooke v. New York, &c. Co. 108 Pa. St. 529, 1 Atl. 206, 56 Am. R. 235; Johnson v. Cen- tral Vt. R. Co. 56 Vt. 707, 19 Am. & Eng. R. Cas. 169; Southern Express Co. V. Womack, 1 Heisk. (Tenn.) 256. See, also, Newport News, &c. R. Co. V. Mercer, 96 Ky. 475, 29 S. W. 301; International, &c. R. Co. v. True, 28 Tex. Civ. App. 523, 57 S. "W. 977. In Illinois Cent. R. Co. v. Bryant, 70 Miss. 665, 12 So. 592, it is held that where it has been the custom for a station agent to re- ceive notice of the assignment of the wages of employes, notice to such agent is notice to the company. See Memphis, &c. Co. v. Koch, 28 Kans. 565, 9 Am. & Eng. R. Cas. 429. As to when notice to station agent is notice to the company, see Mer- rill v. American, &c. Co. 62 N. H. 514; Wells v. American, &c. Co. 44 Wis. 342; Great Western, &c. Co. v. "Wheeler, 20 Mich. 419. "^Cummins v. Dayton, &c. R. Co. (Ind. Super. Ct., Marion Co.) 9 Am. & Eng. R. Cas. 36; Grover & Baker, &c. Co. V. Missouri Pacific R. Co. 70 Mo. 672, 35 Am. R. 444; Coates v. Chicago, &c. R. Co. 8 S. Dak. 173, 65 N. W. 1067; Hoffman v. Cumberland, &c. R. Co. 85 Md. 391, 37 Atl. 214; Marmonstein v. Pennsylvania R. Co. 68 N. Y. St. 172, 34 N. Y. S. 97. •'Burroughs v. Norwich, &c. Co. 100 Mass. 26; Wait v. Albany, &c. Co. 5 Lans. (N. Y.) 475; Pittsburgh, &c. R. Co. V. Morton, 61 Ind. 539, 574, 28 Am. R. 682; Cobb y. Iowa Central R. Co. 38 Iowa 601; Pied- mont Mfg. Co. V. Columbia, &c. R. Co. 19 S. C. 35^; People v. Chicago, &c. R. Co. 55 111. 95, 8 Am. R. 631; Grover & Baker, &c. Co. v. Missouri Pac. R. Co. 70 Mo. 672, 35 Am. R. 444; Erie R. Co. v. Wilcox, 84 111. 239, 25 Am. R. 451; Oxlade v. North Eastern R. Co. 15 C. B. (N. S.) 680; Grover, &c. Co. v. Missouri Pac. R. Co. 70 Mo. 672, 35 Am. R. 444. See, generally, as to au- thority of agents authorized to make contracts respecting transpor- tation of passengers and goods, Houston, &c. R. Co. v. Hill, 63 Tex. 381, 51 Am. R. 642; Missouri Pac. Co. V. Finley, 38 Kans. 550, 16 Pac. 951; Medbury v. New York, &c. Co. 26 Barb. (N. Y.) 564; Michigan, &c. R. Co. V. Day, 20 111. 375, 71 Am. Dec. 278; Riley v. New York, § 303] EXECUTIVE AND MINISTERIAL OFFICERS AND AGENTS. 430 blank by a shipper, by the terms of which the corporation undertook to forward and deliver the goods to the order of the consignee at points on a connecting line, but it appeared that he acted without special authority and without the knowledge of the corporation in so doing, and that the agent had been furnished with blank forms of receipts by the company, by which it was provided that in case of loss or dam- age of the goods the corporation only should be responsible in whose actual custody the goods should be at the time, the company was held not liable for a loss occurring on a connecting line.** But the author- ity of a station agent to make contracts for the carriage of goods over connecting lines may be shown by evidence that such was the usual course of business,'^ since the company is bound by the acts of its agents which it has permitted for a length of time without objection. There is no doubt of the authority of a railroad company to enter into a valid contract of this character.** A local station agent has no au- &c. R. Co. 34 Hun (N. Y.) 97; Borden v. Richmond, '&c. Co. 113 N. C. 570, 18 S. E. 392, 37 Am. St. 632; Angle v. Mississippi, &c. R. Co. 18 Iowa 555; Mulligan v. North- ern, &c. R. Co. 4 Dak. 315, 29 N. W. 659. °* Burroughs v. Norwich, &c. R. Co. 100 Mass. 26, 1 Am. R. 78. •'Grover & Baker, &c. Co. v. Mis- souri Pac. R. Co. 70 Mo. 672. See, also, Faulkner v. Chicago, &c. R. Co. 99 Mo. App. 421, 73 S. W. 927; Gulf, &c. R. Co. V. Cole, 8 Tex. Civ. App. 635, 28 S. W. 391; Bigelow v. Chi- cago, &o. R. Co. 104 Wis. 109, 88 N. W. 95. Where a local agent of a railroad company was authorized to make a special contract for trans- porting a lot of corn from Illinois to Boston, but had no authority to contract for the return of a part of the freight charged, it was held that the company should not be allowed, after having availed itself of the benefits of the contract, to repudiate an agreement for the return of freight charges which he had Intro- duced into the contract. Toledo, &c. R. Co. V. Elliott, 76 111. 67. Where it is shown that a station agent was in the habit of receiving goods for carriage over connecting lines, and was in possession of the com- pany's stamp to be used upon re- ceipts, which he issued for such goods, and that the company took possession of the goods and caused them to be shipped, with, at least, a presumptive knowledge of the terms of the receipt given, the agent will be presumed to have au- thority to contract for the shipment of goods over a connecting line. Hansen v. Flint, &c. R. Co. 73 Wis. 346, 41 N. W. 529, 9 Am. St. 791. '= Ohio, &c. R. Co. V. McCarthy, 96 U. S. 258; Feltal v. Middlesex R. Co. 109 Mass. 398, 12 Am. R. 720; Mil- nor V. New York, &c. R. Co. 53 N. Y. 363; Morse v. Brainerd, 41 Vt. 550; Nashua Lock Co. v. Worcester, &c. R. Co. 48 N. H. 339; Perkins v. Portland, &c. R. Co. 47 Me. 573, 74 Am. Dec. 507; Wheeler v. San Fran- cisco, &c. R. Co. 31 Cal. 46, 89 Am. Dec. 147; Candee v. Pennsylvania R. Co. 21 Wis. 582, 94 Am. Dec. 566; 431 STATION AGENTS. [§ 303 thority, generally, to contract to furnish cars to shippers at stations other than that at which he is stationed/^ since his authority, real or apparent, extends only to the control of the conipany's business at his own station.'* He has no such authority over the company's trains as will enable him to make a binding contract for the carriage of freight on a passenger train."® It is no part of his duties to assign seats to passengers upon a train, hence it has been held that the com- pany is not bound by directions given by a station agent to a passen- ger to ride in a dangerous place outside the qar.^"" He cannot make a binding contract with the company on his own behalf without giv- ing the company an opportunity to ratify or disaffirm it after being put in possession of the fact of his interest.^"^ So, he cannot bind the company by a contract for the services of an assistant to perform a part of the duties of his office without express authority, since such a contract, by lessening the duties devolving upon him, would indirectly benefit the agent himself.^"^ Upon the same principle, the railroad company cannot be held liable for the failure of its station agent to perform duties which he undertakes in pursuance of his Baltimore, &c. R. Co. v. Brown, 54 Pa. St. 77; Stewart v. Erie, &c. Trans. Co. 17 Minn. 372; Cincinnati R. Co. v. Pontius, 19 Ohio St. 221; Wilby v. West Cornwall R. Co. 2 Hurl. & N. 703. And general freight agents have been held presumed to have this power. Burtis v. BufiEalo, &c. Co. 24 N. Y. 274; Farmers, &c. Co. V. Northern Pac. R. Co. 120 Fed. 873. And see, generally, as to pow- ers such agents may be presumed to have, Fremont, &c. R. Co. v. New York, &c. R. Co. 66 Neb. 159, 92 N. W. 131; St. Louis, &c. R. Co. v. El- gin, &c. Co. 175 111. 557, 51 N. B. 911, 67 Am. St. 238; Missouri, &c. R. Co. V. Wells, 24 Tex. Civ. App. 304, 58 S. W. 842; Baker v. Chicago, &c. R. Co. 91 Minn. 118, 97 N. W. 650. But see Converse v. Norwich, &c. Trans. Co. 33 Conn. 166. "Missouri Pac. R. Co. v. Stults, «1 Kans. 752, 3 Pac. 522; Gulf, &c. R. Co. V. Hodge, 10 Tex. Civ. App. 543, 30 S. W. 829. "'Voorhees v. Chicago, &c. R. Co. 71 Iowa 735, 30 N. W. 29, 60 Am. R. 823. "'Blkins V. Boston, &c. R. Co. 3 Fost. (N. H.) 275. '™ Little Rock, &c. R. Co. v. Miles, 40 Ark. 298, 48 Am. R. 10. "^Pegram v. Charlotte, &c. RJ Co. 84 N. Car. 696, 37 Am. R. 639, where the station agent negotiated for an excursion train to be run for his benefit to a Fourth of July celebra- tion, and the court held that, his in- terests in the matter being adverse to those of the company, he was bound, by reason of his fiduciary relation toward the company, to dis- close all material facts which would influence it in making the contract, including the fact that it was made for his own benefit, and his failure to do so would prevent him from enforcing the contract. "''Willis V. Toledo, &c. E. Co. 72 Mich. 160, 40 N. W. 205. § 303] EXECUTIVE AND MINISTERIAL OFEICERS AND AGENTS. 432 employment by a third person as an agent for the purchase and ship- ment of goods. The law does not favor double agencies.^"^ If he ships his own goods at a higher rate than is allowed by law, he cannot maintain an action to recover the overcharges paid, since he himself acted as the instrument by which the wrong was done and was, there- fore, a party to the wrong of which he complains.^"* Where the station agent performs an act that is beyond the power of the railroad cor- poration itself, the corporation is not necessarily bound thereby. It has even been held (erroneously, as we think) where a station agent caused the arrest of a shipper for refusing to pay the return charges for a horse that the company was not liable to an action for false im- prisonment, since the company had no authority to arrest for non- payment of charges for carriage, and could not be held to have con- ferred such authority upon the agent.^"' While the railroad company is, ordinarily, liable to third persons for the fraudulent conduct of the station agent within the line of his employment, it is not so liable to persons having knowledge of the fraud. Accordingly, if a station agent issues a bill of lading for goods not placed in his possession and delivers it to a person acting in collusion with. him, the railroad is not bound. It is held by many of the courts that as a bill of lading is not a negotiable instrument a fraudulent bill is void even in the hands of an innocent third person who has been induced to advance money upon the faith of it.^"" But a number of courts hold the railroad com- '»' Sumner v. Charlotte, &c. R. Co. "° Friedlander v. Texas, &c. R. Co. 78 N. C. 289. See, also. Mulligan v. 130 U. S. 416, 9 Sup. Ct. 570, in Northern Pac. R. Co. 4 Dak. 315, 29 which Fuller, C. J., speaking for the N. W. 659; Coleman v. Richer, 2 El. court, says: "The law can punish & Bl. 750, 75 B. C. L. 750. roguery, but cannot always protect "' Steever v. Illinois Central R. the purchaser from loss, and so Co. 62 Iowa 371, 17 N. W. 595, con- fraud perpetrated through the de- struing Chapter 68, Acts 1874. vice of a false bill of lading may "'Poulton V. London, &c. R. Co. work injury to an innocent party, L. R. 2 Q. B. 534. But see Gulf R. which cannot be redressed by a ■ Co. V. James, 73 Tex. 12, 10 S. "W. change of victims." Baltimore, &c. 744, 15 Am. St. 743, where the gen- R. Co. v. Wilkens, 44 Md. 11, 22 Am. eral manager made an arrest not R. 26; Stone v. Wabash, &c. R. Co. authorized by the charter, and the 9 Brad. (111.) 48. See Grant v. Nor- company was held liable. And if way, 2 Eng. L. & Eq. 337; Fellows the agent had authority to make ar- v. Steamer R. W. Powell, 16 La. rests under any circumstances, the Ann. 316, 79 Am. Dee. 581; Dean v. company may be held liable where King, 22 Ohio St. 118; Louisiana he used his power without justifica- Nat. Bank v. Laveille, 52 Mo. 380; tion. Goft V. Great Northern R. Co. Lake Shore, &c. Co. v. Foster, 104 30 L. Jour. Q. B. 148. Ind. 293, 4 N. E. 20, 54 Am. R. 319; 433 STATION AGENTS. [§ 303 pany liable in such a case, upon the ground that it is the natural and necessary expectation of a carrier issuing bills of lading that they will pass freely from one to another and advances be made upon their faith, that the carrier has no right to believe, and never does believe, that their effect is limited to the person to whom they are first and directly issued,^"^ and that it is estopped to deny the facts set out in a bill of lading issued by its accredited agent to the injury of one who has been misled thereby.^"^ There is some reason for the doctrine de- National Bank v. Chicago, &c. R. Co. 44 Minn. 224, 46 N. "W. 342, 560, 20 Am. St. 566; Sioux City, &c. R. Co. T. First National Bank, 10 Neb. 556, 7 N. W. 311, 35 Am. R. 488. In Bank of N. Y. &c. v. American, &c. Co. 143 N. Y. 559, 38 N. E. 713, it is held that a by-law of a corpora- tion authorizing an officer to sign warehouse receipts does not confer upon him authority to sign a receipt for his own property. "'Bank of Batavia v. New York, &c. R. Co. 106 N. Y. 195, 12 N. E. 433, 60 Am. R. 440; Armour v. Mich- igan Cent. R. Co. 65 N. Y. Ill, 22 Am. R. 603; Wichita Savings Bank V. Atchison, &c. R. Co. 20 Kans. 519. In this latter case the court says: "The custom of grain dealers is to buy of the producer his wheat, corn, barley, etc., then deliver the same to the railroad company for shipment to market. The railroad company issues to the shipper its bill of lading. The shipper takes his bill of lading to a bank, draws a draft upon his commission mer- chant or consignee against the ship- ment, and attaches his bill of lading to the draft. Upon the faith of the bill of lading and without further inquiry the bank cashes the draft, and the money is thus obtained to pay for the grain purchased, or to purchase other shipments. In this way the dealer realizes at once the greater value of his consignments. Ell. Railkoads — 28 and need not wait for the returns of the sale of his grain to obtain money to make other purchases. In this way the dealer with a small capital may buy and ship extensive- ly; and while having a capital of a few hundred dollars only, may buy for cash and ship grain valued at many thousands. This mode of transacting business is greatly ad- vantageous both to the shipper and the producer. It gives the shipper who is prudent and posted as to the markets almost unlimited op- portunities for the purchase and shipment of grain, and furnishes a cash market for the producer at his own door. It enables the capitalist and banker to obtain fair rates of interest for the money he has to loan, and insures him, in the way of bills of lading, excellent security. It also furnishes additional business to railroad companies, as it facili- tates and increases shipments to the markets. A mode of doing busi- ness so beneficial to so many classes ought to receive the favoring recog- nition of the courts to aid its con- tinuance." See, also, Brooke v. New York, &c. Co. 108 Pa. St. 529,' 1 Atl. 206, 56 Am. R. 235; Dean v. Driggs, 137 N. Y. 274, 33 N. B. 326, 19 L. R. A. 302, 33 Am. St. 721. "'Brooke v. New York, &c. R. Co. 108 Pa. St. 529, 1 Atl. 206, 56 Am. R. 235; St. Louis, &c. R. Co. v. Lamed, 103 111. 293; Coventry v. Great East- § 303] EXECUTIVE AND MINISTERIAL OFFICEKS AND AGENTS. 434 clared in the cases last referred tOj^ for the act of the station agent in such cases in issuing the bill of lading must cause, loss either to his em- ployer or to some third person, and as the employer "trusted most it must suffer most." The maxim that, "where one of two innocent per- sons must suffer loss by the fraud of a third person, he who put it in the power of the third to commit the fraud must bear the loss" seems applicable to such cases. Analogous cases — those where warehouse re- ceipts were issued — give some support to the decisions under immedi- ate mention.^"' But the weight of authority is to the effect that the company is not bound where no goods were received. ^^'' ern R. Co. L. R. 11 Q. B. Div. 776. Sioux City, &c. R. Co. y. First Nat. Bank, 10 Neb. 556, 7 N. W. 311, 35 Am., R. 488, where the leading cases holding the contrary are very fully reviewed. In this case. Maxwell, C. J., speaking for the court, says: "All the testimony shows that the bills of lading in controversy were issued by an authorized agent of the railroad company, and that he not only had authority to Issue such bills, but it was one of the duties imposed upon him. As against an innocent purchaser of the bills, it will not do to say that the agent had authority to issue bills of lading du- ly signed, only in cases where ship- ments were made, and no authority where shipments were not made. The company itself has invested its own agent with the authority to issue bills of lading, and when duly issued they are not the bills of the agent, but of the railroad company. The representation, therefore, thus made in the bills that the company has received a certain quantity of grain for shipment, is a representa- tion to any one who, in good faith relying thereon, sees fit to make ad- vances on the same. If these rep- resentations are false, who should bear the loss? The party who ap- pointed, placed confidence in, and gave a'uthority to make the bills, or the one that in good faith, relying thereon, purchased or advanced money on the same? » * * The case presents every element neces- sary to constitute an estoppel in pais, a representation made with full knowledge that it might be act- ed upon, and subsequent action in reliance thereon, by which the de- fendants in error would lose the amount advanced if the representa- tion is not made good. This princi- ple was entirely overlooked in Grant V. Norway, and the cases following it." ™Babcock v. People's Bank, 118 Ind. 212, 20 N. E. 732; Preston v. Witherspoon, 109 Ind. 457, 9 N. E. 585, 58 Am. R. 417; Planters', &c. Co. V. Merchants', &c. Bank, 78 Ga. 574, 3 S. E. 327; Neil v. Hill, 1 Wool. (U. S. C. C.) 96; Whitlock v. Hay, 58 N. Y. 484; Stewart v. Phe- nix Ins. Co. 9 Lea (Tenn.) 104; Cowdrey v. Vanderburgh, 101 U. S. 572. "" See post, §§ 1416, 1419. CHAPTBK XIV. DIVIDENDS. Sec. 304. 305. 306. 307. 308. 309. 310. 311. Rights of stpckholders — Divi- dends. When dividend belongs to stockholder — ^Assignment. To whom dividend should be paid. Rights of life tenant and re- mainder man — Apportion- ment of dividends. Duties of life tenant — Trans- fers. Dividend is not property of the corporation — Rights of creditors and stockholders. Dividend is irrevocable — ^Ac- tions concerning. Demand — Necessity and effect of. Sec. 312. 313. 314. 315. 316. 317. 318. 319. 320. 321. Declaration of dividend dis- cretionary •with directors. Power to borrow money or de- clare stock dividend. Remedies for abuse of discre- tion. Limitations upon authority to declare a dividend— Suits to reclaim. Dividends should be paid out of the profits. Enjoining payment of divi- dends. Personal liability of directors. Dividends payable in scrip. Stock dividends. .Dividends payable without dis- crimination. § 304. Eights of stockholders — Dividends. — A stockhoHer has no legal right to the property or undistributed profits of the corpora- tion ;^ he has merely a right to participate, to a certain extent, in the management of the company and to share in the distribution of what- ever property may remain after payment of its debts upon dissolu- tion,^ together with the further right, which constitutes the principal inducement to become a shareholder, of sharing in the distribution, which is made at longer or shorter intervals of time in all prosperous companies, of the profits arising from the business which the cor- poration is organized to transact.* When a corporate profit has been ^ Jones V. Terre Haute R. Co. 57 N. Y. 196; Burroughs v. N. C. R. Co. 67 N. C. 376, 12 Am. R. 611; Lock- hart V. Van Alstyne, 31 Mich. 76, 78, 18 Am. R. 156; Goodwin v. Hardy, 57 Me. 143; Granger v. Bassett, 98 Mass. 462; Commercial Fire Ins. Co. Co. V. Board, 99 Ala. 1, 14 So. 490, 42 Am. St. 17. " Burrall v. Bushwick R. Co. 75 N. Y. 211, 216. 'Forbes v. Memphis, &c. R. Co. 2 Woods (U. S.) 323, 331; Plimpton V. Bigelow, 93 N. Y. 592, 599. 435 305] DIVIDEITDS. 436 ascertained, declared, ordered and set aside by the proper corporate authorities to be paid to the stockholders on demand or at a fixed time, it is termed a dividend.* A resolution ascertaining the amount of the corporate profits, and declaring them payable to the stock- holders, is a declaration of a dividend, even though it leaves the time of payment to be fixed afterward by the directors.^ § 305. When dividend belongs to stockholder — ^Assignment. — The dividend belongs to the holder of the shares at the time it is declared,® and so soon as it is due it becomes his absolute property.' If the divi- * Chaffee v. Rutland R. Co. 55 Vt. 110; Lockhart v. Van Alstyne, 31 Mich. 76, 18 Am. R. 156; Webb v. Earle, L. R. 20 Eq. 556; Hyatt v. Al- len, 56 'N. Y. 553, 15 Am. R. 449; Mobile, &c. R. Co. v. Tennessee, 153 U. S. 486, 14 Sup. Ct. 968; Alsop v. De Koven, 107 111. App. 190. "A dividend is that portion of the prof- its and surplus funds of the corpora- tion which has been actually set apart by a valid resolution of the board of directors, or by the share- holders at a corporate meeting, for distribution among the shareholders according to their respective inter- ests, in such a sense as to become segregated from the property of the corporation, and to become the property of the shareholders distrib- utively." 2 Thomp. Corp. § 2126, citing King v. Paterson, &c. R. Co. 29 N. J. L. 82. " March v. Eastern R. Co. 43 N. H. 515; King v. Paterson, &c. R. Co. 29 N. J. L. 82 and 504; Simpson v. Moore, 30 Barb. (N. Y.) 637; Foote, Appellant, 22 Pick. (Mass.) 299; Barp's Appeal, 28 Pa. St. 368; De Gendre v. Kent, L. R. 4 Eq. Cas. 283. But where the time of payment is not fixed, it has been held that a bill in equity is the appropriate and only remedy. Scott v. Eagle, &c. Co. 7 Paige (N. Y.) 198; Pratt v. Pratt, Read & Co. 33 Conn. 446. ' Wright V. Tuckett, 1 Johns. & H. (Bng. Ch.) 266; Bright v. Lord, 51 Ind. 272, 19 Am. R. 732; Hopper v. Sage, 112 N. Y. 530, 20 N. E. 350, 8 Am. St. 771; Boardman v. Lake Shore, &c. R. Co. 84 N. Y. 157, 178; Central R. &c. Co. v. Papot, 59 Ga. 342; Baltimore City Pass. R. Co. v. Sewell, 35 Md. 238. 6 Am. R. 402; note in 45 L. R. A. 392. All divi- dends declared previous to the death of the stockholder, and remaining unpaid, go to his administrator, even though not yet payable. Kernochan, In re, 104 N. Y. 618, 11 N. B. 149; De Gendre v. Kent, L. R. 4 Bq. 283. ' Jermain v. Lake Shore, &c. ' R. Co. 91 N. Y. 483; King v. Paterson, &c. R. Co. 29 N. J. L. 82 and 504; Keppel's Adm'r v. Petersburg R. Co. Chase's Dec. (U. S.) 167; Scott v. Central R. Co. of Ga. 52 Barb. (N. Y.) 45; 1 Beach Prlv. Corp. § 599; Purdy's Beach Priv. Corp. § 441. Where, however, the fact that a div- idend has been voted by directors is not made public or communicated to the stockholders, and no fund is set apart for payment, the vote may be rescinded. Ford v. East Hamp- ton Rubber-Thread Co. 158 Mass. 84, 32 N. E. 1036, 20 L. R. A. 65, 35 Am. St. 462. A potential right to a divi- dend is not a debt until the dividend is declared. Lockhart v. Van Al- styne, 31 Mich. 76, 18 Am. R. 156; 437 TO "WHOM DIVIDEND SHOULD BE PAID. [§■ 306 dend be made payable on a day subsequent to that on which it is de- clared, the stockholder may, between the time it is declared and the time it becomes payable, assign and transfer either the stock* or the dividend® without affecting his title to the other, although a devise of the dividends without qualification has been held to carry with it the stocks themselves.^" The fact that a dividend was earned before a transferee purchased his stock will not affect his title to dividends declared after such purchase.^^ He is entitled to all dividends de- clared while he owns it.^^ A sale of shares of stock, including all divi- dends due or to become due thereafter, has also been held to include a stock dividend.^^ §'306. To whom dividend should be paid. — The general rule is that in cases of periodical payments due at intervals, and not falling due from day to day, there can be no apportionment.^* Owning an option to purchase stock does not entitle the vendee to dividends de- clared before he has closed the bargain and while he still has the right London, &c. Co., Re, L. R. 5 Eq. 519; Stevens v. South Devon, &c. R. Co. 9 Hare 313. It then becomes a debt due from the corporation. Wheeler V. Northwestern, &c. Co. 39 Fed. 347. « Wright V. Tuckett, 1 Johns. & H. (Bng. Ch.) 266; Hill v. Newlcha- wanick Co. 71 N. Y. 593; Wheeler V. Northwestern, &c. Co. 39 Fed. 347; Ohio City v. Cleveland, &c. R. Co. 6 Ohio St. 489. Contra, Bur- roughs V. North Carolina R. Co. 67 N. C. 376, 12 Am. R. 611. In Ken- nedy V. First Nat. Bank, 115 N. C. 223, 20 S. E. 375, it was held that where a widow, to whom dividends were bequeathed during her life or widowhood, with remainder over to her daughter, consented to the trans- fer of the certificate of stock to the daughter, she waived all claim to the dividend. •Brundage v. Brundage, 60 N. Y. 544; Black v. Homersham, L. R. 4 Exch. Div. 24; Curry v. Woodward, 44 Ala. 305. See, also. Cook v. Mon- roe, 45 Neb. 349, 63 N. W. 800, 11 Nat. Corp. R. 5. " Collier v. Collier, 3 Ohio St. 369. "Central R. &c. Co. v. Papot, 59 Ga. 342; Ryan v. Leavenworth, &c. Co. 21 Kans. 365, 403; Jermain v. Lake Shore, &c. R. Co. 91 N. Y. 483; March v. Eastern R. Co. 43 N. H. 515. See, also, Nickals v. New York, &c. R. Co. 15 Fed. 575. "Bailey v. Railroad Co. 22 Wall. (U. S.) 604, 637; March v. Eastern R. Co. 43 N. H. 515; Jones v. Terre Haute, &c. R. Co. 57 N. Y. 196; Goodwin v. Hardy, 57 Me. 143. If he acquires it by devise he takes all dividends declared after the death of his testator. Phelps v. Farmers', &c. Bank, 26 Conn. 269. See note in 45 L. R. A. 393. " Rose V. Barclay, 191 Pa. St. 594, 43 Atl. 385, 45 L. R. A. 392, and note. "Clapp V. Aster, 2 Edw. Ch. (N. , Y.) 379. See note In 45 L. R. A. 396. § 306] DIVIDENDS. 438 to either purchase or refuse the stock/ ^ although an absolute purchase of stock to be delivered at the seller's option will entitle the purchaser to all dividends declared after entering into the original contract of purchase.^^ And where an offer to sell shares is accepted before revo- cation, it has been held that the acceptor may claim all dividends de- clared after the date of the offer/^ for the bargain is presumed to have been made with reference to the value of the shares at the time the offer was made. The corporation may generally pay the dividend to the person in whose name the stock is registered upon the books of the company^^ without inquiry/* and it will be protected even though he has transferred the shares.^" But where the corporation has due notice of a transfer, it should pay the money only to the trans- feree,^^ and it seems that it may properly do so, even though he has not yet been registered as a stockholder.''^' If a stockholder dies, his administrator is the proper party to receive dividends on his stock,^^ for dividends declared before, though payable after the owner's death, belong to the estate, even as against the devisees of the stock.^* His heirs, it is said, can only claim the dividends after they have pro- cured the shares to be transferred to themselves.^^ Where the cor- poration closed its transfer books some days before the declaration of a dividend, parties who applied for and where refused registry while the books remained closed were held entitled to the dividend when "Bright V. Lord, 51 Ind. 272, 19 35 Ohio St. 483; Bell v. Lafterty, 1 Am. R. 732. Pennypacker (Pa. Sup. Ct.) 454. "Currie v. "White, 45 N. Y. 822; ''i Jones v. Terre Haute, &c. R. Co. Black v. Homersham, L. R. 4 Bxch. 57 N. Y. 196, 205; Timberlake v. Div. 24. See, also, Phinizy v. Mur- Shippers, &c. Co. 72 Miss. 323, 16 ray, 83 Ga. 747, 10 S. B. 358, 6 L. R. So. 530; note in 45 L. R. A. 397; A. 426, 20 Am. St. 342. Rohinson v. National Bank, 95 N. Y. "Harris v. Steveijs, 7 N. H. 454. 637, where the corporation had im- But see 'Hopper v. Sage, 112 N. Y. properly refused to register a trans- 530, 20 N. E. 350, 8 Am. St. 771. fer. ^' Brisbane v. Delaware, &c. R. Co. '' 1 Cook Stock and Stockholders, 94 N. Y. 204; Cook v. Monroe, 45 § 540. See, also. Gemmell v. Davis, Neb. 349, 63 N. W. 800, 11 Nat. Corp. 75 Md. 546, 23 Atl. 1032, 32 Am. St. R. 5; Cleveland, &c. R. Co. v. Rob- 412. bins, 35 Ohio St. 483; Gemmell v. ^Brisbane v. Delaware, &c. R. Co. Davis, 75 Md. 546, 23 Atl. 1032, 32 94 N. Y. 204. Am. St. 412. « De Gendre v. Kent, L. R. 4 Eq. "Jones V. Terre Haute, &c. R. Co. 283; Kemochen, Re, 104 N. Y. 618, 29 Barb. (N. Y.) 353; Northrop v. 11 N. E. 149. Newton, &c. Turnp. Co. 3 Conn. 544. "^ State v. New Orleans, &c. R. Co. " Cleveland, &c. R. Co. v. Robbins, 30 La. Ann. 308. 439 LIFE TENANT AND EBMAINDEKMAN — ^APPOKTIONMENT, [§ 307 declared.^* If the corporation should pay a dividend to a person as a stockholder, although he may have wrongfully held the stock, one claiming to be the real owner of the stock, but not an admitted stock- holder, cannot establish his right thereto in the first instance, it seems, by an action against the stockholder to recover such dividend, as for money had and received. His action to recover the dividend could only be maintained against the corporation, if it could be maintained at all, and he cannot follow the assets into the hands of others without first establishing his rights as a creditor of the corporation.^'' § 307. Eights of life tenant and remainderman — ^Apportionment of dividends. — An ordinary cash dividend declared during th^ exist- ence of the life tenancy goes, presumptively at least, to the life ten- ant;^* but where stock is held in trust for a life tenant with remainder over, the rule has been laid down that all dividends declared from profits earned during the tenancy belong to the life tenant,^* while extraordinary dividends amounting only to a distribution of a portion " Jones v. Terre Haute, &c. R. Co. 57 N. Y. 196, 205; Robinson v. Na- tional Bank, 95 N. Y. 637. Where the corporation is authorized by statute or by charter to close its books under such circumstances, the holding would, perhaps, be different. If the corporation refuses to trans- fer stock to a purchaser upon ap- plication regularly made, It has been held that he may maintain a suit against it for a dividend due on his stock, without first compelling a transfer of stock to him by a pro- ceeding in- equity. Hill v. Atoka, &c. Co. (Mo. Sup.), 21 S. W. 508. This case was afterward reversed, however, by the court in banc, upon other grounds. The decision revers- ing it is found in 124 Mo. 153, 25 S. W. 926. " Peckham v. Van Wagenen, 83 N. Y. 40, 38 Am. R. 392, distinguishing LeRoy v. Globe Ins. Co. 2 Edw. Ch. (N. Y.) 657, and Le Blanc, In re, 75 N. Y. 598. See, however. Cook v. Monroe, 45 Neb. 349, 63 N. W. 800, 11 Nat. Corp. R. 5. "^Richardson v. Richardson, 75 Me. 570, 46 Am. R. 428; Millen v. Guerrard, 67 Ga, 284, 44 Am. R. 720; Bates V. MacKinley, 31 Beav. 280; 2 Thomp. Corp. §§ 2193, 2201. See, also, "The rule in Minot's Case," by Judge Corliss, in 33 Alb. L. Jour. 106; De Koven v. Alsop, 205 111. 309, 63 L. R. A. 587. =»Earp's Appeal, 28 Pa. St. 368; Biddle's Appeal, 99 Pa. St. 278; Oliver's Estate, 136 Pa. St. 43, 20 Atl. 527, 9 L. R. A. 421, 20 Am. St. 894. If the last preceding dividend was made at a regular and reason- able time, before a cash dividend de- clared after the life estate arose, it will be given to the life tenant, re- gardless of the time when it was earned. Richardson v. Richardson, 75 Me. 570, 46 Am. R. 428; Jermain v. Lake Shore, &c. R. Co. 91 N. Y. 483; Barclay v. Walnewright, 14 Ves. 66. 307] DIVIDENDS. 440 of the invested capital,'" or a distribution of profits earned or accnmu- lated before the tenancy arose,'^ belong to the remainderman. This rule is followed, either in whole or in part, in most of the states, of the American union,^^ and can be objected to, it is said, only be- cause of the difficulty in applying it.'^ In Massachusetts,^* Georgia,^^ »" Vinton's Appeal, 99 Pa. St. 434, rules upon this subject: "1. If the 44 Am. R. 116; Heard v. Eldredge, dividend is made up of profits, the 109 Mass. 258, 12 Am. R. 687; Gif- dividend goes to the life tenant, ir- ford V. Thompson, 115 Mass. 478; respective of the form in which it Wheeler v. Perry, 18 N. H. 307. is declared. 2. The life tenant is "Pennsylvania Co. v. Dovey, 64 entitled to all dividends, whether in Pa. St. 260; Moss's Appeal, 83 Pa. cash or in stock, declared during the St. 264; 24 Am. R. 164; Smith's existence of his interest, whether Estate, 140 Pa. St. 344, 21 Atl. 438, they consist of profits which have 23 Am. St. 237. accrued subsequently to the vesting " See Cook Stock and Stockhold- of the life estate, or in part of earn- ers, § 554; Van Doren v. Olden, 19 ings of the corporation which had N. J. Eq. 176, 97 Am. Dec. 650; accumulated at the time of the devo- Kernochan, In re, 104 N. Y. 618, 11 lution upon the life tenant of his N. B. 149; Peirce v. Burrough, 58 interest in the property. 3. That in N. H. 302; Hits v. Kite's Devisees, so far as any dividend consists of 2 Ry. & Corp. L. J. (Ky.) 568; Hite money, derived from an increase in V. Hite, 93 Ky. 257, 20 S. "W. 778, 19 the value of the corporation prop- L. R. A. 173, 40 Am. St. 189; Gilkey erty, or is derived from any source V. Paine, 80 Me. 319, 14 Atl. 205; other than the net earnings of the Smith's Estate, 140 Pa. St. 344, 21 company, the life tenant can claim Atl. 438, 23 Am. St. 237; Cohh v. no interest therein. 4. That not Fant, 36 S. Car. 1, 14 S. E. 959; only is it beyond the power of the Spooner v. Phillips, 62 Conn. 62, 24 corporation to bind the life tenant Atl. 524, 16 L. R. A. 461; De Koven by dividing net earnings in the form V. Alsop, 205 111. 309, 68 N. E. 930, of capital stock, but the life tenant 63 L. R. A. 587. The rule seems to can always show the true nature be somewhat unsettled in New York, and source of the dividend, in spite Compare Goldsmith v. Swift, 25 Hun of any act or declaration to the con- (N. Y.) 201; Warren, In re, 33 N. Y. trary; and that, on the other hand, St. 584, 11 N. Y. S. 787; Clarkson the remainderman may prove that V. Clarkson, 18 Barb. (N. Y.) 646; a dividend which apparently be- longs to the life tenant is in fact the property of the remainderman." ^ Minot V. Paine, 99 Mass. 101, 96 Am. Dec. 705; Daland v. Williams, 101 Mass. 571; New England Trust Co. V. Eaton, 140 Mass. 532, 4 N. B. 69, 54 Am. R. 493. But see Davis V. Jackson, 152 Mass. 58, 25 N. E. Simpson v. Moore, 30 Barb. 637; Riggs V. Cragg, 89 N. Y. 479, and Kernochan, In re, 104 N. Y. 618, 11 N. E. 149. See, also, McLouth v. Hunt, 154 N. Y. 179, 48 N. E. 548, 39 L. R. A. 230; Lowry v. Farmers', &c. Co. 172 N. Y. 137, 64 N. B. 796. ''See Barp's Appeal, 28 Pa. St. 368. In 33 Alb. L,. Jour. 427, Judge 21, 23 Am. St. 801. Corliss lays down the following =Millen v. Guerrard, 67 Ga. 284, 441 LIFE TENANT AND EBMAINDEEMAN — ^APPORTIONMENT. [§ 307 Ehode Island/® and the District of Columbia/'' the courts decline to look beyond the action of the directors in declaring the dividend, to ascertain who is entitled to it, but hold, in general, that a divi- dend payable in money shall be regarded as income, and given to the life tenant, while a dividend payable in stock shall be regarded as capital and given to the remainderman,^^ since it is thought unwise to attempt to ascertain how the corporation came by the funds out of which either cash or stock dividends are declared,^* and since a stock dividend does not, as a rule, increase the in- terest of the shareholders in the property of a corporation, but merely dilutes their shares and is only a new evidence of their interests.*" For this reason it is held that such a dividend gen- erally constitutes capital rather than income, and goes to the re- mainderman.*^ It has also been held that new shares of preferred stock issued in double the amount of the old shares, but at one-half the rate of interest, in compromise of claims of the holders for back and unpaid dividends, constitute capital and not income as between the life tenant and remainderman.*^ A strict adherence to this rule would so clearly be productive of hardship and injustice that some modifications have been engrafted upon it in Massachusetts, where it Was first announced, and it is held that the court will take into con- sideration the whole character of the property and the transaction, with due regard to all the facts preceding, attending, and resulting from the declaration of the dividend, in order to determine whether the dividend rightfully belongs to the owner of the stock or to the owner of the income.** Accordingly, it is held that a dividend payable in stock purchased with the surplus earnings of the corporation be- longs absolutely to the life tenant,** and that a cash dividend of forty 44 Am. R. 720, construing Code Ga. " Terry v. Eagle Lock Co. 47 Conn. § 2256. 141; Spooner v. Phillips, 62 Conn. »« Parker v. Mason, 8 R. I. 427; Pe- 62, 24 Atl. 524, 16 L. R. A. 461, and tition of Brown, 14 R. I. 371, 51 Am. note; Millen v. Guerrard, 67 Ga. R. 397. 292; Greene v. Smith, 17 R. I. 28, ^ Gibbons v. Mahon, 4 Mackey (D. 19 Atl. 1081; De Koven v. Alsop, 205 C.) 130, 54 Am. R. 262. III. 309, 63 L. R. A. 587. »' Minot V. Palne, 99 Mass. 101, 96 " Mills v. Britton, 64 Conn. 4, 29 Am. Dec. 705. See, also, De Koven Atl. 231, 24 L. R. A. 536. V. Alsop, 205 111. 309, 63 L. R. A. «Daland v. Williams, 101 Mass. 587. 571; Rand v. Hubbell, 115 Mass. 461, ™ Boston, &c. R. Co. v. Common- 15 Am. R. 121. wealth, 100 Mass. 399. " Leland v. Hayden, 102 Mass. 542. " Gibbons v. Mahon, 136 U. S. 549, 10 Sup. Ct. 1057. §■ 307] DIVIDENDS. 443 per cent, for the payment of which no fund is provided, but which is declared to be receivable in payment for shares of stock issued under a power to increase the capital stock, is virtually a stock dividend, and must go to the remaindermaii,*^ as must also the compensation paid to the corporation for a part of its real estate taken by right of emi- nent domain, and distributed to the stockholders as a cash dividend.** In England, the courts originally followed the rule that regular cash dividends belong to the life tenant as income, while extraordinary divi- dends, or bonuses, belong to the remainderman,*^ but the tendency at the present time seems to be to hold the action of the corporation conclusive, so that, if it declares even an extraordinary dividend during the existence of the life tenancy, it goes to the life tenant, and if it treats the earnings as capital they will not go to the life tenant.*^ A bonus, however, which is paid from' profits that have been fraudulently retained to the prejudice of the rights of the life tenant, will be given to him as income deferred.*^ The rules to which we have referred are those announced by the courts in their endeavor to accomplish justice in the absence of any statute authorizing an ap- portionment, and in the absence of any clearly expressed intention on the part of the grantor or testator. Where the intent of the grantor or testator is clearly apparent, it will control, and the courts will be guided by it.^" In case the life tenant dies before a dividend is de- clared, the general rule is that it cannot be apportioned, but belongs wholly to the remainderman."^ But in England"^ and in several states "Daland v. Williams, 101 Mass. 635; Reed v. Head, G Allen (Mass.) 571. 174; Clarkson v. Clarkson, 18 Barb. "Heard r. BIdredge, 109 Mass. (N. Y.) 646; Millen v. Guerrard, 67 258, 12 Am. R. 687. Ga. 284, 44 Am. R. 720; Thomson's " Brander v. Brander, 4 Vesey Appeal, 89 Pa. St. 36 ; Gibbons v. 800; Paris v. Paris, 10 Vesey, Jr., Mahon, 136 U. S. 549, 10 Sup. Ct 185; Irving v. Houstoun, 4 Paton 1057; Bushee v. Freeborn, 11 R. I. Scotch H. of L. 521; Murray v. 149. Glasse, 17 Jur. 816. "King v. Follett, 3 Vt. 385; Gran- ■"Bouch V. Sproule, L. R. 12 App. ger v. Bassett, 98 Mass. 462; Brun- Cas. 385, 397; Barton's Trust, In re, dage v. Brundage, 60 N. Y. 544, 551; L. R. 5 Bq. 238; Price v. Anderson, Pearly v. Smith, 3 Atk. 260 (1745); 15 Sim. 473; Bills v. Barfleld, 64 L. Scholefleld v. Redfern, 2 Drew. & T. R. 625. But see Sugden v. Als- Sm. 173; Quinn v. Madigan, 65 N. bury, 63 L. T. R. 576. H. 8, 17 Atl. 976. But compare "Maclaren v. Stainton, L. R. 11 Johnson v. Bridgewater, &e. Co. 14 Eq. 382; Dale v. Hayes, 40 L. J. Gray (Mass.) 274. Chan. 244; Bdmondson v. Cros- "33 and 34 Vict. Ch. 35, § 2; thwaite, 34 Beav. 30. Beavan v. Beavan, 53 L. T. R. 245. ™ Bouch, In re, L. R. 29 Chan. Div. 443 DUTIES OE LIFE TENANT — TEANSFEES. [§ 308 in this country/^ dividends are made apportionable by statute, while in one or two states there is a tendency to hold dividends apportion- able at common law.^* The worth or value of a privilege accorded to shareholders of taking new shares upon an increase of the capital stock, belongs to the remainderman,^^ but the income from the money received upon the sale of such a privilege, or from the stock which is taken by the trustee under such a privilege for the benefit of the trust, belongs, it seems, to the life tenant. °' §308. Duties of life tenant— Transfers. — The calls which are made during the continuance of his estate must, generally, be paid by the life tenant,^^ who must also keep down taxes on the stock.^* He is not entitled to have the stock transferred to him on the corporate books,^* and the corporation may be held liable to the remainderman for enabling the life tenant to dispose of the shares to his injury.®" But the life tenant may hold the administrator permitting a trans- fer°^ or the corporation making it°^ (where it has notice of the trust) liable for his interest in shares transferred in fraud of his rights. § 309. Dividend is not property of the corporation — ^Rights of creditors and stockholders. — From the time a dividend becomes due it ceases to be a part of the property of the corporation.®^ The creditors "' Stimson Am. Law (1886), § 2027. "Box's Trusts, Re, 9 L. T. (N. S.) " Rutledge, Ex parte, 1 Harper's 372. But the testator's estate is lia- Eq. (S. C.) 65, 14 Am. Dec. 696; ble for a call which becomes due the "Wilson's Appeal, 108 Pa. St. 344. day after his death. Emery v. Wa- See, also, Smith's Estate, 140 Pa. St. son, 107 Mass. 507. 344, 21 Atl. 438, 23 Am. St. 237. "' Citizens' Mut. IHs. Co. v. Lott, 45 =» Atkins V. Albree, 94 Mass. 359; Ala. 185; Webb v. Burlington, 28 Vt. Brinley v. Grou, 50 Conn. 66, 47 Am. 188. R. 618; Biddle's Appeal, 99 Pa. St. ""Collier v. Collier, 3 Ohio St. 369; 278; Goldsmith v. Swift, 25 Hun (N. State v. Robinson, 57 Md. 486. Y.) 201; Sanders v. Bromley, 55 L. "Caulkins v. Memphis, &c. Co. 85 T. R. (N. S.) 145; Kernochan, In re, Tenn. 683, 4 S. W. 287, 4 Am. St. 104 N. Y. 618, 11 N. E. 149; Hite v. 786. Hite, 93 Ky. 257, 20 S. W. 878, 19 "Keeney v. Globe Mill Co. 39 L. R. A. 173, 40 Am. St. 189. But Conn. 145. see Wiltbank's Appeal, 64 Pa. St. " Stewart v. Firemen's Ins. Co. 53 256, 3 Am. R. 585. Md. 564. " Moss's Appeal, 83 Pa. St. 264, 24 " But until the dividend is de- Am. R. 164; 1 Cook Stock and Stock- clared, corporate profits belong to holders, § 559, and cases cited in the corporation and may be seized preceding note. by its creditors. Curry v. Wood- § 309] DIVIDENDS. 444 of the corporation cannot claim it in preference to the Btockholder,°* even though the corporation may have become insolvent after the money was in good faith set apart with which to pay it, but before it was actually paid."^ Where a sufficient surplus is on hand with which to pay the dividend at the time it is declared, but before it is due this surplus is swept away by fraud of one of the officers, or by other unforeseen circumstances, it hqs been held that the corporation may be restrained from paying dividends out of its other funds.°' And where no specific fund is set apart for the payment of dividends, a shareholder who has not claimed or received his money before the corporation becomes insolvent, has, it seems, but a claim against the corporation, to be enforced like those of other creditors.*^ A specific fund deposited in bank for the payment of dividends which have been lawfully declared, cannot be reclaimed by the corporation or by a receiver,"^ but can be used only for that purpose, though it will be and remain at the risk of the corporation until a reasonable time after notice is given to the stockholder.^' If the bank fails after such a rea- sonable time has elapsed, the loss will fall upon the stockholder.'^'' § 310. Dividend is irrevocable — Actions concerning. — A dividend once legally declared cannot be revoked,'^ unless, perhaps, where no ward, 44 Ala. 305; Hyatt v. Allen, "King v. Paterson, &c. R. Co. 29 56 N. Y. 553, 15 Am. R. 449; Rand N. J. L. 82 and 504. V. Hubbell, 115 Mass. 461, 474, 15 "Beers v. Bridgeport Spring Co. Am. R. 221. 42 Conn. 17. See, also, Armant v. "Van Dyck v. McQuade, 86 N. Y. New Orleans, &c. R. Co. 41 La. Ann. 38; New Hampshire Sav. Bank v. 1020, 7 So. 35. But it has heen held Richey, 121 Fed. 956, 58 C. C. A. that where dividends have been im- 294. properly and unlawfully paid they °°As where a great fire rendered may he reclaimed. Lexington, &c. an insurance company insolvent. Le Co. v. Page, 17 B. Mon. (Ky.) 412, Roy V. Glohe Ins. Co. 2 Edw. Ch. 66 Am. Dec. 165; Slayden v. Seip, (N. Y.) 657. 25 Mo. App. 439, 446. See, also, Mc- " Fawcett v. Laurie, 1 Dr. & Sm. Kusick v. Seymour, &c. Co. 48 Minn. 192. 172, 50 N. W. 1116. And the right " Lowne v. American Fire Ins. Co. to reclaim a dividend paid hy an 6 Paige (N. Y.) 482; Curry v. Wood- insolvent corporation passes to its ward, 44 Ala. 305. assignee if the terms of the assign- "'Le Blanc, Matter of, 14 Hun (N. ment are sufficiently comprehensive. Y.) 8; Beers v. Bridgeport Spring Main v. Mills, (U. S.) 98; Lexing- Co. 42 Conn. 17. The stockholder ton, &c. Co. v. Page, 17 B. Mon. may follow the fund. (Ky.) 412, 66 Am. Dec. 165. "King V. Paterson, &c. R. Co. 29 N. J. L. 82 and 504. 445 DIVIDEND IS IKREVOOABLE — ACTIONS CONCERNING. [§ 310 fund has been set apart, and the declaration is rescinded before it is made public, and before the time fixed for the payment of the divi- dend.'^ It becomes a debt due from the corporation which may be enforced by action at law,'^ like any other debt. But only the owner of the stock can maintain an action for this cause. Mere possession of the certificate, or even a special property therein, is not always enough.'* Such an action should, ordinarily, be brought against the corporation as such, and not against the corporate offieers,'^^ and should be preceded by a demand for payment.'" But a stockholder cannot, as a rule at least, sue for profits until a dividend has been declared,'' even though the dividends have been guaranteed to the corporation by another corporation which has leased the road.'' The mere fact "= Ford V. Easthampton, &c. Co. 158 Mass. 84, 32 N. B. 1036, 20 L. R. A. 65, 35 Am. St. 462. '= Coey V. Belfast, &c. R. Co. Irish R. 2 C. L. 112; King v. Paterson, &e. R. Co. 29 N. J. L. 504; West Chester, &c. R. Co. v. Jackson, 77 Pa. St. 321; Ohio City v. Cleveland, &c. R. Co. 6 Ohio St. 489; State v. Baltimore, &c. R. Co. 6 Gill (Md.) 363; Jones v. Terre Haute, &c. R. Co. 57 N. Y. 196; Keppel's Adm'r v. Petersburg R. Co. Chase's Dec. (U. S.) 167; Dalton v. Midland Counties R. Co. 13 C. B. 474; Southwestern, &c. R. V. Martin, 57 Ark. 355, 21 S. W. 465. But see Fawcett v. Laurie, 1 Drew. & Sm. 192, as to the case of a loss of all the profits after the divi- dend is declared and before it is paid. "Dow V. Gould, &c. Min. Co. 31 Cal. 629. See, also, Berford v. New York Iron Mine, 56 N. Y. Super. Ct. R. 236, 4 N. Y. S. 836. "French v. Fuller, 23 Pick. (Mass.) 108; Smith v. Poor, 40 Me. 415, 63 Am. Dec. 672. But where the treasurer retained dividends un- der claim that he was the owner of the shares, an action against him individually was sustained. Wil- liams V. FuUerton, 20 Vt. 346. But see Peckham v. Van Wagenen, 83 N. Y. 40, 38 Am. R. 392. "State V. Baltimore, &c. R. Co. 6 Gill (Md.) 363; King v. Paterson, &c. R. Co. 29 N. J. L. 504; Bank of Louisville v. Gray, 84 Ky. 565; Scott V. Central R. &c. Co. of Ga. 52 Barb. (N. Y.) 45, where a letter of in- quiry was held an insufficient de- mand. The suit has been held a sufficient demand of itself. Keppel V. Petersburg R. Co. Chase's Dec. (U. S.) 167; Robinson v. National Bank, &c. 95 N. Y. 637. "Beveridge v. New York, &c. R. Co. 112 N. Y. 1, 19 N. B. 489, 2 L. R. A. 648. ™Flagg V. Manhattan R. Co. 10 Fed. 413, 21 Am. Law Reg. (U. S.) 775; Beveridge v. New York, &c. R. R. Co. 112 N. Y. 1, 19 N. B. 489, 2 L. R. A. 648; Harkness v. Manhat- tan R. Co. 54 N. Y. Super. Ct. 174. And it has been held that an agree- ment to pay a shareholder a certain specified dividend each year is ultra vires and cannot be enforced. Ele- vator Co. V. Memphis, &c. R. Co. 85 Tenn. 703, 4 Am. St. 798. But see Taft V. Hartford, &c. R. Co. 8 R. I. 310, 5 Am. R. 575, and ante, §§ 81, 82. §' 311] DIVIDENDS. 446 that profits may have arisen from the transaction of the corporate business gives him no absolute right to an immediate distribution thereof in the way of dividends.^* If suits be brought by different parties to recover the same dividend, the corporation may require them to interplead.*" The corporation cannot defend against a suit for such a dividend, on the ground that it had no legal authority to declare a dividend, where dividends have been paid to a majority of the stockholders and are retained by them.*^ But where the corpora- tion has a' lien on the shares for a debt due it from the stockholder, it may set up the debt by way of set-off or counter-claim.*'' §' 311. Demand — ^Necessity and eflfect of. — Interest can only be re- covered from the time of a demand and refusal to pay the dividend after it has been declared and becomes due,** and the statute of limi- ™Beverldge v. New York El. R. Co. 112 N. Y. 1, 19 N. E. 489, 2 L. R. A. 648 ; Phelps v. Farmers', &c. Bank, 26 Conn. 269; Minot v. Paine, 99 Mass. 101, 96 Am. Dec. 705. See, also, Gordon v. Richmond, &c. R. Co. 78 Va. 501. ™ Salishury Mills v. Townsend, 109 Mass. 115. ■*' Stoddard v. Shetucket Foundry Co. 34 Conn. 542. And where the minutes of the meeting at which the dividend was alleged to have been declared showed that a resolution declaring a dividend was offered and seconded, but failed to show its adoption, it was held competent to prove that the dividend was really declared by proof that each officer of the company had acted on the assumption that the resolution had been adopted, and that, in accord- ance therewith, every stockholder, with the exception of plaintifC, had received his pro rata share of the dividend. Southwestern, &c. R. Co. V. Martin, 57 Ark. 355, 21 S. W. 465. '^King V. Paterson, &c. R. Co. 29 N. J. L. 504. It is held that a lien upon dividends may still exist after the lien upon shares is taken away by statute. Hagar v. Union Nat. Bank, 63 Me. 509. It is held that no such lien can be claimed upon dividends due the estate of a de- ceased shareholder. Merchants' Bank v. Shouse, 102 Pa. St. 488; Brent V. Bank, &c. 2 Cranch C. C. (U. S.) 517. Nor can a set-ofe be claimed where the shares have been assigned, with the knowledge of the corporation, before the declaration of the dividend. Gemmell v. Davis, 75 Md. 546, 23 Atl. 1032, 32 Am. St. 412. ^Keppels V. Petersburg R. Co. Chase's Dec. (U. S.) 167; Boardman V. Lake Shore, &c. R. Co. 84 N. Y. 157, 187; State v. Baltimore, &c. R. Co. 6 Gill (Md.) 363,'387; Phila- delphia, &c. R. Co. V. Cowell, 28 Pa. St. 329, 70 Am. Dec. 128. A different rule is applied to dividends on pre- ferred stock not paid when due. See Boardman v. Lake Shore, &c. R. Co. 84 N. Y. 157. And it has been said that in New York interest is not dependent on demand. Prouty v. Michigan Southern, &c. R. Co. 1 Hun (N. Y.) 655, 657; Adams, v. Port Plain Bank, 36 N. Y. 255. 447 DEOLAEATION DISCRETIONARY WITH DIRECTORS. [§ 313 tation will only run from that time.''* So, it has been held in Louisiana that prescription will not run against a person who is ignorant of his right to dividends, except from the date when he learns of his sup- posed claim and makes a demand, since dividends are payable only on demand, and cannot be said to be due until demanded.*^ A demand is sufficient if made upon the bank or person through whom the divi- dend is payable.'^ § 312. Declaration of dividend discretionary with directors. — In general, the determination of the question whether a dividend shall be declared rests in the discretion of the directors,'^ and they may invest the profits to properly extend or develop the business,*^ or to provide " State V. Baltimore, &c. R. Co. 6 Gill (Md.) 363; Philadelphia, &c. R. Co. v. Cowell, 28 Pa. St. 329, 70 Am. Dec. 128. '^Armant v. New Orleans, &c. R. Co. 41 La. Ann. 1020, 7 So. 35. This was a case In which a company, on reorganization, was granted a new charter providing that dividends not claimed within three years should be forfeited, and an old stockholder who did not know of his rights nor of the reorganization was held not to be affected by this provision, until, being apprised of his rights and liabilities, he asserted his claim to dividends by making a demand. =°King V. Paterson, &c. R. Co. 29 N. J. L. 504. »' Howell V. Chicago, &c. Co. 51 Barb. (N. Y.) 378; Ely v. Sprague, Clarke Ch. (N. Y.) 351; Barnard v. Vermont, &c. R. Co. 7 Allen (Mass.) 512; Chaffee v. Rutland R. Co. 55 Vt. 110; Field v. Lamson, &c. Co. 162 Mass. 388, 38 N. E. 1126, 27 L. R. A. 136; Browne v. Monmouth- shire R. &c. Co. 13 Beav. 32; Mc- Lean V. Pittsburgh, &c. Co. 159 Pa. St. 112, 28 Atl. 211; State v. Balti- more, &c. R. Co. 6 Gill (Md.) 363; Hunter v. Roberts, 83 Mich. 63, 47 N. W. 131, 9 R. & Corp. L. J. 90, 31 Am. & Eng. Corp. Cas. 349. The discretion of the directors in con- trolling the policy of the corpora- tion as to the payment of cash divi- dends, if honestly exercised, will not be interfered with by the courts. Zellerbach v. Allenberg, 99 Cal. 57, 33 Pac. 786; Excelsior, &c. Co. v. Pierce, 90 Cal. 131, 27 Pac. 44. But this discretion may be limited by law or contract. Park v. Grant Lo- comotive Works, 40 N. J. Eq. 114, 3 Atl. 162. Compare American Wire Nail Co. V. Gedge, 96 Ky. 513, 29 S. W. 353. == Pratt V. Pratt, 33 Conn. 446; Durfee v. Old Colony, &c. R. Co. 5 Allen (Mass.) 230. Where a divi- dend has been declared and partly paid, the corporation cannot defeat the payment of the rest by invest- ing the remainder of the profits in permanent improvements. Beers v. Bridgeport Spring Co. 42 Conn. 17; Miller v. Illinois Central R. Co. 24 Barb. (N. Y.) 312. But it has been held that a dividend may be de- clared for a iiscal year subsequent to that in which the profits were earned. Mills v. Northern R. Co. L. R. 5 Ch. App. Cas. 621. 313] DIVIDENDS. 448 for the payment of future indebtedness, subject only to the rule that they must act in good faith and within the limits of the corporate powers.^® In England, however, they are required by statute to report the condition of the company to the stockholders and to be guided by their determination as to when a dividend shall be declared."" Some authorities hold that the company should increase its capital before extending its business, and that the directors, by taking its earnings for the latter purpose, commit a gross violation of duty ; and that in case the earnings have been so used by them they should in- crease the capital stock and issue a stock dividend,"^ or borrow as much money as has been used in improvements to replace the profits which have been improperly diverted. § 313. Power to borrow money or declare stock dividend. — It has been held that the company, where it has used profits for improve- ments, may lawfully borrow an equivalent sum of money with which to pay a dividend,"^ or it may, when it has authority to increase its capital stock, declare a stock dividend."^ The corporation may, in '"Karnes v. Rochester, &c. R. Co. 4 Abb. Pr. (N. Y.) N. S. 107, the court saying: "The court cannot undertake to say judicially that the future business of the corporation will be prosperous; nor has it any right to postpone the rights and claims of creditors to future earn- ings and accumulations, even if it could be certain they would accrue." Belfast, &c. R. Co. v. Belfast, 77 Me. 445; Lord v. Brooks, 52 N. H. 72; March v. Eastern R. Co. 43 N. H. 515. This rule Is adhered to very strictly where holders of common stock seek to have a dividend de- clared, but where holders of pre- ferred stock seek to enforce their rights, the courts sometimes depart very far from this rule in their ef- forts to assist them. "8 Vic. Ch. 16, § 120. See, how- ever. Bond V. Barrow, &c. Co. (1902) 1 Ch. 353, 9 Hanson 69, 71 L. J. Ch. 246. "iHoole V. Great Western R. Co. L. R. 3 Ch. App. Cas. 262. »= Mills V. Northern R. &c. Co. L. R. 5 Chan. App. 621. See, also. Great Western Min. &c. Co. v. Har- ris, 128 Fed. 321. "'Ohio City v. Cleveland, &c. R. Co. 6 Ohio St. 489; Williams v. West- ern Union Tel. Co. 93 N. Y. 162; Howell V. Chicago, &c. R. Co. 51 Barb. (N. Y.) 378; Boston, &c. R. Co. v. Commonwealth, 100 Mass. 399; Gordon v. Richmond, &c. R. Co. 78 Va. 501; Commonwealth v. Pittsburg, &c. R. Co. 74 Pa. St. 83; State V. Baltimore, &c. R. Co. 6 Gill (Md.) 363. Such a dividend, it is said, may be revoked at any time before certificates are issued. Terry V. Eagle Lock Co. 47 Conn. 141. In England such a dividend is held to be ultra vires, and an some of the states It Is prohibited by constitu- tional provision. Hoole v. Great Western R. Co. L. R. 3 Ch. App. 262. 449 EEMEDIES FOE ABUSE OF DISCEETION-. [§ 314 general, it is said, borrow money to pay a dividend when a fair esti- mate of its assets and liabilities sbows an excess of assets equal to the amount of the proposed dividend,"* since the profits of the corporation for the purpose of declaring a dividend may fairly be estimated to consist in the excess of its cash and other property on hand over its liabilities.'^ § 314. Bemedies for abuse of discretion. — The usual remedy for an abuse of discretion in using the profits and failing to declare divi- dends is by electing other directors,"" and the court will take into ac- count the fact that not only this course, but also that of disposing of his shares, is open to.an aggrieved shareholder.'^ But still a court of equity will exercise a supervisory power in this matter, and may, at the instance of any shareholder, compel the proper authorities to de- clare and pay the dividend, in cases where there is a clear abuse of power in refusing to do so.°* This power is most often invoked by the holders of preferred shares, when the action of the directors threatens to rob them of their preference. Thus, in a recent case,'" it appeared that by the terms of the subscription contract the holders of preferred stock in the defendant company were entitled to a divi- " Stringer's Case, L. R. 4 Ch. 475. « Hubbard v. Weare, 79 Iowa, 678, 44 N. "W. 915; Miller v. Bradish, 69 Iowa 278. »°Jermain v. Lake Shore, &c. R. Co. 91 N. Y. 483; Karnes v. Roch- ester, &c. R. Co. 4 Abb. (N. Y.) N. S. 107; Chaffee v. Rutland, &c. R. Co. 55 Vt. 110; Barnard v. Vermont, &c. R. Co. 7 Allen (Mass.) 512; Brown v. Monmouthshire, &c. R. Co. 13 Beav. 32, 15 Jur. 475. "Barry v. Merchants' Exchange Co. 1 Sandf. Chan. (N. Y.) 280. " Stevens v. South Devon R. Co. 9 Hare 313; Brown v. Buffalo, &c. R. Co. 27 Hun (N. Y.) 342; Boardman T. Lake Shore, &e. R. Co. 84 N. Y. 157; Hiscock v. Lacy, 9 Misc. (N. T.) 578, 30 N. Y. S. 860; Crichton T. Webb Press Co. 113 La. Ann. 167, 36 So. 926, 67 L. R. A. 76. But not where the stpckholder waits until after the corporation has become in- Eix. Railboads — 29 solvent before bringing his suit. Scott V. Eagle Fire Ins. Co. 7 Paige (N. Y.) 198. And it is held In Mas- sachusetts that no equitable relief can be granted against a foreign corporation having neither oflScers nor place of business In that state for a failure to declare and pay divi- dends according to the stipulations of their certificates of stock. Willis- ton V. Michigan Southern, &c. R. Co. 13 Allen (Mass.) 400. In de- termining the question the object of the corporation and the condition of its affairs will be considered. Fougeray v. Cord, 50 N. J. Bq. 185, 24 Atl. 499. Ordinarily, however, the directors cannot be compelled, by mandamus, to pay a dividend. People V. Central, &c. Co. 41 Mich. 166. •"Hazeltine v. Belfast, &c. R. Co. 79 Me. 411, 1 Am. St. 330. §■ 315] DIVIDENDS. 450 dend from net profits each year during which they were earned, but not to cumulative dividends, and that the arrearages of one year were not payable out of the earnings of subsequent years. It was held that an attempt on the part of the directors to accumulate money for the payment of the funded indebtedness, by refusing to pay any dividends on preferred stock through a long term of years, after which the in- come from the road might be expected to be great enough to pay to the holders of common stock the same dividends that holders of pre- ferred stock would be entitled to receive, was unjustifiable and a viola- tion by the directors of their legal duty, and the court ordered the payment of a dividend to the preferred shareholders out of the income for the current year, after the corporate expenses and interest on the funded debt had been paid.^"" But one who is not a stockholder cannot obtain a decree compelling the corporation to declare and pay such dividends as shall appear upon an accounting to have been earned.^"^ § 315. limitations upon authority to declare a dividend — Suits to reclaim. — There are also many limitations upon the legal authority of the directors to declare a dividend. In Virginia, it is held that directors who have failed to declare dividends at the time fixed by the charter cannot declare one for each of a number of years and so reduce the size of the dividends. ^"^ A valid dividend can in no case be declared and paid when the corporation is insolvent,^"^ but can only be lawfully declared when sufficient net profits have been earned to pay it. And if payment of the dividend will consume any portion of the capital stock of the company, suth dividend may be held fraudulent and void,^°* and, if paid, so much of the capital as was ™ See, also, Richardson v. Ver- shareholders claimed the right to mont, &c. R. Co. 44 Vt. 613; West have such dividends paid to them Chester, &c. R. Co. v. Jackson, 77 as would equal the dividends re- Pa. St. 321; Nickals v. New York, ceived by the preferred sharehold- &c. R. Co. 15 Fed. 575, and compare ers for a series of twelve years past, Williston V. Michigan Southern R. before any further payments were Co.' 13 Allen (Mass.) 400; Belfast, made to the preferred shareholders. &c. R. Co. V. Belfast, 77 Me. 445. ^'^ Dividends paid when the com-t "' Berford v. New York Iron Mine, pany is insolvent may be recovered 56 N. Y. Super. Ct. 236, 4 N. Y. S. back from the stockholders. Os- 836. And a stockholder must usual- good v. Laytin, 3 Keyes (N. Y.) 521; ly first make proper application to Slayden v. Seip, &c. Co. 25 Mo. App. the directors. Meeder v. Buffalo 439. See, also, Taylor v. Common- Bill's "Wild West Co. 132 Fed. 280. wealth, 25 Ky. L. 374, 75 S. W. 244. "= Gordon v. Richmond, &c. R. Co. ^" Chaffee v. Rutland, &c. R. Co. 78Va. 501. In this case the common 55 Vt. 110; Elkins v. Camden, &c. 451 AUTHOEITT TO DECLAEE SUITS TO RECLAIM. [§ 315 consumed in the payment may be recovered back^°^ by suit in equity^"^ brought by any corporate creditor who holds a judgment against the corporation upon which an execution has been returned unsatisfied.^"^ So, a receiver may recover money paid as a dividend while the com- pany was insolvent.^"^ And it has been held that the directors them- selves may reclaim dividends which have been illegally declared under a misapprehension of the right to declare them, and which have been paid to the shareholders.^"® The stockholder is bound to take notice of the condition of the corporation,^^" and it has been held that his private property may be reached in such an action by the creditors,^^"^ even though he was in reality ignorant of the fact that payment of his dividend would impair the capital stock. The statute of limitations will run from the time the dividend is declared in favor of a share- holder who receives such a dividend in good faith and without actual R. Co. 36 N. J. Eq. 233; Pittsburg, &c. R. Co. V. County of Allegheny, 63 Pa. St. 126; Carpenter v. New York, &c. R. Co. 5 Abb. Pr. (N. Y.) 277; Lockhart v. Van Alstyne, 31 Mich. 76, 18 Am. R. 156. But see Verner v. General, &c. Trust (L. R. 1894), 2 Ch. 239. ^^ Railroad Company v. Howard, 7 Wall. (U. S.) 392; Finn v. Brown, 142 V. S. 56, 12 Sup. Ct. 136; John- son V. Laflin, 5 Dill (U. S.) 65, 85, note; Hastings v. Drew, 76 N. Y. 9; McKusick V. Seymour, &c. Co. 48 Minn. 172, 50 N. W. 1116; Heman V. Britton, 88 Mo. 549; Story's Bq. Juris. (13tli ed.) § 1252. The cor- poration should be made a party to the bill. First Nat. Bk. &c. v. Smith, 6 Fed. 215. i» The creditor should file a bill in the nature of a creditor's bill in fa- vor of himself and all other cred- itors that may choose to come in and share the expense of the suit. Hastings v. Drew, 76 N. Y. 9; Bank of St. Mary's v. St. John, 25 Ala. 566; First Nat. Bank v. Smith, 6 Fed. 215. ""Cook Stock and Stockholders, ,§ 548. But creditors of an insol- vent corporation cannot, ordinarily, require the stockholders to surren- der dividends paid by it when it was solvent. Reld v. Eatonton Co. 40 Ga. 98, 2 Am. R. 563; Mercantile, &c. Co., In re, L. R. 4 Ch. 475; Main T. Mills. 6 Biss. (U. S.) 98. i"' Osgood v. Layton, 3 Keyes (N. Y.) 521. Compare Van Duyck v. McQuade, 86 N. Y. 45. ^""Lexington, &c. Co. v. Page, 56 Ky. 412, 66 Am. Dec. 165. This de- cision, however, seems questionable. ""Peterson v. Illinois, &c. Co. 6 Bradw. (111.) 257; Clapp v. Peter- son, 104 111. 26; Osgood v. Laytin, 48 Barb. (N. Y.) 463; Bank of St. Mary's v. St. John, 25 Ala. 566. ""a Bartholomew v. Behtley, 15 Ohio 659, 45 Am. Dec. 596. As to the stockholder's liability in a pro- ceeding by creditor's bills to reach dividends paid after the corpora- tion was insolvent or in contempla- tion of insolvency, see Railroad Co. V. Howard, 7 Wall. (U. S.) 392; Pa- cific R. Co. V. Cutting, Jr. 27 Fed. 638; Hastings v. Drew, 76 N. Y„ 9; Heman v. Britton, 88 Mo. 549; Lex- ington, &c. Ins. Co. v. Page, 56 Ky. 412, 66 Am. Dec. 165. § 316] DIVIDENDS. 453 notice.^^^ If compelled to pay more than his equitable proportion of such a debt, the stockholder may enforce contribution by his associ- ates ;^^^ and a stockholder who became possessed of his shares after such a dividend was paid cannot be held liable in such a suit.^^* It has also been held that he is not liable to corporate creditors for a dividend received by him in good faith while the corporation was solvent.^^* § 316. Dividends should be paid out of the profits. — The rule is often stated as requiring all dividends to be paid out of the net profits of the company, and this rule is generally correct when net profits are interpreted to mean that portion of the income which remains after the deduction of all proper charges and outlays,^^^ including interest, and the like.^^* But the corporation is not required to be ab- solutely free from debt before paying dividends ;^^^ indeed, a con- trary rule would prevent almost every railroad in the country from paying dividends.^^^ The debts which the company is authorized to carry while paying dividends are funded debts, and others of that class. Debts owing to contractors, and money due to bankers and others for advances made to aid in building the road, must usually be defrayed before dividends are declared,^^' though these debts may, in the discretion of the directors, be converted into funded indebted- "> Lexington, &c. Ins. Co. v. Page, Co. L. R. 3 Ch. App. Cas. 337, 344, 56 Ky. 412, 66 Am. Dec. 165. 350. "= Bartlett v. Drew, 57 N. Y. 587. ™ See Mobile, &c. R. Co. v. Ten- ™Hurlbut V. Tayler, 62 Wis. 607. nessee, 153 U. S. 486, 14 Sup. Ct. "* Great Western, &c. Co. v. Har- 968. Except in cases where a por- ris, 128 Fed. 321, 63 C. C. A. 51. tion of the capital is distributed '■^ St. John V. Erie R. Co. 22 Wall, upon a reduction of capital stock. (U. S.) 136; Miller r. Bradish, 69 "See Strong v. Brooklyn, &c. R. Co. Iowa 278, 28 N. W. 594. See, also, 93 N. Y. 426. New York, &c. R. Co. v. Nickals, 119 "' Mills v. Northern, &c. R. Co. L. U. S. 296, 7 Sup. Ct. 209. The net R. 5 Ch. App. Cas. 621. profits have been held to be the in- "* In support of the text see, also, come remaining after the payment Belfast, &c. R. Co. v. Belfast, 77 Me. of operating expenses, and before 445; Hazeltine v. Belfast, &c. R. Co. the payment of interest. Corry v. 79 Me. 411, 1 Am. St. 330; Miller v. Londonderry, &c. R. Co. 29 Beav. Bradish, 69 Iowa 278, 28 N. W. 594. 263. But it is doubted if interest ""Wood's R. Law, 168. See, also, on debentures can be charged to Bond v. Barrow, &c. Co. (1902) 1 capital, and the fund for the pay- Ch. 353, 9 Manson 69, 71 L. J. Ch. ment of dividends thereby in- 246. creased. Bloxam v. Metropolitan R. 453 ENJOINING PAYMENT OF DIVIDENDS. [§ SIT ness where this is practicable.^^" But it has been held that dividends must ordinarily be paid only out of earnings/^ ^ and, unless the con- trary is provided by charter or by statute, so, as a general rule, must interest upon stock when it is allowed.^^^ Consequently, it is unlawful for a company which has not yet earned any income to declare a divi- dend upon its ordinary stock out of a sum of money, paid to it as penalty and interest by the contractors, upon a failure to complete the company's lines according to agreemeiit.^^^ An absolute agree- ment to pay interest upon stock, where it is not expressly authorized by statute, has been held void,^^* although it is perfectly competent in this country for a railroad company to contract that it will, when- ever the surplus earnings shall enable it to do so out of such earn- ings, pay interest on the stock subscriptions for the time the road is building and until it is ready for operation.^^^ § 317. Enjoining; payment of dividends. — An injunction will not issue at the instance of corporate creditors to restrain acts tending to decrease the corporate assets where it is not shown that the remaining assets will be insuflBcient to meet the corporate liabilities.^^* And an- other company claiming the right of distress for non-payment of toll charges cannot obtain an injunction to restrain the payment of divi- dfinds.^^^ The fact that there is not cash actually on hand or at the banker's to pay the proposed dividend in fuU,^"* or that certain im- material errors in calculations are contained in an account honestly made out and published in good faith,^^® is not sufficient to justify ^"' Belfast, &c. R. Co. v. Belfast, 77 ^ Richardson v. Vermont, &c. R. Me. 445, 23 Am. & B. R. Cas. 736, Co. 44 Vt. 613; Cunningham v. Ver- 740. mont, &c. R. Co. 12 Gray (Mass.) "'Bloxham t. Metropolitan R. Co. 411; McLaughlin v. Detroit, &c. R. L. R. 3 Ch. App. Cas. 337. Co. 8 Mich. 100; Ohio City v. Cleve- "= Macdougall v. Jersey, &c. Co. 2 land, &c. R. Co. 6 Ohio St. 489; Hem. & M. 528; Salisbury v. Metro- Evansville, &c. R. Co. v. Evansville, politan R. Co. 38 L. J. Ch. 249. 15 Ind. 395. ^ Bloxh^am v. Metropolitan R. Co. "' Mills v. Northern, &c. R. Co. L. L. R. 3 Ch. App. Cas. 337. R. 5 Chan. 621; Lee v. Neuchatel, i=» McLaughlin v. Detroit, &c. R. &c. Co. 58 L. T. R. 553. But see Co. 8 Mich. 100; Pittsburg, &c. R. Williams v. Boice, 38 N. J. Eq, 364. Co. V. Allegheny Co. 63 Pa. St. 126; "'South Yorkshire R. Co. v. Great Painsville, &c. R. Co. v. King, 17 Northern R. Co. 9 Exch. 55. Ohio St. 534; Troy, &c. R. Co. v. '^» Stringer's Case, L. R. 4 Chan. Tibbitts, 18 Barb. (N. Y.) 297. See, 475. also. National Salt Co. v. Ingraham, ^" Yool v. Great Western R. Co. 20 122 Fed. 40, 58 C. C. A. 356. But L. T. R. (N. S.) 74. see ante, § 86. §' 317] DIVIDENDS. 454 the granting of an injunction. And a court of equity will not restrain the payment of a dividend merely upon the ground that the directors have acted in violation of their duties to the public.^'" An injunc- tion will not be granted, it seems, to restrain payment of a dividend already declared without a stronger showing than is required to re- strain the declaration of the dividend,^^^ though the fact that divi- dends have been declared is by no means conclusive of the fact that they must be paid. It is generally held that the court will not, in a suit brought by a single shareholder, to which the other shareholders are not made parties, restrain the payment of dividends which have been regularly declared, since it cannot, in their absence, interfere with the legal right which the stockholders have acquired to such divi- dends.^'^ But a stockholder may file a bill on behalf of himself and others to enjoin the threatened declaration of a dividend out of the capital stock. ^'^ It must be shown that a fraud is being perpetrated upon citizens of the state in which the suit is brought, before its courts will enjoin the declaration of a dividend by a corporation of another state.^^* But it has been held that the court will not refuse to restrain the corporation from paying a dividend to the common share- holders to the injury of resident holders of preferred shares upon which dividends have not been paid, even though the defendant cor- poration has its domicile in another state.^^' ™ Browne v. Monmouthshire R. 277. See, also, March v. Eastern R. &c. Co. 13 Beav. 32; Stevens v. South Co. 40 N. H. 548, 77 Am. Dec. 732. Devon R. Co. 9 Hare 313. But the bill must show that injury '^' Carpenter v. New York, &c. R. will result from the illegal act. Co. 5 Abb. Pr. (N. Y.) 277; Carlisle Chaffee v. Rutland R. Co. 55 Vt. 110; v. Southeastern R. Co. 1 Macn. & G. Carlisle v. Southeastern R. Co. 1 689. Macn. & G. 689, 14 Jur. 515. An in- "^ Fawcet v. Laurie, 1 Drew. & Sm. junction has also been granted to 192; Carlisle v. Southeastern R. Co. restrain the payment of a dividend 1 Macn. & G. 689; Carpenter v. New out of earnings necessary to repair York, &c. R. Co. 5 Abb. Pr. 277. the road. Davidson v. Gillies, 1 Am. "^ 2 Beach Private Corporations, & Bug. R. Cas. 595, note. See, also, § 607; Carlisle v. Southeastern R. Dent v. London, &c. Co. L. R. 16 Co. 1 Macn. & G. 689, 14 Jur. 515; Ch. Div. 344, 1 Am. & Bug. R. Cas. Fawcet v. Laurie, 1 Drew. & Sm. 192 ; 592. MacDougall v. Jersey, &c. Co. 2 Hem. "" Howell v. Chicago, &c. R. Co. & M. 528; Bloxam v. Metropolitan 51 Barb. (N. Y.) 378. See, also, R. Co. L. R. 3 Ch. 337; Salisbury v. Williston v. Michigan Southern, &c. Metropolitan R. Co. 38 L. J. Ch. 249 ; R. Co. 13 Allen (Mass.) 400; Ber- Painsville, &c. R. Co. v. King, 17 ford v. New York, &c. Co. 56 N. Y. Ohio St. 534; Carpenter v. New Super. Ct. 236, 4 N. Y. S. 836. York, &c. R. Go. 5 Abb. Pr. (N. Y.) ""Prouty v. Michigan Southern, 455 PERSONAL LIABILITY OF DIRECTORS. , [§ 318 § 318. Personal liability of directors. — In addition to their lia- bility as stockholders, the directors have been held personally liable ^;o refund dividends paid out of the capital stock/'' at least where they have acted wilfully and knowingly/'^ and they have been denied re- course upon the stockholders who took the dividends in good faith.^'* It has been said that, "Where directors order dividends to be paid where no profits have been made, without expressly saying so, a gross fraud is practiced, and the directors are not only civilly liable to those whom they have deceived and injured, but are guilty of conspiracy, ■for which they are liable to be prosecuted and punished."^'* But the better rule would seem to be that they are not liable beyond their lia- bility as stockholders, where they have acted in good faith/*" or, if they are held liable, they may, perhaps, recover what they have paid in an action against the stockholders.^*^ A suit to enforce this lia- bility has been held to be properly brought by a non-participating stockholder.^*^ But a stockholder seeking to hold the directors per- sonally liable for damages which he has sustained by reason of their fraud and mismanagement, should bring his suit in a court of equity.^*' At law, in the absence of special statute, the directors are responsible only to the corporation.^** It is, however, provided by statute in many .&c. R. Co. 1 Hun (N. Y.) 655. But gested that such, a suit would be see Williston v. Michigan Southern, more properly brought by the stock- Ac. R. Co. 13 Allen (Mass.) 400. holders, or by the corporation, and ^*°Gratz V. Redd, 4 B. Mon. (Ky.) the court doubts if the directors can 178, 194; Hill v. Frazier, 22 Pa. St. be held liable to the corporate cred- 320. See, also, Evans v. Coventry, iters, but it may well be doubted 25 L. J. Ch. 489, 8 DeGex, M. & G. if the stockholders retaining their ■835; National Funds, &c. Co., In re, dividends could have any standing 1j. R. 10 Ch. Div. 118. in a court of equity to prosecute "' Burnes v. Pennell, 2 H. L. Cas. such a suit, and the creditors would 497, 513. seem to have the strongest claim "* Exchange Banking Co., In re, L. in equity to some remedy for an Im- E. 21 Chan. Dlv. 519. pairment of the fund upon the faith ^^Lord Campbell in Burnes v. of which the debts are created. Pennell, 2 H. L. Cas. 497, 513. i« Smith v. Kurd, 12 Met. (Mass.) ^"Excelsior Pet. Co. v. Lacey, 63 371; Bishop v. Houghton, 1 E. D. N. Y. 422. Smith (N. Y.) 566; Sears v. Hotch- >" Salisbury v. Metropolitan R. Co. kiss, 25 Conn. 171. 22 L. T. R. (N. S.) 839. ^« Smith v. Poor, 40 Me. 415; '"Salisbury v. Metropolitan R. Co. Evans v. Brandon, 53 Tex. 56; Allen 22 L. T. R. (N. S.) 839. In Lexing- v. Curtis, 26 Conn. 456, 65 Am. Dec. ton, &c. R. Co. v. Bridges, 46 Ky. 557. And, of course, a stockholder 556, 559, 46 Am. Dec. 528, it is sug- who has received a dividend wrong- § 319] DIVIDENDS. 456 of the states that the directors declaring and paying any dividend which impairs the capital stock shall be individually liable for the corporate debts/^^ or for some other stated penalty, such as double damages, fine or imprisonment. It has been held that where recovery is had from a director as a wrong-doer under such a statute,^*' he can have no right of subrogation as against the corporation.^*" And a claim based on such a statute^** against a director who has acted in good faith, may, it seems, be barred by laches.^*^ § 319. Dividends payable in scrip. — ^Dividends are frequently made payable in "scrip" or certificates which confer upon the holder certain rights, which are set out in the certificates themselves. This plan is adopted when the profits of the company are in the shape of prop- erty which has yet to be sold, or when the profits are being used in making improvements to be represented by a stock dividend, which is to be declared at some time in the.future. The certificates are made redeemable in money, stock, bonds, or property, either at a fixed time or at the option of the corporation^^" or of the holder,^"*^ and, being- negotiable, enable the stockholders who wish to do so, to realize at once upon the dividend. Sometimes these certificates so far partake of the nature of certificates of stock as to entitle the holder to divi- dends.^^^ But the issue of such certificates is not a distribution of the surplus from which the corporation expects to pay them, and does not transfer the title to that surplus to the holders of certificates."^ The company may, however, distribute the property of which its sur- plus income consists among its stockholders in the form of a divi- fully and illegally declared will not ™ Brown v. Lehigh, &c. Co. 49 Pa. be allowed to maintain an action for St. 270. his own benefit, from the directors >"' Chaffee v. Rutland R. Co. 55 Vt. who illegally declared it, on the the- 110; State v. Baltimore, &c. R. Co. ory of a breach of trust. Wallace 6 Gill (Md.) 363; Brundage v. V. Lincoln Savings Bank, 89 Tenn. Brundage, 1 Th. & C. (N. Y.) 82, 630, 24 Am. St. 625. affirmed, 60 N. Y. 544. "'Stimson Am. Stat. (1892) '»= Bailey v. Railroad Co. 22 Vail. §§ 8161, 8236, 8634. See Companies' (U. S.) 604. It usually carries no Act of 1862 (Eng.), § 165. voting power. Commonwealth v. '"Pennsylvania Act of 7th of Union, &c. Co. 192 Pa. St. 507, 43 April, 1849, § 9. Atl. 1010. »' Hill v. Frazier, 22 Pa. St. 320. "' People v. Board of Assessors, 76 "»Eng. Companies' Act of 1862, N. Y. 202, 16 Hun (N. Y.) 196; Com- § 165. monwealth v. Pittsburg, &c. R. Co. ""Mammoth Copperopolis, &c.. In 74 Pa. St. 83; Bailey v. Railroad re, 50 L. J. Chan. 11. Co. 22 Wall. (U. S.) 604. 457 STOCK DIVIDENDS. [§ 320 dend, where it is susceptible of a ratable distribution;*®* or it may declare a dividend payable in bonds which represent earnings used for the improvement of the road.*"" § 320. Stock dividends. — If the earnings of the company have been devoted to the purchase of shares of stock made under legislative au- thority, the shares so purchased may be distributed to the stockholders in the form of a stock dividend,*^^ unless such dividends are pro- hibited by statute. A stock dividend has been defined as "the issue by a corporation, as a dividend, of new shares which have been paid up by the transfer from the surplus or profit and loss account to the ac- count representing capital stock of a sum equal to their par value."*^^ The effect of such a dividend is, it seems, simply to change the form of the investment of the stockholders by increasing the number of shares and thereby diminishing the value of each without affecting the solvency of the corporation or altering the aggregate value of the shares or interests of the stockholders.*^* It may, therefore, be made not only where old shares have been purchased by the corporation, but also where the corporation is authorized to increase its stock and issue new shares and a surplus has been earned, so that the ne\^ stock represents and has back of it so much additional capital or property which the directors might have distributed among the stockholders or retained for future use.*°* Insomuch as the stock dividend consist- '" Scott V. Central R. &c. Co. 52 til it is ordered to be divided among Barb. TN. Y.) 45, where the divi- them. Wiltbank's Appeal, 64 Pa. St. dends were paid in Confederate 256, 3 Am. R. 585; St. John v. Erie money. See, also. Merchant v. R. Co. 10 Blatch. (U. S.) 271; Brad- Western, &e. Ass'n, 56 Minn. 327, 56 ley v. Holdsworth, 3 M. & W. 422. N. W. 327; Williams v. Western tin. "'"Stock Dividends and Their Re- Tel. Co. 93 N. Y. 162. stralnt," 7 Am. Bar Assn. 268; note i™Wood V. Lary, 47 Hun (N. Y.) to Gordon's Exrs. v. Richmond, 550; State v. Baltimore, &c. R. Co. 6 &c. R. Co. 78 Va. 501, 22 Am. & Eng. Gill (Md.) 363. R, Cas. 33, 48. "' Commonwealth v. Boston, &c. R. ™ Williams v. Western Union Tel. Co. 142 Mass. 146, 7 N. E. 716. See, Co. 93 N. Y. 162; Howell v. Chicago, generally, on the right to purchase &c. R. Co. 51 Barb. (N. Y.) 378; its own shares, note to Hall v. Hen- Terry v. 'Eagle Lock Co. 47 Conn, derson, 126 Ala. 449, 28 So. 531, 61 L. 141; Gibbons v. Mahan, 136 U. S. R. A. 621; Porter v. Plymouth Gold 549, 10 Sup. Ct. 1057; De Koven v. Min. Co. 29 M'ont. 347, 74 Pac. 938, Alsop, 205 111. 309, 63 L. R. A. 587. 101 Am. St. 569, and note. But the "" Morawetz Private Corporations, stockholders have no right to claim §§ 452, 453; Rand v. Hubbell, 115 a pro rata share of such stock un- Mass. 461, 15 Am. R. 121; Com- §■ 330], DIVIDENDS. 458 ing of new shares virtually takes the place of a cash dividend, each shareholder is, ordinarily, entitled to share therein to the same extent as if it were paid in cash, and all should, therefore, be given an equal opportunity to take their proportionate shares of the new stock in the first instance.^'" But it is said that stockholders in railroads and other corporations, whose powers and duties are defined by statute, have no right to claim shares of new stock, upon any terms, in preference to others desiring to become owners of such stock, ilnless this privilege is expressly conferred upon them in some manner equivalent to a declaration of a dividend.^"^ In our opinion, however, there is no good reason for distinguishing between railroad companies and other corporations whose stockholders have been held to have the first right to take the new shares, unless there is something requiring it in the charter, statute, or by-laws of the particular corporation.^*^ And when the capital stock of a company has been lawfully reduced, the property thus deducted from the capital may be distributed as a divi- dend.^"* Where no special provision is made to the contrary, a divi- dend is presumed to be payable in cash, and in lawful or current money.^°* And a company cannot show that a dividend was payable monwealth v. Pittsburg, &c. R. Co. 74 Pa. St. 83; Kenton Furnace, &c. Co. V. McAlpin, 5 Fed. 737. See, also, Farwell v. Great Western Tel. Co. 161 111. 522, 44 N. E. 891. 160 jiorawetz on Private Corpora- tions, §§ 454, 455; Jones v. Morrison, 31 Minn. 140, 16 N. W. 854; Jones V. Terre Haute, &c. R. Co. 57 N. Y. 196; Dousman v. Wisconsin, &c. R. Co. 40 Wis. 418; De Koven v. Alsop, 205 111. 309, 63 L. R. A. 587. It has been held that the corporation may give the stockholders the privilege of taking new stock, when the capi- tal stock is increased, at par, or less than par, although it may be worth more. Moss's Appeal, 83 Pa. St. 264, 24 Am. R. 164; Wiltbank's Ap- peal, 64 Pa. St. 256, 3 Am. R. 585. As to the rights of holders of pre- ferred stock, see Gordon's Exrs. v. Richmond, &c. R. Co. 78 Va. 501, 22 Am. & Bng. R. Cas. 33; Phillips v. Eastern R. Co. 138 Mass. 122. "^Wood Railroads, § 72; Miller v. Illinois Cent. R. Co. 24 Barb. (N. Y.) 312; Curry v. Scott, 54 Pa. St. 270; Ohio Ins. Co. v. Nunnemacher, 15 Ind. 294. "n Rorer Railroads, 208; Gray v. Portland Bank, 3 Mass. 364, 3 Am. Dec. 156; Cunningham's Appeal, 108 Pa. St. 546; Reese v. Bank of Mont- gomery Co. 31 Pa. St. 78, 72 Am. Dec. 726; State, Page v. Smith, 48 Vt. 266; Eidman v. Bowman, 58 111. 444, 11 Am. R. 90. ^== Strong V. Brooklyn, &c. R. Co. 93 N. Y. 426, 435; Parker v. Mason, 8 R. I. 427. "»Ehle V. Chittenango Bank, 24 N. Y. 548; Scott v. Central R. &c. Co. 52 Barb. (N. Y.) 45, where the income of the corporation was Con- federate money only, but the legal effect of the resolution was held to be that the dividends were payable in lawful money of the United States. 459 DIVIDENDS PAYABLE WITHOUT DISOEIMINATIOIT. [§ 331 only in bank bills passing at a discount, if it has not distinctly said so in the resolution declaring it.^"" § 321. Dividends payable without discrimination.— A dividend must be payable equally to all stockholders of the same class, and the directors cannot discriminate either as to the proportional size of the dividends^'" or as to the manner or time of payment,^®^ or as to the medium of payment, as by paying a part of the stockholders in gold and forcing the others to accept depreciated paper at its face value,^** hecause a portion of the stock is unpaid,^*' or because certain stock- holders own a greater number of shares than others,^^" or because the stock held by part of the stockholders was issued after that held by others, even though it was not issued until after the dividend was earned, provided it was issued before the dividend was declared.^' ^ The stockholders may prevent or restrain an unequal or unfair dis- tribution of the profits of the company by bill in equity,^^^ or they '"» Ehle v. Chittenango Bank, 24 N. T. 548, where the dividend was de- clared to be payable In "New York state currency." "= Ryder v. Alton, &o. R. Co. 13 111. 516; PainesvUle, &c. R. Co. v. King, 17 Ohio St. 534; Howell v. Chicago, Ac. R. Co. 51 Barb. (N. Y.) 378; Hale V. Republican Riv. Bridge Co. 8 Kan. 466; State v. Baltimore, &c. H. Co. 6 Gill (Md.) 363; Jackson v. Newark Plank Road Co. 31 N. J. Law 277; Atlantic, &c. Tel. Co. v. Commonwealth, 3 Brewst. (Pa.) 366; Harrison v. Mexican R. Co. L. R. 19 Eq. 358; Coey v. Belfast, &c. R. Co. (Irish R.) 2 C. L. 112; March T. Eastern R. Co. 43 N. H. 515. But see, as to preferred stockhold- ers entitlbd to a fixed sum per an- num. Fidelity Trust Co. v. Lehigh, &c. R. Co. 215 Pa. St. 610, 64 Atl. 829; Gardner, &c. Bank v. Taber- Prang, &c. Co. 189 Mass. 363, 75 N. B. 705. "' State V. Baltimore, &c. R. Co. 6 ■Gill (Md.) 363; Jones v. Terre Haute, &c. R. Co. 57 N. Y. 196.' ^^ State V. Baltimore, &c. R. Co. 6 Gill (Md.) 363; Keppel's Admr. v. Petersburg, &c. R. Co. Chase's Dec. (U. S.) 167. "" Oakbank, &c. Co. v. Crum, L. R. 8 App. Cases 65; Reese y. Bank, &c. 31 Pa. St. 78, 72 Am. Dec. 726. But the dividend so declared may gen- erally be applied by the corporation toward extinguishing the sharehold- er's indebtedness for his stock. King V. Paterson, &c. R. Co. 29 N. J. L. 504. That it may be so applied by agreement, see Kenton, &c. Co. v. McAlpin, 5 Fed. 737. "° State V. Baltimore, &c. R. Co. 6 Gill (Md.) 363; Jones v. Terre Haute, &c. R. Co. 57 N. Y. 196. '"Jones V. Terre Haute R. Co. 57 N. Y. 196; Jermain v. Lake Shore, &c. R. Co. 9i N. Y. 483; Phelps v. Farmers', &c. Bank, 26 Conn. 269. '"Luling V. Atlantic, &c. Ins. Co. 45 Barb. (N. Y.) 510; Cratty v. Peoria, &c. Ass'n, 219 111. 516, 76 N. E. 707. In case of a fraudulent overissue of stock, payment of divi- dends may be enjoined until it is § 331] DIVIDENDS. 460 may, perhaps, sue at law as for a breach of the implied contract to distribute the profits ratably.^^^ ascertained who are the true holders of genuine stock. Underwood v. New York, &c. R. Co. 17 How. Pr. 537. See, also, Burnes v. Pennell, 2 H. L. Cas. 497; Painesville, &c. E. R. Co. V. King, 17 Ohio St. 534. *"Such an action was sustained in New Jersey. Jackson v. Newark Plank-Road Co. 31 N. J. L. 277. See, also. Hill V. Mining Co. (Mo.), 21 S, W. 508. CHAPTER XV. CONSOLIDATION. Sec. Sec. 322. Consolidation must be author- 331. ized by legislature. 322a. Wliat is sufficient authority. 332. 323. Statutory mode must be pur- sued — Collateral attack. 333. 324. Intention to ponsolidate — Dif- ference between succession 334. and consolidation. 325. Right of majority to effect con- solidation — ^When minority 335. may prevent — Release of dissenting subscribers. 325a. Right to condemn shares of 335a. dissenting stockholder. 326. Statutory provisions for con- solidation. 336. 327. Rights of old stockliolders and their relation to the new 337. company. 32S. Remedies for old stockholders. 329. Consolidated company suc- ceeds to rights and liabili- 338. ties of the old companies. 330. Special privileges and immuni- 339. ties — ^When they pass to the new company. When special privileges do not Duties and obligations of new company. Liability of new company on old contracts. Liability of new company for torts — Extent of liability — Generally. Constituent companies are usually dissolved — ^When not. Duration of life and fran- chises of consolidated com- pany. Effect of consolidation upon liens. De facto consolidation — Estop- pel — ^Liability of constituent companies where consolida- tion is set aside. Effect of consolidation upon pending suits. Consolidation with foreign corporations. § 322. Consolidation must be authorized by legislature. — In the absence of legislative authority a railroad company cannot consolidate ■with another company so as to form a single corporation/ although 1 Clearwater v. Meredith, 1 Wall. Co. 20 Ind. 492, 83 Am. Dec. 329; (U. S.) 25; Pearce v. Madison, &c. Blatchford v. Ross, 5 Abb. Pr. N. S. R. Co. 21 How. (tr. S.) 441; Green- (N. Y.) 434, 54 Barb. (N. Y.) 42; Tllle, &c. Co. v. Planters', &c. Co. New York, &c. Canal Co. v. Fulton 70 Miss. 669, 13 So. 879, 35 Am. Bank, 7 Wend. (N. Y.) 412; Black St. 681; Aspihwall v. Ohio, &c. R. v. Delaware,. fid. Canal Co. 24 N. J. 461 322] CONSOLIDATION". 463-- the legislature may, by a subsequent act, render valid an unauthorized consolidation.^ Most of the states, however, now make provision for the consolidation of railroad companies owning roads which form a continuous or connecting line,^ while some of the states permit con- solidation wherever the two consolidating roads connect to form a continuous line by means of an intervening railroad, and others do not require any connection at all between existing roads as a pre- requisite to a valid consolidation of their lines.* This general au- thority, however, is subject to the provisions of the constitutions' and laws" of many of the states, which forbid the consolidation of com- Eq. 455; Charlton v. Newcastle, &c. R. Co. 5 Jur. N. S. 1096; note to Wood V. City of Seattle (Wash.), 52 L. R. A. 369, 370. See, also, Ashley V. Ryan, 153 U. S. 436, 14 Sup. Ct. 865; Kavanagh v. Omaha L. Ass'n, 84 Fed. 295; Pingree v. Mich. Cent. R. Co. 118 Mich. 314, 76 N. W. 635, 643, 53 L. R. A. 274 (citing text). But if one company is given power to consolidate with any other it may choose, the company It selects is thereby authorized to unite with it in the consolidation. Prospect Park, &c. R. Co., In re, 67 N. Y. 371. ^Bishop V. Brainerd, 28 Conn. 289; Mead v. New York, &c. R. Co. 45 Conn. 199; McAuley v. Columbus, &c. R. Co. 83 111. 348; Mitchell v. Deeds, 49 111. 416, 95 Am. Dec. 621; Fisher v. Evansville, &c. R. Co. 7 Ind. 407, 413; American Loan &c. T. Co. V. Minnesota, &c. R. Co. 157 111. 641, 42 N. E. 153; Louisville Trust Co. V. Louisville, &c. R. Co. 75 Fed. 433, 22 C. C. A. 378. But a general law authorizing railroad corpora- tions to consolidate their roads, which is prospective in its language and terms, will not be construed to have a retrospective operation. Hatcher v. Toledo, &c. R. Co. 82 111. 477; 1 Rorer Railroads, 591. Infor- mal consolidation has been held val- idated by subsequent legislation. Mead v. New York, &c. R. Co. 45 Conn. 199; McCauley v. Columbus, &c. R. Co. 83 111. 348, 352. "Stimson Am. Stat. (1892), §8730. Two or more railroad corporations, whose roads form a continuous line, may enter into an arrangement for operating both roads as one and thus become jointly liable for debts incurred in borrowing money to be used in furtherance of the business of such line. Chicago, &c. R. Co. v; Ayres, 140 111. 644, 30 N. B. 687. * Stimson Am. Stat. (1892), § 8730. The statutes of many of the states also authorize consolidation when the roads, cross or intersect each other. = Stimson Am. Stat. (1886), § 467, citing constitutions of Pennsylvania, Illinois, Michigan, Nebraska, West Virginia, Missouri, Arkansas, Texas, Colorado. See, also, note in 52 L. R. A. 373, 374, for a reference to con- stitutional provisions and decisions under them. 'Stimson Am. Stat. (1892), §8730. See, also, note in 52 L. R. A. 376. A railroad need not necessarily be parallel to or connected with an- other road in order to be a "compet- ing road" within the statute forbid- ding the consolidation of competing roads. East Line, &c. R. Co. v. State, 75 Tex. 434, 12 S. W. 690. The Mis. souri statute, which prohibits any 463 CONSOLIDATION MUST BE ADTHOEIZED BY LEQISLATUEE, [§ 333 panies owning or operating parallel and competing lines.'^ In addi- tion to the powers conferred by such general statutes, authority to con- solidate is sometimes given in the company's charter/ or is contained in a special act of the legislature in states where special acts are not forbidden by the constitution.^ A state has a right to prescribe the conditions upon which a consolidation may be had under its laws, and a statute requiring the payment of a fee upon filing an agreement of consolidation is not unconstitutional or invalid as imposing a tax on interstate commerce.^" railroad company within the state from owning, operating, or manag- ing any other parallel or competing railroad within the state, applies only where both the roads are situ- ated within the state, and where the competition is of some practical im- portance, such as is liable to affect rates. Kimhall v. Atchison, &c. R. Co. 46 Fed. 888. 'In West Virginia and Maryland the consolidation of such companies is forbidden without the consent of the legislature, and in Florida the consent of the railroad commission is required. Stimson Am. Stat. (1892) § 8730. The constitution of Texas forbids consolidation with any other railroad company organ- ized under the laws of another state. Art. 10, § 6. In New Jersey, consol- idation with a corporation of an- other state can only be effected with the consent of the legislature. N. J. S. (1886) R's, § 91. Many other states also forbid the consolidation of parallel and competing lines. Ref- erences to the constitutions and statutes will be found in the note in 52 L. R. A. 373, 376. As to what are and what are not competing lines, see Kimball v. Atchison, &c. R. Co. 46 Fed. 888; People v. O'Brien, 111 N. Y. 1, 18 N. E. 692, 2 L. R. A. 255, 7 Am. St. 684; Leavenworth v. Chicago, &c. R. Co. 25 Fed. 219; Currier v. Concord, &e. R. Co. 48 N. H. 321; Illinois, &c. Trust Co. v. St. Louis, &c. R. Co. 217 111. 504, 75 N. E. 562, and authorities cited in preceding note. * Nugent V. Supervisors, 19 Wall. (U. S.) 241; Archer v. Terre Haute, &c. R. Co. 102 111. 493. See, also. Bonnet v. First Nat. Bank, 24 Tex, Civ. App. 613, 60 S. W. 325. »R. S. 111. 1889, Ch. 114, §§ 3941 ' and 196, 197; Black v. Delaware, &c.' Canal Co. 24 N. J. Eq. 455; Fisher V. Evansville, &c. R. Co. 7 Ind. 407. Power given by statute to one rail- road to consolidate with another has been held to authorize any other to join with it. Prospect Park, &c. R. Co., In the Matter of, 67 N. Y. 371; Mitchell v. Deeds, 49 111. 416, 95 Am. Dec. 621. A law prohibiting a particular railroad company from consolidating with any parallel or competing line does not violate any contract or other right vested in another railroad company, author- ized generally by a former statute to consolidate with any connecting company, the company prohibited not yet being in existence at the time of passage of the prohibitory statute and there being at that time no contract authorizing such consol- idation of the two roads. East Line, &c. R. Co. V. Rushing, 69 Tex. 306. " Ashley v. Ryan, 153 IT. S. 436, 14 Sup. Ct. 865, affirming 49 O. St. 504, 31 N. E. 721. As to whether the § 332a] CONSOLIDATION. 464 § 322a. "What is sufficient authority. — The power of a state to authorize the consolidation of corporations of its own creation in a proper case is unquestioned, in the absence of some constitutional limi- tation.^^ And it has been held that a consolidation of street railway lines, apparently demanded by the public interests, when authorized by law, is not in violation of a provision of the constitution prohibiting monopolies, trusts and combinations for the purpose of fixing prices or limiting production or regulating transportation of any product or commodity.^^ But the authority to consolidate must be clearly given and cannot, ordinarily, be implied.^^ Thus a prohibition of the con- solidation of parallel and competing lines does not impliedly authorize the consolidation of lines which are neither parallel nor competing.^* So, authority to consolidate with another line cannot be inferred from the power to merely "unite or connect" therewith, as this is held to mean only a physical union or mechanical connection of the tracks.^" power is exhausted by one consolida- tion, see Taylor v. Atlantic, &c. R. Co. 57 How. Pr. (N. Y.) 26; Conti- nental Trust Co. V. Toledo, &c. R. Co. 82 Fed. 642, to the effect that it is not, and Morrill v. Smith County, 89 Tex. 529, 36 S. W. 56, to the con- trary. "Ohio, &c. R. Co. V. People, 123 111. 467, 14 N. E. 874. "Wood V. Seattle. 23 Wash. 1, 62 Pac. 135, 52 L. R. A. 369. As to whether street railroads are in- cluded in the general acts for the consolidation of railroads, see Wash- ington Street, &c. R. Co., Re, 115 N. Y. 442, 22 N. B. 356; Hestonville, &c. R. Co. V. Philadelphia, 89 Pa. St. 210; Millvale v. Evergreen, &c. R. Co. 131 Pa. St. 1, 18 Atl. 993, 7 L. R. A. 369, holding that they are. "See Greenville, &c. Co. v. Plant- ers', &c. Co. 70 Miss. 669, 13 So. 879; American Loan, &c. Co. v. Minne- sota, &c. R. Co. 157 111. 641, 42 N. E. 153; Earle v. Seattle, &c. R. Co. 56 Fed. 909; Erste Sokolower, &c. v. First United, &c. Verein, 32 Misc. , (N. Y.) 269, 66 N. Y. S. 356; Central R. Co. V. Collins, 40 Ga. 582; Com- monwealth v. Pennsylvania, &c. R. Co. 17 Phila. (Pa.) 609; Lauman v. Lebanon Valley, &c. R. Co. 30 Pa. St. 42, 12 Am. Dec. 685; Morawetz Priv. Corp. § 940. "East Line, &c. R. Co. v. State, 75 Tex. 434, 12 S. W. 690. "Louisville, &c. R. Co. v. Ken- tucky, 161 U. S. 677, 16 Sup. Ct. 714. It is also held in this case that the constitution may forbid the consol- idation of parallel or competing roads; that a grant of authority to purchase and hold any branch road constructed by another company or to receive the cars of other roads and agree on terms does not author- ize either a consolidation or pur- chase of parallel and competing roads and that acquiescence by the state in several purchases of branch roads parallel to some of the com- panies own branches cannot be treated as a binding contemporane- ous construction of the charter so as to authorize consolidation with a parallel and competing road con- necting the principal termini of the company. 465 STATUTOET MODE EXCLUSIVK — COLLATERAL ATTACK. [§ 333. It is also the rule that Both of the consolidating companies must be competent, or, in other words, that mere general authority granted to one of them to consolidate is not sufficient unless the particular con- solidation is authorized or both companies have authority to make such a consolidation.^^ § 323. Statutory mode must be pursued — Collateral attack. — En- abling statutes and laws providing for consolidation are construed to ■ authorize a consolidation only in eqses where the companies seeking to combine come fairly within the terms of the statute. And a statute which provides for the consolidation of companies owning lines that have been /SO constructed as to admit the passage of cars over such lines of road continuously without break of gauge or interruption, does not authorize the consolidation of companies whose roads cannot be so comhined as to form substantially a single line of road.^' But stat- utes authorizing the consolidation of connecting or continuous lines do not always require that one should connect with the other "at its ierminus.^* It has been held that the organization of a railroad com- "St. Louis, &c. R. Co. V. Terre Haute, &c. R. Co. 145 U. S. 393, 12 Sup. Ct. 953; Louisville, &c. R. Co. T. Kentucky, 161 U. S. 677, 16 Sup. Ct. 714; East Line, &c. R. Co. v. Rushing, 69 Tex. 3C6, 6 S. W. 834. See, also, Pennsylvania R. Co. v. St. Louis, &c. R. Co. 118 U. S. 290, 6 Sup. Ct. 1094; Central Transp. Co. T. Pullman's Palace Car Co. 139 U. S. 24, 11 Sup. Ct. 478; Camden, &c. R. Co. V. May's Landing, &c. Co. 48 N. J. L. 530, 7 Atl. 523. But com- pare New York, &c. R. Co. v. New Tork, &c. R. Co. 52 Conn. 274; Pros- pect Park, &c. R. Co., Re, 67 N. Y. 377. "State V. Atchison, &o. R. Co. 24 Neb. 143, 38 N. W. 43, 8 Am. St. 164; East Line, &c. R. Co. v. State, 74 Tex. 434, 12 S. W. 690; Central R. &c. Co. V. Macon, 43 Ga. 646; State V. Vanderbilt, 37 Ohio St. 590. In the latter case the court says: "That the mere physical ability to pass cars from one road to'the other sat- Eli. RAttEOADS — 30 isfles the statute is a construction of it which is wholly Inadmissible, for the provision requiring such con- nection would be without meaning. In imposing that -restriction upon consolidation, the legislature in- tended, not merely that the physical fact should exist, but that such con- solidation should only be made for the very purpose of passing freight and passengers over both lines, or some material parts thereof — not necessarily in a direct or straight line, but continuously." The court cannot know judicially that roads sought to be consolidated would, if completed, form a continuous line. Georgia Pacific R. Co. v. Gaines, 88 Ala. 377, 7 So. 382. "Hancock v. Louisville, &c. R. Co. 145 U. S. 409, 12 Sup. Ct. 969; Wallace v. Long Island R. Co. 12 Hun (N. Y.) 460. See, also, Buck V. Seymour, 46 Conn. 156; Hum- phreys V. St. Louis, &c. R. Co. ,37 Fed. 730; Union Trust Co. v. Illinois §■ 333] CONSOLIDATION. 466 pany with the view of ultimately consolidating upon equitable terms and in accordance with the provisions of an existing statute with an- other already in existence, is not contrary to public policy, and a rail- road corporation organized for such purpose may, with a view to ac- complishing such consolidation and carrying out the object for which it was created, purchase the stock of such other road.^* Where the statute provides for the mode of consolidation, that mode must be substantially, if not strictly, pursued,^" although the courts will usually presume in favor of the validity of a consolidation in the ab- . sence of evidence to the contrary,^^ and will not permit it to be ques- Mid. R. Co. 117 U. S. 434, 6 Sup. Ct. 809; Atchison, &c. R. Co. v. Fletcher, 35 Kans. 236, 10 Pac. 596; Mayor, &c. V. Baltimore, &c. R. Co. 21 Md. 50. " Hill V. Nisbet, 100 Ind. 341. It was held by the supreme court of Michigan that a certain statute of that state authorized a railroad com- pany to purchase the stock of an- other company for the purpose of acquiring its road-bed and right of way. Dewey v. Toledo, &c. R. Co. 91 Mich. 351, 51 N. "W. 1063. See ante, § 95, note 3, on page 142, where the provisions of the statute are quoted. See, also. Market St. R. Co. V. Hellman, 109 Cal. 571, 42 Pac. 225. As to consolidation of uncompleted roads, see Livingston County v. First Nat. Bank, 128 U. S. 102, 9 Sup. Ct. 18; Bohmer v. HafEen, 161 N. Y. 390, 55 N. B. 1047. But compare Clarke V. Omaha, &c. R. Co. 4 Neb. 459. ^ Pingree v. Michigan Cent. R. Co. 118 Mich. 314, 76 N. W. 635, 643, 53 L. R. A. 274 (quoting text) ; Rodgers V. Wells, 44 Mich. 411; Mansfield, &c. R. Co. V. Drinker, 30 Mich. 124; Peninsular R. Co. v. Tharp, 28 Mich. 506; Commonwealth v. Atlantic, &c. R. Co. 53 Pa. St. 9; State v. Vander- bilt, 37 Ohio St. 590. An agreement for consolidation of two railroad companies, duly executed after the meetings of the stockholders of both companies had been held, in which the consolidation was ordered, is not rendered invalid by the fact that it bears date prior to the meetings. Wells V. Rodgers, 60 Mich. 525, 27 N. W. 671. Substantial compliance with an act authorizing consolida- tion is sufficient. County of Leaven- worth V. Chicago, &c. R. Co. 25 Fed. 219. "■ Sparrow v. Bvansville, &c. R, Co. 7 Ind. 369; Farmers', &c. Co. v. Toledo, &c. R. Co. 67 Fed. 49, 55; Swartout v. Michigan, &c. Railroad Co. 24 Mich. 389. See Wells v. Rodgers, 60 Mich. 525, 27 N. W. 671. But in Georgia Pacific R. Co. v. Gaines, 88 Ala. 377, 7 So. 382, the supreme court of Alabama held that it must affirmatively appear that several companies consolidated un- der the laws of that state are so joined as to form^a continuous line, or the consolidated company can- not claim to succeed to the rights of the constituent companies. See, also, Georgia Pac. R. Co. v. Wilks, 86 Ala. 478; Brown v. Dibble, 65 Mich. 520, 32 N. W. 656, 30 Am. & Eng. R. Cas. 241. In Cameron v. New York, &c. Co. 133 N. Y. 336, 31 N. B. 104, it is held that where pro- ceedings are duly begun under a statute repealed while they are in 467 INTENTION — SUCCESSION AND CONSOLIDATION COMPAEED. [§ 334 tioned collaterally,^^ at least by the corporation and its stockholders, where it assumes to act as a consolidated company under the law and issues bonds and mortgages as such without any objection on the part of the state or the stockholders.^^ But where the constitution of a state provided that no railroad corporation should consolidate its stock, property, franchises or earnings, in whole or in part, with any other railroad company owning a parallel or competing line, it was held that the word "consolidate" was used "in the sense of join or unite," and that the constitution could not be evaded by substituting a lease instead of a conveyance.^* The case just referred to was a quo war- ranto proceeding by the attorney-general to oust the lessor company from its franchises, and the court held that they were subject to for- feiture, but refused to decree a forfeiture in the first instance and merely declared the lease void. §324. Intention to consolidate — Difference between succession and consolidation. — ^Where a general power to consolidate is given without any specific provision as to the terms or mode, it is held that the companies may unite upon such terms and in such mode as they choose,''^ so long as they do not exceed the statutory authority. But a clear intention to consolidate, together with the performance of acts progress they may be concluded un- Bell v. Pennsylvania, &c. R. Co. (N. der a saving clause in the repealing J.) 10 Atl. 741. But see, as to right act. of stockholder in the original cor- ^ Pittsburgh, &e. R. Co. v. Roths- poration to question the existence of child, 26 Am. & Eng. R. Cas. 50. the consolidated corporation when See, also, Wallace v. Loomis, 97 U. sued on his subscription, post, § 307; S. 146; Dallas Co. v. Huidekoper, 1 Thomp. Corp. §§ 357, 358. 154 U. S. 654, 14 Sup. Ct. 1190; Car "^Phinizy v. Augusta, &c. R. Co. sey v. Galli, 94 U. S. 673. A de facto 62 Fed. 678; Farmers', &c. Co. v. consolidated corporation cannot set Toledo, &c. R. Co. 67 Fed. 49. See, up the illegality of the consolidation also, Ashley v. Supervisors, 60 Fed. to defeat a recovery against It upon 55 ; Close v. Glenwood Cemetery, 107 the contracts of one of its constitu- U. S. 466, 2 Sup. Ct. 267; Douglas Co. ent companies. Chicago, &c. R. Co. v. Bolles, 94 U. S. 104; Bradford v. V. Putnam, 36 Kans. 121, 12 Pac. Frankfort, &c. R. Co. 142 Ind. 383, 593. Only the state can attack the 40 N. B. 741. validity of a consolidation, appar- "* State v. Atchison, &c. R. Co. 24 ently regular, which has existed and Neb. 143, 38 N. W. 43, 8 Am. St. 164, been acted upon by the companies 32 Am. & Eng. R. Cas. 388. for five years. Atchison, &c. R. Co. =®Dimpfel v. Ohio, &c. R. Co. 9 V. Board. Comrs. Sumner Co. 51 Biss. (U. S.) 127, 8 Rep. 641. Kans. 617, 33 Pac. 312. See, also. § 334]_ CONSOLIDATION. 468 reasonably appropriate to that end, must be shown in order to estab- lish a consolidation,^" and the mere purchase by one railroad corpora- tion of the franchise and property of another at a sale on execution does not operate to make the purchaser the successor by consolidation of the purchased road.^^ A consolidated corporation may usually be said to be the successor of the original or constituent companies,^* but succession is not necessarily consolidation, and a corporation may have authority to become the successor of another without having any au- thority to consolidate. Succession by purchase, or in any other manner than by consolidation, is usually a very different thing from the latter and gives rise to different rights and liabilities.^" So, a consolidation =»1 Thomp. Corp. §§ 327, 328, 329; Shrewsbury, &c. R. Co. v. Stour Val- ley R. Co. 21 Eng. L. & Bq. 628. See, also. Hart v. Rensselaer, &c. R. Co. 8 N. Y. 37, 59 Am. Dec. 447. The union of name, officers, business and property of corporations does not, it has been held, change their dis- tinctive character as separate corpo- rations. Nashua, &c. R. Corp. v. Boston, &c. R. Corp. 136 U. S. 356, 10 Sup. Ct. 1004, 42 Am. & Eng. R. Cas. 688. Nor is a temporary, co- operation under one management a consolidation. Archer v. Terre Haute, &c. R. Co. 102 111. 493, 7 Am. & Eng. R. Cas. 249. And the identi- ty of the stockholders, or the fact that one of the corporations, by means thereof, or by means of the ownership of the stock of the other, exercised a controlling influence over it, does not make either the agent of the other, nor merge them into one, so as to make the contract of one binding upon the other, where they are separately organized under distinct charters. Richmond, &c. Const. Co. V. Richmond, &c. R. Co. 68 Fed. 105; Central Trust Co. v. Bridges, 57 Fed. 753. "Gulf, &c. R. Co. V. Newell, 73 Tex. 334, 11 S. W. 342, 15 Am. St. 788; Gulf, &c. R. Co. v. Morris, 67 Tex. 692, 4 S. W. 156; Houston, &c. R. Co. v. Shirley, 54 Tex. 125; Crane, &c. Co. V. Fry, 126 Fed. 278. But consolidation by purchase may be expressly authorized. Williamson V. New Jersey, &c. R. Co. 26 N. J. Eq. 398; Eaton, &c. R. Co. v. Hunt, 20 Ind. 457. See, also, Chicago, &c. R. Co. V. Ashling, 160 111. 373, 43 N. E. 373; Chicago, &c. R. Co. v. State, 153 Ind. 134, 51 N. E. 924, where all stock of one company is purchased and stock of other company is issued in exchange.' But compare Ex- change Bank v. Macon, &c. Co. 97 Ga. 1, 25 S. E. 326, 33 L. R. A. 800. ^United States v. Southern Pac. R. Co. 14 Sawy. (U. S.) 620. ™See Taylor Priv. Corp. § 415- 418; "Wait Insolv. Corp. § 428. The distinction is well stated in Comp- ton V. Wabash, &c. R. Co. 45 Ohio St. 592, 16 N. E. 110, 18 N. E. 380. See, also. Capital Traction Co. v. Offutt, 17 App. (D. C.) 292; Pingree V. Michigan Cent. R. Co. 118 Mich. 314, 76 N. W. 635, 53 L. R. A. 274 (citing text); State v. Montana R. Co. 21 Mont. 221, 53 Pac. 623, 45 L. R. A. 271; Pennison v. Chicago, &c. R. Co. 93 Wis. 344, 67 N. W. 702; Conn V. Chicago, &c. R. Co. 48 Fed. 177; Memphis, &c. R. Co. v. Woods, 88 Ala. 630, 7 So. 108, 7 L. R. A. 605, 16 Am. St. 81; note in 89 Am. St. 607-612; note in 52 L. R. A. 369. 469 EIGHTS OF MAJOEITT AND MINOEITT. [§ 325 in the strict sense is to be distinguished from a merger,'" reorganiza- tion,'^ amalgamation'^ or lease." § 325. Right of majority to effect consolidation — ^When minority may prevent — ^Release of dissenting subscribers. — Where the law un- der which a corporation is formed provides generally for its consoli- dation with other companies, such consolidation may be efEected at the pleasure of the majority of the corporation.'* But where the power to consolidate was not contained in the charter or governing law, a con- solidation cannot be effected without the consent of all the stock- holders,'^ even though the legislature may have passed a subsequent Thus, the successor by purchase may acquire the property free from dehts and liabilities already created. Hoard v. Chesapeake, &c. R. 123 U. S. 222, 8 Sup. Ct. 74; Pennsylvania Transp. Co.'s Appeal, 101 Pa. St. 576; Cook v. Detroit, &c. R. Co. 43 Mich. 349, 5 N. W. 390; Hammond V. Port Royal, &c. R. Co. 15 S. Car. 10,. and 16 S. Car. 567. And while it is usually bound by restrictions on the old company, it does not always acquire the special privileges and franchises of the old company. Thus, if ar individual purchaser be- comes the successor, the franchise to be a corporation may not pass to him. See ChafCe v. Ludeling, 27 La. Ann. 607; Pittsburgh, Cin. &c. R. Co. V. Moore, 33 Ohio St. 384, 31 Am. R. 543; Campbell v. Marietta, &c. R. Co. 23 Ohio St. 168; Daniels v. St. Louis, &c. R. Co. 62 Mo. 43 ; Pennsyl- vania R. Co. v. Sly, 65 Pa. St. 205; Ragan v. Aiken, 9 Lea (Tenn.) 609, 42 Am. R. 684. ^'Vicksburg, &c. Tel. Co. v. Citi- zens' Tel. Co. 79 Miss. 341, 30 So. 725, 89 Am. St. 656; Atlantic, &c. R. Co. V. Georgia, 98 U. S. 359. See, also. Central, &c. R. Co. v. State, 54 Ga. 401; Pingree v. Michigan Cent. R. Co. 118 Mich. 314, 76 N. W. 635, 53 L. R. A. 274 (citing text) ; Keo- kuk, &c. R. Co. v. Missouri, 152 TJ. S. 301, 14 Sup. Ct. 592. « See note in 89 Am. St. 609. =2 See note in 89 Am. St. 612. The terms are sometimes used as synony- mous, but amalgamation is an in- definite term and may include what is not strictly a consolidation. =» Mills v. Central R. Co. 41 N. J. Eq. 1, 2 Atl. 453; State v. Montana R. Co. 21 Mont. 221, 53 Pac. 623, 45 L. R. A. 271. See, also. State v. Van- derbilt, 37 Ohio St. 590; Missouri Pac. R. Co. v. Owens, 1 Tex. App. Civ. Cas. 384. But a consolidation sometimes takes the form, in some respects, of a lease, purchase of shares or the like. °* Sparrow v. Evansville, &c. R. Co. 7 Ind. 369; Bish v. Johnson, 21 Ind. 299; Atchison, &c. R. Co. v. Phillips Co. 25 Kans. 261; Cork, &c. R. Co. V. Paterson, 37 Bug. L. & Bq. Rep. 398; Mansfield, &c. R.' Co. v. Stout, 26 Ohio St. 241; Nugent v. Supervisors, 19 Wall. (U. S.) 241; Hale V. Cheshire R. Co. 161 Mass. 443, 37 N. B. 306. »Thomp. Corp. § 343. See, also. Chapman v. Mad River, &c. R. Co. 6 Ohio St. 119; Botts v. Simpson- ville, &c. Co. 88 Ky. 54, 10 S. W. 134, 2 L. R. A. 594; Illinois, &c. R. Co. V. Cook, 29 111. 237; Indianola R. §' 325] CONSOLIDATION". 470 statute authorizing the eonsolidation of all railroad companies/" ex- cept, perhaps, where the power to amend was reserved.^^ In other words, there must usually be the unanimous consent of all the stock- holders, unless the right to consolidate was given by the law or the "constating instruments" at the time the corporation was created.** If a consolidation be effected under legislative authority given after subscriptions are made but without the consent of subscribers who have not yet paid for stock in the original companies, the consolidated Co. V. Fryer, 56 Tex. 609; Clear- water V. Meredith, 1 Wall. (U. S.) 24; Gulf, &c. R. Go. v. Newell, 73 Tex. 334, 11 S. W. 342. Compare Lauman v. Lebanon Valley R. Co. 30 Pa. St. 42, 72 Am. Dec. 685. The stockholder may be estopped by his acquiescence for a term of years to deny the validity of a consolidation effected without his express consent. Boston, &c. R. Co. v. New York, &c. R. Co. 13 R. I. 260; Bell v. Penn- sylvania, &c. R. Co. (N. J.) 10 Atl. 741. See, also, Atchison, &c. R. Co. V. Sumner Co. Com'rs, 51 Kans. 617, 33 Pac. 312; International, &c. R. Co. V. Bremond, 53 Tex. 96. The consent of the bondholders and other creditors is not necessary to a consolidation. 2 Morawetz Priv. Corp. § 953. ^'McCray v. Junction R. Co. 9 Ind. 358; Sparrow v. Evansville, &c. R. Co. 7 Ind. 369; Kean v. Johnson, 9 N. J. Eq. 401; Barle v. Seattle, &c. R. 56 Fed. 909; Alexander v. At- lanta, &c. R. Co. 108 Ga. 151, 33 S. B. 866. And it has been held that the fact that the legislature has re- served the right to amend or repeal the original charter does not, ordi- narily, give it a right to authorize a consolidation against the will of the minority. Mayor, ■&c. Knoxville V. Knoxville, &c. R. Co. 22 Fed. 758; Cross V. Peach Bottom R. Co. 90 Pa. St. 392. See, also, Rabe v. Dunlap, 51 N. J. Eq. 40, 25 Atl. 959; Black V. Delaware, &c. Co. 24 N. J. Eq. 455; Kenosha, &c. R. Co. v. Marsh, 17 Wis. 13. But see Pennsylvania College Cases, 13 Wall. (U. S.) 190; Bishop V. Brainerd, 28 Conn. 289, and authorities cited in next follow- ing note. "Whether or not the legis- islature can authorize the consoli- dation of a corporation, under the general power reserved to alter or annul the charter, is not necessary to be decided. It is certain that it cannot be done when it affects the right of stockholders, by increasing their liability as such, or diminish- ing the value of their stock. * * * The act in this case is void unless made by the unanimous consent of the stockholders." Botts v. Simp- sonville, &c. Co. 88 Ky. 54, 10 S. W. 134, 2 L. R. A. 594; Blatchford v. Ross, 54 Barb. (N. Y.) 42, 37 How. Pr. (N. Y.) 110. But see Beal v. New York, &c. R. Co. 41 Hun (N. Y.) 172, 4 N. Y. S. 174. "See Market St. R. v. Hellman, 109 Cal. 571, 42 Pac. 225; Hale v. Cheshire R. Co. 161 Mass. 443, 37 N. E. 307; Hanna v. Cincinnati, &c. R. Co. 20 Ind. 30; Pacific R. Co. v. Ren- shaw, 18 Mo. 210. But compare last preceding note, and see, for review of cases on both sides of the ques- tion, the note in 52 L. R. A. 384- 387. »*Earle v. Seattle, &c. R. Co. 56 Fed. 909, 912. 4l?'l CONDEMNINO SHAKES OF DISSENTING STOCKHOLDBE. [§' 325a company cannot enforce such subscriptions.'" It has also been held that a municipal corporation has no power to give its consent to or acquiesce in a consolidation by which the enterprise is so far changed that the vote authorizing a subscription does not apply to the road of the new company.*" But the case referred to has been distinguished, and the general rule is that if a municipal corporation, authorized to make the subscription, has subscribed for stock of a corporation which at the time was empowered to consolidate with another the munici- pality will not be released by such authorized consolidation thereafter, and its bonds issued in payment are not rendered invalid.*^ § 325a. Bight to condemn shares of dissenting stockholder. — An interesting question has arisen as to the power of the legislature to authorize the condemnation of shares of a dissenting stockholder. It is evident that, if this power does not exist a single dissenting stock- liolder might, in some instances, seriously interfere not only with the interests of the majority stockholders but also with the public inter- ests. If there is due process of law and just compensation it would seem that there is no valid objection to the enactment of such a law and the exercise of the power of eminent domain in such a case, and so it has been held. In one case it is said: "In the exercise of the right of eminent domain the legislature may authorize shares in corporations and corporate franchises to be taken for public use upon just com- pensation. The title to this species of property is no more secure against invasion, where the public use requires it, than is the owner- ship of real estate under this paramount right in the public, subject to which all private property is held."*^^ And in a very recent case it is held that such a statute is valid and that it neither grants ex- == Booe v. Junction R. Co. 10 Ind. New Buffalo v. Iron Co. 105 U. S. S3; Harshman v. Bates Co. 92 U. S. 73; Livingston County v. Ports- 569; McCray v. Junction R. Co. 9 mouth Bank, 128 U. S. 102, 9 Sup. Ind. 358; Clearwater v. Meredith, 1 Ct. 18; Mayor v. Dennison, 69 Fed. "Wall. (U. S.) 25; 1 Thomp. Corp. 58; Bates County v. Winters, 112 U. i 75. See ante, §§ 43, 45. S. 325, 5 Sup. Ct. 157. See other " State V. Nemaha Co. Kans. 10 authorities in note to Cantillon v. Kans. 569. See, also, Harshman v. Dubuque, &c. R. Co. 78 Iowa 48, 42 Bates Co. 92 U. S. 569; Hamilton Co. N. W. 613, 5 L. R. A. 278, and in v. State, 115 Ind. 64, 4 N. E. 589, and note to Morrison v. American Snuff 17 N. E. 855; Morrill v. Smith Coun- Co. 89 Am. St. 629. ty, 89 Texas 529, 36 S. W. 56. "a Black v. Delaware, &c. Canal " Chicago, &c. R. Co, v. Stafford Co. 24 N. J. Eq. 455. County, 36 Kans. 121, 12 Pac. 593; § 326] COTTSOLIDATION. 472 elusive privileges to a particular set of men nor impairs the obligation of a contract within the meaning of the prohibition in the constitu- tion."" § 326. Statutory provisions for consolidation. — The laws of the various states for the consolidation of railroad companies generally provide that an agreement for a consolidation must be entered into by the directors-of the several companies*^ and ratified by a vpte of stock- holders.*^ In Indiana the statute provides that any railroad corpora- tion in that state may consolidate with a railroad corporation in an adjoining state "upon such terms as may be by them mutually agreed upon, in accordance with the laws of the adjoining state," and it is held that this does not require that the meeting of the stockholders to act upon the proposition to consolidate shall be called and con- ducted in accordance with the. laws of such adjoining state.** The agreement of consolidation as entered into by the directors and rati- fied by the stockholders is usually required to be filed with the secre- tary of state,*^ and it is held in Ohio that until this is done the con- "b New York, &c. R. Co. v. Offield, 77 Conn. 417, 59 Atl. 510, affirmed in (U. S.) 27 Sup. Ct. 72. To the same effect Is the recent case of Spencer v. Seaboard Air Line R. Co. 137 N. Car. 107, 49 S. B. 96, 1 L. R. A. (N. S.) 604. See, also, Gregg v. North- ern R. Co. 67 N. H. 452, 41 Atl. 271; Dickinson v. Consolidated Traction Co. 114 Fed. 232. But such a statute is not to be unduly extended or ap- plied so as to deprive the stock- holder of his rights without proper proceedings, due process of law and just compensation. See Mowry v. Indiana, &c. R. Co. 4 Biss. (U. S.) 73, 17 Fed. Cas. 930; Mills v. Cen- tral R. Co. 41 N. J. Eq. 1, 2 Atl. 453; Rabe v. Dunlap, 51 N. J. Bq. 40, 25 Atl. 959; Lauman v. Lebanon Val- ley R. Co. 30 Pa. St. 42, 49, 72 Am. Dec. 685; short note on the subject in 3 Mich. Law Rev. 309. «Stimson Am. Stat. (1892) § 8731. «Stimson Am. Stat. (1892) § 8732. The agreement for a consolidation must be ratified by a state board be- fore it is of any force in Michigan. Howell Stat. § 3344. In New Hamp- shire application must be made to the supreme court, which may, after notice and hearing, authorize the consolidation, "if the public good will be promoted by such union." Pub. Stat. 1892, Ch. 156, § 22. Judge Thompson says: "The statutes gen- erally prescribe: 1. An agreement between the corporations intending to consolidate. 2. Ratified by a cer- tain majority, generally two^thirds of the stockholders of each corpo- ration, at a duly notified meeting for that purpose. 3. The articles of consolidation thus ratified, properly authenticated, are filed with the sec- retary of state, which are there- after evidence of the consolidation in all courts." Consolidation of Cor- poration, 31 Cent. Law Jour. 4, 5. "Bradford v. Frankfort, &c. Co. 142 Ind. 383, 40 N. B. 741. "Stimson's Am. (1892), § 8732; 473 STATUTORY PEOVISIONS FOR CONSOLIDATION. [§ 326 solidation is not actually completed so as to effect a dissolution of the old companies, but that they still remain competent to accept subscriptions to their capital stock until the agreement is actually filed.^® The supreme court of Pennsylvania, however, holds that the- consolidated corporation is so far created by the execution of an agreement of consolidation by the constituent corporations that a valid subscription to its stock may be made before the agreement is re- corded.*^ And in a recent- case in one of the federal courts it was held that where the agreement was recorded in the office of the secre- tary of state and it appeared from the minutes of three of the com- panies that it had been ratified and accepted by the stockholders, and the new company assumed and exercised for several years entire- charge and control of all the roads without objection, this was suffi- cient to show an acceptance by all of them, although the minutes of the fourth company were lost and although the agreement did not have upon it the certificates of the several secretaries of the different com- panies, which the statute made conclusive evidence of such accept- Trester v. Missouri Pac. R. Co. 33 Neb. 171, 49 N. "W. 1110. See article by Judge Thompson in 31 Cent. L. Jour. 5. Notice is also required in some states. The certificate so filed is made evidence of a lawful con- solidation by a statute in some states. A copy of the articles of consolidation between two railroads, duly certified under the seal of the secretary of state, is prima facie evidence of the existence of the con- solidated corporation. Bast St. Louis C. R. Co. V. Wabash, &c. R. Co. 24 111. App. 279. A certified copy from the secretary of state's office of an agreement for consolidation was held by the Supreme Court of the United States to be conclusive evidence of the consummation of the consolidation of corporations in Missouri, under a similar statute, in suits between the consolidated company and individuals or other corporations. Leavenworth County V. Chicago, &c. R. Co. 134 U. S. 688, 10 Sup. Ct. 708. The filing of the certificate of consolidation may be made a condition precedent. Com- monwealth V. Atlantic, &c. R. Co. 53 Pa. St. 9; Peninsular R. Co. v. Tharp, 28 Mich. 506. But see Leav- enworth County V. Chicago, &c. R. Co. 134 U. S. 688, 10 Sup. Ct. 708. Other steps may also be required as condition precedent. Mansfield, &c.- R. Co. V. Drinker, 30 Mich. 124. "Mansfield, &c. R. Co. v. Brown, 26 Ohio St. 223. See, also, State v. Vanderbilt, 37 Ohio St. 590. "McClure v. People's Freight R. Co. 90 Pa. St. 269. The provision requiring each company to file with the secretary of state a resolution accepting the provision of the act urider which the two companies have consolidated is merely direc- tory, and a disregard of it will not invalidate the agreement of consoli- datioo, if all other provisions of the act have been complied with. Leav- enworth County V. Chicago, &c. R. Co. 25 Fed. 219, 134 U. S. 688, 10 Sup. Ct. 708. §' 327] CONSOLIDATION. 474 ance.*^ Statutes granting permissive authority to consolidate often prescribe conditions.*' A statute granting railroad companies power to consolidate, but coupling the grant with a condition or proviso that the consolidated company shall not have power to create any lien which shall be valid as against a specified class of creditors is not in violation of a constitutional provision that statutes shall embrace but one sub- ject, which must be expressed in the title.^" § 327. Rights of old stockholders and their relation to the new company. — The stockholders of the constituent corporations cannot be compelled to become stockholders of the new corporation without their consent, unless otherwise provided, and do not become such, as a rule, until the surrender of their old stock in exchange for new.^^ And, although the old corporation may be dissolved by the act of consolidation the property interests of its stockholders usually remain unchanged until divested by their own act or in some manner pro- vided by law.^^ Several of the states, however, provide for the pur- chase by the company of the shares of stockholders who decline to become members of the consolidated company.^^ And, as a general rule, unless otherwise provided by contract or the governing statute, ."Phinizy v. Augusta, &c. R. Co. water v. Meredith, 1 Wall. (U. S.) 62 Fed. 678. As to proof of con- 25; Lauman v. Lebanon, &c. R. Co. solidation, see Columbus, &c. R. Co. 30 Pa. St. 42, 72 Am. Dec. 685. V. Skidmore, 69 111. 566; Common- »= Philadelphia, &c. R. Co. v. Cata- wealth V. Carroll, 145 Mass. 403, 14 wissa R. Co. 53 Pa. St. 20. It has N. E. 618; Kinion v. Kansas City, been held in Massachusetts that the &c. R. Co. 39 Mo. App. 382. holder of bonds convertible into the " See Illinois G. T. R. Co. v. Cook, stock of a road which had consoli- 29 111. 237; Adams v. Yazoo, &c. R. dated with another to form a new Co. 77 Miss. 194, 24 So. 200, 317, 28 corporation, expressly charged with So. 956, 60 L. R. A. 33; Houston, the performance of its obligations &c. R. Co. V. Shirley, 54 Tex. 125; and liabilities, was entitled to de- Charlotte, &c. R. Co. V. Gibbes, 27 mand stock in the new corporation, S. Car. 385, 4 S. E. 49. as for the purposes of this contract ^'' Frazier v. Bast Tenn. &c. R. Co. the old corporation continued under 88 Tenn. 138, 12 S. W. 537, 40 Am. the new name. Day v. Worcester, & Eng. R. Cas. 358. &c. R. Co. 151 Mass. 302. "Beach Priv. Corp. § 351; Purdy's "'Stimson Am. Stat. (1892) § 8732. Beach Priv. Corp. § 1281; State v. But this does not prevent a resort Bailey, 16 Ind. 46, 79 Am. Dec. 405; to the courts in a proper case. Lan- Gardner v. Hamilton, &c. Ins. Co. gan v. Francklyn, 20 N. Y. S. 404. 33 N. Y. 421. See, also. Kohl v. See, also, as to right to arbitrate. Lilienthal, 81 Cal. 378, 20 Pac. 401, Pittsburgh, &c. R. Co. v. Garrett, 50 22 Pac. 689, 6 L. R. A. S20; Clear- Ohio St. 405, 34 N. E. 493. 4'i'5 REMEDIES OF OLD STOCKHOLDERS. [§ 328 when the consolidation is duly perfected stockholders in the old companies become stockholders in the new/* which may usually en- force the unpaid subscriptions to the stock of the old corporations.''^ But, if the subscription was made upon a valid condition, it passes to the new company subject to such condition.^* ' < § 328. Remedies of old stockholders. — As elsewhere stated,'' a dis- senting stockholder cannot always be compelled to become a share- holder in the new consolidated company, nor held liable upon his original subscription, and he may, in some instances, entirely defeat or prevent the consolidation. Thus, he may enjoin an ultra vires con- solidation,°^ inimical to him, at least until his interest is purchased or secured. "'^ He may, however, lose the right to enjoin a consolida- tion which could not be made without his consent by acquiescence or "Ridgway Township v. Griswold, 1 McCrary (U. S.) 151; 1 Thomp. Corp. § 355. In Fee v. New Orleans, &c. Co. 35 La. Ann. 413, it was held that a stockholder in one of the old companies could sue the consoli- dated company for stock which he was entitled to in exchange. So, under the agreement in Anthony v. American Glucose Co. 146 N. Y. 407, 41 N. E. 23. "Wells V. Rodgers, 60 Mich. 525, 27 N. W. 671; Cooper v. Shropshire, &c. R. Co. 13 Jur. 443, 6 Eng. R. & Canal Cas. 136; Hanna v. Cincinnati, &c. R. Co. 20 Ind. 30; Swartout v. Michigan, &c. R. Co. 24 Mich. 389; Pope V. Board of Com'rs, 51 Fed. 769; Nugent v. Supervisors, 19 Wall. (U. S.) 241. See, also, Hayworth v. Junction R. Co. 13 Ind. 348; Mans- field, &c. R. Co. V. Drinker, 30 Mich. 124. But compare Sprague v. Illi- nois, &c.' R. Co. 19 111. 174; Ottawa, &c. R. Co. V. Black, 79 111. 262. As to when this cannot be done, see ante, § 325. Here, of course, we re- fer to a consolidation authorized by charter or statute at the time the subscription was made. See, also. Sparrow v. Evansville, &c. R. Co. 7 Ind. 369; Hanna v. Cincinnati, &c. R. Co. 20 Ind. 30; Mansfield, &c. R. Co. V. Brown, 26 Ohio St. 223. "=1 Thomp. Corp. § 360; Mansfield, &c. R. Co. V. Pettis, 26 Ohio St. 259. "Ante, § 325. "'Charlton v. New Castle, &c. R. R. Co. 5 Jur. (N. S.) 1096; Watson V. Harlem, &c. Co. 52 How. Pr. (N. Y.) 348; Nathan v.- Tompkins, 82 Ala. 437, 2 So. 747. See, also, Ste- vens V. Rutland, &c. R. Co. 29 Vt. 545; Mowrey v. Indianapolis, &c. R. Co. 4 Biss. (U. S.) 78; Botts v. Simpsonville, &c. Co. 88 Ky. 54, 10 S. W. 134, 2 L. R. A. 594; Mills v. Central R. Co. 41 N. J. Eg. 1, 2 Atl. 453; 1 Beach Priv. Corp. § 356; Market St. R. Co. v. Hellman, 109 Cal. 571, 42 Pac. 225; Rabe v. Dun- lap, 51 N. J. Eq. 40, 25 Atl. 959. But not, it is held, on the ground that one of the constituent companies was illegally organized. Bell v. Penn. &c. R. Co. (N. J.) 10 Atl. 741. "'Lauman v. Lebanon, &e. R. Co. 30 Pa. St. 42, 72 Am. Dec. 685; State V. Bailey, 16 Ind. 46, 79 Am. Dec. 405. § 329] CONSOLIDATION. 476 laches.*" It is also said that where a consolidation is wrongfully ef- fected by the shareholders, over the objection of a dissenting share- holder, who has partly paid for his stock, the consolidated company is liable to him therefor, but he cannot sue the directors personally for damages."^ We have already referred to the general rule prohibit- ing collateral attacks upon consblidated corporations as well as other corporations, but this rule ought not, it seems to us, to be applied so as to prevent a subscriber to stock in one of the original corporations from questioning, under certain circumstances, the corporate exist- ence or title of the new consolidated corporation by way of defense to an action, by the new company to enforce such subscription."^ § 329. Consolidated company succeeds to rights and liabilities of the old companies. — As a general rule the consolidated company is vested with all the rights, property, privileges and franchises of the several companies of which it is formed,"^ and is subject to the debts ""Deaderick v. Wilson, 8 Baxt. (Tenn.) 108; Zabriskle v. Hacken- sack, &c. R. Co. 18 N. J. Eq. 178, 90 Am. Dec. 617; Bell v. Pennsylvania, &c. R. Co. (N. J.) 10 Atl. 741; 1 Beacli Priv. Corp. § 356; Purdy's Beach PrIv. Corp. 1272. See, also, Boston, &c. R. Co. v. New York, &c. R. Co. 13 R. I. 560; Rabe v. Dunlap, 51 N. J. Eq. 40, 25 Atl. 959; Drake V. New York, &c. Co. 26 App. Div. (N. Y.) 499, 50 N. Y. S. 826; Hale v. Cheshire R. Co. 161 Mass. 443, 37 N. E. 307; Alton R. &c. Co. v. May- field, 95 111. App. 146; Spencer v. Seaboard Air Line R. Co. 137 N. Car. 107, 49 S. E. 96, 1 L. R. A. (N. S.) 604, and note. " International, &c. R. Co. v. Bre- mond, 53 Tex. 96; Taylor Priv. Corp. § 536, note 3. See, also. Tanner v. Linden R. Co. 180 Mo. 1, 79 S. W. 155, 103 Am. St. 534. ""See Mansfield, &c. R. Co. v. Stout, 26 Ohio St. 241; Mansfield, &c. R. Co. V. Brown, 26 Ohio St. 223; Tuttle V. Michigan Air Line R. Co. 35 Mich. 247. But see Ottawa, &c. R. Co. V. Black, 79 111. 262. ™Stimson Am. Stat. (1892) § 8734; note to Louisville, &c. R. Co. V. Boney, 117 Ind. 501, 20 N. E. 432, 3 L. R. A. 435; Mt. Pleasant v. Beckwith, 100 U. S. 514; Crawfords- ville, &c. Co. v. Fletcher, 104 Ind. 97, 2 N. E. 243; Chicago, &c. R. Co. V. Moffit, 75 111. 524; Louisville, &c. R. Co. V. Blythe, 69 Miss. 939, 11 So. Ill, 16 L. R. A. 251, 30 Am. St. 599. See, also, Birmingham, &c. Co. v. Cunningham, 141 Ala. 470, 37 So. 689; 1 Thomp. Corp. § 365, et seq.; 1 Beach Priv. Corp. § 342; Purdy's Beach Priv. Corp. 1283; Taylor Priv. Corp. §424. State v. Maine Central R. Co. 66 Me. 488, It is held that where a new corporation is formed by the consolidation of two or more previously existing corpora- tions, and by the act is to "have the powers, privileges and immunities possessed by each of the corpora- tions," the new corporation will have only the privileges, powers and immunities possessed by the one of such corporations having the fewest privileges, powers and Immunities, and which were common to all. But see Natchez, &c. R. Co. v. Lambert, 70 Miss. 779, 13 So. 33. 4'?7' EIGHTS ON SUCCESSIOlf. [§ 339 and liabilities of such companies.** The statutes generally so pro- vide/' and such liability usually exists, even though neither the stat- ute nor the agreement of consolidation expressly so provides.*® But it is not liable for a penalty incurred by the lessee of one of the con- stituent companies."'' Even in the absence of express statutory pro- visions on the subject the property and franchises of the old com- "Stimson Am. Stat. (1892) § 8734; note to McMahan v. Morri- son. 79 Am. Dec. 424, 426; Louis- ville, &c. R. Co. V. Boney, 117 Ind. 501, 20 N. E. 432, 3 L. R. A. 435, and note; Beach, Priv. Corp. § 343; Purdy's Beach Priv. Corp. § 1288; Taylor Priv. Corp. § 425. See Har- rison V. Arkansas, &c. Co. 4 Mc- Crary (U. S.) 264; Pullman Car Co. V. Missouri Pac. Co. 115 U. S. 587, 6 Sup. Ct. 194; Thompson v. Abbott, 61 Mo. 176; Berry v. Kansas City, ■&c. R. Co. 52 Kans. 759, 39 Am. St. 371; Atlantic, &c. R. Co. v. Johnson (Ga.), 56 S. E. 483. The new company cannot aver ignorance of an unrecorded mortgage given by one of its . constituent companies. Mississippi, &c. Co. v. Chicago, &c. R. Co. 58 Miss. 846. See, also, Bloxam v. Florida, &c. R. Co. 35 Fla. 629, 17 So. 902. The New York statute authorizing the consolida- tion of railroad companies, and providing that all debts and liabil- ities of either company, except mortgages, shall attach to the new corporation, and be enforced against it and its property to the same ex- tent as if created by it, allows an action against the new company on "bonds and coupons of one of the former companies, though secured "by a mortgage on the property of ■the original debtor corporation. Polhemus v. Fitchburg R. Co. 123 N. Y. 502, 26 N. E. 31. See Plain- view V. Winona, &c. R. Co. 36 Minn. 505, 32 N. W. 745. Such liability attaches unless there is a special agreement to the contrary. Berry V. Kansas City, &c. R. Co. 52 Kans. 759, 774, 39 Am. St. 371. »=See Stimson's Am. St. (1892) § 8734; note in 89 Am. St. 636; Kansas City, &c. R. Co. v. Langley, 70 Kans. 453, 78 Pac. 858. " "The foundation of the liability of a consolidated corporation may rest on a statute or an agreement, either express or implied. If the statute does not provide that the new company shall assume the debts and liabilities of the consti- tuent companies, and there is no express agreement respecting the same, the debts of the original com- panies follow as an incident of the consolidation, and become by im- plication the obligations of the new corporation." Berry v. Kansas City, &c. R. Co. 52 Kan. 774, 36 Pac. 724, 39 Am. St. 381. See, also. People v. Louisville, &c. R. Co. 120 111. 48, 10 N. B. 657; State v. Baltimore, &c. R. Co. 77 Md. 489, 26 Atl. 865; Chase V. Michigan Tel. Co. 121 Mich. 631, 80 N. "W. 717; Shadford v. Detroit, &c. R. Co. 130 Mich. 300, 89 N. W. 960; Thompson v. Abbott, 61 Mo. 176; Houston, &c. R. Co. v. Shirley, 54 Tex. 125; Missouri Pac. R. Co. V. Owens, 1 Tex. App. Civ. Cas. 384- 386; Langborne v. Richmond R. Co. 91 Va. 369, 22 S. B. 159; National, &c. Works V. Oconto City, &c. Co. 105 Wis. 48, 81 N. W. 125; Tennes- see V. Whitworth, 117 U. S. 139, 6 Sup. Ct. 649. "State V. Pittsburg, &c. R. Co. 135 Ind. 578, 35 N. B. 700. §■ 329] CONSOLIDATION. ^78 panies will usually vest in the new corporation,'^ and it will succeed to all the rights of each of such companies, and may compromise and settle a claim against one of them and enforce the settlement by suit.*' Where the law under which the corporation was organized authorizes a consolidation, the consolidated company may recover on the contracts of subscription given to the original companies, since the subscrip- tions will be held to have been made with reference to the law as it then existed.''" The consolidated company may accept a continuing "'Meyer v. Johnston, 53 Ala. 237; Green County v. Conness, 109 U. S. 104, 3 Sup. Ct. 69; South Carolina R. Co. V. Blake, 9 Rich. L. (S. Car.) 228; Trester v. Missouri Pac. R. Co. 33 Neh. 171; Zimmer v. State, 30 Ark. 677; Langhorne v. Richmond R. Co. 91 Va. 369, 22 S. E. 159; Trenton St. R. Co., In re (N. J. Bq.), 47 Atl. 819; Southern Pac. R. Co. V. Poole, 32 Fed. 451; Daniels v. St. Louis, &c. R. Co. 62 Mo. 43; Baltimore v. Baltimore, &c. R. Co. 6 Gill (Md.) 288, 48 Am. Dec. 531; State V. Seaboard, &c. R. Co. 52 Fed. 450; Cashman v. Brownlee, 128 Ind. 266, 27 N. E. 560. In this latter case it is held that where land is conveyed in fee simple to a rail- road company and afterward the company is consolidated with an- other, and further consolidations take place from time to time, the new companies formed by the suc- cessive consolidations succeed to the said real estate, and may recover it from the grantor or those to whom he afterward transfers it, al- though he has remained in posses- sion of the premises for more than twenty years after the conveyance was made, since the possession of a grantor cannot be adverse to the title of his grantee. ™ Paine v. Lake Erie, &c. R. Co. 31 Ind. 283. The consolidated company may collect municipal aid voted to one of the companies of which it is formed, where the consolidation was authorized at the time it was voted. Scott v. Hansheer, 94 Ind. 1; Atchison, &c. R. Co. v. Phil- lips Co. 25 Kans. 261; East Lincoln V. Davenport, 94 IT. S. 801. See, also, Pope V. Board of Com'rs, 51 Fed. 769 (holding in accordance with the Indiana decision that the tax must be levied and collected or there is no legal right to it). The Pennsylvania statute governing the consolidation of connecting railroad companies provides that the new company shall possess all the rights theretofore vested in either of them; and all the property and rights of actions shall be deemed to be trans- ferred to the new company. It was held that the consolidated company could recover on an indemnity bond given by a passenger agent to one of the old companies, its attorney, successors, or assigns, prior to the act of consolidation, where such agent continues in his position and discharges substantially the same duties as before. Pennsylvania, &c. R. Co. V. Harkins, 149 Pa. St. 121, 24 Atl. 175, 50 Am. & Eng. R. Cas. 587. The new company may law- fully use a patent axle box which the old companies were licensed to use. Lightner v. Boston, &c. R. Co. 1 Lowell (U. S.) 338. "Bish V. Johnson, 21 Ind. 299; Atchison, &c. R. Co. v. Phillips Co. 25 Kans. 261; Nugent v. Supervisors, 479 SPECIAL PRIVILEGES AND IMMUNITIES. [§ 330 ofEer to subscribe made to one of the original companies, and may, when authorized to do so, perform any conditions annexed to a sub- scription given to such company.'^ A valid consolidation or a right as successor may, however, be required to be shown to enable the con- solidated company or its assignee to maintain an action upon the con- tracts of one of the roads out of which it was formed.'^ But it is sufficient, in pleading such a consolidation, to show the organization of the original companies into the consolidated company by a given name and as a corporate body by authority of law, without setting out the steps taken to effect the same.'* § 330. Special privileges and immunities — ^When they pass to the new company. — Special privileges possessed by all of the consolidat- ing companies will pass to the new company, where the-statute provides that it shall have all the "franchises, privileges and immunities of the constituent companies."'* Thus, it has been held that an exemption from taxation will pass to the new company so far as the property originally covered by the exemption is concerned. '° But, in the ab- 19 Wall. (U. S.) 25; Bates County V. Winters, 112 U. S. 325, 5 Sup. Ct. 157; Scotland County v. Thomas, 94 U. S. 682; Mansfield, &c. R. Co. v. Stout, 26 Ohio St. 241; ante, § 309. "Mansfield, &c. R. Co. v. Brown, 26 Ohio St. 223. "Brown v. Dibble, 65 Mich. 520, 32 N. W. 656, 30 Am. & Bng. R. Cas. 241. After a railroad company has been merged by consolidation with another railroad company, and such new corporation is carrying on a railway business, and is a de facto corporation, the existence and valid- ity of the corporation can only be attacked in a direct proceeding brought for that purpose; such a matter will not be the subject of a collateral attack by way of defeat- ing the right to recover on bonds of the merged railroad subscribed to by a county in aid of railroad con- struction. Chicago, &c. R. Co. v. Putnam, 36 Kans. 121, 12 Pac. 593. '» Collins V. Chicago, &c. R. Co. 14 Wis. 492. In pleading the consolida- tion of two railway corporations un- der the statutes of another state it is sufficient to set out a copy of the statutes, and to allege that their provisions have been complied with, and the consolidation effected; it is not necessary to set out the steps taken under the statutes, such steps being evidence of the consolidation. Rothschild v. Rio Grande W. R. Co. 63 Hun (N. Y.) 632, 18 N. Y. S. 548. '♦ In State v. Maine, &c. R. Co. 66 Me. 488, it was held that the consoli- dated company took only such privi- leges and immunities as were com- mon to all of the constituent com- panies. It could, however, doubtless be given all that any one of them possessed. "International, &c. R. Co. v. An- derson Co. 59 Tex. 654; Natchez, &c. R. Co. V. Lambert, 70 Miss. 779, 13 So. 33. Where two companies, whose charters exempt their capital stock from taxation, consolidate to § 330] CONSOLIDATIOlir. 480 senee of such a provision, it seems that a special immunity of exemp- tion from taxation enjoyed by one of tlie original companies will not pass to the consolidated company.'" It has been held that a right to take land for a right of way/' or to borrow money or mortgage the road as security,'* or to charge a certain rate for transportation,'" will pass to the consolidated company. So, it has been held that the right conferred by special charter upon a street railway company to operate a street railway upon all or any of the streets of a city, survives to the company in which it is merged by consolidation.'" And where the form a single corporation, it has been held that the shares of stock of such consolidated company are not subject to taxation. Tennessee V. Whitworth, 117 U. S. 139, 6 Sup. Ct. 649, affirming State v. Whit- worth, 22 Fed. 75, 81. See Phila- delphia, &c. R. Co. V. Maryland, 10 How. (U. S.) 376; Tomlinson v. Branch, 15 Wall. (U. S.) 460; Cen- tral R. &c. Co. T. Georgia, 92 U. S. •665; Chesapeake, &c. R. Co. v. Vir- ginia, 94 U. S. 718; Atlantic, &c. R. Co. V. Georgia, 98 U. S. 359; State Treasurer v. Auditor-General, 46 Mich. 224. But compare State v. Maine Central R. Co. 66 Me. 488, af- firmed in 96 U. S. 499; State v. Keo- kuk, &c. R. Co. 99 Mo. 30, 12 S. W. 290, 6 L. R. A. 222; Morgan v. Louisiana, 93 TJ. S. 217; Railroad Co. V. Gaines, 97 U. S. 697; and see authorities cited in next following note. ™ See ante, § 63, note 2 ; Keokuk, &c. R. Co. V. Missouri, 152 U. S. 301, 14 Sup. Ct. 592, in which attention is called to the apparent conflict in the decisions of the Supreme Court of the United States. In PheEnix, &c. Co. V. Tennessee, 161 U. S. 174, 16 Sup. Ct. 471, the conflicting au- thorities are reviewed and the con- clusion is reached that the weight of authority and the better reason Is to the effect that the word "im- munity" or "exemption" must be used unless the legislative intention to pass the exemption is otherwise clearly shown, and that a mere transfer of the "privileges" of the constituent companies is insufficient to pass the exemption from taxation. But the question as to whether an exemption survives may also depend somewhat upon the nature and ef- fect of the so-called 'consolidation as to whether it does or does not work a dissolution, and there are some cases in which the exemption from taxation was held to pass, al- though no such language was used as that which seems to be required according to the decision above re- ferred to. See authorities cited in last preceding note; also, St. Louis, &c. R. Co. V. Berry, 41 Ark. 509; St. Louis, &c. R. Co. V. Berry, 113 U. S. 465, 5 Sup. Ct. 529; Rochester R. Co. V. Rochester (tJ. S.), 27 Sup. Ct. 469; Natchez, &c. R. Co. v. Lam- bert, 70 Miss. 779, 13 So. 33; State V. Woodruff, 36 N. J. L. 94; Atlan- tic, &c. R. Co. V. Allen, 15 Fla. 637; note in 89 Am. St. 626. "" South Carolina R. Co. v. Blake, 9 Rich. (S. C.) 228. '= Mead v. New York, &c. R. Co. 54 Conn. 199. " Fisher v. New York Central, &c. R. Co. 46 N. Y. 644. But see Cov- ington, &c. Co. V. Sanford (Ky.), 20 S. W. 1031. »" Citizens' Street R. Co. v. Mem- phis, 53 Fed. 715. 481 WHEN SPECIAL PRIVILEGES DO NOT PASS. [§ 331 officers and servants of a company are exempt from jury duty, it has likewise been held that the officers and servants of the company into ■which it is merged by consolidation will possess the same privilege.*^ § 331. When special privileges do not pass. — A surrender by the companies of all special privileges is sometimes made the condition of a grant by the state of authority to consolidate, in which case the new company will have only the special privileges conferred by its char- ter.*^ And, when the consolidation under the law giving the power to consolidate operates in effect as a charter, and the company formed by the consolidation is a new corporation organized under that char- ter,*^ no special privileges or exemptions will be transmitted to the new company which the legislature could not confer at the time the consolidation was effected.** This is in accordance with the rule an- nounced in a previous section.^^ And it has been held by the Supreme "Zimmer v. State, 30 Ark. 677. See, also, Hawkins v. Small, 7 Baxt. (Tenn.) 193; Tennessee v. "Whit- worth, 22 Fed. 81. =^ State V. Keokuk, &c. R. Co. 99 Mo. 30. °^ The consolidation of a railroad corporation with companies organ- ized under the laws of other states is not an incorporation within the meaning of laws requiring the pay- ment of an organization tax. Peo- ple V. New York, &c. R. Co. 129 N. Y. 474. 654, 29 N. E. 959. See Opin- ion of the justices, 65 N. H. 673, to the same effect as to the union of two domestic corporations. "«St. Louis, &c. R. Co. V. Berry, 113 U. S. 465, 5 Sup. Ct. 529; Keo- kuk, &c. R. Co. V. Missouri, 152 U. S. 301, 14 Sup. Ct. 592; State v. Keo- kuk, &c. R. Co. 99 Mo. 30, 6 L. R. A. 222; Keokuk, &c. R. Co. v. Scotland Co. 41 Fed. 305. In these cases it is held that the corporation formed by a consolidation effected after the state has adopted a constitution pro- hibiting the legislature from grant- ing any exemption from taxation can not claim the benefit of an ox- Ell. Railroads — 31 emption previously granted to the companies of which it Is composed. But in Citizens' Street R. Co. v. Memphis, 53 Fed. 715, Judge Ham- mond held that a consolidation did not have the effect to destroy the special privileges and immunities held by the consolidating companies where the consolidation was effected under a law passed after the adop- tion of a constitution providing "that the legislature shall have no power * * * to pass any law granting to any individual or indi- viduals rights, privileges, immuni- ties or exemptions other than such as may be, by the same law, extend- ed to any member of the community who may be able to bring himself within the provisions of such law. No corporation shall be created, or its powers increased or diminished by special laws, but the general as- sembly shall provide by general laws for the organization of all cor- porations hereafter created, which laws may at any time be altered or repealed." *» See ante, § 325. § 332] CONSOLIDATION. 483 Court of the United States, in a recent ease, that a grant to the new corporation of the exemptions arid immunities "of each of the constitu- ent companies did not pass the exemption of the stockholders of the constituent companies from individual liability, as the exemption of stockholders was not an exemption of the corporation. *° § 332. Duties and obligations of new company. — Not only does the new company possess all of the rights and privileges of the orig- inal companies not expressly taken from it, but it is subject in gen- eral to all the duties imposed upon them by the law or laws of their creation, except so far as the law under which the consolidation is effected relieves it from the performance of such duties.*^ It is bound to perform the duties resting upon the original companies as common carriers, and any agreement to avoid such duties is contrary to public policy and void.*' So, it has been held, liable for a failure to restore a stream crossed by one of the constituent companies to its former condition,** and for the continuance of a nuisance erected by such company.*" § 333. liability of new company on old contracts. — The contracts entered into by the constituent railroad companies may be enforced against the new company to the extent that it is capable of perform- ing their conditions.*^ Thus, it has been held that the consolidated " Minneapolis, &c. R. Co. v. Gard- »' Peoria, &c. R. Co. v. Coal Valley ner, 177 U. S. 332, 20 Sup. Ct. 656. Min. Co. 68 111. 489; People v. Louis- This seems to be a dangerous doc- ville, &c. R. Co. 120 111. 48, 10 N. B. trine and in conflict with, the reason- 657. ing in such cases as those cited in ^° Chicago, &c. R. Co. v. Moffitt, 75 note (at close of § 330), ante, yet 111. 524; Cott v. Lewiston R. Co. 36 technically and, logically it seems to N. Y. 214. be correct, at least if the letter rath- "^ Eyler v. County Comrs. 49 Md. er than the spirit of the law is to 257, 33 Am. R. 249; "Wellcome v. be followed and the rule that ex- Leeds, 51 Me. 313; Central R. Co. v. emptions must be clearly granted. State, 32 N. J. L. 220. and that the corporation is a dis- "Pullman Palace Car Co. v. Mis- tinct entity, separate from its stock- souri Pac. R. Co. 115 U. S. 587, 6 holders, is to be applied as against Sup. Ct. 194; 2 Morawetz Priv. Corp. the stockholders in such a case. (2d ed.) § 955; Smith v. Los An- " Chicago, &c. R. Co. v. Moffitt, 75 geles, &c. R. Co. 98 Cal. 210, 33 Pac. 111. 524; Tomlinson v. Branch, 15 53 (liable for breach of contract); "Wall. (IT. S.) 460; State v. Northern Union Pac. R. Co. v. McAlpine, 129 Pac. R. Co. 36 Minn. 207; Charity U. S. 305, 9 Sup. Ct. 286. See, also. Hospital v. New Orleans, &c. Co. 40 Columbus, &c. R. Co. v. Skidmore, La. Ann. 382, 4 So. 433. 69 111. 566; Thompson v. Abbott, 61 483 LIABILITY OF NEW COMPANT FOE TOKTS. [§334 company is bound to perform the contract of transportation called for by a mileage ticket issued by a constituent company/^ to convey land agreed to be conveyed by a constituent company/' to maintain a depot at a certain place as so agreed,'* and the like.'^ But, while the contracts of the original companies may be binding upon the cor- poration formed by their consolidation to the same extent and in the same manner that they were binding upon the original companies re- spectively, the new company, ordinarily, assumes no greater obliga- tions than rested upon those companies at the time of the consolida- tion. Thus, in a suit to compel a railroad company formed by con- solidation to perform a contract made by one of the original com- panies to use the complainant's cars on its entire line of railway, and on all roads which it might thereafter control by ownership, lease, or otherwise, the court held that the new company must use the plain- tiff's cars upon all, roads owned or controlled at the time of the con- solidation by the company which had made the contract, but that the contract did not apply to roads acquired after the consolidation.'^ § 334. liability of new company for torts — Extent of liability — Generally. — The consolidated company is liable for the torts of the original companies as well as upon their contracts.''' Where suit is Mo. 176; Day v. Worcester, &c. R. like, does not necessarily operate as Co. 151 Mass. ^02, 23 N. E. 824; Han- a merger or consolidation and make cock, &c. Ins. Co. v. Worcester, &c. one liable for the contracts of the R. Co. 149 Mass. 214, 21 N. E. 364. other. Richmond, &c. Co. v. Rich- Under a statute authorizing the con- mond, &c. Co. 68 Fed. 105, 15 C. C. Bolidation of a railroad Company, A. 289; Chase v. Michigan Tel. Co. which is the grantee of a right of 121 Mich. 631, 80 N. W. 717. way, with another company, a sec- °^ Tompkins v. Augusta Southern tion of the statute providing that R. Co. 102 Ga. 436, 30 S. E. 992. the consolidation shall not affect the "' Union Pac. R. Co. v. McAlpine, rights of creditors of the companies, 129 U. S. 305, 9 Sup. Ct. 286. the new company is not protected, "People v. Louisville, &c. R. Co. as an innocent purchaser, against 120 111. 48, 10 N. E. 657. the enforcement of covenants en- ■" Boardman v. Lake Shore, &c. R. tered into by the grantee of the Co. 84 N. Y. 157; Sappington v. Lit- right of way, and which run with tie Rock, &c. R. Co. 37 Ark. 23. the land, even though the breach " Pullman's Palace Car Co. v. Mis- occurred after the cousolidation was souri Pac. R. Co. 115 U. S. 587, 6 effected. Mobile, &c. R. Co. v. Gil- Sup. Ct. 194; 2 Morawetz Priv. Corp. mer, 85 Ala. 422. But the mere fact (2d ed.), § 955. , that the stockholders of two sepa- " Indianapolis, &c. R. Co. v. Jones, rate companies are the same, or the 29 Ind. 465, 95 Am. Dec. 654 (stock 334] CONSOLIDATION. 484 brought directly against the consolidated company npon a demand against one of its constituent corporations, the fact of the consolida- tion should be averred in the complaint, declaration, or bill, in order to avoid a variance in the probf."^ The debts and liabilities may be enforced against the consolidated company into which it is merged, without any statute imposing such liability,'^ at least to the extent killing case); Columbus, &c. R. Co. v. Powell, 40 Ind. 37 (personal in- juries) ; Jeffersonville, &c. R. Co. v. Hendricks, 41 Ind, 48 (personal in- juries) ; Cleveland, &e. R. Co. v. Prewitt, 134 Ind. 557, 33 N. E. 367, 54 Am. & Bng. R. Cas. 198; Warren V. Mobile, &c. R. Co. 49 Ala. 582 (personal injuries) ; Railroad Co. v. Hutcbins, 37 Ohio St. 282 (conver- sion); Texas, &c. R. Co. v. Murphy, 46 Tex. 356, 26 Am. R. 272; Coggin V. Central R. Co. 62 Ga. 685, 35 Am. R. 132; Chicago, &c. R. Co. v. Moffitt, 75 111. 524; New Bedford R. Co. v. Old Colony R. Co. 120 Mass. 397; State V. Baltimore, &c. R. Co. 77 Md. 489, 26 Atl. 865; Zealy v. Bir- mingham R. Co. 99 Ala. 579, 13 So. 118; Batterson v. Chicago, &c. R. Co. 53 Mich. 125, 18 N. W. 584; Langhorne v. Richmond R. Co. 91 Va. 369, 22 S. E. 159. But see Cotz- hausen v. H. W. Johns Mfg. Co. 100 "Wis. 473, 76 N. W. 622. It is the identity of the corporation, and not of the name, that determines the lia- bility of a railroad company for a trespass. De Lissa v. Missouri R. Co. 36 Mo. App. 706. "' Indianapolis, &c. R. Co. v. Jones, 29 Ind. 465, 95 Am. Dec. 654. See, also, Langhorne v. Richmond City R. Co. 91 Va. 364, 22 S. E. 357; Sel- ma, &c. R. Co. v. Harbin, 40 Ga. 707; Marquette, &c. R. Co. v. Langton, 32 < Mich. 251; note in 89 Am. St. 647, 648, as to suing the consolidated company directly and as to abate- ment and substitution. A variance arising from such omission cannot be taken advantage of for the first time in an appellate court. Indian- apolis, &c. R. Co. V. Jones, 29 Ind. 465, 95 Am. Dec. 654. »• The consolidated company, it is said, should be deemed to be merely the same as each of its constituents, their existence continued in it, un- der the new form and name, their liabilities still existing as before, and capable of enforcement against the new company in the same way as if no change had occurred in its organization or name. Indianapolis, &c. R. Co. V. Jones, 29 Ind. 465, 29 Am. Dec. 654; Columbus, &c. R. Co. V. Powell, 40 Ind. 37; Thompson v. Abbott, 61 Mo. 176; Miller v. Lan- caster, 5 Coldw. (Tenn.) 514; Louis- ville, &c. R. Co. V. Boney, 117 Ind. 501, 20 N. E. 432, 3 L. R. A. 435. There can be no loss of identity of the original companies in the con- solidation to the prejudice of the rights of prior creditors, or the de- struction of prior liens. Hamlin v. Jerrard, 72 Me. 62; Central R. &c. Co. V. Georgia, 92 U. S. 665. Where one railroad company terminates its existence by being consolidated with another, and no arrangements are made respecting the property and liabilities of the first company, the consolidated company will succeed to all the property and be answera- ble for all the liabilities of the con- solidating companies. Louisville, &c. R. Co. V. Boney, 117 Ind, 501, 20 N. E. 432, 3 L. U. A. 435; Atlantic, &c. R. Co. V. Johnson (Ga.), 56 S. E. 482. 485 CONSTITUENT COMPANIES AKE USUALLY DISSOLVED. [§' 335 of the property received by it from the old corporation.^"" For equity will consider the effects of a merged or dissolved corporation as a trust fund for the payment of creditors, into whosesoever hands they may come.^"^ But it is held that where the act of consolidation merely merges the identity of one railroad company into that of another which has already become the owner of its property and franchises freed from liens, this rule does not apply; for the foundation of the liability of a consolidated corporation for the debts and liabilities of the constituent corporations must rest, it is said, upon an agreement either express or implied from its further act in taking possession of all means of meeting those liabilities ; and- no assumption of lia- bility can be implied from a consolidation by which no assets pass to the corporation sought to be charged.^"^ § 335. Constituent companies are usually dissolved — ^When not. — There is, it seems, a clear distinction between a consolidation whereby the several corporations are merged into a new one and the union or combination of two or more corporations by dissolving all but one into which the others are merged.^"^ And the fact that the company ^w Tompkins v. Augusta Southern R. Co. 102 Ga. 436, 30 S. B. 992; United States Capsule Co. v. Isaacs, 23 Ind. App. 533, 55 N. E. 832; Mor- rison V. American Snuff Co. 79 Miss. 330, 30 So. 723, 89 Am. St. 598; Brum V. Merchants' Mut. Ins. Co. 16 Fed. 140; Harrison v. Arkansas Val- ley R. Co. 4 McCrary (U. S.) 264. Ml Powell V. North Missouri R. Co. 42 Mo. 83. The creditors have not only a remedy at law against the new company, but also may enforce their claims in equity against the assets of the original company; for it is not competent for the legisla- ture by law to compel the creditors of a company to accept the liability of a new company formed of the stockholders of their debtor com- pany and others, in substitution for their original rights. Morawetz Priv. Corp. (2d ed.), §§ 808, 954; Harrison v. Arkansas Valley R. Co. 4 McCrary (U. S.) 264; Barksdale v. Finney, 14 Gratt. (Va.) 338; Mont- gomery, &c. R. Co. V. Branch, 59 Ala. 139. In some jurisdictions it is held that the new company, in the absence of a statute or contract to the contrary, does not assume the debts and liabilities of the old, and is liable only to the extent of the property which it has received from the debtor company. Prouty v. Lake Shore R. Co. 52 N. Y. 363; Board- man V. Lake Shore, &c. R. Co. 84 N. Y. 157; Shackleford v. Mississippi Cent. R. Co. 52 Miss. 159; Shaw v. Norfolk County R. Co. 16 Gray (Mass.) 407. ^i" Houston, &c. R. Co. v. Shirley, B4 Tex. 125. See, also. Hatcher v. Toledo, &c. R. Co. 62 111. 477, where the debts of the old company, having been wiped out by foreclosure and sale, were held not to be fastened upon the new by a subsequent stat- ute making consolidated coinpanies liable for the debts of the constitu- ent companies. "=See United States v. Southern Pac. R. Co. 46 Fed. 683; Tomlinson V. Branch, 15 "Wall. (U. S.) 460; 335] CON-SOLIDATION. 486 absorbing the others is given a new name and enlarged powers will not, necessarily, afEect its identity, but a mortgage upon its property, together with all future acquisitions executed before such other com- panies were absorbed or merged into it will, it has been held, attach to the entire line of road as it exists after the merger.^"* Ordinarily, the effect of a consolidation is to dissolve the old companies and form a new one;^''^ but this result does not always follow from a so-called consolidation, for it depends largely upon the terms of the consolida- tion and the legislative intent as manifested in the statute under which the consolidation takes place,^"* and the constituent companies usually have at least a qualified existence for the purpose of winding up their affairs and preserving the rights of their creditors.^"^ The Central R. &c. Co. y. Georgia, 92 IT. S. 665; Philadelphia, &g. R. Co. v. Maryland, 10 How. (U. S.) 376; Citizens' Street R. Co. v. Memphis, 53 Fed. 715; Vicksburg, &c. Tel. Co. V. Citizens' Tel. Co. 79 Miss. 341, 30 So. 725, 89 Am. St. 656; note in 89 Am. St. 607-609; Lee v. Atlantic, &c. R. Co. 150 Fed. 775,787 (citing text). 1" Meyer v. Johnston, 64 Ala. 603, 8 Am. & Eng. R. Cas. 584. ""McMahan v. Morrison, 16 Ind. 172, 79 Am. Dec. 418, and note; St. Louis, &c. R. Co. V. Berry, 41 Ark. 509; Railroad Co. v. Georgia, 98 U. S. 359, 363; Yazoo, &c. R. Co. v. Ad- ams, 180 U. S. 1, 21 Sup. Ct. 240, 246, 247 (reviewing the earlier cases in the supreme court of the United States) ; Keokuk, &c. R. Co. v. Mis- souri, 152 U. S. 301, 14 Sup. Ct. 592; Clearwater v. Meredith, 1 Wall. (U. S.) 25; Shields v. Ohio, 95 XJ. S. 319, 325; Fee v. New Orleans, &c. Co. 35 La. Ann. 413; Miner v. New York, &c. R. Co. 123 N. Y. 242; Chefaw, &c. R. Co. v. Commissioners, 88 N. Car. 519; note to Louisville, &c. R. Co. V. Boney, 3 L. R. A. 435; note to State V. Chicago, &c. R. Co. 2 L. R. A. 564; Ashley v. Ryan, 49 Ohio 504, 31 N. E. 721, 725, 726. See, also, Louisville, &c. R. Co. v. Utz, 133 Ind. 265, 32 N. B. 881; Chicago, &c. R. Co. V. Ashling, 160 111. 373, 43 N. E. 373; State v. Leueur, 145 Mo. 322, 46 S. W. 1075; Lester v. Georgia, &c. R. Co. 90 Ga. 802f, 17 S. E. 113; Charlotte, &c. R. Co. T. Gib- bes, 27 S. Car. 385, 4 S. B. 49. "" "Wabash, &c. R. Co. v. Ham, 114 U. S. 587, 595, 5 Sup. Ct. 1081; Cen- tral R. Co. V. Georgia, 92 U. S. 665, 670. See, also. People v. New York, &c. R. Co. 129 N. Y. 474, 29 N. E. 959, 15 L. R. A. 82 ; Boston, &c. R. Co. v. New York, &c. R. Co. 13 R. I. 260; Evans v. Interstate Rapid Transit R. Co. 106 Mo. 594, 17 S. W. 489. See, also, ante, § 324, note 3. 1" Edison Electric Light Co. v. New Haven, &c. Co. 35 Fed. 233; Eaton, &c. R. Co. v. Hunt, 20 Ind. 457; 1 Beach Priv. Corp. § 339; Compton V. "Wabash, &c. R. Co. 45 Ohio St. 592, 16 N. E. 110, 117. And see Mansfield, &c. R. Co. v. Brown, 26 Ohio St. 223; Day v. "Worcester, &c. R. Co. 151 Mass. 302, 23 N. B. 824; Spence v. Mobile, &c. R. Co. 79 Ala. 576; Selma, &c. R. Co. v. Har- bin, 40 Ga. 706. See ante, § 334, note 1, p. 462; also, Atlantic, &c. R. Co. V. Cone (Fla.), 43 So. 514, 521 (citing text). 487 CONSTITUENT COMPANIES AEE USUALLY DISSOLVED. [§ 335 term "consolidation" is an elastic one and may include a union of two or more corporations into a new one with a difEerent name, with or without extinguishing the constituent corporations, or the merger of two or more corporations into another existing corporation under the name of the latter.^"^ There is, as we have already said, a distinction between these modes of consolidation. In the latter case, if the merger is complete, it is evident that the one corporation is extinguished, un- less kept alive for certain purposes, while it is equally clear that the other, in which it is merged, is not dissolved.^" ° In other words, the legislative intention in such a case would seem to be to unite the two companies under the old charter of one of them, while statutes author- izing the consolidation of two or more corporations in the ordinary way Eire generally construed as authorizing the formation of a new and distinct corporation, thus extinguishing all the constituent com- panies unless a contrary intention is manifest. It all depends ordi- narily, however, upon the intention of the legislature, as shown in the statute authorizing the consolidation, and the agreement of con- iSolidation in pursuance of the statute.^^" "There is nothing in tlie nature of the subject-matter, nor of the process of consolidation, that requires the extinction of the old corporations to make the new. It may be done, or it may not."^^^ So far at least as domestic corpora- tions are concerned, it is for the state to say upon what terms they may consolidate and it may thus determine the effect c(f the consolida- tion. As said in a recent ease, "It is perfectly competent for the legis- lature, in consolidation acts, to declare what shall be the status of the domestic corporations which shall avail themselves of their provisions, '"' Text quoted with approval in "° See Crawfordsville, &c. Co. v. Pingree v. Michigan Cent. R. Co. 118 Fletcher, 104 Ind. 97, 2 N. E. 243; Mich. 314, 76 N. W. 635, 643, 53 L. Meyer v. Johnston, 64 Ala. 603; note R. A. 274. In Powell v. North Mo. in 52 Am. St. 369; Central R. &c. R. Co. 42 Mo. 63, however, it is said Co. v. Georgia, 92 XJ. S. 665; Chicago, that a union by which several com- &c. R. Co. v. Ashling, 160 111. 373, 43 panies are merged into and consti- N. E. 373, 375, 376. But consolida- tuted one bod^, corporate under the tion in the strict and narrowest name of one of them, and all are sense usually operates to create a continued in existence, is a consol- new corporation and extinguish the idation proper, while it is not a old ones except as they may be kept mere xonsolidation where one is ex- alive in a limited sense .!or the pur- tinguished and the other continued pose of winding up or under statu- in existence. , tory provision for the benefit of ™ Central R. &e. Co. v. Georgia, 92 creditors or the like. U. S. 665; Meyer v. Johnston, 64 Ala. "'Citizens' St. R. Co. v. Memphis, 603, S Am. & Bug. R. Cas. 584. 53 Fed. 715, 718. § 335a] CONSOLIDATION, 488 and also of the consolidated company. Whether the new consolidation shall create a mere business union between the constituent companies, leaving them in existence as corporations, or whether it shall operate as a surrender of the corporate franchises and an extinguishment of their corporate existence, and as creating a new corporation combining, to the extent permitted by the act, the powers of the corporations out of which it is formed, and vesting in it the property of the constitu- ent companies, depends upon the legislative intention.'"-^^ § 335a. Duration of life and franchises of consolidated company. — The statute and agreement of consolidation generally fix the duration of the life of the consolidated company, but a question of some diffi- culty arises when the law is silent and does not speak upon the subject. In one case it was said that where the law is silent the life of the new consolidated company cannot 'exceed that of the shorter-lived of the constituent companies, and it was held that where the charter of one expired by limitation on the same day that the other began there could be no consolidation under a statute providing for consolidations between existing corporations.^^* But this decision, as to the latter point, was reversed by the Supreme Court of the United States,^^* which did not, however, consider the other question. The fallacy of the reasoning in the first case cited lies, it is said, "in the assumption that the old corporations have anything to do with granting a life to the new corporation."^^ ° At all events, if, as is generally the case and is generally held, a new and distinct corporation is created, which owes its life to the existing law and act of consolidation thereunder, and that existing law, while not expressly stating in particular what shall be the duration of the life of consolidated companies, authorizes new companies to be created for a certain term, the better view would seem to be that the new consolidated company may be created and organized for that term, notwithstanding the life or lives one or both of the constituent companies would have terminated before that time.^^° "' People V. New York, &c. R. Co. ™ New Orleans Gas Light Co. v. 129 N. Y. 474, 482, 29 N. E. 959, 15 Louisiana, &c. Co. 11 Fed. 277. L. R. A. 82. To the same effect is "*New Orleans Gas Light Co. v. Day v. Worcester, &c. R. Co. 151 Louisiana, &c. Co. 115 V. S. 650, 6 Mass. 302, 23 N. E. 824. See, also. Sup. Ct. 252. Shrewsbury, &c. R. Co. v. Stour "» See note in 89 Am. St. 615. Valley R. Co. 2 DeG., M. & G. 866; ™ See Market St. R. Co. v. Hell- Parkinson V. West End St. R. Co. man, 109 Cal. 571, 42 Pac. 225; Rio 173 Mass. 446, 53 N. E. 891. Grande, &c. R. Co. v. Telluride, &c. 489 EFFECT OF CONSOLIDATION UPON LIENS. [§■ 336 § 336. Eflfect of consolidation upon liens. — A mortgage placed upon the property by the original corporation remains a lien upon it in the hands of the consolidated company/^' and where the mortgage so provides, it will cover all acquisitions of the consolidated company which become a part of the property to which it originally attached.^^^ It has been held, however, that a mortgage executed by a consolidated corporation will take priority over unsecured debts of one of the con- solidating companies, contracted while the company possessed the power to enter into an agreement of consolidation, and transfer all of its assets and liabilities to the new company thereby formed ^^^ Co. 16 Utah 125, 51 Pac. 146; Char- ity Hospital V. New Orleans, &c. Co. 40 La Ann. 382, 4 So. 433. And see, generally, Blair v. Chicago, &c. R. Co. 201 U. S. 400, 26 Sup. Ct. 427; Cleveland v. Cleveland, &c. Co. 201 U. S. 529, 26 Sup. Ct. 513. "'Hazard v. Vermont, &c. R. Co. 17 Fed. 753; Rutten v. Union Pac. R. Co. 17 Fed. 480; Mississippi Valley Co. V. Chicago, &c. R. Co. 58 Miss. 846 ; Morrison v. American Snuff Co. 79 Miss. 330, 30 So. 723, 89 Am. St. 598; Cordova Coal Co. v. Long, 91 Ala. 538, 8 So. 765; Eaton, &c. R. Co. V. Hunt, 20 Ind. 457; Compton v. Wabash, &c. Co. 45 Ohio St, 592, 16 N. E. 110. But see Wabash, &c. R. Co. v. Ham, 114 U. S. 587, 5 Sup. Ct. 1081. And the consolidated com- pany will not be permitted to aver ignorance of such mortgage, though unrecorded. Mississippi, &c. R. Co. V. Chicago, &c. R. Co. 58 Miss. 846; The Key City, 14 Wall. (U. S.) 653. See, also. North Carolina R. Co. v. Drew, 3 Woods (U. S.) 691. A rail- road company with notice of plain- tiff's lien on the road entered into a consolidation with another com- pany. The property of the consol- idated company was leased to a ca- nal company. Held, that neither the consolidated company nor its lessee, the canal company, was, in respect to plaintiff's Hen, a pur- chaser for value without notice. Vi- las V. Page, 106 N. Y. 439, 13 N. E. 743. ■ "' Central R. &c. Co. v. Georgia, 92 U. S. 665, 98 U. S. 359; Hamlin v. Jerrard, 72 Me. 62; Hamlin v. Euro- pean, &c. R. Co. 72 Me. 83 ; Compton V. Jesup,. 68 Fed. 263. "» Wabash, &c. R. Co. v. Ham, 114 U. S. 587, 5 Sup. Ct. 1081; Tysen v. Wabash, &c. R. Co. 15 Fed. 763; In- dianapolis, &c. R. Co. V. Jones, 29 Ind. 465, 95 Am. Dec. 654. In the first case just cited the old bond- holders were given an opportunity to exchange their bonds for bonds secured by a mortgage of the consol- idated company, but failed to do so for six years, after which the mort- gage in question was executed. See Blair v. St. Louis, &c. R. Co. 24 Fed. 148. But where a consolidated com- pany stipulated that certain bonds of the old company should be pro- tected by the new company, it was held that the holders of these bonds acquired the right to require the property of the company issuing them to be applied to their payment in preference to mortgagees of the consolidated company. Compton v. Wabash, &c. R. Co. 45 Ohio St. 592. This case grew out of the same transaction as the first case above § 337] CONSOLIDATION. 490 Where a person purchases unsecured bonds of a railroad company which is authorized by law to consolidate with other companies he may be held to have made the purchase in contemplation of a possible consolidation;^^" but liens created by the constituent companies and existing at the time of the consolidation are superior to those of the same class created by the consolidated company.^^^ So, where the act of consolidation provides that the old companies shall remain in ex- istence to preserve the rights of creditors, they are not relieved from liability on previously issued bonds by reason of the fact that their property has passed into the hands of the consolidated company.^^^ It has been held, however, that where several railroad companies are consolidated the bonded indebtedness of each, although secured by mortgage on its property and franchises, may be enforced against the new corporation, under a statute providing that "all debts and lia- . bilities incurred by either of said corporations, except mortgages, shall thenceforth attach to such new corporation."^^* § 337. De facto consolidation — ^Estoppel — ^Liability of constituent companies where consolidation is set aside. — Eailroad companies which, being authorized by law to consolidate their lines, enter into a de facto consolidation, and transact business in the name of the con- cited and the supreme court of consolidated company that the old Ohio refused to follow the supreme shall be liable has been held not to court of the United States. be binding upon creditors of the old ^^'' Tysen v. Wabash, &c. R. Co. 15 without their consent. Smith v. Los Fed. 763; Montgomery, &c. Railroad Angeles, &c. R. Co. 98 Cal. 210, 33 Co. V. Branch, 59 Ala. 139. But see Pac. 53. "Wabash, &c. R. Co. v. Ham, 114 TJ. ^''*Polhemus v. Pitchburg R. Co. S. 587, 5 Sup. Ct. 1081. 123 N. Y. 502, 26 N. E. 31. The court ^^ Shackelford v. Mississippi, &c. held that the words, "except mort- R. Co. 52 Miss. 159; Hazard v. Ver- gages," confined the mortgage lien mont, &c. R. Co. 17 Fed. 753; Spence to the property owned by the com- v. Mobile, &c. R. Co. 79 Ala. 576; pany which had executed the mort- Mobile, &c. R. Co. v. Gilmer, 85 Ala. gage prior to the consolidation with- 422, 5 So. 138; Pittsburg, &c. R. Co. out affecting the other property of V. Lynde, 55 Ohio St. 23, 44 N. E. the consolidated company, but did 596. , not prevent the latter from becom- "=■ Gale V. Troy, &c. R. Co. 51 Hun ing liable for the debt of the old (N. Y.) 470, 4 N. Y. 295; Indianapo- company secured by such mortgage, lis, &c. R. Co. V. Jones, 29 Ind. 465, See, also, Utica Nat. Brewing Co., 95 Am. Dec. 654; Jones Corp. Bonds Matter of, 154 N. Y. 268, 48 N. E. and Mort. § 362. An agreement be- 521; tween the old companies and the 491 EFFECT OE CONSOLIDATION UPON PENDING SUITS. [§ 338 solidated company, will be estopped to deny the validity of the con- solidation in a suit to enforce liabilities incurred in the transarction of s.uch business and upon the faith of their legal existence as a con- solidated company.^^^ This rule has been said to be applicable where business within the ordinary powers of the constituent companies was transacted by a company into which they had formed themselves with- out legislative authority.^^' This decision rests upon the theory that the companies, having power to do the acts, could not deny a liability incurred thereby upon the ground that they exceeded their charter powers in selecting the means by which the acts should be done. Possibly it may be upheld on this ground, but, in any event, it is an extreme application of the doctrine. And, where there is no authority to consolidate, a direct attack may be made by quo warranto proceed- ings by the state,^^^ but it has been held that a suit to enjoin an ultra vires consolidation will also lie.^^^ Where an ineffectual attempt is made to effect a consolidation, and the attempted consolidation is afterward set aside by the court as being null and void, it has been held that the several companies are individually liable for liabilities contracted by the consolidated company; and execution may be had against them upon a judgment recovered against the consolidated com- pany before it was judicially dissolved.^^' §■ 338. Effect of consolidation upon pending suits. — It is sometimes provided by statute that pending suits against a corporation shall not ^" Racine, &c. R. Co. v. Farmers', State, 109 Ga. 736, 35 S. E. 323, 48 L. &c. Co. 49 111. 331, 347, 95 Am. Dec. R. A. 520; Louisville, &c. R. Co. v. 595; Reynolds v. Myers, 51 Vt. 444; Commonwealth, 97 Ky. 675, 31 S. W. Southern Kans. &c. R. Co. v. Town- 476. See, also, Bohmer v. Haffen, er, 41 Kans. 72, 21 Pac. 221; Callen- 161 N. Y. 390, 55 N. E. 1047 (suit by der v. Painesville, &c. R. Co. 11 Ohio taxpayer). St. 516 ; Tagart v. Northern Central "° Ketcham v. Madison, &e. R. Co. R. Co. 29 Md. 557; Farmers', &c. 20 Ind. 260. Where two competing Co. v. Toledo, &c. R. Co. 67 Fed. 49, railway lines executed an Illegal 55. Ante, § 323. consolidation, and defendant has de- ""Bissell V. Michigan Southern, rived all the benefits arising from &c. R. Co. 22 N. Y. 258. the contract of consolidation, its ille- »^ Distilling, &c. Co. v. People, 156 gality is no defense to a bill in equi- 111. 448, 41 N. E. 188; People v. ty for an accounting and a return of North River, &c. Co. 121 N. Y. 582, the consideration to plaintiff whose 24 N. E. 834, 9 L. R. A. 33, 18 Am. property passed to defendant under St. 843; East Line, &c. R. Co. v. the contract. Manchester, &c. R. v. State, 75 Tex. 434, 12 S. W. 690; Concord R. 66 N. H. 100, 20 Atl. State V. Beck, 81 Ind. 500. 383, 9 L. R. A. 689, 49 Am. St. 582, ^ Trust Company of Georgia v. 47 Am. & Eng. R. Cas. 359. § 338] CONSOLIDATION. 492 be affected by its consolidation with other companies.^'* And, even in the absence of such a provision, the action of the state in granting authority to consolidate and the action of the corporation in effecting a consolidation under that authority cannot affect the rights of the plaintiff in a suit pending against it. The corporation cannot, by its own act, defeat the right of persons to maintain suits actually begun.^^'- The identity of the old corporation may be considered, in some juris- dictions, at least, as continued for the purposes of the suit.^^^ But it has been held in other jurisdictions that the new company should be made a party to the suit by substitution, and that all proceedings against the original company after consolidation without bringing the consolidated company into court are void.^^^ Where such a substitu- I'o Baltimore, &c. R. Co. v. Mussel- "^ Shackelford v. Mississippi, &c. man, 2 Grant's Cas. (Pa.) 348; East R. Co. 52 Miss. 159; Bast Tennessee, Tennessee, &c. R. Co. v. Evans, 6 &c. R. Co. v. Evans, 6 Heisk. (Tenn.) Heisk. (Tenn.) 607; Shackelford v. 607; Baltimore, &c. R. Co. v. Mussel- Mississippi, &c. R. Co. 52 Miss. 159. man, 2 Grant Cas. (Pa.) 348. But Under a New York statute, which see Kansa^, &c. R. Co. v. Smith, 40 provided that actions pending Kans. 192, 19 Pac. 636. against either of the consolidating ^^ Selma, &c. R. Co. v. Harbin, 40 companies should not abate, but Ga. 706; Prouty v. Lake Shore, &c. might be conducted to final judg- R. Co. 52 N. Y. 363; Kansas City, ment in the name of the existing &c. R. Co. v. Way, 60 Kans. 856, 56 company, and the rights of creditors Pac. 78. See, also, note in 89 Am. preserved unimpaired, and the cor- St. 648. But compare Kinion v. porations continued in existence to Kansas City, &c. R. Co. 39 Mo. App. preserve the name, it was held that 382; Indianola R. Co. v. Fryer, 56 an action could be brought after the Tex. 609 ; Indianapolis, &c. R. Co. v. consolidation against one of the con- Jones, 29 Ind. 465, 95 Am. Dec. 654. solidating companies on its bonds A railroad company which has con- previously executed. Gale v. Troy, solidated with other railroad com- &c. Co. 51 Hun (N. Y.) 470, 4 N. Y. panies under a new name ceases to S. 295. exist as a corporation, and a suit by "' Shackelford v. Mississippi, &c. or against such railroad company R. Co. 52 Miss. 159. See, also, Kinion before consolidation cannot after- v. Kansas City, &c. R. Co. 39 Mo. wards be prosecuted by or against App. 574; Evans v. Interstate, &e. it or in its original name. Kansas, R. Co. 106 Mo. 594, 17 S. W. 489; &c. R. Co. v. Smith, 40 Kans. 192, Atlantic, &c. R. Co. v. Cone (Pla.), 19 Pac. 636. Under the Missouri 43 So. 514, 521 (citing text). It statute, which provides that the is no defense that defendant has consolidated company succeeds to no property, but that the property the liabilities of the consolidating it formerly possessed had vested in corporations where such a consoli- the new company. Gale v. Troy, &c. dation takes place pending a suit R. Co. 51 Hun (N. Y.) 470, 4 N. Y. against one of the consolidating S. 295. companies, the complaint may be 493 EFFECT OF CONSOLIDATION UPON PENDING SUITS. [§■ 338 tion is, made it has been held that the substituted defendant may treat the pleadings filed by the original defendant as its own and avail itself of the exceptions reserved by the original defendant before the substitution.^^* There is conflict among the authorities as to whether an action at lavf can be instituted against the consolidated company after the consolidation. Some of the courts hold that it is only liable to the extent of the property received from the constituent company, against which the liability existed, and that it can only be reached by suit in equity,^^^ but the better rule seems to be that an action at law can be maintained against the consolidated company for the prior torts or debts of the constituent companies, for which it is made liable under the statute or agreement of consolidation.^^^ It has been held, however, that even where an action might have been maintained against either the constituent company committing a tort or against the consolidated company, at the election of the plaintiff, he cannot sue both in one action.^^'' amended by substituting the consol- idated company as defendant, and judgment may be entered against it without further notice to it. Kinion T. Kansas City, &c. R. Co. 39 Mo. App. 574. It has been held that judgment against the consolidated company on a claim against a con- stituent company, afterwards dis- solved, may be enforced against the property which the latter received and held from both of the constitu- ent companies. Ketcham v. Madison, &c. R. Co. 20 Ind. 260. >« Louisville, &c. R. Co. v. Utz, 133 Ind. 265, 32 N. E. 881. "^ See ante, § 334, note. ^'"Langhorne v. Richmond R. Co. 91 Va. 369, 22 S. E. 159, citing 1 Thomp. Corp. §§ 372, 395; 1 Beach Priv. Corp. § 344; Purdy's Beach Priv. Corp. § 1288; 2 Morawetz Priv. Corp. § 955; Taylor Priv. Corp. § 666; New Bedford R. Co. v. Old Colony R. Co. 120 Mass. 397; Colum- bus, &c. R. Co. V. Skldmore, 69 111. 566; Arbuckle v. Illinois, &c. R. Co. 81 111.429; Montgomery, &c. R. Co. V. Boring, 51 Ga. 582; Thompson v. Ab- bott, 61 Mo. 176; Houston, &c. R. Co. V. Shirley, 54 Tex. 125; "Warren v. Mo- bile, &c. R. Co. 49 Ala. 582; State v. Baltimore, &c. R. Co. 77 Md. 189, 26 Atl. 865; Berry v. Kansas City, &c. R. Co. 52 Kans. 774, 36 Pac. 724, 39 Am. St. 381. See, also, ante, § 334, note, and note to Austin v. Tecum- seh iSTat. Bank, 59 Am. St. 551. The right to bring an action at law against the consolidated company is placed upon various grounds. It avoids circuity of action, and the necessary privity is created, accord- ing to some of the decisions, by the statute and consolidation thereun- der, or, according to others, the right to maintain such an action may be supported upon the theory that the old corporations are con- tinued in existence In the new for the purpose of enforcing such lia- bility. "'Langhorne v. Richmond R. Co. 91 Va. 369, 22 S. E. 159. § 339] CONSOLIDATIOIT. 494 § 339. Consolidation with foreign corporations. — The legislature of a state may authorize corporations of that state to consolidate with those of other states.^^* Eailroads of other states are generally per- mitted to consolidate with roads within the state upon the same terms as domestic corporations/^' if the laws of such states also authorize the consolidation.^*" But the new company so formed is a domestic corporation, in each state within which its property lies, so far as the ownership and use of such property is concerned,^*^ and it is subject to the jurisdiction of the courts of the several states, so far as its prop- erty and the operation of its road in them respectively is concerned.^*" ^^ Chicago, &c. R. Co. v. Lake Shore, &c. R. Co. 5 Fed. 19 ; Peik v. Chicago, &c. R. Co. 94 U. S. 164; Maine Central R. Co. v. Maine, 96 U. S. 499; Louisville, &c. R. Co. v. Kentucky, 161 U. S. 677, 16 Sup. Ct. 714; Ohio, &c. R. Co. v. Weber, 96 111. 443; Boardman v. Lake Shore, &c. R. Co. 84 N. Y. 157; Richardson v. Vermont, &c. R. Co. 44 Vt. 613; Ellis V. Boston, &c. R. Co. 107 Mass. 1; Bishop V. Brainerd, 28 Conn. 289. But a state may, of course, permit a railroad of .another state to acquire the property and franchises of do- mestic corporations and to operate their roads by other means than consolidation. Copeland v. Memphis, &c. R. Co. 3 Woods (U.^S.) 651. 130 rpjjg consolidation of a domestic corporation with a corporation or- ganized under the laws of another state or the United States is prohib- ited in Texas. Constitution, Art. 10, § 6 R. S. Texas (1879), § 4247. And in New Jersey the consent of the legislature is necessary to such a consolidation. N. J. Supp. (1886), R. R. § 91. ""Pennsylvania and South Caro- lina expressly provide so. Dig. (1883) Pa. R. § 79; Laws 1885, S. C. Ch. 96, § 5. The laws of In- diana require the consolidation to be made in accordance with the laws of the adjoining state. R. S. 1894, § 5257. ^" Baton, &c. R. Co. v. Hunt, 20 Ind. 457; Delaware, &c. Tax Cases, 18 Wall. (U. S.) 206; State v. Chi- cago, &c. R. Co. 25 Neb. 156, 41 N. W. 125, 2 L. R. A. 564, and note; Trester v. Missouri Pac. R. Co. 33 Neb. 171, 49 N. W. 1110; Peters v. Boston, &c. R. Co. 114 Mass. 127; Graham v. Boston, &c. R. Co. 14 Fed. 753; 2 Cook Stock and Stock- holders, § 909. It has been held that the corporation cannot be sued in the Federal courts of one state by a citizen of that state for inju- ries received in another state, into which the consolidated line extends. See Nashville, &c. Railway Co. v. Edwards, 91 Ga. 24, 16 S. E. 347; Western, &c. R. Co. v. Roberson, 61 Fed. 592; Memphis, &c. R. Co. v. Alabama, 107 XI. S. 581, 2 Sup. Ct. 432. As to whether the result of the consolidation is one or two compa- nies, see ante, §§ 26, 28. See, also. Central Trust Co. v. Chattanooga, &c. R. Co. 68 Fed. 685, 693; Burger V. Grand Rapids, &c. R. Co. 22 Fed. 561, 20 Am. & Bng. R. Cas. 607; Ohio, &c. R. Co. V. People, 123 111. 467, 14 N. E. 874. "' So provided by law in many of the states. Stimson Am. Stat. (1892) § 8734. See, also, Sage v. 495 CONSOLIDATION WITH FOEEIGN COEPOEATIONS. [§ 339 One state, while it may fix the status of domestic companies which consolidate under its laws, has no power to authorize the consolidation of domestic corporations with those of another state, without the con- sent of the latter state, in such a manner as to vest the franchises, rights and property of the foreign corporations in the consolidated company, or to authorize the conversion of the stock of all the con- stituent corporations into that of the consolidated company.^*^ Where a corporation is formed by the consolidation of corporations of several . states it generally acts as a unit in the transaction of its business, and, in the absence of a statutory provision to the contrary, it has been held that it may transact its corporate business in one state for all, and the contracts it enters into, and the liabilities it incurs in one state are binding upon it in all the states, and may be enforced against it in any one of them when the action is transitory.^** Yet, as the laws of a state have no effect outside of its limits, it is held that the consolidated corporation in one state acts under the authority of the charter of that state, and is not affected by the legislation of another state in which a part of its line lies,^*'' and that it may be dissolved Lake Shore, &c. R. Co. 70 N. Y. 220; Angler v. East Tenn. &c. R. Co. 74 Ga. 634; St. Paul, &c. R. Co., In re, 36 Minn. 85, 30 N. "W. 432; Ashley v. Ryan, 49 Ohio St. 504, 31 N. B. 721. The courts of a state will still retain jurasdiction of a corporation after its consolidation with a foreign cor- poration unless an express surren- der of jurisdictional power is shown. Eaton, &c. R. Co. v. Hunt, 20 Ind. 457. "= People V. New York, &c. R. Co. 129 N. Y. 474, 29 N. B. 959, 15 L. R. A. 82. ^"Fitzgerald v. Missouri Pac. R. Co. 45 Fed. 812; Graham v. Boston, &c. R. Co. 118 U. S. 161, 6 Sup. Ct. 1009 ; Home v. Boston, &c. R. Co. 62 N. H. 454, ante, § 27. The provision in the constitution of Illinois requir- ing a majority of the directors of any company incorporated under the laws of that state to be residents thereof, does- not apply to a corpora- tion formed by the consolidation of an existing corporation of that state with similar corporations of other states. Ohio, &c. R. Co. v. People, 123 111. 467, 14 N. B. 874. A railroad corporation, chartered and operated in two states, consolidated and made subject to all the duties and liabili- ties, under one charter and the laws of one state, as if wholly located therein, is an entity, and It is re- sponsible as a whole for its acts and its negligence. Providence Coal Co. V. Providence & W. R. Co. 15 R. I. 303, 4 Atl. 394; Southern ~R. Co. v. Bouknight, 70 Fed. 442. "' Pittsburgh, &c. R. Co. v. Roths- child (Pa.), 26 Am. & Bng. R. Cas. 50; Pittsburgh, &c. Co.'s Appeal (Pa.), 4 Atl. 385, affirming 1 Pa. County Ct. 620; Eaton, &c. R. Co. V. Hunt, 20 Ind. 457; Mead v. New York, &c. R. Co. 45 Conn. 199; Quin- cy R. Bridge Co. v. Adams Co. 88 111. 615; State v. Northern Central R. Co. 18 Md. 193; Gardner v. James, 5 R. I. 235; ante, § 27. In Ohio, &c. 339] CONSOLIDATION". 496 and its business ■wound up in one state by the courts of that state without affecting its franchise in another.^*^ It is not safe, however, to lay down any unqualified general rulefs upon these subjects. In order to determine, with any degree of certainty, the efEect of a con- solidation, and the rights, powers, duties and liabilities of the con- solidated company, in any particular case, resort must be had to the legislation of the states in which the company is consolidated and the agreement of consolidation in pursuance thereof. R. Co. V. People, 123 111. 467, 14 N. B. 874, it is said explicitly that the con- solidated corporation has in each state all the rights, powers and franchises that the constituent com- pany of that state had therein, but will not have therein the rights, powers and franchises of the con- stituent company of the other state, or, ■ in other words, that the new corporation will stand in each state as the original company had stood in the same state. This, however, cannot he affirmed as an invariable rule, for much depends upon the statute and consolidation agreement. The legislature of each state could give, and often does give, the new company the right to exercise in its own jurisdiction all the powers and franchises that any or all of the constittient companies may have ""Hart V. Boston, &c. R. Co. 40 Conn. 524. For a further and fuller treatment of the subject-matter of this section, see ante, §§ 26, 27, 28. CHAPTEE XYI. CONTKACTS. Sec. 340. Contracts — Power to make — Generally. 341. Contracts — Scope of corporate power. 342. General power to contract — Illustrative Instances. 343. Power to contract — Control of by courts. 344. Effect of changes in charter. 345. Contracts — Formal requisites of. 346. Formal defects. 347. Contracts — ^Who may make — Generally. 348. Contracts by interested per- sons. 349. Mode prescribed must be pur- sued. 350. Contracts— Parties bound to take notice of charter pro- visions. 351. Contracts — Unauthorized — Notice. 352. Estoppel — Generally. 353. Ratification of unauthorized acts — ^Rights of the public and of creditors. 354. Contracts in conjunction with other parties. 355. Pledge of corporate securities. 356. Contracts between connecting lines — Division of fares. 357. Contracts permitting use of part of road. 358. Contracts regarding terminal facilities. 359. Traffic contracts. — Surrander to competing line. Sec. 360. 361. 362. 363. 364. 365. 366. 367. 36S. 369. 370. 371. 372. 373. 374. 375. 376. Contracts with municipal cor- porations, for terminal facil- ities. Use of tracks constructed un- der grant from municipal corporation. Contracts for location of sta- tions. Location of tracks, switches and the like. Contracts that may be made by railroad companies — Par- ticular instances. Pooling contracts — Generally. Pooling contracts — The au- thorities. Pooling contracts — Presump- tion. Contracts — ^Ultra vires. Contracts — Ultra vires — Gen- eral doctrine. Contracts — What are ultra vires — Generally. Contracts — Ultra vires — Es- toppel. Contracts — ^Ultra vires — Exe- cuted and executory con- tracts. Contracts — Ultra vires — Cases discriminated. Contracts — Ultra vires — Illus- trative instances. Contracts — Ultra vires — Rule where statute prescribes consequences. Contracts — Ultra vires — In- junction. Ell. Raileoads — 32 497 §■ 340] CONTRACTS. 498 Classes of illegal contracts. Contracts void because against public policy. Contracts against public policy — Location of stations and tracks. Contracts void as against pub- lic policy — General conclu- sions. Contracts void as against pub- lic policy— Illustrative cases. Sec. Sec. 377. Contracts — Ultra vires — De- 384, nial of relief — Laches. 385. 378. Contracts — Ultra vires — Who may contest. 386. 379. Contracts — Ultra vires — Cred- itors. 880. Contracts — Ultra vires — Non- 387. assenting stockholders. 381. Prohibited contracts — Effect of prescribing penalties. 888. 382. Illegal contracts — Generally. 383. Illegal contracts and ultra vires contracts discrimi- nated. § 340. Contracts — ^Power to make — Generally. — A railroad com- pany has the implied or incidental power to enter into any and all contracts necessary to enable it to carry out the purposes of its or- ganization;, except so far as it is restrained by its charter or the general law. The presumption is in favor of the power of the corporation to make any contract, which is regular on its face and is not in conflict with any prohibition of law, and is within the scope of the general powers conferred upon the corporation.^ Within the scope of the cor- porate powers the right to contract is much the same as that of natural persons,^ but as corporate powers are derivative and not inherent, the authority of a corporation to contract is limited by the charter or act ^Baltimore v. Baltimore, &c. R. Co. 21 Md. 50; South Wales R. Co. V. Redmond, 10 C. B. N. S. 675; Shipper v. Pennsylvania R. Co. 47 Pa. St. 338; Stewart v. Brie Trans. Co. 17 Minn. 372; Davis v. Old Col- ony R. Co. 131 Mass. 258, 41 Am. R. 221; Mitchell v. Rome, &c. R. Co. 17 Ga. 574; Rider Life, Raft Co. v. Roach, 97 N. Y. 378; Morris, &c. R. Co. V. Sussex R. Co. 20 N. J. Eq. (5 C. E. Green) 542. The burden of proof is generally upon the person asserting the illegality or ultra vires character of a contract made by a corporation. Morris, &c. R. Co. v. Sussex R. Co. 20 N. J. Eq. (5 C. B. Green) 542; Ohio, &c. R. Co. v. Mc- Carthy, 96 U. S. 258; Alabama Gold. Life Ins. Co. v. Central, &c. Assn. 54 Ala. 73. Prima facie, it has been said, all its contracts are valid, and it lies on those who would impeach any contract to make out that it is invalid. Scottish North Eastern R. Co. V. Stewart, 3 Macqueen 382, 415. "Hand V. Clearfield, &c. Co. 143 Pa. St. 408, 22 Atl. 709; Tennessee, &c. Co. V. Kavanaugh, 93 Ala. 324, 9 So. 395; Fitzgerald, &c. Co. v. Fitz- gerald, 137 U. S. 98, 11 Sup. Ct. 36; Hall V. Tanner, &c. Co. 91 Ala. 363, 8 So. 348; Gloninger v. Pittsburgh R. Co. 139 Pa. St. 13, 21 Atl. 211. See, also, St. Joseph, &e. R. Co. v. St. Louis, &c. R. Co. 135 Mo. 173, 36 S. W. 602, 33 L. R. A. 607, 615. 499 CONTRACTS — SCOPE OF CORPORATE POWER. [§ 341 of incorporation. It is, of course, competent for the legislature to limit the power to contract and to designate the mode in which cor- porations may contract, and where a limitation is imposed or a mode prescribed the corporation cannot rightfully make a contract beyond the limits nxed by the statute, nor can it regularly contract in any other mode than that prescribed by law in cases where a specific mode is prescribed.^ § 341. Contracts — Scope of corporate power. — The power of a rail- road company to make contracts is limited by the act of incorporation, but is, nevertheless, very broad and comprehensive. Every charter granted, a railroad corporation invests it with implied as well as with express powers. The doctrine seems to have been asserted in England, and receives t some support in this country, that the legislature, when it creates a corporation, gives to that body an absolute right of con- tract, except so far as it may be restrained by positive law.* It cannot, however, be true that a corporation has an absolute right to contract, for it cannot make a contract entirely foreign to the object for which it was created.^ It is generally held in the United States, and it is the only defensible doctrine, that the power of a corporation to make ' Central, &c. Co. v. Pullman Car * Shrewsbury, &c. R. Co. v. North- Co. 139 U. S. 24, 11 Sup. Ct. 478, 45 western R. Co. 6 H. L. Cas. 113; Am. & Eng. R. Cases 607; Pearce Riche v. Ashbury R. Car Co. L. R. 9 V. Madison, &c. Co. 21 How. (U. S.) Ex. 224, citing case of Sutton's Hos- 441; Zabriskie v. Cleveland, &c. Co. pital, 10 Coke 1; Norwich v. Nor- 23 How. (U. S.) 381, 398; Thomas folk, &c. R. Co. 4 El. & Bl. 397. V. West Jersey, &c. Co. 101 U. S. "This is an old and familiar doc- 71; Branch v. Jesup, 106 XT. S. 468, trine, for it has long been settled 1 Sup. Ct. 495; Pennsylvania R. Co. that a corporation cannot make a V. St. Louis, &c. Co. 118 U. S. 290, contract beyond the sphere of cor- 6 Sup. Ct. 1094; Salt Lake City v. porate power, as defined by the act Hollister, 118 TJ. S. 256, 6 Sup. Ct. of incorporation. Utica Ins. Co. v. 1055; Green Bay, &c. R. Co. v. Scott, 19 Johns. 1; Lawler v. Union, &c. Co. 107 U. S. 98, 2 Sup. Walker, 18 Ohio 151; Dublin Corp. Ct. 221; Pittsburg, &c. R. Co. v. Keo- v. Attorney-General, 9 Bligh N. S. kuk, &c. Co. 131 U. S. 371, 9 Sup. 395; Webb v. Manchester, &c. 4 Ct. 770; Oregon, &c. Co. v. Ore- Mylne & Craig 116; Peirce v. New gonian R. Co. 130 U. S. 1, 4 Sup. Orleans, &c. Co. 9 La. 397. Nor, in Ct. 409; New London v. Brainard, general, that would disable it from 23 Conn. 522; Perrine v. Chesa- performing its^ public functions, or peake, &c. Co. 9 How. (U. S.) 172; be against public policy. See post, Commonwealth v. Erie, &c. Co. 27 §§ 359, 368 et seq. Pa. St. 339, 67 Am. Dec. 471. § 342] CONTRACTS. 500 contracts is limited to the making of contracts which it is expressly authorized to enter into and such as are reasonably necessary or inci- dent to the enjoyment of the express powers granted by its charter, and, in general, its officers and agents can only bind it to this extent." It is not necessary, however, that the powers of a corporation should be enumerated, nor is it necessary that the power to contract should be expressly conferred, for the power to make such contracts as will promote the corporate welfare and enable the corporation to conduct its corporate affairs is implied.'^ §342. General power to contract — ^niustrative instances. — Eail- road companies, unless forbidden by statute, may borrow money for corporate purposes and issue negotiable instruments.' It is held, how- » Mobile, &c. R. Co. v. Franks, 41 Miss. 494; Winter v. 'Muscogee R. Co. 11 Ga. 438; Bowling Green R. Co. T. Warren County, 10 Bush (Ky.) 711; Downing v. Mt. Wash- ington R. Co. 40 N. H. 231; Vandall V. South San Francisco Dock Co. 40 Cal. 83. See, also, Pittsburg, &c. R. Co. V. Lyon, 123 Pa. St. 140, 16 Atl. 607, 2 L. R, A. 489, 10 Am. St. 517; Davis V. Old Colony R. Co. 131 Mass. 258, 41 Am. R. 221. 'Smith V. Nashua, &c. R. Co. 27 N. H. 86, 59 Am. Dec. 364; Brown V. Winnisimmet Co. 11 Allen (Mass.) 326; Buffit v. Troy, &c. Co. 36 Barb. (N. Y.) 420; Jacksonville, &c. R. Co. V. Hooper, 160 U. S. 514, 16 Sup. Ct. 379; Toledo. &c. R. Co. v. Rodriguez, 47 111. 188, 95 Am. Dec. 484. Some of the cases affirm that the inquiry which the courts are to make is whether the power to make the contract is forbidden, not whether it is granted. Taylor v. Chichester, &c. R. Co. L. R. 2 Exch. 356, 384; Scottish, &c. R. Co. v. Stew- art, 3 Macq. 382, 415; Eastern, &c. R. Co. V. Hawkes, 5 H. L. Cas. 331. See Gary v. Cleveland, &c. R. Co. 29 Barb. (N. Y.) 35, 52; Bateman v. Mayor, &c. Ashton, &o. 3 Hurl. & N. 323; Kitchen v. Cape Girardeau, &c. Co. 59 Mo. 514; South Yorkshire R. Co. V. Great Northern R. Co. 9 Exch. 55, 88; South Wales R. Co. v. Red- mond, 10 C. B. (N. S.) 675; Missis- sippi, &c. R. Co. V. Howard, 7 Wall. (U. S.) 392; Ohio, &c. R. Co. v. Mc- Carthy, 96 U. S. 258; Norwich v. Norfolk R. Co. 4 El. & Bl. 397, 432; Madison, &c. Co. v. Watertown, &c. Co. 5 Wis. 173. 'White Water Valley R. Co. v. Vallette, 21 How. (U. S.) 414; Mis- sissippi, &c. R. Co. V. Howard, 7 Wall. (U. S.) 392; Gloninger v. Pittsburgh, &c. R. Co. 139 Pa. St. 13, 21 Atl. 211, 46 Am. & Eng. R. Cas. 276; Richards v. Merrimack, &c. R. Co. 44 N. H. 127, 135; Olcott V. Tioga R. Co. 27 N. Y. 546, 84 Am. Dec. 298; Marion, &c. Co. v. Hodge, 9 Ind. 163; Prye v. Tucker, 24 111. 180; Goodrich v. Reynolds, 31 111. 490, 83 Am. Dec. 240; Philadelphia, &c. Co. V. Hickman, 28 Pa. St. 318; Pierce v. Emery, 32 N. H. 484j Gal- veston, &c. Co. v. Cowdrey, 11 Wall. (U. S.) 459; Dupee v. Boston, &c. Co. ili Mass. 37; Butler v. Rahm, 46 Md. 541. See, also, Alabama, &c. Ins. Co. V. Central, &c. Co. 54 Ala. 73; Philadelphia, &c. R. Co. v. Stich- 501 GENERAL POWEE TO CONTRACT — ILLUSTRATIONS. [§ 343 ever, tliat under a power to borrow money and issue negotiable bonds a railroad company cannot issue perpetual or irredeemable bonds." A railroad company has power to compromise all controversies relating to corporate ■ affairs." A contract to haul a designated quantity of goods each month is one that may be lawfully made, provided no dis- crimination is made against other shippers.''^ So, it has recently been held that a railroad company may contract with a person to build up, develop, and conduct the business of transporting milk over its lines of road.^^^ There can, of course, be no doubt as to the power to em- ploy and contract to pay a compensation to such agents and officers as may be required to conduct the corporate business, and it has been held that two companies may employ one general manager.^^ A con- tract between two railroad companies, wherein they agreed to estab- lish and maintain a dispatch line for the transportation of freight, was recognized as valid, but there seems to have been no discussion of the question whether the contract was or was not against public policy.^^ An arrangement by which the receiver of existing companies was to receive all the stock and bonds of a proposed railroad, to be used in constructing the roadbed, leaving no funds for building side- tracks or purchasing equipment, was- held to be invalid and the or- ganization of the proposed company a fraud upon the statute.^* A railroad company may contract with a municipal corporation to erect a depot at a designated place, but in the absence of clear words con- stituting a covenant to perpetually maintain the depot at the desig- ter, 21 Am. R. Reg. (N. S.) 713, and "Harrison v. New Orleans, &c. note; Commonwealth v. Smith, 10 Co. 28 La. Ann. 777; Chicago, &c. R. Allen (Mass.) 448, 455, 87 Am. Dec. Co. v. Chicago, &c. R. Co. 79 111. 121. 672. See, also, Cleveland, &c. R. Co. v. " Taylor v. Philadelphia, &c. R. Co. Himrod Furnace Co. 37 Ohio St. 7 Fed. 386, 1 Am. & Bng. R. Cases 321, 41 Am. R. 509. 616, citing Thomas v. West Jersey, "a Delaware, &c. R. Co. v. Kutler, &c. R. Co. 101 U. S. 71. Contra, 147 Fed. 51. Phila. &c. R. Co.'s Appeal (Phlla. " State v. Concord R. Co. 62 N. H. &c. R. Co. V. Stichter), 11 W. N. C. 375, 13 Am. & Eng. R. Cas. 94. (Pa.) 325, 4 Am. & Eng. R. Cas. 118, "Chicago, &c. R. Co. v. New York, 21 Am. L. Reg. 713. &c. R. Co. 22 Am. & Eng. R. Cas. "Philadelphia, &c. Co. v. Hick- 265. See, also, Prather v. Western man, 28 Pa. St. 318; Macon, &c. R. Tin. Tel. Co. 89 Ind. 501; Western Co. V. Vasonj 57 Ga. 314. See, gen- Un. Tel. Co. v. Rich. 19 Kans. 517, 27 erally, Bath's Case, L. R. 8 Ch. Div. Am. R. 159. 334; Kipling v. Todd, L. R. 3 C. P. "Chicago, &c. R. Co. v. Miller, 91 Div. 350. Mich. 166, 51 N. W. 981. § 343] CONTRACTS. 503 nated place the company is not bound to do so.^^ It seems to us doubt- ful whether an agreement to perpetually maintain a depot at a desig- nated place would be valid, since the changes wrought by time and progress may make it necessary for the public interest and the promo- tion of the public welfare to locate the station elsewhere. We suppose that when parties enter into a contract they must be held to contract with reference to such matters. This subject, however, is considered* in another section.^* It is held that one railroad company may grant to another the right to use the track without pecuniary compensation and that where such a contract is made by the general superintendent with the knowledge of the board of directors, it will be enforced.^^ § 343. Power to contract — Control of by courts. — The business policy of a corporation is a matter for the management and control of the corporation, and the courts will not dictate the policy to be pursued in such a matter, nor exercise surveillance over the corpora- tion in regard to mere matters of business policy or expediency.'^* Where the action is lawful and not beyond the power of the corpora- tion, the courts will not examine "into the affairs of the corporation to determine the expediency of its action, or the motives for it."^® Courts will not control corporate action where the matter is one of pure discretion, but may interfere where there is a palpable abuse of discretion which causes a legal injury to the person who seeks judicial assistance.^" To justify interference upon the ground of an abuse of '^ Texas, &c. R. Co. v. Marshall, any material part of the corporate 136 U. S. 393, 10 Sup. Ct. 846, 42 property. But see Central R. &c. Co. Am. & Eng. R. Gas. 637; citing Mead v. Cheatham, 85 Ala. 292, 4 So. 824, V. Ballard, 7 Wall. (U. S.) 290. 7 Am. St. 48; Hutton v. West Cork " See post, § 362. R. Co. 23 Ch. Div. 654. "Alabama, &c. R. Co. v. South, "Evans v. Union Pacific R. Co. 58 &c. R. Co. 84 Ala. 570, 3 So. 286, 5 Fed. 497. See, generally, Willough- Am. St. 401. Some of the expres- _hy v. Chicago, &c. Co. 50 N. J. Eq. sions used in the opinion delivered 656, 25 Atl. 277, 39 Am. & Eng. Corp. in tlie case cited indicate that the Cas. 153; Sewell v. East Cape May directors may make a donation of Co. 50 N. J. Bq. 717, 25 Atl. 929. the property rights of the company, "Oglesby v. Attrill, 105 U. S. 605; but we think that the agreement Bailey v. Birkenhead, &c. R. Co. 12 before the court disclosed a consid- Beav. 433. eration, so that it cannot be said =" Davis v. Mayor, &c. 1 Duer (N. that there was an entire absence of Y.) 451; Methodist, &c. Church v. consideration. We do not believe Baltimore, 6 Gill (Md.) 391; Bald- that the officers of a railroad com- win v. Bangor, 36 Me. 518. See Wil- pany have power to make a gift of liams V. New York, &c. R. 16 N. Y. 503 EFFECT OF CHANGES IN CHARTER. [§344 discretion, a Tery strong and clear case must be made by the complain- ant, for it is only where there is palpable abuse and, manifest injury that courts will give relief.^^ § 344. Efiect of changes in charter. — A party who contracts with a railroad company deals, as he is bound to know, with a creature of the law invested with limited powers. He cannot successfully insist that it possesses unlimited power to enter into contracts, and he must take notice of the general power of the legislature over the corpora- tion. In accordance with this principle it has been held that all parties contracting with a corporation must take notice of the conditions on which it holds its franchises, and of its subjection to the legislative will, and that executory contracts for the construction of the road may be annulled or rendered less profitable by the act of the legisla- ture in amending the charter under a reserved power so as to change the route and render the performance of such contracts impossible or more expensive.^^ 97, 69 Am. Dec. 615; Western Union, &c. Co. V. Mayor, &c. 38 Fed. 552; 3 Xj. R. a. 449; Montgomery, &c. Co. V. Montgomery, 87 Ala. 245, 6 So. 113, 4 L. R. A. 616; Des Moines, &c. Co. V. Des Moines, 44 Iowa 505, 24 Am. R. 756; Chicago v. Evans, 24 III. 52; Smith v. McCarthy, 56 Pa. St. 359; Richmond v. Davis, 103 Ind. 449, 3 N. B. 130. »» Wilder v. Rural, &c. Co. (N. J.) 32 Atl. 676. ==" Macon, &c. R. Co. v. Gibson, 85 Ga. 1, 21 Am. St. 135, 11 S. B. 442, Sleekly, J., said: "Nor is the right of a state so to amend or modify the charter abridged or in any manner affected by executory contracts, en- tered into by the company .with third persons, before the amending act was passed. The Macon Con- struction Company, in dealing with the railroad company, was bound to take notice of the general law of the state, under which the right and power were reserved which have been exercised. A tenant at will cannot make contracts with refer- ence to' the estate, which will limit the power of the landlord to ter- minate the estate by means com- patible with its nature. So a cor- poration in the possession of fran- chises held at the will of the state cannot hinder the resumption or modification of those franchises by entering into executory contracts with third persons. Nor can that effect be wrought by like contracts between the parties immediately contracting with the corporation, and subcontractors under them. On no contract whatsoever does the amendment now in question have any direct efEect. Its only effect upon contracts is incidental, and, if they cannot be performed con- sistently with the alteration in the charter made by the amending stat- ute, their performance, in so far as thus hindered or obstructed, will be excused; the rule of law being that performance of contracts, when ren- dered impossible by act of law. 345] CONTEACTS. 504 §345. Contracts — rormal requisites of. — The old doctrine that a corporation could only contract under its common seal does not, as every one knows, any longer prevail. Some contracts must be evi- denced by the corporate seal, but the instances in which a seal is essen- tial to the validity of a corporate contract are comparatively few, for in the vast majority of cases no seal is required. It is not required where the contract relates to ordinary corporate business. The legis- lature may, of course, require that all contracts shall be attested by the corporate seal, but a provision in the charter requiring the cor- poration to have a common seal dOes not require all contracts to be under seal.^^ In a monographic note written or edited by Mr. Free- stands excused. (Citing Bish. Cont. § 594, and other authorities.) Un- der these authorities, If the Macon Construction Company, or a sub- contractor under it, was under a stipulation to complete the railway by a given time, and if time was of the essence of the contract, a valid excuse for failing so to do would be furnished by this subsequent legislation, in that legislation has rendered, or should render, it im- possible to complete the work by the stipulated time. In so far as this or any other executory contract has been rendered less valuable or profitable to the parties concerned by the legislation in question, that is a consequence which should have been foreseen as possible, and which must be accepted by the parties as an incident of the exercise by the legislature of its rightful legislative power. Surely it cannot rationally be contended that because the al- teration of charters with respect to the latitude of the franchises grant- ed may or does operate unfavorably upon executory contracts made by or under the corporations, the char- ters must remain unaltered In this respect, and the reserved power in the legislature be reduced to a power in name only." See, also, Mumma v. Potomac Co. 8 Pet. (U. S.) 281; Thornton v. Railway Co. 123 Mass. 32; and post, § 350. '^ Sarmiento v. Davis, &c. Co. 105 Mich. 300, 63 N. W. 205, 55 Am. St. 446. See Gary, &c. Co. v. Cain, 70 Miss. 628, 13 So. 239. The seal, where one Is required, may be at- tached by a person whom the gov- erning board recognizes as secre- tary, although such a person Is not secretary de jure. Augusta, &c. R. Co. V. Kittel, 52 Fed. 63, 2 C. C. A. 615. A contract not required to be under seal, which professes to be executed by the president in behalf of the corporation, is presumptively a corporate contract. National, &c. Ass'n V. Prentice, &c. Co. 49 Minn. 220, 51 N. W. 916. See Musca- tine, &c. Co. V. Muscatine Lum- ber Co. 85 Iowa 112, 52 N. W. 108, 39 Am. St. 284. Of course a cor- porate contract must possess the es- sential elements of a contract be- tween natural persons, such as a consideration and the like. It Is barely necessary to suggest that where the statute requires a conT tract to be in writing, or requires it to be under seal, the statutory re- quirement must be obeyed. Paul- ing V. London, &c. R. Co. 8 Exch. 867. See Chase v. Second Ave. R. Co. 97 N. Y. 384, 49 Am. R. 531. 505 FORMAL DEFECTS. [§ 346 man it is said that in this country "the rule is well nigh, if not abso- lutely,' universal" that a corporate seal is unnecessary in most cases, and in every case in which a seal would be unnecessary if the act or contract in question were that of an individual.^* In considering the authority of corporate representatives, we referred to the familiar rule that where the charter prescribed the mode of contracting, that mode must be pursued, and also said that the general rule is that corpora- tions are not bound by contracts executed by persons having no au- thority from the corporation, or by agents who transcended the au- thority conferred upon them. It is not necessary to add anything to what has been said upon those subjects, for they are familiar ones and our consideration of them has. been as full as is consistent with the scope of our work.^"* § 346, rormal defects. — Merely formal defects in a corporate con- tract not affecting the substantial rights of the parties will be disre- garded by the courts. If there is no defect affecting substantial rights the courts will ascertain and carry into effect the intention of the contracting parties.^" But, of course, if the defects are of such a character as to render the contract nugatory, or so vague and uncer- '*Note to Green Co. v. Blodgett (159 111. 169, 42 N. B. 176), 50 Am. St. 146, 152, citing and reviewing many authorities. " In addition to the authorities heretofore cited, see Missouri Pacific R. Co. V. Sidell, 67 Fed. 464; Leroy, &c. R. Co. V. Sidell, 66 Fed. 27; Canda, &c. Co. v. Woodbridge, &c. Co. 58 N. J. L. 134, 32 Atl. 66; Tul- leys V. Keller, 45 Neb. 220, 63 N. W. 388; Eaton v. Robinson, 19 R. I. 146, 31 Atl. 1058, 32 Atl. 339, 29 L. R. A. 100; Bradford v. Frankfort, &c. R. Co. 142 Ind. 383, 40 N. E. 741; Na- tional, &c. Bank V. Vigo County, &c. Bank, 141 Ind. 352, 40 N. E. 799, 50 Am. St. 330; li'irst National Bank v. AshevlUe, &c. Co. 116 N. C. 827, 21 S. E. 948. Effect of notice by one who takes promissory note executed by' treasurer of corporation in fraud Of Its rights. Mlllward, &c. Co., In re, 161 Pa. St. 157, 28 Atl. 1072, 1077. Authority to an agent to execute a mortgage empowers him to insert usual conditions therein. Gribble v. Columbus, &c. Co. 100 Cal. 67, 34 Pac. 527; Vincent v. Snoqualmie, &c. Co. 7 Wash. 566, 35 Pac. 396. Acts in excess of authority may be ratified where they are within scope of corporate power. People v. Eel River, &c. R. Co. 98 Cal. 665, 33 Pac. 728; Nebraska, &c. Co. v. Bell, 58 Fed. 326, 7 C. C. A. 253; Thomas v. City, &c. Bank, 40 Neb. 501, 58 N. W. 943, 24 L. R. A. 263. '"Underbill v. • Santa Barbara, &c. Co. 93 Cal. 300, 28 Pac. 1049. See Seymour v. Spring Forest, &c. Assn. 64 Hun (N. Y.) 632, 19 N. Y. 94; Hasselman v. Japanese, &c. Co. 2 Ind. App. 180, 27 N. E. 718, 28 N. B. 207; Dexer v. Long, 2 "Wash. 435, 27 Pac. 271, 26 Am. St. 867. § 347] CONTEACTS. 506 tain that the intention of the parties cannot be discovered, it will not be enforced. § 347. Contracts — ^Who may make — Generally. — The general power of a railroad company to enter into contracts may be exercised by the board of directors.^^ The general rule is that in the board is vested the paramount power of making corporate contracts, but other officers may often contract on behalf of the corporation.^^ As was said at an- other place, there are some contracts which the board of directors must make, but ordinary corporate contracts relating to the usual business of the corporation may be made by other officers, or by duly appointed agents acting within the scope of their employment ;'° and the powers of the board of directors are oftdn permitted to be delegated to its executive committee.^"* §■ 348. Contracts by interested persons. — The general rule is that a corporate agent cannot at the same time act for himself and for the corporation in a matter where his interests are antagonistic to those of the corporation. This rule is one of wide sweep. Thus it is held, in accordance with this rule, that corporations having common officers and trustees cannot enter into valid contracts with each other.^" Nor ^ Bank of Middlebury v. Rutland, authority is not a good one. Levey &c. R. Co. 30 Vt. 159; Wright v. Oro- v. New York, &c. R. Co. 4 Misc. (N. vlUe, &c. Co. 40 Cal. 20; Clark Corp. Y.) 415, 24 N. Y. S. 124. 485. ="a Union Pac. R. Co. v. Chicago, =^A president who has general &c. R. Co. 163 IT. S. 564, 16 Sup. Ct. managing authority may assent to 1173. See, also, Kelsey v. New Eng- the reformation of a contract, in land, &c. R. 60 N. J. Eq. 230, 46 Atl. case of a mistake therein, executed 1059; Salem, &c. Co. v. Lake Superi- by him in behalf of the corporation, or, &c. Co. 112 Fed. 239 ; Burrill v. Nichols V. Scranton, &c. Co. 137 N. Nahant Bank, 2 Mete. (Mass.) 163, Y. 471, 33 N. E. 561. See, also, 35 Am. Dec. 395; Black River, &c. Taussig V. St. Louis, &c. R. Co. 186 Co. v. Holway, 85 Wis. 344, 55 N. W. Mo. 269, 85 S. W. 378. 418; Sheridan Electric Light Co. v. "^ Where the purchasing agent of Chatham Nat. Bank, 52 Hun (N. Y.) a railway has apparent authority to 575, 5 N. Y. S. 529. make contracts for supplying the "Stokes v. Phelps Mission, 47 company with stationery, a third Hun (N. Y.) 570, 14 N. Y. S. 901; person, who has dealt with him a Barr v. New York, &c. R. Co. 52 number of years on the faith of his Hun (N. Y.) 555, 24 N. Y. S. 188. having such authority, can enforce See, also, Montgomery Traction Co. a contract with said purchasing v. Harmon, 140 Ala. 505, 37 So. 371. agent as against the company, and A contract leasing cars from one the ■ defense that the agent had no railroad company to another, whose 507 CONTRACTS BY INTERESTED PERSONS. [§ 348 can an officer or agent of the company bind it, as a general rule, by a contract in which he is personally interested.^^ It is, therefore, to be oflScers are substantially the same, win not be recognized on a claim for compensation against a receiver of the lessee railroad company, though a reasonable compensation for the use of the cars will be al- lowed. Thomas v. Peoria, &c. R. Co. 36 Fed. 808. Four persons, com- mon directors of two different rail- roads, became assignees of a con- struction contract made by one of the companies, by which they re- ceived its stocks and bonds, thereby making a large profit. Afterwards acting for the two companies, they executed a lease of the road and franchises of the company whose bonds and stocks they held to the other company, binding it to pay as rental certain sums to meet interest on the bonds and dividends on the stocks. The lease was held Invalid as an attempt by the directors to impose obligations on the lessee company for their own private benefit and no formal rescission of the lease was necessary. Barr v. New York, &c. R. Co. 52 Hun (N. Y.) 555, 5 N. Y. S. 623. Certain persons, being stock- holders and directors of both a rail- road company and an iron company, negotiated in good faith a contract between the railroad company and the iron company, which took the form of a resolution by the railroad company to lease a railroad owned by the iron company and pay in stocks and bonds, and of a subscrip-' tion by the iron company to be paid in property, viz., a lease of their railroad, the contract was unani- mously ratified by a vote of all the stockholders of the railroad com- pany. The contract was held to be, at worst, only voidable, and as no fraud or intentional overvaluation appeared, and the consideration was nearly adequate, the bonds issued were held valid. Coe v. East, &c. R. Co. of Alabama, 52 Fed. 531. In Chicago, &c. Co. v. Yerkes, 141 111. 320, 30 N. E. 667, 33 Am. St. 315, it is held that where authority to sell corporate property was con- ferred upon the president and secre- tary a sale to the secretary was in- effective. =' Sargent v. Kansas Midland R. Co. 48 Kans. 672. See ante, §§ 276, 290. But such a contract may, by the weight of authority, be binding if it is shown to be fair and free from fraud and the corporation is represented by another proper agent, or if the contract is ratified and adopted by the corporation, and it may, in any event, be liable for the benefits actually received and re- tained by it. Clark Corp. 508. The fact that the president of a railroad company, without the knowledge of the other directors, is interested in a construction contract let by the company, does not in itself make the contract void, but simply void- able. Augusta, &c. R. Co. v. Klttel, 2 U. S. App. 409, 2 C. C. A. 615, 52 Fed. 63; Langan v. Francklyn, 29 Abb. (N. Y.) N. Cas. 102, 20 fC. Y. S. 404. See, also, Schnittger v. Old Home, &c. Co. 144 Cal. 603, 78 Pac. 9. A corporation which sells cer- tain of its bonds to its directors for less than par, but for their actual value, is estopped from attacking the validity of the sale. Union Loan, &c. Co. v. Southern Cali- fornia, &c. Co. 51 Fed. 840. See §■ 349] CONTRACTS. 508 understood that when it is said that a corporation may he bound by the act of its agent performed within the scope of his authority the meaning is that he must be acting for the corporation and not in a matter in which his interests and those of the corporation are in conflict. § 349. Mode prescribed must be pursued. — The mandatory require- ments of the charter must be observed, when it prescribes a mode of contracting, since it is from the charter alone that the corporation de- rives power to enter into contracts.^^ This elementary rule applies to provisions respecting the designation of the officers by whom the con- tract shall be made, as well as to other matters. The stockholders of a corporation cannot, by a majority vote, bind the corporation to a contract, when the charter lodges the power of contracting wholly with the board of directors.^^ But if a contract were adopted by a unanimous vote of the stockholdfers, they would, no doubt, be estopped to deny the binding force of the contract.** Although the acts, doings and declarations of individual members of a corporation, unsanctioned by the body, are not binding upon it, yet, in the absence of any vote, a contract may be shown by inferences drawn from corporate acts, the same as in the case of an individual.*'' Skinner v. Smith, 134 N. Y. 240, 31 222 n; Essex Turnpike Corp. v. Col- N. E.^ 911. The rule prohihiting lins, 8 Mass. 292. persons In a fiduciary relation from =* The act of Incorporation fur- contracting for their own advantage nishes no security to persons assent- in the name of the beneficiaries Ing to unauthorized acts. Kearny does not apply to directors who own v. Buttles, 1 Ohio St. 362. But the all the stock of the corporation, and creditors or a receiver acting for such contracts are not void as their interests may dispute the cor- agalnst public policy. McCracken porate liability on such a contract V. Robinson, 57 Fed. 375, 6 C. C. A. so far as it tends to impair the 400. ability of the corporation to pay its ^^Head v. Providence Ins. Co. 2 valid obligations. Bank of Chatta- Cranch (U. S.) 127; Blssell v, nooga v. Bank of Memphis, 9 Heisk. Spring Valley Twp. 110 U. S. 162, 3 (Tenn.) 408; National Trust Co. v. Sup. Ct. 555. Miller, 33 N. J. Bq. 155. A share- ^ Gulf, &c. R. Co. V. Morris, 67 holder ratifying, participating in or Tex. 692, 4 S. W. 156; McCullough acquiescing in the acts of a corpora- V. Moss, 5 Denio (N. Y.) 567; Gash- tion will be bound by such acts and wiler V. Willis, 33 Cal. 11, 91 Am. his trustee cannot bring action ad- Dec. 607. But at common law a versary to said acts in his favor, corporation may contract by a vote Memphis, &c. R. Co. v. Grayson, 88 accepting a proposal made in a Ala. 572, 7 So. 122, 16 Am. St. 69. meeting. Maxwell v. Dulwich Col- s=New York, &c. R. Co. v. New lege, 1 Fonbl. Eq. 306, 7 Simons York, 1 Hilton (N. Y.) 562; Canal 509 NOTICE FROM CHAKTEE PROVISIONS. ' [§ 350 § 350. Contracts — Parties bound to take notice of charter provi- •sions. — The constitution of a corporation, and the powers wliieh it possesses under its constitution, are presumed to be known as matters of law to its members and to all persons dealing with the corporation.^^ It is a logical conclusion from 'this general rule that parties contract- ing with a railroad company cannot successfully aver that they were ignorant of the nature of the powers conferred upon it by the legis- lature, but, nevertheless, the courts do in some measure at least de- part from this general doctrine, since they do protect persons who contract with the company. The doctrine, however, exerts an impor- tant influence on almost all cases. The general principle stated leads to the conclusion that the corporation is not bound by any act of the board of directors, or any other corporate agent, done in excess of the charter powers, since a person dealing with the corporation is bound to know that no agent can exceed the powers of the corporation it- self.^^ And, of course, nobody can hold a principal bound by a con- tract made with his agerlt in excess of that agent's known powers, much less can the corporation be held on the contract where the con- tract is ope which the corporation had no power to make. The same general rule holds as to ultra vires act of the majority of the stock- holders, for the majority can bind absent or dissenting stockholders only by acts done under sanction of the charter.^^ While a person dealing with the corporation is held to be affected with notice of the corporate powers as indicated by the law of its incorporation, he is Bridge v. Gordon, 1 Pick. (Mass.) & Corp. Cases 285; Steele v. Fra- 297; Gowen Marble Co. v. Tarrant, ternal Tribunes, &c. 215 111. 190, 74 73 111. 608; Goodwin v. Union Screw N. E. 121, 106 Am. St. 160. In Co. 34 N. H. 378. Jenkins v. Gastonia, &c. Co. 115 N. " Spence v. Mobile, &c. R. Co. 79 C. 535, 20 S. B. 724, it is held that Ala. 576; Davis v. Old Colony R. Co. where the statute requires the cor- 131 Mass. 258, 41 Am. R. 221; Pearce porate contract to be in writing it v. Madison, &c. R. Co. 21 How. (U. cannot be ratified by silence. See, S.) 441; Kraniger v. People's &c. also, Spence v. Wilmington, &c. Society, 60 Minn. 94, 61 N. W. 904; Mills, 115 N. C. 210, 20 S. E. 372. Western Nat. Bank v. Armstrong, These cases seem to us to go very 152 U. S. 346, 14 Sup. Ct. 572; Al- far. exander v. Cauldwell, 83 N. Y. 480; "Elevator Co. v. Memphis, &c. R. Hoyt V. Thompson, 19 N. Y. 207; Co. 85 Tenn. 703, 5 S. W. 52, 4 Am. Relfe V. Rundle, 103 U. S. 222; Leon- St. 798; Davis v. Old Colony R. Co. ard V. American Insurance Co. 97 131 Mass. 258, 41 Am. R. 221. Ind. 299; Jemison v. Citizens' Sav- "Bird v. Bird's Patent, &c. Co. L. ings Bank, 122 N. Y. 135, 9 L. R. A. R. 9 Ch. 358. 708, 19 Am. St. 482, 3 American R. § 351] CONTRACTS. 510 not, as a rule, bound to take notice of extraneous circumstances upon which the right to exercise those powers may depend.^^ § 351. Contracts — TInauthorlzed — Notice. — A party who deals with a corporation is bound to take notice of the powers conferred upon it by the act of incorporation, but is not bound to take nofice of the purpose of the corporation in making the contract unless that purpose is made apparent by the nature of the transaction. There is, it is obvious, a clearly marked distinction between cases where a party asserts that he was ignorant of extrinsic facts or circumstances, and cases where he avers ignorance of the provisions of a charter or stat- ute.*" Although the purpose of the corporation be to do an illegal act, the person will be unaffected by that fact unless he had notice of it. Thus, if a contract in the form of a negotiable corporate security, is- sued by a corporation having authority to issue such paper, gives no suggestion that it was issued as accommodation paper, an innocent holder will not be affected by the fact that it was issued for accom- modation and without consideration,*^ but it would be otherwise if the person who took the paper had actual knowledge of its character.*^ If it is within the scope of the power of the corporate -agents to issue such securities, the purchaser may assume that they were properly issued.*^ A person who sells to a corporation property which it has ™ Madison, &c. R. Co. v. Norwich of Genesee v. Patchin Bank, 19 N. Sav. See. 24 Ind. 457; Thompson v. Y. 312; Bsta*rook, Ex parte, 2 Lambert, 44 Iowa 239; Express Co. Lowell (U. S.) 547; Farmers', &c. V. Railroad Co. 99 U. S. 191, 199; Bank v. Sutton, &c. Co. 52 Fed. 191; ' Galveston Railroad v. Cowdrey, 11 Monument, &c. Bank v. Globe Works, Wall. (U. S.) 459; Oxford Iron Co. 101 Mass. 57; Lafayette, &c. Bank v. V. Spradley, 51 Ala. 171; Gano v. St. Louis, &c. Co. 2 Mo. App. 299. But Chicago, &c. R. Co. 60 Wis. 12, 17 see McLellan v. Detroit, &c. Works, N. W. 15 ; Eastern Counties R. v. 56 Mich. 579, 23 N; W. 321. Hawkes, 5 H. L. C. 331. "National Bank v. Wells, 79 N. "It was held in Kuser v. Wright, Y. 498; West St. Louis, &c. Bank v. 52 N. J. Eq. 825, 31 Atl. 397, that a Shawnee, &c. Bank, 95 U. S. 557. person receiving a mortgage is not " Hackensack Water Co. v. DeKay, bound to know that sufficient notice 36 N. J. Eq. 548; Ellsworth v. St. was given corporate directors. Louis, &c. R. Co. 98 N. Y. 553 ; East- "■ Madison, &c. R. Co. v. Norwich em Counties R. Co. v. Hawkes, 5 H. Sav. Soc. 24 Ind. 457; National Bank L. C. 331; London, &c. R. Co. v. Mc- V. Young, 41 N. J. Eq. 531, 3 Atl. 94; Michael, 5 Ex. 855. A corporation Farmers', &c. Bank v. Empire Stone having power to execute negotiable Dressing Co. 5 Bosw. (N. Y.) 275; paper may bind itself by becoming Bird V. Daggett, 97 Mass. 494; Bank an Indorser or guarantor of bonds 511 ESTOPPEL — GENERALLY. [§ 353 power to purchase, ■will not be affected by the circumstance that it was purchased for an unauthorized purpose, if he has no knowledge of such fact.** The general doctrine applies to a loan of money which is afterward misapplied. If the corporation had general authority to borrow money the lender is not bound to supervise its application.*^ It is held that if a corporation, with authority to borrow not more than a certain sum, borrows in excess of that sum, the lender may re- cover provided he made the loan in ignorance that the excess was al- ready reached.*" It may be well enough to suggest, in passing, that the rules respecting rights depending upon the ignorance of the party dealing with the corporation, are subject to the further rule that he must have acted in good faith and as a prudent man, and his ignor- ance must not be due to his own fault or negligence.*'' §'352. Estoppel-^Generally. — ^A corporation may estop itself to deny the existence and binding force of a contract, the same as an in- dividual, provided that the contract is not entirely beyond the scope of its corporate powers. Where a corporation voluntarily accepts the benefit arising from the performance of a contract which it had power to make, but which was made on its behalf by one who was not author- ized to represent it, it cannot afterward deny its liability on the con- tract.*^ A railroad company may, of course, be estopped by acts or received by it in the course of busi- Halsey, 117 U. S. 336, 6 Sup. Ct. ness, with, a view to increasing the 764; Cotton v. New Providence, 47 value of such bonds. Railroad Co. N. J. L.. 401, 2 Atl. 253; Mutual V. Howard, 7 "Wall. (U. S.) 392; Tod Benefit, &c. Co. v. Elizabeth, 42 N. v. Kentucky tTnion Land Co. 57 Fed. J. L. 235. See Coffin v. Indianapolis, 47. 59 Fed. 221. " And in case the property is such "Express Co. v. Railroad Co. 99 as the corporation is authorized to U. S. 191, 199. purchase, the vendor is under no ** Bonner v. Spiral Hinge Mfg. Co. obligation to inform himself as to 81 N. Y. 468; Little Rock, &c. R. Co. whether this particular purchase v. Perry, 37 Ark. 164; Windsor v. was a proper one for it to make. St. Paul, &c. R. Co. 37 "Wash. 156, 79 Eastern Counties R. Co. v. Hawkes, Pac. 613; Jourdan v. Long Island 5H. L. C.'331; R. Co. 115 N. Y. 3^0, 22 N. B. ^=Thomspon v. Lambert, 44 Iowa 1126. See "Weatherford, &c. R. Co. 239; Tracy v. Talmage, 14 N. Y. v. Granger, 85 Tex. 574, 86 Tex. 162, 67 Am. Dec. 132. 350, 22 S. "W. 70, 959, 23 S. "W. 425. *° Ossipee, &c. Mfg. Co. v. Canney, When a natural principal would be 54 N. H. 295; Auerbach v. LeSueur estopped under similar circum- Mill Co. 28 Minn. 291, 9 N. W. 799, stances, to deny his liability on a 41 Am. R. 285; New Providence v. contract made in his name by his § 353] CONTEACTS. 513 conduct, as well as by matter of record. It may be estopped to deny that it has ratified the unauthorized act of a person who has assumed to represent it. It is not necessary to show a formal ratification of a contract by a board of directors of a corporation, but it is sufficient to render it binding upon the corporation if it accepted and acted under it and performed its ,terms with full knowledge of its import.** § 353. Batification of unauthorized acts — ^Rights of the public and of creditors. — So far as concerns the corporation and its stockholders, there can be no doubt that the unauthorized acts of the company's ofiicers and agents may be ratified by the stockholders, so as to render them valid and binding upon the corporation and its stockholders. This is elementary doctrine.'"'' But, as we have elsewhere said, we do not believe that an act entirely outside of and beyond the scope of the agent, a corporation will be estopped in like manner, provided the con- tract Is not in the proper sense ultra vires. Foulke v. San Diego, &c. R. Co. 51 Cal. 365; Hayden v. Middle- sex Tump. Co. 10 Mass. 397, 6 Am. Dec. 143; Tyler v. Trustees, 14 Oreg. 485, 13 Pac. 329; Kellogg Bridge Co. V. Hamilton, 110 U. S. 108, 3 Sup. Ct. 537; Taylor Priv. Corp. 249. Where the president and general manager of a company borrowed money and executed notes in the corporate name it was held that the corporation is not estopped from at- tacking the validity of the notes, even though one member of the board of trustees knew of the trans- action and though the money was used for the company's benefit. Dunbar, C. J., dissenting. Blwell v. Puget Sound, &c. R. Co. 7 Wash. 487, 35 Pac. 376. " Taylor v. Albemarle Steam Nav. Co. 105 N. C. 434, 10 S. E. 897; Jacksonville, &c. R. &c. Co. v. Hoop- er, 160 U. S. 514, 16 Sup. Ct. 379; Anderson v. Connor. 43 Misc. (N. Y.) 384, 87 N. Y. S. 449;' Gulf. &c. R. Co. V. Pittman, 4 Tex. Civ. App. 167, 23 S. W. 318. The ac- ceptance of a bonus by a railroad company ratifies the representations made by a director while soliciting the bonus from the citizens of a town. '" Hitchings v. St. Louis, &c. Trans. Co. 68 Huh (N. Y.) 33, 22 N. Y. S. 719; Branch v. Jesup, 106 U. S. 468, ISup. Ct. 495; Taylor v. Chichester, &c. R. Co. L. R. 2 Ex. 356, 380; Tay- lor V. S. & N. Alabama R. Co. 13 Fed. 152; Kelley v. Newburyport, &c. R. Co. 141 Mass. 496, 6 N. E. 745; Augusta, &c. R. Co. v. Kittel, 52 Fed. 63. If stockholders of a corporation stand by and sanction, or seem by their silence to sanction, unauthorized acts of the oflSeers of the company, they must abide by such acts. Burgess v. St. Louis County R. Co. 99 Mo. 496, 12 S. W. 1050. But in Weatherford, &c. R. Co. V. Granger, 86 Tex. 350, 24 S. W. 795, it was held, reversing 23 S. W. 425, that a corporation accept- ing a bonus on its organization is not liable on the contract of the pro- moter for services in procuring the bonus, in the absence of a statutory provision or an express agreement to that effect. 513 CONTRACTS IN CONJUNCTION WITH OTHER PARTIES. [§ 354 powers conferred upon the corporation can be ratified so as to give vitality to the contract, for what could not be done directly by enter" ing into contract cannot be accomplished by ratification.^^ We make a distinction between acts performed by agents outside of the scope of their authority, and acts entirely beyond the scope of the powers con- ferred upon the corporation by the legislature. The question of the right to ratify and of the effect of a ratification is radically different in cases where the interests of creditors are involved, and in cases where the state assails the contract, from what it is where the corpora- tion or its stockholders seek to avoid the contract. The state, and in some instances the creditors of the company, may object to the en- forcement of such a contract, although the corporation and its stock- holders may have assumed to ratify it.°^ §354. Contracts in conjunction with, other parties. — The power to unite with other corporations or with natural persons in making contracts required by legitimate corporate business is one of the im- plied powers of a railroad company. The general power to contract authorizes the execution of all such contracts as are necessary to en- able the corporation to successfully and properly conduct its cor- porate' business. Thus a railroad company may unite with natural persons in a contract for the maintenance of crossings,"^ or, in many instances, with individuals or corporations for various other legitimate purposes.^* ■^Post, § 371; Kelner v. Baxter, L. Mo. 218. As to the rights of cred- it. 2 C. P. 174; Scott v. Lord Ebury, iters, see Bank of Chattanooga v. 36 L. J. C. P. 161; Melhado v. Porto Bank of Memphis, 9 Heisk. (Tenn.) Alegre, &c. R. Co. L. R. 9 C. P. 503; 408; National Trust Co. v. Miller, 33 Spiller V. Paris Rink Co. L. R. 7 N. J. Bq. 155; Abbott v. Baltimore, Ch. D. 368; Empress Bng. Co., In &c. Co. 1 Md. Ch. 542; Talmage v. re, L. R. 16 Ch. D. 125; North'd Ave. Pell, 7 N. Y. 328. Hotel Co., In re, L. R. 33 Ch. D. 16. "= Chattanooga, &c. R. Co. v. Davis, See Gooday v. Colchester & S. W. 89 Ga. 708, 15 S. E. 626. Co. 15 Eng. L. & Eq. 596; Preston "See Chicago, &c. R. Co. v. Ayres, V. Liverpool M. &c. R. Co. 7 Bng. L. 140 111. 644, 30 N. B. 687; Chicago, & Eq. 124; Webb v. Direct, &c. R. &c. R. Co. v. Mulford, 162 111. 522, Co. 9 Hare 129. See, also, Steele v. 44 N. E. 861, 39 L. R. A. 599; Elkins Fraternal Tribunes, 215 111. 190, 74 v. Camden, &c. R. Co., 36 N. J. Eq. N. E. 121, 106 Am. St. 160. 241; Sussex R. Co. v. Morris, &c. 19 "^Oil Creek, &c. R. Co. v. Pennsyl- N. J. Eq. 13; State v. Concord R. Co. vania Trans. Co. 83 Pa. St. 160; 59 N. H. 85; Nashua, &c. R. Co. v. Kelly V. People's Transportation Co. Boston, &c. R. Co. 27 Fed. 821; 3 Oreg. 189; Shewalter v. Pirner, 55 Rocky Mt. Mills v. Wilmington, &c. Eix. Railkoads — 33 §"355]" CON-TEACTS. 514 § 355. Pledge of corporate securities. — A party who, in good faith, receives from the board of directors of a corporation bonds in pledge, will be protected provided the directors had authority to issue such bonds.^^ The general doctrine is that the power to sell carries with it the power to pledge.^* But an officer or agent who has no power to sell or negotiate the bonds cannot, of course, pledge them, and the decisions in analogous cases clearly establish the doctrine that neither the president nor any other executive or ministerial officer has au- thority, merely by virtue of his office, to pledge the bonds of the com- pany.^^ The board of directors, if it has the power to issue and sell bonds, may authorize the president or other representative of the company to pledge them. If the course of business has been such as to warrant the inference that the president or other representative has authority to pledge the bonds, and such an act is not ultra vires in the proper sense, then a pledge by the president would be upheld •for the protection of a bona fide pledgee. § 356. Contracts between connecting lines — ^Division of fares. — In the absence of a statute interdicting it, one railroad company may rightfully enter into a contract with another for the purpose of mak- ing a through line, and agree upon a division of the fares according to local rates.' ^ Where the object of such a contract is to secure R. Co. 119 N. Car. 693, 25 S. B. 854, 20 S. "W. 535, 40 Am. St. 206; Davis 56 Am. St. 682. v. Rockingham, &c. Co. 89 Va. 290, "= Farmers', Loan, &e. Co. v. To- 15 S. B. 547. See, also. Second Ave. ledo, &c. R. Co. 54 Fed. 759; Dun- R. Co. v. Mehrbach, 49 N. Y. Super, comb V. New York, &c. Railroad Co. Ct. 267; Titus v. Cairo, &c. R. Co. 37 84 N. Y. 190; Beecher v. Marquette, N. J. L. 98. Nor, it is held, to let &c. Mill Co. 45 Mich. 103, 7 N. W. a construction contract. Griffith v. 695. Chicago, &c. R. Co. 74 Iowa 85, 36 '"Piatt V. Union Pac. R. Co. 99 U. N. W. 901; Templin v. Chicago, &c. S. 48; Leo v. Union Pac. Railway R. Co. 73 Iowa 548, 35 N. W. 634. Co. 17 Fed. 273 ; Farmers' Loan, &c. '^ Hartford, &c. R. Co. v. New Co. v. Toledo, &c. R. Co. 54 Fed. 759. York, &c. R. Co. 3 Robt. (N. Y.) "Potts V. Wallace, 146 U. S. 689, 411; Stewart v. Erie, &c. Co. 17 13 Sup. Ct. 196, 40 Am. & Bng. Corp. Minn. 372; Sussex, &c. Co. v. Mor- Cas. 286; Burke v. Smith, 16 Wall, ris, &c. Co. 19 N. J. Bq. 13; Colum- (U. S.) 390; Bank of U. S. v. Dunn, bus, &c. R. Co. v. Indianapolis, &c. 6 Pet. (U. S.) 51; Famous, &c. Co. R. Co. '5 McLean (U. S.) 450; An- V. Eagle Iron Works, 51 Mo. App. droscoggin, &c. Co. v. Androscoggin 66; Blanding v. Davenport, &c. R. R. Co. 52 Me. 417; Great Northern Co. 88 Iowa 225, 55 N. W. 81; Chem- R. Co. v. Manchester R. Co. 10 Eng. ical, &c. Bank v. Wagner, 93 Ky. 525, Law & Eq. 11. See Bartlette v. Nor- 515 CONTEAOTS PERMITTING USB OF PAET OF EOAD. [§ 357 through connections and not to stifle competition, there is, it is ob- vious, no violation of the principles of public policy. If, however, under the guise of securing a through connection, one railroad com- pany should contract with another for the purpose of shutting off all competition and enabling one of the companies to charge unreasonable fares, the contract would be illegal. Where there is a statute forbid- ding combinations and the division of fares an essentially different question is presented, and that question is not here considered. § 357. Contracts permitting use of part of road. — A distinction is made between the lease of the entire road and a contract granting per- mission to one railroad company to use part of the road of another, aid contracts of the latter class may be, and usually are, upheld"' even though a lease of the entire road and property would be unau^ thorized. Where the company granting the permission does not disable itself from performing its duty to the public, there is no reason for holding invalid a contract which simply grants the use of part of the road. It would be otherwise if one of the companies by such a con^ tract should disable itself from performing the duties enjoined upon it by law. If the governing statute authorizes the execution of a lease, then, of course, there can be no question as to the power of one com- pany to lease all of its road to another. § 358. Contracts regarding terminal facilities. — A contract by one railroad company to permit the use of its terminal facilities by an- other company is valid, provided the company owning the terminal facilities does not by the terms or the effect of the contract disable itself from performing its corporate functions."" But under guise of wlch, &c. R. Co. 33 Conn. 560; Mun- see State v. Minneapolis, &c. R. Co. hall V. Pennsylvania R. Co. 92 Pa. St. 80 Minn. 191, 83 N. "W. 60, 89 Am. 150; Perkins v. Portland, &c. R. Co. St. 514, and note, including opinion 47Me. 573, 74 Am. Dec. 507; Pennsyl- of Supreme Court of tlie United vania, &o. Co. v. Delaware, &c. Co. States affirming the decision of the 1 Keyes (N. Y.) 72; Graham v. Ma- state court. con, &c. R. Co. 120 Ga. 7Ej7, 49 S. E. " Chicago, &c. R. Co. v. Ayres, 140 75; Missouri Pac. R. Co. v. Texas, 111. 644, 30 N. E. 687; Union Pacific &c. R. Co. 30 Fed. 2; note in 72 Am. R. Co. v. Chicago, &c. R. Co. 51 Fed. Dec. 230, 231; Georgia R. &c. Co. v. 309, affirmed in 163 U. S. 564, 16 Sup. Maddox, 116 Ga. 64, 42 S. E. 315, Ct. 1173; Chicago, &c. R. Co. v. Den- 321, citing text. As to power of ver, &c. R. Co. 143 U. S. 596, 12 Sup. state to compel joint traffic arrange- Ct. 479. ments between connecting carriers, °° Union Pac. R. Co. v. Chicago, &c. § 359] CONTRACTS, 516 sucli a contract, a railroad company cannot so divest itself of its property and franchises as to incapacitate itself from discharging the duties resting upon it. The paramount rule that railroad corporations cannot abdicate their functions, nor surrender their powers without the consent of the legislature is not impinged by a reasonable contract granting to another company use of its tracks and stations. § 359. Traffic contract — Surrender to competing line. — ^A traffic contract >vhich destroys the independence of a railroad company and disables it from performing its duties cannot be enforced, except where such a contract is authorized by statute.*^ The policy of the law is to prevent the creation of monopolies and to foster fair com- petition,'^ and hence one railroad company has no implied power to absorb another, but such power may be granted by the legislature. The rule that a railroad company cannot "absolve itself from the per- formance of its functions without the consent of the legislature,""* R. Co. 51 Fed. 309, 2 C. C. A. 174, 51 Court the judgment was affirmed Am. & Eng. R. Cas. 162; Chicago, and the distinction clearly drawn &c. R. Co. V. Union Pacific R. Co. between such a contract and one 47 Fed. 15. See, also. Miller v. disabling a railroad company from' Green Bay, &c. R. Co. 59 Minn. 169, performing Its duties to the public, 60 N. W. 1006, 26 L. R. A. 443. In two justices, however, dissenting, the case first cited the court referred 163 U. S. 564, 16 Sup. Ct. 1173. See, to Oregon, &c. Co. v. Oregonlan R. generally. Harper v. Cincinnati, &c. Co. 130 U. S. 1, 9 Sup. Ct. 409; Cen- Co. 15 Ky. L. 223, 22 S. W. 849. The tral Transp. &c. Co. v. Pullman, &c. text is cited with approval in Co. 139 U. S. 24, 11 Sup. Ct. 478, Georgia R. &c. Co. v. Maddox, 116 and other cases of like character, Ga. 64, 42 S. B. 315, 321, whe^re It is and discriminated them from the said that such an arrangement, in- case where there was a grant of a stead of disabling either company right to use terminal facilities. The from transacting Its own business, court cited, in support of Its con- increases the facilities, of each and elusion, the following cases: Joy v. correspondingly benefits the general St. Louis, 138 V. S. 1, 43, 11 Sup. public. Ct. 243; Brown v. Bellows, 4 Pick. "'Earle v. Seattle, &c. R. Co. 56 (Mass:) 179; Gregory v. Mighell, 18 Fed. 909. Vesey 328; Providence v. St. John's "'Chicago, &c. R. Co. v. Southern Lodge, 2 R. I. 46; Dike v. Greene, Ind. R. Co. (Ind. App.) 70 N. E. 843, 4 R. I. 285; Brown v. Winnisimmet 845, quoting text. Co. 11 Allen (Mass.) 326; Midland "Fisher v. "West Virginia, &c. Co. R. Co. V. Great Western R. Co. 8 39 W. Va. 366, 19 S. E. 578, 23 L. R. Ch. App. 841, 851; Simpson v. West- A. 758; Ricketts v. Chesapeake, &c. minster Hotel Co. 8 H. L. Cas. 712; R. Co. 33 W. Va. 433, 10 S. B. 801, Hendee v. Pinkerton, 96 Mass. 381. 7 L. R. A. 354, 25 Am. St. 901; New 386. On appeal to the Supreme York, &c. R. Co. v. Winans, 17' How. sir CONTRACTS WITH CITIES FOE TERMINALS. [§ 360 i? a general one applicable to all classes of contracts made by railroad corporations. An arrangement by which one company grants to an- other a right to use its track, the purpose of the two companies being to secure an interchange of traflBc, is not a mere naked license but is an enforceable contract.'* Trackage contracts, unless forbidden by statute, may be made between railroad companies.'^ Eailroad com- panies have general power to make contracts to build, repair and re- store public or private crossings.'^ § 360. Contracts with municipal corporations for terminal facili- ties. — A contract may be made between a railroad company and a municipal corporation, , by which the company is granted terminal facilities."^ The grant is taken with the burdens imposed upon it by the town or city,"* and all companies claiming through the company to (U. S.) 30; Washington, &c. R. Co. V. Brown, 17 Wall. (U. S.) 445; Pennsylvania, &c. Co. v. St. Louis, &c. Co. 118 U. S. 290, 6 Sup. Ct. 1094; Central Transp. Co. v. Pull- man's Palace Car Co. 139 IT. S. 24, 11 Sup. Ct. 478; United States v. Union Pac. R. Co. 160 U. S. 1, 16 Sup. Ct. 190; Grand Tower, &c. Co. V. Ullman, 89 111. 244. See George V. Central, &c. R. Co. 101 Ala. 607, 14 So. 752; Biles v. Tacoma, &c. Co. 5 Wash. 509, 32 Pac. 211. In Galves- ton, &c. Co. V. Davis, 4 Tex. Civ. App. 468, 23 S. W. 301, and in Gal- veston, &c. Co. V. Arispe, 5 Tex. Civ. App. 611, 23 S. W. 928, 24 S. W. 33, it was held that an arrangement hy which several companies lease their roads to one company for ninety-nine years, is an agree- ment of partnership and not a lease. We very much doubt the soundness of those decisions, for, as we be- lieve, the contract, whether techni- cally a lease or not, was ineffective. " Louisville, &c. R. Co. v. Ken- tucky, &c. R. Co. 95 Ky. 55, 26 S. W. 532. "= Union Pac. R. Co. v. Chicago, &c. R. Co. 163 U. S. 564, 16 Sup. Ct. 1173; Boston, &c. R. Corp. v. Nashua, &c. R. Corp. 157 Mass. 258, 31 N. E. 1067, citing Nashua, &c. R. Co. V. Boston, &c. R. 136 U. S. 356, 10 Sup. Ct. 1004. Contract grant- ing right to use railroad and appur- tenances Is governed by ordinary rules of construction. Chicago, &c. Co. V. Denver, &c. R. Co. 143 U. S. 596, 12 Sup. Ct. 479, 50 Am. & Eng. R. Cas. 60. See St. Paul, &c. R. Co. v. St. Paul, &c. Co. 44 Minn. 325, 46 N. W. 566. , ™Post V. West Shore, &c. R. Co. 123 N. Y. 580, 26 N. E. 7. See Atchi- son, &c. R. Co. V. Lenz, 35 111. App. 330; Elgin v. Baltimore, &c. R. Co. 74 Md. 61, 21 Atl. 688. " Louisville, &c. Co. v. Mississippi, &c. Co. 92 Tenn. 681, 22 S. W. 920, 59 Am. & Eng. R. Cas. 99; Chicago, &c. Co. V. St. Paul, &c. R. Co. 54 Minn. 411, 56 N. W. 129; Baltimore, &c. R. Co. V. Pittsburgh, &c. R. Co. 55 Fed. 701; St. Paul, &c. v. Minne- sota, &c. R. Co. 47 Minn. 154, 49 N. W. 646, 13 L. R. A. 415, 50 Am. & Eng. R. Cas. 55. °' Hayes v. Michigan Cent. R. Co. Ill U. S. 228, 4 Sup. Ct. 369, 15 Am. & Eng. R. Cas. 394. §' 361] CONTRACTS. 518' which the grant is made take subject to the burdens so imposed.'" It is true of all grants of rights to use public parks, streets or roads, that the grantee takes with the burdens imposed by the municipal authori- ties, and all parties whose claims are founded upon the grant are bound by its terms and conditions. § 361. Use of tracks constructed under grant from municipal cor- poration. — It is common for municipal corporations to grant the right to use its streets to one railroad company upon a condition that other companies may be permitted to use the track.'" The power to make such a contract is unquestionable, and the disputes that the courts have been called upon to adjudicate generally are as to the construction to be given such contracts.'^ Ordinarily, the municipal corporation may impose such conditions as in its discretion it deems expedient, and the company accepting such a grant, as well as such companies as avail themselves of the benefit of it, must accept the benefit with its conditions and burdens.''^ It has also been held that a municipal cor- poration may contract with a railroad company to pay part of the expense of changing a grade crossing, and in making such a contract the municipality does not loan its credit.'* «= Joy V. St. Louis, 138 U. S. 1, 11 Sup. Ct. 243, 45 Am. & Eng. R. Cas. 655, citing Tulk v. Moxbay, 2 Phil. Ch. 774; Luker v. Dennis, 7 Ch. Div. 227; Bronson v. Coffin, 108 Mass. 175; Parker v. Nightingale, 88 Mass. 341, 83 Am. Deo. 632; Van Doren v. Rohinson, 16 N. J. Eq. 256; Kirk-' Patrick v. Peshine, 24 N. J. Eq. 206 ; Western v. Macdermott, L. R. 2 Ch. 72; Trustees of Watertown v. Cowen, 4 Paige (N. Y.) 510, 27 Am. Dec. 80; Randall v. Latham, 36 Conn. 48; Cincinnati v. White, 6 Pet. (U. S.) 431; Drew v. Van De- man, 6 Heisk. (Tenal) 433; Win- fleld V. Henning, 21 N. J. Eq. 188; Verplanck v. Wright, 23 Wend. (N. Y.) 506; Stockettv. Howard, 34 Md. 121. ™We merely touch upon the gen- eral question here, as we have con- sidered the subject more at length in discussing the subject of rail- roads in streets. '^ Chicago, &c. R. Co. v. Kansas City, &c. R. Co. 52 Fed. 178, 38 Fed. 58; Central, &c. Co. v. Wabash, &c. R. Co. 29 Fed. 546. The power of determining where tracks shall be located, unless an express provision to the contrary is made by the legis- lature, resides in the municipal cor- poration. Booth Street Railways, §§ 855, 856; Chicago, &c. R. Co. v. People, 73 111. 541; West End, &c. R. Co. V. Atlanta, &c. Co. 49 Ga. 151; State v. Henderson, 38 Ohio St. 644; Citizens', &c. Co. v. Jones, 34 Fed. 579; Elliott Roads and Streets (2d ed.), § 766. "Louisville, &c. Co. v. Mississippi, &c. Co. 92 Tenn. 681, 22 S. W. 920; Joy V. St. Louis, 138 U. S. 1, 11 Sup. Ct. 243, 45 Am. & Eng. R. Cas. 655. "Brooke v. Philadelphia, 162 Pa. St. 123, 29 Atl. 387, 24 L. R. A. 781. 519 COSTTEACTS FOE LOCATION OF STATIONS. [§ 363 § 362. Contracts for location of stations. — Elsewhere we have di- rected attention to the cases which hold that a railroad company can- not enter into a valid contract to locate a station at a designated place, and have said that in our opinion such a contract may be made if no public interest is prejudiced. If the contract is made solely to promote private interests at the expense of the public welfare, the contract should, as we think, be held to be illegal. But if public interests are not prejudiced, or the power of the company to do what the public welfare requires is not abridged, we believe the contract should be regarded as valid. Many cases hold that a railroad corporation may contract for the erection and maintenance of a station at a certain point,''* where its right to maintain stations at other points is not thereby impaired.'^ This we believe to be the sound doctrine. But an agreement not to locate a station or depot within prescribed limits, where it is needed for the business of the company and for the use of the public would be illegal.^" "Currier v. Concord R. Co. 48 N. H. 321; McClure v. Missouri River, &c. R. Co. 9 Kans. 373; Kansas Pac. R. Co. V. Hopkins, 18 Kans. 494; Gray v. Chicago, &c. R. Co. 189 111. 400, 59 N. E. 950; Owensboro, &c. R. Co. V. Griffith, 92 Ky. 137, 17 S. W. 277; Port Huron, &c. R. Co. v. Rich- ards, 90 Mich. 577, 51 N. W. 680; Cedar Rapids, &c. R. Co. v. Spafford, 41 Iowa 292; First Nat. Bank v. Hendrie, 49 Iowa 402, 31 Am. R. 153; Louisville, &c. R. Co. v. Sumner, 106 Ind. 55, 5 N. E. 404, 55 Am. R. 719; Martindale v. Kansas City, &c. R. Co. 60 Mo. 508; Kinealy v. St. Louis, &c. R. Co. 69 Mo. 658; Missouri Pac. R. Co. V. Tygard, 84 Mo. 263, 54 Am. R. 97; Vicksburg, &c. R. Co. v. Rags- dale, 46 Miss. 458; Cumberland Val- ley R. Co. V. Baab, 9 Watts (Pa.) 458, 36 Am. Dec. 132; Texas, &c. R. Co. V. Robards, 60 Tex. 545, 48 Am. R. 268; Jessup v. Grand Trunk R. Co. 28 Grant's Ch. (U. C.) 583; Wal- lace v. Great Western R. Co. 3 Ont. App. 44; Caldwell v. East Broad Top, &c. R. Co. 169 Pa. St. 99, 32 Atl. 85. Contra, Pacific R. Co. v. Seely, 45 Mo. 212, 100 Am. Dec. 369; Burney v. Ludeling, 47 La. Ann. 73, 16 So. 507; Clark Contracts, 424, and cases there cited. "Williamson v. Chicago, &c. R. Co. 53 Iowa 126, 4 N. W. 870, 36 Am. R. 206; St. Louis, &c. R. Co. v. Mathers, 72 111. 592. Where a right of way and ground for the erection of station were granted to a rail- road at a nominal quit rent in con- sideration that "all passenger trains should stop regularly" at such sta- tion, it was held on appeal to the House of Lords that the company was bound to stop all trains passing through said station for the convey- ance of passengers, excepting trains chartered by individuals for their own use, and special excursion trains. Burnett v. Great North of Scotland R. Co. L. R. 10 App. Cas. 147, 24 Am. & Eng. R. Cas. 647. "Florida Cent. R. Co. v. State, Lavarez, 31 Fla. 482, 13 So. 103, 20 L. R. A. 419, 34 Am. St. 30; Louis- ville, &c. R. Co. V. Sumner, 106 Ind. § 363] CONTRACTS. 520 § 363. location of tracks, switches and the like. — The first duty of a railroad company in the location of tracks and switches is to the public, and it cannot rightfully make any contract which will pre- vent it from performing this duty. Where, however, no public inter- est is afEeeted, a railroad company may bind itself to locate a switch at a designated place.^' If, however, it appears that the company is governed by a consideration of self-interest, and that the interest of the public will be prejudiced by such a contract, it should be "regarded as illegal.''* It has been held that a railroad company may make a valid agreement to stop its trains at a certain point at specified times for the receipt of freight.'® But in our opinion such contracts cannot be upheld if it is shown that they are materially injurious to the inter- ests of the public, for the public welfare cannot be sacrificed for mere private benefit. It has also been adjudged that a railroad company may agree with the lessee of refreshment rooms at a point upon its line for the stoppage of its trains at such point for a reasonable time to enable the passengers to obtain refreshments there,'" and that a recovery may be had for a breach of such agreement.*^ §364. Contracts that may be made by railroad companies — ^Par- ticular instances. — We have called attention to the general and fa- miliar rule that all railroad companies possess implied and incidental contract powers, and we do not attempt to give many cases illustrating the general rule, but shall refer to some cases possessing peculiar fea- 55, 5 N. B. 404, 55 Am. R. 719; St. and a court of equity will restrain Joseph, &c. R Co. v. Ryan, 11 Kans. a breach thereof. 602, 15 Am. R. 357; Currle v. ™ Phillips v. Great Western R. Co. Natchez, &c. R. Co. 61 Miss. 725; L. R. 7 Ch. 409. Marsh v. Fairbury, &c. R. Co. 64 111. ^^ Flanagan v. Great Western R. 414, 16 Am. R. 564; Mobile, &c. R. Co. L. R. 7 Eq. 116; Rlgby v. Great Co V. People, 132 111. 559, 24 N. B. Western R. Co. 4 Eng. R. & Canal 643, 22 Am. St. 556. Cas. 190. But we think that such "Lydick V. Baltimore, &c. R. Co. contracts are to be carefully scrut- 17 W. Va. 427. Inized and not upheld where they ™ See Chicago, &c. R. Co. v. Sbuth- materially infringe the rights of ern Ind. R. Co. (Ind. App.) 70 N. E. the public. The public interest is 843. always, as it seems to us, the para- '"Lydick v. Baltimore, &c. Co. 17 mount consideration. Contracts to W. Va. 427; Lindsay v. Great North- stop trains at designated places, or ern R. Co. 17 Jur. 522. In these to do like acts, may in many in- cases it was held that such an agree- stances be detrimental to the public ment could be specifically enforced, welfare, and in such instances they should not be enforced. 521 CONTEAOTS THAT MAT BE MADE — ILLDSTEATIONS. [§ 364 tures. A railroad eompany may contract to carry a person and his family upon its trains free during his life/^ or for any period of time/^ subject to any prescribed legal conditions.^f It may make special contracts for the carriage of passengers/^ provided that it makes no unjust discrimination and violates no rules of law. This is true also respecting the carriage of goods.*" It may, by contract, ex- tend its duties and liabilities to the carriage of goods' beyond its own line.*^ Many cases hold that where no statutory provisions control, a ™ Grimes v. Minneapolis, &c. R. Co. 37 Minn. 66, 33 N. W. 33. See Pennsylvania Co. v. Brie, &c. R. Co. 108 Pa. St. 621; Rice v. Illinois Cent. R. Co. 22 111. App. 643. Where right of way is granted to a railroad company in consideration of a free pass for the grantor during his life, the purchaser of the road at a fore- closure sale cannot be held liable for failure to grant such pass. Hel- ton V. St. Louis, &c. R. Co. 25 Mo. App. 322. '= Knopf V. Richmond, &c. R. Co. 85 Va. 769, 8 S. B. 787. " In Knopf T. Richmond, &c. R. Co. 85 Va. 769, 8 S. E. 787, it was decided that, under the circum- stances, the company was not at fault for failing to issue a pass which had not been applied for, and that the company's agents right- fully ejected the plaintiff on his failure to produce and show a pass. In Grimes v. Minneapolis, &c. R. Co. 37 Minn. 66, 33 N. W. 33, it was held that the defendant, having contract- ed to carry the members of the family of plaintiff's father, in con- sideration of a conveyance of land for a right of way, and making it a rule to issue no passes, was under an obligation to inform the con- ductors of plaintiff's rights, and in- struct them to allow them. ''Gulf, &c. R. Co. V. McGown, 65 Tex. 640; Bates v. OI4 Colony R. Co. 147 Mass. 255, 17 N. B. 633; John- son V. Philadelphia, &c. R. Co. 63 Md. 106; Mosher v. St. Louis, &c. R. Co. 127 TJ. S. 390, 8 Sup. Ct. 1324; Pennington v. Philadelphia, &c R. Co. 62 Md. 95.- See, also, Quimby v. Boston, &c. R. Co. 150 Mass. 365, 23 N. B. 205, 5 L. R. A. 846; Griswold V. New York, &c. R. Co. 53 Conn. 371, 4 Atl. 261, 55 Am. R. 115; Ul- rich V. New York, &c. R. Co. 108 N. Y. 80, 15 N. B. 60, 2 Am. St. 369. =»Ball V. Wabash, &c. R. Co. 83 Mo. 574; Bartlett v. Pittsburg, &c. R. Co. 94 Ind. 281; Chicago, &c. R. Co. V. Abels, 60 Miss. 1017; Brown V. Manchester, &c. R. Co. L. R. 9 Q. B. Div. 230, 10 Q. B. D. 250, af- firmed, L. R. 8 App. Cas. 703; Black V. Wabash, &c. R. Co. Ill 111. 351, 53 Am. R. 628; Sprague v. Missouri Pac. R. Co. 34 Kans. 347, 8 Pac. 465; Louisville, &c. R. Co. v. Sher- rod, 84 Ala. 178, 4 So. 29, 35 Am. & Bng. R. Cas. 611. "Houston, &c. R. Co. v. Hill, 63 Tex. 381, 51 Am. R. 642; Cummins V. Dayton, &c. R. Co. (Marion Co. Ind., Super. Ct.) 9. Am. & Bng. R. Cas. 36; Beard v. St. Louis, &c. R. Co. 79 Iowa 527, 44 N. W. 803; At- lanta, &c. R. Co. V. Texas G. Co. 81 Ga. 602, 9 S. B. 600; Hanson v. Flint, &c. R. Co. 73 Wis. 346, 41 N. W. 529, 9 Am. St. 791; St. Louis, &c. R. Co. V. Larned, 103 111. 293; Pereira v. Central Pac. R. Co. 66 Cal. 92, 4 Pac. 988; Swift v. Pacific Mail, &c. Co. 106 N. y. 206, 12 N. B. 583; Dar- §' 365] CONTRACTS. 523 railway company may contract to carry for less than a reasonable com- pensation, though it may not charge more.*^ § 365. Fooling contracts — Generally. — There is much diversity of opinion as to the wisdom or expediency of permitting railroad com- panies to enter into pooling contracts,^" and there is some diversity of opinion among authors and judges as to the validity of such con- tracts.'" It seems to us that some confusion has been caused by the failure to clearly discriminate a pooling contract from a contract for the maintenance of fair rates and the prevention of ruinous competi- tion. If a contract is simply one wherein provision is made for pre- venting ruinous competition and is neither intended to nor does limit or suppress fair competition and is neither intended to nor does fix or maintain unreasonable rates of fare, then it cannot be regarded as an illegal pooling contract, but must be regarded as a valid traffic contract. If there is no restraint placed upon any one of the con- tracting companies, if all are left free to perform their duties, and if there is no incentive or inducement to any one of them to neglect or refuse to perform its duty there is not, as it seems to us, any illegal element in the contract. But if the contract either in terms or in effect disables any one of the contracting companies from performing its duty or makes it to its interest not to perform its duty the contract should, as we believe, be held void as against public policy. Whether danelle, &c. R. Co. v. Shinn, 52 Ark. an agreement of tliis character is 93, 12 S. W. 183. a reasonable business arrangement ""Toledo, &c. R. Co. v. Elliott, 76 to protect the shareholders and 111. 67; Christie v. Missouri Eac. R. creditors of the companies from loss, Co. 94 Mo. 453, 7 S. W. 567. But it and does not cause unreasonably may not unjustly discriminate in fa- high charges, or violate any duty vor of certain shippers so as to fos- which the companies owe the pub- ter monopoly. Scofield v. Lake lie, it should be sustained and en- Shore, &c. R; Co. 43 Ohio St. 571, forced by the courts." 2 Morawetz 54 Am. R. 846. See Houston, &c. R. Corp. (2d ed.) 1131. See Greenhood Co. v. Rust, 58 Tex. 98, 9 Am. & Public Policy, 660-666; Redfield Eng. R. Cas. 123. Railways, § 146, par. 2, where it is »" Railway Review, April 26, 1884. said: "There is no principle of pub- "Mr. Morawetz says: "It is im- lie policy which renders void a possible to support the proposition traffic arrangement between two that all agreements among railroad lines of railway for the purpose of companies which restrict competi- avoiding competition." Beach Rail- tion are condemned by law. Some ways, § 528; Wood Railroads, 590- such agreements may be contrary to 600; Taylor Private Corp. (2d ed.) public policy^ and unlawful, but if § 309; 2 Cook Stockholders, § 897. 523 POOLING CONTKACTS — THE AUTHORITIES. [§ 366 the contract does or does not disable some one of the contracting com- panies, or whether it makes it to its interest not to perform its duty, or limits fair competition, or tends to enable the companies, or some one of them, to obtain unreasonable fares, are questions to be deter- mined from the facts of the particular case. Where the constitution or statute prohibits contracts between competing or rival lines then, of course, no such contract can be valid.'^ If the policy of the state as indicated by its laws is against such contracts they are not, it is obvious, of any validity.*^ We do not at this place enter upon a con- sideration of the effect of the federal interstate commerce law, or of the federal statute directed against trusts, or the effect of state stat- utes directed against trusts and combinations, but confine our dis- cussion to the subject of what are commonly called pooling contracts without regard to constitutional or statutory provisions.'^ §' 366. Pooling contracts — ^The authorities. — The rule which seems to be sanctioned by the weight of authority is that contracts between railroad companies providing for the regulation of charges and pre- venting ruinous competition are not in themselves illegal, but they are illegal if they are intended to suppress fair competition or have that effect, and so they are if they disable any of the contracting com- panies from performing their duty or make it to the interest of any one of them not to perform the duty enjoined upon them by law.^* "In some of the states railroad v. United States, 193 U. S. 197, 24 companies are forbidden to enter in- Sup. Ct. 436, will be considered in to any contract for pooling their another volume, earnings. Stimson's Am. Stat. *• Shrewsbury, &c. R. Co. v. Lon- § 8839. don, &c. R. Co. 17 Q. B. 652, 21 L. J. "^Morrill v. Boston, &c. R. Co. 55 Q. B. 89; Hare v. London, &c. R. N. H. 531. But see Manchester, &c. Co. 2 J. & H. 80, 30 L. J. Ch. 817; R. Co. V. Concord R. Co. 66 N. H. Lancaster, &c. Co. v. Northwestern, 100, 20 Atl. 383, 9 L. R. A. 689, 49 &c. Co. 2 K. & J. 293, 25 L. J. Ch. Am. St. 582, 47 Am. & Eng. R. Cas. 223 ; Eclipse, &c. Co. v. Pontchar- 359, 3 Am. R. & Corp. R. 22; Currier train R. Co. 24 La. Ann. 1; Stewart V. Concord R. Co. 48 N. H. 321. v. Erie, &c. Co. 17 Minn. 372; Sus- »=The effect of, the so-called Sher- sex, &c. R. Co. v. Morris R. Co. 19 man anti-trust act and the inter- N. J. Eq. 13 ; United States v. Trans- state commerce act and the recent Missouri, &c. Assn. 58 Fed. 58; Man- decisions of the supreme court of Chester, &c. R. Co. v. Concord R. Co. the United States in such cases as 66 N. H. 100, 20 Atl. 383, 49. Am. St. United States v. Trans-Missouri 582, 47 Am. & Eng. R. Cas. 359, 3 Freight Ass'n, 166 U. S. 290, 17 Sup. Am. R. & Corp. Cases 22; Koehler, Ct. 540, and Northern Securities Co. Ex parte, 23 Fed. 529; Central Trust § 366] CONTRACTS. 534 We have stated the doctrine in somewhat narrower terms than some of the eases declare it, but we believe our statement to be a fair expres- sion of the prevailing opinion. If the purpose of the contract between the companies is to stifle competition so as to obtain unreasonable fares, or if its effect be to disable one of the contracting companies from performing the duty enjoined upon it, the contract should be condemned as illegal."^ Co. V. Ohio Central R. Co. 23 Fed. 306; Burke v. Concord R. Co. 61 N. H. 160; Pittsburgh, &c. R. Co. v. Keokuk, &c. Co. 131 U. S. 371, 9 Sup. Ct. 770. In Ives v. Smith, 3 N. Y. 645, 19 N. Y. St. 645, a viola- tion of such a contract by a com- pany was enjoined at the suit of a stockholder. A contract between railroad companies, members of a freight association, binding them to establish and maintain such rates, rules and regulations on freight traffic between competitive points, as a committee of their choosing shall recommend, providing for monthly meetings of the association, and that each company shall give five days' notice before a monthly meeting of every reduction of rates or deviation from the rules it pro- poses to make; that it will advise with the representatives of the other members at the meeting relative to proposed changes, and, if the propo- sition is voted down, that it will then give ten days' notice that it will make the changes, notwith- standing the vote, if it will not abide by the vote; that no member will bill any freight falsely, or at a wrong classification; and, providing that any member may withdraw from the association on a notice of thirty days, does not substantially disable the parties to the contract from the performance of their pub- lic duties. United States v. Trans- Missouri Freight Assn. 58 Fed. B8, 7 C. C. A. 15. In this case there is a strong dissenting opinion by Shiras, J. See Texas, &c. R. Co. v. Southern Pacific R. Co. 41 La. Ann. 970, 6 So. 888, 17 Am. St. 445, 10 Am. & Eng. R. Cas. 475; Kettle River R. Co. V. Eastern R. Co. 41 Minn. 461, 43 N. W. 469, 40 Am. & Eng. R. Cas. 449. " In the ease of Chicago, &c. R. Co. V. Wabash, &c. Co. 61 Fed. 993, 10 Lewis' Am. R. & Corp. 173, the court said: "A railroad com- pany is a quasi public corporation and owes certain duties to the pub- lic, among which are the duties to afford reasonable facilities for the transportation of persons and to charge only reasonable rates for such service. Any contract by which it disables itself from these duties, or which makes it to its interest not to perform them, or removes all incentive to their performance, is contrary to public policy and void, and the obvious purpose of this con- tract being to suppress or limit com- petition between the contracting companies, in respect to the traffic covered by the contract, and to es- tablish rates without regard to the question of their reasonableness, it is contrary to public policy and void." The court cited Cleveland, &c. Co. V. Closser, 126 Ind. 348, 26 N. E. 159, 9 L. R. A. 754, 22 Am. St. 593; Gulf, &c. R. Co. v. State, 72 Tex, 404, 10 S. W. 81, 1 L. R. A. 849, 13 Am. St. 815; State v. Standard 535' POOLING CONTRACTS — PRESUMPTION. [§ 367 § 367. Pooling contracts — Presumption. — It seems to us that when it appears that seyeral railroad companies have entered into an agree- ment to establish and maintain rates the presumption should be against its validity, and that the contracting companies should be re- quired to show that it was not intended to unjustly stifle fair competi- tion or disable any one of the companies from performing its duty. Prima facie such a contract should be regarded as against public policy.** The presumption against such a contract may doubtless be removed, but the contract should be jealously scrutinized and not up- held if it be not made to appear that it was not entered into in order to prevent ruinous or, as some of the cases say, unhealthy competi- tion. The burden of making this appear should be placed on the party who asserts the validity of the contract.®^ But a contract between com- -panies whose roads connect and are not competing is not such a pool- ing contract as we mean, and, unless prohibited by charter or statute, such a contract between connecting companies is usually valid.*^ Oil Co. 49 Ohio St. 137, 30 N. E. 279, 15 L. R. A. 145, 34 Am. St. 541; Texas, &c. Co. v. Southern Pacific R. Co. 41 La. Ann. 970, 6 So. 888, 17 Am. St. 445; Gihbs v. Consolidated Gas Co. 130 TJ. S. 396, 9 Sup. Ct. 553; Morris Run Co. v. Barclay, &c. Co. 68 Pa. St. 173, 8 Am. R. 159; Central, &c. Co. v. Guthrie, 35 Ohio St. 666; Stanton v. Allen, 5 Denio (N. Y.) 434, 49 Am. Dec. 282; Hook- er V. Vandewater, 4 Denio (N. Y.) 349, 47 Am. Dec. 258; Chicago, &c. Co. V. People's, &c. Co. 121 111. 530, 13 N. B. 169, 2 Am. St. 124; West Va. &c. Co. V. Ohio River, &c. Co. 22 W. Va. 600, 46 Am. R. 527; West- ern Union Tel. Co. v. American, &c. Co. 65 Ga. 160, 38 Am. R. 781; Sayre V. Louisville, &c. Assn. 62 Ky. 143, 85 Am. Dec. 613; United States v. Trans-Missouri, &c. Assn. 58 Fed. 58, 7 C. C. A. 15. The court denied the doctrine of Central, &c. Co. v. Ohio Central R. Co. 23 Fed. 306. Mr. Lewis, in this note to the case from which we have quoted, cites and comments upon many cases. 10 Lewis' Am. R. & Corp. R. 181-184. "'Cleveland, &c. R. Co. v. Closser, 126 Ind. 348, 26 N. B. 159, 9 L. R. A. 754, 22 Am. St. 593. " In a subsequent part of our work, we have discussed the effect of the interstate commerce law and other statutes upon the question of the validity of pooling arrange- ments between railroad companies. It has been held that the perform- ance of an unlawful pooling contract may be enjoined. Gulf, &c. R. Co. v. State, 72 Tex. 404, 10 S. W. 81, 13 Am. St. 815; Morrill v. Boston, &c. R. Co. 55 N. H. 531; Currier v. Con- cord R. Corp. 48 N. H. 321. But a court will not help a guilty party where such a contract has been per- formed. Harriman v. Northern Se- curities Co. 197 U. S. 244, 25 Sup. Ct. 493; Central Trust Co. v. Ohio Cent. R. Co. 23 Fed. 306. "'Atchison, &c. R. Co. v. Denver, &c. R. Co. 110 U. S. 667, 4 Sup. Ct. 185; Sussex R. Co. v. Morris, &c. R. §■ 368] CONTRACTS. 636 §'368. Contracts — ^Ultra vires — ^Definitions. — In discussing many of the subjects which have been considered in the preceding pages we have referred to the doctrine of ultra vires, and so we shall do in other parts of our work, but it seems appropriate to treat briefly of the general doctrine of ultra vires at this place. The term "ultra vires" is one very frequently employed and not always with strict ac- curacy. Eoughly defined the term, when applied to a corporation, means beyond the powers of the corporation.^" It may be here noted that the doctrine of ultra vires is applicable as a defense on the part of the corporation only to actions arising out of contract.^"" Con- tracts and other acts of the corporation which are outside or in ex- cess of the corporate powers a;re ultra vires. The term is sometimes applied to acts which corporations, as well as natural persons, are for- bidden by law to do,^"^ and when so used it means illegal contracts, but this is not, in strictness, an accurate use of the term. Acts may be ultra vires and yet not be illegal in the strict sense, for acts in excess of the corporate powers, although entirely honest and moral, may be ultra vires. ^"^ If the corporation is not invested with power to make Co. 19 N. J. Eq. 13; Elkins v. Cam- den, &c. R. Co. 36 N. J. Eq. 241; Cumberland Valley R. Co. v. Gettys- burg, &c. R. Co. 177 Pa. St. 519, 35 Atl. 952. See, also, ante, § 356. "■ in the case of National, &c. Bank v. Porter, 125 Mass. 333, 28 Am. R. 235, the court said: "There is noth- ing of mystery or sanctity in the use of the words of a dead language, ultra vires; and although it is a con- cise and convenient form by which to indicate the unauthorized action of artificial persons with limited powers, still it is as applicable to in- dividual as to corporate action. An illegal act of an individual is as re- ally ultra vires as the unauthorized act of a corporation." ""National Bank v. Graham, 100 U. S. 699; Hussey v. Norfolk, &c. R. Co. 98 N. C. 34, 3 S. E. 923, 2 Am. St. 312; Hutchinson v. Western, &c. R. Co. 6 Heisk. (Tenn.) 634; Gru- ber V. Washington, &c. R. Co. 92 N. C. 1; Central, &c. R. Co. v. Smith, 76 Ala. 572, 52 Am. R. 353. "'East Anglian R. Co. v. Eastern Counties R. Co. 11 C. B. 775; South Yorkshire R. Co. v. Great Northern R. Co. 9 Ex. 55, 84. It is held that the word "unlawful," as applied to the purposes for which corporations are formed, is not used exclusively In the sense of malum in se or malum prohibitum, but is also used to designate such acts, powers, and contracts as are ultra vires. People, ex rel. Peabody v. Chicago Gas Trust Co. 130 111. 268, 22 N. E. 798, 8 L. R. A. 497, 17 Am. St. 319. "^In Whitney Arms Co. v. Bar- low, 63 N. Y. 62, 20 Am. R. 504, it was said: "When acts of corpora- tions are spoken of as ultra vires it is not intended that they are unlaw- ful or even such as the corporation cannot perform, but merely those which are not within the powers conferred upon the corporation by the act of its creation, and are in violation of the trust reposed in the managing board by the sharehold- ers, that the affairs shall be man- 527 CONTKACTS — ULTRA VIEES — GENERAL DOCTRINE. [§ 369 the contract or perforin the act which is the subject of controversy, the contract or act is ultra vires, although it may be free from any taint of fraud. The term ultra vires is often used in denoting con- tracts voidable because of their violation of public policy, but, as said by an eminent English judge, the term "illegality" is the better one.^"^ The term ultra vires is sometimes used to characterize a contract made by a corporate officer who has no authority to act for the corporation in the transaction out of which the contract arises, but this is not an accurate use of the term. A president of a railroad company, for ex- ample, may have no authority to contract for the construction of the road, because such authority is vested in the board of directors, but such a contract could not be justly said to be ultra vires of the cor- poration.^"* § 369. Contracts — Ultra ' vires — General doctrine. — Contracts which are beyond the scope of the powers granted by the act of in- corporation or outside of 'the objects for which it was created, are, in the just sense, ultra vires, but they are not necessarily illegal in the strict sense.^"^ An illegal contract, that is, a contract condemned or aged and the funds applied solely for carrying out tlie objects for which the corporation was created." The court cited Earl of Shrewsbury V. North Staffordshire, &c. R. Co. L. R. 1 Eq. 593; Tyler v. Chichester, &c. Co. L. R. 2 Exch. 356 ; Bissell v. Mich. &c. R. Co. 22 N. Y. 258. In Bissell V. Mich. &c. R. Co. supra, the court said: "The words ultra Vires and illegality represent totally different and distinct ideas. It is true that a contract may have both these defects, but it may also have one without the other." See, gen- erally, Ashbury, &c. Co. v. Riche, L. R. 7 H. L. 653 ; Kent v. Quicksilver, &c. Co. 78 N. Y. 159; Bath Gas Light Co. V. Claffy. 151 N. Y. 24, 45 N. E. 390, 36 L. R. A. 664; Neils- ville Bank V. Tuthill, 4 Dak. 295, 30 N. W. 154; Kadish v. Garden City, &c. Ass'n, 151 111. 531, 38 N. ^. 236, 42 Am. St. 256; note in 70 Am. St. 157, 158; Taylor Private Corp. § 592. "= Cairns, L. C, in Ashbury, &c. R. Co. V. Riche, L. R. 7 H. L. 653. "'An agent may exceed his au- thority, but the contract entered into by him not be ultra vires as to the corporation. The distinction between cases where an agent ex- ceeds the authority conferred upon him and cases where the act is beyond the corporate power or ca- pacity is often of importance. It is especially so in cases where the question is whether the agent's act has been ratified; if the agent sim- ply transcended his authority his act may be validated by ratification, but if the act was beyond the cor- porate power, ratification will not always validate it. See note in 70 Am. St. 160. "'Lord Chancellor Selborne in Great Eastern, &c. R. Co. v. Turner, L. R. 8 Ch. 149, said: "The com- pany is a mere abstraction of law. All that it does, all that the law imputes to it as its act, must be § 369] CONTRACTS. 528 prohibited by law, differs from a contract made by a corporation in excess of its corporate powers, but involving no moral turpitude or wrong, and this difference leads to important practical results. If a party engages with a corporation in an illegal contract, that is, a con- tract involving moral turpitude, the courts will not aid him to en- force the contract nor to recover money or property yielded the cor- poration under it. Where, however, a corporation obtains money or property under a contract that is not illegal, the party from whom such money or property is obtained may be aided by the courts, al- though the contract was ultra vires. ^°* It is held upon the same gen-' eral principle that if the party contracting with a corporation retains the property obtained from the corporation, thus securing a benefit under the contract, he cannot escape payment of the value of the prop- erty so obtained on the ground that the contract was ultra vires.^"' A that which can be legally done with- in the powers vested In it by law. Consequently, an act which is ultra vires and unauthorized is not an act of the company in such a sense as that the consent of the company to that act can be pleaded." See, also, note in 70 Am. St. 157, 158. "'Pullman, &c. Co. v. Central, &c. Co. 65 Fed. 158; New Castle, &c. Railroad Co. v. Simpson, 23 Fed. 214; Manchester, &c. Co. v. Con- cord, &c. Co. 66 N. H. 100, 20 Atl. 383, 9 L. R. A. 689, 49 Am. St. 582; Memphis, &c. R. Co. v. Dow, 19 Fed. 388; Parrish v. Wheeler, 22 N. Y. 494; Bissell v. Michigan, &c. Co. 22 N. Y. 258; Hays v. Gallon, &c. Co. 29 Ohio St. 330, 340; Attleborough Bank v. Rogers, 125 Mass. 339; Rut- land, &c. R. Co. V. Proctor, 29 Vt. 93; Central Transportation Co. v. Pullman Car Co. 139 U. S. 24, 11 Sup. Ct. 478; Pennsylvania, &c. Co. V. St. Louis, &c. Co. 118 U. S. 290, 6 Sup. Ct. 1094; Union Trust Co. v. Illinois Midland, &c. Co. 117 U. S. 434, 6 Sup. Ct. 809; DeGroff v. American, &c. Co. 21 N. Y. 124; Franklin Co. v. Lewiston, &c. Bank, 68 Me. 43, 49, 28 Am. R. 9; Dill v. "Wareham, 7 Metcf. (Mass.) 438; Morville v. American, &c. Co. 123 Mass. 129, 25 Am. R. 40; Oil Creek, &c. Co. V. Penn. Transportation Co. 83 Pa. St. 160; Bradley v. Ballard, 55 111. 413, 8 Am. R. 656; Hazle- hurst V. Savannah, &c. R. Co. 43 Ga. 13 ; Argenti v. San Francisco, 16 Cal. 255; State Board, &c. v. Citi- zens, &c. Co. 47 Ind. 407, 17 Am. R. 702; Miners', &c. Co. v. Zellerbach, 37 Cal. 543, 99 Am. Dec. 300; North- western, &c. Co. V. Shaw, 37 Wis. 655, 19 Am. R. 781; Wapello v. Bur- lington, &c. Co. 44 Iowa 585; At- lantic, &c. Co. V. Union Pacific R. Co. 1 Fed. 745; Wright v. Pipe Line Co. 101 Pa. St. 204, 47 Am. R. 701; Miller v. American, &c. Co. 92 Tenn. 167, 21 S. W. 39, 20 L. R. A. 765. In many jurisdictions, however, as shown in some of the decisions above cited, there can be no recov- ery upon the contract itself. "'Bath Gaslight Co. v. Clafly, 56 N. Y. St. 426, 26 N. Y. S. 287; Ash- enbroedel Club v. Finlay, 53 Mo. App. 256; Whitney Arms Co. v. Bar- low, 63 N. Y. 70. See Belcher, &c. Co. V. St. Louis, &c. Elevator Co. 101 Mo. 192, 13 S. W. 822, 8 L. R. 539 CONTRACTS — ^WHAT AKB ULTKA VIRES — GENERALLY. [§ 370 contract expressly forbidden by statute or one malum in se is not en- forceable, but is to be regarded as void, for in such cases the corpora- tion does more than perform an act in excess of its corporate powers.^"^ Some of the eases hold that contracts executed in a mode different from that prescribed by the act of incorporation are ultra vires,^"^ but this doctrine we regard as untenable. It is, no doubt, true that the contract should be made in the mode prescribed by the charter,^^" but the fact that the contract was not made in the prescribed mode does not authorize the conclusion that the corporation had no power to enter into the contract. It is probably true that an executory contract, made in a mode different from that prescribed, will not be obligatory upon the corporation, but, nevertheless, such a contract is not void and may therefore be ratified. § 370. Contracts — ^What are ultra vires — Generally, — ^The familiar elementary rule is that the corporate powers are such only as are ex- pressed in the charter, or in the act of incorporation and the articles of association, together with such implied powers as are proper and necessary to the enjoyment of those which are expressly conferred,^^"* A. 801; Baker v. Northwestern, &c. Co. 36 Minn. 185, 30 N. W. 464; Salmon, &c. Co. y. Dunn, 2 Idaho 26, 3 Pac. 911. "'Root V. Godard, 3 McLean (U. S.) 102; Hayden v. Davis, 3 McLean (U. S.) 276; Root v. Wallace, 4 Mc- Lean (U. S.) 8; Davis v. Bank, 4 McLean (U. S.) 387; New York State, &c. Co. v. Helmer, 77 N. Y. €4; Jaycox, In re, 12 Blatch. (U. S.) 209; Philadelphia, &c. Co. v. Towner, 13 Conn. 249; Talmage v. Pell, 7 N. Y. 328. See, also, McNulta T. Corn Belt Bank, 164 111. 427, 56 Am. St. 203; Cincinnati, &c. Co. v. Rosenthal; 55 111. 85, 8 Am. R. 626; Visalia Gas, &c. Co. v. Sims, 104 Cal. 326, 43 Am. St. 105. M» Farmers', &c. Bank v. Harrison, 57 Mo. 503; Matthews v. Skinker, 62 Mo. 329, 21 Am. R. 425; Mc- Spedon v. New York, 7 Bosw. (N. y. Super. Ct.) 601. ""Bank of United States v. Dan- Bll. Railboads — 34 drldge, 12 Wheat. (U. S.) 64; Han- nibal, &c. Co. v. Marion County, 36 Mo. 294; Head v. Providence, &c. Co. 2 Cranch (U. S.) 127. ™a Thomas v. Railroad Co. 101 U. S. 71; Jacksonville R. &c. Co. v. Hooper, 160 U. S. 514, 16 Sup. Ct. 379; Mobile, &c. R. Co. v. Franks, 41 Miss. 494, 511; State v. Atchison, &c. R. Co. 24 Neb. 143, 38 N. W. 43, 8 Am. St. 164; Lower v. Chicago, &c. R. Co. 59 Iowa 563, 13 N. W. 718. As elsewhere shown, however, the word "necessity" as used in this connection does not mean absolute- ly necessary, but rather reasonably necessary, or convenient, usual and, appropriate. See, also. Central Ohio, &c. Co. V. Capital City Dairy Co. 60 Ohio St. 96, 53 N. B. 711, 64 L. R. A. 395; Bedford Belt R. Co. V. McDonald, 17 Ind. App. 492, 46 N. E. 1022, 60 Am. St. 172; Tona- wanda R. Co. v. New York, &e. R. Co. 42 Hun (N. Y.) 496; Fort Worth §• 370], CONTBACTS. 530 and acts of the corporation or its agents in excess of such powers will not impose an obligation upon the corporation by express contract.^^^ It is, of course, not difficult to state, as a general rule, that contracts beyond or outside of the scope of the powers bestowed on the corpora- tion are ultra vires, but it is not always easy to say just what con- tracts are beyond the scope of the powers expressly or impliedly con- ferred upon the corporation. It is, to be sure, not difficult in all cases to conclude that a contract is ultra vires since there are many eases in which the contract is so plainly beyond the corporate power that it may, without doubt or hesitation, be adjudged to be ultra vires. In many instances a careful study of the charter or act of incorpora- tion is necessary in order to determine whether the contract is one the corporation had power to make, in others a bare knowledge of the nature and character of the corporation is all that is required in order to determine whether the contract is beyond the scope of the powers conferred upon the corporation by the legislature. A study of the de- cided cases will give a clearer conception of the law upon the subject than the statement of general rules can do. City Co. V. Smith Bridge Co. 151 U. S. 294, 14 Sup. Ct. 339. "'Lucas V. White Line Transfer Co. 70 Iowa 541, 3 N. W. 771, 59 Am. R. 449; Knoxville v. Knoxville, &c. R. Co. 22 Fed. 758. The true hasis of the doctrine of ultra vires and the reason the corporation is not liable upon such a contract is said to be: 1. The interest of the public that the corporation shall not tran- scend the powers granted. 2. The interest of the stockholders. 3. The obligation of every one entering into a contract with a corporation to take notice of the legal limits of its power. Pittsburg, &c. R. Co. t. Keokuk Bridge Co. 131 U. S. 371, 9 Sup. Ct. 770; California Bank v. Kennedy, 167 U. S. 362, 17 Sup. Ct. 381; McCormick v. Market Nat. Bank, 165 U. S. 538, 17 Sup. Ct. 433. No corporation, either public or pri- vate, can exercise any power not expressly conferred or necessarily implied to enable it to carry into effect the purposes for which it was created. First M. E. Church v. At- lanta, 76 Ga. 181; Oregon R. &c. Co. V. Oregonian R. Co. 130 U. S. 1, 9 Sup. Ct. 409; Cumberland, &c. Co. v. Evansville, 127 Fed. 187, 190, 191, and numerous authorities cited; Beers v. Dalles City, 16 Ore. 334, 18 Pac. 835; State v. Atchison & N. R. Co. 24 Neb. 143, 38 N. W. 43, 8 Am. St. 164; Chewacla Lime Works v. Dismukes, 87 Ala. 344, 6 So. 122, 5 L. R. A. 10(5. An ultra vires con- tract cannot, as we have seen, im- pose an obligation by express con- tract on the corporation, but prop- erty or money received by the cor- poration, under color of the con- tract, may be recovered back. See, generally, note in 70 Am. St. 165- 176. 531' CONTRACTS — ULTRA VIRES — ^ESTOPPEL. [§ 371 § 371. Contracts — Ultra vires — ^Estoppel. — It is held in many of the eases that a corporation may he. estopped to make the defense that the contract was ultra vires/^^ but this doctrine is, as we believe, technically if not radically unsound. We do not doubt that a corpora- tion receiving and retaining a benefit under an ultra vires contract may be compelled to do equity, but we do not see how it is legally possible to hold that a corporation can be estopped to deny that it had no power to make the contract. If a contract is ultra vires in the true sense, that is, a contract, entirely beyond and outside of the corporate powers, it cannot be made effective by an estoppel although the party contracting with the corporation may be protected from loss or injury upon equitable principles. Where the contract is not beyond the scope of the corporate powers, but is executed in a mode different from that prescribed by law, or is executed by officers or agents without author- ity from the corporation, then it may be ratified or the corporation may be bound by an estoppel. Where, however, the contract is in the true sense ultra vires it is void and relief is granted a party against the corporation not upon the ground of estoppel or of ratification of the contract, but upon equitable principles, and in granting relief the courts in effect treat the contract as disaffirmed.^^^ "" State Board v. Citizens', &c. Co. cannot be ratified by either party, 47 Ind. 407, 17 Am. R. 702; Whitney because it could not have been au- Arms Co. v. Barlow, 63 N. Y. 62, thorized by either. No performance 20 Am. R. 504. See authorities cited on either side can give it validity, in the notes to the next section or be the foundation of any right which follows. See, also, post, of action upon it. When a corpora- § 374. tion is acting within the general "'The doctrine, which rests on scope of the powers conferred upon solid principle, is that declared in it by the legislature, the corpora- Central Transportation Co. v. Pull- tion, as well as persons contracting man, &c. Co. 139 U. S. 24, 11 Sup. with it, may be estopped to deny Ct. 478, where it was said: "A con- that it has complied with the legal tract of a corporation which is ultra formalities, which are prerequisite vires in the proper sense, that is to to its existence or to its action, be- say, outside of the object of its crea- cause such prerequisites might in tion, as defined in the law of its or- fact have been complied with. But ganization, and, therefore, beyond when the contract is beyond the the powers conferred upon it by the powers conferred upon it by the legislature, is not voidable only, but legislature, neither the corporation wholly void, and of no legal effect, nor the other party to the contract The objection to the contract is not can be estopped by assenting to it, merely that the corporation ought or by acting upon it, to show that not to have made it, but that it it was prohibited by those laws." could not make it. The contract It was also said: "A contract ultra § 372] CONTRACTS. 532 § 372. Contracts — ^Ultra vires — ^Executed and executory contracts. — The authorities discriminate between executed and executory con^ tracts. There is substantial agreement upon the proposition that ultra vires contracts which are wholly executory cannot be enforced against the corporation/^* but as intimated in the preceding paragraph there vires being unlawful and void, not because it is in itself immoral, but because the corporation, by the law of its creation, is incapable of mak- ing it, the courts, while refusing to maintain any action upon the un- lawful contract, have always striven to do justice between the parties, so far as could be done, consistently, with adherence to the law, by per- mitting money or property, parted with on the faith of the unlawful contract, to be recovered back or compensation to be made for it. In such a case, however, the action is not maintained upon the unlawful contract, nor according to its terms." The court cited many cases, among them Parkersburg v. Brown, 106 U. S. 487, 1 Sup. Ct. 442; Chapman v. Board, &c. 107 U. S. 348, 2 Sup. Ct. 62; Pittsburg, &c. R. Co. V. Keokuk, &c. Co. 131 U. S. 371, 9 Sup. Ct. 770; Hitchcock v. Galveston, 96 U. S. 341; Union Trust Co. V. Illinois Midland, &c. Co. 117 U. S. 434, 6 Sup. Ct. 809. This doctrine, asserted in the case from which we have quoted, is sus- tained by well-reasoned cases. Brunswick, &c. Co. v. United Gas, &c. Co. 85 Me. 532, 35 Am. St. 385; Marble Co. v. Harvey, 92 Tenn. 115, 20 S. "W. 427, 36 Am. St. 71; Da- vis V. Old Colony R. 131 Mass. 258, 41 Am. R. 221; Greenville Com- press, &c. Co. V. Planters', &c. Co. 70 Miss. 669, 13 So. 879, 35 Am. St. 681; Franco, &c. Co. v. McCormick, 85 Tex. 416, 23 S. "W. 123, 34 Am. St. 815; Chicago, &c. Co. v. People's, &c. Co. 121 111. 530, 13 N. E. 169, 2 Am. St. 124; Steele v. Fraternal Trib- unes, 215 111. 190, 74 N. E. 121, 106 Am. St. 160; Long v. Georgia, &c. Co. 91 Ala. 519, 8 So. 706, 24 Am. St. 931; Bank of Chillicothe v. Swayne, 8 Ohio 257, 32 Am. Dec. 207; Eastern Counties R. v. Hawkes, 5 H. L. Cases 331, per Lord Cran- worth; Bagshaw v. Eastern Union R. Co. 7 Hare 114, per Wigram, V. C; Ashbury R. &c. Co. v. Riche, L. R. 7 H. L. Cas. 653; Morris, &c. R. Co. V. Sussex R. Co. 20 N. J. Bq. 542, 562 ; Central Transportation Co. V. Pullman Car Co. 139 U. S. 24, 11 Sup. Ct. 478, and other authorities cited in 29 Am. & Bng. Ency. of Law (2d ed.) 54, 55, 56, but some of these cases hold the several con- tracts to be opposed to public policy, and it is said that the opinions ex- pressed as to the effect of contracts to which this objection cannot be made may therefore be considered as mere dicta. Rorer Railroads, 941, 942. See, also, Muncie Nat. Gas Co. V. Muncie, 160 Ind. 97, 104, 105, 66 N. E. 436, 60 L. R. A. 822. "* Green's Brice's Ultra Vires, 607. See State Board of Agriculture v. Citizens' Street R. Co. 47 Ind. 407, 17 Am. R. 702; Chicago, &c. R. Co. V. Southern Ind. R. Co. (Ind. App.) 70 N. E. 843; Parish v. Wheeler, 22 N. Y. 494; Hazlehurst v. Savannah R. Co. 43 Ga. 13; Nassau Bank v. Jones, 95 N. Y. 115, 47 Am. R. 14; Wilkes v. Georgia Pacific R. Co. 79 Ala. 180; Day v. Spiral Springs Co. 57 Mich. 146," 23 N. W. 628, 58 Am. R. 352; Simpson v. Building Assn. 38 Ohio St. 349; note in 70 Am. St. 533 ULTRA VIRES — ^EXECUTED AND EXECUTORY COSTTRACTS. [§ 373 is conflict as to the effect of such a contract after it has been executed and the party contracting with the corporation has parted with money or property. The performance of an executory ultra vires contract may be enjoined by a dissenting stockholder or other interested party who would be injured if it were carried into effect.^^^ Many cases hold that after a contract has been executed, in whole or in part, a new ele- ment is introduced into the transaction. It would, they assert, be clearly unjust to permit the members of a corporation to take the benefits of a performance of the contract by the other party and then refuse performance on its part.^^* The fallacy in this reasoning, as it seems to us, is in assuming that a contract may be valid although there was no power whatever to make it, and that unless the contract is upheld, the party will be repiediless. The party is not without rem- edy because the courts decline to hold the contract valid, for it is clearly within the power of the court to do complete justice by com- pelling the restoration of the property or by awarding damages. We fully agree that in all cases where the corporation has received money or property or the fruits of labor, as a result of a performance of the contract by the other party, it should not be permitted to retain the benefits received without making reparation, but we cannot agree that a contract made where there is an entire absence of power can be 165; and authorities cited in 29 Am. Union R. 7 Hare 114. So of an ultra & Bng. Ency. of Law (2d ed.) 49. vires lease. Board, &c. Tippecanoe Such executory contracts as are en- Co. v. Lafayette, &c. R. Co. 50 Ind. tirely foreign to the objects and 85. See, also. Central R. Co. v. Col- purposes for which the corporation lins, 40 Ga. 582; Cumberland Valley was formed, or which are outside R. Co.'s Appeal, 62 Pa. St. 218; its express or implied powers, are Stewart v. Erie, &c. Trans. Co. 17 void and cannot be enforced against Minn. 372, 398; Stevens v. Rutland, it. Rock River Bank v. Sherwood, &c. R. Co. 29 Vt. 545; Mills v. Cen- 10 "Wis. 230, 78 Am. Dec. 669. tral R. Co. 41 N. J. Eq. 1, 2 Atl. ™ It has been held that a con- 453 ; March v. Eastern R. Co. 40 N. tract for the purchase of steamboats H. 548, 43 N. H. 515, 77 Am. Dec. to run In connection with the line 732. may be set aside at the suit of a ™ State Board of Agriculture v. stockholder. Hoagland v. Hannibal, Citizens' Street R. Co. 47 Ind. 407i &c. R. Co. 39 Mo. 451; Colman v. 17 Am. R. 702; Oil Creek, &c. R. Co. Eastern Counties R. Co. 10 Beav. v. Pennsylvania Trans. Co. 83 Pa. 1. So of a contract to improve a St. 160; Peoria, &c. R. Co. v. Thomp- harbor. Hunt v. Shrewsbury, &c. son, 103 111. 187; Camden, &c. R. Co. R. Co. 13 Beav. 1. Or to build the v. Mays Landing, &c. R. Co. 48 N. main line by the use of money J. L. 530, 7 Atl. 523; Denver Fire raised for the construction of a Ins. Co. v. McClelland, 9 Colo. 11, branch line. Bagshaw v. Eastern 9 Pac. 771, 59 Am. R. 134. § 373] CONTRACTS. 534 enforced. The members of the corporation are held by many of the courts to be estopped,^^^ not only individually, but collectively, to set "'State Board of Agriculture v. Citizens' Street R. Co. 47 Ind. 407, 17 Am. R. 702; Bradley v. Ballard, 55 111. 413, 8 Am. R. 656; Gary v. Cleveland, &c. R. Co. 29 Barb. (N. Y.) 35; Vought V. Eastern Building, &c. Ass'n, 172 N. Y. 517, 92 Am. St. 761; Argenti v. San Francisco, 16 Cal. 255; McCluer v. Manchester, &c. R. Co. 13 Gray (Mass.) 124, 74 Am. Dec. 624; Hale v. Mutual Fire Ins. Co. 32 N. H. 295, 64 Am. Dec. 370; Rutland, &c. R. Co. v. Proctor, 29 Vt. 93; Louisville, &c. R. Co. v. Flanagan, 113 Ind. 488, 14 N. B. 370, 3 Am. St. 674; Texas Western R. Co. V. Gentry, 69 Tex. 625, 8 S. W. 98. See, also. Oil Creek, &c. R. Co. V. Pennsylvania, &c. Co. 83 Pa. St. 160; Pittsburg, &e. R. Co. V. Allegheny Co. 79 Pa. St. 210, 215; 2 Purdy's Beach Priv. Corp. §§ 888, 890 et seq. Articles In 6 Cent. L. J. 5, and 12 Cent. L. J. 389; Perkins v. Portland, &c. R. Co. 47 Me. 573, 74 Am. Dec. 507; Kennedy v. California, &c. Bank, 101 Cal. 495, 35 Pac. 1039, 40 Am. St. 69; Peoria, &c. R. Co. v. Thomp- son, 103 111. 187; Derwey v. Toledo, &c. R. Co. 91 Mich. 351, 51 N. "W. 1063; Camden, &c. R. Co. v. May's Landing, &c. R. Co. 48 N. J. L. 530, 7 Atl. 523; Security Nat. Bank v. St. Croix Power Co. 117 "Wis. 211, 94 N. W. 74, and other authorities cited in 29 Am. & Eng. Ency. of Law (2d ed.) 57, and in note in 70 Am. St. 170; also White v. Com- mercial, &c. Bank, 66 S. Car. 491, 45 S. E. 94, 97 Am. St. 803, and note. In one case It was held that where two street car companies, organized under the general laws of the state, enter into a contract by which the first is to pay the second a certain rental for the use of the latter's track, the lessor cannot, while ex- ercising and enjoying the right, re- fuse to pay the sum agreed upon on the ground that the contract was ultra vires of its oflBcers. Canal, &c. R. Co. V. St. Charles St. R. Co. 44 La. Ann. 1069, 11 So. 702. So it has been held that a corporation which accepts and uses money loaned in good faith on a mortgage upon its property, and pays interest on such money after notice of the mortgage, cannot escape liability on such mortgage by the passage of a resolution disapproving and annul- ling the president's authority, espe- cially where the mortgage was exe- cuted by the president by the au- thority of the board of directors and no steps were taken to disaf- firm the mortgage until long after its execution. Augusta, &c. R. Co. V. Kittel, 52 Fed. 63. The cases which follow also oppose the doc- trine we favor. In one case it was held that after a corporation has received the fruits which grow out of the performance of an act ultra vires, and the mischief has all been accomplished, it comes with an ill grace then to assert its want of power to do the act or make the contract in order to escape the per- formance of an obligation it has assumed. Wright v. Hughes, 119 Ind. 324, 12 Am. St. 412. The same general doctrine is held in other cases. Owen Sound S. S. Co. v. Canadian Pac. R. Co. 17 Out. R. 691, 40 Am. & Bug. R. Cas. 593. A corporation, having enjoyed the benefits of a contract, cannot plead that it was ultra vires in the ab- 535 CONTRACTS — ULTRA VIRES — OASES DISCRIMINATED. [§' 373 up the defense to an action on the contract, but as we have said in. the preceding section we cannot yield assent to this. § 373. Contracts — Ultra vires — Cases discriminated. — We think that it will be found upon an analysis of many of the cases often cited as holding that a corporation may be estopped to aver that it had no power to enter into the contract which is beyond its corporate capacity, that they are not, in fact, cases in which the contract was in the proper sense ultra vires. They are cases of the defective exercise of power, not cases where there is an entire want of power.^^^ Some of the cases are really cases where the act was performed in violation of the cor- porate by-laws,^^^ or by an agent in excess of his authority, and not- cases where the act was wholl;f and entirely beyond the scope of the powers conferred upon the corporation by the legislature.^^" It may. sence of fraud. Sherman Center Town Co. V. Morris, 43 Kans. 282, 23 Pac. 569, 19 Am. St. 134; Peo- ple's Gaslight & C. Co. v. Chicago Gaslight & C. Co. 20 111. App. 473; First Nat. Bank of Monmouth v. Brooks, 22 111. App. 238; Sheridan Electric Light Co. v. Chatham Nat. Bank, 52 Hun (N. Y.) 575, 24 N. Y. St. 622, 5 N. Y. S. 529; Hubbard v. Camperdown Mills, 26 S. Car. 581, 2 S. B. 576. This rule applies where a corporation attempts to deny the authority of an agent or officer. Peck V. Doran & W. Co. 57 Hun (N. Y.) 343, 32 N. Y. St. 405, 10 N. Y. S. 401; Lancaster County v. Cheraw & C. R. Co. 28 S. Car. 134, 5 S. E. 338. A railroad company cannot plead that its contract to build and operate a telegraph line ■ was ultra vires as a defense to an action by the builder of the line for his com- pensation. Pittsburgh, &c. R. Co. v. Shaw (Pa.), 13 Cent. R. 220, 14 Atl. 323. "' This is true of the case of Ben- siek V. Thomas, 66 Fed. 104, and of the cases of Aurora, &c. Horticul- tural Society v. Paddock, 80 I11.-263; Kent V. Quicksilver Mining Co. 78 N. Y. 159. The reasoning of the de- cision in Sheldon, &c. Co. v. Bick- emeyer, &c. Co. 90 N. Y. 608, is, we venture to say, founded on the er- roneous assumption that an ultra vires contract is "but the case of an agent making a contract in excess of his authority," for, as it seems to us, where the corporation itself acts and the contract is entirely outside of the scope of the powers conferred upon the corporation, the case is that of a corporation at- tempting to make a contract it had no power to make. We believe the conclusion reached in the case upon which we are commenting is right, but think the reasoning fallacious. ^I'Roy, &c. Co. V. Scott, &c. 11 Wash. 399, 39 Pac. 679. ™ In the case of Missouri Pac. R. Co. V. Sidell, 67 Fed. 464, the court pointed out the difference between cases where there is an, entire ab- sence of power and cases where the power is abused or not properly ex- ercised. The court cited the cases of Davis V. Old Colony Railroad Co. 131 Mass. 258, 41 Am. R. 221; Penn- sylvania, &c. Co. V. Keokuk, &c. Co. 131 U. S. 371, 9 Sup. Ct. 770; Louisi- § 373] CONTEACTS. 536 perhaps, be true in a limited or qualified sense that where the contract is made by an agent who exceeds his authority, or is made in violation of corporate by-laws, that there is a contract ultra vires, but it is not true in the proper or just sense, for it is not a contract made where the corporation itself had no capacity whatever to contract, and it is only to cases where there is an entire absence of power to contract that the doctrine of ultra vires justly applies. Some of the decisions treat cases where the contract in question was made in some mode other than that prescribed by the charter as ultra vires ; but this certainly is erroneous, for the defect in such cases is in the execution of a power granted; the power itself is not absent. Other cases cited as affirm- ing that a corporation may be estopped to deny the validity of an ultra vires contract really decide nothing more than that the corpora- tion must restore the property it received or make compensation, and in such cases there is no question of estoppel involved. Still other cases are placed under the doctrine of ultra vires where there was in fact nothing more than a failure to hold a directors' meeting, or give a notice, or do some such act in the mode prescribed by law,^^^ but such cases are not justly jcases within the doctrine of ultra vires. Whether a contract beyond the power of the corporation is absolutely void or not, however, the practical effect of the difference of opinion is confined, in the main, to the remedy, for in all jurisdictions the courts will seek to do justice, and if the contract is regarded as abso- lutfely void, still if one party has performed it and the other re- tains the benefit there may be an action upon the implied contract, or, ana v. Wood, 102 U. S. 294; Parkers- tions in the particular Instance, burg V. Brown, 106 V. S. 487, 1 Sup. when such abuse or failure is not Ct. 442; Pennsylvania R. Co. v. St. known to the other contracting par- Louis, &c. R. Co. 118 U. S. 290, 6 ties." Sup. Ct. 1094; Zabrlskle v. Cleve- ^^ Farmers', &c. Co. v. Toledo, &c. land, &c. R. Co. 23 How. (U. S.) 67 Fed. 49. The case cited holds, 381. The court quoted with ap- inter alia, that parties, by unreason- proval from Davis v. Railroad Co., able delay, may lose the right to supra, the following: "There is a successfully complain of an irregu- clear distinction between the exer- lar or unauthorized act, citing AUis cise of a power not conferred upon, v. Jones, 45 Fed. 148; Reed's Ap- varying from the objects of its crea- peal, 122 Pa. St. 565, 16 Atl. 100; tion as declared in the law of its Fidelity, &c. Co. v. West Pennsyl- organlzation, of which all persons vania, &c. R. Co. 138 Pa. St. 494, 21 dealing with it are bound to take Atl. 21, 21 Am. St. 911; Wood v. notice, and the abuse of a general Corry Water-Works Co. 44 Fed. power, or the failure to comply with 146; Hackensack Water Co. v. De- prescribed formalities or regula-, Kay, 36 N. J. Eq. 548. ' 537 CONTRACTS — ULTRA. VIRES — ILLUSTRATIVE INSTANCES. [§ 374 in any event proper relief will be granted by proceeding according to the view taken in the particular jurisdiction.^^^ §374. Contracts — ^Ultra vires — ^Illustrative instances. — A charter incorporating a company- to build and operate a railroad, does not by implication confer power to purchase and run a line of steamboats,^^* but, of course, such a company may be invested with power to own and operate a line of steamboats in connection with its railroad, and the power to do so, or at least to make traffic arrangements, may be implied from provisions ordinarily found in railroad charters where the boats are run in connection with the railroad at its termini, or across a river, or the like, for the benefit of the public who travel upon the railroad, at least where there seems to be a reasonable necessity ^^ Eastern Bldg. &c. Ass'n v. Wil- liamson, 189 U. S. 122, 23 Sup. Ct. 527; Central R. &e. Co. v. Farmers' L. & T. Co. IIG Fed. 700; L'Herbette V. Pittsfleld Nat. Bank, 162 Mass. 137, 38 N. E. 368, 44 Am. St. 354; Harrison v. Annapolis, &c. R. Co. 50 Md. 490; Atkins v. Shreveport, &c. R. Co. 106 La. Ann. 568, 31 So. 166; Bigbee, &c. Packet Co. v. Moore, 121 Ala. 379, 25 So. 602; Mo- bile, &c. R. Co. V. Wisdom, 5 Heisk. (Tenn.) 125; Tennessee Ice Co. v. Raine, 107 Tenn. 151, 64 S. W. 29. See, also. Grand River Bridge Co. V. Rollins, 13 Colo. 4, 21 Pac. 897; Eckman v. Chicago, &c. R. Co. 169 111. 312, 48 N.E. 496, 38 L. R. A. 750; Scbrlmplin v.. Farmers' Ass'n, 123 Iowa 102, 98 N. W. 613; Hunt V. Hauser Malting Co. 90 Minn. 282, 96 N. W. 85; Interstate Hotel Co. V. Woodward, &c. Co. 103 Mo. App. 198, 77 S. W. 114; Pittsburg, &c. R. Co. V. Altoona, &c. R. Co. 196 Pa. St. 452, 46 Atl. 431; note in 70 Am. St. 173-175. If fully executed and performed on both sides such ultra vires contracts are usually unassail- able and permitted to stand. ^Central R. &c. Co. v. Smith, 76 Ala. 572, 52 Am. R. 353; Gunn v. Central R. &c. Co. 74 Ga. 509; Hoag- land V. Hannibal, St. Joseph R. Co. 39 Mo. 451; Pearce v. Madison, &c. R. Co. 21 How. (U. S.) 441; Colman V. Eastern Counties R. Co. 10 Beav. 1. But authority to contract for the transportation of its passengers beyond its own line will enable it to make a valid contract guarantee- ing the profits of a steamboat line connecting with it at its terminus. Green Bay, &c. R. Co. v. Union Steamboat Co. 107 U. S. 98. But see Colman v. Eastern Counties R. Co. 10 Beav. 1. And a railroad company can purchase and operate such boats as are necessary to carry Its traflSc from the end of its line across an intervening navigable water to the "ostensible and • sub- stantial termini of their route." Wheeler v. San Francisco, &c. R. Co. 31 Cal. 46, 89 Am. Dec. 147. Where the road has authority to contract for transportation and de- livery of persons and property be- yond its own termini, it may run boats from its termini to other points. Shawmut Bank v. Platts- burgh, &c. R. Co. .31 Vt. 491; South Wales R. Co. v. Redmond, 10 Conn. B. N. S. 675. § 374] CONTRACTS. 538 therefor.^^* Such a charter does not by implication confer power to engage in the business of trading in coal,^^'' nor to purchase and hold for speculative purposes lands not needed for the purposes of the corporation. ^^^ A railroad cannot contract to extend its line beyond the limits defined in the charter/^^ nor construct branch roads not authorized by its charter/^' nor make any material change in its route where the charter prescribes what the route shall be/^' nor expend its funds in the construction of the line essentially different from that for which they were raised;^'" so it has been held that it cannot use corporate funds to improve the navigation of a stream upon which it had erected wharves and warehouses.^^^ A railway company has no implied power to build a canal basin/ ^^ nor to aid improvement, gas, water, or land companies, or the like.^^' Cor- porate funds cannot be used for lobbying purposes,^^* nor, as a rule. ^^ See authorities cited in last note, supra; also Graham v. Macon, &c. R. Co. 120 Ga. 757, 49 S. E. 75; Wiggins Ferry Co. v. Chicago, &c. R. Co. 73 Mo. 389, 39 Am. R. 519; Wiggins Ferry Co. v. Ohio, &c. R. Co. 142 U. S. 396, 12 Sup. Ct. 188; McAboy's Appeal, 107 Pa. St. 548; Hackett v. Multnomah R. Co. 12 Oreg. 124, 6 Pac. 659, 53 Am. R. 327. ^Attorney-General v. Great North- ern R. Co. 1 Dr. & S. 154. Or grain. Northwestern Union Packet Co. v. Shaw, 37 Wis. 655, 19 Am. R. 781. ™ Pacific R. Co. V. Seely, 45 Mo. 212, 100 Am. Dec. 369. Rensselaer, &c. R. Co. V. Davis, 43 N. Y. 137; Waldo V. Chicago, &c. R. Co. 14 Wis. 575. A contract whereby one rail- road company agrees not to oppose the passage of a law giving land to another company, on condition that the land shall be subsequently divided, is not enforceable. Chip- pewa, &c. R. Co. v. Chicago, &c. R. Co. 75 Wis. 224, 44 N. W. 17. A rail- road corporation has no power to take by gift lands lying along its route for other than railroad pur- poses. Case v. Kelly, 133 TJ. S. 21, 10 Sup. Ct. 216. "'Bagshaw v. Eastern Union R. Co. 7 Hare 114. See Stevens v. Rut- land, &c. R. Co. 29 Vt. 545. ^ Knight V. Carrolton R. Co. 9 La. Ann. 284; Morris, &c. R. Co. v. Cen- tral R. Co. 31 N. J. L. 205. But see McAboy's Appeal, 107 Pa. St. 548. "= Chartiers R. Co. v. Hodgens, 77 Pa. St. 187; Erie R. Co. v. Steward, 170 N. Y. 172, 63 N. E. 118; see Central Plank R. Co. v. Clemens, 16 Mo. 359; Rives v. Montgomery, &c. R. Co. 30 Ala. 92; Mississippi, &c. R. Co. V. Cross, 20 Ark. 443. "° See Bagshaw v. Eastern Union Railway, 7 Hare 114, where, at the suit of a stockholder, the railway company was enjoined from using, for the completion of its main line, funds raised under authority of an act of parliament to construct a branch line. ™ Munt V. Shrewsbury, &c. R. Co. 13 Beav. 1. 1=^ Plymouth R. Co. v. Colwell, 39 Pa. St. 337, 80 Am. Dec. 526. ™ Chicago V. Cameron, 120 111. 447, 11 N. E. 899. "^ Shea V. Mabry, 1 Lea (Tenn.) 319, where the directors were held liable for using the corporate funds for this purpose. '539 OON-TEACTS — ULTRA VIRES — ^ILLUSTRATIVE INSTANCES. [§' 374 used to purchase stock in another company.^'' Corporate funds, it is held, may not be donated to an exhibition,^^" nor to a musical con- cert, even though it is expected that the receipts of the corporation from its business of carrying will be thereby materially increased. '■^^ ^ Central R. Co. v. Collins, 40 Ga. 582 ; Military, &c. Assn. v. Savannah, &c. R. 105 Ga. 420, 31 S. E. 200; Salomons v. Laing, 12 Beav. 339; Mannsell v. Midland, &c. R. Co. 1 Hem. & Miller 130. See, also. Holmes, &c. Co. v. Holmes, &c. Co. 127 N. Y. 252, 27 N. B. 831, 24 Am. St. 448. Though the purchase hy a corporation of stock in another corporation is ultra vires, the objec- tion cannot be raised by the stock- holders of the company whose stock is so purchased. Oelbermann v. New York, &c. R. Co. 7 Misc. (N. Y.) 352, 27 N. Y. S. 945. In some states railway corporations are given a limited power to purchase stock In other railway companies. Stimson's Am. Stat. (1892) § 8720, citing laws of Pennsylvania, Kan- sas, Nebraska, Tennessee, Missouri, North Dakota, Idaho, Montana, South Carolina, Florida, Ohio, Mich- igan, Wyoming, New Mexico; Pub. Stat. 1891, Mass. Ch. 112, § 74; Laws 1891 (Ex. Sess.) 111., p. 185. While other states expressly forbid such a purchase. Stimson, supra, citing laws of New York, Illinois, Arkan- sas, Texas. See, also, Oelbermann V. New York & N. R. Co. 77 Hun (N. Y.) 332, 29 N. Y. S. 545. ™ See Tomkinson v. South, &c. R. Co. 56 L. T. R. 812, whfire such a donation was enjoined at the suit of a stockholder. But see as to per- manent location of state fair. State Board of Agriculture v. Citizens' St. R. Co. 47 Ind. 407, 17 Am. R. 702. "' Davis V. Old Colony R. Co. 131 Mass. 258, 41 Am. R. 221, where a subscription in aid of the "World's Peace Jubilee and International Mu- sical Festival" at Boston was held not binding upon the corporation, although the concert had been held on the faith of the subscription guarantees. In this case. Gray, J., after an exhaustive review of the cases both of this country and Eng- land, says: "But when the corpora- tion has actually received nothing in money or property, it cannot be held liable upon an agreement to share in or to guarantee the profits of an enterprise which is wholly without the scope of Its corporate powers, upon the mere ground that conjectural or speculative benefits were believed by its officers to be likely to result from the making of the agreement, and that the other party has incurred expenses upon the faith of it. East Anglian R. Co. V. Eastern Counties R. Co. 11 C. B. 775; MacGregor v. Dover & Deal R. Co. 18 Q. B. 618; Ashbury R. &c. Co. V. Riche, L. R. 7 H. L. 653; Thomas V. Railroad Co. 101 U. S. 71; Down- ing V. Mount Washington Road Co. 40 N. H. 230;. Franklin Co. v. Lewis- ton Institution for Savings, 68 Me. 43, 28 Am. R. 9. See, however. State Board of Ag. v. Citizens' St. R. Co. 47 Ind. 407, 17 Am. R. 702, where the court, in construing a subscrip- tion contract, conditioned upon the location of the state fair upon its line, says: "It Is not claimed in the case under consideration that there was any statute by which the Street Railway Company was pro- hibited from entering into the con- tract In question, or. In other words, that in making the contract that § 375] CONTRACTS. 540 The directors cannot legally use the corporate funds to induce pro- moters to abandon a proposed rival company,^^* nor to buy land at an exorbitant price of one -who, as part consideration, withdraws opposi- tion to the charter,^^° or lends his influence to the scheme.^*" § 375. Contracts — ^Ultra vires— Eule where statute prescribes con- sequences. — It is generally held that where the legislature specifically prescribes the consequences that shall follow from an act of ultra vires, without making it void, the act is not to be regarded as void.^*^ Where the statutory prohibition is clearly for the benefit of a desig- nated class of persons and no others, only members of that class can take advantage of a violation of the statute. Where the manifest in- tention of the statute would be defeated by adjudging an ultra vires contract void it will not be so adjudged.^*^ company violated any statute by which the act was prohibited. All that is claimed is that there was a want of power on the part of the corporation to bind Itself by the contract. It is fully shown on tie part of the plaintiff that the state board of agriculture performed the contract on its part. The Street Railway Company has thus received the benefits and advantages of the contract, but seeks to avoid paying the consideration promised, because it had not the legal power to con- tract for the benefits which it has actually received. In our opinion the Street Railway Company is not at liberty to assume this position. It has received the profits resulting from the compliance of the plain- tiff with the contract. These profits, we are at liberty to presume, have gone to swell the dividends of the stockholders in that corporation. It would be unjust for their company now to escape performance of the contract by which these profits have been realized." ^Russell V. "Wakefield W. W. Co. L. R. 20 Eq. 474. Nor agree with a competing road that it will not complete its own road. Hartford, &c. R. Co. V. New York, &c. R. Co. 3 Rob. (N. Y.) 411. ^'"Gage V. New Market R. Co. IS Q. B. 457. Cases such as the above are usually treated as coming un- der the doctrine of ultra vires, and many of them with reason, since such contracts as they Involve are tainted with the vice of illegality and are also beyond the corporate power. A contract may, it is evi- dent, have more than one defect or vice. "°Earl of Shrewsbury v. North Staffordshire R. Co. L. R. 1 Eq. 593. 1" Pratt v. Short, 79 N. Y. 437, 445, 35 Am. R. 531; Lester v. How- ard Bank, 33 Md. 558, 3 Am. R. 211; Washburn "Mill Co! v. Bartlett, 3 N. Dak. 138, 54 N. W. 544; National Bank v. "Whitney, 103 U. S. 99. In Chattanooga, &c. R. Co. v. Evans, 66 Fed. 809, it is held that non-com- pliance with a statute requiring cer- tain acts to be done by a railroad company and prescribing a penalty to be Imposed upon persons for a violation of the statute does not in- validate a purchase of land by the company. '"Gold Mining Co. v. National Bank, 96 U. S. 640; Duncomb v. 641 CONTRACTS — ULTRA VIRES — INJUNCTION. ■[§ 376, § 376. Contracts — ^TJltra vires — ^Injunction. — A contract which, a corporation has no power to make cannot be enforced by injunction.^** The doctrine that an ultra vires contract cannot be enforced directly or indirectly by injunction is so clearly sound that there is no room for fair debate, but as to the power to prevent a corporation from entering into such a contract there is perhaps room for debate, since such a contract if entered into is not, as a contract, effective. In our opinion, however, both principle and authority require the conclusion that injunction will lie to restrain a corporation from making such a contract.^** The modern eases, with good reason, are inclined to extend the remedy by injunction,^ *° and it seems to us that sound reason authorizes interference to prevent a corporation from entering into a contract that it has no power to make rather than to pernjit the contract to be made and after it is made contest its validity. The state may, in the proper case, secure relief in equity against a corporation that attempts to exercise a power that it does not possess.^** Stock- New York, &c. Co. 84 N. Y. 190; Farmington, &c. Bank v. Fall, 71 Me. 49; National Bank v. Matthews, 98 U. S. 621. See, also. Mutual, &c. Ins. Co., In re, 107 Iowa 143, 77 N. "W. 868, 70 Am. St. 149. '"Greenville, &c. Co. v. Planters', &c. Co. 70 Miss. 669, 13 So. 879, 35 Am. St. 681, citing Pennsylvania Co. V. St. Louis, &c. Co. 118 U. S. 290, 6 Sup. Ct. 1094; Davis v. Old Colony Bailroad, 131 Mass. 258, 41 Am.R. 221; Pearce v. Madison, &c. Rail- road Co. 21 How. (U. S.) 451; Cork, &c. R. Co., In re, 4 Ch. App. 748; Ashbury, &c. Co. v. Riche, L. R. 7 H. L. 653, 672. '" Attorney-General v. Chicago, &c. H. Co. 35 "Wis. 425; Fishmongers Co. V. East India Co. 1 Dickens 163; Agar V. Regents' Canal, Cooper Ch. 77; Latimer v. Richmond R. Co. 39 S. Car. 44, 17 S. B. 258; Beman v. Rufford, 6 Eng. L. & Bq. 106; Col- man V. Eastern, &c. R. Co. 10 Beav. 1; Coats V. Clarence R. Co. 1 Rus- sell & M. 181; Attorney-General v. Delaware, &c. R. Co. 27 N. J. Bq. 631; Stockton v. Central R. Co. 50 N. J. Bq. 489, 25 Atl. 942, 17 L. R. A. 97; Board v. Lafayette, &c. R. Co. 50 Ind. 85; Thomas v. Railroad Company, 101 U. S. 71; 2 Redfield Railways 307; 2 Story Eq. 920, 923; Pomeroy Eq. Juris. § 1093. See, however, Graham v. Birkenhead, &c. R. Co. 6 Eng. L. & Bq. 132; Ffooks V. London, &c. Co. 19 Eng. L. £ Eq. 7. *" Champ V. Kendrick, 130 Ind. 549, 30 N. E. 787; Pomeroy Equity Juris. § 1357. "» Stockton V. Central R. Co. 50 N. J. Eg. 489, 25 Atl. 942, 17 L. R. A. 97; Columbian Athletic Club v. State, 143 Ind. 98, 40 N. E. 914, 28 L. R. A. 216, 52 Am. St. 407. See Attorney-General v. Great Northern R. Co. 4 DeGex & S. 75; Taylor v. Salmon, 4 Myl. & C. 134; Attorney- General V. Chicago, &c. R. Co. 35 Wis. 425; Ware v. Regents', &c. Co. 3 DeGex & J. 212; River Dun, &c. Co. V. North Midland R. Co. 1 Eng. Ry. & Canal Cas. 135; Attorney-Gen- eral V. Johnson, Wilson's Ch. pt. 2, § 377] CONTRACTS. 543 holders may maintain injunction to prevent corporate ofiScers from materially deviating from the objects for which the corporation was formed.^*'^ §'377. Contracts — Ultra vires — ^Denial of relief — Laches. — ^It is held that if there is inexcusable delay in seeking relief the courts will refuse to interpose, although the contract may be ultra vires.^** The decisions proceed upon the general doctrine that a party guilty of laches cannot successfully invoke the assistance of the courts. The courts in refusing to grant relief do not affirm the validity of the Contract, but leave the parties where it found them because of the laches of the complaint.^*^ § 378. Contracts — TJltra vires — ^Who may contest. — A person not a corporate stockholder, or one not having a right to or interest in corporate property, cannot dispute the right of a corporation to make contracts of a certain kind upon the ground that they are ultra vires. Thus, a wharfinger will not be permitted to dispute the right of a railroad company to rent its wharf in competition with his own, by 87;' Attorney-Genpral v. Birming- ham, &c. Co. 4 DeGex & S. 490; At- torney-General v. Forbes, 2 Myl. & C. 123; Attorney-General v. Eastern Counties R. Co. 3 Eng. R. & Canal Cas. 337; Attorney-General v. Shef- field, &c. Co. 3 DeGex, M. & G. 304; Attorney-General v. Mid-Kent R. Co. 3 Ch. App. Cas. 100. See People v. North River, &c. Co. 121 N. Y. 582, 24 N. E. 834, 9 L. R. A. 33, 18 Am. St. 843; People v. North River, &c. Co. 22 Abbott New Cas. 164, 3 N. Y. S. 401, 2 L. R. A. 33. But compare Attorney-General v. Great Eastern R. Co. 11 Ch. Div. 449; 'Attorney- General V. Utica Ins. Co. 2 Johns. Ch. (N. Y.) 371. "'Kean v. Johnson, 9 N. J. Eq. 401; Livingston v. Lynch. 4 Johns. Ch. (N. Y.) 573; Ware v. Grand Junction R. Co. 2 Russ. & M. 470. See Sparhawk v. Union, &c. R. Co. 54 Pa. St. 401. See, also, Tippe- canoe County V. Lafayette, &c. R. Co. 50 Ind. 85; Gunnison, &c. Co. v. Whitaker, 91 Fed. 191; Zabriskie v. Cleveland, &c. R. Co. 23 How. (U. S.) 381; Willoughby v. Chicago Junction R. Co. 50 N. J. Eq. 656, 25 Atl. 277, 39 Am. & Eng. Corp. Cas. 153; Central R. Co. v. Collins, 40 Ga. 582; International, &c. R. Co. v. Bremond, 53 Tex. 96. As far back as Dodge v. Woolsey, 18 How. (U. S.) 331, it was said that this "is no longer doubted." See, also. Pollock V. Farmers', &c. Co. 157 U. S. 429, 15 Sup. Ct. 673. "'St. Louis, &c. Co. V. Terre Haute, &c. Co. 145 U. S. 393, 12 Sup. Ct. 953; St. Louis, &c. Co. v. Terre Haute, &c. Co. 33 Fed. 440; Alex- ander V. Searcy, 81 Ga. 536, 12 Am. St. 337. "' In the first case cited the court placed stress upon the principle that where both parties are in fault the courts will not give aid to either of them. 543 CONTRACTS — ULTRA VIKBS — ^WHO MAT CONTEST. [§' 378 showing that its charter does not authorize it to keep a wharf for rent.^"" A person who is sued for damage done to real estate held by a corporation cannot successfully defend by showing that the charter of the corporation does not permit it to hold such real estate, or that it is not authorized to take and hold land for the purposes for which the real estate in question is acquired."^ Even with regard to stock- holders and officers of the corporation the rule obtains that a person whose rights are in no way infringed by the doing of an ultra vires act cannot found an action or defense upon the doing of that act.^°^ Upon this principle, it is held that the title acquired by the vendee of land from a railroad company is good, although it w.as ultra vires the company's charter to purchase the land in the first instance.^ ^^ And the officers of a corporation who have bought stock for the company cannot plead as a defense to an action for conversion of the stock to their own use, that the original purchase made by them on behalf of the corporation was ultra vires.^^* The rule as asserted by many of the adjudged cases is that, after the corporation has performed its part of the contract, the other party will not be permitted to in- terpose the plea that it had no power to make such a contract.^^^ The rule has been thus stated: "Without deciding whether or not it was within the corporate power of the railway company to become a party ""New Orleans, &c. R. Co. v. El- &c. Hydraulic Co. v. Cincinnati, &c. lerman, 105 U. S. 166, 9 Am. & Eng. R. Co. 29 Ohio St. 341. In this case R. Cas. 144; see Oelbermann v. New the defendant was permitted to fill York, &c. R. Co. 7 Misc. (N. Y.) up a watercourse in consideration 352, 27 N. Y. S. 945; Tomlinson v. that it would re-open and restore Bricklayers' Union, 87 Ind. 308; the watercourse when requested. Farmers', &c. Bank v. Detroit, &c. The defendant was held estopped R. Co. 17 Wis. 372; St. Louis Drug to set up that the ownership and Co. V. Robinson, 81 Mo. 18; GifCord maintenance of the watercourse by V. New Jersey R. Co. 10 N. J. Eq. the plaintiff was ultra vires. Three 171; New Haven Wire Co. Cases, 57 years of performance of a contract Conn. 352, 18 Atl. 266. by which the railway company de- "' Farmers' Loan &c. Co. v. Green mised its road, privileges and fran- Bay, &c. R. Co. 11 Biss. (U. S.) 334. chises for ninety-six years to de- """ Taylor Priv. Corp. 281. fendant does not render it so far i=s Walsh V. Barton, 24 Ohio St. 28. an executed contract that a party See, also, Mallett v. Simpson, 94 N. thereto is estopped to deny its valid- Car. 37, 55 Am. R. 594. ity and to repudiate it. Oregon R. ^ St. Louis Stoneware Co. v. Part- &c. Co. v. Oregonian R. Co. 130 tJ. ridge, 8 Mo. App. 217. S. 1, 9 Sup. Ct. 409; Pennsylvania >=» Whitney Arms Co. v. Barlow, R. Co. v. St. Louis, &c. R. Co. 118 63 N. Y. 62, 20 Am. R. 504; Parish V. S. 290, 630, 7 Sup. Ct. 24. V. Wheeler, 22 N. Y. 494; Hamilton, § 379] CONTEACTS. 544 to such bond or contract, we are clearly of the opinion that, after full performance by the company of the stipulations of such bond or contract on its part to be done and performed, and after the ap- pellees have received in full the benefits they bargained for, they cannot be permitted to escape or avoid the obligation of their contract upon the ground that the company had possibly exceeded its cor- porate power, or that such contract, as to it, was possibly ultra vires."^^° We have elsewhere said that we believe that the contract is not enforceable and the right of the party to protection from loss or injury does not rest upon the contract, but upon general equitable principles. § 379. Contracts — Tlltra vires — Creditors. — Corporate creditors oc- cupy an essentially different position from that occupied by the cor- poration or its stockholders. They have no part in the management of the affairs of the corporation, and receive no direct benefit from a successful prosecution of its enterprises. Their contracts are made in reliance upon the fact that the corporate fund is a primary fund for the payment of the corporate debts. Accordingly the assent of all the shareholders cannot render valid, as against the creditors, a contract not within the corporate powers; and a partial performance by the other contracting party cannot make the corporation liable to an ac- tion that will jeopardize their interests. ^^^ The position of the cred- itors is so essentially different from that of the corporation and its shareholders that the rules which apply to one class cannot unquali- fiedly apply to the other. The rule asserted in well considered de- cisions is' that in cases where the corporation is insolvent, the claims of parties founded upon an ultra vires contract will be set aside in favor of creditors claiming under valid contracts.^'* The corporate ^ Chicago, &c. R. Co. v. Derkes, ™ The receiver of such a corpora- 103 Ind. 520, 525, 3 N. E. 239. See, tion may repudiate claims arising also, Louisville, &c. Co. v. Flanagan, out of ultra vires contracts. Abbott 113 Ind. 488, 493, 14 N. E. 370, 3 v. Baltimore, &c. Steam Packet Co. Am. St. 674; Steam Nav. Co. v. 1 Md. Ch. 542. He may repudiate Weed, 17 Barb. (N. Y.) 378. a transfer of mortgages by the cor- "' National Trust Co. v. Miller, 33 poration made to secure such N. J. Eq. 155. See, also. Washing- claims. Talmage v. Pell, 7 N. Y. 328. ton Mill Co. V. Sprague Lumber Co. The corporation is not estopped to 19 Wash. 165, 52 Pac. 1067. But it set up the defense of ultra vires in has been held otherwise where no favor of its creditors whose debts fraud is charged. Force v. Age- were created' under lawful power, Herald Co. 136 Ala. 271. 33 So. 866. where it Is Insolvent, and the oh- 545 ULTRA VIRES — NON-ASSENTHiTG STOCKHOLDERS. [§ 380 creditors, of course, have no rights to be protected in cases where the corporation is clearly solvent, for in such a ease payment of the debt due under an ultra vires contract will not menace its ability to pay its other debts, and they cannot complain of such payment. But where the payment of the claims of creditors founded upon contracts valid in all respects will be endangered by the enforcement of what are called ultra vires contracts the latter class of contracts will not be enforced. Where the contract is ultra vires in the proper sense of the term, then, as we have elsewhere shown, there can be no recovery upon it. The contract itself is void, but there may be in many eases a recovery upon the quantum valebat or quantum meruit. If there is a right to recover on the quantum meruit, for the reasonable value of the property received and appropriated by the corporation, there is reason for doubting whether creditors can defeat the claims of par- ties having such a right of recovery, for, in such a case, the property received and appropriated becomes part of the corporate assets and increases the security of the creditors. Where there is an executory contract merely there is no difficulty, for it is clear that such a contract cannot be enforced nor damages recovered for its breach. It is held that creditors may be estopped by the fact that they have received the bene- fits of the unauthorized act and their dealings have been with refer- ence thereto.^^* § 380, Contracts — Ultra vires — Non-asaenting stockholders. — ^It is reasoned that as corporations act only by their officers and agents, and are controlled by majorities, and as the interests of the minority stock- holders and the creditors are not always respected by the managers, the rule that the corporation is bound by contracts of its agents, is not of universal application. It would seem to be clear upon principle that a stockholder would not be bound by any ultra vires contract entered into, by the directors, of which he had no knowledge, even though a benefit accrued to the corporation by reason of the performance of such a contract.^^" There is, however, difficulty in practically apply- ing this general doctrine. If the corporation does actually receive and retain property of value it should be compelled to make Just and ject is to prefer such creditors to 281, 48 Am. R. 438. See, also, Fogg others claiming under unauthorized v. Blair, 133 U. S. 534, 10 Sup. Ct. contracts. Bank of Chattanooga v. 338. Bank of Memphis, 9 Heisk. (Tenn.) ""Taylor Priv. Corp. 278. See 408. Bi-Spool, &c. Co. v. Acme Mfg. Co. «» Tone V. Columbus, 39 Ohio St. 153 Mass. 404, 26 N. E. 991. Ell, Railroads — 35 § 381] CONTRACTS, 546 equitable compensation, although some of the stockholders may assail the transaction. It is, however, quite clear on principle that where the contract is executory a non-assenting stockholder, who promptly as- sails it, is entitled to relief. But since the books of the company are at all times open for their inspection, it may be presumed that the members of the corporation are cognizant of its acts, and a ratification of such acts will be presumed from acquiesence on their part.^'^ It is so difficult to permit a contract to be set aside by a dissenting stock- holder without at the same time relieving those by whom it was made, that the courts refuse to entertain his objections on the ground that a contract is ultra vires, unless he moves promptly to prevent its exe- cution. He will not, as a general rule, be heard to express, after the contract is executed, a dissent which he has not made known until it was apparent that the contract would operate against his interests,^*^ unless he has done equity or caused equity to be done by the corpo- ration. §381. Prohibited contracts — ^Effect of prescribing penalties. — Where a contract is illegal because prohibited by legislative enact- ment, it is not necessarily void if the legislature has specifically pro- vided what the consequences of a violation of the statute shall be. The general rule upon this subject seems to be that where the statute which prohibits the contract expressly prescribes the consequences of its violation the contract is not void, since the consequences expressly prescribed are exclusive.^"^ But this rule cannot govern where there "'Thompson v. Lambert, 44 Iowa money loaned or discounted by any 239; Taylor Priv. Corp. 279. incorporated company, contrary to "^Thompson v. Lambert, 44 Iowa the provisions of the [statute] shall 239; Bradley v. Ballard, 55 111. 413, be void," it was held that the notes 8 Am. R. 656. See, also. Union Pac. or securities so taken were void, R. Co. v. Chicago, &c. R. Co. 163 U. but the money loaned on them coulfl S. 564, 16 Sup. Ct. 1173; article in be recovered. The court said: "A 13 Am. L. Rev. 661; 2 Purdy's Beach prohibitory statute may Itself point Priv. Corp. § 906; Rabe v. Dunlap, out the consequences of its viola- 51 N. J. Eq. 40, 25 Atl. 959. tion, and if, on a consideration of ™ See ante, § 375. Where a cor- the whole statute, it appears that poration was forbidden by law to the legislature intended to define issue notes or other evidences of such consequences, and to exclude debt, to be loaned or put in circu- any other penalty or forfeiture than lation as money, the statute declar- such as is declared in the statute ing that all notes or other securities itself, no other will be enforced, and for the payment of money "made or if an action can be maintained on given to secure the payment of any the transaction of which the pro- 547 tEOHIBITED CONTRACTS. [§ 381 is simply a general penalty prescribed. Where a penalty is declared, the general rule is that a contract to do the forbidden act is void. hibited transaction was a part with- out sanctioning the illegality, such action will be entertained." Pratt V. Short, 79 N. Y. 437, 445, 35 Am. R. 531; Taylor Priv. Corp. (2d ed.) 299. In Edison General Electric Co. V. Canadian Pac. Nav. Co. 8 Wash. 370, 36 Pac. 260, 24 L. R. A. 315, 40 Am. St. 910, the supreme court of Washington held that although a statute provides a penalty for a foreign corporation doing business without first having registered, con- tracts by such corporation are not thereby rendered void. The court said: "There is some diversity among the cases in the construction of laws of this kind, but the weight of authority seems to establish the doctrine that it is the duty of the courts to look at the whole statute, and therefrom determine as to what was the intent of the legislature^ If, by the terms thereof, the act is made unlawful, it will usually be construed to amount to a prohibi- tion of said act, and the imposition of a penalty will also amount to a prohibition If, from the language used, such seems to have been the intent of the legislature. But in the case at bar, while the company is liable to the penalty provided in the statute, there is nothing in the act which in terms prohibits the transaction of business or de- clares it to be unlawful, and the particular language of the clause which imposes the penalty has no tendency to establish either of said propositions. On the contrary, its language, fairly construed, would seem to contemplate that the com- pany might do business without such registration, but that, if it did. it should pay the penalty therein prescribed for the privilege of so doing. The cases cited by appel- lant, when applied to the facts of this case, have little tendency to sustain its contention. The investi- gation which we have been able to give the adjudged cases tends to support the statement made by re- spondent, in its brief, that a pro- vision like the one under considera- tion has never been held to render contracts void, though entered into without the authority of the statute. Some of the cases cited by appel- lant contain expressions to the ef- fect that the imposition of a penalty for the performance of an act is equivalent to declaring it unlaw- ful ; but an examination of the facts will show that the provisions which they were construing were clothed in far different language than the one under consideration." Where a corporation loans money in excess of the prescribed limit to be loaned to an individual, the corporation can recover the money. "We do not think that public policy re- quires, or that congress intended that an excess of loans beyond the proportion specified should enable the borrower to avoid the payment of the money actually received by him. This would be to injure the interests of creditors, stockholders and all who have an interest in the safety and prosperity of the bank." Gold Min. Co. v. National Bank, 96 TJ. S. 640; Duncomb v. New York, &c. R. Co. 84 N. Y. 190. And a pro- vision an the charter of a corpora- tion prohibiting any director or other ofiicer, under penalty of fine or imprisonment, from borrowing §■ 383] CONTEACTS. 548 As is well known the accepted doctrine is that the imposition of a penalty for doing the act operates as such an implied prohibition as to bring the case within this rule.^°* It is sometimes provided that only specified persons shall be entitled to the protection of a special prohibition of the statute, and when this is so only such persons can take advantage of it."^ § 382. Illegal contracts — Generally. — ^It is hardly necessary to say that a railroad company has no more right to enter into an illegal contract than a natural person or a corporation of any kind. If an act be malum in se or malum prohibitum a. railroad; company cannot perform it.^*^ Where a contract is illegal and for that reason void, no action can be maintained upon it, for the courts wiU decline to assist either party in enforcing it.^°^ But it is unnecessary to do more money froin the bank, does not ex- empt a director from liability for money loaned to him In violation of the prohibition. Farmington Sav. Bank v. Fall, 71 Me. 49. Ante, § 375. , ^«Ohio L. Ins. &c. Co. v. Mer- chants' Ins. Co. 30 Tenn. 1, 53 Am. Dec. 742; Mitchell v, Smith, 1 Bin- ney (Pa.) 110, 2 Am. Dec. 417; Seidenbender v. Charles, 4 Serg. & R. (Pa.) 151, 8 Am. Dec. 682; Wil- son V. Spencer, 1 Randolph (Va.) 76, 10 Am. Dec. 491; Sharp v. Teese, 9 N. J. L. 352, 17 Am. Dec. 479; O'Donneil v. Sweeney, 5 Ala. 467, 39 Am. Dec. 336; Woods v. Arm- strong, 54 Ala. 150, 25 Am. R. 671. , 108 "Courts often speak of acts and contracts as void, when they mean no more than that some party con- cerned has a right to avoid them. Legislators sometimes use language with equal want of exact accuracy; and when they say that some act or contract shall not be of any force or effect, mean perhaps no more than this: that at the option of those for whose benefit the provi- sion was made it shall be voidable, and have no force or effect as against his interests. * * * If it is apparent that an act is prohibited and declared void on grounds of general policy, we must suppose the legislative intent to be. that it shall be void to all intents, while if the manifest intention is to give protec- tion to determinate individuals who are sui juris, the purpose is suffi- ciently accomplished, if they are given the liberty of avoiding it." Beecher v. Marquette, &c. Co. 45 Mich. 103, 108, 7 N. W. 695, per Cooley, J.; Barle v. Earle, 91 Ind. 27; Taylor Priv. Corp. (2d ed.) 300. See, also, Union Nat. Bank v. Mat- thews, 98 U. S. 629; Prescott Nat. Bank v. Butler, 157 Mass. 548, 32 N. E. 909; Roberts v. Lane, 64 Me. 108, 18 Am. R. 242. ""Chippewa, &c. Co. t. Chicago, &c. R. Co. 75 Wis. 224, 44 N. W. 17, 6 L. R. A. 601; Marshall v. Balti- more, &c. R. Co. 16 How. (U. S.) 314; Pueblo, &c. R. Co. v. Rudd, 5 Colo. 270; Pueblo, &c. R. Co. v. Tay- lor, 6 Colo. 1, 45 Am. Dec. 512; Mor- ris, &c. R. Co. V. Sussex, &c. R. Co. 20 N. J. Eq. 542; Ashbury R. &c. Co. V. Riche, L. R. 7 H. L. C. 653. "'Ohio, &c. Co. V. Merchants', &c. 549 ILLEGAL OONTEAOTS AND ULTRA VIRES. [§ 383 V than suggest these general mles and add that all of the fundamental rules regarding illegal contracts apply to contracts by railroad com- panies. § 383. Illegal contracts and ultra vires contracts discriminated. — At another place we have directed attention to the difEerence between contracts that are ultra vires and contracts that are illegal.^"* It is obvious that a contract may be beyond the scope of the corporate powers and yet not be illegal in the proper sense of the term. The term "illegal contract," as we employ it, means a contract forbidden by legislative enactment or condemned by some general rule of law. It is true, of course, that a contract which is against public policy is illegal, but we can see no valid reason for making an independent and distinct class of contracts against public policy, for public policy is settled and determined by general rules of law, so that such a con- tract is really an illegal one and is, therefore, properly a member of the general class designated by the term illegal contracts. What the term "public policy" means has not been precisely determined by the judicial decisions.^"' Illegal contracts are, in a sense, ultra vires, but they are something more, they are contracts of "an evil tendency." It is hardly necessary to say that a railroad corporation has no more Co. 30 Tenn. 1, 53 Am. Dec. 742; is not easily explained." See, gen- Wilson V. Spencer, 1 Rand. (Va.) erally, Bgerton v. Earl Brownlow, 4 76, 10 Am. Dec. 491; O'Donnell v. H. L. Cas. 1; Smith v. Arnold, 106 Sweeney, 5 Ala. 467, 39 Am. Dec. Mass. 269; Durgin v. Dyer, 68 Me. 336; Woods v. Armstrong, 54 Ala. 143; Burkholder v. Beetem, 65 Pa. 150, 25 Am. R. 671; Webb v. Tul- St. 496; Pierce v. Evans, 61 Pa. St. chire, 3 Ired. (N. C.) Law 485, 40 415; Bank of United States v. Ow- Am. Dec. 419. ens, 2 Pet. (U. S.) 527; Bishop v. ^«»Ante, § 373; Woodrufe v. Erie Palmer. 146 Mass. 469, 474, 16 N. E. R. Co. 93 N. y. 609, 618. The mod- 299, 4 Am. St. 339; Brown v. New ern cases deny that there is any es- York, &c. Co. 75 Hun (N. Y.) 355, sential difference between contracts 27 N. Y. S. 69; Florida, &c. R. Co. v. to perform acts malum in se and State, 31 Fla. 482, 13 So. 103, 20 L. contracts to do that which is malum R. A. 419 ; Pennsylvania Co. v. Do- prohibitum. Evans v. Trenton, 24 Ian, 6 Ind. App. 109, 32 N. B. 802, N. J. L. 764. 51 Am. St. 289; Griswold v. Illinois, '"In Richardson v. Mellish, 2 &c. R. Co. (Iowa) 53 N. W. 295 (re- Bing. 229, 9 E. C. L. 557, Burroughs, versed on rehearing, in 90 Iowa 265, J., said: "Public policy is a yery 57 N. W. 843, 24 L. R. A. 647; Farm- unruly horse, and when once you ers', &c. R. Co. v. White, 5 Col. get astride of it you never know App. 1, 31 Pac. 345; Providence, &c. where it will carry you. Public pol- Co. v. Norris, 2 Wall. (U. S.) 45, 56. icy does not admit of definition and § 384j^ CONTRACTS. 550 right to enter into an illegal contract than an individual. It is to be remarked, however, that a positive legislative enactment may confer authority to make a contract which, but for the statute, would be regarded as illegal because against public policy.^'^" § 384. Classes of illegal contracts. — We have said that in our judgment a contract void because against public policy is an illegal contract. Some of the cases, however, do not class such contracts as illegal, but make of them a separate and distinct class. We think that illegal contracts, as distinguished from ordinary ultra vires contracts, may be divided into (1) those which are immoral in themselves, and forbidden by law to persons as well as corporations; (2) those which the corporations in question are forbidden to make by statute, and (3) those which public policy forbids them to make.^^^ The latter class of contracts, that is, contracts against public policy, have been dis- cussed principally in eases where corporations charged with the per- formance of certain public duties have entered into contracts whereby they are disabled to perform such duties, or the rights of the public are infringed,^^^ but the principle has a somewhat wider range. § 385. Contracts void because against public policy. — ^The settled doctrine is that railroads and other corporations which are created ™ Donaldson v. Jude, 2 Bibb Hadden v. Collector, 5 Wall. (U. S.) (Ky.) 57; Brown v. Anderson, 1 T. 107; Magee v. O'Neill, 19 S. Car. B. Monr. (Ky.) 198; Vermont, &c. 170, 45 Am. R. 765. R. Co. V. Vermont, &c. R. Co. 34 ^" Taylor Priv. Corp. (2d ed.) 292. Vt. 1. See, also, American, &c. "' New York, &c. R. Co. v. Winans, Union v. Yount, 101 U. S. 352. 17 How. (U. S.) 30, 39; Pearce v. Where there is no legislation it is Madison, &c. R. Co. 21 How. (II. for the courts to decide whether a S.) 441; Thomas v. West Jersey Co. contract is or is not "at war with 101 U. S. 71; Branch v. Jesup, any established interest of society," 106 U. S. 468, 478, 1 Sup. Ct. 15; and, therefore, illegal. Kellogg v. Pennsylvania R. Co. v. St. Louis, &c. Larkin, 3 Pinney (Wis.) 123, 3 R. Co. 118 U. S. 290, 6 Sup. Ct. 1094; Chand. (Wis.) 133, 56 Am. Dec. 164; Pittsburgh, &c. R. Co. v. Keokuk, &c. Boardman v. Thompson, 25 Iowa Bridge Co. 131 U. S. 371, 384, 9 487, 501. Legislation, however, set- Sup. Ct 770; Central Trans. Co. v. ties questions of policy. Speaking Pullman P. Car Co. 139 U. S. 24, of the power of the legislature in 11 Sup. Ct. 478; Hazlehurst v. Sa- this regard the supreme court of vannah, &c. R. Co. 24 Ga. 13; Elkins the United States said: "Questions v. Camden, &c. R. Co. 36 N. J. Bq. of this sort determined there are 5; New England Express Co. v. conclusive here." License Tax Cases, Maine Central R. Co. 57 Me. 188. 6 Wall. (U. S.) 462, 469. See, also. 551 CONTRACTS VOID BECAUSE AGAINST PUBLIC POLICY. [§ 385 witll special powers and privileges, and charged with certain duties to the public, are held bound by considerations of public policy to refrain from doing any acts which may disable them from performing their duties to the public.^'* This familiar principle is applied to va- rious classes of cases, but while there is no diversity of opinion as to the principle itself there is some conflict among the cases as to its application. It is held, in accordance with the general principle stated,^'* that a railroad cannot mortgage, lease or sell its railroad, nor any property essential to the operation of its railroad,*'^ in the absence of authority from the state.^^' So contracts by which it is ™ Daniels v. Hart, 118 Mass. 543 ; Abbott V. Johnstown, &c. R. Co. 80 N. Y. 27, 36 Am. R. 572; Central Trans. Co. v. Pullman Car Co. 139 TJ. S. 24, 11 Sup. Ct. 478; Thomas T. "West Jersey R. Co. 101 U. S. 71; West Virginia, &c. Co. v. Ohio, &c. Co. 22 W. Va. 600, 46 Am. R. 527, and see Indiana authorities collect- ed and cited In Muncie Gas Co. v. Muncie, 160 Ind. 97, 104, 66 N. E. 436, 60 L. R. A. 822. A corporation cannot disable itself by contract from performing its public duties, or, by agreement, compel itself to make public accommodation subor- dinate to its private interests. Gibbs V. Consolidated Gas Co. 130 U. S. S96, 9 Sup. Ct. 553. "* Daniels v. Hart, 118 Mass. 543; State V. Morgan, 28 La. Ann. 482; Winchester, &c. Turnp. Co. v. Vi- mont, 5 B. Mon. (Ky.) 1; Black v. Delaware, &e. Canal Co. 22 N. J. Eq. 130, 399; Oregon R. Co. v. Oregonian R. Co. 130 U. S. 1, 9 Sup. Ct. 409; Southern Pac. R. Co. v. Esquibel, 4 (Johns.) N. Mex. 337, 20 Pac. 109. But see Memphis, &c. R. Co. v. Dow, 19 Fed. 388; Kelly v. Trustees, &c. 58 Ala. 489; Miller v. Rutland, &c. R. Co. 36 Vt. 452, 488, holding that it may mortgage its property to purchase necessary rails, without which it could perform none of its public duties. "'Pierce v. Emery, 32 N. H. 484; Singleton v. Southwestern R. Co. 70 Ga. 464, 48 Am. R. 574; Board, &c. v. Lafayette, &c. R. Co. 50 Ind. 85, 110; Abbott v. Johnstown, &c. R. Co. 80 N. Y. 27, 36 Am. R. 572; Freeman v. Minnesota. &c. R. Co. 28 Minn. 443, 10 N. W. 594; Middle- sex R. Co. V. Boston, &c. R. Co. 115 Mass. 347; Peters v. Lincoln, &c. R. Co. 2 McCrary (U. S.) 275; Thomas v. Railroad Co. 101 U. S. 71 ; Pennsylvania R. Co. v. St. Louis, &c. R. Co. 118 U. S. 290, 6 Sup. Ct. 1094; Oregon R. &c. Co. t. Oregoni- an R. Co. 130 tr. S. 1, 9 Sup. Ct. 409 ; Morawetz Priv. Corp. 1120. See opinion of Chief Justice Ruger, in Woodruff v. Erie R. Co. 93 N. Y. 609, 618; Brookes v. Mayesville, &c. R. Co. (Ky.)- 83 S. W. 117. But it has been held that it may, under certain cir- cumstances, sell a terminal switch to the owner of the land on which it is laid. Oman v. Bedford, &c. Stone Co. 134 Fed. 64, 67 C. C. A. 190, citing Jones v. Newport News, &c. R. Co. 65 Fed. 736, 13 C. C. A. 95, and South Dakota v. North Caro- lina, 192 U. S. 286, 24 Sup. Ct. 269. "°In Maine it is held to be the policy of the state to permit rail- roads to mortgage their property at will. Kennebec, &c. R. Co. v. Port- land, &c. R. Co. 59 Me. 9. Nearly all the states permit railroads to mort- §• 385] CONTRACTS. 55» undertaken to stifle competition between parallel roads, whicli would, in the natural order of things, be competing lines, are illegal and void.^" One road will not be permitted to contract for the purchase of stock of a competing road, with a view to gaining control of it, and so preventing competition between the two roads.^'^ gage their property for any purpose for which, they are allowed to bor- row money. Stimson's Am. Stat. (1892), § 8642. Most of the states now offer every advantage to non-competing roads to unite by lease, sale or consolidation. Stim- son's Am. Stat. (1892) §§ 8721, 8722, 8730. See, also, WoodrufC v. Erie R. Co. 93 N. Y. 609, 618. Mr. Charles Francis, Adams, president of the Union Pacific Railroad, in an ad- dress at Boston, on December 15, 1888, said: "I am very sure now, as I have been for the last twenty years, and as I long ago expressed myself, that a great consolidated corporation, or even trust, can be held to a far stricter responsibility to the law than numerous smaller and confiicting corporations." Mr. Justice Brewer, in United States v. Western Union Tel. Co. 50 Fed. 28, 42, said: "It may be true, as con- tended, and, not disturbed by the common hue and cry about monop- oly, I am disposed to believe that it is true — that the real interests of the public are subserved by the con- solidation of the various transporta- tion systems." "' Cleveland, &c. R. Co. v. Closser, 126 Ind. 348, 26 N. E. 159, 9 L. R. A. 754, 22 Am. St. 593; Hooker v. Van- dewater, 4 Denio (N. Y.) 349, 47 Am. Dec. 258; Central Ohio Salt Co. V. Guthrie, 35 Ohio St. 666; Morrill V. Boston, &c. R. Co. 55 N. H. 531; Craft V. McConoughy, 79 III. 346. 22 Am. R. 171; Morris Run Coal Co. v. Barclay Coal Co. 68 Pa. St. 173, 8 Am. R. 159; Stockton v. Cent. R. &c. Co. 50 N. J. Eq. 52, 24 Atl. 964, 17 L. R. A. 97; Chicago, &c. R. Co. V. Wabash, &c. R. Co. 61 Fed. 993, 9 C. C. A. 659; Gibbs v. Consolidated Gas Co. 130 U. S. 396, 9 Sup. Ct. 553. In announcing the opinion of the' court in this case Chief Justice Ful- ler said: "In the instance of busi- ness of such a character that it pre- sumably cannot be restrained to any extent whatever without prej- udice to the public interest, courts decline to enforce or sustain con- tracts imposing such restraint, how- ever partial, because in contraven- tion of public policy." Texas, &c. R. Co. V. Southern Pacific R. Co. 41 La. Ann. 970, 17 Am. St. 445; Gulf, &c. R. Co. V. State, 72 Tex. 404, 1 L, R. a' 849. See United States v. Trans-Missouri Freight Assn. 58 Fed. 58, 7 C. C. A. 15, 166 U. S. 290. 17 Sup. Ct. 540; and note to Hard- ing V. American Glucose Co. 182 111. 5^51, 55 N. E. 577, 64 L. R. A. 738, 74 Am. St. 189, 235, 249-255. ™ Central R. Co. v. Collins, 40 Ga, 582; Elklns v. Camden, &c. R. Co. 36 N. J. Bq. 5; Pennsylvania R. Co. V. Commonwealth (Pa.), 29 Am. & Eng. R. Cas. 145, 154; People v. Chi- cago, &c. Co. 130 111. 268," 22 N. E, 798, 8 L. R. A. 497, 17 Am. St. 319; Louisville, &c. R. v. Kentucky, 161 U. S. 677, 16 Sup. Ct. 714; De La Vergne, &c. Co. v. German, &c. Inst. 175 U. S. 40, 20 Sup. Ct. 20. See, also, Milbank v. New York, &c. R. Co. 64 How. Pr. (N. Y.) 20; Central R. Co. V. Pennsylvania R. Co. 31 N. J. Eq. 475, 494; Great Northern R. Co. V. Eastern Counties R. Co. 21 553 PUBLIC POLICY — ^LOCATION' OF STATIONS AND TRACKS. [§ 386, § 386. Contracts against public policy — ^Location of stations and tracks. — True principle requires, as it seems to us, that contracts for the location of depots and stations should be held illegal where they are made for the advancement of mere private interest, and are prejudicial to the public interest. Where, however, there is contra- vention of the public interest, we can see no valid reason for con- demning such a contract. We believe that whether public interests are or are not sacrificed to purely private interests is a question to be de- termined upon the facts of the particular case. The cases which hold that subscriptions upon condition that the road shall be built upon a designated line are valid,^^* as well as cases which uphold municipal aid to railroad companies, cannot be supported if it be conceded that all contracts to locate a road on a designated line, or build stations at a particular place are void. It has been held that contracts requir- ing a railroad company to establish its depot at a certain point are against public policy, and not enforceable.^'*" There is, however, con- L. J. Ch. 837. An insolvent con- struction company contracted to build a railway for a corporation, and received nearly all of the lat- ter's stocks, bonds, and assets as se- curity for its outlay. Without be- ginning the work the construction company transferred all the stock to the persons managing another railway already in operation, among whom were the president and many of its directors, the funds of the lat- ter corporation being used in pur- chasing the stock of the construc- tion company. So that the stock of both the construction company and the projected road was controlled by the same management as the road then in operation, and ran for nearly the same distance, and in the same general direction, as the pro- jected line, which would be a com- petitor. The court held that the evident purpose and effect of the transaction was to violate by indi- rection the section of the Georgia constitution prohibiting the pur- chase of the stock of one corpora- tion by another, and any contract, between them tending to lessen com- petition in their respective busi- nesses or to encourage monopoly,, and that equity would interfere and seize the assets of the insolvent con- struction company, which stood in the position of derelict trustees. Langdon v. Branch, 37 Fed. 449. "°Rhey v. Ebensburg, &c. Co. 27 Pa. St. 261; Evansville, &c. Co. v. Shearer, 10 Ind. 244; Martin v. Pen- sacola, &c. R. Co. 8 Pla. 370; Ashta- bula, &c. R. Co. V. Smith, 15 Ohio St. 328; Taggart v. Western Md. R. Co. 24 Md. 563, '89 Am. Dec. 760; Burlington, &c. R. Co. v. Boestler, 15 Iowa 555; Detroit, &c. Co. v. Starnes, 38 Mich. 698; Spartanburg, &c. R. Co. V. De Graffenreid, 12 Rich. L. (S. C.) 675; Bucksport, &c.. Co. V. Brewer, 67 Me. 295; McMillan V. Maysville, &c. R. Co. 54 Ky. 218, 61 Am. Dec. 179; O'Neal v. King, 3 Jones (N. C.) 517; North Mo. R. Co.. V. Winkler, 29 Mo. 318. ""Pacific R. Co. V. Seely, 45 Mo. 212, 100 Am. Dec. 369; Florida Cent, 386] CONTRACTS. S54, fliet of authority upon this question.^^^ Contracts made to influence the location of the route of a projected road are held to be illegal by some of the courts.^^^ In our opinion, however, a contract to locate a railroad upon a designated line cannot be adjudged void as a matter of law without regard to extrinsic facts. Such a contract may or may not be void, depending upon the facts of the particular case. If the public interests are not prejudiced, and there is no corrupt conduct. R. Co. v. State, 31 Fla. 482, 13 So. 103, 20 L. B. A. 419. 34 Am. St. 30. '"Bestor v. "Wathen, 60 111. 138; Currier v. Concord R. Co. 48 N. H. 321; Williamson v. Chicago, &c. R. Co. 53 Iowa 126, 4 N. W. 870, 36 Am. R. 206; Kansas Pac. R.Co. v. Hop- kins, 18 Kans. 494; Vicksburgh, &c. R. Co. v. Ragsdale, 54 Miss. 200; Missouri Pac. R. Co. v. Tygard, 84 Mo. 263, 54 Am. R. 97; Texas, &c. R.- Co. V. Robards, 60 Tex. 545, 48 Am. R. 268; Cedar Rapids, &c. R. Co. V. SpafCord, 41 Iowa 292; Louis- ville, &c. R. Co. V. Sumner, 106 Ind. 55, 5 N. E. 404, 55 Am. R. 719; Marsh v. Fairbury, &c. Co. 64 111. 414, 16 Am. R. 564; International, &c. Co. V. Dawson, 62 Tex. 260; Chapman v. Mad River, &c. R. Co. 6 Ohio St. 119. A provision in such a contract that another depot should not be established within certain limits is illegal and void. St. Joseph, &c. R. Co. v. Ryan, 11 Kans. 602, 15 Am. R. 357; Wil- liamson V. Chicago, &c. R. Co. 53 Iowa 126, 4 N. W. 870, 36 Am. R. 206; St. Louis, &c. R. Co. v. Mathers, 104 111. 257; St. Louis, &c. R. Co. v. Mathers, 71 111. 592, 22 Am. R. 122. See, also. Mobile, &c. R. Co. v. Peo- ple, 132 111. 559, 24 N. E. 643. 22 Am. St. 556. "''Woodstock Iron Co. v. Rich- mond, &c. Co. 129 U. S. 643, 9 Sup. Ct. 402. In announcing the opinion of the court in the case cited, Mr. Justice Field said: "The business of the extension company was one in which the public was interested. Railroads are for many purposes public highways. They are con- structed for the convenience of the public in the transportation of per- sons and property. In their con- struction, without unnecessary length between designated points, in their having proper accommoda- tions, and in their charges for trans- portation, the public is directly in- terested. * * * j^ii arrange- ments, therefore, by which directors or stockholders or other persons may acquire gain by inducing cor- porations to disregard their duties to the public, are illegal and lead to unfair dealing, and, this being against public policy, will not be en- forced by the courts. In this case, the extension company, to which the duty of locating and construct- ing the railroad between its termini was intrusted, in agreeing, for a consideration offered by a third party, to disregard that duty, and locate and construct the road by a longer route than was required, not only committed a wrong upon the railroad company by imposing un- necessary burdens upon it, to meet which larger charges for transporta- tion might be called for, but also a wrong upon the public." Fuller v. Dame, 18 Pick. (Mass.) 472; Bestor V. Wathen, 60 111. 138; St. Louis, &c. R. Co. V. Mathers, 71 111. 592, 22 Am. R. 122; HoUaday v. Patterson, 5 Oreg. 177. 555 PUBLIC POLICY — LOCATION OF STATIONS AND TRACKS. [§ 386 such, contracts are not illegal, but if the public interests are sacrificed, the charter violated, or corrupt influences exerted, the contract should be adjudged illegal. A stipulation in a contract that no side track shall be built by the railroad company in a certain town is sufiBcient to render the entire contract illegal and void.^*^ '^Pueblo, &c. B. Co. v. Rudd, 5 Colo. 270; Pueblo, &c. R. Co. v. Tay- lor, 6 Colo. 2. In this case the court said: "Railroad companies are held to be quasi public corporations and agencies, their directors, acting in the double capacity as agents for the company and trustees for the public, clothed -with an important public trust. These roads subserve public purposes to such an extent that the public may impose upon it- self the burden of taxation to aid in their construction (St. Joseph & Denver City R. Co, v. Ryan, 11 Kans. 602, 15 Am. R. 357), and the lawful exercise of the rights of em- inent domain in the taking of pri- vate property for the purpose of their construction is put solely upon the ground of public use. When, therefore, the public interests are brought in conflict with the private interests of the company, or of pri- vate individuals with whom such companies deal, such private inter- ests must yield to those of the pub- lic. It logically follows that the public has a right to say that such companies shall not be permitted to make any contract which would prevent them from accommodating the public, where entitled to it in the matter of transportation and travel. In the case of the St. Jo- seph, &c. R. Co. V. Ryan, 11 Kans. 602, 15 Am. R. 357, which arose up- on a contract containing a stipula- tion that the railroad company would not have or use any other depot within three miles of the de- pot agreed to be established by the contract, the court says: 'Railroads are public agencies and perform a public duty. They are agencies, created by the- public, with certain privileges, and subject to certain obligations. A contract that they will not discharge, or by which they cannot discharge those obligations, is a breach of that public duty, and cannot be enforced. They are un- der obligations to employ skillful and competent engineers and other competent employes to superintend and take care of the running of their trains. A contract that they will not employ such agents and servants is certainly void. They are bound to furnish reasonable fa- cilities for the transportation of freight and passengers, both as to number and quality of cars and coaches, and the number of trains, and a contract not to furnish such facilities will not be tolerated. * * * Upon the same principle it is the duty of a railroad company to fur- nish reasonable depot facilities. The number and location of the depots, so as to constitute reasonable depot facilities, vary with the changes and amount of population and business. A contract to leave a certain dis- tance along the line of the road des- titute of depots is a contravention of this duty.' In addition to the foregoing, the same doctrine is laid down in the following, among other cases: Marsh v. Fairbury and Northwestern R. Co. 64 111. 414, 16 Am. R. 564; St Louis, Jacksonville and Chicago R. Co. v. Mathers, 71 111. 592, 22 Am. R. 122; Pacific R. §' 387] CONTEACTS. 556 § 387. Contracts void as against public policy — General conclu- sions. — It may be laid down as a general rule that any contract by ■whicii the rights of the public are infringed is void as against public policy ; but the decisions as to what are public rights and what is the public policy upon which those rights are founded, depend so much upon the peculiar circumstances of each case that it is not an easy matter to state a general rule that will justly govern any given con- tract.^** A contract which on its face assumes to bind the parties to an act hostile to the -public interest may, doubtless, be adjudged, void as a matter of law. But it cannot be justly said that every con- tract providing for the construction of a railroad upon a given line, or for the building of a station at a particular place is opposed to the interests of the public. It may well be that such a contract will promote and not prejudice the public welfare. So, too, it may be true that such a contract in no manner violates the provisions of the corporate char- ter, but on the contrary, justly aids in carrying those provisions into effect. In such cases, or in cases of a similar character, there is no valid reason for adjudging the contract void. We believe that a con- tract providing for the location of a station at a given place should be regarded with something akin to suspicion and that it should be care- fully scrutinized, but we do not think that it should be regarded as illegal per se without looking to attendant circumstances or regarding Co. T. Seely, 45 Mo. 212, 100 Am. to the doctrine of this section, ante, Dec. 369; Fuller v. Dame, 18 Pick. § 362. (Mass.) 472; Holladay' v. Patterson, >"In proof of this statement of 5 Oreg. 177. Upon hoth principle the text we refer to the conflict of and authority, we think it beyond authority as to whether a railroad serious question that the condition company may make a valid contract in this contract, whereby it was with a telegraph company to allow sought to prevent a neighboring no other telegraph company to con- town through which the railroad struct a line along its road. The passed from having the facilities of following authorities hold that, un- even a side track, and to prevent der the circumstances of those cases, the railroad company from the ex- it may. Western Union Tel. Co. v. ercise of discretion In providing Atlantic, &c. Tel. Co. 7 Biss. (U. S.) such facilities for the public, is ille- 367; Western Union Tel. Co. v. Chi- gal and void, by reason of its clear cago, &c. R. Co. 86 111. 246, 29 Am. contravention of the public inter- R. 28. The case of Western Union ests, and the duty of such company Tel. Co. v. Burlington, &c. R. Co. 3 in their relations to the public." McCrary (U. S.) 130, holds that it See, also, Chicago, &c. R. Co. v. may not. See Atlantic, &c. Tel. Co. Southern Ind. R. Co. (Ind. App.) v. Union Pac. R. Co. 1 McCrary (U. 70 N. E. 843, and see, generally, as S.) 541. 557 PUBLIC POLICY — GENERAL CON-OLUSIONS. [§ SS? extrinsic evidence.^*' As we liave substantially said, such a contract may be regarded as per se illegal where a corrupt purpose is disclosed by its terms, or where it appears from its provisions that public inter- est's will be unduly prejudiced, but we do not believe that such a contract is under all circumstances to be regarded as illegal. We know that the general rule is that the validity of a contract is to be determined not by considering whether it does injury in the particular case, but whether it is such as might be injurious.^'® But we do not believe that the rule applies to all contracts belonging to the class of which we are speaking, for such contracts are not always opposed to the public interests. The cases which hold that officers cannot contract for their own benefit to secure a particular location are not in point, for they rest upon a different principle ; nor are the cases which hold that a contract to pay a person a sum of money to secure the location at a particular place, since such cases are different from those in which there is a direct and open agreement with the railroad com- pany/*^ Where a party under a contract to build a railroad enters into an agreement to deviate from the line fixed, it is entirely just to ad- judge such an agreement void, but such an agreement is essentially different from one openly and directly made with the railroad com- pany.^*^ The doctrine we have ventured to advocate is, perhaps, op- posed by the weight of authority, if regard be had only to the number of the cases, but there are well-reasoned cases which give our views full support.^ . 189 ^^Ante, § 362. ^^The agreement held void in ""Holladay v. Patterson, 5 Oreg. Woodstock, &c. Iron Co. v. Rich- 177, 180; Oscanyan v. Arms Co. 103 mend, &c. Co. 129 U. S. 643, 9 Sup. U. S. 261, 274; Providence Tool Co. Ct. 402, was between a construction V. Norris, 2 Wall. (U. S.) 48, 56; company and a land-owner, so that Elkhart County Lodge v. Crary, 98 the decision cannot be regarded as Ind. 238, 49 Am. R. 746. opposing the statements of the text. "' The case of Fuller v. Dame, 18 "» Louisville R. Co. v. Sumner, 106 Pick. .(Mass.) 472, was that of a Ind. 55, 5 N. B. 404, 55 Am. R. 719; person agreeing for a designated Swartout v. Michigan, &c. R. Co. sum to secure the location at a par- 24 Mich. 389; Williamson v. Chi- ticular place, and is not, when just- cago, &c. R. Co. 53 Iowa 126, 4 N. ly interpreted, against the doctrine W. 870, 36 Am. R. 206; First Na- of the text. It seems to us that tional Bank v. Hendrie, 49 Iowa some of the courts have given an 402, 31 Am. R. 153 ; Taylor v. Cedar effect to the case cited far beyond Rapids, &c. R. Co. 25 Iowa 371; Har- that< which can be fairly assigned ris v. Roberts, 12 Neb. 631, 12 N. W. it. A doctrine has been deduced 89, 41 Am. R. 779; McClure v. Mo. from it which it does not declare. River R. Co. 9 Kans. 373. 338] OOITTEACTS. 558 I 338. Contracts void as against public policy — ^Ulustrative cases. — A contract by which a railway corporation undertakes to convey to a telegraph company such exclusive rights in that portion of its right of way not occupied by its track as to prevent the erection of a com- peting line thereon is invalid.^"" An agreement, which, by its terms,. >•» Pacific Postal Tel. Co. v. West- ern Union Tel. Co. 50 Fed. 493, 50 Am. & Eng. R. Cas. 665; Western Un. Tel. Co. v. American Un. Tel. Co. 65 Ga. 160, 38 Am. R. 781; Union Trust Co. v. Atchison, &c. R. Co. 8 N. Mex. 327, 43 Pac. 701; West- ern Un. Tel. Co. v. Burlington, &c. R. Co. 3 McCrary (U. S.) 130, 11 Fed. 1. The first case cited was a proceeding by a bill in equity for an injunction to prevent the Western Union Telegraph Company from constructing and operating a tele- graph line on the right of way of the Seattle, Lake Shore and Eastern Railway Company between certain stations. The plaintifE based its claims upon a contract entered into by the defendant's grantor, which provided as follows: "The railway company hereby grants right of way for said line of telegraph along the route of its road, and upon its grounds, * * * and the railway company hereby agrees that it will not grant right of way along its road for the construction of the line of any other telegraph company." Judge Hanford said: "The argu- ment is that the contract is a con- veyance, and that it vests in the complainant the exclusive right to the entire strip of land for tele- graph purposes during the term specified, which right amounts to an interest in the land, and is a legal estate. * * * jf the con- tract, in explicit terms, granted such an interest in the premises as the plaintiff claims, I should have to hold it to be ultra vires and void, for the reason that the laws of the territory of Washington, in force when it was made, did not author- ize a railway corporation to transfer land acquired for railroad purposes, by lease, so as to divest itself of its duties and obligations to the public as to the use of such property. * * * Telegraph lines are to serve the pub- lic, and wherever they are connect- ed with a railroad as incidental to the railway business, the rights of the public respecting the same must be governed by the principles appli- cable to other branches of the serv- ice; and the public policy which un- derlies the numerous decisions of the courts of this country denying the right of a railway corporation to divest itself of responsibility and invest another with its powers and functions, touches directly the ques- tion in this case as to the right of one corporation to transfer to an- other an exclusive right for tele- graph purposes to the occupancy and control of property acquired as a necessary means of serving the public. A contract made by a rail- way company, whereby it attempts to create a monopoly in the use of its property for the transmission of news and intelligence, is just as in- valid as a contract would be where- by a railway corporation should attempt to confer upon one individ- ual or corporation an exclusive right to have any particular com- modity transported as freight over Its railway. Whether this contract be regarded as an intended convey- ance of an interest in the property, 559 PUBLIC POLICY — ILLUSTRATION'S. [§ 338 gives the exclusive right to a railway corporation in or through a cer- tain tract of land, 'in so far as it attempts to exclude other railway corporations from acquiring a right of way over the same tract, upon land not appropriated or required for its use by the company, is against public policy and void.^°^ A contract by which a corpora- tion, chartered to perform certain duties to the public, agrees that it will not perform those duties at all for a term of years, is void.^*^ A stipulation in a contract by which a railroad common carrier seeks to or as a covenant affecting the title to the right of way, or as a contract creating simply a personal liability, it is not such a contract as a court of equity can uphold or decree to be specifically performed; and at least as against the defendant the West- ern Union Telegraph Company, it is void, except in so far as it con- fers upon the plaintiff the right to maintain unmolested its telegraph line and conduct its business with- out interruption." It has been laid down as a general rule that con- tracts, the object of which is to se- cure to the obligee a monopoly or an exclusive use for public purposes of land held by other corporations or by a private owner if subject to the right of eminent domain, are void. See American Rapid Tel. Co. V. Connecticut Telephone Co. 49 Conn. 352, 44 Am. R. 237; Western Union Tel. Co. v. Am. Tel. Co. 19 Am. L. Reg. (N. S.) 173; Western Union Tel. Co. v. Atlantic, &c. Tel. Co. 5 Nev. 102; Western Union Tel. Co. V. American Tel. &c. Co. 65 Ga. 160, 38 Am. R. 781; Skrainka v. Scharringhausen, 8 Mo. App. 522; Pensacola Tel. Co. v. Western Union Tel. Co. 96 U. S. 1; Western Union Tel. Co. V. St. Joseph, &c. R. Co. 1 McCrary (U. S.) 565; Western Union Tel. Co. v. Burlington, &c. R. Co. 3 McCrary (U. S.) 130; West- ern Union Tel. Co. v. American U. Tel. Co. 9 Biss. (U. S.) 72; Western Union Tel. Co. v. Baltimore, &c. Tel. Co. 22 Fed. 133; Western Union Tel. Co. V. Baltimore, &c. Tel. Co. 23 Fed. 12. In Fort Worth St. R. Co. v. Queen City R. Co. 71 Tex. 165, 9 S. W. 94, the court in construing a contract by which a railroad com- pany owning a tract of land upon which its depot is located under- takes to give to a horse railway company an exclusive right to build its road to the depot over the land, held that such a contract is not a monopoly, but an easement granted by the owner of the fee, and can be taken for public use only by due process of law, but that the rights of the company cannot be divested by any act of the original grantors. "'Kettle River R. Co. v. Eastern R. Co. 41 Minn. 461, 4 N. W. 469, 6 L. R. A. 111. *" Central Trans. Co. v. Pullman's Palace Car Co. 139 U. S. 24, 11 Sup. Ct. 478; Gibbs v. Consolidated Gas Co. 130 U. S. 396, 408, 8 Sup. Ct. 553; Oregon Steam Nav. Co. v. Winsor, 20 Wall. (U. S.) 64. This principle ap- plies to all cases where the corpora- tion assumes to contract that it will not perform the duties imposed upon it, no matter what the form of the contract may be, but it finds, per- haps, its most frequent illustration and application in cases where cor- porations assume to transfer their property by way of lease. See Leases, Chapter XVIII. §' 338] CONTRACTS. 560 protect itself from liability for the negligence of itself or its servants will not be enforced by the courts.^"^ And a contract by which a com- mon carrier undertakes to carry for one person or corporation to the exclusion of all others,^"* or to carry for them on more favorable terms than are accorded others, thereby fostering a monopoly and de- stroying the business of those less favored^"" is contrary to public pol- icy and void.^** »s Railroad Company v. Lockwood, 17 "Wall. (U. S.) 357. This topic is considered in treating of liability of employer to employe. "* New England Express Co. v. Maine Central R. Co. 57 Me. 188; Sandford v. Railroad Co. 24 Pa. St. 378, 64 Am. Dec. 667; Dinsmore v. Louisville, &c. R. Co. 2 Plippln (U. S.) 672; Southern Express Co. v. Memphis, &c. R. Co. 2 McCrary (TJ. S.) 570, holding that a discrimina- tion against an express company is •unlawful. "= Scoiield v. Railway Co. 43 Ohio St. 571, 3 N. E. 907, 54 Am. R. 846; Messenger v. Pennsylvania R. Co. 37 N. J. L. 531, 36 N. J. L. 407; Stewart v. Lehigh Valley R. Co. 38 N. J. L. 505. See, also, note in 74 Am. St. 250; Hays v. Pennsylvania Co. 12 Fed. 309 ; State v. Cincinnati, &c. R. Co. 47 Ohio St. 130, 7 L. R. A. 319, and compare Scofleld v. Lake Shore, &c. R. Co. 43 Ohio St. 571, 54 Am. R. 846; Kansas Pac. R. Co. v. Bayles, 19 Colo. 348, 35 Pac. 744. Ev- ery common carrier must carry for all to the extent of his capacity, without undue or unreasonable dis- crimination either in charges or fa- cilities. Atchison, &c. R. Co. v. Den- ver, &c. R. Co. 110 U. S. 667, 674, 4 Sup. Ct. 185. ""But it is held that a common carrier which charges no more than a reasonable sum for carrying may charge one person more than it does another. Munhall v. Pennsylvania R. Co. 92 Pa. St. 150; Johnson v. Pensacola, &c. R. Co. 16 Fla. 623, 667; Fitchburg R. Co. v. Gage, 12 Gray (Mass.) 393; Houston, &c. R. Co. V. Rust, 58 Tex. 98. See, also, Manchester, &c. R. Co. v. Concord R. Co. 66 N. H. 100, 20 Atl. 383, 9 L. R. A. 689, 49 Am. St. 582. The granting of a rebate contrary to the provisions of the interstate com- merce law does not render the bill of lading void, so that no action can be maintained against the carrier for loss of the goods by negligence. Merchants' Cotton Press, &c. Co. v. Ins. Co. of North America, 151 U. S. 368, 14 Sup. Ct. 367. CHAPTER XVII. EBAL ESTATE. Sec. 389. What railroad property is real estate. 390. Statutory authority requisite. 391. Power to acquire real estate — Implied power — Generally. 392. Implied power to acquire — General rule. 393. Implied power — Illustrative instances. 394. Power to acquire real estate — Instances of denial of power. 395. Title to real estate is in the company. 396. Title once vested not divested because property subse- quently becomes unneces- sary. 397. Effect of conveyance to corpo- ration of land it has no power to hold. 398. Right of foreign corporation to hold real estate. 399. The power to acquire by grant broader than the power to acquire by condemnation. 400. Acquisition of the fee by pri- vate grant. 401. Acquisition of title by adverse possession. 402. Possession of land — To what right referred. 403. Rights of company where land is owned in fee. 404. Effect of conveyance of prop- erty the company is not au- thorized to acquire. 405. Questioning the right to hold real estate. Sec. 406. 407. 408. 409. 410. 411. 412. 413. 414. 415. 415. 417. 418. 419. 420. 421. 422. Enjoining purchase of real estate where no power to re- ceive and hold. Executory contract of pur- chase not enforceable where there is no power to hold the land. Estoppel of parties to deeds to deny corporate existence. Deed to company not in ex- istence. Formal execution of convey- ances and agreements relat- ing to real estate. Contracts under corporate seal — Effect as evidence. Acceptance of deed. Distinction between a donation of lands and a sale. Deeds of company — ^By whom executed. Construction of deeds to rail- road companies — Generally. Deeds to railroad companies — Construction of conditions. Grants — Beneficial — Presump- tion of acceptance. Incidents pass with principal thing granted. Effect of designating in the deed the purpose for which the land is granted. Covenants that run with the land. Merger of preliminary agree- ment in deed. Bonds for conveyance— Spe- cific performance. Ell. Railhoads — 3 561 389] EEAL ESTATE. 56» Sec. 423. 424. 425. Presumption that there is power to hold the land. Power to convey real estate. Dedication of land for use as a highway. Sec. 426. Disposition of property corpo- ration has no power to re- ceive and hold — Escheat. § 389. What railroad property is real estate. — There is no con- trariety of opinion as to the nature of land and "annexed permanent immovable structures," for that kind of property is so clearly real estate that there is no room for doubt as to its character.^ The question of difficulty most often encountered is as to the nature of what is com- monly called "rolling stock," that is, locomotives, cars and the like. These things are essential to the operation of a railroad and it is dif- ficult to conceive the existence of a railroad without incorporating in the conception locomotives and cars. Locomotives and cars are not, to borrow a term from logic, accidents, but inseparable incidents. There is reason supporting the cases which adjudge that the rolling stock is personal property, but, on the other hand, there is reason sup- porting the cases which adjudge it to be real estate. The weight of authority is that where the statute does not otherwise provide, rolling stock is personal property and not real estate,^ but upon this question 'Palmer v. Forbes, 23 111. 301; Hunt V. Bullock, 23 111. 320. See Front, &c. Co. v. Johnson, 2 Wash. 112, 25 Pac. 1084, 11 L. R. A. 693; St. Louis, &c. Co. V. Donahue, 3 Mo. App. 559, Appendix; Mcllvain v. Hestonville, &c. R. Co. 5 Phila. (Pa.) 13; Neilson v. Iowa, &c. R. Co. 51 Iowa 184, 1 N. W. 434, 33 Am. R. 124; Northern Pac. R. Co. v. Car- land, 5 Mont. 146, 3 Pac. 134; Joy v. St. Louis, 138 U. S. 1^ 11 Sup. Ct^ 243; note In 66 L. R. A. 33 et seq. Iron rails laid on roadbed are held to be real estate unless made per- sonal property by agreement. Hunt v. Bay State, &c. Co. 9T Mass. 279. Stat- utes frequently provide that such things shall be deemed real estate. Union Trust Co. v. Weber, 96 111. 346; Quincy R. Bridge Co. v. Adams County, 88 111. 615; Neary v. Phila- delphia, &c. R. Co. 7 Houst. (Del.) 419, 9 Atl. 405. Or, on the other hand, personal property for the pur- pose of taxation or the like. Mis- souri, &c. R. Co. T. Labette County, 9 Kans. App. 545, 59 Pac. 383; Rich- mond V. Richmond, &c. R. Co. 21 Gratt. (Va.) 604; note in 66 L. R. A. 35. And it is held that property which may be regarded either as a fixture ordinarily constituting part of the real estate or as personalty may be considered as the one or the other according to the agreement of the parties. Webster Lumber Co. v. Keystone, &c. Co. 51 W. Va. 545, 42 S. E. 632, 66 L. R. A. 33. See, also, upon the general subject, Western, '&c. R. Co. T. Deal, 90 N. Car. 110. ''Judge Minor is very decided in his opinion that rolling stock is per- sonal property. He says: "As the 563 WHAT RAILROAD PROPERTY IS REAL ESTATE. [§ SS9 there is a direct conflict. Whether rolling stock is or is not real estate often depends in a great measure upon the statute. Where the question is not influenced by statute the weight of authority is that it is personal property,* but there has been much diversity of opinion.* The right of way of a railroad company is real estate/ or at least an easement or interest in land rather than personal property. rolling stock is not attached to the realty it seems to he an extraordi- nary anomaly to treat it as consti- tuting a part thereof, merely be- cause the road cannot be operated without it. With equal reason a cart, a plough, a mule, a wheelbar- row or a spade might be deemed part of a farm, inasmuch as a farm cannot be operated without such ap- pliances." Minor's Inst, (top) 609. The conclusion of the justly respect- ed and able author is sustained by the weight of authority, but, with sincere deference, we venture to say that the fact that the things he men- tions are not attached to the land is not sufficient to characterize them as personal property. The character of property is by no means always de- termined by the answer to the ques- tion whether it is or is not attached to the land. As shown in the argu- ment of Mr. Carpenter, elsewhere quoted from, many things are re- garded as real estate although not permanently annexed to the land. Farrar v. Stackpole, 6 Greenl. (Me.) 154, 19 Am. Dec. 201; Rogers v. Gilinger, 30 Pa. St. 185, 72 Am. Dec. 694; Colegrave v. Dias Santos, 2 B. & C. 76; Siford's Case, 11 Coke 46; House V. House, 10 Paige Oh. 158; Gile V. Stevens> 13 Gray (Mass.) 146, 7 Am. Dec. 132; Rogers v. Cox, 96 Ind. 157, 49 Am. Dec. 152, and cases cited. 'Ante, § 31; Randall v. Elwell, 52 N. Y. 521, 11 Am. R. 747; Hoyle v. Plattsburg, &c. R. Co. 54 N. Y. 314, 13 Am. R. 595; Stevens v. Buffalo, &c. R. Co. 31 Barb. (N. Y.) 590; ■Williamson v. New Jersey, &c. R. Co. 29 N. J. Eq. 311; Chicago, &c. Co. V. Ft. Howard, 21 Wis. 44, 91 Am. Dec. 458. See, generally, Beardsiey v. Ontario Bank, 31 Barb. (N. Y.) 619; State Treas. v. Somer- ville, &c. R. Co. 28 N. J. L. 21; Bos- ton, &c. R. Co. V. Gllmore, 37 N. H. 410, 72 Am. Dee. S36; Coe v. Colum- bus, &c. R. Co. 10 Ohio St. 372, 75 Am. Dec. 518; Neilson v. Iowa, &c. R. Co. 51 Iowa 184, 1 N. W. 434, 33 Am. R. 124; Meyer v. Johnston, 53 Ala. 237, 353; Grand Trunk, &c. R. Co. V. Eastern Township Bank, 10 Lower Canada Jur. 11; Louisville, &c. R. Co. V. State, 25 Ind. 177, 87 Am. Dec. 358. 'Phillips V. Winslow, 18 B. Monr. (Ky.) 431; Minnesota Co. v. St. Paul Co. 2 Wall. (U. S.) 644; Farm- ers', &c. Co. V. Hendrickson, 25 Barb. (N. Y.) 484; Palmer v. Forbes, 23 111. 301; State v. Northern, &c. R. Co. 18 Md. 193; Railroad Co. v. James, 6 Wall. (U. S.). 750; Pen- nock V. Coe, 23 How. (U. S.) 117; Farmers', &c. v. St. Joseph, &c. R. Co. 3 Dill. (U. S.) 412; Morrill v. Noyes, 56 Me. 458, 96 Am. Dec. 486; Titus V. Mabee, 25 111. 257; Farmers', &c. Co. V. Commercial Bank, 11 Wis. 207; Scott V. Clinton, &c. R. Co. 6 Biss. (U. S.) 529. "President, &c. v. Sipe, 11 Ind. 67; Timmons v. Switzer,- 11 Ind. 363 ; Vaughn v. Dayton, 12 Ind. 561; New Albany, &c. R. Co. t. Huff, 19 Ind. § 390] REAL ESTATE. 564 § 390. Statutory authority requisite. — ^The rule is well established that a railroad corporation cannot acquire and hold lands for any pur- poses except such as are authorized by statute.* The authority must be conferred by legislation or it does not exist. It is, however, not necessary that the authority should be expressly conferred. It may be implied. § 391. Power to acquire real estate — ^Implied power — Generally. — The rule as generally expressed is that a railroad company has the implied power to acquire and hold such real estate as is reasonably necessary to enable it to perform its corporate duties and exercise its corporate functions. Where there is no statute specifically defining the power of the company to hold real estate, the question is to be solved by ascertaining what is reasonably necessary to enable it to accom- plish the purpose for which it was organized. The object for which the corporation was created is, of course, to be determined from the statute authorizing its existence. This object being ascertained, then it follows that such incidental powers as are reasonably necessary to enable the corporation to accomplish the object for which it was created vest in it by necessary implication. Analogous cases adjudge that the power of a corporation is not confined to authority to do that which is absolutely or indispensably essential to the performance of the acts and duties specified in the statute from which it derives its powers,^ but extends to such things as are reasonably and fairly neces- sary. The law, however, has always jealously regarded the power of corporations to hold real estate and the courts are reluctant to enlarge the power by implication. It has been again and again affirmed that there is serious danger to be apprehended from corporate acquisition of land, and that the power should be carefully limited.* It is, there- 444; Louisville, &c. R. Co. v. Boney, v. Williams, 15 Ohio 26; Pacific R. 117 Ind. 501, 20 N. B. 432, 3 L. R. A. Co. v. Seely, 45 Mo. 212, 100 Am. 435; Atlantic, &c. R. Co. v. Leseur, 2 Dec. 369; Waldo v. Chicago, &c. R. Ariz. 428, 19 Pac. 157, 1 L. R. A. Co. 14 Wis. 575; Hldridge v. Smith. 244; Northern Pac. R. Co. v. Car- 34 Vt. 484; Eastern Counties R. Co. land, 5 Mont. 146, 3 Pac. 134; ante, v. Hawkes, 5 H. L. Cas. 331. § 5. 'Smith V. Nashua, &c. R. Co. 27 « Coleman V. San Rafael Turnpike N. H. 86, 94, 59 Am. Dec. 864; Co. 49 Cal. 517; Taber v. Cincinnati, Brown v. Winnisimmet Co. 11 Al- &c. R. Co. 15 Ind. 459; New York, len (Mass.) 326; Buffett v. Troy, &c. R. Co. V. Kip, 46 N. Y. 546, 7 &c. R. Co. 40 N. Y. 168, 36 Barb. (N. Am. R. 385; Case v. Kelly, 133 U. Y.) 420. S. 21, 10 Sup. Ct. 216; Overmyer » The statutes enacted by the Brtt- 565 IMPLIED POWER TO ACQDIEE — GENERAL EDIE. ,[§• 393- fore, true that the cases relating to implied powers where ordinary business contracts or acts performed in conducting ordinary corporate afEairs are involved can hardly be taken as safe guides for the govern- ment of cases where the question is as to the power of a railroad com- pany to acquire and hold real estate.* § 392. Implied power to acquire — General rule. — The general rule that a corporation has the right to take and hold real estate reasonably necessary to the purpose of its creation is asserted by many of the courts. There is no substantial diversity of opinion.^" This is implied as an incident of the principal power granted.^^ But as corporate grants are always strictly construed, the right to acquire and hold real estate cannot be extended by liberal construction.^'' If it appears from the express provisions of the statute that to deny the power to hold real estate would defeat the object for which the corporation was created, then, in the absence of countervailing provisions, the power to ish. parliament and by the legisla- tures of some of the American states evidence the opposition to the policy of allowing corporations to become owners of real estate. Angell Pri- vate Corp. § 177. The public grant of land by the United States and by the states to railroad companies is a departure from the ancient policy of the law. » In Case v. Kelly, 133 U. S. 21, 10 Sup. Ct. 216, it was held that a rail- road company could only receive and hold lands for the defined purposes of the road. See, also. Pacific R. Co. V. Seely, 45 Mo. 212, 100 Am. Deo. 369. "Asheville Division, fie. v. Aston, 92 N. C. 578; Ossipee, &c. Co. v. Can- ney, 54 N. H. 295; Callaway, &c. Co. V. Clark, 32 Mo. 305; Page v. Heine- berg, 40 Vt. 81, 94 Am. Dec. 378; State V. Madison, 7 Wis. 68S; Old Colony, &c. R. Co. v. Evans, 72 Mass. 25, 66 Am. Dec. 394; 2 Kent's Comm. 227; 1 Bl. Comm. 475, 478; Mdra- wetz Priv. Corp. § 327. " The question as to the right to hold real estate is, as is well known, a question between the sovereign and the corporation. The title which the corporation obtains even where it has no authority to own the land is a peculiar one. It does, it seems, acquire a title, but, of course, not a complete one. It is held that "a corporation might pur- chase and take title to the real estate, its title, however, like that of an alien being defeasible at the pleasure of the commonwealth." Leazure v. Hillegas, 7 Sergt. & R. (Pa.) 313; Goundie v. Northampton Water Co. 7 Pa. St. 233; Hickory Farm, &c. Co. v. Buffalo, &c. R. Co. 32 Fed. 22; Runyan v. Coster, 14 Pet. (U. S.) 122; Hamsher v. Ham- sher, 132 111. 273, 23 N. E. 1123, 8 L. R. A. 556. "'Eversfield v. Mid-Sussex, &c. R. Co. 1 Giff. 153, 3 DeG. & J. 286; Dodd V. Salisbury, &c. R. Co. 1 Giff. 158, 5 Juris. (N. S.) 782; Bostock T. North Staffordshire, &c. R. Co. 5 DeG. & S. 584, 4 El. & b'. 798; Browne & Theobald's R. Law 96. § 393J EEAL ESTATE. ms" hold real estate will be implied. In the case of a railroad corporation the implied power is broad enough to authorize the acquisition of land for any structures that are reasonably necessary for the proper con- struction and operation of the road.^* §393. Implied power — Illustrative instances.^A railroad com- pany may acquire land for the erection of engine houses and shops for the repair of cars and engines used on the road.^* It may buy and hold property for docks and warehouses reasonably necessary for the storage of property entrusted to it for carriage.^** It may buy land for freight and passenger depots and the necessary approaches there- to/' for the building of turnouts and side tracks to accommodate the business of the company.^' It may acquire land in order to procure materials for the economical construction of the road.^^ It has been " Chicago, &c. R. Co. v. Wilson, 17 111. 123; Low V. Galena, &c. R. Co. 18 111. 324; New York, &c. R. Co.. In re, 46 N. Y. 546, 7 Am. R. 385; Bangor, &c. R. Co. v. Smith, 47 Me. 34. "Southern Pac. R. Co. v. Ray- mond, 53 Cal. 223; Hannibal, &c. R. Co. V. Muder, 49 Mo. 165; State v. Mansfield, 23 N. J. L. 510, 57 Am. Dec. 409; Virginia, &c. R. Co. v. El- liott, 5 Nev. 358. »» 1 Morawetz Private Corp. § 268. >" Mansfield, &c. R. Co. v. Clark, 23 Mich. 519; Protzman v. Indianapolis, &c. R. Co. 9 Ind. 467, 68 Am. Dec. 650; Graham v. Connersville, &c. R. Co. 36 Ind. 463, 10 Am. R. 56; Nash- ville, &c. R. Co. V. Cowardin, 11 Humph. (Tenn.) 348; Reed v. Louis- ville Bridge Co. 8 Bush (Ky.) 69; South Carolina, &c. R. Co. v. Blake, 9 Rich. L. (S. C.) 228; Hamilton v. Annapolis, &c. R. Co. 1 Md. 553; Cumberland Valley R. Co. v. McLan- ahan, 59 Pa. St. 23; New York Cent. &c. R. Co., In re, 77 N. Y. 248; Giesy V. Cincinnati, &c. R. Co. 4 Ohio St. 308; Hannibal, &c. R. Co. v. Muder, 49 Mo. 165; Weir v. St. Paul, &c. R. Co. 18 Minn. 155. A railroad com- pany may use the land acquired by it for a right of way in any manner which contributes to the safe and efllcient operation of the road, and does not interfere with the rights of adjacent property, and the erec- tion of a freight depot and other structures thereon is not a misuser. Elyton Land Co. v. South & North Ala. R. Co. 95 Ala. 631, 10 So. 270. We cite some cases where the land was acquired by condemnation, since they serve to show the general scope of the term corporate purposes. " Protzman v. Indianapolis, &e. R. Co. 9 Ind. 467; Cleveland, &c. R. Co. V. Speer, 56 Pa. St. 325, 94 Am. Dec. 84; Toledo, &c. R. Co. V. Daniels, 16 Ohio St. 390. i^Overmyer v. Williams, 15 Ohio 26. See, also, Georgia Pac. R. Co. v. Wilks, 86 Ala. 478, 6 So. 34; Mallett V. Simpson, 94 N. Car. 37, 55 Am. R. 594. But see New York, &c. R. Co. v. Gunnison, 1 Hun (N. Y.) 496. See, in general. New York, &c. R. Co. V. Kip, 46 N. Y. 546, 7 Am. R. 385; McClure v. Missouri River. R. Co. 9 Kans. 373; Lake Shore, &c. R. Co. V. Cincinnati, &c. R. Co., 30 Ohio St. 604; Land v. Coffman, 50 Mo. ■5Q7 INSTANCES OF DENIAL OF POWER TO ACQUIEE EEAL ESTATE. [§ 394 held that it may buy land in order to furnish gravel to persons who are to transport it over the company's road, thereby adding to its reve- nues. ^° It may acquire land for the purpose of erecting thereon a din- ner house for its employes.'"' It may provide offices for the transaction of its business, although such offices are located in a foreign state, and it has been held that it may buy mines under some circumstances.^^ § 394. Power to acquire real eatate — ^Instances of denial of power. — We have called attention to the fact that the power to acquire prop- erty by purchase is broader than the power to acquire it by the virtue ■of the right of eminent domain,^ ^ and it is obvious that cases bearing on the power to acquire by condemnation cannot be accepted as safe guides where the question is as to the power to obtain land by pur- chase. But those cases do serve to mark the general nature of the power, so that it is proper to cite them in this connection, as we are here discussing the general power to acquire land. It is held that a 243; Blunt v. "Walker, 11 Wis. 334, •78 Am. Dec. 709. "Old Colony, &c. R. Co. v. Evans, 72 Mass. 25, 66 Am. Dec. 394. , It has been suggested that a railway com- pany may supply a chapel or theater for the benefit of its workmen. East Anglian H. Co. v. Eastern Counties R. Co. 11 C. B. 775. There is rea- sson, in our judgment, for holding that railway companies may, within reasonable limits, provide for the comfort and welfare of their em- jiloyes. ™ Gudger v. Richmond, &c. R. Co. 106 N. C. 481, 11 S. E. 515; Texas, .&c. R. Co. V. Robards, 60 Tex. 545, 48 Am. R. 268; United States, &c. Co. V. Wabash, &c. R. Co. 32 Fed. 480. See, also, Abraham v. Oregon, &c. R. Co. 37 Oreg. 495, 60 Pac. 899, 64 L. R. A. 391, 82 Am. St. 779; Jacksonville, &c. R. Co. v. Hoofer, 160 U. S. 514, 16 Sup. Ct. 379; Mil- waukee, &c. R. Co. V. Board, 29 Wis. 116; Chicago, &c. R. Co. v. Board, 48 Wis. 666, 5 N. W. 3. '^ Lyde v. Eastern, &c. R. Co. 36 Beav. 10, 17. See Attorney-Gen. v. Great Northern, &c. R. Co. 6 Jurist N. S. 1006. See, generally, Attorney- Gen. V. Great Eastern, &c. R. Co. L. R. 11 Ch. D. 449, 505; Holmes v. Eastern Counties, &c. R. Co. 3 K. & J. 675; Flanagan v. Great Western, &c. R. Co. 7 Eq. 116; Shrewsbury, &c. R. Co. V. Stour Valley, &c. R. Co. 2 De G. M. & G. 866; East, &c. Docks R. Co. V. Dawes, 11 Hare 363; Cother V. Midland R. Co. 2 Phill. 469; Moses V. Boston, &c. R. Co. 24 N. H. 71, 55 Am. Dec. 222; Smith v. Nashua, &c. R. Co. 27 N. H. 86, 95, 59 Am. Dec 364; Western Union, &c. Co. v. Rich, 19 Kans. 517, 27 Am. R. 159; New York, &c. R. Co. v. Kip, 46 N. Y. 546, 7 Am. R. 385. "' The rights acquired by purchase are regarded as more complete than those acquired by condemnation. Thus where a railroad company acquires land upon which to build its road by purchase of the fee, it is not bound, in its dealings with such land, by restrictions upon its au- thority to use its "right of way." Calcasieu Lumber Co. v. Harris, 77 Tex. 18, 13 S. W. 453. § 395] EEAL ESTATE, 668 railroad company cannot acquire land by condemnation for the con- struction of a temporary track while the main track is building,^^ but it seems to us that the doctrine of the cases cited goes too far. We think that where a temporary track is essential to the proper con- struction of the main line or to its operation, it is competent for the company to acquire land for that purpose. It has been held not com- petent for a railroad company to condemn land for the erection of dwellings for the workmen employed by it.^* It is clear that a railroad company has no implied power to acquire lands by eminent domain or otherwise for speculative purposes, or to prevent competition, or to aid in collateral enterprises remotely connected with the road.^° §' 395. Title to real estate is in the company. — Title to real estate acquired by a railroad company vests in the company and not in its stockholders. The stockholders have an interest in corporate property, which interest is represented by their shares of capital stock, but they are not the owners of the real estate of the company. The corporation while composed of its shareholders is a distinct legal entity having an individuality of its own.^* It is of itself a person although it is the creature of statute. We do not mean to say that the term "corpo- rations" always includes natural persons, but so far as the ownership of property is concerned a corporation such as a railroad company is a, person. Conveyances of corporate real estate must be executed by the company,^^ and, ordinarily, actions for injuries to its property must be prosecuted by the corporate entity. There are cases where, upon the wrongful refusal of the corporation to act, equity will interfere for " Currier v. Marietta, &c. R. Co. 6 Am. R. 397 ; McClure v. Missouri, 11 Ohio St. 228; Gray v. Liverpool, &c. R. Co. 9 Kans. 373; Pacific R. Co. &c. R. Co. 9 Beav. 391. v. Seeley, 45 Mo. 212, 100 Am. Dec. =* Nashville, &c. R. Co. v. Coward- 369. in, 11 Humph. (Tenn.) 348; El- =»Regina v. Arnaud, 16 L. J. Q. B. drldge v. Smith, 34 Vt. 484; State 50; Rand v. Hubbell, 115 Mass. 461, V. Mansfield, 23 N. J. L. 510, 57 15 Am. R. 121. Am. Dec. 409. But see ante, § 393, ="Ante, § 237. There are cases of note 20. a very peculiar nature in which "" Rensselaer, &c. R. Co. v. Davis, equity will enforce a conveyance 43 N. Y. 137; Iron R. Co. v. Irontori, made by individual stockholders, 19 Ohio St. 299 ; Vermont, &c. R. Co. but they are exceedingly rare. Amer- V.- Vermont Cent. R. Co. 34 Vt. 1; ican, &c. Co. v. Taylor, &c. Co. 46 New York, &c. R. Co. v. Kip, 46 N. Fed. 152; Society, &c. v. Abbott, 2 Y. 546, 7 Am. R. 385; Baltimore, &c. Beav. 559. R. Co. V. Union R. Co. 35 irfd. 224, 569 DIVESTITURE OF TITLE — DNNEOESSAET PROPEKTY. [§' 396 the protection of the stockholders, but these cases form exceptions to the general rule. ■ § 396. Title once vested not divested because property subse- quently becomes unnecessary. — Where property at the time of its ac- quisition is reasonably necessary for the legitimate corporate pur- poses the fact that the necessity subsequently ceases does not always make the holding wrongful nor divest the title. The question of the right to hold property acquired by a railroad company must, as a rule, be determined by the situation and condition at the time of its ac- quisition, and complete title once acquired is not taken away by future events. There is no wrong in holding real estate where a complete title is rightfully obtained, although changes wrought by, subsequent action, taken under authority of law, may have the effect to render the property not necessary to the attainment of corporate objects or the exercise of corporate functions. But the general doctrine stated does not ordinarily apply where the property is acquired by virtue of the right of eminent domain and the fee is not taken. If, however, the law authorizes the taking of the fee and a fee is taken, it is not di- vested by the fact that it has ceased to be necessary to the accomplish- ment of corporate objects.^^ If an absolute title vests, no matter how acquired, the company, it is obvious, secures an indefeasible estate. § 397. Effect of conveyance to corporation of land it has no power to hold. — ^A conveyance to a corporation of land it has no power to hold is voidable at the suit of the state, but it is not void.^" Such a convey- ance is so far effective that it vests in the corporation a title which will empower it to convey the land, provided the conveyance is made '^ Page V. Heineberg, 40 Vt. 81, 94 assailed by a direct proceeding insti- Am. Dec. 378. See, however, as to tuted for that purpose." See, to the reversion where right of way is only same effect. National Bank v. Whit- an easement. McLemore v. Mem- ney, 103 U. S. 99; Swope v. LeflSng- phis, '&c. R. Co. (Tenn.) 69 S. W. well, 105 TJ. S. 3; Reynolds v. Craw- 338; Missouri Pac. R. Co. v. Brad- fordsvllle, &c. Bank, 112 U. S. 405, bury, 106 Mo. App. 450, 79 S. W. 966. 5 Sup. Ct. 213; Smith v. Sheeley, 12 =»In National Bank v. Matthews, Wall. (U. S.) 358, 361; Myers v. 98 U. S. 621, 627, it was said: Croft, 13 Wall. (U. S.) 291; Portier "Where a corporation is incompetent v. New Orleans, &c. Bank, 112 U. S. by its charter to take a title to real 439, 5 Sup. Ct. 234; Long v. Georgia estate a conveyance to It is not void, Pac. R. Co. 91 Ala. 519, 8 So. 706, 24 but voidable, and the sovereign Am. St. 931. alone can object. It is valid until § 398] REAL ESTATE. 570 prior to a judgment against it in a proceeding by the state. The au- thorities declare the title acquired by the corporation to be similar to that obtained by an alien in a jurisdiction where aliens are forbidden to hold land.'" § 398. Right of foreign corporation to hold real estate. — It was adjudged in an early case by the Supreme Court of the United States that a corporation of one state cannot be the owner of land in another state without the assent of the state in which the land lies.^^ But while it is true that the state in which the land is situated may deny the right to a foreign corporation to hold land within the state limits, the corporation may hold such lands, if it has power from the state that created it,^^ unless the right is denied by the state in which the land is situated.'^ In one of the cases it is held that in favor of a grantee a foreign corporation will be presumed to have power to hold real estate under the laws of the state by which it was incorporated.^* The state in which the land lies may impose such limitations and re- strictions upon the right of a foreign corporation to acquire and hold '"Fritts V. Palmer, 132 U. S. 282, 10 Sup. Ct. 93, citing Cross v. De Valle, 1 Wall. (U. S.) 1, 13; Gov- erneur v. Robertson, 11 Wheat. (U. S.) 332; National Bank v. Matthews, 96 U. S. 621, 628; Phillips v. Moore, 100 U. S. 208. See, also, Leazure v. Hillegas, 7 Sergt. & R. (Pa.) 313; Goundie v. Northampton Water Go. 7 Pa. St. 233; Hickory Farm, &c. Co. V. Buffalo, &c. R. Co. 32 Fed. 22; Hamsher v. Hamsher, 132 111. 273, 23 N. B. 1123, 8 L. R. A. 556; Russell V. Texas, &c. R. Co. 68 Tex. 646, 5 S. W. 686. ='Runyan v. Coster, 14 Pet. (U. S.) 122; Carroll v. East St. Louis, 67 111. 568, 16 Am. R. 632; United States, &c. Co. V. Lee, 73 111. 142, 24 Am. R. 236; Pennsylvania Co. &c. v. Bauerle, 143 111. 459, 33 N. E. 166; Barnes v. Suddard, 117 111. 237; Cowell v. Colo- rado, &c. Co. 100 U. S. 55. '^Diamond, &c. Co. v. Powers, 51 Mich. 145, 16 N. W. 314; Metropoli- tan Bank v. Godfrey, 23 111. 579. See Blair v. Perpetual Ins. Co. 10 Mo. 559, 47 Am. Dec. 129; Ohio, &c. Co. v. Merchants', &c. Co. 30 Tenn. 1, 53 Am. Dec. 742. ''New York, &c. Dock v. Hicks, 5 McLean (U. S.) Ill; Lumbard v. Aldrich, 8 N. H. 31, 28 Am. Dec. 381; Thompson v. Waters, 25 Mich. 214, 12 Am. R. 243; Baltimore, &c. S. Co. V. McCutchen, 13 Pa. St. 13; North- ern Transportation, &c. Co. v. Chi- cago, 7 Biss. (U. S.) 45; Lathrop v. Commercial Bank, 38 Ky. 114, 33 Am. Dec. 481; Alward v. Holmes, 10 Abbott (N. C.) 96; Claremont, &c. V. Royce, 42 Vt. 730; State v. Boston, &c. R. Co. 25 Vt. 433; Lancaster v. Amsterdam, &c. Co. 140 N. Y. 576, 35 N. E. 964, 24 L. R. A. 322; New Hampshire, &c. Co. v. Tilton, 19 Fed. 73; White v. Howard, 46 N. Y. 144. '•Tarpey v. Deseret, &c. Co. 5 Utah 494, 17 Pac. 631. See New Hampshire, &c. Co. v. Tilton, 19 Fed. 73; Realty Co. v. Appolonio, 5 Wash. 437, 32 Pac. 219. 571 ACQUISITION" BY GEANT AND CONDEMNATIOST. [§ 399 land situated within its borders as it deems proper.*' The doctrine of the cases is that an individual cannot successfully assail the right of a foreign corporation to hold lands.*" § 399. The power to acquire property by grant broader than the power to acquire by condemnation. — The authorities with good reason discriminate between the power to acquire property by grant and the power to obtain by the exercise of the right of domain. Statutes con- ferring the authority to condemn property are, as is well known, strictly construed, and their operation is seldom enlarged by implica- tion. Where property is seized by virtue of the eminent domain, it is taken against the owner's will, while in the case of a grant he volun- tarily conveys to the company. Property legitimately connected with the purpose of the corporation may be rightfully acquired, although the connection be remote. It is not essential, in case of purchase, that the property be immediately connected with the corporate purpose ; it is sufficient if it be reasonably necessary to the convenience of the company and those dealing with it. They may acquire land by pur- chase for many purposes that would not be sufficient to warrant the seizure under the right of eminent domain. Eefreshment stands, din- ing places, bookstalls, and like conveniences, may be provided by railroad companies for the use of travelers and, as we believe, em- ployes, and as there is power to provide such things there is also power to acquire land for such purposes. But the power to acquire by purchase does not necessarily imply the power to seize under the right of eminent domain. §' 400. Acquisition of the fee by private grant. — A railroad com- pany may a,cquire a fee in lands by grant, unless forbidden by statute or by some rule of law.*' Where there is authority to receive and hold real estate by private grant, and there is neither an express nor an implied limitation upon the authority, a fee may be taken. But where there is an implied restriction, as is often the case in regard to the right of way, or the like, of a railroad company, the. grant does not ^ Diamond, &c. Co. v. Powers, 51 Hickory Farm Oil Co. v. Buffalo, &c. Mich. 145, 16 N. W. 314. R. Co. 32 Fed. 22. =» Lancaster v. Amsterdam, &c. Co. " Hill v. Western, &c. R. Co. 32 140 N. Y. 576, 24 L. R. A. 322; Bank Vt. 68; State v. Brown, 27 N. J. L. of Toledo V. International Bank, 21 13; Holt v. Somerville, 127 Mass. N. Y. 542; Methodist, &c. Church v. 408. Pickett, 19 N. Y. 482. See, also. § 400] EEAL ESTATE. 573 ordinarily vest a fee in the company, but vests such an estate, usually an easement, as is requisite to efEect the purpose for which the prop- erty is required. Where the grant is of "surplus real estate,"^* as it is often called, that is of real estate not forming part of the railroad or its appendages, a deed effective to vest a fee in a natural person will vest that estate in a railroad company. The acquisition of land for a corporate purpose^ such as the use in constructing and operating a rail- road, conveys the property for the time the company has a right to operate the road, but unless the fee is clearly granted we suppose that the title does not extend beyond that period. It is held that even though the corporation is chartered for a limited period, it may take a conveyance of lands in fee in so far that it can convey the fee to an- other, although for the purposes of enjoyment, its estate must neces- sarily be limited to the term of its corporate existence.^' It has been doubted, however, whether the doctrine of the cases referred to can be sustained.*" It may well be held that where the statute gives a right to renew or extend the term of the corporate existence the grant ex- "'Mulliner v. Midland, &c. R. Co. 11 Ch. Div. 611. See, as to the au- thority to hire out property not needed by the company, Forrest v. Manchester, &c. R. Co. 30 Beav. 40; Brown v. Winnisimmet Co. 11 Allen (Mass.) 326; Hartford F. Ins. Co. V. Chicago, &c. R. Co. 175 U. S. 91, 99, 20 Sup. Ct. 33. ™Nicoll V. New York, &c. R. Co. 12 N. Y. 121; Rives v. Dudley, 3 Jones Bq. (N. C.) 126. See, also, Moijrill V. Wabash, &c. R. Co. 96 Mo. 174, 9 S. W. 657. The charter of the Tonawanda R. Co. (Laws N. Y. 1832, 241) limited its existence to fifty years, and authorized the company to acquire lands by eminent domain "for the use or accommodation of such railroad or its appendages;" and "to appropriate so much of such lands as may he necessary to its own use for the purposes contem- plated by this act." It also con- ferred the "right to construct and during its existence to maintain and continue a railroad." It was held that the use of the land taken was not limited to the fifty years of cor- porate existence, but was to continue as long as it should be devoted to such public purpose; and that, as this company was afterwards con- solidated by legislative act with an- other company, the owners of the fee cannot recover the land at the expiration of the fifty years. Miner V. New York, &c. R. Co. 46 Hun (N. Y.) 612; Davis v. Memphis, &c. R. Co. 87 Ala. 633, 6 So. 140. Since a corporation organized under the general railroad act (2 Rev. St. N. Y. 7th ed. 1569) ceases to exist with- in five years after its articles of as- sociation are filed, unless it begins the construction of its road, a grant to such a corporation ten years after its organization, and before it had constructed any road conveys no title. Greenwood Lake, &c. R. Co. V. New York, &c. R. Co. 55 Hun (N. Y.) 606, 8 N. Y. S. 26. " 1 Redfield Railways, § 265. 573 ACQUISITION" OF TITLE BY ADVBESE POSSESSION-. [§' 401 tends to that time, for the law in force at the time of the execution of the contract enters into it as a silent but important factor ; but where there is an express limit to the term of the corporate existence, there is some reason for questioning whether it can be justly held that the grant extends beyond that period. A grant to a corporation is a grant for the purpose specified in the charter, dnd when the right of the cor- poration to use the property ceases there is at least some reason for saying that the estate terminates.*''^ We are not speaking of "surplus real estate," nor of deeds where there is an express conveyance of an absolute fee, but of cases where from the situation and agreement of the parties it satisfactorily appears that the land was granted for use in constructing and operating the road, and not absolutely and un- conditionally. Where the fee is acquired it may, of course, be trans- ferred, and so may any other estate.*^ But it is to be understood that, as to the conveyance of property essential to enable the company to perform the duties imposed upon it by law, the right to transfer does not exist unless conferred by statute, for, as we have elsewhere shown, a railroad company cannot disable itself from discharging its duty by transferring its property, except in cases where the transfer is author- ized by statute.*^ § 401. Acquisition of title by adverse possession. — There can be no doubt that title to surplus real estate may be acquired by limitation. It may upon the same principle acquire an easement by possession.*' "a See, however, People v. O'Brien, railroad company, with, the consent 111 N. Y. 1, 18 N. E. 692, 2 L. R. A. of a land-owner, staked off a strip 255, 7 Am. St. 684; Detroit Citizens' of ground as a right of way, and en- St. R. Co. V. Detroit, 64 Fed. 634, 26 tered thereon and occupied so much L. R. A. 673 ; Detroit v. Detroit Citi- thereof as was needed for the con- zens' St. R. Co. 184 U. S. 368, 22 Sup. struction of its road, and remained Ct. 410; Brown v. Schleier, 118 Fed. in possession thereof under claim of 984. title to the entire strip, exercising " New Jersey, &c. R. Co. v. Van over it such acts of ownership as the Syckle, 37 N. J. L. 496; Pollard v. nature of the property permitted for Maddox, 28 Ala. 321; Harrison v. twenty years, the railroad company Lexington, &c. R. Co. 9 B. Mon. acquired a title to the entire strip (Ky.) 470. laid off. Hargis v. Kansas City, &c. "2 The subject of acquisition of the R. Co. 100 Mo. 210, 13 S. W. 680. right of way by purchase is dis- See, also, Florida Southern R. Co. cussed in the chapter entitled "Pur- v. Lorlng, 51 Fed. 932; Texas, &c. R. chase of right of way." Co. v. Scott, 77 Fed. 726; Newcastle '^ Sherlock v. Louisville, &c. R. Co. v. Lake Brie, &c. R. Co. 155 Ind. 18, 115 Ind. 22, 17 N. E. 171. Where a 57 N. E. 516; Waggoner v. Wabash § 401] EEAL ESTATE. 574c We suppose that where the possession consists in the use of the lands as a right of way an easement and not the fee would be acquired.** The general rule is that where an easement is claimed by user the easement can be no broader than the use. The extent of the easement in such a case is to be determined by the actual use and possession. Upon the general principle stated it is held that adverse use of rail- road tracks for more than twenty years is not shown if it appears that the particular tracks, the use of which constituted a nuisance, had been laid a much shorter time than that, although other tracks had been used a longer time.*" The quantity of land taken under a grant is determined from the terms of the deed or from the attendant cir- cumstances and not simply from actual user. Thus it is held in Pennsylvania that a railroad company authorized to take for its right of way a strip not exceeding sixty feet in width is, in the absence of any designation of its boundaries, presumed to have taken the full sixty feet, though the road be located in a street less than sixty feet wide, and the company in the construction of its road does not take actual possession of the land outside of the street.** But where the R. Co. 185 111. 154, 56 N. B. 1050; Fortune v. Qhesapeake, &c. R. Co. (Ky.) 58 S. W. 711. " Organ v. Memphis, &c. R. Co. 51 Ark. 235, 11 S. "W. 96, 39 Am. & Bng. R. Cas. 75. Text quoted in La Crosse V. Cameron, 80 Fed. 264, 275. See, also. Consumers' Gas T. Co. v. Amer- ican Plate Glass Co. 162 Ind. 393, 68 N. E. 1020; Peoria, &c. R. Co. v. At- tica, &c. R. Co. 154 Ind. 218, 56 N. E. 210. In Texas, &c. R. Co. v. Wilson, 83 Texas 153, 18 S. W. 325, 51 Am. & Eng. R. Cas. 364, it was held that if the company was a mere trespasser it could not acquire title. The court cited Hays v. Texas, &c. R. Co. 62 Texas 397. But see Texas, &c. R. Co. V. Gaines (Tex. Civ. App.), 27 S. W. 266. As to what acts are sufficient to constitute possession, see Emery v. Raleigh, &c. R. Co. 102 N. C. 209, 9 S. E. 139, 11 Am. St. 727, 37 Am. & Bng. R. Cas. 253. See, generally, American Bank Note Co. v. New York, &c. R. Co. 50 Am. & Eng. R. Cas. 292; Erie, &c. R. Co. v. Rous- seau, 17 Ont. App. 483, 46 Am. & Eng. R. Cas. 539; Chicago, &c. R. Co. V. Gait, 133 111. 657, 23 N. E. 425, 44 Am. & Eng. R. Cas. 43. *> Thompson v. Pennsylvania R. Co. 14 Atl. 897, on appeal, Pennsyl- vania R. Co. V. Thompson, 45 N. J. Eq. 870, 19 Atl. 622. " Jones V. Erie, &c. R. Co. 144 Pa. St. 629. In Indiana it has been held that the court will , presume, from the fact that a railroad appropriated a right of way under the general railroad law, that it took the full width (100 feet) which that law au- thorized it to take. Campbell v. Indianapolis, &c. R. Co. 110 Ind. 490, 11 N. B. 482. And the same is true where the land was taken posses- sion of under a special charter. In- dianapolis, &c. R. Co. V. Rayl, 69 Ind. 424; Prather v. Western Union Tel. Co. 89 Ind. 501. To the same effect see Duck River Valley, &c. R. Co. V. Cochrane, 3 Lea (Tenn.) 478; 575 POSSESSION OF LAKD — TO WHAT EIGHT EBFEEEED. [§ 403 railroad claims under a grant or release of the right of way by a pri- vate landowner, in which the width is not specified, the width of the strip conveyed may be shown by proof of the contemporaneous acts and declarations of the parties.*^ § 402. Possession of land — To what right referred. — ^Where there is a right to take land for a designated purpose and the land is used for that purpose, the possession will be referred to that right.*^ Prom this doctrine, which we regard as well-founded, it follows that a rail- road company, in taking possession of land, will ordinarily take an easement and not the fee, for the reason that the right to take an easement is the right to which possession must be referred. The fee is not aequifed by possession unless the right to which the possession is referable authorizes the acquisition of a fee.** A corporation cannot,, by exceeding its power, enlarge its rights. Day V. Railroad Co. 41 Ohio St. 392. But compare Peoria, &c. R. Co. v. Attica, &c. R. Co. 154 Ind. 218, 56 N. E. 210; Jones v. Erie, &c. R. Co. 169 Pa. St. 333, 32 Atl. 535, 47 Am. St. 916. " Indianapolis, &c. R. Co. v. Reyn- olds, 116 Ind. 356, 19 N. E. 141; In- dianapolis, &c. R. Co. V. Lewis, 119 Ind. 218, 21 N. B. 660. If the grant of a right of way by a private land- owner does not specify the width of the strip granted, the railroad com- pany will only acquire a right to such lg,nd as is actually taken and used. Fort Wayne, &c. R. Co. v. Sherry, 126 Ind. 334, 25 N. E. 898, 10 L. R. A. 48; Vicksburg, &c. R. Co. V. Barrett, 67 Miss. 579, 7 So. 549. "Where a right of way is granted, "with right to use such additional land as may be necessary for the construction and maintenance" of the road, the company is bound only to use ordinary care in constructing its road; and the necessity for tak- ing additional land is to be deter- mined by ordinary care. Gulf, &c. R. Co. V. Richards, 83 Tex. 203, 18 S. W. 611. Staking off the full width permitted by law, with the land- owner's permission, and the subse- quent occupation of so much as the needs of the road required, under claim of title to the whole, gives a railroad company a right of way of the width originally staked off. Har- gis Y,. Kansas City, &c. R. Co. 100 Mo. 210. "Proprietors, &c. v. Nashua, &c, R. Co. 104 Mass. 1, 6 Am. R. 181. "Peirce v. Boston, &c. R. Co. 141 Mass. 481, 6 N. E. 96. In speaking of the use and occupancy of prop- erty, the court said: "The manner in which it shall be used for the designated purposes is in the discre- tion of the corporation and is no concern of the land-owner. Even if the corporation exceeds its franchise in the manner of such occupancy, it does not thereby disseize the owner of the fee. If a railroad corporation fits Its station-house with conven- iences for furnishing lodging and food necessary for the comfort of its passengers, it does not claim the fee of the land, allowing others than passengers to use them. It is not a claim in the fee of the land that it- § 403] EBAL ESTATE. 576 § 403. Rights of company where land is owned in fee. — Where a railroad company becomes the owner of land in fee simple it generally has all the ordinary rights of a natural person, except in so far as those rights are abridged by statutory provisions. The difficulty is to determine when the title of the company is in fee, for, as we have seen, a conveyance which would convey an absolute fee to a natural person does not always convey such an estate to a railroad company, since the situation of the parties and attendant circumstances may exert an important influence, as, for instance, where a deed is made of land for a right of way and the company is not authorized to take a fee, or where the term of the corporate existence is limited to a specified term of years. In all such cases the law is to be considered as an ele- ment of the contract, for the law is always a part of the contract unless excluded by valid stipulations,^" so that a conveyance, although apt words for the creation of a fee, and such as would create a fee if the transaction were between natural persons, are used, will not in- variably vest a fee in the corporation. Some of the courts make a dis- tinction between cases where there is a grant of the fee for a right of way and cases where the right of way is acquired under the eminent domain. Thus in one ease it was held that a statute prohibiting a railroad company from erecting buildings on its right of way did not apply where the right of way was acquired by grant.^^ § 404. Effect of conveyance of property the company is not author- ized to acquire. — As we have seen, a railroad company does acquire a title to land conveyed to it, although the title is a peculiar one. As it acquires a title it possesses something which it may convey in a proper does not distinguish between the does not thereby claim the fee in the public and its passengers in the use land on which it stands." In Con- of the refreshment table, news stand sumers' Gas T. Co. v. American or telegraph office kept there. The Plate Glass Co. 162 Ind. 393, 68 N. B. building is none the less a station- 1020, 1021, the text is cited with ap- house, and the fitting it for use and proval and it is held that a railroad providing conveniences for passen- company which enters and holds gers and the public alike, is an inci- possession without color of title dent of its use for the business of acquires only an easement, the corporation, and, in doing it, ™Foulks v. Falls, 91 Ind. 315, 321; the corporation asserts no right ex- Long v. Straus, 107 Ind. 94, 6 N. E. cept to maintain a station-house and 123, 7 N. B. 763, 57 Am. R. 87. what it deems incidental to that. It " Calcasieu, &c. Co. v. Harris, 77 may exceed its corporate rights in Texas 18, 13 S. W. 453, 43 Am. & the use of the station-house, but it Eng. R. Cases 570. 577 QUESTIONIITG THE EIGHT TO HOLD REAL ESTATE. ;[§' 405 case, so that, in cases where it does convey, the question is as to the title its grantee takes under the deed. The adjudged eases hold, and, with reason, that the conveyance carries to the grantee a full and valid title.^^ The conveyance cannot, it is obvious, have such an effect, how- ever, unless made before the state has assailed the right of the company to hold the land. § 405. Questioning the right to hold real estate. — The rule that the right to hold land can only be questioned by the state is a familiar one.^^ The legislature may, of course, authorize an individual having an interest or suffering an injury to assail the right of a railroad company to hold land. But where there is no legislation modifying the rule the right to hold land can be successfully challenged only by a proceeding in the name of the state in the nature of a quo warranto. The attack must be direct and not collateral. Upon this principle it is held that a party against whom a railroad company s6eks an injunction to restrain interference with land of 'which it is in possession by grant cannot successfully defend upon the ground that the railroad company had no power to acquire the land.°* §' 406. Enjoining purchase of real estate where no power to receive and hold. — The familiar and long-settled rule stated in the preceding section does not preclude a stockholder from enjoining the purchase of property which the company has no power to receive and hold. It is one thing to prevent the expenditure of corporate funds for an un- authorized purpose and quite another to question the right to hold "Walshv. Barton, 24 Ohio St. 28; 44 Cal. 89; Freeland v. Pennsyl- Ragan v. McElroy, 98 Mo. 349, 11 S. vania, &c. Co. 94 Pa. St. 504; Keene W. 735. V. Van Reuth, 48 Md. 184; Denver, ^ Cowell V. Colorado Spring Co. &c. R. Co. v. Denver, &c. Co. 2 Colo. 100 U. S. 55; Jones v. Habersham, 673; Pixley v. Roanoke, &c. Co. 75 107 U. S. 174, 2 Sup. Ct. 336; Fritts Va. 320; North v. State, 107 Ind. V. Palmer, 132 U. S. 282, 10 Sup. Ct. 356, 8 N. E. 159; Cincinnati, &c. R. 93; Mackall v. Chesapeake, &e. Co. Co. v. Danville, &c. R. Co. 75 111. 94 U. S. 308; Fayette Land Co. v. 113; Northeastern Tel. &c. Co. v. Louisville, &c. R. Co. 93 Va. 274, 24 Hepburn (N. J. Ch.), 65 Atl. 747. S. B. 1016; Toledo, &c. R. Co. v. « Kansas City, &c. R. Co. v. Kan- Johnson, 49 Mich. 148, 13 N. W. 492; sas City, &c. Co. 118 Mo. 599, 34 S. Van Wyck v. Knevals, 106 U. S. 360, W. 478. See, also, Russell v. Texas, 1 Sup. Ct. 336. See, generally. Hack- &c. R. Co. 68 Tex. 646, 5 S. W. 686; ensack Water Co. v. De Kay, 36 N. Southern Pac. R. Co. v. Orton, 6 J. Eq. 548; Osborn v. People, 103 111. Sawy. (U. S.) 157. 22i; Truekee, &c. Co. v. Campbell, Ell. RAn:,BOADS — 37 § 407] EEAI, ESTATE. 578 property already acquired by the corporation. There is, therefore, sound reason for discriminating between the two classes of cases. § 407. Executory contract of purchase not enforceable where there is no power to hold the land. — The general principle that an indi- vidual cannot question the power of a corporation to hold real estate except in cases where the statute authorizes it°° does not apply to a case where a corporation seeks to enforce a contract for real estate which it has no power to hold.^" A corporation cannot invoke judicial aid where the purpose of the suit or action is to secure property of which the law does not permit it to become the owner. It would be strange, indeed, if a corporation could obtain a judgment or decree investing it with land which the law commands it not to take, since such a judg- ment or decree would make the court the agent of a party in violating the law. "Better is the condition of the defendant" in such a case. § 408. Estoppel of parties to deeds to deny corporate existence. — The well-known general rule is that a person who contracts with a cor- poration is estopped to deny that it is a corporation, and this rule ap- plies to a grantor who conveys land to a corporation.^^ It may be true that where there is no statute authorizing the organization of a cor- poration of such a general class or nature as that named as grantee there cannot be' an estoppel, but if there can be a corporation of the general class or nature then the grantor will be estopped. In other words, if there can be a de facto corporation the doctrine of estoppel will effectively operate. An estoppel cannot arise where there is a clear and explicit statute governing the subject and its provisions are such as to preclude the operation of an estoppel.^* §' 409. Deed to company not in existence. — The doctrine of many of the cases is that as a deed is a contract there must be two parties, and hence there must be a grantee.^" This doctrine has been applied ^ Martlndale v. Kansas City, &c. v. Michigan, &c. R. Co. 24 Mich. 389. E. Co. 60 Mo. 508. In Winget v. Quincy Building Assn. ""Case v. Kelly, 133 U. S. 21, 10 128 111. 67, 21 N. B. 12, it is held Sup. Ct. 216, 13 Am. & Bug. R. Cas. that there is an estoppel, even if the 70. But see as to selling and recov- statute be unconstitutional, ering price, Natoma Water, &c. Co. v. " Workingmen's Bank v. Converse, Clarkin, 14 Cal. 544; Jones v. Haber- 29 La. Ann. 369. sham, 107 U. S. 174, 2 Sup. Ct. 336. ™ Harriman v. Southam, 16 Ind. "Close V. Glenwood Cemetery, 107 190; Lyles v. Lescher et al. 108 Ind. U. S. 466, 2 Sup. Ct. 267; Swartout 382, 9 N. E. 365; Huss v. Stephens, 579 DEED TO COMPANY NOT IN EXISTENCE. [§ 409 to deeds to corporations not having a legal existence."" There is rea- son for holding that where it appears that there is no statute authoriz- ing the creation of any such corporation as the one named in the deed the grant is inefEective, but where thfere is a statute authorizing the organization of any such corporation, with power to make such a con- tract, it seems to us that the deed cannot be regarded as void or even voidable in all cases. If there is a statute under which such a corpora- tion may exist, the doctrine of estoppel may well be applied in many instances. A deed is valid if the corporation be one de facto. "^ There is some diversity of opinion as to whether a deed executed before the formation of a corporation which is subsequently organized is valid.*^ Our opinion is that such a deed may be valid where the parties all know that a corporation is to be organized, intend that the deed shall be effective when the corporation comes into existence, and the corpo- ration is organized, as all the parties intended it should be.°^ If a 51 Pa. St. 282; Stephens v. Huss, 54 Pa. St. 20; Hall v. Leonard, 1 Pick. (Mass.) 27. See Hogan v. Page, 2 Wall. (TJ. S.) 605; Gage v. Newmar- ket, &c. R. Co. 18 Q. B. 457; Hunter V. Watson, 12 Cal. 363, 73 Am. Dec. 543; Morris v. Stephens, 46 Pa. St. 200; Douthitt v. Stinson, 63 Mo. 268; German, &c. Assn. v. SchoUer, 10 Minn. 331; Russell v. Topping, 5 McLean (U. S.) 194; 3 Washburn Real Prop. (5th ed.) 567. " In Harriman v. Southam, 16 Ind. 190, the court held that a deed to a corporation which had no existence was a nullity and did not estop the grantor, but in Snyder v. Stude- baker, 19 Ind. 462, 81 Am. Dec. 415, the earlier case was overruled and it was held that the grantor was es- topped to deny the existence of the corporation to which the deed was made. See Russell v. Topping, 5 McLean (U. S.) 194; Douthitt v. Stinson, 63 Mo. 268; German, &c. Association v. Scholler, 10 Minn. 331; Jackson v. Cory, 8 Johns. (N. Y.) 385; 3 Elliott Ev. § 1940. The court, in the case of Provost v. Mor- gan, &c. R. Co. 42 La. Ann. 809, 8 So. 584, 46 Am. & Eng. R. Cas. 535, reaches a correct conclusion upon the facts, but we doubt the sound- ness of some of the broad statements contained in the opinion. See 2 Am. Law Reg. & Rev. 296; 2 Morawetz Corp. Chap. IX. «' Myers v. Croft, 13 Wall. (U. S.) 291; Smith v. Sheeley, 12 Wall. (U. S.) 358. As we have elsewhere shown, such a deed does pass title, and as no one but the state can question the right to exercise corpo- rate powers or hold property a deed to a de facto corporation cannot be treated as a nullity. "= Clifton Heights, &c. Co. v. Ran- dell, 82 Iowa 89, 47 N. W. 905; Phila- delphia, &c. Assn. V. Hart, 4 Wheat. (U. S.) 1; Rotch's Wharf Co. v. Judd, 108 Mass. 224. See, also, post, § 933. "'Rathbone v. Tioga, &c. Co. 2 Watts & S. (Pa.) 74. We do not be- lieve, however, that where there is no statute authorizing the organiza- tion of such a corporation as that contemplated a deed would be valid. Subscriptions to a contemplated corporation may be valid and upon §' 410] REAL ESTATE. 580 deed is delivered in escrow to be held until the formation of the pro- posed eorporationj it will be valid if the corporation is formed as contemplated and a delivery made to it after its organization."* § 410. Formal execution of conveyances and agreements relating to real festate. — The ancient and well-known rule is that where the statute prescribes a specific mode for the execution of corporate con- tracts that mode must be substantially pursued/^ but it does not fol- low that in all cases the failure to pursue the prescribed rule will ren- der the contract voidable. Where no specific mode is prescribed the company may contract in the usual mode. Whefe the law requires a seal then the contract, in order to be efEective, should be attested by the seal of the corporation, but even in cases where a seal is required the conveyance may be upheld, although no seal is attached. If its en- forcement be required by the general principles of equity the absence the same principle a deed may be Eames, 40 Vt. 16, 94 Am. Dec. 363; valid. African, &c. Cliurcli v. Conover, 27 "In the case of Spring Garden N. J. Eq. 157; Shed v. Shed, 3 N. H. Bank v. Hulings Lumber Co. 32 W. 432. Va. 357, 9 S. E. 243, 3 L. R. A. 583, ""Beatty v. Marine, &c/ Co. 2 the court conceded the rule to be Johns. (N. Y.) 109, 3 Am. Dec. 401; that if there Is no grantee in esse Salem Bank v. Gloucester Bank, 17 the deed would be inoperative, citing Mass. 1, 9 Am. Dec. Ill ; note to Leg- Hulick v. Scovil, 4 Gilm. (111.) 159; gett v. New Jersey Mfg. Co. (1 Saxt. Harriman v. Southam, 16 Ind. 190, Ch. 541) 23 Am. Dec. 742. The and Russell v. Topping, 5 McLean courts are generally reluctant to ad- (U. S.) 194, but held that a delivery judge a contract ineffective because in escrow made the deed operative, of a defect in the mode of executing In the course of the opinion the it. ' Some of the courts hold that the court quoted from the opinion in rule that contracts must be executed Rotch's "Wharf Co. v. Judd, 108 Mass. in the mode prescribed applies only 224, 228, the following: "The ac- to executory contracts. Pixley v. ceptance of the deed will be pre- Western Pacific, &c. R. Co. 33 Cal. sumed as soon as the plaintiffs (the 183, 91 Am. Dec. 623; Cincinnati v. corporation) were competent to take Cameron, 33 Ohio St. 336; Foulke v. it. Concord Bank v. Bellis, 10 San Diego, &c. R. Co. 51 Cal. 365. Cush. (Mass.)- 276; Bank of U. S. See Rumbough v. Southern, &c. R. V. Dandridge, 12 Wheat. (U. S.) 64, Co. 106 N. C. 461, 11 S. B. 528; Cur- 70." The case of Drury v. Foster, tis v. Piedmont, &c. Co. 109 N. C. 401, 2 Wall. (U. S.) 24, was also cited. 13 S. E. 944. In the absence of stat- in support of the rule that it is the utory restrictions a corporation may duty of the court to uphold rather make every kind of a deed. Angell than destroy deeds the court cited & A. Corp. (11th ed.) § 220. See, Sherwood v. Whiting, 54 Conn. 330, also, note in 23 Am. Dec. 742 et seq. 8 Atl. 80, 1 Am. St. 116; Flagg v. 581 OONTKACTS DNDEE CORPORATE SEAL — ^EFFECT AS EVIDENCE. [§ 411 of a seal will not defeat the title of the grantee. The requirement of the statute of frauds that conveyances of land shall be under seal ap- plies to corporations, and deeds conveying real estate should be under the corporate seal, but while such an unsealed deed does not satisfy the statute there may often be such circumstances connected with the execution as will operate to estop the corporation from alleging its invalidity. A deed defectively executed is voidable, not void, for as the general power to execute deeds exists the act of the corporation in executing it is not ultra vires. A defectively executed deed may be made good by ratification. Where the statute requires conveyances of land to be under seal, corporate deeds must be under the seal of the corporation. °° Where there is an agreement and part perform- ance, although the agreement may not be such as to satisfy the statute of frauds, the grantee may enforce the contract substantially under the same rules as those which govern similar contracts between indi- viduals. An agreement to convey land, although not under the corpo- rate seal, may be enforced where the rules which apply to contracts between natural persons entitle the party to enforce a contract of a similar nature.'^ A distinction is made between an agreement to convey or lease land and the deed or lease, and it is held that although the deed in the one case must be executed under seal an unsealed agreement is effective."* §411. Contracts under corporate seal — ^Effect as evidence. — An agreement evidenced by the corporate seal is prima facie evidence that the instrument was executed by the corporation.''^ Where the seal is affixed to an instrument. which is within the power of the corporation to execute, that is, where there is not an entire absence of power to " Crawford v. Longstreet, 43 N. J. Simpson, 77 Cal. 286, 19 Pac. 426 ; L. 325. A valuable collection of au- Reed v. Bradley, 17 111. 321; Leggett thorities upon the subject of the ef- v. New Jersey, &c. Co. 1 N. J. Eq. feet of the statute upon the execu- 541, 23 Am. Dec. 728; Burrill v. Na- tion of leases will be found in Mr. hant Bank, 2 Mete. (Mass.) 163, 35 Freeman's note to Wallace v. Scog- Am. Dec. 395; Morse v. Beale, 68 gins, 17 Am. St. 752. Iowa 463, 27 N. W. 461; Indianapo- " Banks V. Poitiaux, 3 Rand. (Va.) lis, &c. R. Co. v. Morganstern, 103 136, 15 Am. Dec. 706; Legrand v. 111. 149; Union, &c. Go. v. Bank, 2 Hampden, &c. College, 5 Munf. (Va.) Colo. 226; Boyce v. Montauk, &c. 324. Co. 37 W. Va. 73, 16 S. E. 501; Mis- " Conant v. Bellow's Falls, &c. Co. souri, &c. Works v. Ellison, 30 Mo. 29 Vt. 263. App. 67; Mickey v. Stratton, 5 Saw- ™ Crescent City, &c. R. Co. v. yer (U. S.) 475. § 412] EEAL ESTATE. 582 execute it, the presumption is that it was duly executed by the corpo- ration. But, of course, a seal will not give even prima facie validity to the, instrument where It appears from an inspection of the instru- ment itself that the contract in question is ultra vires in the proper sense of the term. If the person who affixes the seal has no authority to do so the seal will not make the contract effective.'" Where the signatures of the officers are shown to be genuine the authenticity of the seal will be presumed.'^ § 412. Acceptance of deed. — A deed may be accepted by parol.'^ A parol acceptance of a deed binds the grantee' accepting it to a per- formance of the covenants and conditions written in the deed.'^ The statute of frauds cannot be made available to defeat the performance of the agreements which the deed contains. The authorities establish the doctrine that the person for whose benefit the promise is made may enforce it.'* § 413. Distinction between a donation of lands and a sale. — The courts make a distinction between a. donation of land to a railroad com- pany and a sale of land to iU^ The distinction exerts an important influence in many cases. Where property is purchased the estate of the purchasing company is, ordinarily, greater than it is in cases where " In Luse V. Isthmus, &c. R. Co. 6 Tripp v. Bishop, 56 Pa. St. 424; Oreg. 125, 25 Am. R. 506, the presi- Swisshelm v. Swissvale, &c. Co. 95 dent aflBxed the seal to a mortgage Pa. St. 367. So, as elsewhere shown, of one of the company's locomotives, acceptance may often be presumed, and it was held that he had no au- See, also, 1 Elliott Ev. § 108; post, thority to use the seal.. The court § 417. cited Fink v. Canyon, &c. Co. 5 '^ Harlan v. Logansport, &c. R. Co. Greg. 301; Hoyt v. Thompson, 5 N. 133 Ind. 323, 32 N. E. 930; Lake Y. 320; Angell & A. Corp. (11th ed.) Erie, &c. R. Co. v. Priest, 131 Ind. §§ 223, 224. A somewhat similar 413, 31 N. B. 77. ruling was made in Gibson v. Gold- "Lawrence v. Fox, 20 N. Y. 268; thwaite, 7 Ala. 281, 42 Am. Dec. 592. Moore v. Ryder, 65 N. Y. 438; Doug- "Josey V. Wilmington, &c. R. Co. lass v. Wells, 57 How. Pr. (N. Y.) 12 Rich. L. (S. Car.) 134; Phillips 378; Stevens v. Flannagan, 131 Ind. v. Coffee, 17 111. 154, 63, Am. Dec. 122, 30 N. B. 898; Jones Mortgages, 357; Solomon's Lodge v. Montmollln, §§ 763, 764. 58 Ga. 547; Evans v. Lee, 11 Nev. "Roberts v. Northern Pacific, &c. 194; Susquehanna, &c. Co. v. Gen. R. Co. 158 XJ. S. 1, 15 Sup. Ct. 756; Ins. Co. 3 Md. 305, 56 Am. Dec. 740; Northern Pacific R. Co. v. Roberts, Barned's Banking Co., Re, L. R. 3 42 Fed. 734. See, as to donation, Ch. 105. Bravard v. Cincinnati, &c. R. Co. 115 "Smith's Appeal, 69 Pa. St. 474; Ind. 1, 17 N. E. 183. 583 DEEDS OF COMPANY — ^BT WHOM EXECUTED. [§ 414 the land is acquired by condemnation, so the use to which property acquired by purchase may be devoted is often less limited than it is in cases where the acquisition is by virtue of the power of eminent do- main, and so, too, the power to purchase property for a corporate pur- pose is much less fettered than the power to acquire it by proceedings to condemn.^" § 414. Deeds of company — By whom executed. — ^Where the statute expressly designates the officers or agents by whom deeds shall be exe- cuted its provisions should be followed. We do not mean to say that a deed executed by other officers or agents would be void, for deeds executed within the corporate power are not void, although executed by other officers or agents than those designated by statute. Such deeds may be ratified and so, too, they may become practically effective where there are present the requisite elements of an estoppel. A deed executed by officers other than those designated by the statute is not an ultra vires act. Where the power to perform the act exists, the fact that it is not performed by the proper officers is a defective or improper exe- cution of a power, but it is nothing more. There is a clear distinction between the defective execution of a power and an act beyond the scope of the powers of the corporation. A railroad company having power to convey property may, in the absence of statutory provisions, con- vey it by such officers or agents as it may select.^'' There is no con- flict upon the general question, and the doctrine is so well settled that we deem it unnecessary to cite many authorities. § 415. Construction of deeds to railroad companies — Generally. — Deeds, conveying to a railroad company what is called "surplus real estate," that is, real estate not essential to the construction or operation of the road are to be construed by substantially the same rules as those which govern the construction of ordinary private grants, but conveyances granting to the company property essential to the con- struction and operation of the road are, in many respects, so peculiar that the ordinary rules for the construction of deeds do not supply the means of solving questions which arise in cases involving the con- struction and effect of such conveyances. Many deeds convey land for "a right of way," and the extent of the estate conveyed by such a deed is to be determined by ascertaining what constitutes a right of way. "Ante, § 399. "Morris v. Keil, 20 Minn. 531, Ba- son V. King's, &c. Co. 90 N. C. 417. §• 415] REAL ESTATE. BM In an Iowa case the landowner conveyed, by deed of quit claim, "a right of way for all purposes connected with the construction, use or occupation of said railroad," and it was adjudged that the grantee could not take sand from the land for use in the erection of a reund- house, and that the grantor might take sand for any purpose, provided he did not interfere with the legitimate use of the land by the com- pany.^* The decision in the case cited may be supported upon the theory that the words "right of way" are controlling, and are not modi- fied or limited by the words with which they are associated. It cannot be supported upon the theory that the construction of a roundhouse is not a purpose connected with the construction, use and operation of a railroad. Providing a place for sheltering the locomotives used in operating the road is executing a purpose reasonably connected with the construction and use of the road.''^ The rulings in similar cases authorize and support this conclusion.*" The necessity which will authorize a railroad company to receive and hold land need not be an absolute one, nor need it appear that the land is indispensable to the construction or operation of the road, but it* is sufficient if there is a reasonable necessity for taking and holding the land,^^ so that where a conveyance is made granting such property as is necessary for the con- struction and operation of the road, it conveys such property and es- tate as is reasonably necessary for the construction or operation of the road. The term "right of way," it has been held, describes the tenure and not the land granted.*^ We suppose, however, that the term "right ™ Vermilya v. Chicago, &c. R. Co. '^ State v. Hancock, 35 N. J. L. 66 Iowa 606, 24 N. W. 234, 55 Am. 537; State v. Commissioners, &c. 23 R. 279, 23 Am. & Bng. R. Cas. 108. N. J. Law 510, 57 Am. Dec. 409 ; ™ New York, &c. R. Co. v. Kip, 46 Worcester v. Western R. Co. 4 Mete. N. Y. 546, 7 Am. R. 385; Hannibal, (Mass.) 564; Curtis v. Leavitt, 15 &c. R. Co. V. Muder, 49 Mo. 165. N. Y. 9. *» Mallett V. Simpson, 94 N. C. 37, '' Atlantic, &c. R. Co. v. Lesueur 55 Am. R. 594; Lyde v. Eastern, &c. (Ariz.), 19 Pac. 157, 37 Am. & Eng. R. Co. 36 Beav. 10; Grand Trunk R. R. Cas. 368. In the case cited, in Co. V. Richardson, 91 U. S. 454; Old speaking of the argument of counsel. Colony, &c. R. Co. v. Evans, 6 Gray the court used this language: "It is (Mass.) 25, 66 Am. Dec. 394; Cum- said that the term right of way is herland, &c. R. Co. v. McLanahan, used to describe the land granted; 59 Pa. St. 23; Spofford v. Bucksport, that is, that these are words of de- &c. R. Co. 66 Me. 26; Chicago, &c. scription rather than of tenure. We R. Co. V. Wilson, 17 111. 123; Stro- cannot concur with this view, and hecker v. Alabama, &c. R. Co. 42 Ga. no authority can be found which so 509. holds." 685 DEEDS TO EAILEOAD COMPANIES — CONSTRUCTION OE. [§ 416 of way" may sometimes mean the land occupied by the company/^ but ordinarily, perhaps, it cannot be regarded as descriptive of the real estate conveyed. The meaning of the term may be controlled by asso- ciated words and sometimes by the circiimstances under which the deed is executed.^* § 416, Deeds to railroad companies — Construction of — Conditions. — The acceptance of a deed containing conditions imposes upon the company accepting it the duty of performing such covenants and con- ditions.'^ Thus a condition in a deed granting land to a railroad com- pany for a right of way, "providing the same does not interfere with buildings," and providing also that in the event that the right of way shall interfere with buildings the grantee shall pay damages, is bind- ing upon the grantee.*" In one case it was held that where the convey- ance contained a condition requiring the company to construct cattle guards at crossings the grantor might enforce specific performance of the contract or enforce a lien for the expense of constructing proper cattle guards.'^ A condition that the grantee shall fence is operative upon the grantee although there is nothing more than a parol accept- ance of the deed.** The result to which the authorities lead is this : a railroad company cannot be permitted to enjoy the easement and yet refuse to perform the conditions of the contract which created the easement or vested the estate conveyed in the grantee.*^ The condi- '^ See ante, § 5. vendor's lien if the grantee fails to "Reidinger v. Marquette, &c. R. pay the purchase money. See, on Co. 62 Mich. 29, 28 N. W. 775, 14 Am. the general subject, Kansas Pacific & Eng. Corp. Cas. 394; Hall v. Ionia, R. Co. v. Hopkins, 18 Kajis. 494. 38 Mich. 493. »« Midland, &c. R. Co. v. Fisher, ^ Cambridge v. Charlestown, &c. 125 Ind. 19, 24 N. E. 756, 8 L. R. A. R. Co. 7 Mete. (Mass.) 70. See, also, 604, 21 Am. St. 189, 43 Am. & Eng. Harlan v. ' Logansport, &c. R. Co. R. i Cas. 578. See, generally, Louis- 133 Ind. 323, 32 N. E. 930; Louis- ville, &c. R. Co. v. Power, 119 Ind. ville, &e. R. Co. v. Power, 119 Ind. 269, 21 N. E. 751. 269, 21 N. E. 751; Chattanooga, &c. ^Donald v. St. Louis, &c. R. Co. R. Co. v. Davis, 89 Ga. 708, 15 S. E. 52 Iowa 411, 3 N. W. 462; Huston v. 626; Gray v. Chicago, &c. R. Co. 189 Cincinnati, &c. R. Co. 21 Ohio St. 111. 400, 59 N. E. 950. 235; Atlantic Dock Co. v. Leavitt, s^Rathbone v. Tioga, &c. Co. 2 50 Barb. (N Y.) 135; Duffy v. New Watts & S. (Pa.) 74. York, &c. R. Co. 2 Hilton (N. Y.) ''Dayton, &c. R. Co. v. Lewton, 20 496; Cincinnati (Pittsburg), &c. R. Ohio St. 401. In Davies v. St. Louis, Co. v. Bosworth,, 46 Ohio St. 81, 38 &c. R. Co. 56 Iowa 192, 9 N. W. 117, Am. & Eng. R. Cas. 290; Midland, it was held that the grantor has a &c. R. Co. v. Fisher, 125 Ind. 19, 24 § 417] KEAL ESTATE. 686 tion must, of course, be a valid one, for an illegal condition has no effect.^" § 417. Grants — ^Beneficial — Presumption of acceptance. — The gen- eral rule is that where a grant to a railroad company is beneficial no formal acceptance is required, and that in the absence of countervail- ing facts an acceptance of a beneficial grant will be presumed.'^ If the statute requires an acceptance to be evidenced in a prescribed mode there must, as a rule, be an acceptance in the mode prescribed ; in other words, there must be a substantial compliance with the provisions of the statute. The rule is that deeds will be upheld where it can be justly and reasonably done, and presumptions in favor of their efEect- iveness are generally made. § 418. Incidents pass with principal thing granted. — Where there is a grant of a principal thing all the necessary incidents essential to the enjoyment of the principal thing usually pass to the grantee."^ Where there is a grant of land for use by a railroad company in operat- ing its road the grant conveys the right to use the land for that purpose and the grantee cannot recover damages for injuries caused by a rea- sonably careful operation of the road."^ The principle asserted in the N. E. 756, 21 Am. St. 189, 43 Am. & & Eng. R. Cas. 611; Babcock v. West- Eng. R. Cas. 578. See, also, Semple ern, &c. Corp. 9 Metcf. (Mass.) 553, V. Cleveland, &c. R. Co. 172 Pa. St. 43 Am. Dec. 411. See, also, Louis- 369, 33 Atl. 564; Gratz v. Highland ville, &c. R. Co. v. French, 100 Tenn. Scenic R. Co. 165 Mo. 211, 65 S. W. 209, 43 S. W. 771, 66 Am. St. 752. 223; Knoxville, &c. R. Co. v. Beeler, == Chicago, &c. R. Co. v. Smith, 111 90 Tenn. 548, 18 S. W. 391; post. 111. 363, 29 Am. & Eng. R. Cas. 558, § 939 et seq. citing Chicago, &c. R. Co. v. Spring- ™ St. Louis, &c. R. Co. V. Mathers, field, &c. R. Co. 67 111. 142 ; Keiths- 71 111. 592, 22 Am. R. 122; Hammond burg, &c. R. Co. v. Henry, 79 111. V. Port Royal, &c. R. Co. 15 S. Car. 290; Norris v. Vermont, &c. R. Co. 10; Lynn v. Mount Savage, &c. R. 28 Vt. 99. See, also, Chicago, &c. Co. 34 Md. 603; Kettle River, &c. Co. v. Loeb, 118 111. 203, 8 N. E. 460, R. Co. V. Eastern, &c. R. Co. 41 59 Am. R. 341; Lafayette, &c. v. New Minn. 461, 43 N. W. 469, 40 Am. & Albany, &c. Co. 13 Ind. 90, 74 Am. Eng. R. Cas. 449. Dec. 246; Swinney v. Fort Wayne, "Bangor, &c. R. Co. v. Smith, 47 &c. R. Co. 59 Ind. 205; Lafayette. Me. 34; Charles River Bridge v. &c. Co. v. Murdoek, 68 Ind. 137; Warren Bridge, 7 Pick. (Mass.) 344; Indiana, &c. R. Co. v. Allen, 113 Rathbone v. Tioga, &c. R. Co. 2 Ind. 308, 15 N. E. 451, 3 Am. St. Watts & S. (Pa.) 74. 650; White v. Chicago, &c. R. Co. " Reidinger v. Marquette, &c. R. 122 Ind. 317, 23 N. E. 782. Co. 62 Mich. 29, 28 N. W. 775, 29 Am. 68r DESIGNATION OP PUEPOSE IN DEED. [§ 419 cases to whieli we have referred is one of practical importance and leads to material results. It prevents a grantor from successfully as- serting a claim for damages for injuries from noise, smoke and the like, resulting from the proper operation of the road, and it precludes him from successfully prosecuting an action for a nuisance, although annoyance from smoke, noise and similar things necessarily incident to the operation of the road is suffered by him.^* But the grant does not exonerate the company from liability for injury caused by its negligence, nor, it may be said in passing, do the damages assessed in condemnation proceedings cover loss caused by the negligence of the company. § 419. Effect of designating in the deed the purpose for which land is granted. — The designation of the purpose for which the land is granted is sometimes regarded as creating a condition subsequent and as defining and limiting the title of the grantee.®^ The effect of a deed is not, as a rule, to be determined from a single clause, but the whole instrument must be considered. It is to be read by the light of surrounding circumstances,'^ and given such effect as the parties in- tended it should have.'' "Dunsmore v. Central R. Co. 72 Iowa 182, 33 N. W. 456; Randle v. Pacific, &c. R. Co. 65 Mo. 325; Cosby v; Owensboro, &c. R. Co. 10 Bush (Ky.) 288; Struthers v. Dunkirk, &c. R. Co. 87 Pa. St. 282. »'Ottumwa, &c. R. Co. v. McWil- liams, 71 Iowa 164, 32 N. W. 315, 29 Am. & Eng. R. Gas. 544; Robinson V. Missisquoi R. Co. 59 Vt. 426, 10 Atl. 522, 30 Am. & Eng. R. Cas. 299. See, generally, Gadberry v. Shep- pard, 27 Miss. 203; Adams v. Logan Co. 11 111. 336; Harris v. Shaw, 13 111. 456; State v. Brown, 27 N. J. L. 13; Wiggins Ferry Co. v. Ohio, &c. R. Co. 94 III. 83; Morrill v. "Wabash, &c. R. Co. 96 Mo. 174, 9 S. W. 667. " It has been held that a deed for a nominal consideration, to railroad companies, which recites that the conveyance is "for the erection and maintenance thereon of the freight- houses which said companies or ei- ther of them * * * and for such other general railroad purposes as may be necessary" — conveys abso- lute title, and is not conditioned upon the erection of said freight- houses, so as to enable the grantor to have it canceled upon failure to erect them. Noyes v. St. Louis, &c. R. Co. (111.) 21 N. E. 487. "^Louisville, &c. R. Co. v. Koelle, 104 111. 455, 11 Am. & Eng. R. Cas. 301; Koelle v. Knecht, 99 111. 396; Hadden v. Shoutz, 15 111. 582; -Ne- waygo, &c. Co. V. Chicago, &c. R. Co. 64 Mich. 114, 30 N. "W. 910, 29 Am. & Eng. R. Cas. 505. In Lock- wood V. Ohio River R. Co. 103 Fed. 243, it is said that an agreement prepared by the company should be construed most strongly against it in case of ambiguity and doubt. §■ 420] REAL ESTATE. 588 §' 420. Covenants that run with the land. — Many covenants pecu- liar to conTeyances to railroad companies run with the land. If the covenant is a direct and not a collateral one it runs with the land and binds remote grantees."^ The weight of authority is that a covenant to fence runs with the land.°® A parol agreement to maintain a fence does not run with the land.^°" §421. Merger of preliminary agreement in deed. — The general rule is that a preliminary agreement providing for the conveyance of land is merged in the deed.^°^ This rule applies to a contract made- with a railroad company for the conveyance of land.^"^ The rule is a familiar one and is one of great practical importance in cases where the question relates to the grant of a right of way. "'Easter v. Little Miami, &c. R. Co. 14 Ohio St. 48; Kellogg v. Rob- inson, 6 Vt. 276, 27 Am. Dec. 550; Hazlett V. Sinclair, 76 Ind. 488, 40 Am. R. 254, and authorities cited; Hartung v. Witte, 59 "Wis. 285, 18 N. W. 175; Bronson v. Coffin, 108 Mass. 175, 11 Am. R. 335; Burbank v. Pills- bury, 48 N. H. 475; Countryman v. Deck, 13 Abb. N. C. (N. Y.) 105; Cincinnati (Pittsburg), &c. Co. v. Bosworth, 46 Ohio St. 81, 38 Am. & Eng. R. Cas. 290; Blain v. Taylor, 19 Abb. Pr. (N. Y.) 228; Midland, &c. R. Co. V. Fisher, 125 Ind. 19, 24 N. E. 756, 8 L. R. A. 604, 21 Am. St. 180, 43 Am. & Eng. R. Cas. 578; Fresno, &c. Co. v. Rowell, 80 Cal. 114, 22 Pac. 53, 13 Am. St. 112; Scott V. Stetler, 128 Ind 385, 27 N. E. 721. See, generally, as to what covenants do and what do not run with the land. Mo- bile, &e. R. Co. V. Gilmer, 85 Ala. 422, 5 So. 138; Lyford v. North Pac. &c. R. Co. 92 Cal. 93, 28 Pac. 103; Chappell v. New York, &c. R. Co. 62 Conn. 195, 24 Atl. 997; Elizabeth- town, &c. R. Co. V. Wright, 21 Ky. L. 128, 50 S. W. 1105; Hammond v. Port Royal, &c. R. Co. 16 S. Car. 573; post, § 945. ™ Cincinnati (Pittsburg), &c. R. Co. V. Bosworth, 46 Ohio St. 81, 3& Am. & Eng. R. Cas. 290; Midland,. &c. R. Co. V. Fisher, 125 Ind. 19, 24 N. E. 756, 8 L. R. A. 604, 21 Am. St.. 189, 43 Am. & Eng. R. Cas. 578; Countryman v. Deck, 13 Abb. N. C. (N. Y.) 105; post, §§ 945, 1149, 1188. "° Kentucky Central, &c. R. Co. v. Kenney, 10 Ky. L. 251, 8 S. "W. 201, 20 Am. & Eng. R. Cas. 458; Morss V. Boston, &c. R. Co. 2 Cush. (Mass.) 536; Wilder v. Maine Central R. Co. 65 Me. 332, 20 Am. R. 698; Vande- grift V. Delaware, &c. R. Co. 2 Houst. (Del.) 287; Pitkin v. Long Island, &c. R. Co. 2 Barb. Ch. (N. Y.) 221, 47 Am. Dec. 320; Day v. New York Central R. Co. 31 Barb. (N. Y.) 548. Ml Twyford v. Wareup, Cases temp. Finch 310; Bailey v. Snyder, 13 Sergt. & R. (Pa.) 160; Williams v. Morgan, 15 Q. B. 782; Frederick v. Campbell, 13 Sergt. & R. (Pa.) 136; Smith V. Evans, 6 Binney (Pa.) 102, 6 Am. Dec. 436; Houghtaling v. Lewis, 10 Johns. (N. Y.) 297; Hag- gerty v. Fagan, 2 Penrose & W. (Pa.) 533; Phillbrook v. Emswiler, 92 Ind. 590. "^Waldron v. Toledo, &c. R. Co. 55 Mich. 420, 21 N. W. 870, 20 Am. & Eng. R. Cas. 348; Druse v. Wheeler, 22 Mich. 439. 589 BONDS FOK CONVEYANCE — SPEOIFIC PBEFOEMANOE, [§ 423 § 422. Bonds for conveyance — Specific performance. — A railroad company acting within, the scope of its authority may take a bond, often called "a title bond," for the conveyance of land. If the bond is sufficiently specific and certain, presents the necessary equitable ele- ments and the conditions on the part of the company are performed, specific performance will be decreed.^"' The rule which requires con- tracts to be specific and certain will defeat a specific performance where the price is not agreed upon but is left to be fixed by an umpire.^"* If, however, the price has been definitely and finally fixed by the um- pire, specific performance may be deereed.^"^ There must be such »a consideration as the court can justly regard as equitable; but where the contract recites that the agreement to build the road forms part of the consideration, the fact that the land agreed to be conveyed is much more valuable than the price named will not defeat the suit.^"* It has been held that the fact that the road has not been completed within the time limited by the statute will not avail the obligor as a defense for the reason that only the state can make that question,^"^ but the failure may, as it seems to us, be of such a character as to render it inequitable to enforce the contract, and if that be so, then, upon well- established principles, specific performance will not be decreed.^"* ™ Walker v. Eastern, &c. R. Co. 6 See Tillett v. Charing Cross Co. 26 Hare 594; Sanderson v. Cocker- Beav. 419. mouth, &c. R. Co. 11 Beav. 497; ""Brown v. Bellows, 4 Pick. Boston, &c. R. Co. v. Babcock, 3 (Mass.) 179. Cush. (Mass.) 228; Chicago, &e. R. ^'"Ottuniwa, &c. R. Co. v. McWil- Co. V. Swinney, 38 Iowa 182 ; Byers liams, 71 Iowa 164, 32 N. W. 315, 29 T. Denver, &c. R. Co. 13 Colo. 552, Am. & Eng. R. Cas. 544. But fraud 22 Pac. 951. As to what is a suflS- will justify the court in refusing cient description of the land, see Ot- specific performance. Grand Tower, tumwa, &c. R. Co. v. McWilliams, 71 &c. R. Co. v. Walton, 150 111. 428, 37 Iowa 164, 32 N. W. 315, 29 Am. & N. E. 920. Eng. R. Cas. 544, citing Pursley v. ^"Ross v. Chicago, &e. R. Co. 77 Hayes, 22 Iowa 11, 92 Am. Dec. 350; 111. 127. See Atlantic, &c. R. Co. v. Beal V. Blair, 33 Iowa 318; Barlow St. Louis, 66 Mo. 228. V. Chicago, &c. R. Co. 29' Iowa 276; ™Coe v. New Jersey Midland R. Spangler v. Danforth, 65 111. 152; Co. 31 N. J. Eq. 105; Webb v. Direct Telford v. Chicago, &c. R. Co. 172 London, &c. R. Co. 9 Hare 129; 111. 559, 50 N. E. 105; Mead v. Clarke v. Rochester, &e. R. Co. 18 Parker, 115 Mass. 413, ;15 Am. R. Barb. (N. Y.) 350; Gooday v. Col- 110; Hurley v. Brown, 98 Mass. 545, Chester, &c. R. Co. 17 Beav. 132; 96 Am. Dec. 671. See, also, post, Edwards v. Grand Junction, &c. R. §§ 935, 936. Co. 1 Myl. & C. 650 (13 Eng. Ch. ^"Milnes v. Gery, 14 Vesey 400. 559); Hawkes v. Eastern, &c. R. Co. § 423] REAL ESTATE. 690 § 423. Presumption that there is power to hold the land. — Where a corporation is authorized to hold land for certain purposes, a conyey- ance of land to it will be presumed to be for some purpose within the corporate powers, unless the contrary is clearly shown.^"" The pre- sumption cannot obtain where it appears upon the face of the deed and from a reference to the statute that the company had no power to ac- quire and hold the property, but there are very few cases in which the presumption will not be made. § 424. Power to convey real estate. — A railroad company has power to convey lands of which it is the owner, except where some rule of law or some statute prohibits it from conveying its property. It is to be remembered, however, that the rule to which we have often re- ferred, prohibiting a railroad company from disabling itself from per- forming its duties, operates as" a limitation upon the power of disposi- tion. The power of a railroad company is, therefore, not so unfettered as that of a purely private corporation. The right to convey its sur- plus land, that is, land not essential to enable it to perform its cor- porate duties, is substantially the same as that of a strictly private business corporation. A private business corporation has general power to convey,^^" and it follows from what we have said that as to surplus property the power of railroad companies is one of a general nature. § 425. Dedication of land for use as a highway. — A railroad cor- poration may dedicate to public use a highway across lands owned by it and used for its railroad tracks.^^^ Indeed, it is a general rule that 1 DeG., M. & G. 737; Wycombe, &c. Co. 114 Mass. 37; Buell v. Bucking- R. Co. V. Donnington Hospital, L. R. ham, 16 Iowa 284, 85 Am. Dec. 516; 1 Ch. 268. Newark v. Elliott, 5 Ohio St. 113; ™ McCarty v. St. Paul, &c. R. Co. Miners', &c. Co. v. Zellerbach, 37 31 Minn. 278, 17 N. "W. 616; Ohio, Cal. 543, 99 Am. Dec. 300. &c. R. Co. V. McCarthy, 96 U. S. 258; »' Central R. Co. v. Bayonne, 52 Yates V. Van DeBogert, 56 N. Y. N. J. L. 503, 20 Atl. 69; Hast v. 526; Gilmer v. Stone, 120 U. S. 586, 7 Piedmont, &c. R. Co. 52 W. Va. 396, Sup. Ct. 689; Brewer, &c. Co. V. Bod- 44 S. E. 155, 156 (citing text); die, 181 111. 622, 55 N. E. 49. Southern Pac. Co. v. Pomona, 144 "» Patent, &c. Co., In re, L. R. 6 Ch. Cal. 339, 77 Pac. 929 (citing text). 83; Aurora, &c. Co. v. Paddock, 80 See, also, Matthews v. Seaboard Air 111. 263; "White "Water, &c. Co; v. Line R. 67 S. Car. 499, 46 S. E. 335, Vallette, 21 How. (U. S.) 414; Barry 336, 65 L. R. A. 286 (citing text). V. Merchants', &c. Co. 1 Sandf. Ch. In the "West Virginia case above (N. Y.) 280; Dupee v. Boston, &c, cited, however, it is further held 591 PKOPEETY COEPOEATION CANNOT TAKE — ESCHEAT. [§ 426 either public or private corporations may make dedications unless they are forbidden by their charter or the governing statute. ^^^ Thus, where the N'orthern Pacific Eailroad Company made an addition to a^town on a section of land granted to it by, congress, and sold lots with refer- ence to a recorded plat thereof, it was held that a street which was shown on the plat as extending across the railroad track must be re- garded as dedicated to the public use, that this was not ultra vires as an alienation of its right of way so as to interfere with the purpose of the grant made by congress, and that it had no right to block the street by the erection of a depot at that point.^^^ So, where a railroad company for eighteen years permitted the public to use a crossing as a street, parted its trains to let vehicles through, allowed it to be im- proved as a street, and made a map showing the existence of such a street, it was held that a valid dedication was shown and that the com- pany was estopped from denying the existence of the street, especially as persons had bought lots and built houses on both sides of the street upon the faith that it extended across the company's right of way.^^* In another case it was held that the dedication of a portion of its land by a railroad company to the public as a highway was not ultra vires, and that its uninterrupted use as a highway for four years by the public was sufficient to show a complete dedication and acceptance.^^^ § 426. Disposition of property corporation has no power to receive and hold — ^Escheat. — The question as to what disposition shall be made of property purchased by a company which it has no power to receive and hold is an interesting one. Whether the property shall escheat to the state upon judgment in a proceeding by the state assailing the right of the company to hold it, may, of course, be controlled by stat- ute, but if there be no statute then the question is to be determined upon general principles. We suppose that if there is a statute provid- that to bind the corporation beyond 29 Conn. 157; Grand Surrey Canal revocation it must be made by the v. Hall, 1 M. & Gr. 392. The rule directors or be ratified by them or stated in the text-book above re- by such public use for such time ferred to was approved in Lake Erie, and under such circumstances as to &c. R. Co. v. Boswell, 137 Ind. 336, justify the inference of such rati- 36 N. B. 1103. flcation. See, also, Williams v. New "' Northern Pac. R. Co. v. Spo- York, &c. R. Co. 39 Conn. 509. kane, 56 Fed. 915. "^^ Elliott Roads and Streets (2d '^' Lake Erie, &c. R. Co. v. Boswell, ed.), § 146, citing, as to private cor- 137 Ind. 336, 36 N. E. 1103. porations, Williams v. New York, &c. "" People v. Eel River, &c. R. Co. Co. 39 Conn. 509; Green v. Canaan, 98 Cal. 665, 33 Pac. 728. § 426] EBAL ESTATE. 593 ing that it shall escheat to the state, creditors dealing with the corpora- tion, as well as stockholders, must take notice of the statute and must know, as matter of law, that they cannot successfully assert a right to the property. In considering the effect of a dissolution we have dis- cussed the cases bearing upon the question and stated the general doc- trine relating to the disposition of property upon the dissolution of the corporation.^^" In Pennsylvania the question came before the court, and it was held that the property did not escheat to the state but went to the stockholders.^^^ "» Greenwood v. Freight Co. 105 U. S. 13; Owen v. Smith, 31 Barb. (N. Y.) 641; Heath v. Barmore, 50 N. Y. 302; McCoy v. Farmer, 65 Mo. 244. "' Commonwealth v. New York, &c. R. Co. 132 Pa. St. 591, 19 Atl. 291, 7 L. R. A. 634; Commonwealth v. New York, &c. R. Co. 114 Pa. St. 340, 7 Atl. 756. See, also, Sioux, &c. Co. T. Trust Co. 82 Fed. 124; Brown v. Schleler, 118 Fed. 981; Detroit Citi- zens' St. R. V. Detroit, 64 Fed. 628; Keith V. Johnson, 59 S. W. 487; Miner v. New York, &c. R. Co. 123/ N. Y. 242, 25 N. E. 339. See, gen- erally, Heman v. Britton, 88 Mo. 549; St. Louis, &c. Coal Co. v. San- dival, &c. Co. 116 111. 170, 5 N. E. 370; Hightower v. Thornton, 8 Ga. 486, 52 Am. Dec. 412; Asheville, &c. V. Aston, 92 N. C. 578; Burrall v. Bushwick R. Co. 75 N. Y. 211; Wheeler v. Pullman, &c. Co. 143 111. 197, 32 N. E. 420, 17 L. R. A. 818; 3 Purdy's Beach Priv. Corp. § 1327. CHAPTEK XVIII. LEASES. Sec. Sec. 427. Power to lease — Generally. 448. 428. What tlie legislature may pre- scribe. 429. Power to lease not an implied one — Legislative authority requisite. 430. The power to lease — General rule. 431. The foundation of the rule. 432. Power to accept a lease. 433. Statutes asserted to confer power to lease are not aided by construction. 434. Statutes strictly construed — Illustrative instances. 435. Statutes — Construction of. 436. What is included in the au- thority to execute a lease. 437. Scope of authority to lease. 438. Statutes conferring power to lease must be strictly fol- lowed. 439. Consent of stockholders — Stat- utory requirement must be obeyed. 440. Concurrence of stockholders necessary. 441. What number of stockholders must assent to the lease. 442. Consent of stockholders — Waiver of objections. 443. Lease where parties are corpo- rations of different states. 444. Authority to execute lease has no extra-territorial effect. 445. Rights of foreign lessors. 446. Leases to connecting lines. 447. Lease to competing lines — Ef- fect of statutes prohibiting. Eix. Raileoads — 38 593 449. 450. 451. 452. 453. 454. 455. 456. 457. 458. 459. 460. 461. 462. 463. 464. 465. 466. Effect of executing unauthor- ized lease. Lease — Construction. Lease — Dependent and inde- pendent contracts. Contract to permit use of track not necessarily a lease. TraflSc contract not valid if it is in effect a lease. Contracts granting right to use — ^Effect and construc- tion of. Part performance — Effect of. Duration of a lease. Effect of lease on taxation. Public duties of lessee under an unauthorized lease — Man- damus. Authorized lease — Duty of les- see to operate the road — Mandamus. Lessee not liable for wrongs committed prior to the exe- cution of the lease. Effect of a lease upon rights of creditors. Authorized lease — Rights and duties to which lessee com- pany succeeds. Contract obligation of lessor — Lessee not liable thereon. Recovery of rent under unau- thorized lease. Improvements of road by les- see operating under an un- authorized lease. Receiver's power to lease. Unauthorized lease — Liability of lessor— Generally. § 427] LEASES. 594 Sec. Sec. 467. Authorized lease — Liability of 472. Unauthorized lease — Liability lessor for injuries caused by of lessor to employes of les- negligence of lessee — Cases see — Generally. holding lessor liable. 473. Unauthorized lease — Liability 468. Authorized lease — Liability of of lessor — General rule. lessor for negligence of les- '474. Liability of lessee for injuries see in operating the road — resulting from negligence in Authorities. operating the road. 469. Authorized lease — Liability of 475. Contracts of the lessee. lessor for negligence of les- 476. Joint liability. see in operating the road — 477. Liability of company where it Views of the authors. permits another company to 470. Control reserved by lessor. use track in common with 471. Liability of lessee under au- itself. thorized lease — Illustrative 478. Fraudulent leases, cases. 479. Unauthorized lease — Injunc- tion. § 427. Power to lease — Generally. — The legislative power respect- ing the creation of railroad corporations is of such a plenary nature that statutes may be enacted authorizing one company to lease its road, equipments and appurtenances to another company. The whole sub- ject is in the main a legislative one. Where there is no constitutional provision interdicting it the authority to lease may be conferred by a special act, but where the constitution of the state requires that all laws for the organization and government of corporations shall be general and not special or local, the authority to execute a lease of a railroad and its equipments must be conferred by a general law. The authority to lease the road is to be discriminated from the authority to lease property not forming part of the railroad or essential to its oper- ation, for a railroad company authorized to own and hold property not forming part of its line of railroad or essential to the operation there- of, is, as to such property, invested with the rights of an ordinary owner of land, and as such owner may lease or sell it.^ Property form- ing part of the railroad, or essential to its operation, is not held as property is held by ordinary owners, but is held under the grant to the corporation for the purpose of enabling it to perform its corporate duties and functions, and, as the law forbids a railroad corporation from conveying or transferring such of its property as would disable 'See Pierce v. Emery, 32 N. H. Ct. 33; Chicago, &c. E. Co. v. Union 484; Hartford F. Ins. Co. v. Chicago, Pac. R. Co. 47 Fed. 15, 51 Fed. 309. &c. R. Co. 175 U. S. 91, 99, 20 Sup. 595 "WHAT THE LEGISLATUEE MAT PEESCKIBE. [§ 438 it from performing such duties and functions it has no power to trans- fer by way of lease property essential to enable it to perform such functions or duties. §428. What the legislature may prescribe. — Within the limita- tions imposed by the constitution the legislature may prescribe by whom and to whom leases may be executed. The legislative determi- nation, where no constitutional provision is violated, is conclusive. The legislative judgment (when expressed in a valid enactment), as to the parties to whom leases may be made,^ as to the terms and con- ditions of leases, and as to the duties and obligations of parties thereto cannot be reviewed by the courts. If the power, which the legislature assumes to exercise, is vested in it by the organic law, it is master of its own discretion and is the exclusive judge of all questions of ex- pediency or policy. § 429. Power to lease not an implied one — ^Legislative authority requisite. — As the power to lease property essential to the operation of a railroad is not an implied or incidental power, it would seem to neces- sarily follow that it does not exist except by virtue of an effective statute. The rule that a railroad company cannot execute a lease is generally placed upon the ground of public policy, but it is frequently said that in the absence of a statute there is no power to execute a lease. One who asserts that a railroad corporation has power to lease its rail- road or property essential to the operation thereof must show an effect- ive legislative enactment granting the power to lease, otherwise his assertion will be unavailing.' = Where the statute authorized a Y. 27, 36 Am. R. 572; Cox v. Terre lease to another company but gave Haute, &c. R. Co. 133 Fed. 371, 66 C. no express authority to lease to an C. A. 433. Individual It was held that such a 'It seems that there are really lease was neither malum in se nor two grounds upon which the prevail- malum prohibitum, that it was not ing doctrine may be supported, void as contrary to public policy, namely, the rule of public policy, and that, after the individual lessee and the rule that corporate charters had operated the road under the are to be strictly construed and cor- lease, he could not defend against porations possess only such powers an action to recover the stipulated as their charters confer. In St. rent. Woodruff v. Erie R. Co. 93 N. Louis, &c. Co. v. Terre Haute, &c. y. 609. But the decision referred Co. 145 U. S. 393, 12 Sup. Ct. 953, to is of doubtful soundness. See Ab- the court, speaking of the contract bott V. Johnstown, &c. R. Co. 80 N. between the two corporations, said: 430] LEASES 596 § 430. The power to lease — General rule. — Whatever difference of opinion there may be as to the grounds upon which the rule rests, the rule itself is firmly established. That rule, as asserted in very numer- ous cases, is that a railroad corporation cannot, without express legis- lative permission, lease its road, franchises and equipments to another corporation and transfer to its lessee the privilege of operating the road.* It cannot, by way of lease, transfer a corporate franchise or "In short, by this contract one rail- road company undertook to transfer Its whole railroad and equipments and its privileges and franchises to maintain and operate the road to another company for a term of 999 years in consideration of the pay- ment from time to time by the lat- ter to the former of a portion of the gross receipts. This was, in sub- stance and effect, a lease of the rail- road and. franchise for a term of al- most a thousand years, and was a contract which neither of the com- panies had power to enter into un- less expressly authorized by the state which created it, and which, if beyond the scope of the lawful powers of either Corporation was wholly void, could not be ratified or validated by either or both, and would support no action or suit by either against the other." See, also, Chicago, &c. R. Co. v. Hart, 209 111. 414, 70 N. E. 654, 66 L. R. A. 75, 79, citing text. * Thomas v. West Jersey R. Co. 101 U. S. 71 ; Pennsylvania R. Co. v. St. Louis, &c. R. Co. 118 U. S. 290, 6 Sup. Ct. 1094; Oregon R. &c. Co. v. Oregonian, &c. R. Co. 130 U. S. 1, 9 Sup. Ct. 409; Oregon R. &c. Co. v. Oregonian R. Co. 145 U. S. 52, 12 Sup. Ct. 814; Pittsburg, &c. R. Co. v. Allegheny Co. 63 Pa. St. 126; Mid- dlesex R. Co. v. Boston, &c. R. Co. 115 Mass. 347; Board Com'rs Tip- pecanoe Co. V. Lafayette, &c. R. Co. 50 Ind. 85; Memphis, &c. R. Co. v. Grayson, 88 Ala. 572, 7 So. 122, 16 Am. St. 69; Mills v. Central R. Co. 41 N. J. Eq. 1; International, &c. R. Co. V. Underwood, 67 Tex. 589, 4 S. W. 216; Troy, &c. R. Co. v. Boston, &c. R. Co. 86 N. Y. 107; State v. Atchison, &c. R. Co. 24 Neb. 143, 38 N. W. 43, 8 Am. St. 164; Great Northern R. Co. v. Eastern Counties R. Co. 12 Eng. L. & Eq. 224; Fisher V. West Virginia, fie. R. Co. 39 W. Va. 366, 19 S. E. 578, 23 L. R. A. 758; Earle v. Seattle, &c. R. Co. 56 Fed. 909; Ricketts v. Chesapeake, &c. R. Co. 33 W. Va'. 433, 10 S. E. 801, 7 L. R. A. 354, 25 Am. St. 901, 1 Lewis' Am. R. & Corp. 455, 25 Am. St. 901; Frazier v. Bast Tenn. &c. R. Co. 88 Tenn. 138, 12 S. W. 537 ; International, &c. R. Co. v. Eck- ford, 71 Tex. 274, 8 S. W. 679; Grand Tower, &c. Co. v. Ullman, 89 111. 244; Abbott V. Johnstown, &c. R. Co. 80 N. Y. 27, 36 Am. R. 572; People v. Albany, &c. R. Co. 77 N. Y. 232; East Anglian, &c. R. Co. v. Eastern, &c. R. Co. 11 Com. B. 775 ; Pittsburg, &c. R. Co. V. Columbus, &c. R. Co. 8 Biss. (U. S.) 456; Briscoe v. South- ern Kansas, &c. R. Co. 40 Fed. 273; Wabash, &c. R. Co. v. Payton, 106 111. 534, 46 Am. R. 705; Norwich, &c. R. Co. V. Worcester, 147 Mass. 518, 18 N. E. 409; Hamilton v. Savannah, &c. Co. 49 Fed. 412; Harmon v. Co- lumbia, &c. R. Co. 28 S. Car. 401, 5 S. E. 835, 13 Am. St. 686; Memphis, &c. R. Co. V. Grayson, 88 Ala. 572, 7 So. 122, 16 Am. St. 69; Hays v. Ot- 597 THE FOUNDATION OF THE EULE. [§' 431 privilege to another company nor impose upon another its own cor- porate duties except in cases where thd statute so provides.'' § 431. The foundation of the rule. — It seems to us, as we have said, that the rule forbidding a railroad company from leasing its railroad may be rested on two grounds. The rule, however, is usually put upon the ground that publip policy forbids one company from transferring its railroad to another. It is unquestionably true that a railroad cor- poration has no power to relieve itself of the duties and obligations which it owes to the public by a voluntary surrender of its property and franchises.^ A railroad company cannot escape its charter obli- gations by an abandonment of its road, or the like, for that public policy forbids,^ and there is no reason why the same general principle should not apply to transfers by way of lease. § 432. Power to accept a lease. — The principle which imderlies the doctrine that a railroad company cannot lease its railroad without di- rect legislative authority supports the rule that a railroad company tawa, &c. R. Co. 61 111. 422; Stewart & Foltz's Appeal, 56 Pa. St. 413; Nelson v. Vermont, &c. R. Co. 26 Vt. 717, 62 Am. Dec. 614. " Text cited In Chicago, &c.' R. Co. V. Hart, 209 111. 414, 70 N. E. 654, 66 L. R. A. 75, 79; also cited in Georgia R. &c. Co. v. Maddox, 116 Ga. 64, 42 S. E. 315, 317; Georgia R. &c. Co. V. Haas (Ga.), 56 S. B. 313. " Gulf, &o. R. Co. V. Morris, 67 Tex. 692, 4 S. W. 156; International, &c. R. Co. V. Moody, 71 Tex. 614, 9 S. W. 456; Harmon v. Columbia, &c. R. Co. 28 S. Car. 401, 5 S. B. 835,' 13 Am. St. 686; Balsley v. St. Louis, &c. R. Co. 119 111. 68, 8 N. B. 859, 59 Am. R. 784; Palmer v. Utah, &c. R. Co. 2 Idaho 290, 16 Pac. 553, 36 Am. & Eng. R. Cas. 443; Ricketts v. Chesapeake, &c. R. Co. 33 W. Va. 433, 10 S. E. 801, 7 L. R. A. 354, 25 Am. St. 901. The obligation of one of two contracting railroads to ful- fill the duties of its charter by com- pleting the unbuilt part of its road is inconsistent with a contract for a long time — such as twenty years — by which it contracts to deliver all its traffic over that part of its road to another company. Des Moines, &c. R. Co. v. Wabash, &c. R. Co. 135 U. S. 576, 10 Sup. Ct. 736, 43 Am. & Eng. R. Cas. 694. 'The principle to which we refer is illustrated by such cases as State V. Dodge City, &c. R. Co. 53 Kans. 377, 36 Pac. 755, 42 Am. St. 295. 61 Am.'& Eng. R. Cas. 631; Erie, &c. Railroad Co. v. Casey, 26 Pa. St. 287; State v. Sioux City, &c. R. Co. 7 Neb. 357; People v. Louisville, &c. R. Co. 120 111. 48, 10 N. E. 657. See, generally. Railroad Commissioners V. Portland, &c. R. Co. 63 Me. 269, 18 Am. R. 208; Gates v. Railroad, 53 Conn. 333, 5 Atl. 695; Pierce v. Em- ery, 32 N. H. 484; People v. New York, &e. R. Co. 28 Hun (N. Y.) 543. § 433] LEASES. 598 cannot, without legislative authority, taie a grant or lease of the prop- erty and franchises of another company.' The power to accept fran- . chises granted to another company is not an implied or incidental power. Public policy forbids that one company should, without legis- lative sanction, assume the duties imposed by law upon' another cor- poration.* § 433. Statutes asserted to confer power to lease are not aided by construction. — The power to lease is not, as a rule, favored by the courts, at least they are not inclined to adjudge that it exists unless , the statute in clear terms confers it. The power to lease does not exist unless it clearly appears that the legislature intended to confer it upon the corporation. Construction will be strict, not liberal, as against a party who asserts that the corporation has power to lease its railroad and equipments.^" The power to transfer property essential to the ^Oregon R. &c. Co. v. Oregonlan R. Co. 130 U. S. 1, 9 Sup. Ct. 409; St. Louis, &c. R. Co. V. Terre Haute, &c. R. Co. 145 U. S. 393, 12 Sup. Ct. 953; Pennsylvania, &c. R. Co. v. St Louis, &c. R. Co. 118 U. S. 290, 6 Sup. Ct. 1094; State v. Montana R. Co. 21 Mont. 221, 53 Pac. 623, 45 L. R. A. 271. See, also. Central Trans- portation Co. V. Pullman's, &c. Co. 139 U. S. 24, 11 Sup. Ct. 478. We mean by the statement in the text that one corporation cannot take, hy lease, property of another corpora- tion in cases where the property as- sumed to be leased is essential to the performance' of corporate duties by the company which undertakes to execute the lease, but we do not mean that corporate property other than that of the character indicated may not be leased. » In Georgia R. &c. Co. v. Maddox, 116 Ga. 64, 42 S. E. 315, 317, the text is cited with approval and the court says: "To make this lease valid the lessor must have had the power to make the lease, and the lessee the power to accept it, for If the lease was beyond the power of either it was as invalid as if be- yond the power of both." "Oregon R. &c. Co. v. Oregonian R. Co. 130 U. S. 1, 9 Sup. Ct. 409; Thomas v. West Jersey, &c. R. Co. 101 IT. S. 71. In the first case cited the court commented upon the doc- trine that corporate charters are to be strictly construed, referred to the cases Charles River Bridge v. War- ren River Bridge, 11 Pet. 420; Du- buque, &c. R. Co. V. Litchfield, 23 How. (U. S.) 66, and Turnpike Co. V. Illinois, 96 TJ. S. 63, and, in the course of the opinion, said: "One of the most important powers with which a corporation can be invested is the right to sell out its whole property, together with the fran- chises under which it is operated, or the authority to lease its property for a long term of years. In the case of a railroad company these privileges, next to the privilege to build and operate Its raidroad, would be the most important which could be given it, and this idea would impress Itself upon the legis- lature. Naturally, we should look for the authority to do these things 599 STATUTES STEICTLY CONSTRUED — ^ILLUSTRATIONS. [§ 434 operation of a railroad is one of great importance and the policy of the law has always been against such transfers, so that there is strong reason for the conclusion that the power must be clearly and expressly conferred. § 434. Statutes strictly construed — Illustrative instances. — A power conferred upon a corporation to consolidate with other roads,^^ or to sell its road,^^ or to acquire other lilies of railroad by purchase/* or to make contracts with another railroad company for the use of its road/* does not necessarily include authority to lease its road. A gen- eral statute authorizing the formation of a corporation for any lawful purpose does not authorize a railroad company to insert in its articles of association authority to make such a lease.^^ In some express provision of the law. We would suppose that if the legislature saw fit to confer such rights it would do so in terms which could not be misunderstood." "Archer v. Terre Haute, &c. R. Co. 102 111. 493; Mills v. Central R. Co. 41 N. J. Eq. 1; St. Louis, &c. R. Co. V. Terre Haute, &c. R. Co. 145 U. S. 393, 12 Sup. Ct. 953; State v. Vanderbilt, 37 Ohio St. 590; Board, &c. V. Lafayette, &c. R. Co. 50 Ind. 85. "Oregon, &c. R. Co. v. Oregonian R. Co. 130 U. S. 1, 9 Sup. Ct. 409; Pennsylvania Co. v. St. Louis, &c. R. Co. 118 U. S. 290, 6 Sup. Ct. 1094; Thomas v. West Jersey, &c. R. Co. 101 U. S. 71. " Mills V. Central R. Co. &c. 41 N. J. Eq. 1. "Rev. St. Ind. 1881, §§ 3971, 3973, authorize any railroad company of Indiana "to intersect, join and unite" with any railroad of an ad- joining state constructed to the state line, and "to make such contracts and agreements with any such road • * * for the transportation of freight and passengers, or for the use of road, as to the hoard of di- rectors may seem proper." This statute has been held not to au- thorize one railroad corporation to lease the road of another. St. Louis, &c. R. Co. V. Terre Haute, &c. R. Co. 145 U. S. 393, 12 Sup. Ct. 953. See, also, Troy, &c. R. Co. v. Boston, &c. R. Co. 86 N. Y. 107. The power con- ferred by the New York act of 1839 upon a railroad corporation to con- tract with another for the use of their respective roads in such man- ner as the contract may prescribe has been held to involve the power to make a lease for a term of years. Beveridge v. New York Elev. R. Co. 112 N. Y. 1, 19 N. E. 489, 2 L. R. A. 648; Woodruff v. Erie R. Co. 93 N. Y. 609. By the laws of New York, 1839, c. 218, providing that "it shall be lawful hereafter for any railroad corporation to contract with any other railroad for the use of their respective roads, and thereafter to use the same in such manner as may be prescribed in such contract," a railroad company is authorized to lease its road and franchise to an- other railroad company, though the roads of the lessor and lessee are parallel and competing lines, and their merger or consolidation is pro- hibited by the laws. New York, 1869, c. 917, § 9; Gere v. New York, &c. R. Co. 19 Abb. N. C. 193. "Oregon R. &c. Co. v. Oregonian R. Co. 130 IT. S. 1, 9 Sup. Ct. 409. In § 435] LEASES. 600 §' 435. Statutes — Construction of. — While the construction of stat- utes conferring the power to execute leases is, as against the power, always strict, still the legislative intention is not to be defeated by an unreasonably strict construction.^" The grant of a principal power will carry with it such necessary incidental powers as are requisite to effectuate it. In accordance with this principle a grant of power wherein is manifested the intention of the legislature to enable a rail- road company to secure a continuous line of transportation and to make contracts with other railroad companies or with steamboat lines to effect that object authorizes the railroad corporation to contract with a steamboat line and confers authority to execute and accept a lease.^'' The express grant of a right to lease a railroad authorizes the transfer by way of lease of all such incidents and appurtenances as are reason- ably necessary to the operation of the demised road.^' This must, on announcing the opinion of the court in this case Mr. Justice Miller said: "Another important consideration to he observed, peculiarly applicable to the acts of corporations formed by the corporators themselves, declar- ing what business they are about to pursue, and the powers which they purpose to exercise in carrying it on, is, that while the thing to be done may be lawful, in a general way, there are and must be limita- tions upon the means by which it is to be done or the purpose carried out, which the articles cannot re- move or violate. A company might ' be authorized by its articles to estab- lish a large manufactory in a par- ticular locality, and might be held to be a valid incorporation with suf- ficient powers to prosecute the busi- ness described; but such articles, al- though mentioning the particular place, would not empower the com- pany in the exercise of the power thus conferred to carry on a busi- ness injurious to the health or com- fort of those living in that vicinity. Instances might be multiplied in which powers described in general terms as belonging to the objects of the parties who thus become in- corporated would be valid; but the corporation, in carrying out this, general purpose, would not be au- thorized to exercise the powers nec- essary for so doing in any mode which the law of the state would not justify in any private persons or any unincorporated body. The man- ner in which these powers shall be exercised, and their subjection to the restraint of the general laws of the state and its general principles of public policy, are not in any sense enlarged by inserting in the articles of association the authority to depart therefrom." ^"See State v. Richmond, &c. R. Co. 72 N. Car. 634; Hampe v. Pitts- burg, &c. Co. 165 "Pa. St. 468, 30 Atl. 931. "Green Bay, &c. R. Co. v. Union, &c. Co. 107 U. S'. 98, 2 Sup. Ct. 221, 13 Am. & Eng. R. Cas. 658; Pitts- burg, &c. R. Co. V. Keokuk, &c. R. Co. 131 U. S. 371, 9 Sup. Ct. 770, 39 Am. & Eng. R. Cas. 213; Branch v. Jesup, 106 IT. S. 468, 1 Sup. Ct. 495, 9 Am. & Eng. R. Cas. 558. " Simpson v. Denison, 10 Hare 51, 16 Jurist 828, 1 Redfield R. 616, 2~ Shelf ord R. (Ben. ed.) 694. 601 AUTHORITY TO EXECUTE A LEASE. [§ 436 principle, be the correct rule. If the legislature authorizes the execu- tion of a lease it is necessarily implied that the lease shall be an ef- fective one, and in order to make it effective it is essential that all incidents necessary to a proper operation of the road shall pass to the lessee. The legislative sanction implies the authority to properly oper- ate the leased road, and so, too, the public welfare demands that it shall be properly operated. It must be true that necessary incidents pass to the lessee, since the lessor, by executing a lease under legisla- tive sanction, parts with all control and the lessee must operate the road or else it must cease to do business. That it must cease to do business cannot be affirmed, since the cessation of business would be the defeat of the legislative purpose in creating the corporation and authorizing it to lease its road. § 436. What is included in the authority to execute a lease. — In a preceding paragraph of this chapter we said that authority to exe- cute a lease carried such incidental powers as were necessary to make the lease effective, and this principle authorizes the conclusion that authority to lease, given in general and unrestricted terms, confers authority to assign a lease or accept an assignment. The matter of form is of comparatively little' importance, for the courts will look through the form to the substance. Upon this principle it is held that a railroad company which is authorized to take a lease of another line may take an assignment of such a lease from the lessees of such other line,^° and that giving authority to one company to lease the property of another certain company authorizes the latter to make the lease. ^^ " Stewart v. Long Island R. Co. road. Prank v. New York, &e. R, 102 N. Y. 601, 8 N. E. 200, 55 Am. Co. 122, N. Y. 197, 23 N. B. 332; R. 844. "Where a railroad is sold Jacksonville, &c. R. Co. v. Louisville,, under foreclosure a new corporation &c. R. Co. 47 111. App. 414, 150 111. acquiring all of the property of the 480, 37 N. E. 924. A railroad corn- old except a leased line, not included pany, having issued to plaintifE a in the transfer, but of which, never- perpetual pass over its road in con- theless, the new company actually sideration of a right of way given takes possession and operates, the it through plaintiff's land, suhse- new company must be regarded as quently sold its road, the purchaser the assignee of the lease, and, by assuming none of its debts or obli- virtn© Of its possession, is liable for gations, and not using the right of the rent, which in this case was the way. Held, that the purchaser was interest on first mortgage bonds, not bound to honor plaintiff's pass, which the original lessee had agreed Dickey v. Kansas City, &c. R. Co. to pay; and the succeeding company 122 Mo. 223, 26 S. W. 685. is liable as long as it occupies the '^ Pinkerton v. Pennsylvania Trac- § 437] LEASES. 603 § 437. Scope of authority to lease. — Some of the eases give a very wide and liberal construction to the express grant of authority to exe- cute a lease. In some of the cases very broad language is used, broader than true principle warrants. While it is true that incidents pass by the grant of a principal power, purely collateral powers do not. The courts hold that under a statute giving a railroad company power to lease, maintain and operate another railroad upon such terms and con- ditions as may be agreed upon between the companies respectively,^^ the lessee company may guarantee the payment of interest coupons of bonds issued by the lessor company, which are equal in amount and times of payment to the reserved rent.^^ The general authority to lease implies the incidental authority to agree upon the consideration, terms and conditions of the lease, and hence the contracting companies may agree that part or all of the consideration agreed upon may be yielded by guarantying payment of bonds. §438. Statutes conferring power to lease must be strictly fol- lowed. — It is held that statutes conferring power upon a railroad com- pany to lease its road must be strictly followed,^^ but we suppose that tion Co. 193 Pa. St. 229, 44 Atl. 284; Hunttlng V. Hartford St. R. Co. 73 Conn. 179, 181, 46 Atl. 824. ^ This is substantially the lan- guage of the statute in New Hamp- shire, Vermont, New York, New Jer- sey, Pennsylvania, Nebraska, West Virginia, California, Oregon, Idaho, Wyoming, Utah, South Carolina, Georgia, New Mexico and Arizona. Stimson Am. Stat. (1892) § 8722. '" Eastern Townships Bank v. St. Johnsbury, &c. R. Co. 40 Fed. 423, 40 Am. & R. Cas. 566; Day v. Ogdens- burg, &c. R. Co. 107 N. Y. 129, 13 N.^ B. 765, aff'g 42 Hun (N. Y.) 654. An' agreement by the lessor company, guaranteeing to the lessee a sum of money equal to ten per cent, of the latter's capital stock, to be paid in equal quarterly instalments, and an unsigned clause printed on the mar- gin of such stock, in pursuance of the agreement, that lessor "has agreed to pay to [the lessee] an amount equal to ten per cent, per annum on the capital stock," do not constitute any contract to which a holder of such stock is a party or privy. Beveridge v. New York El. R. Co. 112 N. Y. 1, 19 N. E. 489, 2 L. R. A. 648. An agreement by a railroad company, in leasing property and franchises from another company, to pay as rent the interest on cer- tain liabilities of the lessor during term of the lease, and to pay the principal of such liabiliaties at the expiration of the lease is not ultra vires. Gere v. New York, &c. R. Co. 19 Abb. N. C. (N. Y.) 193. ''' In Humphreys v. St. Louis, &c. R. Co. 37 Fed. 307, the president of the company signed a certificate that a majority of the shareholders had assented to the lease, and It was evi- dence of the assent of all sharehold- ers and was a compliance with the statutory requirement that the as- sent of a majority of the sharehold- 603 CONSENT OF STOCKHOIDEES — STATUTOET KEQUIEEMENT. [§' 439 if all the material requirements of the statute are substantially com- plied with the lease would not be void. The power to lease is, how- ever, not favored, and a material departure from the provisions of the statute would make the lease ineffective. Where conditions are im- posed by the statute they must be complied with or the lease may be avoided.^* §439. Consent of stockholders— Statutory requirement must be obeyed. — Many of the states make the consent of a designated number of the stockholders requisite to the effective execution of a lease.^^ Where the mode of assenting is prescribed by statute there must be a substantial compliance with its requirements. It has been decided that where the statute requires that "no lease shall be perfected until a meeting of the stockholders shall have been called by the directors," and the "holders of at least two-thirds of the stock," voting "at such meeting, shall have assented thereto," the requirement that the assent shall be given by voting at a stockholders' meeting is of the essence, and the assent of the individual stockholders given otherwise than in such meeting is of no effect.^* § 440. Concurrence of stockholders necessary. — ^We regard the con- currence of the stockholders as essential to the validity of the lease of a railroad and its equipment. There is, however, conflict of authority upon this question which cannot be reconciled. It is held in a New ers to the execution of the lease the statute of Missouri, which re- should be given in writing. quires the majority of the stockhold- " Peters v. Lincoln, &c. R. Co. 14 ers to give their assent in writing. Fed. 319; Peters v. Lincoln, &e. R. Humphreys v. St. Louis, &c. R. Co. Co. 12 Fed. 513; Kent, &c. R. Co. v. 37 Fed. 307. See Peters v. Lincoln, London, &c. Co. L. R. 3 Ch. R. 656. &c. R. Co. 12 Fed. 513. '^ Two-thirds are required to vote '° Peters v. Lincoln, &c. R. Co. 12 for the lease in New Hampshire, Fed. 513. See Smith v. Hurd, 12 Connecticut, New York, Nebraska, Mete. (Mass.) 371; Humphreys v. West Virginia, Colorado, New Mex- McKissock, 140 U. S. 304, 11 Sup. leo and Arizona. Three-fifths in Ct. 779. See, generally, as to such Montana and a majority in Massa- assent and waiver or estoppel, Rog- chusetts and Wyoming. Stimson ers v. Nashville, &c. R. Co. 91 Fed. Am. St. (1892) § 8722. A certificate 299; St. Louis, &c. R. Co. v. Terre signed by the president, who owns Haute, &c. R. Co. 145 U. S. 393, 12 nearly all the stock, to the effect Sup. Ct. 953; Latimer v. Richmond, that a majority of the stockholders &c. R. Co. 39 S. Car. 44, 17 S. E. have assented to the lease is suffl- 258; Boston, &c. R. Co. v. Graham, cient evidence of a compliance with 179 Mass. 62, 60 N. E. 405. § 440] LEASES. 604 York case that where a general power to lease its road is given by the law of its incorporation to a railroad company whose directors are charged with the government and direction of its affairs, a contract for such leasing is within the original power of the board of directors, and may be exercised without the concurrence of the stockholders.^'^ We cannot assent to the doctrine of the case referred to. The execu- tion of a lease of the entire road is a matter in its nature fundamental and organic, and where there is a mere grant of authority to execute a lease, we think that the consent of the stockholders is necessary, but if the power is by statute lodged in the. governing board then, of course, the concurrence of the stockholders is not required. The 'New York case to which reference has just been made,^^ does not, we venture to say with due respect for the able court by which the case was decided, correctly express the general rule of law. We do not believe that the board of directors is, in name or in power, the corporation, fcrr as we have elsewhere shown,^° the board is the representative of the cor- poration. The courts do certainly apply to corporate directors the rule respondent superior, and this is a recognition of the fact that they are the mere agents of the corporation.^" Their powers to a great extent "Beveridge v. New York El. R. Co. 112 N. Y. 1, 19 N. E. 489, 2 L. R. A. 648. It was held in the case cited that an agreement on the part of the lessor company, made In good faith and on account of the financial embarrassment of the lessee, to re- duce the amount of rental under the lease, is within the powers of the directors. We think that some of the statements In the opinion made in the case above cited, and in the cases of Leslie v. Lorlllard, 110 N. Y. 536, 18 N. B. 363, and Hoyt V. Thomson, 19 N. Y. 216, go much too far. We do not believe that merely conferring upon the board of directors the power to man- age corporate affairs constitutes the board the corporation or invests it with power to make fundamental or organic changes in the constitution of the corporation. If it can be said that the statute vests the whole and entire power of conducting the cor- porate business in the board of di- rectors, including that of radically changing the corporate objects-, then it may properly be held that a lease of the whole road may be made without the concurrence or assent of the stockholders, but if the jwwer is to manage ordinary corporate af- fairs, we think the assent of the stockholders is necessary. "^Beveridge v. New York, &c. R. Co. 112 N. Y. 1, 19 N. E. 489, 2 L. R. A. 648. =»Ante, §§ 236, 237, 249, 252, 254. '"The New York cases assert the doctrine stated in the text. Abbott V. American Hard Rubber Co. 33 Barb. (N. Y.) 578; Cumberland, &c. Co. V. Sherman, 30 Barb. (N. Y.) 553; Metropolitan, &c. Co. v. Man- hattan, &c. Co., 11 Daly (N. Y.) 377, 15 Am. & Eng. R. Cas. 1; Twin, &c. Co. V. Marbury, 91 U. S. 587; Angell & A. Corp. § 771; Stark Bank v. United States, &c. Co. 34 Vt. 144; State v. Smith, 48 Vt. 266; Branch, Bank v. Collins, 7 Ala. SOS CONCUEEENCE OF STOCKHOLDERS NECESSARY. [§ 440 are delegated and not original powers. Doubtless the directors do ac- quire power from the corporate charter, but not such power as is re- quired to make an organic and fundamental change in the objects and purposes of a corporation.^^ The object of the formation of a railroad company is to itself operate the road and not to lease to another com- pany and thereby cease to conduct the business for which the corpora- tion was organized and assume the position of a landlor^. The 'effect of a railroad lease is an organic change. The law forbids the leasing of a railroad, except where the power is given by express legislative enactment, and one of the grounds upon which this rule of law rests is that the execution of a lease is an act fundamental and organic in 95; Simons v. Vulcan Oil, &c. Co. 61 Pa. St. 202, 100 Am. Dec. 628; Brokaw v. New Jersey, &c. Co.- 32 N. J. L. 328, 90 Am. Dec. 659; Bank of Middlebury v. Rutland, &c. Co. 30 Vt. 159; Lindley Company Law (5tli «d.) 155; Burmester v. Norris, 6 Exch. 796; Colman v. Eastern, &c. R. Co. 10 Beav. 1; Rollins v. Clay, 33 Me. 132; Clay v. Bufeord, 19 Eng. Xc. & E. 350. ^ Railroad Co. v. AUerton, 18 Wall. (U. S.) 233; Cass v. Manchester, &c. R. Co. 9 Fed. 640; Penobscot, &c. E. Co. V. Dunn, 39 Me. 587; Bedford, &c. Co. v. Bowser, 48 Pa. St. 29; Burke v. Smith, 16 Wall. (U. S.) 390; Bank v. St. John, 25 Ala. 5ff6; Alford V. Miller, 32 Conn. 543 ; Marl- borough, &c. Co. v. Smith, 2 Conn. 579; White Mountain, &c. Co. v. Eastman, 34 N. H. 124; Gill v. Balis, 72 Mo. 424; State v. Chamber of ■Commerce, 20 Wis. 68; Alford v. Miller, 32 Conn. 543. Mr. Taylor ably discusses the general subject; says that there are four things the board of directors cannot do, and aflBrms that it "cannot, ordinarily, lease the whole plant of the corpo- ration," and refers to Cass v. Man- chester, &c. Co. 9 Fed. 640. See Taylor Priv. Corp. § 229. The case referred to directly decides that •even if the corporation has author- ity to lease its property the board of directors cannot execute a lease if the stockholders protest. In Ste- vens V. Davison, 18 Gratt. (Va.) 819, 98 Am. Dec. 692, the court held that a lease does Involve a franchise, and that it could not be executed by the board of directors under a statute providing that no contract shall be made "involving the franchise of said road," without the consent of the stockholders. See Kersey, &c. Co. V. Oil Creek, &c. R. 12 Phila. (Pa.) 374; Bedford, &c. R. Co. v. Bowser, 48 Pa. St. 29, 37; Penob- scot, &c. R. Co. v. Dunn, 39 Me. 587, 601. Judge Rorer says that: "The leasing of a railroad with authority in the lessee to take tolls involves the franchise and requires the ac- tion and consent of the stockhold- ers formally expressed, at a stock- holders' meeting." Rorer Railroads 603. The opinion of Mr. Wood is thus expressed: "The consent of a majority of the stockholders, fairly obtained, is always essential to the validity of a lease. The consent must be expressed at a stockholders' meeting." 3 Wood Railroads (2d ed.) 2053, note. See, also, Rog- ers V. Nashville, &c. R. Co. 91 Fed. 299, 322; Waldoborough v. Knox, &c. R. Co. 84 Me. 469, 24 Atl. 942. § 441] LEASES. 606 its natiire.^^ In granting authority to lease, the legislature grants au- thority to radically change the character of corporate business, rights and liabilities, and it seems to us that the directors must have the con- currence of the stockholders. We do not mean to say that the stock- holders can directly execute a lease, but what we mean is that the directors cannot execute a lease without the concurrence of the stock- holders. The directors must, as we believe, formally execute the con- tract, and must directly represent and act for the corporation in mak- ing it,^^ but they must also have the assent of the stockholders. Where, as we have elsewhere remarked, the board of trustees, or the board of directors is incorporated there is reason for a different rule from that which we have here stated to be the sound one. Incidental or ordinary corporate powers may, as a rule, be exercised by the board of directors without any interference on the part of the stockholders, and a contract for the right to use part of a railroad may, perhaps, be regarded as an ordinary corporate contract,^* but a lease for a long period of years vesting entire and exclusive possession and control in another corpora- tion is essentially different from trackage, traffic, or other contracts of a similar nature. \ §'441. What liumber of stockliolders must assent to the lease. — Where the statute designates the number of stockholders that must as- sent to a lease in order to render it effective there is no difficulty, for it is clear that the assent of the prescribed number will make the lease effective, although the number may be less than the whole number of stockholders. But where no number is designated by the statute, and a general authority to lease is granted there is difficulty. Some of the courts hold that where a general authority is granted to execute a lease, the lease is not effective unless the stockholders unanimously as- sent to its execufion.^^ Other courts hold that where there is gen- '^ If the power to lease were an or- 131 Mass. 258, 41 Am. R. 221; York, dinary corporate power it would not &c. R. Co. v. Winans, 17 How. (U. be necessary to enact a statute con- S.) 30; Pearce v. Madison, &o. R. ferring the power, but a statute is Co. 21 How. (U. S.) 441. See, necessary because the power is in generally. Eastern, &c. R. Co. v. its nature fundamental and organic. Hawkes, 5 H. L. Cas. 331, 371-381; Thomas v. West Jersey, &c. R. Co. Ashbury, &c. Co. v. Riche, L. R. 7 101 U. S. 71, and cases cited. H. L. 653; MacGregor v. Dover, &c. '=Ante, § 170. R. Co. 18 Q. B. 618; East Anglian, '^ Green Bay, &c. R. Co. v. Union, &c. R. Co. v. Eastern Counties R. &c. Co. 107 V. S. 98, 2 Sup. Ct 221. Co. 11 C. B. 775. See Davis v. Old Colony, &c. R. Co. =* Mills v. Central R. Co. 41 N. J. 607 CONSENT OF STOCKHOLDEES — ^WAIYEE OF OBLIGATIONS. [§ 442 eral authority to execute the lease and no provision is made as to the number that must assent, k majority may authorize the execution of the lease.^' It seems to us that where the lease transfers the entire road -for a long term of years the consent of all the stockholders is re- quired unless the statute otherwise provides. The general rule is that after the shareholders have entered into a contract among themselves, under legislative sanction, and have made investments and expended their money in execution of the plan agreed upon, the plan cannot, even by virtue of legislative enactment, be radically changed by the act of a bare majority. A lease does work a radical change in many re- spects, notably in the respect that the character of the stockholders' investment is radically altered, for the lease places them substantially in the position of a landlord whose income is derived from rents, whereas the income of a stockholder is derived from the profits of the road. There is, however, reason for a different conclusion from that which we favor. A lease for a limited period is not the same thing as a sale, but in cases where the term is a long one it is not very different in its practical consequences from a sale; for it yields possession and control to the lessee, and takes the entire operation and control from the lessor, although it does not terminate the lessor's ownership. But while the ownership remains, its rights and incidents for the term fixed by the lease are entirely different from those which attach to the ownership of a railroad where there is no lease. § 442. Consent of stockholders — ^Waiver of objections, formal exe- cution of lease. — The provisions of a statute requiring the consent of the stockholders confer a personal privilege which it seems they may waive by acquiescence in a lease executed without their consent.^' The fact that the board of directors agree upon the terms of the lease before submitting it to the stockholders does not invalidate the lease where the stockholders assent to its execution.''^ Where no special mode for executing a lease is provided by statute, an authorized lease E3q. 1. See Boston, &c. R. Co. v. New 953. The lease had been suffered York, &c. R. Co. 13 R. I. 260; Zabrls- to stand for seventeen years, and kle V. Hackensack, &c. R. Co. 18 N. the court held the stockholders J. Eq. 178, 90 Am. Dec. 617. harred by laches. See, also, Latimer '° Waldoborough v. Knox, &c. R. v. Richmond, &c. R. Co. 39 S. Car. Co. 84 Me. 469, 24 Atl. 942. 44, 17 S. E. 258. "St. Louis, &c. R. Co. T. Terre "Jones v. Concord, &c. R. Co. 67 Haute, &c. R. Co. 33 Fed. 440, af- N. H. 234, 30 Atl. 614, 68 Am. St. firmed 145 U. S. 393, 12 Sup-. Ct. 650. § 443] LEASES. 608 executed in the usual form, or in such a form as to express the contract of the parties will be sufficient. § 443. lease where parties are corporations of different states. — As appears from what has been said in a preceding section, and as is indeed clear upon general principles, in order to make an efEective lease, it is necessary that there should be power in the one company to execute a lease and in the other to accept it. If the company to which the lease is made has no power to accept a lease, the lease is ineffective. This principle governs cases where leases are executed by corporations of different states. In a very ably reasoned opinion it was affirmed by the supreme court of the United States that a lease executed by an Illinois railroad company to an Indiana company was not valid for the reason that the Indiana company was not authorized by statute to accept a lease from the Illinois corporation.^' § 444. Authority to execute lease has no extraterritorial effect. — State laws, as is well known, have no force or effect outside of the limits of the state. Laws conferring authority upon a corporation to do prescribed acts, operate only upon state corporations. We do not mean, of course, that a state has no control over foreign corporations doing business within its borders; our meaning is that its laws con- ferring authority upon a corporation do not carry that authority into other states. The principle stated requires the conclusion that a state cannot, by chartering a corporation, confer upon it a legal right to act within the jurisdiction of another state,*" and that authority granted to a corporation to lease its road cannot have any effect outside of the state giving such authority.*^ The authority does not extend beyond the state limits. Upon the principle stated, it was held that the charter granted by the state of Kansas to a railroad corporation formed under its laws, conferred upon such corporation no power to lease that part of its road lying in the Indian territory ; and that, in the absence of a grant of power to lease contained in the act of congress authorizing '° St. Louis, &C. R. Co. V. Terre and it is held that under this statute Haute, &c. R. Co. 145 U. S. 393, 12 a lease to a domestic corporation Sup. Ct. 953, 6 Lewis' Am. R. & whose stock is owned by a foreign Corp. 439. corporation is invalid. Stockton v. "2 Morawetz Prlv. Corp. (2d ed.) Central R. Co. 50 N. J. Bq. 52, 24 § 958. The law of New Jersey pro- Atl. 964. hihits the lease of a railroad within " Oregon R. &c. Co. v. Oregonian the state to a foreign corporation, R. CO. 130 XT. S. 1, 9 Sup. Ct. 409. €09 EIGHTS OF FOREIGN LESSORS. [§' 445 ■the building of that part of the road, a lease of its whole road would he invalid as to the part lying in the territory.*^ And, ordinarily, a statute which provides that railroad companies may lease the property of other railroad companies refer only to domestic corporations, and does not authorize a lease to a foreign corporation.** But it has been held that a statute providing for a forfeiture of the franchise and all charter rights of any company acquired under a lease not made in conformity with the statute is applicable to a foreign company operat- ing in the state under a lease,** and that a domestic company, author- ized to lease, may take a lease from a foreign company if the foreign' company had authority to make the lease.*^ § 445. Rights of foreign lessors. — The rights of a corporation of one state that becomes the lessee of a railroad of another state are such as are conferred by the laws of the state from which the lessor received its charter.** This must necessarily be true, for the lessor derives all its powers from the state in which it was incorporated, and, of course, can grant no other rights than such as were conferred upon it by the statute to which it owes its existence and powers. What the lessor was required to do by the state which created it must be done by its lessee. § 446. Leases to connecting lines. — In some of the states the stat- utes grant a right to lease to connecting lines. Where there is such a grant, then, upon the principle that statutes granting authority to execute a lease are to be strictly construed, it is implied that there is no authority to lease to other lines. It is held that under such a stat- ute it is not essential to the validity of a lease that the leased road shall be an extension from either terminus of the main line, but it may be merely a collateral branch, forming a continuous road, by way *> Briscoe v. Southern Kansas R. 107 N. Y. 129, 13 N. E. 765. See also, Co. 40 Fed. 273, 40 Am. & Eng. R. Ackerman v. Cincinnati, &c. R. Co., Cas. 599. 143 Micti. 58, 106 N. W. 558. And a "McCabe v. Maysville, &c. R. Co. consolidated company formed by 112 Ky. 861, 66 S. W. 1054; Archer consolidation of a foreign company V. Terre Haute, &c. R. Co. 102 111. with a domestic company has been 493; Van Steuben v. Central R. Co. held a domestic company authorized 178 Pa. St. 367, 35 Atl. 922; Howard to take a lease from another com- V. Chesapeake, &c. R. Co. 11 App. pany. Peters v. Boston, &c. R. Co. Cas. (D. C.) 300. 114 Mass. 127. " Louisiana, &c. R. Co. v. State, 75 *■ McCandless v. Richmond, &e. Ark. 435, 88 S. W. 559. R. Co. 38 S. C. 103, 16 S. B. 429, 18 « Day v. Ogdensburgh, &c. R. Co. L. R. A. 440, 61 Am. & Eng R. Cas. Ell. RAttKOADS— 39 524. § 447] LEASES. 610 of the jiinction, to either termiims of such main line, in as direct a route as the average railroad.*^ The pivotal question under such stat- utes is whether the line to which the lease is executed is a connecting- line.** § 447. Lease to competing lines — Effect of statutes prohibiting. — Many of the states now provide by general laws for the transfer by lease,*" of a railroad to another corporation which does not own a parallel or competing line.^" The effect of these statutes is, generally " Hancock v. Louisville, &c. R. Co. 145 U. S. 409, 12 Sup. Ct. 969, con- struing the Kentucky Act of Janu- ary 22, 1858. The court says: "The main line of the lessee's road ex- tends in a northeasterly direction from Louisville to Cincinnati. At Anchorage, about twelve miles east of Louisville, the Shelbyville road touches it. At the time of the lease the latter road was completed from the place of junction to Shelbyville, a distance of about eighteen miles, the general course being a trifle south of east. There was a physical connection between the two roads at Anchorage, the latter being the western terminus of the Shelbyville road. From this point the main line of the lessee road extends north- easterly, and the Shelbyville road southeasterly, making two forks of the letter 'V.' Shelbyville is nearly due east from Louisville, and the Shelbyville road, together with twelve miles of the lessee's road, makes a continuous line between Shelbyville and Louisville in a route about as straight as the average railroad. But Anchorage is not a terminus of the lessee road, and the contention is that, under the statute, the leased line must touch one of the termini of the lessee's road so as to make an extension of it. * * * We think it is enough that by the lease the connected roads form a continuous line, and it is not essential that the leased line be an extension from either terminus of the lessee's road. The evil which was intended to be guarded against by this limitation was the placing of parallel and competing roads un- der one management and the control by one company of the general rail- road affairs of the state through the leasing of roads remote from its own and with which it has no physi- cal or direct business connection. It was not intended to prevent a com- pany with a long road, like the les- see company, from leasing branches by means of which it establishes continuous lines from their several termini to each of its own." ''Text quoted in Georgia R. &c. Co. V. Maddox, 116 Ga. 64, 42 S. E. 315, 320. *'Stimson Am. Stat. (1892) § 8722. °° Leases of parallel or competing lines are forbidden by the constitu- tions of Pennsylvania, West Vir- ginia, Missouri, Arkansas and Texas. Stimson Am. Stat. § 467. A line of railroad may be competing within the meaning of a statute which for- bids railroad companies from pur- chasing or leasing a competing line, though the competing points are reached by trackage arrangements with other lines. Hafer v. Cincin- nati, H. & D. R. Co. (Ohio Com. PI.) 29 Wkly. Law Bui. 68. 611 LEASE TO COMPETING LINES — STATUTE PEOHIBITING. [§ 447 speaking, to confer power to lease to any other than competing or rival lines, so that the validity of the lease depends upon whether th6 lines are rival or competing lines within the meaning of the statute. Snch statutes are to be strictly construed; as some of the courts say, a railroad company is required to "he able to point to the exact pro- visions granting authority" to make any given lease.^^ It is clear from the trend of the judicial decisions that as in favor of the power to lease, there is no elasticity in such statutes. A statute authorizing a railroad to lease its track to another company, when the respective lines "are continuous or connected," authorizes a lease only when the two roads form one continuous line, between points not otherwise con- nected by either separately,^^ over which, according to some authori- ties, freight and passengers may be carried without transfer,^^ and will usually be construed as not permitting a lease of parallel and com- peting lines.°* The principle asserted by the courts in the cases re- ferred to, as in many others, forbids transfers to rival lines except where the statute clearly and unequivocally confers the right to make such transfers, but where there is a valid statutory power +he transfer "■ State V. Atchison, &c. R. Co. 24 Neb. 143, 38 N. W. 43, 8 Am. St. 164; Pennsylvania, &c. R. Co. v. St. Louis, &c. R. Co. 118 U. S. 290, 6 Sup. Ct. 1094. A railroad corpora- tion, whose power of eminent do- main necessary to the construction of a branch road conferred by char- ter is exinct by reason of non-user during the term prescribed for its exercise, cannot purchase or lease the branch road subsequently built, on the foundation of the right of eminent domain which is extinct. Such lease is therefore ultra vires. Camden, &c. R. Co. v. May's Land- ing, &c. R. Co. 48 N. J. L. 530, 7 Atl. 523. It was held that neither Rev. St. Ohio, § 3300, providing that any railroad may lease or purchase the road of another company, not com- peting, nor § 3409, providing that a company, not able to complete the construction of its line, may trans- fer its property to another, which transfer "shall include all work done, together with all rights, privi- leges and easements," confers au- thority to sell and transfer a com- pany's contracts of subscription pay- able on completion of the road. To- ledo, &c. R. Co. V. Hinsdale, 45 Ohio 556, 15 N. B. 665. "''State V. Atchison, &c. R. Co. 24 Neb. 143, 38 N. W. 43, 8 Am. St. 164; Smith V. Reading City, &e. R. Co. 13 Pa. Co. Ct. 49. It was held in Pennsylvania that two lines which cannot be operated together without a transfer of passengers and freight do not form a "continuous line." Hampe v. Mt. Oliver I. R. Co. (Pa. Com. PI.) 24 Pittsb. Leg. J. (N. S.) 330. But this case has been reversed. Hampe v. Pittsburg, &c. Co. 165 Pa. St. 468, 30 Atl. 931. "= State V. Vanderbilt, 37 Ohio St. 590. "See Eel River R. Co. v. State, 155 Ind. 433, 57 N. E. 388. See, also, Pearsall v. Great Northern R. Co. 161 U. S. 646, 16 Sup. Ct. 709. 448] LEASES. 613 to a rival line is valid.'^ It is held that a statute which forbids rail- road companies to purchase or lease competing lines renders void a lease of a railroad by another, which reaches competing points by means of trackage arrangements with other lines. ®^ § 448. Effect of executing unauthorized lease. — The authorities generally affirm that an unauthorized lease is void,^^ but some of the cases seem to hold that rent provided for by such a lease may be re- covered where the road is operated under the lease and benefit is actually received by the company which has possession and use of the road. Our opinion, elsewhere expressed and elaborated, is that such a lease is void^* and no recovery can be had upon it, but that in the ^ In the case of the Catawissa, &c. R. Co. v. Philadelphia, &c. R. Co. 14 Pa. Co. 280, it was held that where one railroad company acquired, by virtue of a valid lease, the right to the railroad of another company, the former, in huilding a line paral- lel with the road acquired, did not violate the constitutional provision, prohibiting one company from ac- quiring the rights of a parallel and competing road. In the course of the opinion, it was said: "Was it in any sense a competing road the acquisition of which is prohibited by Article XVII, of the constitution? The object of the prohibition was clearly to prevent one independent corporation from acquiring the pos- session of the road, of another com- pany which is operating a compet- ing line. It was to prevent the buying up by one railroad corpora- tion of a competing line and the establishment thereby of a monop- oly. The building of one road by another for the purpose of facilitat- ing and enlarging its own business, can by no fair process of reasoning be contended to be within the con- stitutional prohibition, unless, in- deed, a man be said to compete with himself, when he enlarges his own business or enters into a new one." ""Hafer v. Cincinnati, &c. R. Co. (Ohio Com. Pis. 1893) 29 Weekly Law Bui. 68. But see Hancock v. Louisville, &c. R. Co. 145 U. S. 409, 12 Sup. Ct. 969; Black v. Delaware, &c. Canal Co. 22 N. J. Bq. 402. In the case of Louisville, &c. R. Co. v. Commonwealth, 97 Ky. 672, 31 S. W. 476, it was held that a statute au- thorizing a railroad company to pur- chase and own a road constructed by another company did not confer authority to purchase a competing line in violation of a constitutional provision adopted subsequent to the enactment of the statute prohibiting railroad companies from purchasing competing lines. See Missouri Pa- cific, &c. Co. V. Sidell, 67 Fed. 464; State V. Montana R. Co. 21 Mont. 221, 53 Pac. 623, 45 L. R. A. 271; Chesapeake, &c. R. Co. v. Howard, 14 App. Cas. (D. C.) 262, affirmed in 178 U. S. 153, 20 Sup. Ct. 880. "We think that principle and au- thority require the conclusion that the unauthorized lease by which a railroad seeks to turn over its en- tire road to another is ultra vires and void, and. may be set aside at the suit of a dissenting stockholder. Ante, §§ 368, 373. ■* State V. Atchison, &c. R. Co. 24 Neb 143, 38 N. W. 43, 8 Am. St. 613 LEASE — ■CONSTEUCTION. .t§ 449 proper case there may perhaps be a recovery upon an implied contract. Some of the courts hold that the abandonment of its road to the lessee is sufficient ground for the institution of quo warranto proceedings on the part of the state.°® § 449. Lease — Construction. — The doctrine of some of the courts is that the terms of a lease made under legislative authority will be, strictly construed, and their meaning will not be extended by'lmplica" tion.°" We can see no reason, however, for applying to railroad leases any other rules of construction than those which govern in the con- struction of similar contracts executed under statutory authority. The terms must, of course, be such as the statute authorizes, but, withia the limits of the power conferred, the contracting parties may agree upon such terms and conditions as they deem proper, provided, of course, no rule of law is violated. §450. Lease— Dependent and independent contracts. — The ques- tion whether a contract relating to a lease and in a measure connected 164. An Illinois railroad corpora- tion is bound to take notice that its lease to an Indiana corporation is ultra vires of the latter, so that where the lease becomes an executed contract by the delivery of the leased property the lessor is in pari delicto with the lessee, and cannot maintain a suit to recover posses- sion. So far as the lessor corpora- tion can be regarded as represent- ing its non-consenting stockholders in their efforts to set aside the lease, it and they are barred by laches In failing to hring an action to set it aside for seventeen years, and by accepting the rentals during that time. St. Louis, i&c. R. Co. v. Terre Haute, &c. Co. 145 U. S. 393, 12 Sup. Ct. 953. In Cox v. Terre Haute, &c. R. Co. 133 Fed. 371, it is held that a lease void as against public policy cannot be the foundation for recov- ery of rental. ™ Board Comrs. v. Lafayette, &c. R. Co. 50 Ind. 85. But, it is held that a contract whereby another railroad is permitted to use a track jointly with a lessor, in such a man- ner as not to interfere with the lessor's use thereof, is valid unless expressly forbidden. Union Pac. R. Co. V. Chicago, &c. R. Co. 51 Fed. 309. Such a contract is not within the rule forbidding a railroad com- pany from transferring property es- sential to the performance of its corporate duties, since the company does not by permitting another com- pany to make a limited and qualified use of its tracks, disable itself from performing the duties imposed upon it by law. ™ Chicago, &c. R. Co. v. Denver, &C. R. Co. 143 U. S. 596, 12 Sup. Ct. 479. For contract held to be a lease, and construction thereof, see Moors- head V. United Rys. Co. (Mo. App.) 96 S. W. 261, distinguishing St. Jo- seph, &c. R. Co. V. St. Louis, &c. R. Co. 135 Mo. 173, 36 S. W. 602, 33 L. R. A. 607. See, also, Terre Haute, &c. R. Co. V. Cox, 102 Fed. 825; Con- tinental Ins. Co. V. New York, &c. R. Co. 187 N. Y. 225, 79 N. E. 1026. §■ 450] LEASES. 614 with it is dependent or independent, is sometimes an important one, for a lease may be void and the contract relating to the same subject, executed by the same parties, may be valid." ^ If the contract is inde- pendent of the l§ase it may be valid, although the lease is void. Eefer- ence in the independent contract to the lease does not necessarily make the lease part of it, but, of course, the reference may be such as to incorporate the lease in the contract, and whether it does or not is to be determined in each particular case from the language employed in the instrument."^ Whether the contract is or is not a dependent one depends, of course, upon the language employed by the parties, and the ordinary doctrines of law, applicable to the subject of dependent and independent contract provisions govern cases in which the con- struction of such leases are involved and supply the rules of decision. In an Illinois case, the agreement in the form of a lease was that the railroad company should deliver to the other party a designated quan- tity of grain, which the other should accept and store, and it was held that the promises to deliver and to accept and store were dependent promises."' Covenants in leases executed by railroad companies are construed and enforced as are covenants in leases executed by natural persons, that is, the same general principles of law govern in such cases,"* but the nature of the business of such companies and the lim- ited powers with which they are invested, necessarily render their leases different in some respects from those of natural persons. A reasonable construction is to be given covenants in railroad leases, and '^ Pittsburgh, &c. R. Co. v. Keokuk, person so signing in effect signs a &c. Co. 155 U. S. 156, 15 Sup. Ct. 42; document containing the terms of Pittsburgh, &c. R. Co. v. Keokuk, &c. the one referred to." The rule ap- Co. 131 U. S. 371, 7 Sup. Ct. 770, 39 plies to references made by acts of Am. & Bng. R. Cas. 213. parliament. North British, &c. Co. ""Pittsburgh, &c. R. Co. v. Keokuk, v. Tod, 12 CI. & Fin. 722; Ware v. &c. Co. 131 U. S. 371; 9 Sup. Ct. 770, Regente's Canal Co. 28 L. J. Ch. 153; 39 Am. & Eng. .R. Cas. 213. Ordina- Galwey v. Baker, 5 CI. & Fin. 157; rily the reference would make the Brain v. Harris, 10 Exch. 908; Reg. lease part of the contract. The max- v. Caledonia R. C. 16 Q. B. 19. im is, "Instruments to which refer- °' Dunlap v. Chicago, &c. R. Co. ence is made in another instrument 151 111. 409, 33 N. E. 89, citing Hough have the same effect and operation v, Rawson, 17 111. 588; Porter v. as if they were inserted in the clause Rose, 12 Johns. (N. Y.) 209, 7 Am. referring to them." In applying this Dec. 306. ancient and well-settled rule in the ""Boston, &c. R. Co. v. Boston, &c. case of Fitzmaurice v. Bayley, 9 H. R. Co. 65 N. H. 393, 23 Atl. 529, 51 L. Cases 78, Compton, J., said: "By Am. & Bng. R. Cas. 106. See Grand referring in a document signed by Trunk, &c. R. Co. v. Chicago, &c. R. the party to another document, the Co. 141 Fed. 785. 615 PERMISSION TO USE TRACK NOT NECESSARILY A LEASE. [§ 451 such covenants are held to require that to be done which "is reason- able and which would be so accounted by reasonable nien."°° In a New Hampshire case, the subject of covenants in leases executed by one railroad company to another is very fully discussed, and the effect ■of such covenants clearly stated.'" Where the contracting parties have, by a settled course of dealing, given a construction to the lease, that construction will be upheld by the courts, unless it is in violation of the clear words of the contract or infringes the rights of others. Thus, "where a railroad company which has granted to another company the jight to the joint use of its track and depots, allows the grantee and .assignee of the latter to enter upon and continue in such possession and use, it is practically a construction of the power of the company to assign its rights under the contract."'' § 451. Contract to permit use of track not necessarily a lease. — A ■contract between two railroad companies wherein one company agrees to permit another company to use its tracks, station, buildings or the like, is not necessarily a lease within the meaning of the rule prohibit- ing a railroad company from transferring its property by way of lease. There is a distinction between a lease and a traffic, or trackage con- tract."* A lease transfers control from the lessor to the lessee, and the "' In the case of Catawissa, &c. R. can only be determined when ques- ■Co. V. Philadelphia, &c. R. Co. 14 tions arise in regard to the particu- Pa. Co. Ct. 280, the lease contained lar actions and conduct of the party, a covenant that the lessee should and their result." We agree with maintain the leased road in good the court that the solution of the condition, operate it with reasonable question generally depends upon the care, and "use all proper and reason- facts of the particular case, but it able means to maintain and increase seems to us that a covenant such as the business thereof." It was held that contained in the lease before that this covenant was not broken the court prohibits the lessee from by the construction of a parallel building a road parallel with that road. The court said, inter alia: leased to it. "The defendants are required to use "^ Boston, &c. R. Co. v. Boston, &c. all reasonable means to maintain R. Co. 65 N. H. 393, 23 Atl. 529, 51 and increase the business of the Am. & Eng. R. Cas. 106. road. This means that they will do " Chicago, &c. R. Co. v. Denver, what is usually accounted reasona- &c. R. Co. 46 Fed. 145. See, also. Co- ble, and what ought to be so account- lumbus, &c. R. Co. v. Pennsylvania ed by reasonable men. It Is difficult, Co. 143 Fed. 757. But compare Pere perhaps impossible, to bring within Marquette R. Co. v. Wabash R. Co. the limits of a precise definition ex- 141 Mich. 215, 104 N. W. 650. actly what is required by an under- ''Ante, §§ 356, 357, 358, 359; "taking in such general terms. It Union Pac. R. Co. v. Chicago, &c. R. 451] LEASES. 616 former is thereby disabled from performing the duties imposed upon it by law, whereas a contract granting the privilege of using tracks, station buildings and the like does not divest the company granting such use or control, nor disable it from discharging its corporate duties or exercising its corporate functions.*® There is solid foundation for the distinction between a contract whereby one company simply per- mits use to be made of its railroad, and a contract whereby the one company transfers to the other its railroad through the instrumentality of a lease. The right to do such things as are reasonably necessary to the successful operation of a railroad is implied in the grant of a franchise to build and operate a railroad, and it may well be held in eases where the object to be attained advances the interests of the contracting companies and the contract which they enter into does not disable either from performing its corporate duties, that in making such a contract the companies have not exceeded the power conferred upon them. There is, it is obvious, no rule of public policy which forbids one company from granting to another a mere right to use tracks, depots or the like. If, however, under the guise of a contract Co. 51 Fed. 309, 2 C. C. A. 174, 51 Am. & Bng. R. Cas. 162; Chicago, &c. Co. V. Union Pac. Co. 47 Fed. 15. See Langley v. Railroad Co. 10 Gray (Mass.) 103; Humphreys v. St. Louis, &c. R. Co. 37 Fed. 307. See, also. Coney Island, &c. R. Co. v. Brooklyn Cable Co. 53 Hun (N. Y.) 169, 6 N. Y. S. 108; Archer v. Terre Haute, &c. R. Co. 102 111. 493; South Carolina, &c. R. Co. v. Carolina, &c. R. Co. 93 Fed. 543. A contract where- in one company agrees to permit an- other company at the expense of the latter to connect with the main track of the former, the object being to facilitate an interchange of busi- ness is more than a mere revocable license. It is an enforceable con- tract founded on a valuable consid- eration. Louisville, &c. R. Co. v. Kentuc'ky, &c. Co. 95 Ky. 550, 26 S. W. 532. °° The reasoning upon which a de- nial of the right of a railroad com- pany to transfer its property and franchises so as to disable itself to- perform its public duties is based does not, it is obvious, apply to a contract whereby a railroad com- pany lets another company into joint possession of part of its line for a term of years at an agreed rental; and such a contract is not, as be- tween the parties, ultra vires, where such joint possession does not inter- fere with the present use of such line by the company that owns it. Chicago, &c. R. Co. v. Union Pac. R. Co. 47 Fed. 15, aff'd, 51 Fed. 309, 10 U. S. App. 98. It has been held that a contract whereby a railroad com- pany is granted "the perpetual and free use" of the right of way of an- other railroad company, within a specified distance, means that the grantee of such privilege is to have, not merely the uninterrupted use of such right of way but is to have it free of compensation. Alabama, &c. R. Co. v. South, &c. R. Co. 84 Ala, 570, 3 So. 286, 5 Am. St. 401. 617 TEAFPIO CONTRACT — NOT VALID IF IT IS IN EFFECT A LEASE. [§ 453 permitting one company to use the property of another, there should, in fact, be a transfer from one to the other, the contract would be ultra vires, and against public policy. § 452. Traffic contract — Not valid if it is in effect a lease. — ^A traffic contract may be rightfully entered into, but, under the guise of a traffic contract, a railway company cannot, except where the statute authorizes it, turn over its road to another company. In other words, a railroad company cannot, under the form of a traffic contract, make a lease of its road, except where there is statutory authority to execute the lease.^" If the professed traffic contract is, in fact, a lease, it is ultra vires, but where the contract is in the proper sense a traffic con- tract, then, as we believe, it may be effective. §453. Contracts granting right to use — Effect and coustruction of. — It is held that an agreemept between two railroad companies, con- ■ferring on each the right to run its cars over the tracks of the other, each retaining absolute control over its road for all other purposes, confers no interest which can be assigned or leased.''^ It is obvious that such a contract cannot be regarded as a lease since there is noth- ing more than an agreement permitting one company to use the tracks of another, but it is difficult to determine just what the specific na- ture of the contract is and what are the rights of the parties. It is a contract for joint use, and the company owning the road does not fully part with possession or control, so that the rights and obligations of the parties are not the same as those of a lessor and lessee in an " In the case of Nashua, &c. R. Co. the court ' cited Slater Woollen Co. v. Boston, &c. 164 Mass. 222, 41 N. v. Lamb, 143 Mass. 420, 9 N. E. 823; E. 268, 49 Am. St. 454, the question Nims v. Mount Hermon, &c. 160 was stated but not decided. The Mass. 177, 35 N. B. 776, 22 L. R. A. court, however, referred to the cases 364, 39 Am. St. 467; L'Herbette v. of Burke v. Concord, &c. R. Co. 61 Plttsfleld, &c. Bank, 162 Mass. 137, N. H. 160, and Boston, &c. R. Co. v. 38 N. E. 368, 44 Am. St. 354; Central, Boston, &c. R. Co. 65 N. H. 893, 23 &c. Co. v. Pullman's, &c. Co. 139 U. Atl. 529. In the first of the cases S. 24, 11 Sup. Ct. 478; Manchester, cited the court held that the joint &c. R. Co. v. Concord, &c. R. Co. 66 manager of two roads both operated N. H. 100, 20 Atl. 383, 9 L. R. A. 689, by one company under a contract 49 Am. St. 582; Central Trust Co. v. had no right to use the joint funds Ohio, &c. R. Co. 23 Fed. 306. in improving the road of the oper- "Brooklyn Crosstown R. Co. v. ating company and that the other Brooklyn City R. Co. 51 Hun- (N. company might recover it in a prop- Y.) 600, 3 N. Y. S. 901. er action. In support of this ruling §■ 453] LEASES. 618 authorized lease. Some of the courts hold that an agreement by one railroad company that another, "and its assigns," may use one of its tracks on certain conditions, is a mere license and not a lease.''^ We incline to the opinion that where there is a valid consideration for such an agreement it is not a mere revocable license but is an en- forceable eontract.^^ If there is a suflBcient consideration for the agree- ment, we can see no reason why it should not be regarded as a contract in all that the term implies. If, however, there is no consideration the agreement may well be treated as a mere license. If there is nothing more than a license then there is reason for holding that the licensee cannot enjoy the privileges conferred by such agreement and at the same time confer the right to do so on other companies, since this would be to impose 'greater burdens on the licensor than the agreement contemplated.'* We do not believe that there can be an assignment, even if there be a contract, where the original company also retains the " Coney Island, &c. R. Co. v. Brook- lyn Cable Co. 53 Hun (N. Y.) 169, 6 N. Y. S. 108. In a reported case the president of the plaintiff railroad company testified that the vice-presi- dent of the defendant railroad com- pany promised that plaintiff should have, free of charge, full terminal facilities at the Junction of the two roads. A director of plaintiff testi- fied that it was assumed, rather than expressly agreed, that plaintiff should have such terminal facilities. Several officers of plaintiff testified that they had heard of no claim that said agreement had been made until about twenty years after the organ- ization of plaintiff, when it was de- prived of such terminal facilities. It appeared that the plaintiff com- pany had been operated by defend- ant for five years, and that on being reorganized, it consented that a charge should be made for the use of the terminal facilities; that at a subsequent reorganization a higher charge was paid for eighteen months; and that two years later the charge was increased, and one payment made under protest. No action was ever taken by the direct- ors of either company upon the sub- ject. It was held, in an action for damages for severing the connection between the two companies, and de- priving the plaintiff of such facili- ties, that the evidence justified a finding that the agreement was tem- porary and permissive only. Port Jervis, &c. R. Co. v. New York, &c. R. Co. 132 N. Y. 439, 30 N. E. 855. Where one railroad company has permission by parol to extend its track upon the right of way of an- other company for the purpose of making a connection such permis- sion is a mere license, and, although valuable improvements have been made, may be revoked at the will of the licensing company. Richmond, &c. R. Co. V. Durham, &c. R. Co. 104 N. C. 658, 10 S. E. 659, 40 Am. & Bng. R. Cas. 488. "Louisville, &c. R. Co. v. Ken- tucky, &c. R. Co. 95 Ky. 550, 26 S. W. 532. " Coney Island, &c. R. Co. v. Brook- lyn Cable Co. 53 Hun (N. Y.) 169, 6 N. Y. S. 108. 619 PART PERFORMANCE — EFFECT OF. '[§ 454 light to make use of the right or privilege granted it, for the grant implies that the right to exercise the privilege is only conferred upon the company to which it is granted. The parties may, of course, pro- vide for an assignment by the stipulations of the" contraet.^^ § 454. Part performanee — Eflfect of. — The partial performance of a contract of lease, executed without legislative authority, confers no rights under the lease. Thus, where a void lease is made by a railroad company for a term of ninety-six years, at a certain yearly rental, the use of the road by the lessee and payment of the rental for three years, does not make the contract so far an executed one as to estop the lessee to deny its validity. '^^ This doctrine results from the principle else- where considered that where the contract is, in a proper sense, ultra vires, no right can be founded on the contract itself. If the contract be absolutely void and not merely voidable, it cannot be made effective hy the acts of the contracting parties.^^ § 455. Duration of a lease. — Where there is no authority to sell, there is, as it seems to us, no right to execute a lease the practical effect 'of which is equivalent to a sale.'* This principle would pro- hibit a railroad company from leasing its road for such a length of time as would clearly deprive it of possession and use for a palpably unreasonable period. We do not believe that a transfer can be made which is in substance a sale, although in form a lease. Of course, where there is authority to sell, a sale may be made. It has been held in 'New York that a lease of its road by a railroad company for a longer term than the period of its corporate existence is not void, since the laws of that state provide for an extension of the charter.''^ '=As to assignments of leases, R. Co. 145 U. S. 52, 12 Sup. Ct. 814. see, generally, Terre Haute, &c. R. See, also. Bast St. Louis, &c. R. Co. Co. V. Peoria, &c. R. Co. 61 111. App. v. Jarvis, 92 Fed. 735; Ogdensburgh, 405, 167 111. 296, 47 N. B. 573; Bos- &c. R. Co. v. Vermont, &c. R. Co. 63 ton, &c. R. Co. V. Boston, &c. R. Co. N. Y. 176. But see where authority 65 N. H. 393, 23 Atl. 529 ; Frank v. was afterwards conferred and the New York, &c. R. Co. 122 N. Y. 197, lease recognized. Terre Haute, &c. 25 N. B. 332 ; Indianapolis Mfg. &c. R. Co. v. Cox, 102 Fed. 825. Union v. Cleveland, &c. R. Co. 45 "Ante, §§ 372, 383, and §§ 356, Ind. 281; St. Joseph, &c. R. Co. v. 357, 358, 359. St. Louis, &c. R. Co. 135 Mo. 173, 36 '* St. Louis, &c. R. Co. v. Terre S. W. 602, 33 L. R. A. 607. , Haute, &c. R. Co. 145 U. S. 393, 12 " Oregon R. & Nav. Co. v. Ore- Sup. Ct. 953, and cases cited, gonian R. Co. 130 U. S. 1, 9 Sup. Ct. " Gere v. New York, &c. R. Co. 19 409; Oregon R. &c. Co. v. Oregonian Abh. N. C. (N. Y.) 193. The fact § 456] LEASES. 630 There is, as it seems to us, reason for the eonelusion that a railroad corporation cannot make a lease extending beyond its corporate life. One would think that in authorizing a lease the legislature had in mind the statute fixing the duration of corporate existence, and that it did not mean that any corporate act should be effective after cor- porate death. But there is also some reason for the other view, and as already shown, the courts seem inclined to adopt the view that such a lease is not void.*" §'456. Effect of lease on taxation. — ^Where the statute authorizes the execution of a lease and also provides that the leased road shall become the property of the lessee company, the road is assessable as- the property of the lessee and not as the property of the lessor.*^ It may well be doubted whether this result would follow where the lessor remains th^ owner and only transfers the road for a limited time. If the lessor remains the owner the principle which ordinarily prevails would require that taxes be assessed against it and not against its lessee. We suppose that where there is simply an authority to lease and no provision vesting the lessee with the ownership the property must be treated for the purpose of taxation as that of the lessor. Au- that a lease by a railroad company R. Co. 21 Mont 221, 53 Pac. 623, 45 was for 999 years, while the charter L. R. A. 271, and see, generally, Ack- of the lessee would expire in about erman v. Cincinnati, &c. R. Co. forty years, did not render it void, 143 Mich. 58. 106 N. W. 558. especially as the charter contained ''Huck v. Chicago, &c. R. Co. 86 a provision that it might be renewed 111. 352; Hagan v. Hardie, 8 Helsk. from time to time, and as the lease (Tenn.) 812. See, generally, Phila- was expressly made binding upon delphia, &c. R. Co. v. Appeal Tax the assigns and successors of the Court, 50 Md. 397 ; Appeal Tax Court parties. TJriion Pac. R. Co. v. Chi- v. Western, &c. H. Co. 50 Md. 274. cago, &c. R. Co. 51 Fed. 309, 10 XJ. S. Such a contract is practically a con- App. 98, 163 U. S. 564, 599, 16 Sup. tract of sale, or rather, in its prac- Ct. 1173. tical effect is equivalent to a sale in ^ See, also, as to such leases and cases where the term is one of great leases for a long term distinguished length ; ' while nominally a lease it from a sale or consolidation. Union is practically a sale in its effects Pac. R. Co. V. Chicago, &c. R. Co. and consequences. Where the con- 163 U. S. 564, 569, 16 Sup. Ct. 1173; tract is for a short term it is a Morrison v. St. Paul, &c. R. Co. 63 lease rather than a sale, but if for Minn. 75, 65 N. W. 141, 30 L. R. A. a great number of years it would be 546; Chicago, &o. R. Co. v. People, substantially a sale of the property- 153 111. 409, 38 N. E. 1075, 29 L. R. St. Louis, &c. R. Co. v. Penn. Co. A. 69; Sioux City, &c. Co. v. Trust 118 U. ,S. 290, 6 Sup. Ct. 1094. Co. 82 Fed. 124; State v. Montana 631 LESSEE UNDER UNAUTH;0EIZED LEASE — ^MANDAMUS. |§ 4:57 thority to execute a lease implies that the lessor retains the ownership of the demised property, but grants to the lessee use, possession and control for a designated term. A person, natural or artificial, who executes a lease, does not sell or convey the property, but simply trans- fers use, possession and control for the term designated in the lease. It is competent for the legislature in conferring authority to lease to prescribe the terms and conditions upon which the authority shall be exercised, and hence it may provide that the lessee company shall be treated as the owner or that it shall pay all taxes. In every author- ized lease there axe two estates, that of the lessor and that of the lessee, and where both are of value both may be assessed, but each estate must be assessed against its owner unless the statute otherwise provides. It is probably true that if under the form of a lease a sale is made, the company acquiring the property is liable to taxation as owner,*^ but to have this effect the contract, although in form a lease, must be, in legal contemplation, a sale. Where the statute provides for a tax upon the earnings of the road the lessee company is, ordi- narily, the party against which the assessment should be made.^^ The earnings are part of the estate of the lessee company and not of the estate of the lessor. The earnings are derived from the possession and use of the road, and hence are the property of the lessee. The ques- tion, however, is one depending almost entirely upon the statute gov- erning the particular ease, for, as we have said, the legislature may lay the tax upon either company as it deems proper, since it has full power to prescribe the terms and conditions upon which the authority to lease shall be exercised. § 457. Public duties of lessee under an unauthorized lease — Man- damns. — It by no means follows from the rule that the lessee operating a road under an unauthorized lease is liable for torts in the manage- ment of the leased road, that it can be compelled to perform the duties imposed upon the lessor company. It is evident that it may be liable for its torts in operating the road and yet not bound to perform the obligations which the law requires the lessor to perform. If the lease is void it neither confers a right nor creates a duty. In a well-reasoned opinion it was adjudged that where a lease was executed without au- thority the lessee could not be compelled to operate the leased road and that mandamus would not lie.** '= Commonwealth v. Nashville, &c. &c. R. Co. 63 Vt. 1, 21 Atl. 262, 731. R. Co. 93 Ky. 430, 20 S. "W. 383, 54 46 Am. & Eng. R. Cas. 646. Am. & Eng. R. Cas. 254. " People v. Colorado, &c. R. Co. 42 " Vermont, &c. R. Co. v. Vermont, Fed. 638. In the course of the opin- 458] LEASES. 622 § 458. Authorized lease — Duty of lessee to operate the road — Man- damus. — Where the lease is authorized a very different question is pre- sented from that which arises in cases where the lease is unauthorized. If it is the imperative duty of the lessor company to operate the road and it has no discretionary power in the matter and that duty was transferred to the lessee by the lease, it would seem clear that the lessee could be compelled by mandamus to perform the duty. This conclusion is supported by decisions in analogous cases.*^ It is settled that a railroad company in possession of its road may be compelled by mandamus to operate its road in accordance with the positive re- quirements of its charter, and we can see no reason why this principle should not apply to a company in full possession of a road under an authorized lease. In authorizing the lease the legislature empowered the transfer of the duty of operating the road to the lessee, and, with the duty, authorized the transfer of important rights and privileges, so that the duty of the lessee accepting the lease with its benefits be- comes imperative. The lessor having rightfully transferred possession to the lessee company cannot operate the road, and hence the duty nec- essarily devolves on the lessee.^^ Ion Caldwell, J., said: "As the re- lator and the respondents are agreed that the lease was void that ends the case as to the XJnion Pacific Railroad Company, for if the lease is void it imposes no obligation on the Union Pacific Railroad Company to operate the road." The decision was placed on the ground that the lease was void, lor it was aflBrmed that man- damus lies where there is a duty to operate a railroad. The court cited State v. Sioux City, &c. R. Co. 7 Neb. 357; Commonwealth v. Fitch- burgh, &c. R. Co. 12 Gray (Mass.) 180. ^ State V. Sioux City, &c. R. Co. 7 Neb. 357; Commonwealth v. Fitch- burg, &c. R. Co. 12 Gray (Mass.) 180; Farmers', &c. Co. v. Henning, 17 Am. Law Reg. (N. S.) 266; State V. Nebraska Tel. Co. 17 Neb. 126, 52 Am. R. 404; Mobile, &c. R. Co. v. Wisdom, 5 Heisk. (Tenn.) 125; State V. Hartford, &c. R. Co. 29 Conn. 538; Union Pacific R. Co. v. Hall, 91 U. S. 343; King v. Severn, &c. R. Co. 2 Barn. & Aid. 646; Peo- ple V. Albany, &c. Co. 24 N. Y. 261, 82 Am. Dec. 295; People v. Rome, &c. R. Co. 103 N. Y. 95, 8 N. E. 369; Railroad Commissioners v. Portland, &c. R. Co. 63 Me. 269, 18 Am. R. 208; State V. New Haven, &c. R. Co. 41 Conn. 134; New Haven, &c. R. Co. V. State, 44 Conn. 376; Chicago, &c. R. Co. V. People, 56 111. 365, 8 Am. R. 690; Chicago, &c. R. Co. v. Crane, 113 U. S. 424, 5 Sup. Ct. 578; People V. New York, &c. R. Co. 28 Hun (N. Y.) 543; Talcott v. Township of Pine Grove, 1 Flip. (U. S.) 120. See, also. Southern R. Co. v. Frank- lin, &c. R. Co. 96 Va. 693, 32 S. B. 485, 44 L. R. A. 297; State v. Mobile, &c. R. Co. 86 Miss. 172, 38 So. 732; Litchfield, &c. R. Co. v. People, 222 ni. 242, 78 N. E. 589. *° There may, possibly, be excep- tional cases, as where the operation 623 LIABILITY FOE WEONGS PRIOR TO EXECUTIOK OF LEASE. [§ 459 §' 459. lessee not liable for wrongs committed prior to the execu- tion of the lease. — The lessee does not become liable for injuries in- flicted by the lessor before the execution of the lease, unless it ex- pressly assumes such liability.*' Where there is an assumption of liability the extent and nature of the liability of the lessee company depends upon the provisions of the contract. In saying that the lessee is not liable for wrongs committed prior to the execution of the lease we do not mean to convey the impression that for a continuing wrong the lessee is not liable, for our opinion is that where the lessor com- pany is the original wrongdoer and the lessee continues the wrong after the execution of the lease it is liable.** But this rule cannot apply where there was a single transient wrong and the injury was complete prior to the execution of the lease. § 460. Effect of a lease upon rights of creditors. — The question whether a railroad company which acquires by an authorized lease all the property of another company, can hold the property free from the claims of the general or unsecured creditors of the lessor company, is not entirely free from difficulty.*' If the lessee acts in good faith, and the lease is such as the law authorizes it to take and its lessor to exe- cute, it certainly does acquire valuable property rights. Where there is of a line would exhaust the corpo- " Mr. Minor says that "A railroad rate capital, in which a mandamus company in debt cannot transfer its would not lie. Commonwealth v. entire property by lease so as to Fltchburg, &c. R. Co. 12 Gray prevent the application of it, at its (Mass.) 180. But where there is full value, to the debts of the com- not a clear, valid and sufficient rea- pany, and when such a transfer is-, son shown excusing the company made, a court of equity may decree there can, as we believe, be no doubt a payment of a judgment debt of of the power to coerce a perform- the lessor by the lessee." 19 Am. & ance of duty by mandamus. Eng. Ency. 898. For the reasons ''Pittsburgh, &c. R. Co. v. Kain, given in the text, we respectfully 35 Ind. 291; Little Miami, &c. R. suggest that Mr. Minor's statement Co. V. Hambleton, 40 Ohio St. 496. Is too broad. It may perhaps be =* Little Miami, &c. R. Co. v. Ham- true that a judgment debtor can bleton, 40 Ohio St. 496. See, also, reach the property in the hands of Silver v. Missouri Pac. R. Co. 101 the lessee, for a judgment is notice. Mo. 79, 13 S. W. 410; Stickley v. but where there is no judgment or Chesapeake, &c. R. Co. 93 Ky. 323, lien of any kind it cannot be justly 20 S. W. 261; Wabash, &c. R. Co. v. said that the rights of the creditors- Peyton, 106 111. 534, 46 Am. St. 705; are superior to those of the lessee. Wasmer v. Delaware, &c. R. Co. 80 N. Y. 212, 36 Am. R. 608. § 461] LEASES. 634 good faith, no liens, no notice, actual or constructive, and the lease is one the lessor has authority to execute and the lessee to accept, it is difficult to perceive any solid ground upon which the rights of the lessee can be subordinated to the claims of general and unsecured cred- itors. If the lessee company acts in bad faith, or if it secures property under such circumstances as to make it equitably chargeable as a trustee, then equity will so charge it, and will decree that the avails of property received under such circumstances may be applied to the payment of the claims of the creditors of the lessor company.®" But we very much doubt whether it can he deprived of the leased property in a case where it is entirely free from fault or wrong, and takes the property under an authorized lease. Doubtless a court of equity would make such a decree in tlie particular case as the principles of equity require, but it seems to us that it would not decree that the claims of unsecured creditors are in all cases paramount to the rights of the lessee. The rights of creditors should be protected, as far as it can be done, without depriving the lessee of its rights, but the rights of the lessee when it is entirely free from fault are entitled to protection. § 461. Authorized lease, rights and duties to which lessee company succeeds.. — What are known as "prerogative franchises" do not pass to the lessee under an authorized lease, but such rights as are necessary to the operation of the road and the conduct of its aifairs do pass to the lessee.®^ In other words, the lessee company, under such a lease, " Chicago, &c. R. Co. v. Third Na- surround this doctrine as applied tlonal Bank, 134 U. S. 276, 10 Sup. generally, preferring to notice a ain- Ct. 550, citing Central R. &c. Co. v. gle matter which is significant and Pettus, 113 U. S. 116, 124, 5 Sup. Ct. decisive." 387; Mellen v. Moline, &c. Iron "The execution of a lease does Works, 131 U. S. 352, 366, 9 Sup. Ct. not, ordinarily, confer upon the les- 981. See, also, Chicago, &c. R. Co, see the franchise to he a corporation V. Third National Bank, 26 Fed. 820. nor a franchise to take property In the case first cited the question under the power of eminent domain; we are here dealing with was stated, but the legislature may, perhaps, by but not decided. We quote from the express and apt words confer such opinion the following: "Can a cor- franchises. Such franchises do not poratlon in debt transfer its entire pass under authority conferred in property by lease, so as to prevent general terms to execute a lease, the application of the property at its The general authority does not im- full value, to the satisfaction of Its ply that the lessee shall take such debts? We do not care to pursue an high prerogative franchises, al- inquiry into this question at length, though it does imply that the lessee or consider what limitations would shall have power to do such things €25 EIGHTS AND DUTIES TO WHICH LESSEE SUCCEEDS. [§ 461 succeeds to the charter rights of the lessor company, so far as such rights are necessary to the operation of the road under the lease.*^ In granting the principal, that is, the right to lease, the incidental rights essential to the exercise of the principal right is also granted. As a general rule it is safe to say that the lessee ^s bound to perform all of the public duties imposed by law upon the lessor company. The lessee company takes the burdens with the benefits.'^ In a recent case a iease by a domestic company to a foreign company, authorized by the legislature, giving the lessee the right to have, hold and exercise all the rights, powers, privileges and franchises which could be lawfully held. as are reasonably necessary to en- able it to properly operate the road. •"Fisher v. New York Central R. Co. 46 N. Y. 644, where the lessee was held entitled to charge such rates as were legal for the company owning the leased line. But the Tight to appropriate property under the right of eminent domain does not pass to the lessee. Mayor y. Norwich, &c. R. Co. 109 Mass. 103; Chicago, &c. R. Co. v. Illinois Cen- tral R. Co. 113 111. 156. In Nebraska it is permitted to institute proceed- ings in the name of the lessor. Dietrichs v. Lincoln, &c. R. Co. 13 Neb. 361; Gottschalk v. Lincoln, &c. R. Co. 14 Neb. 389, 13 N. W. 624. See Kip v. New York, &c. R. Co. 67 N. Y. 227. See Chattanooga R. Co. V. Felton, 69 Fed. 273; Pittsburgh, &c. R. Co. V. Moore, 33 Ohio St. 384, 31 Am. R. 543. "'Pennsylvania R. Co. v. Sly, 65 Pa. St. 205; Commonwealth v. Penn- sylvania R. Co. 117 Pa. St. 637, 12 Atl. 38; Dryden v. Grand Trunk R. Co. 60 Me. 512; McMillan v. Michi- gan Southern, &c. R. Co. 16 Mich. 79, 93 Am. Dec. 208; State v. Mobile, Ac. R. Co. 86 Miss. 172, 38 So. 732; New York, &c. Co., In re, 49 N. Y. 414; South Carolina R. Co. v. Wil- mington, &c. R. Co. 7 S. Car. 410. The lessee may be compelled to op- Ell. Railroads — 40 erate the road along such places as had extended aid to the lessor com- pany. State V. Central Iowa R. Co. 71, Iowa 410, 32 N. W. 409, 60 Am. R. 806. See Chicago, &c. R. Co. v. Crane, 113 U. S. 424, 5 Sup. Ct. 578. It must maintain all fences, cattle-guards, etc., which the lessor company was required by law to maintain. Curry v. Chicago, &c. R. Co. 43 Wis. 665. It must give all statutory signals, etc., required of the lessor company. Linfield v. Old Colony, &c. R. Co. 64 Mass. 562, 67 Am. Dec. 124. And it is bound to make alterations in a highway cross- ing required by statute. "West brook's Appeal, 51 Conn. 95, 17 Atl. 368. The corporation tax law of Vermont, 1882, imposes a tax up- on the entire gross earnings of all railways operated in the state, and provides that when a railway is op- erated -under a lease the tax shall be paid by the lessee. Where the lessee had paid the tax and deducted it from the rent, while such legisla- tion was upheld by the decisions of the United States Supreme Court, the lessor was not permitted to re- cover from the lessee because of a later decision by that court that such tax was unconstitutional. Ver- mont, &c. R. Co. V. Vermont Cent. R. Co. 63 Vt. 1, 21 Atl. 262, 731, 10 L. R. A. 562. §• 462] LEASES. 626 exercised and enjoyed in connection with such railroad as fully as the same could be held, exercised or enjoyed by the lessor, was held to give the lessee the right to lay water mains along the right of way where the lessor had that right."* § 462. Contract obligations of lessor — lessee not liable thereon. — It is obvious that it would be a violation of principle to hold that the lessee under an authorized lease is liable on the contracts of the lessor company in the absence of an express provision to that effect."' The legislative sanction protects the lessee from any imputation of wrong, and in taking possession of the road under the lease it does what it has a lawful right to do. It cannot be held that by simply accepting a lease it binds itself by contracts made by the lessor before the execu- tion of the lease. The legislature may make it a condition of the exer- cise of the power to take a lease that the lessee company shall per- form the contracts of the lessor, but where the power is granted in general terms the duty to perform prior contracts entered into by the lessor does not necessarily devolve upon the lessee company. § 463. Recovery of rent under unauthorized lease. — The question of the right of the lessor to recover rent under an unauthorized lease, is one upon which there is a diversity of opinion. Some of the courts hold that rent may be recovered,"^ while others deny that there is a right of recovery on the lease, and in a recent case it is held that a lease which is ultra vires and void cannot be the foundation of any re- covery of rentals."^ We think that there can be no recovery upon the °* Canton v. Canton, &c. Co. 84 liable for the stipulated rent. The Miss. 268, 36 So. 266, 65 L. R. A. 561, case of Abbott v. Johnstown, &c. R. 105 Am. St. 428. Co. 80 N. Y. 27, 36 Am. R. 572, is dis- "^ An agreement by the lessor com- tinguished, and the cases of Bissell pany to give an annual pass to plain- v. Michigan, &c. R. Co. 22 N. Y. 258. tifC In consideration of a release of and Whitney, &c. Co. v. Barlow, 63 the right of way through his land N. Y. 62, 20 Am: R. 504, are followed, is not binding upon another com- See Board v. Reynolds, 50 Ind. 85; pany to which that company leases Ogdensburg, &c. Co. v. Vermont, &c. the road. Pennsylvania Co. v. Erie, R. Co. 4 Hun (N. Y.) 268; Union &c. R. Co. 108 Pa. St. 621. Bridge Co. v. Troy, &e. Co. 7 Lans. "= Woodruff V. Erie, &c. R. Co. 93 (N. Y.) 240; Farmers' Grain, &c. R. N. Y. 609, holding that although Co. v. St. Joseph, &c. Co. 2 Fed. 117. there is no power to execute a lease "' Cox v. Terre Haute, &c. R. Co> to an individual, yet if a lease is 133 Fed. 371, 66 C. C. A. 433. executed to an individual, he will be 621! IMPROVEMENTS BY LESSEE UNDER UNAUTHORIZED LEASE. '[§ 464 lease for the reason that it is void, but it does not necessarily follow from the fact the lease is void that there can be no recovery of com- pensation for the reasonable rental value of the leased property. If it could be justly said that the lessee was estopped then there would be little difficulty in solving the question. But it is not easy to find any principle upon which a conclusion that the lessee is estopped can be rested.^* Both parties do what they have no right to do, both parties have equal means of knowledge, and the question whether there was or was not power to execute the lease is one of law and not of fact. We are here speaking of cases where there is an entire absence of power, not simply a defective or improper exercise of power. Where there is power to lease, then, although the lease may be defectively executed, there may be an estoppel, but we do not think there can be an estoppel where there is an entire absence of power. There is an important distinction between a lease not properly executed and a lease executed where there is an utter and entire absence of power to execute a lease, but this distinction is often lost sight of and the result is confusion and error. § 464. Improvements of road by lessee operating under an unau- thorized lease. — It has been held that a lessee operating a railroad un- der an unauthorized lease cannot recover for improvements made while in possession of the road under the lease.®^ If such a lease is absolutely void then it cannot confer any rights upon the lessee, and, unless there is some controlling element of estoppel or some protecting stat- ute, the lessee cannot recover money expended in improving the road. Whether the lessee company can be regarded as an occupying claimant under the statutes protecting such claimants must depend upon whether the void lease confers color of title upon a company that was itself a wrongdoer in accepting the lease. The lease, being void, will not, of itself, give a right of action nor be sufficient foundation for an enforceable claim or demand. In the case, referred to the court vir- tually held that the lessee was not '^holding possession in good faith and under color of title."*"" ""Ante, §§ 371, 372, 373. as against the landowner where it '^ State V. McMinnville, &c. R. Co. enters and makes improvements un- 6 Lea (Tenn.) 369, 4 Am. & Eng. R. der a license or as a trespasser, see Cas. 95. note in 66 L. R. A. 33 et seq. ^'" As to the right of the company § 465] LEASES. 638 §• 465. Eeceiver's power to lease. — The receiver of a railroad com- pany cannot execute a lease unless the statute grants permission.^"^ If the railroad company has no power to execute a lease it seems clear that a receiver appointed by the court cannot make a valid lease. It seems to us, too, that in the absence of a statute granting permission to execute a lease of a railroad the courts could not confer such a power upon a receiver of the corporation owning the road, for the power to lease is statutory. § 466. Unauthorized lease — Liability of lessor — Generally. — ^The question whether a lease is or is not authorized is an important one in cases where claims for injury are sought to be enforced against the company which assumes to lease its railroad. If the lease is unauthor- ized, that is, made without legislative authority, it is, in our judg- ment, absolutely void, and if void, the lessor has not transferred any of its public duties or obligations.^"^ A transfer of a duty or obliga- tion cannot be made by a void act. If there is no transfer of duty it remains where the law cast it, and if there is a culpable breach 'of duty resulting in injury the fact that there was an attempt to transfer the duty will not relieve the party upon whom the law imposed the duty from liability. If the duty remains unaffected by a transfer, as it does where the transfer is void, the breach of duty is the wrong of the party upon whom the duty was imposed by law. It clearly and necessarily results from the principles stated that where the lease is unauthorized a wrongful breach resulting in injury imposes a liability upon the company that assumes, without power, to execute a lease. But while it is clear that there is a liability on the part of the lessor where the lease is unauthorized, that is, where there is no power to execute it, there is doubt whether this liability extends to the servants employed by the Ifessee in operating the road.^"^ The weight of au- '" State V. McMinnville, &c. R. Co. .A. 216, applying the doctrine of 6 Lea (Tenn.) 369; McMinnville, &c. East Line, &c. Railroad Co. v. Cul- R. Co. V. Huggins, 3 Baxt. (Tenn.) beraon, 72 Tex. 375, 10 S. W. 706, 13 177. But see Mercantile T. Co. v. Am. St. 805, and distinguishing Ma- Missouri, &c. R. Co. 41 Fed. 8; Gil- con, &c. R. Co. v. Mayes, 49 Ga. 355, bert V. "Washington City R. Co. 33 15 Am. R. 678. Judge Cooley illus- Gratt. (Va.) 586, to the effect that trates the general doctrine and says: the court may authorize him to do "The general duty of a railroad so. company to run its trains with care "" See post, § 473. becomes a particular duty to no one "'Baltimore, &c. R. Co. v. Paul, until he is in a position to have a 143 Ind. 23, 40 N. E. 519, 28 L. R. right to complain of the neglect." 629 LIABILITY OF LESSOE FOE NBGLIGEHTOE OP LESSEE. [§ 467 thority at present perhaps is that the lessor is liable to the servants of the lessee, but it is not clear that this doctrine is sound. It is ele- mentary learning that there is no negligence where there is no duty, and that a party who bases an asserted right of action upon the negli- gence of the defendant must show the breach of a specific duty owing him,^"* and where the relation of master and servant exists the only duty is that created by the contract of employment, so that it would seem that the employer is the only person liable. i §■ 467. Authorized lease — ^Liability of lessor for injuries caused by negligence of lessee — Cases holding lessor liable. — There is a wide diversity of opinion upon the question whether a company that leases its railroad to another company under authority of law is liable for the negligence of the lessee in operating the road under the lease. Many of the courts and some of the text-writers affirm that the lessor is liable although the lease is executed under authority of law, unless the statute which grants the right to lease exempts the lessor from liability.^"* The theory of some of the cases which hold the lessor Cooley Torts, 660. In the case of Kahl V. Love, 37 N. J. Law 5, the rule was thus stated: "Actionable negligence exists only when the party whose negligence occasions the loss owes a duty, arising from contract or otherwise, to the person sustaining such loss." The court In Lary v. The Cleveland, &c. Co. 78 Ind. 323, 329, 41 Am. R. 572, quoted a very similar statement of the rule with approval. The statement quoted is this: "Actionable negli- gence exists only where the one whose act causes or occasions the injury owed the injured person a duty created either by contract or by operation of law, which he has failed to discharge." Many cases are cited in the case from which we have quoted. Indianapolis, &c. R. Co. V. Pitzer, 109 Ind. 179, 182, 6 N. E. 310, 10 N. B. 70, 58 Am. R. 387; Evansville, &c. R. Co. v. Griffin, 100 Ind. 221, 50 Am. R. 783; Nave v. Flack, 90 Ind. 205, 207, 46 Am. R. 205; The State Travelers' Ins. Co. V. Harris, 89 Ind. 363, 366, 46 Am. R. 169. This subject is further con- sidered post, § 472. ^« See post, § 472. lo'In Logan v. North Carolina R. Co. 116 N. C. 940, 21 S. E. 959, the court referred to the cases of State V. Richmond, 72 N. C. 634; Gooch V. McGee, 83 N. C. 59, 35 Am. R. 558; Hughes v. Commissioners, 107 N. C. 598, 12 S. B. 465, and other cases holding that express legisla- tive authority is requisite to the validity of a lease and adjudged that even though there was legislative authority for the execution of the lease, the lessor company was liable for Injuries caused by the negli- gence of the lessee. The court ap- proved the case of Braslin v. Somer- ville, &c. R. Co. 145 Mass. 64, 13 N. B. 65. As sustaining the doctrine that the lessor was liable for an injury to a person employed by the lessee, the court cited National Bank, &c. §■ 467] LEASES. 630 liable for the negligence of the lessee in operating the road is that a railroad company is never exonerated except where there is an express statutory provision relieving it from liability. The eases to which we refer deny that there can be exoneration by implication, and assert that the authority to lease does not protect the lessor.^"* Other courts hold that the lessor is exonerated from liability for the negligence of the lessee in operating the road, but is liable for injuries resulting from a breach of duty owing to the public, as, for instance, negli- gence in the construction of tracks, station buildings and the like.^"^ V. Atlanta, &c. R. Co. 25 S. Car. 216; Harmon v. Columbia, &c. R. Co. 28 S. Car. 401, 5 S. B. 835, 13 Am. St. 686; Naglee v. Alexandria, &c. R. Co. 83 Va. 707, 3 S. E. 369, 5 Am. St. 308; Acker v. Alexandria, &c. Railroad Co. 84 Va. 648, 5 S. E. 688; Balsley v. St. Louis, &c. R. Co. 119 111. 68, 8 N. E. R. 859, 59 Am. R. 784; Singleton V. Southwestern R. Co., 70 Ga. 464, 48 Am. R. 574, 21 Am. & Eng. R. Cas. 226; 3 Purdy's Beach Priv. Corp. § 1046; Spelling Corp. § 135. See, also, Georgia, &c. R. Co. v. Haas (Ga.), 56 S. B. 313; Markey v. Louisiana, &c. R. Co. 185 Mo. 348, 84 S. W. 61; Drlscoll v. Norwich, &c. R. Co. 65 Conn. 230, 32 Atl. 354; Green v. Coast Line R. Co. 97 Ga. 15, 24 S. B. 814, 33 L. R. A. 806, 54 Am. St. 379; Harden v. North Caro- lina R. Co. 129 N. Car. 354, 40 S. B. 184, 55 L. R. A. 784, 85 Am. St. 747; Chollette v. Omaha, &c. R. Co. 26 Neb. 169, 41 N. W. 1106, 4 L. R. A. 135; Davis v. Atlanta, &c. R. Co. 63 S. Car. 370, 41 S. E. 468; Stephens V. Railroad Co. 36 Iowa 327; Bower V. Burlington, &c. R. Co. 42 Iowa 546. 1" Balsley v. St. Louis, &c. R. Co. 119 111. 68, 8 N. E. 859, 59 Am. R. 784; Wabash, &c. R. Co. v. Peyton, 106 111. 534, 46 Am. R. 705, 18 Am. & Eng. R. Cas. 1; Chollette v. Omaha, &c. R. Co. 26 Neb. 159, 41 N. W. 1106, 37 Am. & Eng. R. Cas. 16. It Is so held even as to an employe of the lessee company in the recent case of Chicago, &c. R. Co. v. Hart, 209 111. 414, 70 N. B. 654, 66 L. R. A. 75, where authorities on both sides are collected and reviewed in the prevailing and dissenting opinions. And in Parr v. Spartanburg, &c. R. Co. 43 S. Car. 197, 49 Am. St. 826, the lessor company was held liable for a tort in the negligent operation of the road by a receiver of its les- see, appointed in an action to which it was not a party. South Carolina has a statute making a consolidated company liable for Injury to an em- ploye of its lessee. Reed v. South- ern R. (S. Car.), 55 S. E. 218. "' Nugent V. Boston, &c. R. Co. 80 Me. 62, 12 Atl. 797, 6 Am. St. 151, 38 Am. & Eng. R. Cas. 52; St. Louis &c. R. Co. V. Curl, 28 Kans. 622, 11 Am. & Eng. R. Cas. 458; Bay City R. Co. v. Austin, 21 Mich. 390; Kearney v. Central, &c. R. Co. 167 Pa. St. 362, 31 Atl. 637; Kansas, &c. Railroad Co. v. Wood, 24 Kans. 619; Texas, &c. R. Co. v. Moore (Texas Civ. App.), 27 S. W. 962; Central, &c. R. Co. V. Phinazee, 93 Ga. 488, 21 S. E. 66. See, also, Lakin v. Railroad Co. 13 Oreg. 436, 11 Pac. 68, 57 Am. St. 25; Lee v. Southern Pac. R. Co. 116 Cal. 97, 58 Am. St. 140, and note. Not for acts of the lessee in the maintenance and repair of the road. Ackerman v. Cincin- 631 LIABILITY OF LESSOR FOR NEGLIGENCE OF LESSEE. [§ 468 §468. Authorized lease — Liability of lessor for negligence of lessee in operating the road — ^Authorities denying liability. — As said in the preceding section some of the cases make a distinction between negligence in the operation of the road and negligence in its con- struction or in the performance of a duty to the public, and adjudge that the lessor company is not liable for the negligence of the lessee in operating the road.^"* The text-writers generally favor the doctrine that for negligence in operating the road the lessor is not liable.^"® nati, &c. R. Co. (Mich.) 106 N. W. 558; Shores v. Southern R. Co. 72 S. Car. 244, 51 S. E. 699. "= Arrowsmith v. Nashville, &c. R. Co. 57 Fed. 165. In the case cited the court, after a very full review of the authorities, adopted the doc- trine of the cases of Mahoney v. Atlantic, &c. R. Co. 63 Me. 68, and Nugent V. Boston, &c. R. Co. 80 Me. 62, 12 Atl. 797, 6 Am. St. 151, 38 Am. & Eng. R. Cas. 52, and quoted from the latter case as expressive of the true rule the following: "And herein, as we think, lies the true distinction which marks the divid- ing line of the lessor's responsibil- ity. In other words an authtfrized lease, without any exemption clause, absolves the lessor from the writs of the lessee resulting from the neg- ligent operation and handling of trains and the general management of the leased road over which the lessor could have no control. But for an injury resulting from the negligent omission of some duty owed to the public, such as the proper construction of the road, sta- tion houses, etc., the charter com- pany cannot, in the absence of stat- utory authority, discharge itself of legal responsibility." The court in the case first named cited as sup- porting its conclusion the following authorities: Wood Railroads, § 490; Ditchett V. Spuyten, &c. R. Co. 67 N. Y. 425; Miller v. New York, &c. R. Co. 125 N. Y. 118, 47 Am. & Eng. R. Cas." 369; St Louis, &c. R. Co. V. Curl, 28 Kans. 622, 11 Am. & Eng. R. Cas. 458; Briscoe v. South- ern, &c. R. Co. 40 Fed. 273; Virginia, &c. R. Co. V. Washington, 86 Va. 629, 7 L. R. A. 344, 43 Am. & Eng. R. Cas. 688. See, also. Heron v. St. Paul, &c. R. Co. 68 Minn. 542, 71 N. W. 706 (citing text) ; Little Rock, &c. R. Co. V. Daniels, 68 Ark. 171, 56 S. W. 874; Caruthers v. Kansas City, &c. R. Co. 59 Kans. 629, 54 Pac. 673, 44 L. R. A. 737; Hayes v. Northern Pac R. Co. 74 Fed. 279; Harper v. Newport News, &c. R. Co. 90 Ky. 359, 14 S. W. 346; Miller v. Railroad Company, 125 N. Y. 118, 26 N. E. 35; New York v. Twenty-third St. R. Co. 113 N. Y. 311, 21 N. E. 60. The same view is taken in Yeates v. Illinois Cent. R. Co. 137 Fed. 943, 945 (citing text) where it is also held that the question is one of gen- eral law in regard to which a fed- eral court is not controlled by state decisions. See, also, Williams v. Spartanburg R. Co. 124 Fed. 796; Curtis V. Cleveland, &c. R. Co. 140 Fed. 777. ™Mr. Hutchinson thus expresses his opinion: "An authorized lease, not otherwise providing, will ab- solve the lessor from the torts of the lessee, resulting from the neg- ligent operation and handling of trains and the general management of the leased road over which the § 469]. LEASES. 633 §469. Authorized lease — ^Liability of lessor for negligence of lessee in operating tlie road — ^Views of the authors. — Our opinion i& that where the lease is executed under the provisions of a statute, in. accordance with its requirements, and is naade to a company having au- thority to accept it, and is made in good faith and not for the pur- pose of transferring duties or obligations to an irresponsible party, the lessor company is not liable for injuries caused by the negligence of the lessee and not attributable to a breach of any public duty of the company that executed the lease. It must be assumed that in granting the authority to execute a lease the legislature had in mind former statutes as well as the established rules of the common law.^^* When power to execute a lease is conferred upon a corporation the lessor has no control." Hutchinson Carriers, § 575 B. Mr. Wood's views are expressed in this lan- guage: ^'But where the statute au- thorizes the lease, the lessee assumes during the existence of the lease, all the duties and obligations of the lessor, and from the time that it enters into the possession of the road becomes solely liable for all injuries resulting from its manage- ment unless operating the road • in the name of the lessor." Wood Kailroads, § 400. Mr. Pierce says: "The lease of a railroad under due authority of law effects a transfer of rights and liabilities in its man- agement, so that the corporation owning the railroad is discharged from liability for the lessee's torts." Pierce Railroads, § 283. Some of the courts say that the statements of the author quoted from are so coupled with conditions and qualifi- cations as not to oppose the doctrine of the cases which hold that there is no exemption unless there is an express statutory provision grant- ing it, but those courts are in error. As shown in Arrowsmith v. Nash- ville, &c. R. Co. 57 Fed. 165, Mr. Pierce recognizes two classes of leases, authorized and unauthorized, and affirms of the former class that the lessor is not liable. The cases of Mahoney v. Atlantic, &c. R. Co. 63 Me. 68; Ditchett v. Spuyten, &c. R. Co. 67 N. Y. 425, 5 Hun (N. Y.) 165, declare the doctrine he affirms so that there is no reason to doubt his meaning. Mr. Patterson's opin- ion is given in this language: "On the other hand, where a railway un- der due authority of law has leased its line to another, the lessor rail- way is not liable for torts committed by the lessee railway In the opera- tion of the line." Patterson's R. Ace. Law, §§ 130, 131. Some of the cases assert that Judge Redfleld dif- fers from the authors to whom we have referred, but, as is shown by Judge Linton in Arrowsmith v. Nashville, &c. R. Co. 57 Fed. 165, they are in error. Judge Rorer does not, as we understand him, express any opinion upon the direct ques- tion. He cites some of the opposing cases, so that it cannot be deter- mined what view he adopts. 1 Rorer Railroads, §§ 605, 606. "°"The legislature are presumed to know existing statutes and the state of the law relating to the sub- jects with which they deal." Suth- ei'laod Stat. Const. § 287. 633 LIABILITY OF LESSOR FOE NEGLIGENCE OF LESSEE. [§ i&9 ' legislature must, in the absence of countervailing language, be deemed to intend to authorize the execution of such an instrument as the established la.w regards as a lease. The law enters as a silent factor into every contract, and hence of every lease it is an important ele- ment. The legal effect of a lease is to transfer for a prescribed period of time the possession and control of the property to the lessee. In authorizing the execution of a lease the legislature grants the right to execute and carry into effect such an instrument as divests the lessor of possession and control and places it in the lessee to the ex- clusion of the lessor. The possession of the one party is excluded and that of the other is made complete by the legislative sanction. If a sale is made under valid legislative authority the company that ac- quires the property acquires an exclusive right and interest, and the lessee by virtue of the lease acquires a similar right so far as posses- sion, control and management are concerned, for the term for which the property was leased. It cannot be doubted that a statute conferring' general authority to sell means a complete and effective sale, and upon the same principle it must be concluded that the power to lease, unless qualified and limited by statute, is a power to make a complete and effective lease. A complete and effective lease certainly vests the right of possession, control and management in the lessee, since no other effect can be assigned such a lease without a direct and palpable violation of long and well established principles of law. The lessor company does no wrong in executing a lease which the law of the land gives it full power to execute, so that in executing the lease there is no improper motive, no illegal act, nor any wrongful attempt to escape a. duty. In granting authority to lease, the legislature empowers the lessor company to transfer the duty of operating the road to the lessee, and in doing what the legislature authorizes no rule of public policy is violated. It is, indeed, inconceivable that there can be a violation of a rule of public policy where the act done by a party is done under a legislative enactment and in accordance with its provisions. The cases which hold the lessor liable, although the lease is an authorized one, upon the ground that there must be an express exemption from liability in order to exonerate the lessor, concede, what could not be denied without leaving ^he domain of reason, that the legislature may by express enactment exonerate the lessor, so that, even upon that the- ory (which we believe to be unsound) the question, at bottom, is one of statutory construction. The courts which assert the theory mentioned tacitly assume that in grantii^g authority to lease, the legislature granted something less than an authority to lease. We believe that §' 470] LEASES, ^ 634 the only theory that can be defended on principle is that in granting authority to execute a lease the legislature conferred authority to execute an efEective instrument with all the qualities and incidents with which the law invests a lease. If this be true then the lease does transfer possession and control from the one party to the other for the term of the lease, and the rights and obligations of the parties are such, and such only, as the law annexes to the relation of lessor and lessee. For negligence in managing and using the demised premises the lessor is not responsible. If it has performed its duty in con- structing tracks and necessary structures it can not be held responsible for the negligence of the lessee in employing incompetent servants, or in negligently handling trains, or in negligently overloading cars, or in negligently failing to provide a sufficient number of persons to manage trains, or for any negligence which relates solely to the mode of operating the leased road.^^°* § 470. Control reserved by lessor, — Where the lessor company, in an authorized lease, retains control of the road, there is reason for holding it liable for the negligence of the lessee in operating the road. The fact that exclusive control is not transferred to the lessee is an influential factor, and may well be held to constitute the basis of an exception to what we conceive to be the general rule. If the lessor company does retain control its duty is to exercise that control as the law requires.^ ^^ ""a This section is quoted almost process In personal injury cases; in full and the views of the authors that in such a case it may be shown taken in Heron v. St. Paul, &c. R. hy parol that at the time of the ac- Co. 68 Minn. 542, 71 N. W. 706, 707, cldent the road was operated by a 708. It is also approved In Yeates lessee, and that the lessor is not V. Illinois Cent. R. Co. 137 Fed. 943, bound by declarations In a time 945; and in elaborate opinions in table, put out by the lessee, where Moorshead v. United R. Co. (Mo. It is not shown that the lessor had App.) 96 S. W. 261, 274, 280, 281 any knowledge of it or authorized (affirmed in 100 S. W. 611, 612, quot- it in any way. ing text at length), where it is "^DriscoU v. Norwich, &c. Co. 65 said to be "illuminating, exhaust- Conn. 230, 32 Atl. 354. In the case ive and conclusive." In Chicago, cited the lessor reserved to itself &c. R. Co. V. Weber, 219 111. 372, the control of the road while In the 76 N. E. 489, 4 L. R, A. (N. S.) hands of the lessee, so that there 272, limits of the broad doctrine of can be no doubt that the conclusion liability in Illinois are pointed out, asserted by the court is sound. See, and it is held that servants or also Central Trust Co. v. Colorado agents of the lessee are not agents Midland R. Co. 89 Fed. 560; Central of the lessor to receive service of Trust Co. v. Denver, &c. R. Co. 97 635 LIABILITY OF LESSEE UNDER AUTHOKIZED LEASE. [§ 471 §471. liability of lessee under authorized l^ase — ^Illustrative cases. — An authorized lease, that is, a lease executed under power granted by the legislature, imposes upon the lessee the duty of oper- ating and conducting the road as the statute from which the lessor company derived its powers prescribes.^^^ The lessee is under a duty to provide fences, as the charter of the company from which it ac- quired its title requires ;^^^ to exercise ordinary care and diligence to prevent the escape of fire, and to give signals at crossings, as provided in the statute governing the lessor company.^^* A lessee is liable for maintaining a nuisance after notice to abate, although the nuisance existed at the time the lease was executed.^^^ The lessee is, as a rule, liable for injuries resulting from a failure to properly operate and maintain the road,^^® and for the negligent acts of its servants in the ■operation of the road.'-^' It is liable for the failure to carry, safely and promptly, any persons or goods entrusted to it for carriage.^^* It Fed. 239; Braslin v. Somerville, 145 Mass. 64, 13 N. B. 65. "^^New York, &c. R. Co., In re, 49 N. Y. 414; South Carolina, &c. R. Co. V. "Wilmington, &c. R. Co. J S. Car. 410; Ogdensburg, &c. R. Co. v. Vermont, &c. R. Co. 4 Hun 712; Pennsylvania R. Co. v. Sly, 65 Pa. St. 205; Commonwealth v. Pennsyl- vania R. Co. 117 Pa. St. 637, 12 Atl. 38; State v. Central, &c. R. Co. 71 Iowa 410, 60 Am. R. 806. "=Cook V. Milwaukee, &c. R. Co. 36 Wis. 45; McCall v. Chamberlain, 13 Wis. 637; Curry v. Chicago, &c. R. Co. 43 Wis. 665; Liddle v. Keo- kuk, &c. R. Co. 23 Iowa 378. "•Linfield v. Old Colony, &c. R. Co. 64 Mass. 562, 57 Am. Dec. 124. '"Western, &c. R. Co. v. Cox, 93 Ga. 561, 20 S. B. 68. ™ St. Louis, &c. R. Co. V. Curl, 28 Kans. 622, '11 Am. & Bug. R. Cas. 458. But, as already shown, it is not ordinarily liable for injuries to land caused by defects in the original construction of the road unknown to it and not caused by operating it in that condition. See Kearney V. Central R. Co. 167 Pa. St. 362, 31 Atl. 637. The. lessee has been held liable with the original owner or lessor for damages resulting from a permanent injury to property caused by the construction of the road. Stickley v. Chesapeake, &c. R.^ Co. 93 Ky. 323, 52 Am. & Bug. R. Cas. 56. The lessee is liable for the con- tinuance of a nuisance erected by the lessor. Dickson v. Chicago, &c. R. Co. 71 Mo. 575. It Is liable for injuries arising from a failure to fence the road. Missouri Pac. R. Co. V. Morrow, 32 Kan. 217; Cook v. Milwaukee, &c. R. Co. 36 Wis. 45; Ditchett V. Spuyten, &c. R. Co. 67 N. Y. 425; Illinois Central R. Co. v. Kanouse, 39 111. 272, 89 Am. Dec. 307; Wabash R. Co. v. Williamson, 3 Ind. App. 190. "^ A company is liable for fires set by the engines of trains which it runs over a leased road. Caution V. Bastern R. Co. 45 Minn. 481. "'Feital v. Middlesex, &c. R. Co. 109 Mass. 398, 12 Am. R. 720; Bur- roughs V. Norwich, &c. R. Co. 100 Mass. 26, 1 Am. R. 78; Mahoney v. Atlantic, &c. R. Co. 63 Me. 68; Phila- delphia, &c. R. Co. V. Anderson, 94 § 472] LEASES. 636 may be safely asserted as a general rule that when a road is transferred by lease under legislative authority, the lessee company is liable as if it were operating the road as owner.^^* § 472. Unauthorized lease — ^Liability of lessor to employes of lessee — Generally. — It is difficult without a departure from sound principle to support the doctrine of the eases which hold that the lessor is liable to the employes of the lessee for injuries caused by the negligence of the lessee in maintaining and operating the leased road. The case of an employe is in some important particulars essentially different from the case of persons using the road, or of persons whose goods are transported over it, or of persons who are themselves carried as passengers. The relations between the lessee company and its em- ployes are contractual, and the duty which the contract creates is that of employer to employe. The person who takes service with the lessee company voluntarily accepts that company as its employer and out of this contract comes the duty which the contracting parties owe to each other. The employe of the lessee certainly owes no duty to the lessor, and it is difficult to conceive a tenable ground for the conclu- sion that the lessor owes a duty to the employe. The employer as- sumes to perform the duties imposed upon it by law, in its character of employer, and the employe voluntarily takes the lessee company as his employer. The employe does not contract with the lessee as the agent of the lessor, but contracts directly with the lessee as its own representative and not as the representative of some Other person or corporation. There is in all that the term implies a direct and full privity of contract between the lessee and its employes. There is no priority of contract between the lessor and the employes of the lessee, and no implication that for breach of the duty of employer, the em- ploye can look to the lessor for redress. In a recent case the question we are considering was thoroughly discussed, and it was held that, although the lease was not authorized by statute, the lessor was not liable to a servant of the lessee injured while engaged in performing Pa. St. 351, 39 Am. R. 787; Wabash, 67 N. Y. 425; Davis v. Providence, &c. R. Co. V. Peyton, 106 111. 534, 46 &c. R. Co. 121 Mass. 134; Philadel- Am. R. 705; Patterson v. Wabash, phia, &c. R. Co. v. Anderson, 94 Pa. &c. R. Co. 54 Mich. 91. St. 351, 39 Am. R. 787; Patterson ™St. Louis; &c. R. Co. V. Curl, 28 v. Wabash, &c. R. Co. 54 Mich. 91; Kans. 622; International, &c. R. Co. Mahoney v. Atlantic, &c. R. Co. 63 V. Dunham, 68 Tex. 231, 2 Am. St. Me. 68; Murch v. Concord R. Corp. 484; Ditchett v. Spuyten, &c. R. Co. 29 N. H. 9, 61 Am. Dec. 631. <637 LIABILITY OF LESSOE TO EMPLOYES OF LESSEE. ' [§ 473 -the duties of his service by reason of defects in a locomotive used by ihe lessee in operating the road.^^" The theory of the court was that ihe lessor owed no duty to the servant of the lessee, and as there was no duty there could not be actionable negligence. There is unques- tionably much force in the reasontug of the court in the case under immediate mention, for the settled rule is that where there is no duty there is no negligence, and a party cannot have a right of action unless there is a breach of a specific duty owing to him. In the ease of an employer and employe there is no consideration of public policy involved, such as there is in cases of third persons, for the employe by a voluntary contract creates the relation of employer and employe. His rights are such as his contract creates, the duty springs from the ■contract and but for the contract he would really have no right on the road or any of its equipments. The difference between cases where ihird persons sue for injuries, and cases where the action is by an em^ ploye is so wide that cases deciding that there is a liability to third persons are hardly in point. We incline to the opinion that the lessor is not liable to the servants of the lessee for injuries received by them, in cases where the injuries are caused solely by the negligence of the lessee in operating the road,^^^ but it is difficult to say on which side lies the weight of authority, and in number of decisions, if we con- sider those of the same courts as constituting the weight of authority, ""Baltimore, &c, R. Co. v. Paul, souri, &c. R. Co. v. Watts, 63 Tex. 143 Ind. 23, 40 N. B. 519, 28 L. R. A. 549, 22 Am. & Eng. R. Cas. 277, it ,216. It was said by the court, speak- was held that the lessor is not liahle ing of the duty to third persons, to the servant of the lessee for in- that: "The law will not permit the juries received in the line of service owner of the road to shirk its duty required of him in operating the to them by turning over its road to road. another company, nor will it be per- "'It is so held, and the text is mitted to deny its liability where it cited with approval in Willard v. has allowed such other company, Spartanburg, &c. R. Co. 124 Fed. without authority of law, negligent- 796, 800. To the same effect are ly to injure wayfarers over the East Line, &c. R. Co. v. Culberson, track or property along the line. 72 Tex. 375, 10 S. "W. 706, 3 L. R. There is no privity between persons A. 567, 13 Am. St. 805; Banks v. injured in such a case and the op- Georgia R. &c. Co. 112 Ga. 655, 37 crating company. It is not so with S. E. 992; Hukill v. Maysville, &c. an employe who voluntarily enters R. Co. 72 Fed. 745; Virginia, &c. R. the service of the latter company Co. v. Washington, 86 Va. 629, 10 S. with a knowledge of the facts E. 927, 7 L. R. A. 344; Swice v. and participates knowingly in the Maysville, &c. R. Co. 116 Ky. 253, 75 -wrong, if wrong it be." In Mis- S. W. 278. 473] LEASES, 638 it is perhaps against our opinion.^^^ Whether the lessor can be held liable to an employe of the lessee for negligence in the construction of the track or the like^^' is a very different question from the question here considered, namely, the right of an employe of the lessee to hold the lessor liable for negligence in operating the road. §473. ITnauthorized lease — ^Liability of lessor, general rule. — The general rule as declared by the great weight of authority is this : Where the lease under which the road is transferred is unauthorized,, even though a railroad company puts its road in the possession of a lessee, and surrenders the entire control and management of its road, it is liable in general for all damages caused by the lessee's negligence in the management and conduct of the railroad and its affairs.^^* ^ Logan T. North Carolina R. Co. 116 N. Car. 940, 21 S. E. 959; Har- den V. North Carolina R. Co.. 129 N. Car. 354, 40 S. E3. 184, 55 L. R. A. 784, 85 Am. St. 747; Chicago, &c. R. Co. V. Hart, 209 111. 414, 70 N. E. 654, 66 L. R. A. 75; Macon, &c. R. Co. V. Mayes, 49 Ga. 355, 15 Am. R. 678; Davis v. Atlanta, &c. R. Co. (S. Car.) 41 S. E. 468. It was stated in the first edition that the weight of authority is against our opinion, which remains the same as before expressed, but this statement was criticised as Incorrect in the dissent- ing opinion in the Illinois case here- in cited. There are other North Carolina and Illinois cases to the same effect as those herein cited, and authorities upon both sides are cited in a leading article in 62 Cent. Law Jour. 181, where the view we have taken is regarded as the bet- ter one. ^^^ The authorities are very gen- erally to the effect that the lessor may be held liable in such a case. Nugent V. Boston, &c. R. Co. 80 Me. 62, 12 Atl. 797, 6 Am. St 151; Trin- ity, &c. R. Co. V. Lane, 79 Tex. 643, 15 S. W. 477, 16 S. W. 18; Lee v. South- ern Pac. R. Co. 116 Cal. 97, 47 Pac. 932, 38 L. R. A. 71, 58 Am. St. 140, and note. And a statute expressly declaring the lessee liable does not necessarily exempt the lessor from liability. Chicago, &c. R. Co. v. Crane, 113 U. S. 424, 5 Sup. Ct. 578; Bean v. Atlantic, &c. R. Co. 63 Me. 293; Bower v. Burlington, &c. R. Co. 42 Iowa 546. "* Arrowsmith v. Nashville, &c. R. Co. 57 Fed. 165, 171; York, &c. R. Co. V. Winans, 17 How. (U. S.) 30; Ricketts v. Birmingham, &c. R. Co. 85 Ala. 600, 5 So. 353; Rome, &c. R. Co. V. Chasteen, 88 Ala. 591, 7 So. 94; Galveston, &c. R. Co. v. Garter- ser (Tex. Civ. App.), 29 S. W. 939; Parr v. Spartanburg, &c. Co. 43 S. Car. 197, 20 S. W. 1009, 49 Am. St 826; Palmer v. Utah, &c. R. Co. 2 Idaho 315, 350, 13 Pac. 425, 36 Am. & Eng. R. Cas. 443; Harmon v. Co- lumbia, &c. 28 S. Car. 401, 13 Am. St. 686; International, &c. R. CO. v. Moody, 71 Tex. 614, 9 S. W. 465; Briscoe v. Southern Kansas R. Co. 40 Fed. 273 ; Ricketts v. Chesapeake, &c. R. Co. 33 W. Va. 433, 10 S. E. 801, 7 L. R. A. 354, 25 Am. St 901; Louisville, &c. R. Co. v. Breedon, 111 Ky. 729, 64 S. "W. 667; Abbott V. Johnstown, &c. R. Co. 80 N. Y. 639 UNAUTHORIZED LEASE — LIABILITY OE LESSOR. [§ 473 There is, as we believe, and as we have more clearly pointed out in another place, an important difEerence between authorized leases and leases executed in eases where there is an entire want of power to exe- cute them, and the rules which govern the one class of cases cannot be justly held to govern the other class. The negligence of a lessee hav- ing actual possession and control of a railroad under a lease which the lessor had no power to execute, does not transfer liability from the lessor to the lessee, so the lessor remains liable for the wrongs of the lessee,^^^ except in cases where by reason of contract rela- tions, the specific duty which is violated is owing solely from the lessee to the injured person. The theory upon which many of the cases proceed is that the persons operating a road under an unauthorized lease are the agents of the lessor company.^^" But whatever may be the particular theory adopted, the great weight of authority is that the company that executes such a lease still remains liable.^^^ 27, 36 Am. R. 572; Lee v. South- ern Pac. R. Co. 116 Cal. 97, 47 Pac. 932, 38 L. R. A. 71, 58 Am. St. 140; Chattanooga, &c. R. Co. v. Liddell, 85 Ga. 482, 21 Am. St. 169. But, as stated in the preceding sec- tion, some courts hold otherwise as to employes of the lessee. See, also, Hukill v. Maysville, &c. R. Co. 72 Fed. 745; Virginia, &c. R. Co. v. Washington, 86 Va. 629, 10 S. E. 927, 7 L. R. A. 344. See review of authorities in leading article in 62 Cent. Law Jour. 181. ""It is held that the lessor is lia- ble for the lessee's refusal to carry freight offered for transportation. Central, &c. R. Co. v. Morris, 68 Tex. 49, 3 S. W. 457. ""Nelson v. Vermont, &c. R. Co. 26 Vt. 717, 62 Am. Dec. 614; Briscoe V. Southern Kansas, &c. R. Co. 40 Fed. 273. In Van Dresser v. Oregon R. &c. Co. 48 Fed. 202, the court held that the lessee of a railroad, engaged in operating it under an unauthorized lease, must be consid- ered as the agent of the lessor com- pany for the purpose of service of summons in a suit against such company. See, also, Smalley v. At- lanta, &c. R. Co. 73 S. Car. 572, 53 S. E. 1000, 1001 (citing text). A contract for the shipment of freight over a railroad, made by a lessee of the road, does not bind the railroad company to do more than its lessee is bound to do. International, &c. R. Co. V. Thornton, 3 Tex. Civ. App. 197, 22 S. W. 67. "'Bouknight v. Chicago, &c. R. Co. 41 S. Car. 415, 19 So. 915; Fisher V. West Virginia,' &c. Co. 39 W. Va. 366, 19 S. B. 578, 2 L. R. A. 758; Harmon v. Columbia, &c. R. Co. 28 S. Car. 401, 5 S. E. 835, 13 Am. St. 686 ; Gulf, &c. Co. v. Morris, 67 Tex. 692, 35 Am. & Bng. R. Cas. 94; Hart V. Charlotte, &c. R. Co. 33 S. C. 427, 12 S. E. 9; Chollette v. Omaha, &c. R. Co. 26 Neb. 159, 41 N. W. 1105, 37 Am. & Eng. R. Cas. 16; Ottawa, &c. R. Co. V. Black, 79 111. 262; Bower v. Burlington, &c. R. Co. 42 Iowa 546; Braslln v. Somerville, &c. R. Co. 145 Mass. 64, 13 N. B. 65; Freeman v. Minneapolis, &c. R. Co. 28 Minn. 443; Brown v. Hannibal, &c. R. Co. 27 Mo. App. 394; Abbott V. Johnstown, &c. R. Co. 80 N. Y. 27, 474] LEASES. 640 § 474. liability of lessee for injuries resulting from negligence in operating the road. — The lessee is liable for all injuries occasioned by-its negligent operation of a road under an unauthorized lease, inas- much as its liability for its own torts is the same whether it is using its own property or that of another when the injury is done.^^* It is clear that principle requires the conclusion that a lessee operating under an unauthorized lease is liable for negligence in operating the road. To permit a mere intruder into the franchise of a railroad com- pany to escape liability for his failure to perform the duties which fie has assumed, upon the plea that he is acting under an invalid con- tract and is operating the road without right, would be to allow him to allege his own wrong in his defense.'^^' If the lease is void the com- pany operating a railroad under it can not, it is obvious, shield itself from liability for injuries caused by its culpable negligence. The per- son injured is in nowise to be prejudiced by the wrongful act of the corporation that causes him injury in assuming powers and duties it has no right to take upon itself. There is, however, such harmony 36 Am. R. 572; Aycock v. Raleigh, &c. R. Co. 89 N. C. 321; Lakin r. Willamette, &c. R. Co. 13 Oreg. 436, 11 Pac. 68, 57 Am. R. 25; Washing- ton, &c. R. Co. V. Brown, 17 Wall. (U. S.) 445. See, generally, Chi- cago, &c. R. Co. V. Whipple, 22 111. 105; Palmer v. Utah, &c. R. Co. 2 Idaho 315, 350, 13 Pac. 425, 36 Am. & Bng. R. Cas. 443 ; Pennsylvania Co. ■V. Sellers, 127 Pa. St. 406, 17 Atl. 987; Bast Line, &c. R. Co. v. Culherson, 72 Tex. 375, 10 S. W. 706, 3 L. R. A. 567, 13 Am. St. 805, 38 Am. & Bng. R. Cas. 225; Ohio, &c. R. Co. v. Dun- har, 20 111. 623, 71 Am. Dec. 291; Sellers v. Richmond, &c. R. Co. 94 N. C. 654; Great Northern, &c. R. Co. V. Eastern, &c. R. Co. 12 Bng. L. & B. 224; Wasmer v. Delaware, &c. R. Co. 80 N. Y. 212, 36 Am. Dec. 608. "''Cantlon v. Bastern R. Co. 45 Minn. 481, 48 N. W. 22; Muntz v. Algiers, &c. R. Co. Ill La. Ann. 423, 35 So. 624, 64 L. R. A. 222, 100 Am. St. 495; Wahash, &c. R. Co. v. Pey- ton, 106 111. 534; 46 Am. R. 705; Philadelphia, &c. R. Co. v. Anderson, 94 Pa. St. 351, 39 Am. R. 787. The lessee's liability is in nowise affect- ed by the fact that the lease was without authority and therefore un- lawful. Ricketts v. Chesapeake, &c. R. Co. 33 W. Va. 433, 10 S. E. 801, 7 L. R. A. 354, 25 Am. St. 901, 41 Am. & Bng. R. Cas. 42; Hall v. Brown, 54 N. H. 495; Toledo, &c. Co. V. Rumbold, 40 111. 143; McCluer V. Manchester, &c. R. Co. 79 Mass. 124, 74 Am. Dec. 624; Feital v. Mid- dlesex, &c. R. Co. 109 Mass. 398, 12 Am. R. 720; Atlanta, &c. R. Co. v. Ray, 70 Ga. 674; McMillan v. Michi- gan, &c. R. Co. 16 Mich. 79, 93 Am. Dec. 208; Sprague v. Smith, 29 Vt. 421, 70 Am. Dec. 424; Cook v. Mil- waukee, &c. R. Co. 36 Wis. 45; HafC V. Minneapolis, &c. R. Co. 4 McCrary (U. S.) 622; Missouri Pac. R. Co. v. Morrow, 32 Kans. 217, 4 Pac. 87. ^^ Sprague v. Smith, 29 Vt. 421, 70 Am. Dec. 424. •641 OONTKACTS OF THE LESSEE. [§ 475 .among the authorities upon the general question that there is no jieeessity for extended discussion. § 475. Contracts of the lessee. — ^The ease of one who founds his ■claim upon a contract with the lessee after the execution of the lease is essentially different from that of one who bases his right on the tort of the lessee. It is obvious that the lessor cannot be held liable for a breach of the contracts entered into by the lessee. If the action is, iounded on the contract there is no privity between the lessor and the person with whom the lessee contracts. The contract gives the person with whom the lessee contracts no right of action against the lessor, for the latter has assumed no obligation whatever.^^" §'476. Joint liability. — The lessor and lessee are usually jointly liable for negligence in the management of the road where the* lease under which it is operated is unauthorized.^^^ There is a clear distinc- tion between cases where the lease is authorized and cases where it is unauthorized. If the lease is unauthorized there is a joint wrong, for both parties assume to do what the law forbids. The one attempts to escape obligations the law imposes upon it by making a contract which it has no power to make ; the other attempts to assume powers it cannot rightfully possess. The unauthorized lease being void the lessor has not transferred any duty, and the lessee in assuming rights "° It has been held that under a Lockhart v. Little Rock, &c. R. Co. lease transferring to the lessee all 40 Fed. 631; Great Western, &c. R. of the lessor's contracts, the lessor Co. v. Blake, 7 H. & N. 987; Spang- cannot be held liable for goods de- ler v. Atchison, &c. R. Co. 42 Fed. livered to the lessee under a con- 305; Buxton v. Northeastern, &c. R. tract between the owner of the Co; L. R. 3 Q. B. 548; Thomas v. goods and the lessor. Pittsburg, &c. Rhymney R. Co. L. R. 5 Q. B. 226, R. Co. V. Harbaugh, 4 Brewst. (Pa.) and L. R. 6 Q. B. 266; Muschamp v. 115. But there is reason for doubt- Lancaster, &c. R. Co. 8 M. & W. 421; Ing the soundness of this decision. Readhead v. Midland, &c. R. Co. L. See International, &c. Co. v. Thorn- R. 2 Q. B. 412; lUidge v. Goodwin, ton, 3 Tex. Civ. App. 197, 22 S. W. 5 C. & P. 190; Skinner v. London, €7; Georgia R. &c. Co. v. Haas &c. R. Co. 15 Jur. 289; Wisconsin, (Ga.), 56 S. E. 313. &c. R. Co. v. Ross, 142 111. 1, 53 Am. "' Stickley v. Chesapeake, &c. R. & Eng. R. Cas. 73. It is held in Chi- Co. 93 Ky. 323, 20 S. W. 261, 52 Am. cago, &c. R. Co. v* Darke, 148 III. & Eng. R. Cas. 56; Little Miami, &c. 226, 57 Am. & Eng. R. Cas. 577, that R. Co. V. Hambleton, 40 Ohio St. the objection that the defendants 496, 14 Am. & Eng. R. Cas. 126. are not jointly liable must be made See Baton v. Boston, &c. R. Co. 11 in the trial court or it will not be Allen (Mass.) 500, 87 Am. Dec. 730; considered on appeal. Ell. Railroads — 41 §' 477]- lEASES. 64» and powers to which it is not entitled is really an intruder and an usurper. § 477. Liability of company where it permits another company to use track in common with itself. — It is held by the Supreme Court of the United States that a railroad company which permits another to make a joint use of its track is liable to a person injured by the negligence of the company to which the permission is granted.^^^ The weight of authority supports the doctrine of the case referred to.^^' In the case to which we refer the question of the effect of an authorized lease was not considered, and, as we believe, there was no such question in the case. The case of a joint use by two companies is essentially different from a case where the lessor company by an authorized lease parts with possession and control of the road. If it be true, as the authorities declare,^^* that the lease transfers posses- sion and control to the lessee to the exclusion of the lessor, the case is entirely different from one wherein one company grants a privilege of common use to another or suffers the latter company to operate the road in its name. Conceding the soundness of the conclusion in "^Railroad Co. v. Barron, 5 Wall. (TJ. S.) 90. In the course of the opinion it was said: "The question is not whether the Michigan com- pany Is responsible, but whether the defendants, by giving to that com- pany the privilege of using the road have thereby, in the given case, re- lieved themselves from responsibil- ity. The question has been settled, and we think rightly, in the courts of Illinois holding the company lia- ble. The same principle has been affirmed in other states." The court cited the cases of Chicago, &c. R. Co. V. McCarthy, 20 111. 385, 71 Am. Dec. 285; Chicago, &c. R. Co. v. Whipple, 20 111. 337; Chicago, &c. R. Co. v. Whipple, 22 111. 105; Nelson v. Ver- mont, &c. R. Co. 26 Vt. 717, 62 Am. Dec. 614; McElroy v. Nashua, &c. R. ■ Co. 58 Mass. 400, 50 Am. Dec. 794. ™ Delaware, &c. R. Co. v. Salmon, 39 N. J. L. 299, 23 Am. R. 214; Fort Wayne, &c. Co. v. Hinebaugh, 43 Ind. 354; Stetler v. Chicago, &c. R. Co. 49 Wis. 609, 6 N. W. 303; Lakin V. Willamette, &c. R. Co. 13 Oreg. 436, 11 Pac. 68, 57 Am. R. 25; Peoria, &c. R. Co. V. Lane, 83 111. 448. And the text is cited and applied in Jef- ferson V. Chicago, &c. R. Co. 117 Wis. 549, 94 N. W. 289, 290. See Harper v. Newport, &c. R. Co. 90 Ky. 359, 14 S. W. 346; Parker v. Rensselaer, &c. R. Co. 16 Barb. (N. Y.) 315; Murch v. Concord, &c. R. Co. 29 N. H. 9, 61 Am. Dec. 631; Hanover R. Co. v. Coyle, 55 Pa. St. 396; Illinois, &c. R. jCo. v. Kanouse, 39 111. 272, 89 Am. Dec. 307; Mills V. Orange, &c. R. Co. 1 McArthur (D. C.) 285; Webb v. Portland, &c. R. Co. 57 Me. 117; Sprague v. Smith, 29 Vt. 421, 70 Am. Dec. 424. ""New York, &c. R. Co., In the Matter of, 49 N. Y. (4 Sickels) 414, 420, 10 Am. R. 389; Pennsylvania, &c. Co. V. Sly, 65 Pa. St. 205; State v. Central, &c. R. Co. 71 Iowa 410, 60 Am. R. 806; South Carolina, &c. R. Co. V. Wilmington, &c. R. Co. 7 S. Car. 410, 643 FRAUDULENT LEASES. [§ 478 the ease decided by the Supreme Court of the United States it cannot be justly regarded as affirming that the lessor who executes a lease under due authority is liable for the negligence of the lessee in oper- ating the road.^^° In the one class of eases there is a change of possession and control, in the other possession is not changed, nor is the right of control surrendered. § 478. Traudulent leases. — ^A contract of lease, like any other con- tract, may be set aside for the fraud of the directors in executing it. Fraud, however, is not presumed but must be affirmatively proved. Circumstances may be established from which, under familiar rules, fraud may be inferred. The circumstances must be such that under the rules applicable to cases of a similar character, the court or jury may infer fraud. Fraud will not be presumed from the mere fact that a larger rent is reserved than the subsequent earnings of the road really justify, where it appears that the rent was fixed in accordance with the report of competent and disinterested experts; to whom the question was referred;^^^ Nor will fraud be presumed from the fact that the directors failed to make the continuance of the lease de- pendent upon the construction of connecting roads, which were con- templated when the lease was executed, by which the leased road was expected to become part of an important through line.^^' It is held that a lease by a railroad company of a road constructed by a syndi- cate of its directors is presumed fraudulent and may be set aside at the suit of a person injured thereby.^^* But such a lease is voida- ""The decision In Railroad Co. v. this particular, as if there were no Brown, 17 Wall. (U. S.) 445, does change of possession, is not in a po- not oppose this conclusion, for there sition to raise any question as to was no consideration in that case of its liability for their acts." the effect, of an authorized lease. "° Jesup v. Illinois Cent. R. Co. 43 The real point in the case cited was Fed. 483. See, also, Middletown v. that as there was no change of pos- Boston, &c. R. Co. 53 Conn. 351, 5 session the company granting the Atl. 706. Percentage of earnings is privilege to use still remained lia- sometimes stipulated for as rent, ble. The fact that there was no Terre Haute, &c. R. Co. v. Cox, 102 change of possession clearly dis- Fed. 825 ; Catawlssa R. Co. v. Phila- criminates the case from one where delphia, &c. R. Co. 168 Pa. St. 544, there is an authorized lease, for the 32 Atl. 62. central idea of a lease is that it ^^ Jesup v. Illinois Cent. R. Co. 43 does change possession. In the Fed. 483. ,above-named case the court said: "*Barr v. New York, &c. R. Co. "Besides, the company, having per- 125 ,N. Y. 263, 26 N. B. 145. An ap- mltted the lessees and receiver to plication of stockholders to set aside conduct the business of the road in a traflSc contract for ninety-nine § 479} LEASES 644 ble only and not void, and may be ratified by long acquiescence; and the lessee company cannot dispute its liability to pay tbe rent reserved under such lease while holding and operating the leased property.^^' A lease fraudulently executed may be avoided, but it cannot be justly said to be void. §479. Tlnauthorized lease — Injunction. — A stockholder of a cor- poration, or other party having an interest entitled to protection, has a right to an injunction prohibiting the execution of an unauthorized lease.^*" It is true that such a lease is void, but as it may cloud titles and rights, an injunction is rightly held to be the appropriate remedy. The tendency of the modern eases is to extend the remedy by injunc- tion,^*^ and there is certainly no other remedy so efEeetive or com- plete in such cases as those of which we are speaking as an injunction. The general doctrine is that where an act is entirely beyond and out- side of the scope of the corporate powers, and is one which will injure the public or defeat public policy, an injunction will lie at the suit of the state or its representative.^*^ years, entered into by one railroad company with another having only a proposed road eighteen miles dis- tant from the first, which has no present authority to huild a con- necting branch, even if the other had a road, said contract being en- tered into by the directors and of- ficers for the personal profit and ad- - vantage of individual members, and known to be injurious to the com- pany, will be granted. Bostwick v. Chapman, 60 Conn. 553, 24 Atl. 32; Starbuck v. Mercantile Trust Co. 60 Conn. 553, 5 Atl. 706, 24 Atl. 32; Shepaug Voting Trust Cases, 60 Conn. 553, 24 Atl. 32. "'Barr v. New York, &c. R. Co. 125 N. Y. 263, 26 N. E. 145. "»Pond V. Vermont, &c. R. Co. 12 Bla.tchf. (U. S.) 280; Board v. La- fayette, &c. R. Co. 50 Ind. 85. "'Champ V. Kendrick, 130 Ind. 649, 30 N. B. 787; Pom. Bq. § 1357. See, generally, Morse v. Morse; 44 Vt. 84; "Watson v. Sutherland, 5 Wall. (tr. S.) 74; Boyce v. Grundy, 3 Pet. (tJ. S.) 210; Allen v. Hanks, 136 U. S. 300, 10 Sup. Ct. 961; Kil- bourn v. Sunderland, 130 U. S. 505, 9 Sup. Ct. 594; Gormley v. Clark, 134 U. S. 338, 10 Sup. Ct. 554; Kerr Injunctions, 32. See, also, Coe v. East, &c. R. Co. 52 Fed. 531; Boston, &c. R. Co. V. Boston, &c. R. Co. 65 N. H. 393, 23 Atl. 529. ^'^ Attorney-General v. Delaware, &c. R. Co. 27 N. J. Bq. 631, 633; At- torney-General V. Chicago, &c. R. Co. 35 Wis. 425; Ware v. Regent's, &c. Co. 3 DeGex & J. 212 ; Fishmongers' Co. V. Bast India Co. 1 Dickens 163; Browne v. Monmouthshare R. Co. 13 Beav. 32; Attorney-General v. Johnson, 2 Wils. (Ch.) 87; Attor- ney-General V. Forbes, 2 Myl. & C. 123; Attorney-General v. Great Northern, &c. R. Co. 4 DeGex & S. 75; Attorney-General v. Mid-Kent, &c. R. Co. L. R. 3 Ch. App. 100; 2 Redfleld Railroads 307. CHAPTER XIX. KAILEOAD SECUKITIES. Sec. 480. 481. 482. 483. 484. 485. 486. 487. 488. 489. 490. 491. Power of railroad companies to Issue notes and bonds. Power to guaranty bonds. Income bonds. Convertible bonds. Negotiability of bonds — Bona fide purchasers. Form and manner of issuing bonds — Effect of irregulari- ties. Interest coupons. Payment of bonds and inter- est. No power to mortgage without legislative authority. Legislative authority to mort- gage. Distinction between authority to mortgage franchises and authority to mortgage prop- erty. Who may execute the mort- gage. Sec. 492. Ratification by stockholders of unauthorized or Improperly executed mortgage. 493. When ultra vires mortgage may be made effective. 494. Recording mortgages. 495. Generally as to what property is covered by the mortgage. 496. What is covered by a mort- gage of the undertaking. 497. Mortgage of after-acquired property. 497a. After-acquired property — When lien attaches — What it Includes. 498. Fixtures — Rolling stock. 499. Reserved power to create prior lien or dispose of unneces- sary property. 500. Priority of mortgages. 501. Trust deeds. 502. Equitable and defective mort- gages. 503. Statutory mortgages. 504. Debentures. § 480. Power of railroad companies to issue notes and bonds. — In the absence of any, provision upon the subject in the charter or stat- ute, a railroad company has implied power to execute a promissory note in furtherance of its legitimate business.^ It likewise has im- * Olcott V. Tioga, &c. R. Co. 27 N. Y. 546, 84 Am. Dec. 298; Richmond, &c'. R. Co. V. Snead, 19 Gratt. (Va.) 354, 10 Am. Dec. 670 (a due bill) ; Smead v. Indianapolis, &c. R. Co. 11 Ind. 104, 109; Hamilton v. New- castle, &e. R. Co. 9 Ind. 359; Mitchell V. Rome R. Co. 17 Ga. 574. See, also, Louisville, &c. R. Co. v. Caldwell, 98 Ind. 245. The rule seems to be otherwise in England. Bateman v. Mid-Wales R. Co. L. R. 1 C. P. 499, 645 § 480] EAILEOAD SECURITIES. ;64g plied power to issue bonds.^ As said in a leading case :' "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 may lawfully contract a debt, without any special authority to that effect, unless restrained by some restriction, express or implied, in its char- ter, or in some 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 pecu- liarly appropriate form of corporate agreement.'" So, as the corpora- tion has power to issue such negotiable instruments in the first in- stance, it also has the power to indorse them when they have been re- ceived in the payment of debts due it, or the like, in the regular course of its business.* Bonds secured by a mortgage which is unauthorized, or otherwise invalid, may nevertheless be valid as unsecured obliga- tions,° and, so, on the other hand, may bonds which are issued with- out any accompanying mortgage under a statute simply giving author- 35 L. J. C. P. 205; Peruvian R. Co. V. Thames, &c. Co. L. R. 2 Ch. 617, 36 L. J. Ch. 864. See, as to accom- modation indorsement, J. G. Brill Co. V. Norton, &c. St. R. Co. 189 Mass. 431, 75 N. E. 1090, 2 L. R. A. (N. S.) 525; Craft v. South Boston R. 150 Mass. 207, 22 N. E. 920, 5 L. R.'A. 641. = Philadelphia, &c. R. Co. v. Lewis, 33 Pa. St. 33, 75 Am. Dec. 574; Kelly v. Alabama, &c. R. Co. 58 Ala. 489; Miller v. New York, &c. R. Co. 18 How. Pr. (N. Y.) 374; Olcott v. Tioga, &c. R. Co. 27 N. Y. 546, 84 Am. Dec. 298; Commissioners of Craven v. Atlantic, &c. R. Co. 77 N. Car. 289; Willoughhy v. Chicago Junction R. Co. 50 N. J. Eq. 656, 25 Atl. 277. See, also, Illinois Trust, &c. Bank v. Pacific R. Co. 117 Cal. 332, 49 Pac. 197; Memphis, &c. R. Co. V. Dow, 120 TJ. S. 287, 7 Sup. Ct. 482; Coe v. East, &c. R. Co. 52 Fed. 531; Toledo, &c. R. Co. v. Conti- nental Trust Co. 95 Fed. 497; Geddes V. Toronto, &c. R. Co. 14 XJ. C. C. P. 513. = Commonwealth v. Smith, 10 Al- len (Mass.) 448, 87 Am. Dec. 672. * Olcott V. Tioga, &c. R. Co. 27 N. Y. 546. ■ See, also, Bonner v. New Orleans, 2 Woods (U. S.) 135; Flor- ida Cent. R. Co. v. Schutte, 103 U. S. 118; Tod V. Kentucky Union Land Co. 57 Fed. 47. The indorsement by the company of bonds issued by the state to aid in the construction of the road, although in the form of an express guaranty, gives no lien to the bondholders and in no way pre- vents the company from executing a mortgage to secure its own bonds which it is authorized to issue. Mc- Kittrick v. Arkansas Cent. R. Co. 152 U. S. 473, 14 Sup. Ct. 661. " Philadelphia, &c. R. Co. v. Lewis, 33 Pa. St. 33, 75 Am. Dec. 574; Union Trust Co. V. New York, &c. R. Co. (Ohio Com. PI.) 1 R. & Corp. L. J. 50. 647 POWER TO GUARANTY BONDS. ■[§ 481 ity "to borrow money on mortgage."* Indeed, the power to mortgage is said to imply and include the power to borrow money and issue bonds.^ § 481. Power to guaranty bonds. — As a general rule, one corpora- tion has no implied authority to lend its credit to another by guaranty of dividends, or the like, especially if they are engaged in different lines of business.^ But, after much litigation, it now seems to be reasonably well settled that one railroad company may guaranty the bonds of another under certain circumstances. Thus, where it has -power to issue bonds of its own it also has implied power to guaranty the bonds of another railroad company, properly taken in payment of a debt, in order to enable it to sell them for an adequate price or to use them in payment of its own debt.' And it may be safely stated, we think, as a general rule, that such a guaranty may be valid, without an express grant of authority to make it, if it is supported by a valu- able consideration of a kind that the guarantor company has author- ity to receive or invest in.^" Some courts have gone even further in ° McMasters v. Reed, 1 Grant Gas. tPa.) 36, approved and followed In Philadelphia, &c. R. Co. v. Lewis, .33 Pa. St. 33, 75 Am. Dec. 574. 'Gloninger v. Pittsburg, &c. R. ■Co. 139 Pa. St. 13, 21 Atl. 211, 46 Am. & Eng. R. Gas. 276. 'Davis V. Old Colony R. Co. 131 Mass. 258, 41 Am. R. 221; Central Bank v. Empire Stone Co. 26 Barb. (N. Y.) 23; Colman v. Eastern, &c. R. Co. 10 Beav. 1; Memphis, &c. Co. T. Memphis, &c. R. Co. 85 Tenn. 703, ,5 S. "W. 52, 4 Am. St. 798; Stark Bank v. U. S. Pottery Go. 34 Vt. 144; Pennsylvania R. Co. v. St. Louis, &c. R. Go. 118 U. S. 290, 6 Sup. Ct. 1094; Smead v. Indian- apolis, &c. R. Go. 11 Ind. 104; Lucas v. White, &c. Co. 70 Iowa 541, 30 N. W. 771, 59 Am. R. 449; Humbolt Mln. Co. V. American, &c. Co. 62 Fed. 356; Louisville, &c. R. Co. v. Xiouisville Trust Co. 174 U. S. 552, 19 Sup. Ct. 817; Western Md. R. Co. T. Blue Ridge Hotel Co. 102 Md. 307, 62 Atl. 351, 3 L. R. A. (N. S.) 887; Green v. Middlesborough, &c. Co. (Ky.) 89 S. W. 228. ° Rogers, &c. Works v. Southern R. Assn. 34 Fed. 278. See, also, Mc- Kittrick v. Arkansas Cent. R. Co. 152 U. S. 473, 14 Sup. Ct. 661 (guar- anty of state railway aid bonds); Chicago, &c. R. Go. v. Howard, 7 Wall. (U. S.) 392; Atchison, &c. R. Go. V. Fletcher, 35 Kans. 236, 10 Pac. 596; Arnot v. Erie, &c. R. Co. 67 N. Y. 315. " Low v. Cent. Pac. R. Co. 52 Gal. 53, 28 Am. R. 629; Arnot v. Erie R. Go. 67 N. Y. 315; Chicago, &c. R. Go. V. Howard, 7 Wall. (U. S.) 392; Green Bay, &c. R. Go. v. Union, &c. Go. 107 U. S. 98, 2 Sup. Ct. 221; Zabriskie v. Cleveland, &c. R. Go. 23 How. (U. S.) 381; Tod v. Kentucky Union Land Go. 57 Fed. 47; Mar- bury V. Kentucky Union Land Go. 62 Fed. 335. See, also, Bllerman v. Chicago, &c. Stock Yards Co. 49 N. J. Eq. 217, 23 Atl. 292. §■ 482] EAILKOAD SBOUKITIES. 64» upholding such a guaranty/^ and by some the doctrine of estoppel has been applied in favor of those who had made investments and acted upon the faith of the guaranty.^^ A railroad company authorized by statute to make contracts for leasing and operating the road of an- other company has implied power to include in the lease a guaranty of the interest coupons of the latter as part of the rent to be paid.^' §'482. Income bonds. — The right to issue income bonds seems to have been conceded or assumed in many cases. Such bonds, with in- terest payable out of the company's income or net earnings, are fre^ quently issued ; but the power to issue irredeemable bonds, the interest on which is to be paid only after a specified dividend has been declared on the common stock is not unquestioned. The existence of such a power, in the absence of an express grant of authority, has been both denied^* and afiBrmed.^^ It has been held that the holder of the bonds " See Madison, &c. R. Co. v. Nor- wich Sav. Society, 24 Ind. 457; Har- rison V. Union Pac. R. Co. 13 Fed. 522; Mathesius v. Brooklyn Heights R. Co. 96 Fed. 792^ ^ See State Board of Agriculture V. Citizens St. R. 47 Ind. 407, 17. Am. R. 702; Cozart v. Georgia, &c. R. Co. 54 Ga. 379; Arnot v. Brie, &c. R. Co. 67 N. Y. 315. See, also, Con- necticut Mut. L. Ins. Co. V. Cleve- land, &c. R. Co. 26 How. Pr. (N. Y.) 225, 41 Barb. (N. Y.) 9; Atchison, &c. R. Co. V. Fletcher, 35 Kans. 236, 10 Pac. 596. But contra, see ante, §§ 371, 374; Louisville, &c. R. Co. v. Louisville Trust Co. 174 U. S. 552, 557, 19 Sup. Ct. 817. "Eastern Townships Bank v. St. Johnsbury, &c. R. Co. 40 Fed. 423, 40 Am. & Bng. R. Cas. 566. See, also, Opdyke v. Pacific R. Co. 3 Dill. (XJ. S.) 55. Louisville Trust Co. v. Louisville, &c. R. Co. 75 Fed. 433; Zabriskie v. Cleveland, &c. R. Co. 23 How. (U. S.) 381; United States Trust Co. V. "Western Contract Co. 81 Fed. 454; ante, § 437. "Taylor v. Philadelphia, &e. R. Co. 7 Fed. 386, reported together with McCalmont v. Philadelphia, &c. R. Co. 3 Am. & Eng. R. Cas. 163. "'Philadelphia & Reading R. Co.'s- Appeal (Pa.), 4 Am. & Eng. R. Cas. 118, 21 Am. L. Reg. 713. This case and those above cited grew out of the same transaction or scheme. The federal court conceded that the corporation had implied power to borrow money, but held that the scheme in question was not a loan because it was never to be paid back. A majority of the state court held that it was a loan, as it was a contract for the use of money, and that it made no differ- ence that it was perpetual. The scheme, however, contemplated the payment of six per cent interest on the face value of each bond after the payment of a six per cent divi- dend on the stock, and that tlfe bonds should then rank pari passu as to further interest with the com- mon stock, although the bondholders were to pay for their bonds less than one-third of their face value, and a minority of the state court were of the opinion that this was- unauthorized. 649 ■ INCOME BONDS. [§ 482 of a railroad company "payable to bearer, with interest semi-annually, secured on the income from the sale of its lands and the operation of its road and line" is a creditor having a specific lien upon the income, which he has a right to pursue, and a bill in equity will lie to reach it in the hands of another company to which the road and property of the old company has passed by consolidation.^^ Income bonds are not, however, the most desirable investments, for practically, at least, it is largely within the power of the company to prevent any net in- come from being realized. Even where the bonds are secured by an income mortgage, as is usually the case, although it may pledge tan- gible property for the principal, the real security for the payment of interest is little more than the pledge of the good faith of the com- pany in the management and operation of its road.^' Much, of course, depends upon the provisions of the bonds and mortgage in any par- ticular case, but, in the absence of any valid limitation upon their powers, the directors of the company, necessarily, have a wide discre- tion in determining what shall be treated as net income.^^ Thus, if it appears that the income contemplated is the profit of future trans- actions of the company arising from all sources, the bondholders can- not complain if the profits which would have been realized by oper- ating the original lines exclusively have been decreased by losses in the operation of new lines in conjunction therewith, deemed advis- able because of competition or the demand for greater facilities.^' Where, however, a specific lien is provided for upon the income from "Rutten V. Union Pac. R. Co. 17 company to conduct its operations Fed. 480. Compare, however, Thomas as it may see fit, subject only to the V. New York, &c. R. Co. 139 N. Y. conditions of its organic law, is un- 163, 34 N. B. 877, and Hart v. Og- qualified; and, consequently, the denshurg, &c. R. Co. 69 Hun (N. Y.) company can lawfully extend its 378, 23 N. Y. S. 639. lines, acquire new ones, discontinue " Spies v. Chicago, &c. R. Co. 40 old ones, and thus essentially change Fed. 34, 38. In this case Judge the earning capacity of the prop- Wallace, speaking of an income erty." See, also, Barry v. Missouri, mortgage, says: "It necessarily con- &c. R. Co. 27 Fed. 1. templates such improvements as "Day v. Ogdensburgh, &c. R. Co. seem necessary to the efficient use 107 N. Y. 129, 13 N. E. 765; Spies and operation of such property, and v. Chicago, &c. R. Co. 40 Fed. 34, such alterations in the corpus as 39 ; Thomas v. New York, &c. R. Co. appear desirable are to be made at 139 N. Y. 163, 54 N. Y. 9. 498. the discretion of the directors ; and, " Day v. Ogdensburgh, &c. R. Co. unless it contains some limitations 107 N. Y. 129, 13 N. E. 765; Buck upon the powers of the directors, ex- v. Seymour, 46 Conn. 156 ; Spies v. press or implied, the right of the Chicago, &c. R. Co. 40 Fed. 34, 38. I 483] EAILROAD SECURITIES, 650 certain specified property or lines, to be ascertained by deducting specified expenses and liabilities from the gross earnings of such property or lines, a different rule applies and the directors have no right to deduct expenses, including interest charges, incurred in operating new lines acquired by the company out of the earnings of -the original lines, from the specific income fund to which the bond- holders have a right to look under their contract.^" It is the duty of the company to keep a proper account and make an honest effort to ascertain the net earnings or income out of which the bondholders are entitled to receive their interest.^^ In the case just cited an ac- counting was directed, and it was held that upon such accounting the company should be disallowed any sums paid or charged on ac- count of debts which it had contracted prior to the execution of the income mortgage, and that it should also be disallowed any charge against income arising from the sale of the income bonds at less than their face value, as well as interest, which it had not paid or become liable to pay, upon first mortgage bonds, which had, been funded and was represented by the income bonds accepted by the first mortgage bondholders in lieu of interest. It was also held that the expenses defrayed or incurred in producing the earnings for a given interest period are the only charges which can enter into the income account for that period, except the payment of interest on prior incumbrances as stipulated, and that the holders of coupons for each separate in- terest period should be paid ratably out of the net income of that particular period.^^ It is sometimes provided that the coupons or in- terest shall be paid in money or in scrip at the option of the com- pany, and, in such a case, if the company does not elect to pay in scrip when the interest becomes due, and the income is sufficient, the holder of the coupon may sue for the money.^^ § 483. Convertible bonds. — There seems to be no good reason why a corporation authorized to increase its stock may not lawfully re- ''" Spies V. Chicago, &c. R. Co. 40 &e. R. Co. 107 N. Y. 129, 13 N. E. Fed. 34. 765. Much, of course, depends upon =" Barry v. Missouri, &c. R. Co. 27 the particular contract or statute Fed. 1, 34 Fed. 829. involved in each case. See State v. '^ Barry v. Missouri, &c. R. Co. 27 Cowen, 83 Md. 549, 35 Atl. 161, 354, Fed. 1. It has also been held that 581. income bondholders are not entitled '^ Marlor v. Texas, &c. R. Co. 21 to make up a deficiency in the in- Fed. 383; Texas, &c. R. Co. v. Mar- terest in one year out of a surplus lor, 123 U. S. 687, 8 Sup. Ct. 311. in the next. Day v. Ogdensburgh, €51 CONVEETIBLE BONDS. i[§ 483 ■ceive its own bonds in payment for new shares which it issues under such authority.^* Bonds are sometimes issued which expressly pro- vide that the holder may surrender them to the company and receive a, certain number of shares of stock in exchange. Where the charter authorizes the issue of such bonds convertible into stock, it is held that the power to increase the capital stock by issuing shares in ex- change for the bonds is given by necessary implication.'^ If they provide that they may be exchanged for stock at or before maturity the holder will waive or forfeit his right to exchange them for stock if he fails to present them until after maturity.^^ It is said, however, that he may demand the stock in exchange at any time before ma- turity, and that if he makes such demand, just before a dividend is declared he is entitled to the dividend as well as the stock.'^ But, where he has received interest up to that time, it is said to be unreasonable to hold that he is also entitled to the dividend.'* An agreement merely extending the time of payment of the bond, before maturity, does not give the holder any right to insist that it shall be converted into stock after the expiration of the time to which his op- =* Lohman v. New York, &c. p. Co. 2 Sandf. Super. Ct. (N. Y.) 39; Reed V. Hayt, 51 N. Y. Super. Ct. 121. =» Belmont v. Brie R. Co. 52 Barb. (N. Y.) 637; Ramsey v. Brie R. Co. 38 How. Pr. (N. Y.) 193. See, also, Pratt V. American Bell Tel. Co. 141 Mass. 225, 5 N. B. 307, 55 Am. R. 465. But compare Chaffee v. Mid- dlesex R. Co. 146 Mass. 224, 16 N. B. 34, holding that damages may be given but that specific performance will not be decreed if the company Ihas no stock. In the first case cited It was held that if it clearly ap- peared that the bonds were about to be Issued for the purpose of fraudulently increasing the capital stock, and not to borrow money to complete and operate the road, which was the purpose for which their issue was authorized, an in- junction would lie to prevent them from being issued, or to restrain their conversion into stock while in the hands of persons having notice of the fraud. But see Jones Corp. Bonds and Mortg. § 62. « Chaffee v. Middlesex R. Co. 146 Mass. 224, 16 N. E. 34. This case holds that where bonds were pay- able on the first day of February, 1895, which happened to be Sun- day, it was too late to present them and demand stock in exchange on Monday, the second day of Febru- ary, but that bonds which were pre- sented a few minutes after three o'clock in the afternoon of Saturday, January 31, were presented in time, although the usual hour of closing the office of the company was three o'clock. The court said that the bon,ds could have been presented at "any reasonable time on that day." " Jones V. Terre Haute, &c. R. Co. 57 N. Y. 196. ""See Sutliff v. Cleveland, &c. R. Co. 24 Ohio St. 147; 2 Beach Railw. § 633. Certainly this is true as to past dividends. §' 484] EAILEOAD SECURITIES. 653 tion was originally limited, or, in other words, merely extending the time of payment, does not, of itself, extend the time within which stock must be demanded according to the terms of the bond.^° So, where a decree of foreclosure provided that bondholders who pur- chased at the sale might, if they saw fit, exchange their bonds for stock, it was held that a bondholder who did not become a purchaser and had overlooked the fact that he owned bonds until after the con- veyance of the property to the purchasers could not then insist upon receiving stock in exchange, although he was not aware of the fore- closure suit and proceedings.^" It seems that as the issue of bonds convertible into stock amounts, in effect, to an issue of stock, they cannot, ordinarily, be sold at a discount.^^ The right to demand a conversion of such a bond into stock cannot be assigned without the bond, and a petition in an action against the corporation for refusal to allow the conversion must allege that the plaintiff is the holder- of the bond.^^ A bondholder who has a right to exchange his bonds for stock cannot be deprived of that right by a consolidation without being given an opportunity to exercise it,^^ and where a consolidation is effected by the new consolidated company assuming all the debts, and liabilities of the old he may usually demand stock in the new company in exchange for his convertible bonds.^* §484. Negotiability of bonds — ^Bona fide purchasers. — Eailroad bonds, payable at a certain time and place, to bearer or to order, are regarded as negotiable instruments whether under seal or not.^° This,. '» Muhlenberg v. Philadelphia, &c. Mass. 302, 23 N. E. 824. See, also,. R. Co. 47 Pa. St. 16. Cayley v. Cobourg, &c. R. Co. 14 =°Landis v. Western Pa. H. Co. Grant Ch. (U. Can.) 571; John Han- 133 Pa. St. 579, 19 Atl. 556. Where cock, &c. Co. v. Worcester, &c. R. an option to exchange stock for Co. 149 Mass. 214, 21 N. B. 364. bonds contains no express limita- =° White v. Vermont, &c. R. Co. 21 tion it must nevertheless be exer- How. (TJ. S.) 575; Zabpiskie v. cised within some reasonable time. Cleveland, &c. R. Co. 23 How. (TJ. Catlin v. Green, 120 N. Y. 441. S.) 381; Kneeland v. Lawrence, 140 '' Cook Stock and Stockholders, TJ. S. 209, 11 Sup. Ct. 786, 46 Am. & § 283; 2 Beach Railw. § 633. Com- Eng. R. Cas. 319, and note; Con- pare Van Allen v. Illinois Cent. R. necticut, &c. Co. v. Cleveland, &c. Co. 7 Bosw. (N. Y.) 515. R. Co. 41 Barb. (N. Y.) 9; Reid v. "''Denney v. Cleveland, &c. R. Co. Bank, 70 Ala. 199, 14 Am. & Eng.. 28 Ohio St. 108. R. Cas. 554, and note; Junction R. = Rosenkrans v. Lafayette, &c. R. Co. v. Cleneay, 13 Ind. 161; Ide v. Co. 18 Fed. 513. Passumpsic, &c. R. Co. 32 Vt. 297; '* Day V. Worcester, &c. R. Co. 151 Carr v. LeFevre, 27 Pa. St. 413. 653 NEGOTIABILITY OF BONDS — BONA FIDE PUECHASEES. [§ 484 it seems, is true, also, of convertible bonds giving the holder the op- tion of exchanging them for stock,^° and the negotiability of a bond is not destroyed by a provision that it may be registered and made payable by transfer only on the books of the company,^^ nor by a pro- vision that it may be paid before maturity,^* or that it shall be payable on or before a certain date,^° nor by the fact that overdue coupons are attached to it.*" Nor is a mere recital in a bond which purports to be the absolute obligation of the company and is negotiable on its face, that it is one of a series of bonds secured by a trust deed necessarily sufQcient to destroy its negotiability or to put the purchaser in good faith upon inquiry as to the conditions in the deed qualifying the terms of the bond.*^ But if the conditions in the trust deed had Many other authorities are referred to in subsequent notes herein, and most of the cases are cited in the note to McClelland v. Norfolk, &c. R. Co. 1 L. R. A. 299, and in Morris Canal, &c. Co. v. Fisher, 1 Stockt. Ch. (N. J.) 667, 64 Am. Dec. 423, and note. But coupons are not with- in a statute allowing days of grace on promissory notes. Chaffee v. Mid- dlesex R. Co. 146 Mass. 224, 16 N. E. 34. In Evertson v. Nat. Bank, 66 N. Y. 14, 23 Am. R. 9, it is held that the coupons are entitled to days of grace, while in Arents v. Common- wealth, 18 Gratt. (Va.) 750, it is held that they are not. It is gen- erally held that "the mortgage fol- lows and partakes of the negotiabil- ity of the bonds." Kenicott v. Su- pervisors, 16 Wall. (U. S.) 452; 2 Cook Stock and Stockholders, § 770; authorities cited in Chicago R. &c. Co. V. Merchants' Nat. Bank, 136 U. S. 268, 10 Sup. Ct. 999, 1003. As shown in Spence v. Mobile, &c. R. Co. 79 Ala. 576, the only authorities to the contrary are in Ohio and Illi- nois. See, also, 3 Purdy's Beach Priv. Corp. § 1145. "Hotchkiss V. Nat. Banks, 21 "Wall. (U. S.) 354. See, also, "Welch T. Sage, 47 N. Y. 143. "Savannah, &c. R. Co. v. Lan- caster, 62 Ala. 555. " Union Cattle Co. v. International Trust Co. 149 Mass. 492, 21 N. E. 962; Ackley School Dist. v. Hall, 113 U. S. 135, 5 Sup. Ct. 371. =° Union, &c. Co. v. Southern, &c. Co. 51 Fed. 840. *° Cromwell v. Sac, 96 U. S. 51; Indiana, &c. R. Co. v. Sprague, 103 U. S. 756; Morgan v. United States, 113 U. S. 476, 5 Sup. Ct. 588; Mor- ton V. N. O. &c. R. Co. 79 Ala. 590; State V. Cobb, 64 Ala. 127; McBlrath V. Pittsburg, &c. R. Co. 55 Pa. St. 189; Grand Rapids, &c. R. Co. v. Sanders, 54 How. Pr. (N. Y.) 214. But see First Nat. Bank v. Scott County Com'rs, 14 Minn. 77, 100 Am. Dec. 194; Parsons v. Jackson, 99 U. S. 434. "While this is true as to the bond, the purchaser is not a bona fide purchaser of the overdue coupons so as to be protected from defenses as to them. Gilbrough v. Norfolk, &c. R. Co. 1 Hughes (U. S.) 410. *' Guilford v. Minneapolis, &c. R. Co. 48 Minn. 560, 51 N. "W. 658, 31 Am. St. 694, 51 Am. & Eng. R. Cas. 98. Distinguishing Manning v. Nor- folk, &c. R. Co. 29 Fed. 838; Caylus T. New York, &c. R. Co. 10 Hun (N. 484] EAILEOAD SECDKITIES. 654 been incorporated in the bond or so clearly referred to therein as to notify the bondholder of their existence, and, in legal effect, import them intO' the bonds, he would doubtless have taken the bond subject thereto, and it may be stated as a general rule that bonds which con- tain special stipulations making their payment subject to contin- gencies not within the control of the holders, lose the character of negotiable instruments and are subject in the hands of a transferee to defenses which would have been available if they were still in the hands of the original payee.*^ The fact that the name of the payee is omitted and that the bonds are payable in blank does not affect their negotiability, and the holder may fill in his own name and maintain suit upon them.*^ The purchaser of negotiable bonds issued by a railroad company in good faith, before maturity, without notice and for a valuable consideration, takes them free from all defenses short of an absolute want of power in the company to issue negotiable bonds.** Thus, he is entitled to enforce them against the company, although they may have been stolen,*^ or sold to a prior holder at less Y.) 295, and McClelland v. Norfolk, &c. R. Co. 110 N. Y. 469, 18 N. B. 237. The correctness of this de- cision is not, perhaps, heyond ques- tion, but it seems to us that as the recital called attention to nothing unusual, as such bonds are nearly always secured by a trust deed, and as they are intended to be negoti- able, the purchaser was not obliged to look for unusual conditions in the trust deed. As bonds are sold as negotiable instruments all over the world any other rule would be impracticable and disastrous. If there had been anything in the bonds calling attention to the un- usual provisions of the trust deed the purchaser would doubtless have been bound thereby, but that is a different question. See McClelland V. Norfolk, &c. R. Co. 110 N. Y. 469, 18 N; E. 237, 1 L. R. A. 299, 6 Am. St. 397; Caylus v. New York, &c. R. Co. 10 Hun (N. Y.) 295. *" McClelland v. Norfolk, &c. R. Co. 110 N. Y. 469, 18 N. E. 237, 1 L. R. A. 299, 6 Am. St. 397. See, also, Reid v. Bank. 70 Ala. 199; Evertson v. Nat. Bank, 66 N. Y. 14, 23 Am. R. 9. *» White V. Vermont, &c. R. Co. 21 How. (U. S.) 575; Chapin v. Ver- mont, &c. R. Co. 8 Gray (Mass.) 575; Hubbard v. New York, &c. R. Co. 14 Abb. Pr. (N. Y.) 275; note to Morris Canal, &c. Co. v. Fisher, 64 Am. Dec. 423; note to McClelland V. Norfolk, &c. R. Co. 1 L. R. A. 299. See, however, Evertson v. Nat. Bank, 66 N. Y. 14, 23 Am. R. 9; Augusta Bank v. Augusta, 49 Me. 507. "Galveston, &c. R. Co. v. Cow- drey, 11 Wall. (U. S.) 45^; McMur- ray v. Moran, 134 U. S. 150, 10 Sup. Ct. 427; Rouede v. Mayor, 18 Fed. 719; First Nat Bank v. Wheeler, 72 N. Y. 201; Stoney v. American Life Ins. Co. 11 Paige (N. Y.) 635; Webb V. Com'rs, L. R. 5 Q. B. 642. But see Chicago, &c. R. Co. v. Loew- enthal, 93 111. 433, 450; General Estates Co., In re, L. R. 3 Ch. 758. " Purchasers of stolen bonds were held to take a good title in the fol- 655 NEGOTIABILITY OF BONDS — ^BONA FIDE PURCHASERS. ,[§ 484 than par in violation of the charter or governing statute.** He ia entitled to their full value no matter what he paid for them.*^ He is not affected in any way by a subsequent misapplication of the pro- ceeds by the company to a purpose for which it is forbidden to issue bonds,*^ and it has been held that the fact that a merchant has taken bonds in payment for goods does not of itself prevent him from being a bona fide purchaser or holder of such bonds.*' Good faith upon the part of the holder will usually be presumed and the burden of prov- ing fraud or bad faith is upon the party charging it.^" A bona fide pledgee of negotiable bonds, for value and before maturity, is entitled lowing cases : Carpenter v. Rommel, 5 Phila. (Pa.) 34; Dutchess, &c. Co. V. Hachfleld, T/3 N. Y. 226; Murray V. Lardner, 2 Wall. (XJ. S.) 110;' Seybell v. Nat. &c. Bank, 2 Daly (N. Y.) 383; Raphael v. Governor, &c. 17 C. B. 161; Consolidated Ass'n v. Avegno, 28 La. Ann. 552; Spooner v. Holmes, 102 Mass. 503, 3 Am. R. 491. Notice to trustee of defenses held not sufficient to destroy a bona fide holding of bonds under the trust deed. Com'rs of Johnson Co. V. Thayer, 94 U. S. 631. "Ellsworth V. St. Louis, &c. R. Co. 98 N. Y. 553, approved in Gamble V. Queens, &c. Co. 9 L. R. A. 527; Tiedeman on Commercial Paper, § 116; Zabriskie v. Cleveland, &c. R. Co. 2'3 How. (U. S.) 381. But see Riggs v. Pennsylvania, &c. R. Co. 16 Fed. 804; Spence v. Mobile, &c. R. Co. 79 Ala. 576. See, gen- erally, as tending to uphold such a transaction, Handley v. Stutz, 139 U. S. 417, 11 Sup. Ct. 530; Memphis, &c. R. Co. V. Dow, 120 U. S. 287, 7 Sup. Ct. 482; Nelson v. Hubbard, 96 Ala. 238, 11 So. 428, 17 L. R. A. 375; Thomson, &c. Co. v. Capital, &c. Co. 65 Fed. 341; RafCerty v. Buffalo, &c. Co. 37 App. Div. (N. Y.) 618, 56 N. Y. S. 288; Seymour v. Spring, &c. Ass'n, 144 N. Y. 333, 39 N. B. 365, 26 L. R. A. 859; Dickerman v. Northern, &c. Co. 176 U. S. 181, 20 Sup. Ct. 311; Savannah, &c. R. Co. V. Lancaster, 62 Ala. 555; Fidelity Ins. &c. Co. V. Western Penna. &c. R. Co. 138 Pa. St. 494, 21 Atl. 21, 21 Am. St. 911. " Cromwell v. County of Sac, 96 U. S. 51; Grand Rapids, &c. R. Co. v. Sanders, 17 Hun (N. Y.) 552. But it is held that he must pay value- for them in order to be protected as a bona fide purchaser. Baker v. Guarantee Trust, &c. Co. (N. J.) 31 Atl. 174. "Peoria, &c. R. Co. v. Thompson, 103 111. 187; Philadelphia, &c. R. Co. V. Lewis, 33 Pa. St. 33, 75 Am. Dec. 574. "Kennicott v. Wayne Co. 6 Biss. (U. S.) 138. See, also. Mercantile Trust Co. V. Zanesviile, &c. R. Co. 52 Fed. 342. ""Murray v. Lardner, 2 Wall. (U. S.) 110; Kneeland v. Lawrence, lid V. S. 209, 46 Am. & Eng. R. Cas. 319, 322; Spence v. Mobile, &c. R.: Co. 79 Ala. 576; Wickes v. Adiron- dack Co. 2 Hun (N. Y.) 112; Chi- cago, &c. Co. V. Peck, 112 111. 408; Jones on Corp. Bonds and Mort. § 200. But compare Simmons v. Taylor, 38 Fed. 682; Northampton Nat. Bank v. Kidder, 106 N. Y. 221, 12 N. E. 577, 60 Am. R. 443; Gllman V. New Orleans, &c. R. Co. 72 Ala. 566. §• 484] RAILROAD SECURITIES. 656 to the same protection as a bona fide, purchaser to the extent of his loan.^^ The pendency of a suit in which the validity of negotiable bonds, not yet due, is involved, is not constructive notice to one who subsequently purchases them in good faith before maturity.^^ But one who takes bonds after maturity or with notice of their illegality or other existing defenses is not protected as a bona fide purchaser of negotiable paper before maturity, unless he succeeds to the rights of such a purchaser. Thus, one who purchases stolen bonds after ma- turity is not a bona fide purchaser entitled to be protected in his purchase as against the true owner unless a bona fide purchaser has intervened before maturity.^^ So, a purchaser having knowledge of an equitable lien upon the bonds will usually be held to have taken them subject to such lien,'* and if he has knowledge that they are issued or being disposed of for an unauthorized purpose or the like, he takes them at his peril ;'° but he may be protected as a bona fide purchaser of mortgage bonds notwithstanding the fact that he has knowledge of the claim of one who furnished material for the rail- road if he bought them from a bona fide purchaser who had no such knowledge.'® "Allen V. Dallas, &c. R. Co. 3 Woods (U. S.) 316; Claflln v.' South Carolina R. Co. 8 Fed. 118; Morton V. N. O. &c. R. Co. 79 Ala. 590, 621; Atwood V. Shenandoah Valley R. Co. 85 Va. 966, 9 S. E. 748, 38 Am. 6 Eng. R. Cas. 534; Jones Pledges, §§ 89, 669; Hayden v. Lincoln, &c. R. Co. 43 Neb. 680, 62 N. W. 73. See Duncomb v. New York, &c. R. Co. 84 N. Y. 190; Tyrell v. Cairo, &c. R. Co. 7 Mo. App. 294. '' Enfield v. Jordan, 119 U. S. 680, 7 Sup. Ct. 358; Marshal v. Elgin, 8 Fed. 783; "Warren v. Marcy, 97 IT. S. 96; Farmers', &c. Co. v. Toledo, &c. Co. 54 Fed. 759. ™ Northampton Nat. Bank v. Kid- der, 106 N. Y. 221, 12 N. E. 577, 60 Am. R. 443, holding also that there Is no presumption that the thief ne- gotiated the paper before it was due. See, also, Hinckley v. Merchants' Nat. Bank, 131 Mass. 147. " Hervey v. 111. Midland R. Co. 28 Fed. 169. So, where bonds are as- signed after levy of execution. Heth- erington v. Hayden, 11 Iowa 335. ■^ Chew V. Henrietta, &c. Co. 2 Fed. 5; City of Chicago v. Cameron, 120 111. 447. See, also, American, &c. Co. V. St. Louis, &c. R. Co. 42 Fed. 819; Smith v. Florida, &c. R. Co. 43 Fed. 731; Silliman v. Fredericks- burg, &c. R. Co. 27 Gratt. (Va.) 119; Trask v. Jacksonville, &c. R. Co. 124 U. S. 515, 8 Sup. Ct. 574; Knoxville V. Knoxville, &c. R. Co. 22 Fed. 758; Garrard v. Pittsburgh, &c. R. Co. 29 Pa. St. 154, for instances in which the purchaser was chargeable with knowledge preventing him from be- ing protected as a bona fide pur- chaser. "'Porter v. Pittsburg, &c. Co. 122 U. S. 267, 7 Sup. Ct 1206. See, also. Commissioners v. Bolles, 94 U. S. 104, 109; Tiedeman Commercial Paper, § 295. Compare Shellenberg- er V. Altoona, &c. R. Co. 212 Pa. St. 413, 61 Atl. 1000, 108 Am. St. 876. 65'7 FOEM AND MANNER OP ISSUING BONDS. [§ 485 §485. Form and manner of issuing bonds — Effect of irregulari- ties. — Railroad bonds are generally issued with interest coupons at- iaehed, which are substantially in the form of promissory notes. They are usually signed by the president and attested or countersigned by the secretary or other proper officer according to the statute or by- laws.^^ These signatures may be either written or printed/* although it is better that they should be written, and it has been held that if the bonds have been properly executed and signed by both of such officers the coupons may be valid notwithstanding the fact that they are signed by only one of them.^" The presence or absence of a seal is generally immaterial, so far as the negotiability of the instrument is concerned.*" The amount and time and place of payment should be stated with certainty/^ but the figures denoting the number of a par- ticular bond in a series are not, ordinarily, an essential or material part of it, and an immaterial alteration in such numbers will not affect the rights of a bona fide holder.*^ Persons dealing in negotiable bonds of a corporation rhust take notice of any charter or statutory prohibition or want of power to issue instruments of that character, and so, if the bonds show upon their face that the provisions of the governing statute have not been complied with, the purchaser is chargeable with notice/^ but, if the corporation has power to issue instruments of that class, and the particular bonds in question appear to be regular and in compliance with the law, a purchaser in good faith has a right to assume that all the preliminary proceedings were " Of course the name of the corpo- "Woods (TJ. S.) 141; Maas v. Mis- ration is in the body and should souri, &c. R. Co. 83 N. Y. 223, 3 Am. also, properly, be subscribed "by" & Bng. R. Cas. 30. the officers named. '^ Birdsall v. Russell, 29 N. Y. 220^ ™Lynde v. County, 16 Wall. (U. Elizabeth v. Force, 29 N.'j. Eg: 587; S.) 6; McKee v. Vernon County, -3 Commonwealth v. Emigrant, &c. Dill. (U. S.) 210; Pennington v. Bank, 98 Mass. 12, 93 Am. Dec. 126; Baehr, 48 Cal. 565. Wylie v. Missouri Pac. R. Co. 41 "^ Thayer v. Montgomery Co. 3 Fed. 623; Morgan v. United States, Dill. (U. S.) 389. The coupons may 113 U. S. 476, 5 Sup. Ct. 588. be in almost any form creating an ^ See Nesbit v. Riverside Inde- indebtedness. Tiedeman Commer- pendent Dist. 144 U. S. 610, 12 Sup. cial Paper, § 475. Ct. 746; Spence v. Mobile, &c. R. Co. °° Tiedeman Commercial Paper, 79 Ala. 576 ; Oilman v. New Orleans, I 475; ante, § 484; Cook Stock and &c. R. Co. 72 Ala. 566; Common- Stockholders, §§ 721, 768. , wealth v. Smith, 10 Allen (Mass.) "Parsons V. Jackson, 99 U. S. 434; 448, 87 Am. Dec. 672; Duke v. Jackson v. Vicksburg, &c. R. Co. 2 Brown, 96 N. Car. 127. Ell. Railroads — 42 485] EAILEOAD SECtTKITIES. 658 regular.^* Thus, a requirement that the issue of bonds shall be au- thorized or ratified by the stockholders or by a resolution of the board of directors may be assumed to have been complied with.*° So, gen- erally, if the corporation has power under any circumstances to issue negotiable bonds, a bona fide holder has a right to presume, in the absence of anything to the contrary, that they were issued under those circumstances and that all conditions within the -scope of the author- ity of the ofiieers of the company have been fulfilled."" This, it seems, is true, and a bona fide holder may enforce their payment, although the bonds may have been wrongfully put in circulation in the first instance"'' or issued in excess of the amount authorized or prescribed by statute."' But securities issued in a form materially different from that prescribed by the statute giving the authority, or without com- pliance with a conditio to be performed by some one other than the corporation, may generally be avoided even as against a so-called bona fide purchaser."'' Thus, where the statute requires them to be «* Ellswortli V. St. Louis, &c. R. Co. 98 N. Y. 553; Bank v. Dandridge, 12 Wheat. (U. S.) 64; Atwood v. Shen- andoah, &c. R. Co. 85 Va. 966; Rail- way Co. V. McCarthy, 96 U. S. 258; Pearce v. Madison R. Co. 21 How. (U. S.) 441; Stewart v. Lansing, 104 U. S. 505; Land Credit Co., In re, L. R. 4 Ch. 460; Fountaine v. Car- marthen R. Co. L. R. 5 Eq. 316. See, also. National Ix)an, &c. Co. v. Rock- land Co. 94 Fed. 335. °° Connecticut Life Ins. Co. v. Cleveland, &c. R. Co. 41 Barh. (N. Y.) 9; Zabriskie v. Cleveland, &c. R. Co. 23 How. (U. S.) 381; Royal Brit- ish Bank v. Turciuand, 6 B. & B. 327; Tyson's Reef Co., In re, 3 W. W. & A'B. (Vict. Sup. Ct.) Cas. at Law 162. Directors ordinarily have power to authorize the execution of honds and mortgages. Thompson v. Natchez, &c. Co. 68 Miss. 423, 9 So. 821; Hodder v. Kentucky, &c. R. Co. 7 Fed. 793. "" Hackensack Water Co. v. DeKay, 36 N. J. Bq. 548; Athenaeum Soc, In re, 4 K. & J. 5,49. " Grand Rapids, &c. R. Co. v. San- ders, 17 Hun (N. Y.) 552; Webh T. Comrs. L. R. 5 Q. B. 642; Long Is- land L. & T. Co. V. Columbus, &c. R. Co. 65 Fed. 455. But see Athenaeum, &c. Ins. Soc. V. Pooley, 3 DeG. & J. 294. °*Cook Stock and Stockholders, § 760; Baker v. Guarantee, &c. Co. (N. J.) 31 Atl. 174; Fidelity, &c. Co. V. West Pa. &c. R. Co. 138 Pa. St. 494, 21 Atl. 21, 21 Am. St. 911; Al- lis V. Jones, 45 Fed. 148; Warfield v. Marshall, &c. Co. 72 Iowa 666, 34 N. W. 467, 2 Am. St. 263. But see Commonwealth v. Smith, 10 Allen (Mass.) 448, 87 Am. Dec. 672; Nes- bit V. Riverside Independent Dist. 144 U. S. 610, 12 Sup. Ct. 746. All the bona fide bondholders participate in the mortgage security, notwith- standing some of the bonds are over- issued. Stephens v. Benton, 1 Duv. (Ky.) 112; Stanton v. Alabama, &c. R. Co. 2 Woods (U. S.) 523. " Hackensack Water Co. v. DeKay, 36 N. J. Bq. 548; Singer v. St. Louis, &c. R. Co. 6 Mo. App. 427. See, also, Maas V. Missouri, &c. R. Co. 83 N. Y. 223. '659 INTEKEST COUPONS. [§ 486 certified on their face by a trust company and- registered, and provides that no bond shall be valid until it is so. certified and registered they will not be enforced even in the hands of a purchaser in good faith/" § 486, Interest coupons. — Interest coupons in the ordinary form, having the requisite certainty of negotiable instruments, may be sev- ered from the bonds to which they are attached and pass by delivery from hand to hand so as to vest a complete title in the bona fide pur- chaser before maturity with all the rights of a holder of ordinary commercial paper. '^ Their negotiability is not necessarily ailected by a statement that they represent interest upon certain bonds specified by their numbers.''^ They are in a sense independent securities and may be negotiated as such, yet their character as negotiable instru- ments and the rights of their holders are sometimes determined by the bonds to which the coupons are attached or to which they refer,^* and a purchaser may be required to take notice of matters to which they refer in the bonds or mortgage.'* The peculiar relation of coupons to their bonds is further illustrated by the rules governing the applica- tion of the statute of limitations to such instruments. Thus, the period of limitation applicable to the bond is also applied to the coupon and if, for instance, the statute bars simple contract debts, such as the coupon would be except for its relation to the bond, in "Morrison v. Inhabitants, &c. of of Clark, 54 Mo. 58, holding partic- Bernards, 36 N. J. L. 219; Maas v. ular coupons negotiable because the Missouri, &c. R. Co. 83 N. Y. 223. bonds were negotiable; Lexington v. "Commonwealth v. Chesapeake, Butler, 14 Wall. (U. S.) 282; Keno- &c. Co. 32 Md. 501; Spooner v. sha v. Lamson, 9 Wall. (U. S.) 477; Holmes, 102 Mass. 503, 3 Am. R. 491; State v. Spartanburg, &c. R. Co. 8 Mercer County v. Hacket, 1 Wall. S. Car. 129; Bailey v. Buchanan Co. (U. S.) 83; Brainerd v. New York, 115 N. Y. 297, 22 N. E. 155; McClure &c. R. Co. 25 N. Y. 496; and numer-. v. Oxford, 94 U. S. 429. Though ous authorities cited in note to Mor- overdue they may still be negoti- ris Canal, &c. Co. v. Fisher, 64 Am. ated like other overdue commercial Dec. 423, 432, and in note to McClel- paper so long as the bonds have not land V. Norfolk, &c. R. Co. 1 L. R. matured. Thompson v. Perrine, 106 A. 299; also, Jones Corp. Bonds & TJ. S. 589, 1 Sup. Ct. 564, 567; Grand Mort. § 238. Rapids, &c. R. Co. v. Sanders, 54 "Evertson v. Nat. Bank, 66 N. Y. How. Pr. (N. Y.) 214. 14, 23 Am. R. 9. But see McClelland '* McClelland v. Norfolk, &c. R. V. Norfolk, &c. R. Co. 110 N. Y. 469, Co. 110 N. Y. 469, 18 N. E. 237, 1 L. 18 N. E. 237, 1 L. R. A. 299, 6 Am. R. A. 299, 6 Am. St. 397; McClure St. 397. V. Oxford, 94 U. S. 429; Silliman v. " McCoy V. Washington Co. 3 Wall. Fredericksburg, &c. R. Co. 27 Gratt. Jr. (U. S.) 381, and Smith v. County (Va.) 119. 486] KAILROAD SECURITIES. '660 six years, while it does not bar debts in the nature of the bond short of twenty years, the coupon will not be. barred until the expiration of the twenty years f^ but the statute begins to run against a detached coupon from its own maturity and .an action upon coupons may, therefore, be barred before an action upon the bonds which mature later, although the length of the period of limitation is the same.''* Coupons are so far independent instruments, however, that when com- plete in themselves, with the requisite certainties of negotiable paper, they may be sued upon, and when severed from the bond before ma- turity a separate action may be maintained upon them,^^ even though the bond has been paid.''' This rule has also been applied by some of the courts in favor of the holder of coupons that did not contain words of negotiability or any independent promise to pay the bearer or holder,''* but others have held that in such a case the coupon must be declared on in connection with the bond.'* Coupons, although de- taeihed from the bond, do not lose their right to participate in the mortgage security,'^ but the fact that they are secured by mortgage '^City of Kenosha v. Lamson, 9 "Wall. (U. S.) 477, 483; City of Lex- ington V. Butler, 14 Wall. (U. S.) 282; Huey v. Macon County, 35 Fed. 481. See, also, Meyer v. Porter, 65 Cal. 67, 2 Pac. 884, 1 West Coast 784; Thompson v. Perrlne, 106 U. S. 589, 1 Sup. Ct. 564, 568. ™ Clark V. Iowa City, 20 Wall. (U. S.) 583; Amy v. Dubuque, 98 U. S. 470; Huey v. Macon County, 35 Fed. 481; Koshkonong v. Burton, 104 U. S. 668. See, also. Griffin v. Macon County, 36 Fed. 885. Although the bondholders are given the option to sue for both principal and interest six months after default in the pay- ment of interest, this does not, of it- self, set the statute of limitations to running against the bonds. Ne- braska, &c. Bank v. Nebraska, &c. Co. 14 Fed. 763. "Beaver v. Armstrong, 44 Pa. St. 63; Commissioners of Knox County V. Aspinwall, 21 How. (U. S.) 539 546; Thomson v. Lee County, 3 Wall. (U. S.) 327; Commonwealth v. State and Chesapeake, &c. R. Co. 32 Md. 501; North Penna. R. Co. v. Adams, 54 Pa. St. 94, 93 Am. Dec. 677. "National Exch. Bank v. Hart- ford, &c. R. Co. 8 R. I. 375, 5 Am. R. 582. See, also. Walnut v. Wade, 103 U. S. 683, 696, quoting from Clark v. Iowa City, 20 Wall. (U. S.) 583. " Mayor v. Potomac Ins. Co. 2 Baxt. 296; Queensbury v. Culver, 19 Wall. (U. S.) 83; Smith v. County of Clark, 54 Mo. 58; Woods v. Law- rence County, 1 Black (U. S.) 386; 2 Daniels' Negot. Instr. §§ 1511, 1512. °° Crosby v. New London, &c. R. Co. 26 Conn. 121; Jackson v. York, &c. R. Co. 48 Me. 147; Bvertson v. Nat. Bank, 66 N. Y. 14, 23 Am. R. 9. Approved in Jones Corp. Bonds and Mortg. §§ 242, 262. »' Miller v. Rutland, &c. R. Co. 40 Vt. 399, 94 Am. Dec. 413; Union Trust Co. v. Montlcello, &c. R. Co. 63 N. Y. 311, 20 Am. Dec. 541; Ste- vens V. New York, &c. R. Co. 13 Blatchf. (U. S.) 412; Haven v. 66] PAYMENT OF BONDS AND INTEEEST. [§ 487 does not deprive the holder of the right to sue on them at law when due f^ nor is a suit on one coupon a bar to a subsequent suit on an- other which was also due at the time of such suit.*^ But neither a bondholder nor the holder of a coupon can enforce his judgment by levying an execution upon the mortgaged property and selling it to the disadvantage of the other bondholders.** Overdue coupons draw interest at the legal rate/^ and it has been held that such interest is covered by the mortgage which secures the bonds and coupons.** § 487. Payment of bonds and interest. — The authorities are con- flicting as to whether interest coupons are entitled to days of grace/^ Grand Junction R. Co. 109 Mass. 88; Champion v. Hartford, &c. Co. 45 Kans. 103, 10 L. R. A. 754. *^ Manning v. Norfolk, &c. R. Co. 29 Fed. 838; Welsh v. First Division, &c. R. 25 Minn. 314; Montgomery, &c. Soc. V. Francis, 103 Pa. St. 378. Where the coupons are payable to hearer the holder is not necessarily an assignee and his right to sue in the United States courts does not depend upon the citizenship of any particular holder. Thompson v. Perrine, 106 U. S. 589, 1 Sup. Ct. 564, 568, 103 U. S. 806. «»Butterfield v. Ontario, 44 Fed. 171. See, also, Cromwell v. County of Sac, 94 U. S. 351; Stewart v. Lansing, 104 U. S. 505. "Philadelphia, &c. R. Co. v. Woelpper, 64 Pa. St. 366, 3 Am. R. 596; Butler v. Rahm, 46 Md. 541; Commonwealth v. Susquehanna, &c. R. Co. 122 Pa. St. 306; Fish v. New York Paper Co. 29 N. J. Eq. 16; Bowen v. Brecon Railw. L. R. 3 Eq. 541, and cases cited in Pugh v. Fair- mount, &c. Co. 112 U. S. 238, 5 Sup. Ct. 131, 135. In the first two cases above cited it was held that injunc- tion would lie at the suit of other bondholders. ''Aurora City v. West, 7 Wall. (U. S.) 82; Walnut v. Wade, 103 U. S. 683; Ashuelot R. Co. v. Elliott, 57 N. H. 397; Philadelphia, &c. R. Co. v. Smith, 105 Pa. St. 195; Langston v. South Carolina R. Co. 2 S. Car. 248; Rich V. Seneca Falls, 8 Fed. 852. and numerous authorities cited in note to- Morris Canal, &c. Co. v. Fish- er, 64 Am. Dec. 441. Even where the bonds continue to draw interest after maturity at the same rate they did before, which is greater than the rate fixed by statute in the absence of contract. Cromwell v. Sac, 96 U. S. 51; Langston v. South Carolina R. Co. 2 S. Car. 248; Spencer v. Pierce, 5 R. I. 63. . ^Gibert v. Washington City, &c. R. Co. 33 Gratt. (Va.) 586. It is generally held, as shown by the au- thorities cited in the preceding note, that a demand is unnecessary to start interest to running where the coupons are payable at a fixed time and place; but if no demand has been made Interest may be defeated or abated by the mortgagor showing that he- had the funds ready and was able and willing to pay at. the time and place designated. North Penna. R. Co. V. Adams, 54 Pa. St. 94, 93 Am. Dec. 656; Emlen v. Lehigh, &c. Co. 47 Pa. St. 76, 86 Am. Dec. 518; Walnut V. Wade, 103 U. S. 683. "Holding that' they are not: § 487] EAILEOAD SECURITIES. 662 but, aside from this question, they are payable at the time fixed in the coupons and bond, and a provision in the bond that the interest shall be paid when the coupon is presented and surrendered does not change the rule as to the maturity of the coupon or require its presentment for payment at the time designated in order to hold the maker.** Coupons are usually paid in the order in which they fall due,*' but, ordinarily, upon foreclosure of the mortgage mere priority of maturity gives no priority of satisfaction either over other coupons or over the bond, and the rule of distribution is that the bonds and coupons all share pro rata or pari passu in the proceeds."" Where, however, coupons have been presented for payment and cashed they are not en- titled to share equally with the bondholders and coupon holders who had reason to suppose that they were paid and cancelled, and not merely purchased, although a third person advanced the money to take them up under an agreement with the company that they should be kept alive and delivered to him.*^ But, as against the corporation, they may exist as valid securities and be entitled to be paid out of any surplus remaining after thfe payment of the other bonds and cou- pons,"^ and where the persons who present the coupons for payment have knowledge at the time of facts showing that some one else is advancing the money and that the transaction is, in effect, a purchase rather than a final payment of the coupons, they cannot complain if Arents v. Commonwealth, 18 Gratt. State v. Spartanburg, &c. R. Co. 8 (Va.) 750; 2 Daniels' Negot. Instr. S. Car. 129; Ketchum v. Duncan, 96 (3d ed.) §§ 1490a, 1505. Holding that U. S. 659, 671; Dunham v. Cincin- they are: Evertson v. Nat. Bank, 66 nati, &c. R. Co. 1 Wall. (TJ. S.) 254. N. Y. 14, 23 Am. R. 9; Jones Corp. But compare Stevens v. New York, Bonds and Mort. § 245. In Massa- &c. R. Co. 13 Blatch. (U. S.) 412. chusetts they are not, under the "Union Trust Co. v. Manticello, statute, and the soundness of the &c. R. Co. 63 N. Y. 311, 20 Am. R. New York decision is questioned. 541; Cameron v. Tome, 64 Md. 507; Chaffee v. Middlesex R. Co. 146 Commonwealth v. Chesapeake, &c. Mass. 224, 16 N. E. 34. Co. 32 Md. 501; Lloyd v. Wagner, 93 ^Arents v. Commonwealth, 18 Ky. 644, 21 S. W. 334; Bockes v. Gratt. (Va.) 750, 776; City of Jef- Hathorn, 20 Hun (N. Y.) 503; Fidel- fersonville v. Patterson, 26 Ind. 15, ity, &c. Co. v. West, &c. R. Co. 138 89 Am. Dec. 448; Greene v. Daniel, Pa. 494, 21 Atl. 21; South Covington, 102 U. S. 187; Langston v. South &c. R. Co. v. Gest, 34 Fed. 628. Carolina R. Co. 2 S. Car. 248. See, "^ Haven v. Grand Junction R. &c. also, Frank v. Wessels, 64 N. Y. 155. Co. 109 Mass. 88; Union Trust Co. " Jones Corp. Bonds and Mort. v. Monticello, &c. R. Co. 63 N. Y. 311, § 247. 20 Am. R. 541. "Sewall V. Brainerd, 38 Vt. 364; ■663 LEGISLATIVE AUTHORITY TO MORTGAGE. [§ 488' such third person is treated as a bona fide purchaser and permitted to share pro rata with them in the mortgage security.®^ The pledgee of bonds with coupons attached may collect the coupons as they fall due although the debt secured thereby has not yet matured.'* In a proper ease the payment of a lost bond will be enforced, and a court of chancery, it seems, may even compel the execution of a duplicate bond in place of a lost bond not yet due, upon proper indemnity being iurnished.®^ Bondholders cannot be compelled to accept payment and relinquish their lien before maturity,®^ and a clause in a bond payable at a certain time providing that it "will be redeemed, if desired," at an earlier date, is for the benefit of the holder rather than the maker.'^ Bonds may be made payable in gold,"' but this is not to be implied from the mere expectation of the holders where there is noth- ing in the contract to that effect or justifying such an implication."* The substitution of new bonds for the old ones does not, necessarily, operate as a payment nor prevent the holders from sharing to the same extent in the mortgage security;^"" but the rule is otherwise where a railroad company issues new bonds in order to fund its in- debtedness and bondholders accept second mortgage bonds in ex- change for first mortgage bonds knowing that the transaction is in- tended as a satisfaction of the first mortgage bonds.^"^ §488. No power to mortgage without legislative authority, — Railroad bonds are usually secured by mortgage or trust deed, and »= Ketchum v. Duncan, 96 U. S. Chicago, &c. R. Co. v. Pyne, 30 Fed. €59. See, also, Claflin v. South Car- 86. ollna R. Co. 8 Fed. 118; Wood v. "' Trehilcock v. Wilson, 12 Wall. Guarantee, &c. Co. 128 U. S. 416, 9 (TJ. S.) 687; State v. Hays, 50 Mo. Sup. Ct. 131; Hand v. Savannah, &c. 34, 11 Am. R. 402. B. Co. 17 S. Car. 219. ™Knox v. Lee, 12 Wall. (U. S.) "Warner v. Rising Fawn, &c. Co. 457. 3 Woods (U.S.) 514. ™Gibert v. Washington City R. °= Rogers v. Chicago, &c. R. Co. 6 Co. 33 Gratt. (Va.) 586; Ames v. Abb. N. Cas. (N. Y.) 253; New Or- New Orleans, &c. R. Co. 2 Woods leans, &c. R. Co. v. Mississippi Col- (U. S.) 206; Farmers', &c. Co. v. lege, 47 Miss. 560. See, also, Chesa- Green, &c. R. Co. 6 Fed. 100; Blair peake, &c. Co. v. Blair, 45 Md. 102; v. St. Louis, &c. R. Co. 23 Fed. 524; Miller v. Rutland, &c. R. Co. 40 Vt. Stevens v. Mid-Hants, &c. R. Co. L. 399; Adams' Equity, 166, 168. R. 8 Ch. 1064. "' Randolph v. Middleton, 26 N. J. ™ Fidelity, &c. Co. v. Shenandoah, Bq. 543. &c. R. Co. 86 Va. 1, 9 S. B. 759, 19 " Allentown School Dist. v. Derr, Am. St. 858. 115 Pa. St. 439, 5 Atl. 55. See, also. § 488], RAILROAD SECURITIES. 664 mortgages are frequently executed for other purposes as well. As a railway company receives from the state special privileges because of its public purpose, and has public duties to perform in person, and as a mortgage may become in effect an absolute conveyance or result in a sale by foreclosure, such a company cannot, without legislative authority, mortgage its franchises and property essential to their exercise.^"^ This rule is not, however, applicable to property which is not essential to or of use in the fulfillment of the corporation's public "= Carpenter v. Black Hawk G. M. Co. 65 N. Y. 43, 50; Pullan v. Cincin- nati, &c. R. Co. 4 Biss. (U. S.) 35; Susquehanna C. Co. v. Bonham, 9 W. & S. (Pa.) 27; Pierce v. Emery, 32 N. H. 484; Coe v. Columbus, &c. R. Co. 10 Ohio St. 372, 75 Am. Dec. 518, and note; Atkinson v. Marietta, &c. R. Co. 15 Ohio St. 21; Stewart v. Jones, 40 Mo. 140; New Orleans, &c. R. Co. V. Harris, 27 Miss. 517; Hall v. Sullivan R. 21 Law R. 138; Wyatt V. St. Helen's, &c. R. Co. 2 Q. B. 364; Daniels v. Hart, 118 Mass. 543; Wood V. Bedford, &c. R. Co. 8 Phila. (Pa.) 94; Randolph v. Wilmington, &c. R. Co. 11 Phila. (Pa.) 502; State V. Mexican Gulf R. Co. 3 Rob. (La.) 513; Commonwealth v. Smith, 10 Allen (Mass.) 448, 87 Am. Dec. 672, and note; East Boston, &c. R. Cd. V. Eastern R. Co. 13 Allen (Mass.) 422; Richardson v. Sibley, 11 Allen (Mass.) 65, 87 Am.. Dec. 700, and note; Troy, &c. R. Co. v. Kerr, 17 Barb. (N. Y.) 581; Stewart's Appeal, 56 Pa. St. 413; Hays v. Ottawa, &c. R. Co. 61 111. 422; Black v. Delaware, &c. Canal Co. 22 N. J. Eq. 130; Naglee v. Alexandria, &c. R. Co. 83 Va. 707, 3 S. E. 369, 5 Am. St. 308, 32 Am. & Eng. R. Cas. 401; Frazier V. East Tenn. &c. R. Co. 88 Tenn. 138, 12 S. W. 537, affirmed in 139 U. S. 288, 11 Sup. Ct. 517; Hart v. Eastern U. R. Co. 7 Exchq. 246. In a number of cases in the Supreme Court of the United States, most of which involved the question of the power to lease, it is stated in gen- eral terms that a railroad company has no implied power to alienate its franchises in any way, whether by sale, mortgage or lease. One of the most recent of these cases is Snell V. City of Chicago, 152 U. S. 191, 14 Sup. Ct. 489, 492, in which the oth- ers are cited. Some cases, however, hold that railroad companies may mortgage their property and fran- chises, other than that of existing as a corporation, at least to secure in- debtedness incurred for the legiti- mate purposes of construction or operation. Savannah, &c. R. Co. v. Lancaster, 62 Ala. 555; Kelly v. Ala. &c. R. Co. 58 Ala. 489; Miller v. Rutland, &c. R. Co. 36 Vt. 452; Mem- phis, &c. R. Co. V. Dow, 22 Blatch. (U. S.) 48, 19 Fed. 388; Shepley v. Atlantic, &c. R. Co. 55 Me. 395; Kennebec, &c. R. Co. v. Portland, &c. R. Co. 59 Me. 9, 23; Bickford v. Grand Junction R. Co. 1 Sup. Ct. of Canada 696, 738, reversing Grand Junction R. Co. v. Bickford, 23 Grant's Ch. (Ont.) 302; Bardstown, &c. R. Co. V. Metcalfe, 61 Ky. 199, 81 Am. Dec. 541; Commissioners v. Atlantic, &c. R. Co. 77 N. Car. 289. See, also. New Orleans, &c. R. Co. v.. Delamore, 114 U. S. 501, 5 Sup. Ct. 1009. 665 LEGISLATIVE AUTHOKITY TO MORTGAGE. [[§ 489 purpose and not necessary to enable the company to perform its duties to the public.^"* § 489. Legislative authority to mortgage. — ^In almost all of the stiates general laws have been enacted authorizing railroad companies to mortgage their property and franchises.^"* The authority may, sometimes, be implied or inferred from the terms of the statute,^"" although not expressly mentioned ; but, by expressly giving authority to mortgage to a certain amount the implication of an authority to mortgage beyond that amount may be forbidden.^"" Charter author- ity to mortgage real estate refers to real estate acquired in whatso- ever manner;^"" and a part of a railroad may be mortgaged under au- thority to mortgage the whole.^°* It has been held that power to pledge property also authorizes a mortgage of the property,^ '"' and so does a grant of power to borrow money and execute "such securi- ties in amount and kind" as the company may deem expedient.^^" A "= Piatt V. Union Pac. R. Co. 99 U. S. 48, 57; Tucker v. Ferguson, 22 "Wall. (U. S.) 527, 572; Hendee v. Piiikerton, 14 Allen (Mass.) 381; Bickford v. Grand Junction R. Co. 1 Sup. Ct. of Canada 696, 735; Taber V. Cincinnati, &c. R. Co. 15 Ind. 459; Pierce v. Emery, 32 N. H. 484. See, also, Coe v. Columbus, &c. R. Co. 75 Am. Dec. 518, and note 550. This exception, it is said, includes surplus land -acquired by eminent domain. Jones Railroad Bonds and Mort- gages, 12, citing Bickford v. Grand Junction R. Co. 1 Supreme Court of Canada, 696, 735. ^°* Jones Corporate Bonds and Mort. § 27. ""East Boston, &c. R. Co. v. East- ern R. Co. 13 Allen (Mass.) 422. See, also. Branch v. Jesup, 106 U. S. 468, 1 Sup. Ct. 495; Willamette, &c. Co. V. Bank, 119 U. S. 191, 7 Sup. Ct. 187; Farmers' Loan, &c Co. V. Toledo, &c. R. Co. 54 Fed. 759; Pierce v. Milwaukee, &c, R. Co. 24 Wis. 551, 1 Am. R. 203. ""Brice Ultra Vires (2d Eng. ed.), 273. It is said, however, and right- ly, as we think, that an express au- thority to mortgage for certain pur- poses does not necessarily negative 01* qualify a general authority to borrow for other purposes for which the implied powers of a corporation are usually suflScient. Jones Corpo- rate Bonds and Mortgages 7; Allen V. Montgomery R. Co. 11 Ala. 437; Mobile, &c. R. Co. v. Talman, 15 Ala. 472; Phillips v. Winslow, 57 Ky. 431, 68 Am. Dec. 729. See Pooley Hall Colliery Co., In re, 21 L. T. (N. S.) 690. ""Galveston, &c. R. Co. v. Cow- drey, 11 Wall. (TJ. S.) 459. "'Pullan V. Cincinnati, &c. R. Co. 4 Biss. (U. S.) 35, 45; Chartiers R. Co. V. Hodgens, 85 Pa. St. 501, 506; Bickford v. Grand Junction, &c. R. 1 Can. Sup. Ct. 696. But see East Boston, &c. R. Co. v. Hubbard; 10 Allen (Mass.) 459, note. ^^ Mobile, &c. R. Co. v. Talman, 15 Ala. 472. ™ Pierce v. Milwaukee, &c. R. Co. 24 Wis. 551, 1 Am. R. 203. § 490] KAILEOAD SECURITIES. 666 mortgage, though made with charter authority, has been held not to be good against the state which has taken possession of the road under provisions of the charter entitling it to declare a forfeiture.^^* § 490. Distinction between authority to mortgage franchises and authority to mortgage property. — ^Authority to mortgage a preroga- tive franchise may not be inferred from a company's express right to sell and consequent^^^ right to mortgage its property.^^^ But, from the power to mortgage a corporation's franchises may be implied the power to transfer both franchises and property to a purchaser at a foreclosure sale.^^* Authority to mortgage a railroad company's "means, property and effects," has been held sufBcient to authorize a mortgage of all its franchises except that of being a corporation,^^^ ^ Silllman v. Fredericksburg, &c. R. Co. 27 Gratt. (Va.) 119. See, also, Farnsworth v. Minnesota, &c. R. Co. 92 U. S. 49, 66. But see People v. O'Brien, 111 N. Y. 1, 7 Am. St. 684; Mower v. Kemp, 42 La. Ann. 1007, 8 So. 830. ^"^ Willamette M. Co. v. Bank of British Columbia, 119 U. S. 191, 7 Sup. Ct. 187. ™ McAllister v. Plant, 54 Miss. 106; Branch v. Atlantic, &c. R. Co. 3 Woods (U. S.) 481. Generally, it would seem that a statute authoriz- ing a mortgage of corporation prop- erty does not by implication author- ize a mortgage of franchises. Dun- ham V. Isett, 15 Iowa 284; Pollard V. Maddox, 28 Ala. 321; Pullan v. Cincinnati, &c. R. Co. 4 Biss. (U. S.) 35; Randolph V. Wilmington, &c. R. Co. 11 Phil. (Pa.) 502. A mort- gage covering property and fran- chise, having been authorized by charter as to the former but not as to the latter, is not entirely void, but will operate to convey the cor- poration's property. Randolph v. Wilmington, &c. R. Co. 11 Phila. (Pa.) 502; Gloninger v. Pittsburg, &c. R. Co. 139 Pa. 13, 21 Atl. 211, 46 Am. & Eng. R. Cas. 276. See Butler V. Rahm, 46 Md. 541; Carpenter v. Black Hawk G. M. Co. 65 N. Y. 43; Central G. M. Co. v. Piatt, 3 Daly (N. Y.) 263. "* Galveston, &c. R. Co. v. Cow- drey, 11 Wall. (U. S.) 459; New Or- leans, &c. R. Co. V. Delamore, 114 XT. S. 501, 5 Sup. Ct. 1009; Traer v. Clews, 115 U. S. 528, 6 Sup. Ct. 155; Phillips V. Winslow, 57 Ky. 431, 68 Am. Dec. 729. See, also, Chadwick V. Old Colony R. Co. 171 Mass. 239, 50 N. B. 629. But not, ordinarily, the franchise to be a corporation. See, also, Rogers v. Nashville, &c. R. Co. 91 Fed. 299; Memphis, &c. R. Co. V. Railroad Comrs. 112 XJ. S. 609, 619, 5 Sup. Ct. 299. "= Meyer v. Johnston, 53 Ala. 237; Bradstown, &c. R. Co. v. Metcalfe, 61 Ky. 199, 81 Am. Dec. 541. See, also, Wilmington R. Co. v. Reid, 13 Wall. (U. S.) 264; Pullan v. Cincin- nati, &c. R. Co. 4 Biss. (IT. S.) 35; McAllister v. Plant, 54 Miss. 106. So authority to mortgage "the en- tire road, fixtures, and equipments, with all the appurtenances, income and resources thereof," does not in- clude the right to mortgage the franchise to be a corporation, but does include, according to another 667 WHO MAT EXECUTE MORTGAGE, [§ 491 but the soundness of some of these decisions, in so far as they hold that a mortgage of any prerogative 'or true franchise was authorized, is not entirely beyond question. There must certainly be a very clear grant of power to authorize a mortgage of the franchise to be a cor- poration. But it has been held that the power to pledge the fran- chises and rights of a corporation implies, as incident thereto, the power to pledge everything necessary to the enjoyment of the fran- chise and upon which its real value depends.^ ^® If the statute con- ferring power to mortgage specifies or enumerates the particular prop- erty to be included it gives no authority to include other kinds.^^^ §491. Who may execute the mortgage. — The authority of a cor- poration to mortgage its property may, unless reserved to the stock- holders, be exercised by its directors,^*^ even outside the state of its creation,^^* 'or outside the state in which the railroad is situated.^^" decision, the right to mortgage the franchise to maintain a railroad and take compensation as a carrier. Coe V. Columbus, &c. R. Co. 10 Ohio St. 372, 75 Am. Dec. 518. "" Phillips V. Winslqw, 57 Ky. 431. "' See Taber v. Cincinnati, &c. R. €o. 15 Ind. 459; Bath v. Miller, 51 Me. 341; Morris v. Cheney, 51 111. 451; Lloyd v. European, &c. R. Co. 18 New Bruns. 194; Georgia South- ern, &c. R. Co. V. Barton, 101 Ga. 466, 28 S. E. 842. Compare, also, Oloninger v. Pittsburgh, &c. R. Co. 139 Pa. St. 13, 21 Atl. 211; Fidelity Ins. &c. Co. V. Western Penna. Co. 138 Pa. St. 494, 21 Atl. 21, 21 Am. St. 911; Grand Junction R. Co. v. Bickford, 23 Grant Ch. (U. C.) 302. "'Wood T. Whelen, 93 111. 153; Bank of Middlebury v. Rutland, &c. R. Co. 30 Vt. 149 ; Hendee v. Pinker- ton, 14 Allen (Mass.) 381; Tripp v. Swanzey Paper Co. 13 Pick. (Mass.) 291; Hodder v. Kentucky, &c. R. Co. 7 Fed. 793; Phinizy v. Augusta, &c. B. 62 Fed. 678; Blood v. La Serena, .&c. Co. 113 Cal. 221, 41 Pac. 1017, 45 Pac. 252; Taylor v. Agricultural, &c. Assn. 68 Ala. 229; Burrill v. Nahant Bank, 2 Met. (Mass.) 163, 35 Am. Dee. 395; McCurdy's Appeal, 65 Pa. St. 290; Ohio, &c. R. Co. v. McPher- son, 35 Mo. 13, 86 Am. Deo. 128; Thompson v. Natchez, &c. Co. 68 Miss. 423, 9 So. 821. ""Arms V. Conant, 36 Vt. 744; Gal- veston R. V. Cowdrey, 11 Wall. (U. S.) 459; Ohio, &c. R. Co. v. McPher- son, 35 Mo. 13, 86 Am. Dee. 128; Wright V. Bundy, 11 Ind. 398; Mc- Call T. Byram Mfg. Co. 6 Conn. 428; Bassett v. Monte Christ© M. Co. 15 Nev. 293; Coe v. New Jersey Mid- land R. Co. 31 N. J. Eq. 105; Hodder V. Kentucky, &c. R. Co. 7 Fed. 793. In some of the states, however, char- ters and general laws prohibit the action of the directors without the authorization of the stockholders. Mass. Pub. Stat. Ch! 106, § 23. It has been held that this does not ap- ply to a mortgage of property in Massachusetts owned by a corpora- tion of Vermont. Saltmarsh v. Spaulding, 147 Mass. 224, 17 N. E. 316, 4 R. & Corp. Law J. 151; Tex. Rev. Stat. Art. 4220; 8 Vict. Ch. 16, § 38; Romford Canal, In re, 24 Ch. Div. 85; Landowners', &c. Co. v. 491] EAILEOAD SECUEITIES. Even where the authorization of the stockholders is required, ■ it is- held that the public has no interest in the requirement ;^^^ that it cannot be pleaded by the corporation's creditors,^ ^^ and that the stock- holders cannot complain after the issuance of bonds^"* to bona fide purchasers. The president of a railrdad company cannot mortgage its property to secure its debt, even though he be authorized gen- erally to act as its financial agent.^^* The use of the corporate seal in such a case only raises a rebuttable presumption that the mort- gage has been authoritatively executed.^^^ The individual signature of an executive officer, empowered to execute the mortgage, will, however, bind the corporation whose instrument it purports to be, though the corporate name be omitted.^^* Where the authority of the agent to execute the mortgage is in general terms he must include in it usual provisions only, and the company will not, ordinarily, be bound by any unusual provisions which may be inelnded.^^^ Ashford, 16 Ch. Dlv. 411; Fountaine V. Carmarthen R. Co. 5 Bq. 316; Hodges Railw. 121. ""Hervey v. Illinois Midland R. Co. 28 Fed. 169. "'Thomas v. Citizens' Horse R. Co. 104 111. 462. See, also, Central Trust Co. V. Condon, 67 Fed. 84. "^Hervey v. Illinois Midland R. Co. 28 Fed. 169. "=' Hodder v. Kentucky, &c. R. Co. 7 Fed. 793; Texas, &c. R. Co. v. Gen- try, 69 Tex. 625, 8 S. W. 98; McCur- dy's Appeal, 65 Pa. St. 290. '^ Despatch Line of Packets v. Bel- lamy Mfg. Co. 12 N. H. 205, 37 Am. Dec. 203; Luse v. Isthmus Transit R. Co. 6 Oreg. 125, 25 Am. R. 50B; Hoyt V. Thompson, 5 N. Y. 320; "Whitwell V. Warner, 20 Vt. 425. But it might be otherwise if he were authorized to borrow the money. Hatch V. Coddington, 95 U. S. 48. And see as to estoppel where the money is used by the company, Au- gusta, &c. R. Co. V. Kettel, 52 Fed. 63. ""Fidelity Ins. Co. v. Shenandoah Valley R. Co. 32 W. Va. 244, 9 S. B. 180; Wood V. Whelen, 93 111. 153; Gorder v. Plattsmouth Canning Co. 36 Neb. 548, 54 N. W. 830; Northern C. R. Co. V. Bastian, 15 Md. 494. See, also, Koehler v. Black River Falls Iron Co. 2 Black (U. S.) 715; Reed V. Bradley, 17 111. 321. It has been held that it may be enforced as an equitable mortgage if the requisite seal is not attached. Brown v. Farmers', &c. Co. 23 Oreg. 541, 32 Pac. 548; PuUis v. Pullis Bros. 157 Mo. 565, 57 S. W. 1095. "'Despatch Line of Packets v. Bellamy Mfg. Co. 12 N. H. 205, 37 Am. Dec. 203; Haven v. Adams, 4 Allen (Mass.) 80; Savannah, &c. R. Co. V. Lancaster, 62 Ala. 555. Of course this is not true when the in- strument purports to be the oflacers'. Brinley v. Mann, 56 Mass. 337, 48 Am. Dec. 669; Miller v. Rutland, &c. R. Co. 36 Vt. 452. ™ Jesup V. City Bank of Racine, 14 Wis. 331; Pacific Rolling Mill v. Dayton, &c. R. Co. 5 Fed. 852. See, also. Savannah, &c. R. Co. v. Lancas- ter, 62 Ala. 555; Hart v. Bastem Un. R. Co. 7 Ex. 246. But see Coe v. New Jersey Midland R. Co. 31 N. J. Eq. 105. €69 RATIFICATION OB UNAtTTHORIZBD MOHTGAGE. [§ 493 § 492. Eatification by stockholders of unauthorized or improperly executed mortgage. — An imautliorized mortgage, which the corpora- tion has power to execute, may be ratified by the stockholders, either directly by vote or indirectly as by the payment of interest or the receipt and retention of the proceeds, or other acts recognizing the obligation.^^* The receipt of the proceeds of an unauthorized mort- gage has been held to be such a ratification that a corporation may not thereafter repudiate it, CTen though executed in violation of a statute forbidding a mortgage without the approval of two-thirds of the stock.^^^ So, where a corporation is authorized to increase its capital stock, and attempts to do so, but fails to. give the statutory notice required in such a case, both the corporation and its stockholders who acquiesce therein, are estopped to question the validity of a mortgage executed to secure obligations greater in amount than the original capital, but less than the capital as increased, although the statute prohibits a mortgage exceeding the amount of the capital stock, and such a mortgage is ratified by the acquiescence of the stockholders for several years, although it was not originally authorized by them at a- legally called meeting.^' § 493. When ultra vires mortgage may be made effective. — An ultra vires mortgage may be ratified by the legislature either di- rectly,^^^ or indirectly, by an act authorizing the trustees to sell the ™ Ottawa, &c. R. Co. v. Murray, 15 63 N. Y. 62, 20 Am. R. 504; Perkins 111. 336; Farmers', &c. Co. v. Toledo, v. Portland, &c. R. Co. 47 Me. 573, &c. R. Co. 67 Fed. 49; Thomas v. 74 Am. Dec. 507; City F. Insurance Citizens' Horse R. Co. 104 111. 462; Co. T. Carrugi, 41 Ga. 660; Southern, McCurdy's Appeal, 65 Pa. St. 290; &c. Transp. Co. v. Lanier, 5 Fla. Harrison v. Annapolis, &c. R. Co. 50 110, 58 Am. Dee. 448; Hays v. Gallon Md. 490; Singer v. St. Louis, &c. R. Gas Light, &c. Co. 29 Ohio St. 330; Co. 6 Mo. App. 427; Trader v. Jarvis, Foulke v. San Diego, &c. R. Co. 51 23 W. Va. 100; Lewis v. Hartford Cal. 365; Thompson v. Lambert, 44 Silk Mfg. Co. 56 Conn. 25, 12 Atl. Iowa 239. 637; Elwell v. Grand St. &c. R. Co. ""Texas, &c. R. Co. v. Gentry, 69 67 Barb. (N. Y.) 83; Page v. Fall Texas 625, 8 S. W. 98; Forbes v. San River, &c. R. Co. 31 Fed. 257; Lester Rafael T. Co. 50 Cal. 340. See, also, V. Webb, 1 Allen (Mass.) 34; Kelley Gribble v. Columbus, &c. Co. 100 Cal. v. Newburyport, &c. R. Co. 141 Mass. 67, 34 Pac. 527. But see Alta, &c. 496, 6 N. B. 745; Merchants' Bank v. Co. v. Alta, &c. Co. 78 Cal. 629, 21 State Bank, 10 Wall. (U. S.) 604; Pac. 373; Duke v. Markham, 105 N. Railway Co. v. McCarthy, 96 U. S. Car. 131, 10 S. B. 1017, 18 Am. St. 258; National Bank v. Matthews, 98 889. U. S. 621; Mahoney Mining Co. v. ""Farmers', &c. Co. v. Toledo, &c. Anglo-Californian Bank, 104 U. ' S. R. Co. 67 Fed. 49. 192; Whitney Arms Co. v. Barlow, "'Richards v. Merrimack, &c. R. § 493] KAILROAD SECUKITIBS. 670 road^^^ or by other recognition of the obligation.^^' Where the want of power is not apparent in the charter, or in any statute, or in the instrument itself, it has been held that the corporation may not plead ultra vires against an innocent holder for value.^^* An ultra vires mortgage may, however, be enjoined in a suit in equity brought by a stockholder.^'' But stockholders may estop themselves from question- ing the validity of a mortgage cither upon the ground that the cor- poration was not legally organized or upon the ground that the mort- gage was not properly authorized, where they take part in an attempt to organize under a valid law and acquiesce in the mortgage.^'* A statutory provision requiring notice of a meeting to authorize a mort- gage is for the benefit of the stockholders, and if they do not complain of the failure to give such notice no one else can do so.^'^ Creditors holding debentures and standing in the same right as the mortgagee may, it has been held, by a bill in equity filed by any of them, secure an equal distribution of property mortgaged ultra vires.^^* 44 N. H. 127; Kennebec, &c. R. Co. V. Portland, &c. R. Co. 54 Me. 173; Pierce v. Milwaukee, &c. R. Co. 24 Wis. 551, 1 Am. R. 203; St. Paul, &c. R. Co. V. Parcher, 14 Minn. 297; White Water Valley Canal Co. v. Vallette, 21 How. (U. S.) 414; Gross v. United States, &c. Co. 108 U. S. 477, 2 Sup. Ct. 940; Shaw v. Norfolk Co. R. Co. 5 Gray (Mass.) 162; Shepley v. Atlantic, &c. R. Co. 55 Me. 395; Hatcher v. Toledo, &c. R. Co. 62 111. 477. "'^Richards v. Merrimack, &c. R. Co. 44 N. H. 127. 133 Troy, &c. R. Co. V. Boston, &c. R. Co. 86 N. Y. 107; Ander v. Ely, 1,58 XT. S. 312, 15 Sup. Ct. 954; Gard- ner T. London, &c. R. Co. Law R. 2 Ch. App. 201; Shrewsbury, &c. R. Co. V. Northwestern R. Co. 6 H. L. Cas. 113; East Anglian R. Co. v. Eastern Counties R. Co. 11 Com. B. 775; Winch v. Birkenhead, &c. R. Co. 5 DeGex & S. 562; Bagshaw v. Eastern Union R. Co. 7 Hare 114; Great Northern R. Co. v. Eastern Counties R. Co. 21 Law J. Ch. 837. *"Hays v. Gallon, &c. Co. 29 Ohi» St. 330; Bissell v. Michigan, &c. R. Co. 22 N. Y. 258; Monument Na- tional Bank v. Globe Works, 101 Mass. 57, 3 Am. R. 322; Whitney Arms Co. v. Barlow, 63 N. Y. 62, 20 Am. R. 504; Singer v. St. Louis, &c. R. Co. 6 Mo. App. 427. See Hacken- sack Water Co. v. DeKay, 36 N. J. Eq. 548. Ratification of an ultra vires mortgage by the stockholders is held not to validate it in Curtin V. Salmon, &c. Co. 130 Cal. 345, 62 Pac. 552, 80 Am. St. 132, and this would seem to be correct where they themselves have no power to make a mortgage. ^==McCalmont v. Philadelphia, &c. R. Co. 27 Int. Rev. Rec. 162, 3 Am. & Eng. R. Cas. 163. ^"Farmers', &c. Co. v. Toledo, &c. R. Co. 67 Fed. 49. See, also, Boyce V. Montauk Gas, &c. Co. 37 W. Va. 73, 16 S. E. 501; Texas, &c. R. Co. V. Gentry, 69 Tex. 625. '" Central Trust Co. v. Condon, 67 Fed. 84. ™De Winton v. Brecon, 26 Beav. 671 KECOEDING MORTGAGES. [§ 494 §494. Recordiag mortgages. — ^Kailroad mortgages, like other mortgages — and in the case of real property subject ordinarily to the same laws and rules — must be recorded in order to charge third par- ties with constructive notice; but a mortgage expressly recognizing another unrecorded mortgage is entitled to no priority over it.^" In some states . railroad mortgages are recorded with the secretary of state. An unrecorded mortgage, drawn in the form of a lease, cover- ing rolling stock to be paid for by annual rental, is not good against attachment and execution by creditors, nor against bona fide pur- chasers from the mortgagor.^*" A state's interests will not be preju- diced by the neglect of an agent to record a mortgage made by a rail- road corporation in pursuance of a public statute.^*^ An agreement to furnish supplies to a railroad company, the title remaining in the vendor while they are being paid for in instalments, if riot recorded in conformity with the Illinois chattel mortgage act, gives the vendor no lien against third persons.^*^ Eailroad mortgages covering the cor- porate franchises and realty, as well as the personalty connected there- with and used for railroad purposes, are not, ordinarily, subject to statutes regarding the acknowledgment and recording of chattel mort- gages.^*^ And so it has been held that a mortgage covering both the 533, 5 Jur. N. S. 882. See, also. Fir- ^" Peoria, &c. R. Co. v. Thompson, bank v. Humphreys, 18 Q. B. Div. 103 111. 187; Cooper v. Corbin, 105 54. 111. 224; Hammock v. Loan, &c. Co. "» Coe v. Columbus, &c. R. Co. 10 105 U. S. 77. Thus it has been held Ohio St. 372, 75 Am. Dec. 518. But that they are not subject to statutes see Cheesebrough v. Millard, 1 requiring record in the county where Johns. Ch. (N. Y.) 409, 7 Am. Dec. the property is situated. Metropoli- 494. tan Trust Co. v. Pennsylvania, &c, 1" Prank v. Denver, &c. R. Co. 23 R. Co. 25 Fed. 760. But see Rade- Fed. 123; Heryford v. Davis, 102 U. baugh v. Tacoma, &c. R. 8 Wash S. 235, 2 Am. & Eng. R. Cas. 386; 570, 36 Pac. 460; Union, &c. Co. v. Hervey v. Rhode Island, &c. Works, Southern, &c. Co. 51 Fed. 840. Nor, 93 U. S. 664. where a special statute provides ^" Memphis and Little Rock R. Co. that railroad companies may "mort- V. State, 37 Ark. 632. gage their corporate property and »«I11. Rev. Stat. (1874) 711, 712; franchises," is a mortgage of per- Murch V. Wright, 46 111. 487, 95 Am. sonal property in connection with Dec. 455 ; Fosdick v. Schall, 99 U. S. the real estate and franchises sub- 235, 250; Hervey v. Rhode Island, ject to the provisions of a general &c. Works, 93 U. S. 664; Green v. chattel mortgage statute requiring Van Buskirk, 5 Wall. (XJ. S.) 307. an affidavit of good faith. Southern See, also, Heryford v. Davis, 102 U. California, &c. Co. v. Union, &c. Co. S. 235. 64 Fed. 450. §■ 495] EAILEOAD SEOUEITIBS. 672 road and the rolling stock and recorded as a real estate mortgage need not be also recorded as a chattel mortgage/** but there is conflict among the authorities and it is generally safer to record it as both/*'' unless, as in many of the states, the question is set at rest by legisla- tive enactment. The institution of foreclosure proceedings will not interfere with the right of creditors, without actual notice of an un- recorded mortgage, to levy upon the corporate property. "^ § 495. Generally as to what property is covered by the mortgage. — The extent of property covered by a railroad mortgage is a matter of interpretation under the rules applicable to the interpretation of mortgages by individuals, reference, however, being had. to the au- thorizing statute.^*^ Nothing appearing to the contrary in a mortgage, whose terms are general, it will be held that all the property is in- cluded when the statute authorizes an encumbrance of the whole.^*' '"Farmers', &c. Co. v. St. Joseph, &c. R. Co. 3 Dill. (U. S.) 412. But see Hoyle v. Plattsburg, &c. R. Co. 54 N. Y. 314, 13 Am. R. 595; Wil- liamson v. New Jersey, &c. R. Co. 29 N. J. Eq. 311; Radebaugh v. Ta- coma, &c. R. Co. 8 Wash. 570, 36 Pac. 460; Palmer v. Forbes, 23 111. 301; Union, &c. Co. v. Southern, &c. Co. 51 Fed. 840; Jones Corp. Bonds & Mort., Chapter V, where the ques- tion is discussed and the conflicting authorities are reviewed. See, also, ante, § 389. '«See Bishop v. McKillieau, 124 Cal. 321, 57 Pac. 76, 71 Am. St. 68; Williamson v. New Jersey So. R. Co. 29 N. J. Eq. 211; Hoyle v. Platts- burgh, &c. R. Co. 54 N. Y. 314; Rade- baugh v. Tacoma, &c. R. Co. 8 Wash. 570, 36 Pac. 460; Union, &c. Co. v. Southern, &c. Co. 51 Fed. 840. "°Coe V. New Jersey Midland R. Co. 31 N. J. Eq. 105. "'Wilson V. Gaines, 103 U. S. 417; Coe V. New Jersey Midland, &c. R. Co. 31 N. J. Eq. 105. ^^ Coe V. New Jersey Midland, &c. R. Co. 31 N. J. Eq. 105. See, also, Columbia, &c. Co." v. Kentucky Union R. Co. 60 Fed. 794; Barnard V. Norwich, &c. R. Co. 4 ClifE. (N. S.) 351, 2 Fed. Cas. No. 1007; Scott V. Clinton, &c. R. Co. 6 Biss. (U. S.) 529, 21 Fed. Cas. No. 12527. But compare Smith v. McCullough, 104 U. S. 25; St. Paul, &c. R. Co. v. United States, 112 U. S. 733, 5 Sup. Ct. 366; Emerson v. European, &c. R. Co. 67 Me. 387, 24 Am. R. 39. In a recent case a railroad company chartered to build a road contracted with a construction company to pay for the construction of the road in speciiied bonds secured by mortgage. Part of the road was built, a pro- portionate part of the bonds deliv- ered, and a mortgage executed and recorded covering all the property of the railroad company then owned or afterwards acquired. The contract was then cancelled and the chief pro- motor of the railroad company, who was also the president and only stockholder of the construction com- pany, conveyed all the property of the construction company, includ- ing all rights of way acquired or contracted for on behalf of the rail- road company, by deed duly record- 673 PEOPERTY COVEEBD BY MOETGAGB. [§ 495 Of course, however, general words cannot extend the lien beyond the limitation of the statute.^*® Where a railroad company's property has been, without the execution of a formal instrument, mortgaged by the legislature, the statute itself interpreted with regard to the condition of the road will determine the extent of the lien.^'"' Only such prop- erty as is helpful or essential in the operation of the road is, as a rule, included in a general mortgage of the railroad, and, therefore, it has been held not to cover property bought from a steamboat company for the purpose of stifling competition,^^^ or unused land bought for shops and depots,^°^ or a temporary track,^^^ or woodland.^^* A sper cifie enumeration of the property covered is generally exclusive of all other property.^^^ Thus, the words "all other property" following a grant of "all lands granted by the United States" to the company do not include other lands not particularly described,^°° nor, it seems. ed, to a firm which then conveyed it to a new railroad company char- tered to build a road between two points on the same route, S. to L. A similar disposition was made of the remainder of the property of the construction company south of L., which passed into the hands of a third railway company, chartered to build the road over the remainder of the proposed route; and the two new companies completed the road on the line originally projected. The court held that they took with knowledge of the interest of the original company and that the mort- gage executed by it secured to its bondholders a lien on the whole of the road as completed, prior to that of a mortgage executed by the new companies. Wade v. Chicago, &c. R. Co. 149 U. S. 327, 13 Sup. Ct. 892. ™ Wilson V. Gaines, 103 U. S. 417. ^^ State V. Florida, &c. R. Co. 15 Fla. 690. "'Beach Law of Railways 763; Morgan v. Donovan, 58 Ala. 241. "' Yoiingman v. Elmira, &c. R. Co. 65 Pa. St. 278. "^ Van Keuren v. Central R. Co. 38 N. J. L. 165. Ell. Ratleoads — 43 '"Dinsmore v. Racine, &c. R. Co. 12 Wis. 649. «» Smith v. McCuUough, 104 U. S. 25; Brainerd v. Peck, 34 Vt. 496; Spies V. Chicago, &c. R. Co. 40 Fed. 34; Boston, &c. R. Co. v. Coffin, 50 Conn. 150; Alabama v. Montague, 117 TJ. S. 602, 6 Sup. Ct. 911. But see Calhoun v. Memphis, &c. R. 2 Flip. (U. S.) 442. Thus, in the case first cited, supra, it was held that a mortgage of "all the present and in future to be acquired property" of a railroad company, containing a clause enumerating many articles having connection with the manage- ment and operation of the road after its construction, did not include mu- nicipal bonds issued in aid of the construction of the road. See, also, Wilkes V. Ferris, 5 Johns. (N. Y.) 335, 4 Am. Dec. 364, and note; Mims V. Armstrong, 31 Md. 87, 1 Am. R. 22; Price v. Haynes, 37 Mich. 487; Bock V. Perkins, 28 Fed. 123; Dris- coll V. Fiske, 21 Pick. (Mass.) 503. ""Alabama v. Montague, 117 U. S. 602, 6 Sup. Ct. 911. See, also, Wil- son V. Boyce, 92 U. S. 320; St. Louis, &c. R. Co. V. McGee, 115 U. S. 469, 6 Sup, Ct. 123. § 495] RAILROAD SECURITIES. 674 do they include ehoses in action not specifically enumerated in a chat- tel mortgage.^^^ Fuel purchased with the common earnings of a main line and its extension is not subject to the lien of a mortgage of all the property of the extension."* "All other corporate property * * * appertaining" or "appurtenant" to a railroad means only such prop-, erty as is indispensable or at least useful in the exercise of the fran- chise ;^°' and does not include town lots/^" or an elevator^^^ or canal boats used beyond the road's termini.^^^ Land grants which the com- pany cannot accept/®^ or the conditions of which have not been real- ized/** are not included in such a mortgage. "All the real and per- sonal property" has been held to include earnings and profits ;^°^ and necessary office furniture is subject to a mortgage of a road, its fran- chises and property.^** A mortgage of a road and its fixtures, to- gether with "all other property now owned and which may be hereafter owned by the railroad company," includes cars, locomotives, and other rolling stock purchased by the company from time to time after the making of the mortgage.^"' And a mortgage of an entire line of railroad, "with all the revenue or tolls thereof," has been held to cover all the rolling stock and 'fixtures, whether movable or immov- able, essential to the production of tolls and revenues.^"* Net earnings UST 1 'Milwaukee, &c. R. Co. v. Mil- ^''Humphreys v. McKissock, 140 waukee, &c. R. Co. 20 Wis. 174, 88 V. S. 304, 11 Sup. Ct. 779. Am. Dec. 740. "" Parish v. Wheeler, 22 N. Y. 494. '■^ Bath V. Miller, 53 Me. 308. See ^ Meyer v. Johnston, 53 Ala. 237. Hunt V. Bullock, 23 111. 320. ^« Campbell v. Texas, &c. R. Co. «" State v. Glenn, 18 Nev. 34, 1 2 Woods (U. S.) 263. See, also, New Pac. 186; Morgan v. Donovan, 58 Orleans Pac. R. Co. v. Parker, 143 Ala. 241; Boston, &c. R. Co. v. Coffin, U. S. 42, 12 Sup. Ct. 364, 6 Lewis' 50 Conn. 150; Mississippi Val. Co. Am. R. & Corp. 43, and authorities V. Chicago, &c. R. Co. 58 Miss. 896, cited in the opinion of the court. 38 Am. R. 348; Alabama v. Mon- ^^ Kelly v. Alabama, &c. R. Co. 58 tague, 117 V. S. 602, 6 Sup. Ct. 911; Ala. 489. Millard V. Hurley, 13 Neb. 259, 13 N. ""Wood v. Whelen, 93 111. 153; W. 278; New Orleans Pac. R. Co. v. Ludlow v. Hurd, 1 Dis. (Ohio) 552; Parker, 143 U. S. 42, 12 Sup. Ct. 364, Raymond v. Clark, 46 Conn. 129. 6 Lewis' Am. R. & Corp. 43. See Hunt v. Bullock, 23 HI. 320. ""Calhoun v. Memphis, &c. R. 2 "'Meyer v. Johnston, 53 Ala. 237, Flip. (TJ. S.) 442; Shamokin Valley 332, 64 Ala. 603. See, also, Shaw v. R. Co. V. LIvermore, 47 Pa. St. 465, Bill, 95 U. S. 10; Hamlin v. Jerrard. 471, 86 Am. Dec. 552; Gardner v. 72 Me. 62. London, &c. R. Co. L. R. 2 Ch. App. "= Maryland v. Northern Central 201. But see Knevals v. Florida R. Co. 18 Md. 193. See, also, Pul- Cent. &c. R. Co. 66 Fed. 224. Ian v. Cincinnati, &c. R. Co. 4 Biss. (U. S.) 35, 43. 675 WHAT COVERED BY MORTGAGE OF UNDERTAKING. [§ 496 may be mortgaged, but so long as they are letained by the mortgagor are subieet to trustee process in favor of the road's general creditors.^®* In a recent case/'" a railroad company had leased its unfinished road to a company operating a connecting line and mortgaged its property, rights and franchises to secure certain bonds ■which were to be dis- posed of by the lessee, and the latter, in order to insure the prompt payment of interest and the ready sale of the bonds, being advised that it had no power to guarantee them, mortgaged to the lessor for that purpose all the net earnings of its own lines which might accrue to it '^by reason of business coming to it from or over" the lines of the lessor. It was held that this included not only the profits of the business which came literally from ofE the lessor's road onto the les- see's road, but, also, the net earnings or business which came to the latter from both directions by reason of the fact that the leased road was an important feeder and brought new business to the lessee's road by opening up new markets and giving increased facilities. The court also held that, as there was nothing in the mortgage prescribing the method of ascertaining the net earnings, they must be determined in the usual way, that is, from the gross receipts must be deducted the cost of producing them, and that it knew of "no way to arrive at all this, save, approximately, by a proportion distributing the total operating expense over the whole business," thus treating the busi- ness of the entire system as a unit.^'^ § 496. What is covered by a mortgage of the undertaking. — In England it is held that neither a mortgage of a railroad "undertak- iiig"i72 jjgj. Qj^g Qf ^jjg "undertaking, and all and singular the rates, tolls and other sums arising,"^'^ includes the land on which the road '°° Gilman v. Illinois, &c. R. Co. 91 must first be paid. Parkhurst v. U. S. 603; Galveston R. Co. v. Cow- Northern Central R. Co. 19 Md. 472, drey, 11 Wall. (U. S.) 459; Missis- 18 Am. Dec. 648. sippi, &c. R. V. United States Exp. "" Schmidt t. Louisville, &c. R. Co. Co. 81 111. 534; Smith v. Eastern R. 95 Ky. 289, 25 S. W. 494, 26 S. W. Co. 124 Mass. 154; Bath v. Miller, 51 547, 61 Am. & Eng. R. Cas. 680. Me. 341; Noyes v. Rich, 52 Me. 115; "' St. John v. Railway Co. 22 Wall. Galena, &c. R. Co. v. Menzies, 26 111. (U. S.) 136; Pullan v. Railroad Co. 121; Ellis V. Boston, &c. R. Co. 107 5 Biss. (U. S.) 237; United States Mass. 1; Emerson v. European, &c. v. Kansas Pac. R. Co. 99 U. S. 455. R. Co. 67 Me. 387, 24 Am. R. 39; "''Doe v. St. Helen's, &c. R. Co. 2 Dunham v. Isett, 15 Iowa 284; Clay Eng. R. & Can. Cas. 756. / V. East Tenn. &c. R. Co. 6 Heisk. "' Myatt v. St. Helen's, &c. R. Co. (Tenn.) 421. Operating expenses 2 Q. B. 364. § 497] RAILROAD SECURITIES. me is built; or the surplus lands f'* or stock or property belonging to the company as a common carrier of passengers or goods for hire ;^''^ or future calls on the shareholders, they not being mortgageable -with- out express legislative authority. ^^^ But it has been held that a mortgage of the undertaking may include the rails, stations, works and other buildings.^^^ The undertaking is a going concern created by the incorporating act ;^'^ and it cannot be broken up by the mort- gagees, nor can they, by ejectment, take from the corporation property essential to, the undertaking's continuance.^^^ That which is pledged under a mortgage of the undertaking is rather the income of the property than the corpus of it.^^" §' 497. Mortgage of after-acquired property. — ^It has been decided that, on the doctrine of accession, a railroad company will, in a mort- gage of all its property, be held, even in the abseiice of express words of futurity, to have included essential property subsequently acquired under authority given before the execution of the mortgage. This doctrine, which is not well established,^^^ is supported by the cases "* Beach Railway Law 763; Gaj-d- ner V. London, &c. R. Co. L. R. 2 Ch. App. 201, 217, 36 L. J. Ch. 323; King V. Marshall, 33 Beav. 565; Stanley, Ex parte, 33 Law J. Ch. 535; Moor v. Anglo-Italian Bank, L. R. 10 Ch. Div. 681; Wickham v. New Brunswick, &c. R. Co. L. R. 1 P. C. 64; 1 Cox's Joint Stock Cas. 519; Doe r. St. Helen's, &c. R. Co. 1 Gale & B. 663, 2 Q. B. 364, 42 B. C. L. 715. "" Hart V. Eastern Union R. Co. 7 Ex. 246. "" British Provident L. & P. Assn. Co., In re, 4 DeG., J. & S. 407; Sankey Brook Coal Co., In re, L. R. 10 Eq. 381; Companies Clauses Consolida- tion Act 1845, 8 and 9 Vict. Ch. 16, § 43; Gardner v. London, &c. R. Co. L. R. 2 Ch. 201, 212; Browne & Theo- bald's Railway Law 88; Lewis v. Glenn, 84 Va. 947, 6 S. E. 866. But see Pickering v. Ilfracomhe R. Co. L. R. 3 Com. P. 235. A mortgage of "all the lands, tenements and estates of the -company, and all their under- takings," was held not to include calls, either future or existing, un- paid. King V. Marshall, 33 Beav. 565. "'Legg V. Mathieson, 2 Giff. 71. See Wickham v. New Brunswick, &c. R. Co. Law R. 1 P. C. 64. "* Gardner v. London, &c. R. Co. L. R. 2 Ch. 201. A mortgage of the undertaking is different from a mortgage of the company's prop- erty. Jones Corporate Bonds and Mortgages 62; Perkins v. Pritchard, 3 Eng. Ry. & Can. Cas. 95; Hart v. Eastern Union R. Co. 6 Eng. R. & Can. 'Cas. 818, 7 Exch. 246, 265. ™ Myatt V. St. Helen's R. Co. 2 Q. B. 364; 2 Eng. R. & Can. Cas. 756; 1 Hodges Railways 124. ™ Panama, &c. Royal Mail Co., In re, L. R. 5 Ch. 318, 321. "' See Dinsmore v. Racine, &e. R. Co. 12 Wis. 649; Panama, &c. R. M. Co., In re, L. R. 5 Ch. App. 318, 322; 4 Cox's Joint Stock Cas. 35; Lud- 677 MOKTGAGE OF AFTBE-ACQDIEED PEOPEETT. .[§■ 497 only when by virtue of some legislative authority the road's franchises and property may be treated as an indivisible entity.^'^ Unques- tionably a railroad company having power to borrow money and se- cure it by mortgage on its property may by express terms mortgage property to be acquired subsequently.^'* In a recent case,^** this doctrine was applied to a de facto corporation, and it was held that, as a corporation created under the general railroad law of the state might mortgage after-acquired property, a mortgage or trust deed of such property by the de facto corporation, which was created by an unconstitutional special act but might have been organized under the general law, was valid not only as against the corporation but also as against creditors.^*^ low v. Hurd, 1 Dis. (Ohio) 552, 560; Parker v. New Orleans, &c. R. Co. 33 Fed. 693; Shaw v. Bill, 95 U. S. 10; Phillips V. Winslow, 57 Ky. 431, 68 Am. St. 729; Farmers', &c. Co. v. Commercial Bank, 11 Wis. 207, 212, 689; Calhoun v. Memphis, &c. R. Co. 2 Flip. (U. S.) 442; Pierce v. Emery, 32 N. H. 484, Boston, &c. R. v. Gil- more, 37 N. H. 410, 72 Am. Dec. 336. See, also, Galveston, &c. R. Co. v. Cowdrey, 11 Wall. (U. S.) 459; United States V. New Orleans R. 12 Wall. (U. S.) 362; Scott v. Clinton, &c. R. Co. 6 Biss. (TJ. S.) 529; Barnard v. Norwich, &c. R. K. Co. 4 Cliff. (U. S.) 351; Dillon v. Barnard, 1 Holmes 386. Of course, the rule applies with particular force to property ac- quired for a changed location of the road, the Hen being discharged as to the abandoned route. Blwell v. Grand St. &c. R. Co. 67 Barb. (N. Y.) 83; Meyer v. Johnston, 53 Ala. 237. It is not applicable where mortgages are placed on separate di- visions. Farmers', &c. Co. v. Com- mercial Bank, 11 Wis. 207. See, also, Louisville Trust Co. v. Cincin- nati, &c. R. Co. 91 Fed. 699, and note in 99 Am. St. 253, citing text. ''''Pierce v. Emery, 32 N. H. 484; Phillips V. Winslow, 57 Ky. 431, 68 Am. Dec. 729; Willink v. Morris Canal & Banking Co. 3 Green (N. J.) Ch. 377, 657. ^= Dunham v. Cincinnati, &c. R. Co. 1 Wall. (U. S.) 254; Baker v. Guarantee, &c. Co. (N. J.) 31 Atl. 174; Coopers v. Wolf, 15 Ohio St. 523; Ludlow v. Hurd, 1 Dis. (Ohio) 552; Covey v. Pittsburg, &c. R. Co. 3 Phila. (Pa.) 173; Bell v. Chicago, &c. R. Co. 84 La. Ann. 785; Omaha, &c. R. Co. V. Wabash, &c. R. Co. 108 Mo. 298, 18 S. W. 1101; Central Trust Co. V. Chattanooga, &c. R. Co. 94 Fed. 275; General South Amer- ican Co., In re, L. R. 2 Ch. Div. 337; Panama, &c. Mail Co., In re, L. R. 5 Ch. 318; Kelly v. Ala. & Cin. R. Co. 58 Ala. 489 ; Hamlin v. Euro- pean, &c. R. Co. 72 Me. 83; Buck v. Seymqur, 46 Conn. 156; Parker v. New Orleans, &c. R. Co. 33 Fed. 693; Philadelphia, &c. R. Co. v. Woelp- per, 64 Pa. St. 366, 3 Am. R. 596; Campbell v. Texas, &c. R. Co. 2 Woods (U. S.) 271; McGourkey v. Toledo, &c. R. Co. 146 U. S. 536, 13 Sup. Ct. 170. "* McTighe V. Macon Const. Co. 94 Ga. 306, 21 S. E. 701, 47 Am. St. 153. "^ The text is cited in Detroit, &c. R. Co. V. Campbell, 140 Mich. 384, 103 N. W. 856, 860, although the § 497a] EAILEOAD SECURITIES. 678 § 497a. After-acquired property — ^When lien attaches — ^What it includes.^'® — The lien attaches to the property as soon as it is ac- quired;^*' and is superior to that of a- subsequent mortgage or of a judgment.^'* A mortgage of "after-acquired" property has been held to include a le'ase of another road;^'° net earnings;^'" another com- pany's capital stock purchased to effect a consolidation;'^'^ a hotel open to the general public as well as to passengers and employes ;^''^ point there decided is that a de facto corporation ntay condemn lands and only the state can ques- tion the incorporation. ^o A large part of this section was part of § 497 in the first edition. "'Parker t. New Orleans, &c. R. Co. 33 Fed. 693; Seymour v. Can- andaigua, &c. R. Co. 25 Barb. (N. Y.) 284; Frost v. Galesburg, 167 111. 161, 47 N. B. 357; Brady v. John- son, 75 Md. 445, 26 Atl. 49, 20 L. R. A. 737; Bear Lake, &c. Co. v. Gar- land, 164 U. S. 1, 15, 17 Sup. Ct. 7; McGourkey r. Toledo, &c. R. Co. 146 U. S. 536, 13 Sup. Ct. 170. But see New Orleans, &c. R. Co. v. Parker. 143 IT. S. 42, 12 Sup. Ct. 364, revers- ing the former case on the ground that the property (a land grant) was not appurtenant, and that it was not contemplated by the parties or definitely located. "8 Dunham v. Cincinnati & P., R. Co. 1 Wall. (U. S.) 254, 266; Scott v. Clinton, &c. R. 6 Biss. (U. S.) 529, 535; Michigan Central R. Co. V. Chicago, &c, R. Co. 1 Brad. (111.) 399; Nichols v. Mase, 94 N. Y. 160; Coe V. Pennock, 6 Am. Law Reg. 27, 2 Redf. Am. R. Cas. 667; Pennock V. Coe, 23 How. (U. S.) 117, 127; Stevens v. Watson, 4 Abb. App. Dec. (N. Y.) 302. But it generally at- taches to the property in the condi- tion in which it comes to the mort- gagor and does not displace existing Hens. Williamson v. New Jersey, &c. R. Co. 28 N. J. Eq. 277, 29 N. J. Eq. 311, 317; Bear Lake, &c. Co. v. Garland, 164 U. S. 1, 16, 17 Sup. Ct. 7. Compare Porter v. Pittsburg, &c. Co. 122 U. S. 267, 283, 7 Sup. Ct. 1206. ™Buck V. Seymour, 46 Conn. 156; Barnard v. Norwich, &c. R. Co. 4 Cliff. (U. S.) 351, 14 N. Bank R. 469, 3 Cent. L. J. 608; Hamlin v. European, &c. R. Co. 72 Me. 83; Co- lumbia Finance, &c. Co. v. Kentucky, &c. R. Co. 60 Fed. 794. But not a lease of the mortgaged road exe- cuted by the mortgagor to another company. ™ Addison v. Lewis, 75 Va. 701; Tompkins v. Little Rock, &c. R. Co. 15 Fed. 6. Contra, Emerson v. Eu- ropean, &c. R. Co. 67 Me. 387, 24 Am. R. 39; DeGrafE v. Thompson, 24 Minn. 452; Pullan v. Cincinnati, &c. R. Co. 5 Blss. (U. S.) 237. ^^ Williamson v. N. J. Southern R. Co. 26 N. J. Eq. 398. But not un- paid subscriptions to the company's capital stock. Dean v. Biggs, 25 Hun (N. Y.) 122. It was held In Williamson v. New Jersey Southern R. Co. 26 N. J. Eq. 398, that it was unnecessary to record the mortgage in accordance with the chattel mort- gage act. «^ United States Trust Co. v. Wa- bash, &c. R. Co. 32 Fed. 480; Omaha, &c. R. Co. v. Wabash, &c. R. Co. 108 Mo. 298, 18 S. W. 1101. But not as an appurtenance unless it is used in connection with the road. Missis- sippi Valley Co. v. Chicago, &c. R. 679 AFTEE-ACQUIEED PEOPERTY — WHEN LIEN ATTACHES. [§ 497a land acquired for the location of ear-honses which were never built ;^°^ a completed road afterwards purchased which might have been con- structed if it had not been purchased.^'* It does not extend to prop- erty acquired by fraud, so that the title thereto does not vest in the mortgagor ;^^^ nor does a mortgage of a road and its appurtenances existing or to be afterwards acquired extend to woodland seven miles from the road;^^^ or to land acquired for a canal basin ;^*^ or to other property not properly appurtenant to the road.^'* Thus, it has been held not to extend to property adjacent to a depot which the company leases for a store and other purposes foreign to the operation of the road.^?° But a mortgage of an entire road, "as said railroad now is or may be hereafter constructed, maintained, operated or ac- quired, together with all the privileges, rights, franchises, real estate, right of way, depots, depot grounds, side tracks, water tanks, engines, cars, and other appurtenances thereto belonging," has been held to include real estate separated from the right of way by a street, but Co. 58 Miss. 896, 38 Am. R. 348. A grain elevator has been held not to he Included as an appurtenance. Humphreys v. McKissock, 140 U. S. 304, 11 Sup. Ct. 779. ^'^ Hamlin v. European, &c. R. Co. 72 Me. 83, 4 Am. & Bug. R. Cas. 503. See, also, Hawkins v. Mercantile Trust Co. 96 Ga. 580, 23 S. B. 498. "'Branch v. Jesup, 106 U. S. 468, 1 Sup. Ct. 495. See, also. Central Trust Co. V. Washington, &c. R. Co. 124 Fed. 813; Hinchman v. Point Defiance R. Co. 14 Wash. 349, 44 Pac. 867. But compare Murray v. Farmville, &c. R. Co. 101 Va. 262, 43 S. B. 553; New York Sec. Co. v. Louisville, &c. R. Co. 102 Fed. 382. "'Williamson v. New Jersey Southern R. Co. 28 N. J. Bq. 277, 29 N. J. Bq. 311, 321; Field v. Post, 38 N. J. L. 346; Frazier v. Frederick, 24: N. J. U 162. ""Dinsmore v. Racine, &c. R. Co. 12 Wis. 649. See, also, Aldridge v. Pardee, 24 Tex. Civ. App. 254, 60 S. W. 789; Pardee v. Aldridge, 189 U. S. 429, 23 Sup. Ct. 514; Shirley v. Waco Tap. R. Co. 78 Tex. 131, 10 S. W. 543; Boston, &c. R. Co. v. Coffin, 50 Conn. 150. "' Shamokln Valley R. Co. v. Liv- ermore, 47 Pa. St. 465, 86 Am. Dec. 552. _ ™ Calhoun v. Memphis, &c. R. Co. 2 Flip. (U. S.) 442; Seymour v. Canandaigua, &c. R. Co. 25 Barb. (N. Y.) 284; Mississippi Valley Co. V. Chicago, &c. R. Co. 58 Miss. 896, 38 Am. R. 348; Morgan v. Donovan, 58 Ala. 241; Shamokin Valley R. Co. V. Livermore, 47 Pa. St. 465, 86 Am. Dec. 552; Millard v. Burley, 13 Neb. 259, 13 N. W. 278; Calhoun v. Paducah, &c. R. Co. 9 Cent. L. J. 66; Walsh V. Barton, 24 Ohio St. 28; Farmers' Loan, &c. Co. v. Commer- cial Bank, 11 Wis. 207. Affirmed in Dinsmore v. Racine, &c. R. Co. 12 Wis. 649; Farmers', &c. Co. v. Cary, 13 Wis. 110; Farmers', &c. Co. v. Commercial Bank. 15 Wis. 424, 82 Am. Dec. 689; Brainerd v. Peck, 34 Vt. 496. ""Chicago, &c. R. Co. v. McGuire, 31 Ind. App. 110, 65 N. E. 932, 99 Am. St. 249, and note. § 497a] EAILEOAD SECURITIES. 680 of easy access to the station and side tracks, whicli real estate had been subsequently purchased by the company and upon which it had built a restaurant for the accommodation of its employes and passen- gers.^"" A lease by a mortgagor of the mortgaged road to another company has been held not to be included in the after-acquired prop- erty.^°^ But, on the other hand, it has been held that a railroad mortgage of "all property, both real and personal, of every kind and description, which shall hereafter be acquired for use on said railroad, and all the corporate rights, privileges, franchises and immunities, and all things in action, contracts, claims, and demands, whether now owned or hereafter acquired in connection or relating to the said rail- road," includes an after-acquired lease of terminal facilities to the mortgagor.^"^ A branch road is held to be included if the authority to construct it antedates the mortgage;^"' otherwise, not.^°* Iron rails, though still at a distant port, have been held subject to the lien of a mortgage of "all materials whatsoever."^"" The specification of certain after-acquired articles which shall be subject to the lien ex- cludes all others.^"" A mortgage of after-acquired property only at- taches to such interest as the mortgagor acquires, and so does not displace a lien existing when the property was acquired by the mort- gagor.^"' This rule, applicable to all property capable of separate ™ Omaha, &c. R. Co. v. Wabash, W. 98; Parker v. New Orleans, &c. &c. R. Co. 108 Mo. 298, 18 S. W. R. Co. 33 Fed. 693; Coe v. Delaware, 1101. See, also. Central Trust Co. &c. R. Co. 34 N. J. Eq. 266, 4 Am. & V. Kneeland, 138 U. S. 414, 11 Sup. Eng. R. Cas. 513. Ct. 357. And land for right of way "* Meyer v. Johnston, 53 Ala. 237, and stockyards. St. Joseph, &c. R. 331, 64 Ala. 603. Co. V. Smith, 170 Mo. 327, 70 S. W. "* Weetjen v. St. Paul. &c. R. Co. 700. 4 Hun (N. Y.) 529. See Haven v. '^ Moran v. Pittsburgh, &c. R. Co. Emery, 33 N. H. 66. Compare Brain- 32 Fed. 878; St. Paul, &c. R. Co. v. erd v. Peck, 34 Vt. 496; Phillips v. United States, 112 U. S. 733, 5 Sup. Winslow, 57 Ky. 431, 68 Am. Dec. Ct. 366. 729; Pierce v. Emery, 32 N. H. 484; "^ Columbia Finance, &c. Co. v. Bath v. Miller, 53 Me. 308. Kentucky, &c. R. Co. 60 Fed. 794, 61 =* Hare v. Horton, 5 Barn. & Ad. Am. & Eng. R. Cas. 690, citing Cen- 715; Raymond v. Clark, 46 Conn, tral Trust Co. v. Kneeland, 138 U. 129; Buck v. Seymour, 46 Conn. S. 414, 11 Sup. Ct. 357; Toledo, &c. 156; Brainerd v. Peck, 34 Vt. 496; R. Co. V. Hamilton, 134 U. S. 296, 10 Smith v. McCuUough, 104 TJ. S. 25. Sup. Ct. 546; Branch v. Jesup, 106 '"Haven v. Emery, 33 N. H. 66; U. S. 468. Williamson v. New Jersey Southern '»' Seymour v. Canandaigua, &c. R. R. Co. 28 N. J. Eq. 277, 29 N. J. Eq. Co. 25 Barb. (N. Y.) 284; Texas, &c. 311; Branch v. Atlantic, &c. R. Co. R. Co. V. Gentry, 69 Tex. 625, 8 S. 3 Woods (U. S.) 481; Lake Erie, &c. 681 FIXTUEES — KOLLING STOCK. [§ 498 ownership, including real estate not used for railroad purposes, does not, however, apply to fixtures used in the operation of the road,^"® unless an agreement has been made as to their legal character.*"* § 498. Fixtures — ^Rolling stock. — Fixtures, whether acquired be- fore or after the execution of such mortgage, are subject to its lien.^^" On, the principle that fixtures, though subsequently severed, are sub- ject to the lien of a mortgage of the freehold, worn-out rails replaced by new ones have been held to be included in a railroad mortgage; and so of new rails not yet laid.*^^ A track laid merely for a tem- porary use has been held not to come under the lien as part of the realty ;^^2 so have repair tools,^^^ fueP^* and furniture.^^^ A mort- R. Co. T. Priest, 131 Ind. 413, 31 N. E. 77; Dunham v. Cincinnati, &c. R. Co. 1 Wall. (U. S.) 254; Galveston R. V. Cowdrey, 11 Wall. (U. S.) 459; United States v. N. O. R. 12 Wall. (U. S.) 362; Willink v. Mor- ris Canal & Banking Co. 3 Green (N. J.) Ch. 377; Boston Safe De- posit, &c. Co. V. Bankers', &c. Co. 36 ~ Fed. 288; Western Union Tel. Co. v. Burlington, &c. R. Co. 3 McCrary (U. S.) 130; Fosdick v. Schall, 99 U. S. 235; Myer v. Car Co. 102 U. S. 1; Branch v. Jesup, 106 U. S. 468, 1 Sup. Ct. 495. It is subject to a vendor's Hen for unpaid purchase money on realty, the mortgagee not being considered a ■ purchaser for value. Loomis v. Davenport, &c. R. Co. 17 Fed. 301. See Pierce v. Mil- waukee, &c. R. Co. 24 Wis. 551, 1 Am. R. 203. =<« Porter v. Pittsburg, &c. Co. 122 U. S. 267, 7 Sup. Ct. 1206, 30 Am. & Eng. R. Cas. 495; Wood v. Whelen, 93 111. 153; United States v. N. O. R. Co. 12 Wall. (U. S.) 362. ''"Boston Safe Deposit, &c. Co. v. Bankers', &c. Co. 36 Fed. 288; West- ern Union Tel. Co. v. Burlington, &c. R. Co. 3 McCrary (U. S.) 130, 11 Fed. 1. '"Porter v. Pittsburg, &c. R. Co. 122 U. S. 267, 283, 7 Sup. Ct. 1206; Wood V. Whelen, 93 111. 153. '"■ First Nat. Bank v. Anderson, 75 Va. 250. So held, if proper manage- ment requires that they be recast. Lehigh, &c. Co. v. Central R. Co. 35 N. J. Eq. 379; Weetjen v. St. Paul, &c. R. Co. 4 Hun (N. Y.) 529; Palmer v. Forbes, 23 111. 301. See Farmers' Loan, &c. Co. v. Commer- cial Bank, 11 Wis. 207, 15 Wis. 424; Farmers' Loan, &c. Co. v. Cary, 13 Wis. 110; Dinsmore v. Racine, &c. R. Co. 12 Wis. 649; Brainerd v. Peck, 34 Vt. 496. '^ Van Keuren v. Central R. Co. 38 N. J. L. 165. '"Lehigh, &c. Co. v. Central R, Co. 35 N. J. Eq. 379; Williamson v. New Jersey, &c. R. Co. 29 N. J. Eq. 311, 28 N. J. Eq. 277; Brainerd v. Peck, 34 Vt. 496. But see Delaware, &c. R. Co. V. Oxford Iron Co. 36 N. J. Eq. 452. '"Hunt V. Bullock, 23 111. 320. But see Coe v. McBrown, 22 Ind. 252; Phillips v. Winslow, 18 B. Mon. (Ky.) 431, 448, 68 Am. Dec. 729. '"Lehigh, &c. Co. v. Central R, Co. 35 N. J. Eq. 379; Hunt v. Bul- lock, 23 111/320; Raymond v. Clark, 46 Conn. 129; Ludlow v. Hurd, 1 Disn. (Ohio) 552; Titus v. Mabee, § 499] RAILROAD SECURITIES. 682 gage of a railroad, if its terms cover such future acquisitions, will, however, be held in equity to apply to after-acquired rolling stock^^® even if not specially mentioned; although it has been held that loose rolling stock, such as engines and cars, is, in such a ease, subject to the liens on it^^^ when it comes into the mortgagor's hands.^^^ §499. Reserved power to create prior lien or to dispose of un- necessary property. — A provision in a railroad mortgage permitting the company to sell, pledge, or otherwise dispose of any property not essential to the operation of the road, applying the proceeds in any manner not prejudicial to the interests of the mortgagee is not fraudulent or invalid.^^' Such provision does not, however, nullify the mortgage and withdraw the lien as unnecessary articles like broken rails, ties and wheels are cast aside.^^" § 500. Priority of mortgages. — We shall discuss the subject of preferred claims for operating expenses and the like in a subsequent chapter,^^^ but it may be well at this place to consider briefly the 25 111. 257; Southbridge Savings Bank v. Mason, 147 Mass. 500, 18 N. E. 406, 1 L. R. A. 350. But see Wood V. Whelen, 93 111. 153. ""Jones Corp. Bonds and Mort- gages 120; Pennock v. Coe, 23 How. (U. S.) 117; Coe v. Pennock, 6 Am. Law Reg. 27, 2 Redf. Am. R. Cas. 667; Galveston R. v. Cowdrey, 11 Wall. (U. S.) 459, 481; Dunham v. Cincinnati, &c. R. Co. 1 Wall. (U. S.) 254, 266; Meyer v. Johnston, 53 Ala. 237, 64 Ala. 603; Scott v. Clin- ton, &c. R. Co. 6 Biss. (U. S.) 529, 535; Michigan Central R. Co. v. Chi- cago, &c. R. Co. 1 Brad. (111.) 399; Nichols V. Mase, 94 N. Y. 160; Mor- rill V. Noyes, 56 Me. 458, 471, 96 Am. Dec. 486; Phillips v. Winslow, 57 Ky. 431, 448, 68 Am. Dec. 729; Ham- lin V. Jerrard, 72 Me. 62. "' Meyer v. Johnston, 53 Ala. 237, 332, 64 Ala. 603; Maryland v. North- ern Central R. Co. 18 Md. 193; Pul- lan v. Cincinnati, &c. R. Co. 4 Biss. (TJ. S.) 35, 43. But see Miller v. Rutland, &c. R. Co. 36 Vt. 452. =■» United States v. New Orleans R. 12 Wall. (U. S.) 362; Boston Safe Deposit, &c. Co. v. Bankers', &c. Co. 36 Fed. 288; Contracting, &c. Co. v. Continental Trust Co. 108 Fed. 1. See, also. Bear Lake, &c. Co. v. Gar- land, 164 U. S. 1, 16, 17 Sup. Ct. 7; Myer v. Car Co. 102 U. S. 1 (sub- ject to rights of vendor under con- ditional sale) ; Frank v. Denver, &c. R. Co. 23 Fed. 123. =" Butler V. Rahm, 46 Md. 541. See, also, Nickerson v. Atchison, &c. R. Co. 3 McCrary (U. S.) 455, 17 Fed. 408. As to reservation of power to create a prior lien, see Campbell v. Texas, &c. R. Co. 2 Woods (U. S.) 263. =^» Coopers v. Wolf, 15 Ohio St. 523. See, also, Salem First Nat. Bank v. Anderson, 75 Va. 250, 68 Am. Dec. 729. ^^ See, however, on the general subject, the recent cases of Virginia, &c. Coal Co. V. Central R. Co. 170 U. S. 355, 18 Sup. Ct. 657; Southern R. Co. V. Carnegie Steel Co. 176 U. 683 PEIOBITT OF MORTGAGES. [§ 500 subject of the priority of one mortgage over another and over other claims and equities. As we have already shown, one of a series of bonds has no priority over others of the same series merely because it bears a smaller number.^^^ It seems, however, that first mortgage bonds, although issued after a second mortgage is executed, have priority over the second mortgage bonds, unless the second mortgage in terms limits the lien of the prior mortgage to bonds actually out, and provides against reissues.^"^ One who purchases from a railroad company part of a series of bonds secured by mortgage on the road, under an agreement that no more bonds shall be issued, is entitled to be preferred over purchasers of the other bonds with notice of the agreement, but not over bona fide purchasers who have no notice of the agreement, either actual or constructive.^^* The general rule, of course, is that mortgages have priority in the order of their execu- tion,^''^ but bona fide second mortgage bondholders may obtain prior- ity over prior mortgagees if the prior mortgage is unrecorded and there is nothing charging them with notice of the prior mortgage. Where, however, a subsequent mortgage is expressly made subject to a former mortgage such former mortgage has priority, although not legally reeorded.^^* So, a subsequent mortgage may be given priority over a former mortgage by agreement between the old bondholders and the mortgagor company.^^^ This is sometimes done in order to enable the company to complete its road or to reorganize. A mortgage trus- tee, however, has no power to agree that an unsecured debt or a subse- quent mortgage debt shall be paid in preference to the first mortgage bonds.^^* As a general rule, a fixed legal right under a mortgage cannot be impaired by any equities subsequently arising,^^® although, S. 257, 20 Sup. Ct. 347; Messlck v. bus, &c. R. Co.'s Appeal, 109 Fed. Hartford, &c. R. Co. 76 Conn. 11, 55 177, 48 C. C. A. 275. Atl. 664, 100 Am. St. 977, and note ''^"Coe v. Columbus, &c. R. Co. 10 in 54 Am. St. 400-433. Ohio St. 372, 75 Am. Dec. 518. ''^ Stanton v. Ala. &c. R. Co. 2 ^ Poland v. Lamoille Valley R. Co. Woods (U. S.) 523; Commonwealth 52 Vt. 144. V. Susquehanna, &c. R. Co. 122 Pa. ^Duncan v. Mobile, &c. R. Co. 2 St. 306, 321. See, also, Pittsburgh, "Woods (U. S.) 542; Hollister v. &c. R. Co. V. Lynde, 55 Ohio St. 23. Stewart, 111 N. Y. 644, 19 N. E. 782. ^= Claflin V. South Carolina R. Co. "^ Jones Corp. Bonds and Mort. 4 Hughes (U. S.) 12, 8 Fed. 118. % 579. But see ante, §§ 496, 497. As ^ McMurray -v. Moran, 134 U. S. to mechanics' liens, see Brooks v. 150, 10 Sup. Ct. 427. Burlington, &c. R. Co. 101 U. S. 443; ==» "Wade V. Chicago, &c. R. Co. 149 Meyer v. Hornby, 101 IT. S. 728, TJ. S. 327, 13 Sup. Ct. 892; Colum- with which compare Bear v. Bur- 500] EAILEOAD SECURITIES. 684 as we shall hereafter see, there is an apparent exception to this rule in the case of operating expenses, and, by statute, employes are fre- quently given preferred claims. Thus, the priority of a first mortgage is not affected by the fact that the road was completed or part of it wholly built by money obtained by means of a junior mortgage,^^" nor are unsecured claims of contractors or material men who have furnished money or material for building or repairing it entitled to priority over a prior mortgage.^^^ It has also been held that a claim for money borrowed to pay the interest on the bonds is not entitled to priority over the principal.^^^ Taxes may, of course, constitute a lien superior to a prior mortgage,^'* and it has also been held that a landholder's claim for damages for land condemned for the road is superior to a mortgage given before the damages have been assessed.^'* We have elsewhere considered the subject of the priority of liens in cases of consolidation,^^® but the question of priority sometimes arises in cases of mere succession or where separate mortgages are made on different divisions of a road. A mortgage on all property, materials, rights and privileges of a railroad company then or there- after appertaining to the road, to secure bonds for money with which lington, &c. R. Co. 48 Iowa 619; Tommey v. Spartanburg, &c. Co. 1 Am. & Eng. R. Cas. 632, note. ''"-Galveston, &c. R. Co. v. Cow- drey, 11 "Wall. (U. S.) 459; Dunham v. Cincinnati, &c. R. Co. 1 Wall. (U. S.) 254; Thompson v. White Water Valley R. Co. 132 U. S. 68, 10 Sup. Ct. 29. See, also, McGourkey v. To- ledo, &c. R. Co. 146 U. S. 536, 13 Sup. Ct. 170 (mortgage has priority over car trust certificates) ; Man- hattan Trust Co. V. Sioux City, &c. R. Co. 68 Fed. 72. ='' Dunham v. Cincinnati, &c. R. Co. 1 Wall. (U. S.) 254, and cases cited in note 230, supra. See, also. New Jersey Midland R. Co. v. Wor- tendyke, 27 N. J. Bq. 658; Denniston V. Chicago, &c. R. Co. 4 Biss. (U. S.) 414; Peninsular Iron Co. v. Bells, 68 Fed. 24. ='2 Contracting, &c. Co. v. Conti- nental Trust Co. 108 Fed. 1. ™ Farmers', &c. Co. v. Vickshurg, &c. R. Co. 33 Fed. 778; Farmers' Loan & T. Co. v. Stuttgart R. Co. 92 Fed. 246; Georgia v. Atlantic, &c. R. Co. 3 Wood (U. S.) 434; Stevens v. New York, &c. R. Co. 13 Blatch. (U. S.) 104; Central Trust Co. v. New York, &c. R. Co. 110 N. Y. 250, 18 N. B. 92, 1 L. R. A. 260. But see Binkert v. Wabash, &c. R. Co. 98 111. 205, 5 Am. & Eng. R. Cas. 113. '^Western Penna. R. Co. v. John- ston, 59 Pa. St. 290. See, also, Mer- cantile Trust Co. V. Pittsburg, &c. R. Co. 29 Fed. 732; Buffalo, &c. R. Co. V. Harvey, 107 Pa. St. 319; Cen- tral Trust Co. v. Louisville, &c. R. Co. 81 Fed. 772; Central Trust Co. V. Hennen, 90 Fed. 593; Crosby v. Morristown, &c. R. Co. (Tenn.), 42 S. W. 507; Penn. Mut. L. Ins. Co. v. Heiss, 141 111. 35, 33 Am. St. 273. ^=Ante, § 336. See, also. Knee- land V. Lawrence, 140 U. S. 209, 11 Sup. Ct. 786; Wabash, &c. R. Co. v. Ham, 114 XJ. S. 587, 5 Sup. Ct. 1081. 685 TRUST DEEDS. ■[§ 501 to construct it, has priority bver a subsequent mortgage of the earn- ings of a particular division or section of the road, executed to secure money used in constructing such section by a lessee who had agreed to construct it as part of the consideration for the lease, even though the lessor company which executed the first mortgage may have agreed to recognize the subsequent mortgage as having priority.^^* And a mortgage on the property of a railroad company given by its successor has priority over claims for services and advances to the old company, by a creditor who did not obtain a judgment until after the execution of such mortgage, and whose services and advances were not such as to entitle him to a statutory lien.^^' § 501. Trust deeds. — A railroad mortgage is now generally made to trustees who take the mortgage title for the bondholders, thus securing to them all the beneiits they would have had if named in the instrument.^^^ The trustee may be an individual or a trust com- pany.^^° It has also been held that a director or an officer of the mortgagor company may be a trustee,^*" and so may a non-resident.''*^ Upon the death of one of two or more trustees, his interest vests according to the right of survivorship, notwithstanding a statute abolishing joint tenancies without expressly embracing trust estates.^*^ Equity will not permit a trust to fail for want of a trustee.^** A trust =5" Thompson v. White Water, &c. '^ Hervey v. Illinois, &c. R. Co. 28 R. Co. 132 U. S. 68, 10 Sup. Ct. 29. Fed. 169; Farmers' Loan, &c. Co. v. The court held that this agreement Chicago, &c. R. Co. 27 Fed. 146. as to priority could not affect the ™ Bassett v. Monte, &c. Co. 15 Nev. first mortgage bondholders. See, 293; Ellis v. Boston, &c. R. Co. 107 also. Wade v. Chicago, &c. R. Co. Mass. 1. 149 U. S. 327, 13 Sup. Ct. 892; Farm- ""A statute prohibiting citizens of ers' Loan, &c. Co. v. Newman, 127 other states from acting as trustees IT. S. 649, 8 Sup. Ct. i364; Farmers' ig unconstitutional. Roby v. Smith, Loan, &c. Co. v. Canada, &c. R. Co. 131 Ind. 342, 30 N. E. 1093, 15 L. R. 127 Ind. 250, 26 N. E. 784. A. 792, 31 Am. St. 439; Farmers' 237pogg y Blair, 133 U. S. 534, 10 Loan, &c. Co. v. Chicago, &c. R. Co. Sup. Ct. 338. 27 Fed. 146; Shirk v. La Fayette, 52 =•« Butler T. Rahm, 46 Md. 541; Fed. 857. McLane v. Placerville, &c. R. Co. 66 "^ McAllister r. Plant, 54 Miss. Cal. 606, 6 Pac. 748; Chamberlain 106. T. Conn. Cent. R. Co. 54 Conn. 472; ^ See 27 Am. & Eng. Bncy. of Law Jones Corporate Bonds and Mort. 16, 90, 91, and authorities there ,§ 28. See "Trust Deeds," 26 Am. & cited. Eng. Ency. of Law 860; 28 Bncy. of L. (2d ed.) 743. 503] RAILROAD SECURrriES. 686 deed is regarded as in effect a mortgage,^** and the right of posses- sion remains in the grantor.^*^ Authority to mortgage is authority to execute a deed of trust,^*° and statutes regulating the recording of mortgages embrace deeds of trust.^^'' The power to sell without legal proceedings should be unequivocally and definitely expressed in the deed.^** Foreclosure in an equity court is the more usual and the safer method. It is frequently provided, however, that upon default of payment the trustee may take possession without suit and hold the property until the debt be satisfied, and this is sometimes done.^** §' 502. Equitable and defective mortgages. — An instrument which was intended to be the mortgage deed of a corporation, but which, not being properly executed by the corporatidn, or in its name, can- not take effect as its- deed, may nevertheless be regarded as an equita- ble mortgage and entitle the holders of it in equity to the full benefit of the security intended to be given.^'" An agreement, even by word of mouth as to personalty, to give a mortgage for certain sums, may be enforceable in equity as a mortgage,^ ^^ and so are bonds which re- ™ Wisconsin Cent. R. Co. v. "Wis- consin Riv. L.. Co. 71 Wis. 94, 36 N. W. 837; White Water, &c. Canal Co. v. Vallette, 21 How. (U. S.) 414; McLane v. Placerville, &c. R. Co. 66 Cal. 606, 6 Pac. 748; Coe v. Johnson, 18 Ind. 218; Coe v. McBrown, 22 Ind. 252. =*> Southern Pacific R. Co. v. Doyle, 8 Sawyer 60, 11 Fed. 253. ™ Wright V. Bundy, 11 Ind. 398; Bennett v. Union Bank, 5 Humph. (Tenn.) 612; Turner v. Watkins, 31 Ark. 429. ^"WoodrufE V. Robb, 19 Ohio 212; Schultze v. Houfes, 96 111. 335; Ma- gee V. Carpenter, 4 Ala. 469; Shef- fey v. Lewisburg Bank, 33 Fed. 3151 ''''Mason v. York, &c. R. Co. 52 Me. 82. '"» See Dow v. Memphis, &c. R. Co. 124 U. S. 652, 8 Sup. Ct. 673; Fee V. Swingly, 6 Mont. 596, 13 Pac. 375. But a bill in equity Is usually resorted to even in such cases. See Shepley v. Atlantic, &c. R^ Co. 65 Me. 395; McLane v. Placerville, &c. R. Co. 66 Cal. 606, 615, 6 Pac. 748; Shaw V. Norfolk, &c. R. Co. 5 Gray (Mass.) 162. As to responsibilities of trustees generally, see Sturges v. Knapp, 31 Vt. 1; Sprague v. Smith, 29 Vt. 421, 70 Am. Dec. 424. As to liability of company where trustees do not take actual or exclusive pos- session, see Pennsylvania R. Co. v. Jones, 155 U. S. 333, 353, 15 Sup. Ct. 136. '''"Jones Corp. Bonds and Mort- gages, 32; Miller v. Rutland, &c. R. Co. 36 Vt. 452; Randolph v. New Jersey, &c. R. 28 N. J. Eq. 49. See. also, Pullis V. PuUis Bros. 157 Mo. 565, 57 S. W. 1095; Brown v. Farm- ers', &c. Co. 23 Oreg. 541, 32 Pac. 548. A mortgage expressly recogniz- ing another is subsequent thereto, notwithstanding the prior mortgage is not legally executed and recorded. Coe V. Columbus, &c. R. Co. 10 Ohio St. 372, 75 Am. Dec. 518. ==»Waco Tap R. Co. v. Shirley, 45 Tex. 355, 13 Aia. Railw. R. 233; Texas, &c. R. Co. v. Gentry, 69 Tex. 687 STATUTORY MOETGAGBS. [§ 503 cite that they are a lien/^^ and so is an agreement to place in a third person's hands certain earnings or property to meet specified obliga- tions f^^ and so is a contract for the purchase of rolling stock by the payment of an annual rental with provision for forfeiture upon non- payment.^^* The holder of an old bond, to whom a new bond cannot be issued because the refunding scheme provides none so small, has also been held entitled to a lien for the amount of the indebtedness to him equal to the other mortgage creditors' lien.^°° Where no words of inheritance appear in the mortgage, but it is the evident intention that the trustees should take the fee, the instrument will be reformed by a court of equity.^^" § 503. Statutory mortgages.- — ^A statute expressing its purpose in certain^^'' terms may constitute a mortgage without the execution of any instrument of conveyance.^** A statutory mortgage to the state 625, 8 S. W. 98; Ashton v. Corrigaa, L. R. 13 Eq. 76; Peto v. Brighton, &c. B. Co. 1 H. & Miller 468. ='" Poland V. Lamoille Val. R. Co. 52 Vt. 144, 171; White "Water Val- ley Canal Co. v. Vallette, 21 How. (U. S.) 414; Dundas v. Desjardins Canal Co. 17 Grant's Ch. (Upper Can.) 27. ===Ketchum v. Pacific R. 4 Dill. (U. S.) 78, 86; Ketchum v. St. Louis, 101 U. S. 306, 317; "Watson V. "Wellington, 1 Rus. & Myl. 602; Yeates v. Groves, 1 "Ves. Jr. 280; Lett T. Morris, 4 Sim. 607; Alder- son, Ex parte, 1 Madd. 39; Legard V. Hodges, 1 Ves. Jr. 477; Pinch v. Anthony, 8 Allen (Mass.) 536; Dil- lon V. Barnard, 1 Holmes (U. S.) 386. ''"Hervey v. Rhode Island, &c. "Works, 93 V. S. 664; Heryford v. Davis, 102 U. S. 235; Frank v. Den- ver, &c. R. Co. 23 Fed. 123; Fosdlck V. Schall, 99 U. S. 235. But it is held that there is no mortgage where a railway company sells roll- ing stock, contemporaneously hiring the same stock at an annual rental of one-fifth of the selling price, with provision for repurchase at the end of five years for a nominal price. Yorkshire R. "Wagon Co. v. Maclure, 21 Ch. Div. 309; North Central "Wagon Co. v. Manchester, &c. R. Co. 35 Ch. Div. 191. ^= Blair v. St. Louis, &c. R. Co. 23 Fed. 524. ^» Coe V. New Jersey, &c. R. Co. 31 N. J. Eq. 105; Randolph v. New Jersey, &c. R. Co. 28 N. J. Eq. 49. ==' Cincinnati City v. Morgan, 3 "Wall. (U. S.) 275; Brunswick and Albany R. Co. v. Hughes, 52 Ga. 557; Collins v. Central Bank of Georgia, 1 Kelly (Ga.) 435; "White- head V. Vineyard, 50 Mo. 30; Colt v. Barnes, 64 Ala. 108. ==' Cunningham v. Macon, &c. R. 156 U. S. 400, 15 Sup. Ct. 361; United States V. Union Pacific R. Co. 91 U. S. 72 ; "Wilson v. Boyce, 92 U. S. 320, 2 Dill. (U. S.) 539; Murdock v. "Woodson, 2 Dill. (U. S.) 188; "Wood- son V. Murdockj 22 "Wall. (U. S.) 351; State v. Florida, &c. R. Co. 15 Fla. 690; Tompkins v. Little Rock, &c. R. Co. 15 Fed. 6. An example is Act of July 1, 1862, 12 Stat, at Large, 489, mortgaging the Union §1 504] EAILROAD SBCUKITIES. 688 may proTide that it shall receive the income by way of interest, with- out foreclosure,^^" and may make such provision as will constitute an equitable assignment thereof to which subsequent mortgages will be subject.^^" State aid bonds giving a lien in favor of the state do not entitle the purchasers to enforce the lien where it is waived or released by the state.^'^ The bondholders cannot enforce the lien either upon the principle of subrogation or under the claim that they have a specific lien as direct mortgage creditors.^"^ § 504. Debentures, — ^Debentures, which are the commonest form of security issued by English corporations, are defined to be instru- ments under seal, creating a charge, according to their wording, upon the property of the corporation, and to that extent conferring a prior- ity over subsequent creditors and over existing creditors not pos- sessed of such a charge.^*^ They are, in fact, equitable mortgages, being enforceable only in equity.^"* Their holder has no lien upon the corporation's tragic receipts and no right to a receiver of them.^°° The debenture is generally not accompanied by any separate instru- ment. Instead of securing the payment in one instrument of a debt which there is a promise to pay in another or others, each mortgage debenture ordinarily includes both the provisions in regard to the security and a covenant for the payment of the debt.^°^ In England Pacific Railroad. Such a mortgage ^'' Macalester v. Maryland, 114 U. may include after-acquired property. S. 598, 5 Sup. Ct. 1065. Whitehead v. Vineyard, 50 Mo. 30; ™Ketchum v. St. Louis, 101 U. S. Colt V. Barnes, 64 Ala. 108. The 306. lien may he released hy the legisla- '"^ Tennessee Bond Cases, 114 TJ. ture. Woodson v. Murdock, 22 Wall. S. 663, 5 Sup. Ct. 974, 1098. ' (tJ. S.) 351; Darby v. Wright, 3 '''^ Cunningham v. Macon, &c. R. Blatchf. (U. S.) 170; Gibbes v. Co. 156 U. S. 400, 15 Sup. Ct. 361. Greenville, &c. R. Co. 13 S. Car. 228. But see Railroad Co. v. Schutte, 103 By agreement a new lienholder may TJ. S. 118. be substituted. Ketehum v. St. ^'"'Brice on Ultra Vires (2d ed.) Louis, 101 U. S. 306. It is not nee- 279. essary that the bonds which are se- '" Holroyd v. Marshall, 10 H. L. cured shall mention the lien of the C. 191; General South American Co., mortgaging act. Dundas v. Des- In re, L. R. 2 Ch. D. 337. jardins, &c: Co. 17 Grant. (TJ. S.) "''Imperial Mercantile Credit 27. The holder of bonds secured by Assn. v. Newry, &c. R, Co. 2 Ir. Rep. statutory mortgage can avail him^ Eq. 524; Preston v. Great Yarmouth, self of the security only by meajis L. R. 7 Ch. 655. See, as bearing on of foreclosure instituted by the trus- rights of debenture holders prior to tees in conformity with the statute, the Railway Companies Act of 1867, Florida v. Anderson, 91 U. S. 667. Bowen v. Brecon R. Co. L. R. 3 Eq. 689 DEBENTUKES. ([§ 504 debentures are not required to be recorded, but in most of our states they would be very dangerous investments on this account, and the fact that an attachment of property in this country may take pre- cedence over an unrecorded debenture, was admitted in a recent English ease.^"^ A so-called debenture is, however, said to be coming into use in the United States, which is in effect a bond or note secured by pledge of collaterals deposited with a trustee.^"^ In a case in Indiana, a so-called debenture is set out in the opinion of the court. The instrument provided for its receipt in payment of freight charges and tickets fot a certain period, and the court held that upon repudiation by the company of the whole arrangement the company was liable for the face value of the debentures in money.^®* 541; Russell v. Bast Anglian R. Co. =»'B3mplre, &c. Co., In re, 62 L. T. 3 Mac. & G. 104, 151. R. 493. ='== Hart V. Eastern Union R. Co. 6 =«« 2 Cook Stock and Stockholders, Eng. R. & Can. Cas. 818, 7 Exch. § 777. 246, 265; 2 Cook on Stock and Stock- ^^^ Evansville, &c. R. Co. v. Frank, holders, § 776. 3 Ind. App. 96, 29 N. E. 419. Ell. Railboads — 44 CHAPTEE XX. FOEECLOSUEE. Sec. 505. Foreclosure — Default. 506. Option to declare whole debt due — Election. 507. Foreclosure for default in pay- ment of interest. 508. Parties to foreclosure suit — Plaintiffs. 509. Bondholders as plaintiffs. 510. Pledgees, assignees and others as plaintiffs. 511. Defendants in foreclosure suits — Generally. Sec. 512. 513. 514. 515. 516. 517. 518. When other lienholders should be made defendants. Defenses to foreclosure suit. Effect of provisions giving trustees the right to take possession and sell. The decree. Consent decree. Deficiency decree. Final and appealable decrees. § 505. Foreclosure — ^Default. — In order to maintain a suit for the foreclosure of a mortgage, the plaintifE must be able to show a de- fault within its terms. An allegation that interest coupons are ijnpaid has been held insufficient, where it does not appear that any demand for payment has been made or that the company neglected or refused to pay at the place or in the manner provided.^ But a demand is 'Davies v. New York, &c. Co. 41 Hun (N. Y.) 492; Jones Corp. Bonds and Mort. § 381. See, also, Doyle V. Phoenix Ins. Co. 44 Cal. 264; United States, &c. Stock Co. v. Atlantic, &c. Co. 34 Ohio St. 450, 467, 32 Am. R. 380. But see Mayes V. Goldsmith, 58 Ind. 94; Douthit v. Mohr, 116 Ind. 482, 18 N. E. 449, and compare Carey v. Houston, 45 Fed. 438. See, generally, as to foreclo- sure for non-payment of interest, Chicago, &c. R. Co. v. Fosdick, 106 U. S. 47, 1 Sup. Ct. 1.0; Ohio Cent. R. Co. V. Central Trust Co. 133 U. S. 83, 10 Sup. Ct. 235; Louisville, &c. R. Co. V. Schmidt (Ky.), 52 S. W. 835; McFadden v. Mays Land- ing, &c. R. Co. 49 N. J. Eq. 176, 22 Atl. 932. In a recent case a rail- road company alleged its insolvency, and prayed for a sale of its property and distribution of the proceeds among its creditors. A receiver was appointed. A mortgagee filed a cross-bill to foreclose two mort- gages, on both of which default in the interest had been made, but the debt secured by the second only was due. The court held that both mortgages might be foreclosed, al- though by its terms the first was 690 691 FOEEOLOSUKE — DEFAULT. [§ 505 usually unnecessary before instituting a suit to foreclose a mort- gage,^ at least where tlie company is insolvent and has no funds with which to pay, and the right to foreclose arises as soon as the condi- tion of the defeasance is broken.' Eailroad mortgages and trust deeds, however, generally provide that no suit to foreclose shall be insti- tuted for failure to pay interest until after the default shall have continued for a specified period. A default may be waived,* but the not subject to foreclosure until de- fault In payment of the principal at maturity. Mcllhenny v. Binz, 80 Tex. 1, 13 S. W. 655, 26 Am. St. 705. Where the mortgage bonds have be- come the property of the railroad company's lessee, such lessee ■will be held to a strict accounting before it will be permitted to foreclose for an alleged default in the payment of interest, since there could be no default so long as the rent that was unaccounted for equaled the unpaid interest. Chamberlain v. Connecti- cut, &c. R. Co. 54 Conn. 472, 9 Atl. 244. ''Elliott's Gen. Pr. § 313; Union, &c. Co. V. Curtis, 35 Ohio St. 357; Gillett V. Balcom, 6 Barb. (N. Y.) 370; Clemens v. Luce, 101 Cal. 432, 35 Pac. 1032; Wiltsie Mortgage Foreclosures, § 35. But the instru- ment may, of course, be so drawn as to ' require a demand. Potomac, &c. Co. V. Evans, 84 Va. 717, 6 S. B. 2; Bolman v. Lohman, 79 Ala. 63. Thus, there may be no default un- der the provisions of the particular instrument until demand and re- fusal or failure to comply with it. So a provision in bonds requiring a demand has been held to control the mortgage securing them. Rail- way Co. V. Sprague, 103 U. S. 756. 'Richards v. Holmes, 18 How. (U. S.) 143; Pomeroy v. Winship, 12 Mass. 513, 7 Am. Dec. 91; Central Trust Co. V. New York, &c. R. Co. 38 Hun (N. Y.) 513; Chicago, &c. R. Co. V. Fosdick, 106 U. S. 47, 1 Sup. Ct. 10. *Dow V. Memphis, £c. R. Co. 20 Fed. 260; Nebraska City Bank v. Nebraska Gas, &c. Co. 14 Fed. 763; Randolph v. Middleton, 26 N. J. Eq. 543. Where a railroad trust deed provided that if the default occurred in payment of interest or principal of the bonds, the trustees were to act on the requisition of the holders of 25 per cent of the bonds, and if "the default be in the omission of any act or thing required by article 12 of these presents for the further assurance of the title of the trustees to any property or franchise now possessed or hereafter acquired, or in any provisions herein contained to be performed by said company, then and In either of such cases the requisition shall be as aforesaid; but it shall be within the discretion of the trustees to enforce or waive the rights of the bondholders by reason of such default, subject to the power hereby declared of a ma- jority in interest of such bondhold- ers to instruct the said trustees to waive such default," it was held that the right of a majority to waive default .extended only to fail- ure to make further assurance, and not to failure to pay interest or principal of the bonds. Hollister v. Stewart, 111 N. Y. 644, 19 N. B. 782. Delay for three months in bringing suit after failure to pay instalment of interest is not a waiver of a stip- § 506] FOEECLOSUEB. 693 waiver, if by parol and without consideration, may be revoked, and then, after a demand of payment, the payment waived will be- come due.° So, it has been held that an agreement not to exercise the option given in a trust deed to declare the entire debt due for de- fault in payment of interest, when limited to a specified instalment, although made in consideration of the assignment of rents accruing from the mortgaged premises, does not prevent the mortgagee from declaring the entire debt due upon default in the payment of a sub- sequent instalment.'' Failure to pay taxes or to perform other condi- tions may also be made a cause for declaring the entire debt due and justify a foreclosure for the whole amount,^ but where there is no agreement by the mortgagor to pay taxes,* or where they are paid by him before the option is exercised by foreclosure or otherwise, the mortgagee cannot foreclose merely because of such failure.' § 506. Option to declare whole debt due — ^Election. — Where an option is given to the mortgagee to declare the whole debt due, that is, the principal as well as the interest, upon the failure to pay the interest or any instalment when due, he must, of course, in some way, indicate his election. There is some conflict among the authori- ties as to whether merely instituting suit to foreclose for the entire debt without giving any previous notice or otherwise showing an elec- ulation making the whole debt due § 383. See, also, Sharpe v. Arnott, at once upon such default. Atkln- 51 Cal. 188; Gardner v. "Watson, 13 son V. Walton, 162 Pa. St. 219, 29 111. 347; Massaker v. Mackerley, 9 Atl. 898. See, also, Fletcher v. Den- N. J. Eq. 440. nison, 101 Cal. 292, 35 Pac. 868; » Martin v. Land, &c. Bank, 5 Tex. Brown v. McKay, 151 111. 315, 37 N. Civ. App. 167, 23 S. W. 1032. See, E. 1037. But compare French v. also, Malcolm v. Allen, 49 N. Y. 448. Row, 77 Hun (N. Y.) 380, 28 N. Y. S. ' Martin v. Clover, 63 Hun (N. Y.) 849, where long delay, coupled with 628, 17 N. Y. S. 638; Williams v. other circumstances, was held to be Townsend, 31 N. Y. 411; Brickell v. a waiver. Acceptance of the de- Batchelder, 62 Cal. 623; Pope v. Du- faulted interest before instituting rant, 26 Iowa 233; Wiltsie Mortgage suit to foreclose is a waiver of the Foreclosures, § 45. right of forfeiture on account of * Noble v. Greer, 48 Kans. 41, 28 such default. Smalley v. Renken, Pac. 1004. A provision requiring 85 Iowa 612, 52 N. W. 507. But see the mortgagor company to pay taxes Moore v. Sargent, 112 Ind. 484, 14 and assessments does not require it N. E. 466. to pay an income tax upon the in- » Albert v. Grosvenor Investment terest on the bonds. Haight v. Rail- Co. L. R. 3 Q. B. 123; Union Trust road Co. 6 Wall. (U. S.) 15. Co. V. St. Louis, &c. Co. 5 Dill. (U. • Smalley v. Renken, 85 Iowa 612, S.) 1; Tones Corp. Bonds and Mort. 52 N. W. 507, 693 OPTION- TO DECLARE WHOLE DEBT DUE — ELECTION. [§' 506 tion to exercise the option, is sufEeient. Much depends upon the pro- visions of the particular mortgage or trust deed in question. It may doubtless provide that notice shall be given or a declaration made of the mortgagee's intention to take advantage of the option before the institution of proceedings to foreclose. But, in the absence of any such provision, that is, where the mortgage merely provides that, upon failure to pay interest, or any instalment, when due, the entire debt shall become due, or that the mortgagee shall have the option of declaring it due, the commencement of a suit to foreclose for the entire debt is, according to the better rule and the weight of author- ity, a sufficient election without a previous declaration thereof.^" A written notice given by the holders of the notes or bonds secured by the trust deed to the trustee, requesting him to foreclose for the entire debt, has been held to be a sufiBcient declaration of an intention to exercise the option.^^ So, where a mortgage provided that until de- fault in the payment of interest for six months after written demand by the trustee the mortgagor should remain in possession, but that after such default the trustee might take possession, it was held that this was a limitation merely upon the right of the trustee to take possession, and that he might institute proceedings to foreclose without giving notice and without waiting six months. ^^ Decisions may be found which seem to go still further in this direetion.^^ The fact that the mortgaged property is in the possession of a receiver - appointed at the suit of a third person will not prevent the mort- gagee from exercising his option to declare the entire debt due, upon default in the payment of one instalment, by instituting a suit to "Brown v. McKay, 151 111. 315, 37 "HefCron v. Gage, 149 111. 182, 36 N. B. 1037; New York Security, &c. N. B. 569. See, also, Mallory v. West Co. V. Saratoga, &c. Co. 88 Hun (N. Shore, &c. R. Co. 3 J. & S. (N. Y. Y.) 569, 34 N. Y. S. 890; Taylor v. Super. Ct.) 174; Fellows v. Gilman, Alliance Trust Co. 71 Miss. 694, 15 4 Wend. (N. Y.) 414; American So. 121 ; Morling v. Bronson, 37 Neb. Tube, &c. Co. v. Kentucky, &c. Co. 608, 56 N. W. 205; Sichler v. Look, 51 Fed. 826. 93 Cal. 600, 29 Pac. 220, 223; Bu- "Farmers' Loan, &c. Co. v. Wi- chanan v. Berkshire, &c. Co. 96 Ind. nona, &c. R. Co. 59 Fed. 957. To the 510; Young v. McLean,, 63 N. Car. same effect is Alabama, &c. Co. v. 576. Contra, Basse v. Gallegger, 7 Robinson, 56 Fed. 690, affirming Rob- Wis. 442, 76 Am. Dec. 225; Macloon inson v. Alabama, &c. Co. 48 Fed. 12. v. Smith, 49 Wis. 200, 5 N. W. 336; "=See, for instance. Mercantile Dean v. Applegarth, 65 Cal. 391, 4 Trust Co. v. Chicago, &c. R. Co. 61 Pac. 375 (distinguished in Hewitt v. Fed. 372. But see post, § 507. Dean, 91 Cal. 5, 27 Pac. 423). § 507] FORECLOSURE. 694 foreclose.^* We doubt, however, if the mortgagee could sell the prop- erty, under a decree of foreclosure, while it is in the hands of the receiver. § 507. Foreclosure for default in payment of interest. — A fore- closure may be had for unpaid interest, although the principal debt is not due.^^ A railroad mortgage, providing that the bonds shall be- come due on default in the payment of interest, may be foreclosed on default, unless the statute authorizing the bonds states a minimum period, not yet elapsed, during which they must run, in which case the mortgage may be foreclosed for the default in the payment of interest, the decree directing a sale if payment is not made within a period appointed by the court, and the remainder of the proceeds, after the satisfaction of the defaulted interest and expenses, being held by the court subject to the mortgagee's lien for the payment of the subsequently maturing interest coupons and the principal.^^ But it seems that such a suit may generally be arrested by payment of the accrued interest and costs.^' It is frequently provided in the mort- "Mulcahey v. Strauss, 151 111. 70, 37 N. E. 702. It was also held in this case that the failure to ohtain leave to sue the receiver did not de- prive the court of jurisdiction and that the objection was waived. Where the receiver is a party, how- ever, leave should be obtained, for even if it is not jurisdictional, the failure to obtain it may be fatal where the question is properly raised. ^ Union Trust Co. v. St. Louis, &c. R. Co. 5 Dill. (U. S.) 1; Howell v. "Western, &c. R. Co. 94 U. S. 463; Chicago, &c. R. Co. v. Posdick, 106 U. S. 47, 68, 1 Sup. Ct. 10; Central T. Co. V. New York, &c. R. Co. 33 Hun (N. Y.) 513. Where a railroad mortgage contains no provision making the principal due on default in the payment of interest, powers given to the trustee, after default In the payment of interest, to take possession of the mortgaged prop- erty and sell the same and apply the proceeds to the payment of interest and principal, do not accelerate the maturity of the principal so as to authorize foreclosure for the entire debt on such default. McFadden v. Mays Landing, &c. R. Co. 49 N. J. 176, 22 Atl. 932. ^"Howell V. Western R. Co. 94 U. S. 463 ; Wilmer v. Atlanta, &c. R. Co. 2 Woods (U. S.) 409, 447; Macon & Augusta R. Co. v. Georgia R. Co. 63 Ga. 103; Central Trust Co. v. New York, &c. R. Co. 33 Hun (N. Y.) 513; Wood V. Consolidated, &c. Co. 36 Fed. 538. "See Tillinghast v. Troy, &c. R. Co. 48 Hun (N. Y.) 420, 1 N. Y. S. 243; Philips v. Bailey, 82 Mo. 639. In Grape Creek Coal Co. v. Farmers', &c. Co. 63 Fed. 891, 895, it is said that such right doubtless exists "down to the entry of the decree," hut it cannot be exercised after a decree is entered declaring the whole debt due. 695 FOEECLOSURE FOR DEFAULT IN PAYMENT OF INTEREST. [§ 507 gage or trust deed that upon default in the payment of interest the mortgage may be foreclosed for the entire debt. Such a provision is valid/* but it does not, at least unless it clearly makes the entire debt due for all purposes, authorize a personal judgment for any de- ficiency in the amount of the mortgaged property to pay the principal not yet due. Its efEect is rather to make the principal due merely for the purposes of the foreclosure or entry and sale by the trustee under the provisions of the mortgage." But, where the mortgaged property cannot be sold in parcels, as is usually the case with railroads, the entire road may be sold even upon foreclosure for default in the in- terest alone, and the proceeds applied to the principal as well as the interest.^" Practically, therefore, to this extent a default in pay- ment of interest may cause the entire debt to become due whether there is a provision in the mortgage to that effect or not. It is not to be inferred from this, however, that such a provision is unimpor- tant. While it is proper, even in its absence, to direct the payment of the whole debt out of the proceeds of the sale of the property as , "McLean v. Presley, 56 Ala. 211; Pope V. Durant, 26 Iowa 233; Hood- less V. Reld, 112 111. 105; Richards T. Holmes, 18 How. (U. S.) 143; Indiana, &c. R. Co. v. Sprague, 103 U. S. 756; Marye v. Hart, 76 Cal. 291, 18 Pac. 325, 23 Am. & Bng. Corp. Cas. 506, and note; Wlltsie Mort. Foreclosure, § 37. In some juris- dictions this Is the rule even in the absence of any express provision upon the subject. Farmers' Loan, &c. Co. V. Nova Scotia, &c. R. Co. 24 N. S. 542. Where the provision is that the entire debt may be declared due and collected by the trustee, after default in payment of interest, at the request of a certain number of bondholders, or the like, the con- dition must be performed before ad- vantage can be taken of the provi- sion. Chicago, &c. R. Co. v. Fosdick, 106 U. S. 47, 1 Sup. Ct. 10; Batchel- der V. Council, &c. Co. 131 N. Y. 42, 29 N. E. 801; Farmers' Loan, &c. Co. V. Bankers', &c. Co. 44 Hun (N. Y.) 400. "■Morgan v. Martien, 32 Mo. 438; White V. Miller, 52 Minn. 367, 54 N. W. 736; McClelland v. Bishop, 42 Ohio St. 113; Railway Co. v. Sprague, 103 U. S. 756; Ohio Cent. R. Co. V. Central T. Co. 133 V. S. 83, 10 Sup. Ct. 235; Mallory v. West Shore, &c. R. Co. 35 N. Y. Super. Ct. 174; Grape Creek Coal Co. v. Farm- ers' Loan, &c. Co. 63 Fed. 891. (Pro- vision held insufficient to authorize a decree declaring principal due and compelling its payment in order to redeem.) But see Wheeler, &c. Co. V. Howard, 28 Fed. 741; Noell v. Gaines, 68 Mo. 649. 'o Olcott V. Bynum, 17 Wall. (U. S.) 44; Chicago, &c. R. Co. v. Fos- dick, 106 U. S. 47, 68, 1 Sup. Ct. 10; Farmers' Loan, &c. Co. v. Oregon, &c. R. Co. 24 Fed. 407; Pennsylvania R. Co. V. Allegheny, &c. R. Co. 48 Fed. 139; McLean v. Presley, 56 Ala. 211; Bridges v. Ballard, 62 Miss. 237; McTighe v. Macon, &c. Co. 94 Ga. 306, 21 S. E. 701, 706, 707, 32 L. R. A. 2,08, 47 Am. St. 153. § 508] FOEECLOSUEE. 696 an entirety, yet, in such a ease, the amount of overdue interest should be stated in the decree and provision made for the mortgagor to re- deem before the sale upon the payment of such interest and costs, whereas the presence of a provision expressly making the entire debt due upon default in payment of interest will authorize a decree de- claring it all due and ordering a sale, unless the whole amount is paid within a reasonable time therein specified.^^ § 508. Parties to fdreclosure suit — ^Plaintiffs. — ^Where the mort- gage is made to trustees they may sue to foreclose it without joining the bondholders.^^ Where a bill in equity is filed by the trustees for the foreclosure of a mortgage, the individual bondholders are not necessary nor, as a rule, even proper parties to the suit.^^ They may '' Grape Creek Coal Co. v. Farm- ers' Loan, &c. Co. 63 Fed. 891; Chi- cago, &c. R. Co. V. Fosdick, 106 U. S. 47, 75, 1 Sup. Ct. 10; Ohio Cent. R. Co. V. Central Trust Co. 133 U. S. 83, 10 Sup. Ct. 235. '^ Chicago, &c. Land Co. v. Peck, 112 111. 408; Richter v. Jerome, 123 U. S. 233, 8 Sup. Ct. 106; Hale v. Nashua, &c. R. Co. 60 N. H. 333; Boston, &c. R. Co. v. Coffin, 50 Conn. 150; Coe v. Columbus, &c. R. Co. 10 Ohio St. 372, 75 Am. Dec. 518; Sa- vannah, &c. R. Co. V. Lancaster, 62 Ala. 555. See, also. Grand Trunk R. Co. V. Central Vermont R. Co. 88 Fed. 622. A trustee under succes- sive mortgages to secure different issues of bonds may, as trustee of the first mortgage, in good faith foreclose it and bind the second mortgage bondholders by the decree so far as represented by him. Rob- inson V. Iron R. Co. 135 U. S. 522, 531, 10 Sup. Ct. 907. But it is said that he should make both himself as trustee under the second mort- gage and some of the second mort- gage bondholders parties defend- ant. See, generally, as to parties plaintiff in such suits, leading arti- cle in 54 Cent. Law Jour. 364. ^Shaw V. Norfolk, &o. E, Co. 5 Gray (Mass.) 162; Wetmore v. St. Paul, &c. R. Co. 1 McCrary (U. S.) 466; Railroad Co. v. Howard, ' 7 Wall. (U. S.) 392; Shaw v. Little Rock, &c. R. Co. 100 U. S. 605. But see Wiltsie Mortgage Foreclosures, § 110. In a railroad foreclosure suit the mortgage trustee represents the bondholders, and, if he acts in good faith, whatever binds him binds them, so that they have no right to be made parties, except when the trustee is not acting in good faith. Farmers' Loan, &c. Co. v. Kansas City, &c. R. Co. 53 Fed. 182 ; Beals v. Illinois, &c. R. Co. 133 U. S. 290, 10 Sup. Ct. 314; Elwell v. Fosdick, 134 U. S. 500, 10 Sup. Ct. 598; McElrath v. Pittsburg, &c. R. Co. 68 Pa. St. 37. See, also, Central Trust Co. v. Peoria, &c. R. Co. 104 Fed. 420. This rule has been applied where the trustee was made defendant to a suit to can- cel and satisfy the mortgage under a reorganization agreement. Pol- lltz V. Farmers', &c. Co. 53 Fed. 210. But it is said that the trustee repre- sents the bondholders only for the protection of their lien under the trust deed and not after he has de- nied their right. Moran v. Hager- man, 64 Fed. 499. 697 BONDHOLDERS AS PliAINTIFFS. [§' 509 be admitted as parties, however, where the trustee is guilty of .miscon- duct or shows himself incompetent to properly execute the trust,^* or where he is shown to have interests adverse to those of the bond- holders.^^ If a part of the trustees refuse to act, the suit may be prosecuted by the remaining trustee or trustees, and those refusing to act may be made defendants.^® So, where one of several trustees dies the surviving trustee or trustees may maintain the suit.^' § 509. Bondholders as plaintiffs. — In case the trustees neglect or refuse to bring a foreclosure suit, or the trustee's office becomes va- cant, and there is no provision in the mortgage forbidding such a course, one of the bondholders may bring a suit on behalf of himself and all others who choose to join him, to foreclose the mortgage for a default in the payment of the principal or interest of his bonds.^* =*Skiddy v. Atlantic, &c. R. Co. 3 Hughes (U. S.) 320. The simple fact that a single trust company is trustee under twelve mortgages given by different corporations which have united to form a single system, is not sufficient reason for admitting a committee of the bond- holders of the principal corporation by which the other roads in the sys- tem are owned or controlled to be- come party plaintiffs in a suit to foreclose. Clyde v. Richmond, &c. R. Co. 55 Fed. 445. =»DeBetz's Petition, 9 Abb. N. C. (N. Y.) 246; Webb v. Vermont, &c. R. Co. 9 Fed. 793; American Tube, &c. Co. V. Kentucky, &c. Co. 51 Fed. 826. See, also. Farmers' Loan, &c. Co. V. Cape Fear, &c. R. Co. 71 Fed. 38; Farmers' Loan, &c. Co. v. North- ern Pac. R. Co. 66 Fed. 169. =° Tillinghast v. Troy, &e. R. Co. 48 Hun (N. Y.) 420, 1 N. Y. S. 243; Robinson v. Alabama, &c. Co. 48 Fed. 12. " Alabama, &c. Co. v. Robinson, 56 Fed. 690, affirming Robinson v. Ala- bama, &c. Co. 48 Fed. 12; Gibbes v. Greenville, &c. R. Co. 13 S. Car. 228. Or if no trustee is left it is held that one or more bondholders may foreclose for all. Wheelwright v. St. Louis, &c. Co. 56 Fed. 164; Galves- ton, &c. R. Co. V. Cowdrey, 11 Wall. (U. S.) 459. ^Van Benthuysen v. Central N. E. &c. R. Co. 63 Hun (N. Y.) 627, 17 N. Y. S. 709; Mason v. York, &c. R. Co. 52 Me. 82 ; Hotel Co. v. Wade, 97 U. S. 13; Chickering, In re, 56 Vt. 82; March v. Eastern R. Co. 40 N. H. 548, 566, 77 Am. Dec. 732; Seibert v. Minneapolis, &c. R. Co. 52 Minn. 148, 53 N. W. 1134, 20 L. R. A. 535 and note, 38 Am. St. 530, 57 Am. & Eng. R. Cas. 208; Common- wealth V. Susquehanna, &c. R. Co. 122 Pa. St. 306, 15 Atl. 448, 1 L. R. A. 225; Wheelwright v. St. Louis, &c. Co. 56 Fed. 164; Chicago, &c. R. Co. V. Fosdick, 106 U. S. 47; 1 Sup. Ct. 10; Brooks v. Vermont Cent. R. Co. 14 Blatchf. (U. S.) 463. In Alex- ander V. Central R. Co. 3 Dill. (U. S.) 487, the mortgage gave the trus- tee a power of sale to be exercised at the request of a majority of the stockholders, upon default in the payment of interest. It was held that this remedy was merely cumu- lative to the ordinary legal reme- 509] POEECLOSUEE. 698 Such neglect, refusal, or vacancy must be alleged and proved or the court will refuse to grant relief.^® Bondholders have also been permit- dies, and that upon refusal of the trustee to bring a suit to foreclose the mortgage for a default in the payment of interest, any one of the bondholders could maintain a suit in equity for thalt purpose on be- half of himself and others, malting the trustee a party defendant. Such a suit should usually be brought by the bondholder in behalf of himself and all other bondholders, but an averment to this effect is unneces- sary when default has been made only on the bonds held by the com- plainant. McPadden v. Mays Land- ing, &c. R. Co. 49 N. J. Eq. 176, 22 Atl. 932. See, also, Tyler v. Yreka, &c. Co. 14 Cal. 212. In a recent case the Supreme Court of the United States held that a foreclo- sure was not invalid because one of the trustees was a director and the others stockholders in the company that procured the foreclosure; be- cause one person was president of both companies; because a majority of the directors of one company were directors of the other; because the president of one company owned most of the other company's stock; or because the attorneys who insti- tuted the foreclosure suit in the name of the trustees were in other matters attorneys for or directors of the company that procured it. Leavenworth County v. Chicago, &c. R. Co. 134 U. S. 688, 10 Sup. Ct. 708. The fact that the bondholder pur- chased his bonds at the request of the lessee of the mortgaged rail- road, and that the suit was Insti- tuted as a means of relieving it from the inconvenience and loss at- tending the operation of the road does not deprive the bondholder of his remedy of foreclosure on default in the payment of the bonds. Mc- Fadden v. Mays Landing, &c. R. Co. 49 N. J. Bq. 176, 22 AU. 932. =» Clyde V. Richmond, &c. R. Co. 55 Fed. 445; Morgan v. Kansas Pac. R. Co. 15 Fed. 55; Hotel Co. v. Wade, 97 U. S. 13. In Chicago, &c. R. Co. V. Fosdick, 106 U. S. 47, 1 Sup. Ct. 10, where the terms of the mortgage gave the trustees the right, upon a default for six months in the pay- ment of Interest, and at the request of a majority of the bondholders, to take possession of the railroad property and sell the same, the court, by Mr. Justice Matthews, said: "But inasmuch as by the terms of the first article the conveyance is declared to be for the purpose of securing the payment of the interest as well as the principal of the bonds, and by the fourth article the mort- gagor's right of possession termi- nates upon a default in the payment of interest as well as principal on the bonds, we are of opinion, inde- pendent of the provisions of the other articles, that the trustees, or, on their failure to do so, any bond- holder, on non-payment of any in- stalment of interest on any bond, might file a bill for the enforcement of the security by a foreclosure of the mortgage and sale of the mort- gaged property. This right belongs to each bondholder separately, and its exercise is "not dependent upon the co-operation or consent of an^ others, or of the trustees. It is properly and strictly enforceable by and in the name of the latter, but If necessary may be prosecuted with- out and even against them." 699 BONDHOLDERS AS PLAINTIFFS. [§ 509 ted to mamtain the suit where the only trustee has gone beyond the jurisdiction of the court and it is shown that an emergency exists for immediate action and that great loss will result to the complain- ants before he can be reached.^" Where a foreclosure suit has been commenced by bondholders on behalf of themselTes and all others who desire to join them, the other bondholders may, upon petition, be permitted to become eomplainants.''^ But it is not necessary that they should do so, as the interests of all the bondholders are repre- sented by the actual complainants, and by the trustees, who must, in such a suit, be made parties defendant.^^ The bondholder who brings the suit cannot, by so doing, obtain an undue adyantage over the other bondholders whose rights in the security are the same as his own; he is bound, in such a case, to act for all and not merely for himself.'^ In an action by a holder of bonds, suing on behalf of himself and others, to foreclose a mortgage securing the bonds, for a default in payment of interest thereon, a tender, unless of interest due on all the bonds, has been held insufficient to arrest the action.'* Where a minority of the bondholders bring a foreclosure suit against the wishes of the majority, the court may grant a stay of proceedings upon application on condition that the bonds sued on shall be paid together with accrued costs.'^ It is competent for the bondholders to agree among themselves upon what conditions the right to sue may be exercised by an individual bondholder; and a provision in the '"Ettlinger v. Persian, &c. Co. 142 bondholder could not maintain the N. Y. 189, 36 N. E. 1055, 40 Am. St.. suit without notice to -others who 587. But mere non-residence of the were named in the mortgage. As trustee has been held insufficient, he acts for all, he should be reim- Morgan v. Kansas Pac. R. Co. 15 bursed out of the trust fund for ex- Fed. 55. penses so incurred to the same ex- °* Chickering, In re, 56 Vt. 82. tent as the trustee would have been ^ First Nat. Ins. Co. v. Salisbury, entitled to be reimbursed. . Seibert 130 Mass. 303; Hackensack Water v. Minneapolis, &c. R. Co. 52 Minn. Co. v. DeKay, 36 N. J. Eq. 548; 246, 53 N. W. 1151. See Hobbs v. Jones Mortgages, § 1385. McLean, 117 U. S. 567, 6 Sup. Ct. '^Jackson v. Ludeling, 21 Wall. 870. (U. S.) ei6; New Orleans Pac. R. "Van Benthuysen v. Central, &c. V. Parker, 143 U. S. 42, 58, 12 Sup. R. Co. 63 Hun (N. T.) 627, 17 N. Y. Ct. 364; 6 Lewis' Am. R. & Corp. S. 709. 43; Commonwealth v. Susquehanna, '^ Tillinghast v. Troy, &c. R. Co. &c. R. Co. 122 Pa. St. 306, 15 Atl. 48 Hun (N. Y.) 420, 1 N. Y. S. 243, 448, 1 L. R. A. 225. See, also Rail- affirmed in 121 N. Y. 649, 24 N. E. road Co. v. Orr, 18 Wall. (U. S.) 1091. 471, where it was held that a single 509] FOEECLOSDRE. 700 mortgage that no proceedings in law or equity shall be taken by any bondholder secured thereby, to foreclose the equity of redemption in- dependently of the trustee, until after the refusal of the trustee to comply with a requisition first made upon him by the holders of a certain percentage of the bonds secured by such mortgage, is reason- able and valid. Such provisions are to be deemed stricti juris, but are, nevertheless, to be reasonably construed in view of the nature of the security, and the interest of the bondholders as a 'class. It is not the purpose or effect of such a stipulation to divest the bond- holders of their rights to judicial remedies, or to oust the courts of their jurisdiction, but it is merely the imposition of certain condi- tions upon themselves in respect to the exercise of that right.^* After " Seibert v. Minneapolis, &c. R. Co. 52 Minn. 148, 53 N. W. 1134, 20 L. R. A. 335, 38 Am. St. 530. In this case the court said: "We are unable to see why the bondholders, subject to reasonable limitations, may not be bound by stipulations in the mortgage of this character, waiving a default, and providing, subject to the conditions named, for the foreclosure by the trustee ex- clusively. The interests of the bondholders as a class and the na- ture of the security are to be con- sidered. They are agreements which the bondholders are at liberty to make, and there is nothing illegal or contrary to public policy in them. Chicago, &c. R. Co. v. Fosdick, 106 U. S. 47, 1 Sup. Ct. 10, 7 Am. & Bng. R. Cas. 427, 450. Bach bondholder enters into contract relations with each and all of his co-bondholders. His right to appropriate the security in satisfaction of his bond in such lawful manner as he may choose Is modified not only by the express provisions of the mortgage, but by the peculiar nature of the security. Gates V. Boston, &c. R. Co. 53 Conn. 333; Shaw v. Railroad Co. 100 U. S. 605; Canada, &c. R. Co. v. Gebhard, 109 U. S. 527, 537, 3 Sup. Ct. 363; Guilford v. Minneapolis, &c. Rail- road Co. 48 Minn. 560, 51 N. W. 658, 31 Am. St. 694. The legislature would have had an undoubted right to have incorporated in the enabling statute authorizing the execution of the mortgage and the issuance of the bonds secured thereby, a pro- vision requiring the mortgage to contain similar stipulations. Howell V. Western Railroad Co. 94 U. S. 463. It is clear, then, that it would be competent for the bondholders themselves to agree to them. They are to be treated as stricti juris, but nevertheless are to be reasonably construed in view of the nature of the mortgage, which is the common security for all the bondholders, and the purposes to be subserved in making them. * * * The trustee, as mortgagee, representing the in- terests of all the bondholders as beneficiaries, is the proper party to institute foreclosure proceedings, but if he unreasonably neglects or refuses to discharge his duty in the premises, doubtless any bondholder may bring an action to enforce the security for the common benefit. Chicago, &c. R. Co. v. Posdick, 106 TJ. S. 47, 1 Sup. Ct. 10. The court said: "Why may not the mortgage 701 BONDHOLDERS AS PLAINTIFFS. ■[§■ 509 suit is brought by individual bondholders to foreclose a mortgage, the trustees may ask leave to become complainants instead of de- fendants; and, unless they have been negligent and unfaithful, or have interests adverse to those of the bondholders, they will generally be allowed to do so. It has also been held that as soon as they are ad- mitted as complainants, they have control of the suit, and may, upon leave of court, dismiss it, and pursue some other remedy.^^ A bondholder may bring an action at law for unpaid bonds or in- terest, but any judgment recovered in such an action will be subject to the prior lien of the mortgage.^* Property of the company not covered by the mortgage may, however, be sold on execution for such a claim.^" When a railroad company mortgages its property to the bondholders by name, all must join in or be made parties to a suit to foreclose the mortgage, and no one can bring a suit on behalf of him- self and all others who will come in and share the expenses of the suit.*" In such a case, all parties should be before the court, because, if the mortgage should not prove an adequate security, it is the in- In the common interest stipulate the conditions under which this right may be exercised by the hondhold- ers, and in order to avoid the risk of rash or arbitrary proceedings which might result in great injury to the security, provide that no such proceedings should be insti- tuted by an individual bondholder except upon the refusal of i the trus- tee to obey the requisition of a rea- sonable number of the bondholders. It is not the intention or effect of such conditions or stipulations to divest the bondholders of their right to judicial remedies, or to oust the courts of their jurisdiction; it is merely the imposition of certain conditions upon themselves in re- spect to the exercise of that right. And this distinction is well recog- nized by the courts. Gasser v. Sun Fire Office, 42 Minn. 315, 44 N. "W. 252, and cases; Guilford v. Minne- apolis, &c. R. Co. 48 Minn. 560, 51 N. W. 658. 31 Am. St. 694. The pro- visions of this mortgage are not. we think, unreasonable or invalid." But see Guaranty Trust, &c. Co. v. Green Cove, &c. R. Co. 139 TT. S. 137, 11 Sup. Ct. 512, for a provision held invalid as attempting to oust the jurisdiction of the court. =' Richards v. Chesapeake, &c. R. Co. 1 Hughes (U. S.) 28. == Commonwealth v. Susquehanna, &c. R. Co. 122 Pa. St. 306, 15 Atl. 448, 1 L. R. A. 225; Philadelphia, &c. R. Co. V. Woelpper, 64 Pa. St. 366, 3 Am. R. 596. Waiver of the right to foreclose a mortgage, on de- fault in the payment of interest coupons on the bonds secured by it, does not affect the right to an action at law to recover on the coupons. Lyon V. New York, &c. R. Co. 14 Daly (N. Y.) 489. »»Carr v. LeFevre, 27 Pa. St. 413; Philadelphia, &c. R. Co. v. Johnson, 54 Pa. St. 127. See, also, Scott v. Farmers', &c. Co. 69 Fed. 17. "Railrbad Co. v. Orr, 18 Wall. (U. S.) 471. § 510] FOKECLOSDBE. 703 terest of each mortgagee to diminish the claim of every other mort- gagee, and thereby add to his own security.*^ §'510. Pledgees, assignees and others as plaintiffs. — One who holds bonds as collateral may sue for a foreclosure by making his as- signor a party.*^ Where the assignment is in writing it is unneces- sary, in some jurisdictions, to make the assignor a party, but in others it is held that the assignment of the bonds or debt passes merely the equitable and not the legal title to the security, and if there is any question as to the assignor having any interest it is advisable to make him a party.*^ But, in ease the bonds have been pledged tq secure a debt of the corporation, it has been held that the holder will be entitled to a decree for only the amount of the debt.** The bonds " In Railroad Co. v. Orr, 18 Wall. (U. S.) 471, the court says: "In so far as he succeeds In doing that [diminishing the claims of his fel- lows], he adds to his own security. Each holder, 'therefore, should be present, both that he may defend his own claims and that he may attack the other claims should there be occasion for it. If, upon a fair ad- justment of the amount of the debts, there should be a deficiency in the security, real or apprehended, every one interested should have notice in advance of the time, place, and mode of sale, that he may make timely arrangements to secure a sale of the property at its full value." *^Ackerson v. Lodz Branch R. Co. 28 N. J. Bq. 542; Morton v. New Or- leans, &c. R. Co. 79 Ala. 590; Wilt- sie Mortgage Foreclosures, § 89. Where bonds . were transferred as collateral to secure a loan with the condition that the pledgee, upon de- fault in payment of the principal or Interest of the note thus secured by the bonds, might sell the bonds with- out notice, and might become the purchaser thereof at any sale thus made, it was held that the pledgee, after having purchased the bonds at a sale held in accordance with the terms of the pledge, was entitled to a decree for the full amount of the face value of the bonds, with in- terest, and not merely the price paid therefor. Wade v. Chicago, &c. R. Co. 149 U. S. 327, 13 Sup. Ct. 892. *' See Wiltsie Mortgage Foreclo- sures, § 98. In Markel v. Evans, 47 Ind. 326, it is held that the assignor of a note secured by mortgage is neither a necessary nor a proper party to a suit to foreclose the mort- gage. But see Nichol v. Henry, 89 Ind. 54. ** Jesup V. City Bank, 14 Wis. 331; Carpenter v. O'Dougherty, 67 Barb. (N. Y.) 397; Wiltsie Mortgage Fore- closures, § 89. Where bonds are pledged by the corporation to se- cure its own debt under an agree- ment that the pledgee may purchase them at his own sale made upon de- fault in payment of the notes se- cured, a purchase by the pledgee in accordance with the terms of the pledge is valid as against every- body, unless fraud or breach of trust is established. Third parties and strangers have no right to question the purchaser's title, but he may 703 DEFENDANTS IN FOEECLOSUKE SUIT — GENEKALLT. [§ 511 are the principal and the mortgage the incident. It follows, therefore, that the assignee of the bonds or debt may foreclose even though he may have obtained no assignment of the mortgage,^^ while the mere assignment of a mortgage, which contains no promise to pay, without the debt, or boilds evidencing it, will not entitle the assignee to main- tain a suit to foreclose.** It may be difficult, however, to apply these rules to trust deeds or railroad mortgages made to a trustee. We suppose that in such cases the assignee stands substantially in the po- sition of his assignor and is represented in the same manner, and to the same extent, by the trustee. At all events the holder of bonds payable to bearer is to all intents and purposes an original payee, to whom the promise runs directly.*^ It has been held that a mortgagee who has guaranteed payment of bonds and has taken up some of the overdue coupons attached thereto, may foreclose his mortgage subject to the rights of the holder of the bonds guaranteed,** and that an assignee in bankruptcy*" or a receiver^" of a corporation may maintain a suit to foreclose in a proper case. § 511. Defendants in foreclosure suit — Generally. — The indorsers of railroad bonds secured by mortgage are not necessary parties to a suit to foreclose the mortgage. Their interest in the proper applica- tion of the property to the extinguishment of the debt, however, it is foreclose for the full amount of the A. 800 n; Jackson v. Blodgett, 5 ponds. Farmers', &c. Co. v. Toledo, Cow. (N. Y.) 202. &c. R. Co. 54 Fed. 759. As a rail- «Merrltt v. Bartholick, 36 N. Y. road is geherally regarded as a unit 44; Hubbard v. Harrison, 38 Ind- and cannot be sold In parcels so as 323; Lunt v. Lunt, 71 Me. 377; to destroy its value and usefulness Nagle v. Macy, 9 Cal. 426; Hamilton to the public, it may be that the v. Lubukee, 51 111. 415, 99 Am. Dec. decisions holding that the pledgee 562. is entitled to a decree merely for "Rutten v. Union Pac. R. Co. 17 the amount of his debt would not Fed. 480; White v. Vermont, &c. R. apply. The entire road may have Co. 21 How. (U. S.) 575. The first to be sold and such a decree ren- case just cited distinguishes Hay- dered as will fix the rights of all ward v. Andrews, 106 U. S. 672, 1 parties or hold the proceeds for fu- Sup. Ct. 544, and New York Guar- ture adjustment. anty, &c. Co. v. Memphis, &c. Co, « Carpenter v. Longan, 16 ' Wall. 107 U. S. 205, 2 Sup. Ct. 279. (U. S.) 271; Converse v. Michigan, *° Burnett v. Hoffman, 40 Neb. 569, &c. Co. 45 Fed. 18; Ober v. Gal- 58 N. W. 1134. legher, 93 U. S. 199, 206; Parkhurst "Upton v. National Bank, 120 V. Watertown, &c. Co. 107 Ind. 594, Mass. 153. 8 N. B. 635; Horn v. Bennett, 135 '"' Robinson v. Williams, 22 N. Y, Ind. 158, 34 N. E. 321, 956, 24 L. R. 380; Iglehart v. Bierce, 36 111. 133. § 511] FOEBCLOSUEE. 704 said, gives them such an interest in the suit as makes them proper parties, and they should, if possible, be admitted as such. But where the indorser is a state which has made no provision for the institution of a suit against itself, it will not be permitted to intervene in the suit, and thereby oust the jurisdiction of the court.^^ It has also been held that a guarantor of the mortgage bonds of a railroad com- pany, who afterwards joins the company in borrowing money with which to pay the interest coupons, is not thereby subrogated to the rights of the mortgagee so as to be a necessary or even a proper party to a subsequent suit to foreclose the mortgage, for there is no sub- rogation until the entire debt is paid.^^ It is doubtful whether the United States can be brought in as a party to a bill to foreclose against a railroad in which it is interested,^' but it has been held that it may be bound by notice so that an effectual decree may be rendered foreclosing its interests in property not held for government pur- poses.°* If the mortgagor has conveyed the property his grantee should be made a party,^^ and it may be said, in general, that no owner of an equity of redemption can be deprived of his right to re- deem unless he is made a party to the foreclosure suit.^' It is a general rule, subject, however, to exception, that strangers to the cause cannot be heard in it either by motion or petition. Thus un- secured general creditors^^ and individual stockholders'* are not gen- "^ Young V. Montgomery, &c. R. Am. St. 185, and numerous authori- Co. 2 Woods (U. S.) 606; Davis v. ties cited in note; Wiltsie Mortgage Gray, 16 Wall. (U. S.) 203. See, Foreclosures, § 126; Terrell v. AUi- also, State v. Farmers' Loan, &c. Co. son, 21 Wall. (U. S.) 289. See, 81 Tex. 530, 17 S. W. 60. In decid- also. Little Rock Trust Co. v. ing the first case Judge Woods said: Southern R. Co. 195 Mo. 669, 93 S. "If the state has paid any interest W. 944. on these bonds, and is thereby en- ■'^ Wiltsie Mortgage Foreclosures, titled to any part of the proceeds §§ 117, 126, 127; Gaskell v. Viques- from the mortgaged property, she ney, 122 Ind. 244, 23 N. E. 791, 17 can propound her claim before the Am. St. 364, and note; Beekman v. master, and it will be allowed." Hudson, &c. R. Co. 35 Fed. 3. »2 Columbia, &c. Co. v. Kentucky " Bronson v. Railroad Co. 2 Black Un. R. Co. 60 Fed. 794. But see (U. S.) 524; Stout v. Lye, 103 U. S. cases cited in note 51, supra, and 66; Thompson v. Huron Lumber Co. Searles v. Jacksonville, &c. R. Co. 2 4 Wash. 600, 30 Pac. 741; Farmers', Woods (U. S.) 621. &c. Co. v. Chicago, &c. R. Co. 68 Fed. ■^See Meier v. Kansas Pac. R. Co. 412; Herring v. New York, &c. R. 4 Dill. (U. S.) 378. Co. 105 N. Y. 340, 12 N. E. 763. But " Elliot v. Van Voorst, 3 Wall., Jr. see HofCe v. Hoffe, 104 Cal. 94, 36 (U. S.) 299; Jones Corp. Bonds and Pac. 389, 37 Pac. 894; Hollins v. Mort. § 400. Brierfleld, &c. Co. 150 U. S. 371, 14 ^ Berlack v. Halle, 22 Fla. 236, 1 Sup. Ct. 127. The general creditors 705 DEFENDANTS IN FOEECLOSUEE SUIT — GENBEAILT. [§611 erally allowed to become parties to a foreclosure suit against the cor- poration. So, it has been held that the state has no right to inter- vene in a suit to foreclose a mortgage for the benefit of innocent bondholders for the purpose of having the mortgage declared invalid as in violation of the state law.°" And prior mortgagees are not neces- sary parties unless the bill seeks the appointment of a receiver, or a sale of the entire property free from all liens or some other relief by yhich their interests will be affected.^* Stockholders, however, may be admitted as parties, where the directors refuse*^ to defend of a railroad company cannot com- plain that a trustee in a mortgage executed to secure its bonds im- properly released errors in a decree adjudicating that the rights of such company had passed to another cor- poration, under foreclosure proceed- ings, as the trustee represented the mortgage bondholders, and violated no duty to the company by giving the release. Loeb v. Chur, 53 Hun (N. Y.) 637, 6 N. Y. S. 296. "» Alexander v. Searcy, 81 Ga. 536, 8 S. E. 630, 12 Am. St. 337, 36 Am. & Bug. H. Gas. 239 ; Foster v. Mans- field, &c. R. Co. 36 Fed. 627; Chi- cago, &c. R. Go. V. Howard, 7 "Wall. (U. S.) 392; Central Trust Co. v. Peoria, ^c. R. Co. 104 Fed. 418, 43 G. C. A. 613. ™ Farmers', &c. Co. v. Chicago, &c. R. Co. 68 Fed. 412. See, also. State v. Farmers' Loan, &c. Go. 81 Tex. 530, 17 S. W. 60. ""Woodworth v. Blair, 112 U. S. 8, 5 Sup. Ct. 6; Wabash, &c. R. Go. V. Central Trust Co. 22 Fed. 138; Hagan v. Walker, 14 How. (U. S.) 29, 37; McHenry, Ex parte, 9 Abb. (N. Y.) N. G. 256; Miltenberger v. Logansport R. Co. 106 U. S. 286, 1 Sup. Gt. 140. In the first case above cited the prior lienholder was de- nied the right to intervene, and in the second, prior mortgagees who had been made parties were allowed . Ell. Railkoads — 45 their costs and the bill dismissed, as against them, upon the ground that they should not be put to the expense of litigation. There is sharp conflict among the authorities as to whether the prior incum- brancers are even proper parties so as to be bound by the decree. It seems desirable that all interests should be determined and adjusted in one suit, if possible, but the weight of authority is probably to the effect that in ordinary cases they are not proper parties. The conflicting decisions are collected in notes to Woods v. Pittsburgh, &c. R. Co. 3 Am. & Bng. R. Gas. 525, 531, and Strobe v. Downer (13 Wis. 10), 80 Am. Dec. 709, 714. See, also, post, § 512. The mortgagor cannot complain, however, when the court adjudges that the junior mortgage is prior as to part of the property and the prior mortgagees, who were made parties, do not appeal. Sei- bert V. Minneapolis, &c. R. Co. 58 Minn. 39, 59 N. W. 822. "■ A demand upon the directors to protect the interests of the corpora- tion and a neglect or refusal by them to do so must usually be shown before the stockholders will be admitted to defend a foreclosure suit. Dimpfell v. Ohio, &c. R. Go. 110 U. S. 209, 3 Sup. Gt. 573; Alex- ander V. Searcy, 81 Ga. 536, 8 S. E. 630, 12 Am. St. 337. §' 513] FOKEOLOStTRE, 706 the corporation against nnfounded and illegal claims, upon the same principle that bondholders are permitted to act when the trustees fail to do so.^^ And an assignee in bankruptcy** or a receiver of the mortgagor is generally a necessary party."* §512. When other lieu-holders should be made defendants.— Where a sale of the road is sOught upon foreclosure of a junior mort- gage, and it is desirable to quiet all outstanding titles, or to ascer- tain the validity or amount of prior liens about which there is sub- stantial doubt, that the purchaser may know the value of the equity which he buys, the prior mortgagees should be joined as parties."^ A failure to join the prior mortgagees as parties leaves them, generally speaking, with the same rights in the property that they had before the foreclosure.** Where the extent of the prior lien-holder's claim is " Bronson v. La Crosse, &c. R. Co. 2 Wall. (U. S.) 524; Forbes v. Mem- phis, &c. R. Co. 2 Woods (U. S.) 323; Guarantee Trust, &c. Co. v. Du- luth, &c. R. Co. 70 Fed. 803. '"Lenlhan v. Hamann, 55 N. Y. 652; Bard v. Poole, 12 N. Y. 495; Griffin v. Hodshire, 119 Ind. 235, 21 N. B. 741. "Raynor-v. Selmes, 52 N. Y. 579. But see Herring v. New York, &c. R. Co. 105 N. Y. 340. °° Richards v. Chesapeake, &c. R. Co. 1 Hughes'(U. S.) 28; Jerome v. McCarter, 94 U. S. 734; Hagan v. Walker, 14 How. (U. S.) 29; Daw- son V. Danbury Bank, 15 Mich. 489. It is said, however, to be "well set- tled that in a foreclosure proceeding the complainant cannot make a per- son who claims adversely to both the mortgagor and mortgagee a party, and litigate and settle his rights in that case." Dial v. Reyn- olds, 96 U. S. 340. See, also, "Trial of Adverse Title in Suit to Fore- close a Mortgage," 21 Cent. L. J. 223, and note to Strobe v. Downer, 80 Am. Dec. 709, 714. But compare the well-considered cases of Hefner V. Northwestern, &c. Co. 123 U. S. 747, 8 Sup. Ct. 337; Mendenhall v. Hall. 134 U. S. 559, 10 Sup. Ct. 616; Cohen v. Solomon, 66 Fed. 411; and in support of the well-settled ruje in Indiana that an adverse claimant may be made a party and a conclu- sive adjudication rendered against him, see O'Brien v. Moffltt, 133 Ind. 660, 33 N. B. 616, 36 Am. St. 566; Craighead v. Dalton, 105 Ind. 72, 4 N. E. 425. See, generally, Wiltsie Mortgage Foreclosures, Ch. IX; Farmers' Loan, &c. Co. v. Green Bay, &c. Co. 6 Fed. 100; Farmers' Loan, &c. Co. v. San Diego, &c. Co. 40 Fed. 105; Corcoran v. Chesa- peake, &c. Co. 94 U. S. 741; Con- verse V. Michigan, &c. Co. 45 Fed. 18. ™ Pittsburgh, &c. R. Co. v. Mar- shall, 85 Pa. St. 187; Wabash, &c. R. Co. V. Central Trust Co. 22 Fed. 138. A junior lienholder cannot compel the foreclosure of a mortgage con- stituting a prior lien upon the road. American, &c. Co. v. Bast, &c. R. Co. 37 Fed. 242; Seibert v. Minne- apolis, &c. R. Co. 62 Minn. 246, 53 N. W. 1151. Where prior lienhold- ers have unnecessarily been made parties, the court may, of its own 707 LIEN-HOLDEES AS DEFENDANTS. [§ 513 definitely ascertained, and a foreclosure is sought subject to prior liens, he is not a necessary, nor as a rule, a proper party to the bill.°^ It is said that "the remedy of a junior incumbrancer, both before and after foreclosure, is to redeem the senior mortgage. Without the con- sent of the prior mortgagee, a junior lienor could not enforce a sale of more than the mortgagor's equity of redemption. If he wished a sale free from the prior lien, and the prior lienor will not consent, the decree should be that he redeem, and then foreclose for the en- forcement of his own lien, and that he had redeemed.^^ A judicial foreclosure sale is not void because one interested in the equity of redemption, as a junior mortgagee, was not a party."*^ Where it is sought to cut off the right of a subsequent mortgagee, judgment creditor, or other lien-holder, to redeem, he must be made a party to the bill to foreclose.'^" And, in general, a junior lien-holder is entitled, on application, to be admitted as a party to contest the amount and validity of the claims preferred against the corporation.'^ But he is not a necessary party to a foreclosure against the mort- gagor,''' although, as we have said, he may be a proper party in any motion, dismiss the suit as to them, for they ought not to be put to the expense of making a defense where the amount and priority of their liens are undisputed. Wabash, &c. R. Co. V. Central Trust Co. 22 Fed. 138. "Wabash, &c. R. Co. v. Central Trust Co. 22 Fed. 138; McMurtry v. Montgomery, &c. Co. 86 Ky. 206. , «» Jones Mort. §§ 1394, 1396; Wood- worth v. Blair, 112 U. S. 8, 5 Sup. Ct. 6; McKernan v. NefE, 43 Ind. 503; Spurgin y. Adamson, 62 Iowa 661, 18 N. W. 293. "Compton V. Jesup, 68 Fed. 263, 311, citing Jones Mort. § 1395; Mar- tin V. Noble, 29 Ind. 216; Frische v. Kramer, 16 Ohio 125; Rose v. Page, 2 Sim. 471; Fulghum v. Cotton, 3 Tenn. Ch. 296; Trayser v. Trustees, 39 Ind. B56; Emigrant, &c. Bank. v. Goldman, 75 N. Y. 127. '" Searles v. Jacksonville, &c. R. . Co. 2 Woods (U. S.) 621; Memphis, &c. R. Co. V. State, 37 Ark. 632; Beekman v. Hudson, &c. R. Co. 35 Fed. 3; Youngman v. Elmlra, &c. R. Co. 65 Pa. St. 278; Hosford v. Johnson, 74 Ind. 479. But, other- wise, he is not, of course, a neces- sary party. Brooks v. Vermont Cent. R. Co. 14 Blatch. (U. S.) 463. "Farmers' Loan, &c. Co. v. Texas, &c. R. Co. 32 Fed. 359. Where a railroad extends into two states, in each of which the company is a do- mestic corporation, and the trustee in a mortgage on the whole road first brings a suit in one state to foreclose, and afterwards an ancil- lary suit in the other state for the same purpose, it has been held that he can not prevent a lien creditor of the company, who has not filed his claim in the first suit, from in- tervening in the second to establish his lien. Fidelity Ins. &c. Co. v. Shenandoah Val. R. Co. 32 W. Va. 244, 9 S. E. 180. "Williams v. Kerr, 113 N. Car. 306, 18 S. B. 501; Pattison v. Shaw, § 513] FOEECLOSUEB. 708 case and his equity of redemption cannot be cut off unless he is made a party. The original complainant in a foreclosure suit need not be made a party to an intervening petition, where it appears that he no longer has any interest in the fund in controversy, and no relief is asked against himJ' The question whether or not a lien is prior to the mortgage sought to be foreclosed may properly be tried in a fore- closure suit if the bill contains proper averments that the defendant's title is subordinate to the title of the mortgagee.'* A mortgagee should always be made a party where any doubt is entertained as to the priority of his lien; for a decree declaring a mortgage to be a first lien upon the property and franchises of a railroad company gives it no precedence over the prior lien of a party who had no notice of the proceedings, and was not a party or privy to the decree.'^ The title usually stands in the order in which conveyances were made, and cannot be changed by any proceedings to which the holders of the title were not parties.'® § 513. Defenses to foreclosure suit. — ^As a general rule no defenses are allowed to a suit to foreclose in favor of bona fide purchasers of railroad mortgage bonds that would not be allowed in an action at law upon negotiable promissory notes." The acts of the company subse- quent to the execution of the mortgage cannot be set up as a defense 6 Ind. 377; Stockwell v. State, 101 is properly made a party to the bill, Ind. 1. and appears, but fails to procure a ™ Central Trust Co. v. Sheffield, &c. dismissal as to himself, he will be R. Co. 44 Fed. 526. bound by a decree and sale there- " Harland v. Bankers', &c. Tel. Co. under, and can not afterward assert 33 Fed. 199; Converse v. Michigan, any rights not saved to him by the &c. Co. 45 Fed. 18; Corcoran v. decree. Woods v. Pittsburgh, &c. R. Chesapeake, &c. Co. 94 U. S. 741; Co. 99 Pa. St. 101. Lewis V. Smith, 9 N. Y. 502, 514, " Kenicott v. Supervisors, 16 Wall. 515; Jones Corp. Bonds and Mort. (IT. S.) 452; Carpenter v. Longan, § 407. 16 Wall. (U. S.) 271; Swett v. Stark, "Pittsburgh, &c. R. Co. v. Mar- 31 Fed. 858. See, also. Guaranty shall, 85 Pa. St. 187; Jones Corp. Trust Co. v. Green Cove Springs, &c. Bonds and Mort. § 404. A decree R. Co. 139 U. S. 137, 11 Sup. Ct. 512. rendered without proper notice to But see where they are not bona parties to be affected thereby is void, flde purchasers, Chicago, &c. R. Co. Central Trust Co. v. Florida R. &c. v. Loewenthal, 93 111. 433; Farmers' Co. 43 Fed. 751. Loan, &c. Co. v. San Diego, &c. Co. '"Jerome v. McCarter, 94 U. S. 45 Fed. 518; Ryan v. Anglesea R. 734. See Howard v. Milwaukee, &c. Co. (N. J.) 12 Atl. 539; Atwood v. R. Co. 7 Biss. (TJ. S.) 73. But if Shenandoah, &c. R. Co. 85 Va. 966 one claiming to hold a prior lien 9 S. E. 748. 709 DEFENSES TO POEECLOSUEE SUIT. [§ 513 to a suit by the mortgagee to foreclose his lien/^ and neither the company nor a purchaser who claims title by conveyance from it can deny the validity of its incorporation in a suit to foreclose a mortgage which it has executed.'* The same principle applies where the moTt- gage is given by a consolidated company.*" It is no defense that a construction company had agreed to pay the interest in default/^ nor that the road has been leased,*^ although it may be a good defense to show that the mortgagee, who holds all the bonds, is the lessee and has been paid by way of rental all the interest alleged to be in de- fault.*^ It has also been held that neither a misapplication of its earn- ings by the mortgagor company in order to cause a default, nor the fact that the largest bondholder was also a stockholder and had bought the bonds, after default in payment of interest, for the pur- pose of causing a foreclosure and purchasing at the sale, constituted a good defense either in favor of the mortgagor or another stock- holder.** Where, however, a railroad company, executing a mortgage upon its road as contemplated, has no legal title to the right of way, but merely holds contracts for a small portion thereof, to be conveyed on conditions which it never performs or has agreed to perform, and a new company is organized, which builds the road and acquires the legal title to most of the right of way and is equitably entitled to the remainder, it seems that no decree of foreclosure can be sustained under the mortgage, as against the new company, for the sale of its property. The mortgage creditors of the original company could have no rights superior to the company itself, and it had no such in- terest or title in the road as can b.e subjected to sale under the mort- gage.*'' "Bronson v. La Crosse, &c. R. Co. 734; Jones Corp. Bonds and Mort. 2 Wall. (U. S.) 283; Hale v. Nashua, § 415. &c. R. Co. 60 N. H. 333. ^ Coe v. New Jersey, &c. R. Co. 31 " Beekman v. Hudson River, &c. N. J. Eq, 105. R. Co. 35 Fed. 3. See, also, William- ■ " Foster v. Mansfield, &c. R. Co. son v. Kokomo, &c. Assn. 89 Ind. 36 Fed. 627. 389; Farmers' Loan, &c. Co. v. To- '''Hale v. Nashua, &e. R. Co. 60 N. ledo, &c. R. Co. 67 Fed. 49; Thomas H. 333. V. Citizens' R. Co. 104 111. 462. A »= Chamberlain v. Connecticut, &c. junior mortgagee cannot deny the R. Co. 54 Conn. 472. validity of a prior mortgage to ^Farmers' Loan, &c. Co. v. New which his mortgage is expressly York, &c. R. Co. 78 Hun (N. Y.) 213, made subject. Bronson v. La 28 N. Y. S. 933. See, also, Coe v. Crosse, &c. R. Co. 2 Wall. (TJ. S.) East, &c. R. Co. 52 Fed. 531. 283; Jerome v. McCarter, 94 U. S. "> Chicago, &c. R. Co. v. Loewen- thai, 93 111. 433. §• 514] FOEEOLOSURB. YIO § 514. Effect of provisions giving trustees the right to take pos- session and sell. — It is usual, in mortgages of railroad property, to confer upon the mortgage trustee a right of possession and sale in case of a continuing default in the payment of the mortgage debt. In some instances this power can only be exercised by the trustees at the request of a majority of the bondholders, and it is generally provided that it shall only be exercised after the default in payment has continued for a specified time. Provisions of this character in restraint of the exercise of a power of summary foreclosure, to be effective, must be strictly complied with. Thus, where it is provided that a power of sale may be exercised by the mortgage trustees in case of a continued default for sixty days after notice to the mortgagor of an intention to sell, but not until the sale has been previously ad- vertised for sixty days, the sale must be advertised for sixty days from the close of the sixty days' notice to the corporation of an in- tention to sell.** It was also held in a recent case that a power of sale given to the mortgagee can be executed only by him, unless the debt has been assigned so as to pass the legal title, and that the as- signee of the mortgage, without the debt, cannot execute the power of sale.*^ Where the trustees under a mortgage stipulating for posses- sion of the mortgaged property are denied possession upon the hap- pening of a default, it has been held that they may maintain eject- ment to recover the mortgaged real estate.** But since the corporate property usually includes personal property and choses in action for which ejectment will not lie, and since a judgment against an in- solvent mortgagor for damages for the non-delivery of the property would be valueless, the remedy for the recovery of possession by an action at law is usually inadequate.*^ Equity will, in such a case, *> Macon, &c. R. Co. v. Georgia R. veyance under a power, although Co. 63 Ga. 103; Gibbons v. McDoug- defectively executed, passes the le- all, 26 Grant's Ch. (Ont.) 214. To gal title to the purchaser, subject, same effect, see generally, Jones however, to the right of redemption. Corp. Bonds and Mort. § 384; Fos- Lanier v. Mcintosh, 117 Mo. 508, 38 ter V. Boston, 133 Mass. 143; Shil- Am. St. 676. See notes in 31 Am. St. labar v. Robinson, 97 U. S. 68; 328, 335, and 19 Am. St. 263, 266, Equitable Trust Co. v. Fisher, 106 297. 111. 189; Schanewerk v. Hoberecht, ^Rice v. St. Paul, &c. R. Co. 24 117 Mo. 22, 38 Am. St. 631. Minn. 464; Seibert v. Minneapolis, " Sanford v. Kane, 133 111. 199, 23 &c. R. Co. 52 Minn. 246, 53 N. W. Am. St. 602. See, also, Dameron v. 1151. Bskridge, 104 N. Car. 621. It has ""Dow v. Memphis, &c. R. Co. 20 also been held that a sale and con- Fed. 260; First Nat. Ins. Co. v. Sal- I'll TRUSTEES WITH EIGHT TO TAKE AND SELL. [§ 514 order the specific performance of a stipulation in a railroad mort- gage authorizing the trustees to take possession.*" The trustees, it has been held, may enforce their right to possession upon default even against a contractor engaged in constructing the road undet a contract by which he is entitled to the possession of the road until his contract is completed."^ A power to take possession, if exercised at all, must generally be exercised by the trustees as to the entire property. They cannot take possession of a part of the property which has been seized on execution to satisfy the claim of a judgment creditor, while leaving the other mortgaged property in the hands of the corporation.*^ The statutes of several of the states prescribe the duties of mortgage trustees as to taking possession of the mortgaged property of a railroad upon default in payment of its bonds or cou- pons, and operating it for the benefit of the parties interested. Where the statute provides for the rights and duties of trustees, it is unnecessary to provide therefor in each mortgage executed under the laws of the state, since those laws enter into and become a part of the mortgage.*^ But in the absence of such a statute the trustees have, in general, only those rights and powers conferred upon them by agreement of the parties.** The remedies by action at law to recover isbury, 130 Mass. 503; North Caro- '"' Mercantile Trust Co. v. Portland, lina, &c. R. Co. v. Drew, 3 Woods &c. R. Co. 10 Fed. 604. (XJ. S.) 691, 713; Jones Corp. Bonds ""McLane v. Placerville, &c. R. Co. and Mort. § 343. 66 Cal. 606; Macon, &c. R. Co. v. °°Dow V. Memphis, &c. R. Co. 20 Georgia R. Co. 63 Ga. 103; Shepley Fed. 260; McLane v. Placerville, &c. v. Atlantic, &c. R. Co. 55 Me. 395. R. Co. 66 Cal. 606; Sacramento, &c. But see as to their right to sue to R. Co. V. Superior Ct. 55 Cal. 453 protect the trust. Mercantile T. Co. (ordered over the objection of a v. Texas, &c. R. Co. 51 Fed. 529; majority of the bondholders) ; Shaw Clapp v. Spokane, 53 Fed. 515. As v. Norfolk County R. Co. 5 Gray to the duties and liabilities of trus- (Mass.) 162; Shepley v. Atlantic, &c. tees in possession, see Jones v. Selig- R. Co. 55 Me. 395. The jurisdiction man, 81 N. Y. 190 (duty to fence) ; of the court is based upon its gen- Daniels v. Hart, 118 Mass. 543; eral equity jurisdiction to compel Sprague v. Smith, 29 Vt. 421, 70 Am. persons to keep and perform their Dec. 424, and Rogers v. Wheeler, 43 lawful contracts, and not upon any N. Y. 598 (liable in damages for in- rule of law authorizing a fore- juries); Barter v. Wheeler, 49 N. closure of mortgage liens. Shepley H. 9, 6 Am. R. 434 (liable for V. Atlantic, &c. R. Co. 55 Me. 395, per loss of freight) ; 2 Cook Stock Walton, J. and Stockholders, § 823 (liable "Allan V. Dallas, &c. R. Co. 3 for deficiency in operating the Woods (U. S.) 316. road). They are said to represent "' Coe V. Peacock, 14 Ohio St. 187. both the bondholders and the corpo- 514] FOKEOLOSDEE. 713 the debt, or by suit in equity to foreclose the mortgage lien, are not taken away by a grant to the trustees of a power of entry and sale."* A suit at law by bondholders may be maintained for non-payment of the principal or interest bonds secured by mortgage,"® if the mortgage contains no agreement on the part of the mortgagee not to sue."^ In- deed, it is held that a provision in a deed of trust to secure bonds of a railroad company, which prohibits foreclosure and judicial sale, by providing that the mode of sale by the trustee set forth in the deed shall be exclusive of all others, is of no efEect."* Stipulations as to the time which must elapse between the happening of a default and an entry or a sale by the trustees under a power do not limit the right to bring an action to foreclose the mortgage, but such an action may be brought immediately upon default. °" So, it has been held that they may sue to foreclose the mortgage to recover interest due to a single bondholder, although the mortgage prohibits them from taking ration, Ashuelot R. Co. v. Elliott, 57 N. H. 397, and owe an active duty to the former and to each and all of them to preserve the property and take care of their interests. Commonwealth v. Susquehanna, &c. R. Co. 122 Pa. St. 306, 320, 1 L. R. A. 225; HoUister v. Stewart, 111 N. Y. 644; Merrill v. Farmers' Loan, &c. Co. 24 Hun (N. Y.) 297; Sturges V. Knapp, 31 Vt. 1; Perry Trusts, § 749. " Mercantile Trust Co. v. Missouri, &c. R. Co. 36 Fed. 221; Williamson V. New Albany, &c. R. Co. 1 Biss. (U. S.) 198; Stewart v. Bardin, 113 N. Car. 277, 18 S. B. 320; Eaton, &c. R. Co. V. Hunt, 20 Ind. 457; Credit Foncier, &e. v. Andrew, 9 Manitoba 65; Utermehle v. McGreal, 1 App. Dist Columbia 359; Martin v. Ward, 60 Ark. 510, 30 S. W. 1041. "' Philadelphia, &c. R. Co. v. John- son, 54 Pa. St. 127; Commonwealth V. Susquehanna, &c. R. Co. 122 Pa. St. 306, 1 L. R. A. 225; Welsh v. First Division of St. Paul, &c. R. Co. 25 Minn. 314; Marlor v. Texas, &c. R. Co. 19 Fed. 867. "Manning v. Norfolk, &c. R. Co. 29 \Fed. 838. The provision of a mortgage that holders of bonds se- cured by it shall not proceed at law or in equity to foreclose it, or pro- cure a sale of the property independ- ently of the trustee, does not defeat an action at law to recover on over- due interest coupons, although the mortgage provides for foreclosure on default in payment of the cou- pons. Lyon v. New York, &c. R. Co. 14 Daly (N. Y.) 489. •'Guaranty, &c. Co. v. Green Cove Springs, &c. R. Co. 139 U. S. 137, 11 Sup. Ct. 512. '"Central Trust Co. v. New York City, &c. R. Co. 33 Hun (N. Y.) 513; Central Trust Co. v. Texas, &c. R. Co. 23 Fed. 846; Mercantile Trust Co. V. Missouri, &c. R. Co. 36 Fed. 221; Chicago, &c. R. Co. v. Fosdick, 106 U. S. 47, 1 Sup. Ct.- 10; Farmers', &c. Co. V. Chicago, &c. R. Co. 61 Fed. 543; Mercantile T. Co. v. Chicago, &c. R. Co. 61 Fed. 372; Farmers', &c. Co. V. Winona, &c. R. Co. 59 Fed. 957; Farmers', &c. Co. v. Nova Sco- tia, &c. R. Co. 24 N. S. 542; Mercan- tile T. Co. V. Missouri, &c. R. Co. 3& Fed. 221, 1 L. R. A. 397. 713 THE DECEEE. [§ 515 any steps to collect the principal of the bonds without the consent of a majority of the bondholders.^"" And, although the trustee is au- thorized at the request of a certain proportion of the bondholders to take possession of the mortgaged property and to operate or sell the same after default in payment of the mortgage debt, he may bring a suit to foreclose the mortgage without such request by the specified number of bondholders.^"^ § 515. The decree. — A course of procedure prescribed by the mortgage to be pursued in case of a sale by the trustee without fore- closure is not binding upon the court in proceedings to foreclose such mortgage, but such a decree may be entered as to the terms of payment and the manner of sale as the equities of the case demand.^"^ The decree may provide that the sale shall be made subject to such claims as shall be finally adjudicated, where the amount of certain claims in dispute can only be known after a long course of litiga- tion.^"* A decree in an action by a railroad bondholder to foreclose a mortgage securing bonds, which directs a sale of the mortgaged property, free of all liens and incumbrances, to satisfy plaintiff's claims!, without making provision for other bondholders, subsequent mortgagees, or other creditors of the road, is fatally defective.^"* As i"" Farmers' &c. Co. v. Chicago, &c. Sage v. Central R. Co. 99 TT. S. 334. R. Co. 27 Fed. 146. See, also, as to providing for sale '"^ Guaranty Trust, &c. Co. v. subject to prior liens, Compton v. Green Cove, &c. R. Co. 139 U. S. 137, Jesup, 167 U. S. 1, 17 Sup. Ct. 795; 11 Sup. Ct. 512; Morgan's Louisiana, Randolph v. Middleton, 26 N. J. Eq. &c. R. Co. V. Texas Central R. Co. 543. But see where liens are suhse- 137 U. S. 171, 11 Sup. Ct. 61, distin- quent as to provision lo'r sale free guishing Chicago, &c. R. Co. v. Fos- from them, St. Louis, &c. R. Co. v. dick, 106 tr. S. 47, 1 Sup. Ct. 10. Jackson, 95 Fed. 560; Hardin v. Such a limitation is to be strictly Iowa R. Co. 78 Iowa 726, 43 N. W. construed and applies to proceedings 543. A consent decree, in railroad by the trustee ex mero motu with- foreclosure proceedings, provided out the intervention of the court, that defendant, as purchaser, should Authorities first above cited ; also, "pay, satisfy, and fully discharge all Alexander v. Central R. Co. 3 Dill, debts and liabilities of such recelver- (U. S.) 487; Credit Co. v. Arkansas ship of every kind now remaining Cent. R. Co. 15 Fed. 46. unpaid." The defendant was held "2 Farmers' Loan, &c. Co. v. Green liable for an injury caused by the Bay, &c. R. Co. 6 Fed. 100, 10 Biss. negligence of the receiver. Wabash (U. S.) 203, 1 Am. & Eng. R. Cas. R. Co. v. Stewart, 41 111. App. 640. 622. »»New Orleans Pac. R. Co. v. Par- ies Tyrner v. Indianapolis, &c. R. ker, 143 U. S. 42, 12 Sup. Ct. 364, 6 Co. 8 Biss. (U. S.) 380; Bound v. Lewis' Am. R. & Corp. 43. South Carolina R. Co. 58 Fed. 473; 515] FORECLOSURE. 714 a general rule the decree should declare the extent of the default, find the amount due and order the mortgaged property sold if pay- ment is not made within a reasonable time, which should be specified therein.^°° It is customary, also, or at least within the power of the court, to fix an "upset" price^°® and direct that the fund be brought into court for distribution.^"' It may likewise provide that bonds may be received from the purchasers in payment of their bid.^"* The sale of a railroad extending into two states which have united in chartering the corporation by which it is owned, may, it has been held, be decreed by a court sitting in one of such states.^"* So, of course, if this be true, such a decree may be rendered by a Federal court sitting in one of the states.^^" Although the court cannot send its process into another state nor deliver possession of property in another jurisdiction, it can command and enforce a transfer of the title to the purchaser.^^^ A decree determining the rights of the "5 Blossom v. Milwaukee, &c. R. Co. 1 Wall. (U. S.) 655; Chicago, &c. R. Co. T. Fosdick, 106 U. S. 47, 1 Sup. Ct. 10. But It is often imprac- ticable to determine and insert the exact amount of costs at the time the decree is drawn and the omis- sion to do so is not fatal. Grape Creek Coal Co. v. Farmers', &c. Co. 63 Fed. 891. In Knevals v. Florida Central, &c. R. Co. 66 Fed. 224, it was held that a decree ordering the sale of a railroad, without describ- ing the property, included all the property of the company covered by the mortgage and connected with the use and purpose of the road. "» Blair v. St. Louis, &c. R. Co. 25 Fed. 232. A form of decree is given in full in this case. See, also, Mcll- henny v. Binz, 80 Tex. 1, 13 S. W. 655, 26 Am. St. 776. A deposit by bidders may also be required. Turn- er V. Indianapolis, &c. R. Co. 8 Biss. (U. S.) 380; Eastern v. Houston, &c. R. Co. 44 Fed. 718. ^"Chicago, &c. Land Co. v. Peck, 112 111. 408. "=Ketchum v. Duncan, 96 U. S. 659; Kropholler v. St. Paul, &c. R. Co. 2 Fed. 302; Duncan v. Mobile, &c. R. Co. 3 Woods (U. S.) 597. ^"•McTighe v. Macon, &c. Co. 94 Ga. 306, 21 S. E. 701, 32 L. R. A. 208, 47 Am. St. 153; McBlrath v. Pitts- burg, &c. R. Co. 55 Pa. St. 189. See, also. Union Trust Co. v. Olmsted, 102 N. Y. 729, 7 N. E. 822; Craft v. Indiana, &c. R. Co. 166 111. 580, 46 N. E. 1132. Subject, however, to ex- isting liens in the other state. Hand V. Savannah, &c. R. Co. 12 S. Car. 314. Some of the courts refuse to recognize such a decree so far as it affects the road in their state which is subject to an underlying mort- gage. - See Eaton, &c. R. Co. v. Hunt, 20 Ind. 457; Pittsburg, &c. R. Co.'s Appeal (Pa.), 4 Atl. 385; Farmers' Loan, &e. Co. v. Bankers', &c. Co. 44 Hun (N. Y.) 400. "»Wilmer v. Atlanta, &c. Co. 2 Woods (U. S.) 409, 447, 454; Black- burn V. Selma, &c. R. Co. 2 Flip. 525; MuUer v. Dows, 94 U. S. 444; Randolph v. Wilmington, &c. R. Co. 11 Phila. 502. "^Muller V. Dows, 94 U. S. 444; Jones Corp. Bonds and Mort. § 417. See, also, as to the decree operating 715 CONSENT DECEEE. [§ 516 parties to the suit is final and conclusive between them as to all matters which were or might have been litigated therein under the issues, and can only be questioned by appeal or in a direct proceeding for that purpose.^^^ But it does not affect the rights and priorities of persons who had no notice of the proceedings and were neither par- ties nor privies thereto.^^^ § 516. Consent decree. — ^A decree entered by consent of the par- ties has legal effect so long as it remains unreversed, and, after it has been executed, is binding, at least so far as it is embraced by the issues.^^* But it has been held that so long as they remain un- executed, decrees entered by consent, like ex parte decrees, are sub- ject to the control of the court.'^^^ A consent decree as to matters beyond the scope of the bill will bind the court in its future actions only so far as it is embraced by the bill. But it will, after it is exe- cuted by one of the parties, constitute a binding agreement upon the part of the other.^^* § 517. Deficiency decree. — ^It was formerly held by the Federal courts that, after a decree of foreclosure and sale, duly confirmed, it was erroneous to direct an execution for any • deficiency, that is, for the balance of the debt in case the property did. not sell for in personam. Craft v. Indiana, &e. upon ttie agreement and not upon H. Co. 166 III. 580, 46 N. B. 1132; tlie pleadings and may, therefore, be Lynde v. Columbus, &c. R. Co. 57 binding upon the parties although Fed. 993. not within the issues. See, also, ^ Woods V. Pittsburgh, &c. R. Co. Nashville, &c. R. Co. v. United 99 Pa. St 101; Brooks v. O'Hara, 2 States, 113 U. S. 261, 5 Sup. Ct. 460; McCrary (U. S.) 644; Indiana, &c. Knobloch v. Mueller, 123 111. 554, 17 R. Co. V. Bird, 116 Ind. 217, 9 Am. N. E. 696; Indianapolis, &c. R. Co. St. 842; Woolery v. Grayson, 110 v. Sands, 133 Ind. 433, 32 N. E. 722; Ind. 149; Herring v. New York, &c. Schmidt v. Oregon, &c. Co. 28 Oreg. R. Co. 105 U. S. 341. 9, 40 Pac. 406, 1014, 52 Am. St. 759. "^ Pittsburgh, &c. R. Co. v. Mar- ^ Vermont, &c. R. Co. v. Vermont shall, 85 Pa. St. 187. Central R. Co. 50 Vt. 500. "Consent "' Indiana, &c. R. Co. v. Bird, 116 decrees decide nothing. They mere- Ind. 217, 9 Am. St. 842; Wadhams v. ly authenticate private agreements, Gay, 73 111. 415; Farmers' Loan, &c. and render them executory between Co. V. Central R. 4 Dill. (U. S.) 533; the parties." Union Bank v. Marin, Pacific R. Co. v. Ketchum, 101 U. S. 3 La. Ann. 34, 35, per Rost, J. 289; 2 Beach Eq. Pr. §§ 792, 795. In ""Vermont, &c. R. Co. v. Vermont Hutts V. Martin, 134 Ind. 587, 593, Central R. Co. 50 Vt. 500. it is said that the decree is based § 518] FOEECLOSDEB. 716 enough to pay it in fuU.^^'^ But, under the present equity rule/** "a, decree may be rendered for any balance that may be found due to the complainant oyer and above the proceeds of the sale or sales, and execution may issue for the collection of the same." This rule, how- ever, does not authorize such a decree unless the bill shows that the amount is actually due.**® Thus, it is held in the case just cited that where there is no provision in the bonds or mortgage that the bonds shall become due, or may be declared due, upon any contingency be- fore their maturity, it is error to find the unpaid balance due when it in fact has not matured and to enter a deficiency decree ordering ex- ecution therefor. So, in another recent ease, it was held that on fore- closure of a mortgage for non-payment of interest, if the principal is not due and there is no provision "in the bonds or mortgage that the principal shall become due on default in the payment of interest, no judgment can be rendered for any deficiency in the proceeds of the sale to pay the principal.*^" We suppose, also, that no deficiency de- cree, amounting to a personal judgment,, can be rendered in any case against a party unless the court has jurisdiction of the person.*^* §518. Final and appealable decrees. — ^A decree may be final although the case be referred to a master to execute the decree by a sale of the mortgaged property.*^^ If, however, it leaves the amount "''Noonan v. Lee, 2 Black (U. S.) however, a personal decree for defi- 499; Orchard V. Hughes,! Wall. (U. clency may be awarded under the S.) 73. See, also, Lihby v. Rennie, prayer for general relief. Shepherd 31 N. J. Eq. 42. It is also held in v. Pepper, 133 U. S. 626, 10 Sup. Ct. some Jurisdictions that there is no 438. lien for the deficiency until after a ""Farmers', &c, Co. v. Grape sale has been made, the deficiency Creek, &c. Co. 65 Fed. 717. See, also, ascertained and a judgment entered Danforth v. Coleman, 23 Wis. 528. therefor. Hibberd v. Smith, 50 Cal. ^ See 1 Elliott's Gen. Pr. §§ 243, 511; Linn v. Patton, 10 W. Va. 187. 244, 362. See, also, the extreme case See, also, Myers v. Hewitt, 16 Ohio of Bardwell v. Collins, 44 Minn. 97, 449, 454. Contra, Fletcher v. 46 N. W. 315, 9 L. R. A. 152, 20 Am. Holmes, 25 Ind. 458. St. 547. "' United States Equity Rule 92. '^ Bronson v. Railroad Co. 2 Black See, also. Shepherd v. Pepper, 133 (XJ. S.) 524; Ray v. Law, 1 Cranch U. S. 626, 10 Sup. Ct. 438; Dodge v. (U. S.) 349; Whiting v. United Freedman's, &c. Trust Co. 106 U. S. States Bank, 13 Peters (U. S.) 6; 445, 1 Sup. Ct. 335. Elliott's App. Proc. § 92; 1 Freeman ""Ohio Cent. R. Co. v. Central Judgments, §§ 22, 24; 1 Black Judg- Trust Co. 133 U. S. 83, 10 Sup. Ct. ments, § 48. 235. Where proper facts are alleged, 717 FINAL AND APPEALABLE DECKEBS. [§ 518 due upon the debt to be determined, and the property to be sold is not ascertained and defined it is not final.^''^ If it determines the whole controversy between the parties, leaving nothing to be done except to carry it into execution, it is appealable as a final decree notwith- standing the fact that the court retains the fund in controversy for the purpose of distributing it as decreed.^"* So, a decree of fore- closure, ascertaining the amount due, directing payment within a specified time and providing for an order of sale in case of default in such payment, is a final decree from which an appeal may be taken.^^^ It is also "manifest that a substantial error, to the preju- dice of one of the parties, may originate in a decree distributing the proceeds of a sale under a decree of foreclosure, and no question can be successfully raised against the right to appeal from such a decree."^^* There are also cases in which there are independent is- sues not affecting all parties, and in such cases an appeal may lie as to those whose interests are finally determined although the decree is not final as to all the issues between the other parties.^^^ Thus, it has been held that a decree in a foreclosure suit awarding priority to a creditor who claims an interest in locomotives in the possession of the receiver and in use on the road is a final decree upon a distinct and independent issue.^^^ And it may, perhaps, be stated as a general ^ McGourkey v. Toledo, &c. R. Co. 10 Sup. Ct. 950. But compare 1 146 U. S. 536, 13 Sup. Ct. 170, 172; Freeman Judgments, § 22. ' Railroad Co. v. Swasey, 23 Wall. (U. "=' Trustees v. Greenough, 105 U. S. S.) 405; Grant v. Phoenix, &c. Co. 527; Hinckley v. Gilman, &c. R. Co. 106 U. S. 429, 1 Sup. Ct. 414; Bur- 94 U. S. 467; Fosdick v. Schall, 99 llngton, &c. R. Co. v. Simmons., 123 U. S. 235; Williams v. Morgan, 111 U. S. 52, 8 Sup. Ct. 68; Parsons v. U. S. 684, 4 Sup. Ct. 638; Brush, &c. Robinson, 122 U. S. 112, 7 Sup. Ct. Co. v. Electric Imp. Co. 51 Fed. 557. 1153; 1 Black Judgments, § 48. "» Central Trust Co. v. Grant, &c. ^Baak of Lewisburg v. ShefCey, Works, 135 U. S. 207, 10 Sup. Ct. 140 U. S. 445, 11 Sup. Ct. 755; Hoff- 736. See, also. Farmers' Loan, &c. man v. Knox, 50 Fed. 484. See, also, Co., Ex parte, 129 U. S. 206, 9 Sup. Stovall V. Banks, 10 Wall. (U. S.) Ct. 265; Jordan, Ex parte, 94 U. S. 583. 248; Central Trust Co. v. Marietta, ^"^ Milwaukee, &c. R. Co. v. Sout- &c. R. Co. 48 Fed. 850 (holding deci- ter, 2 Wall. (U. S.) 440. sion in favor of an intervener a final ^ Chicago, &c. R. Co. v. Fosdick, decision under the Circuit Court of 106 U. S. 47, 82, 1 Sup. Ct. 10, 12. Appeals Act). That the term "final See, also. Blossom v. Milwaukee, &c. decision" in such act means final R. Co. 1 Wall. (U. S.) 657; Louis- judgment or decree, see Duff v. Car- ville, &c. R. Coi V. Wilson, 138 U. S. rier, 55 Fed. 433; 2 Beach Mod. Eq. 501, 11 Sup. Ct. 405; Kneeland v. Pr. §§ 913, 94L American Loan, &c. Co. 136 U. S. 89, §' 518] FORECLOSURE. 718 rule that where the parties are entirely dismissed from a ease by the decree, it is so far final as to them that an immediate appeal may be taken, although other matters are retained in which they have no interest.^^* But where an intervener in a foreclosure suit claimed certain rolling stock in the possession of the receiver, as having been leased to the mortgagor, and, after sale of the property on fore- closure, a decree was made directing the delivery of such property to the intervener, but referring the matter to a master to determine its rental value while used by the receiver, together with all questions between the receiver and the intervener growing out of its use and restoration, it was held that the decree directing the delivery of the property to the intervener was not such a final decree as to prevent the court from determining at a subsequent term that the title to such property had passed to the purchaser at the foreclosure sale.^^" ^ Grant v. East, &c. R. Co. 50 see Keystone, &e. Iron Co. v. Martin, Fed. 795; Hill v. Chicago, &c. B. Co. 132 U. S. 91, 10 Sup. Ct. 32. 140 U. S. 52, 11 Sup. Ct. 690. But "«McGourkey v. Toledo, &c. R. Co. 146 IT. S. 536, 13 Sup. Ct. 170. CHAPTEK XXL SALE AND EEOEGANIZATION". Sec. 519. Railroad company cannot sell franchise and necessary property without statutory authority. 520. Execution sales. 521. Foreclosure sales — Authority — Purchasers. 522. Sale on default in payment of interest — Sale of road as an entirety. 523. Sale of consolidated road — Sale hy receiver pending foreclosure. 524. Discretion of trustees and of- ficers as to time and manner of sale. 525. Effect of sale — Purchaser's title. 525a. "What passes to purchaser at foreclosure sale. 526. When purchaser takes title free from liabilities and liens. Sec. 527. 527a. 528. 529. 530. 531. 531a. 532. 533. 534. 535. 536. Disposition of proceeds of sale. Disposition of proceeds — Pur- chaser not bound to see that they are properly applied. Preferred claims — Six months' rule. Setting sale aside. Redemption. Reorganization by purchasers at sale — Power of legislature to provide for. Reorganization through pur- chasing committee. Statutory reorganization — ^Lia- bility of new corporation. Reorganization by agreement — Rights of minority. Rights and obligations of the parties — ^Laches and estop- pel. Fraud in the sale or reorgan- ization. Reorganization by the courts. § 519. Railroad company cannot sell franchise and necessary property without statutory authority. — In the absence of legislative authority, a railroad company cannot sell its road and franchises to another corporation, so as to prevent it from performing its duties to the public,^ even though the latter corporation should undertake to * Bast Line, &e. R. Co. v. State, 75 Tex. 434, 12 S. W. 690; Gulf, &c. R. Co. V. Morris, 67 Tex. 692, 4 S. W. 156; Snell V. Chicago, 152 U. S. 191, 14 Sup. Ct. 489, 492; Oregon, &c. Nav. Co. V. Oregonlan R. Co. 130 U. S. 1, 9 Sup. Ct. 409; Pennsylvania R. Co. V. St. Louis, &c. R. Co. 118 U. S. 290, 6 Sup. Ct. 1094; Cumber- land Tel. &c. Co. V. Bvansvllle, 127 Fed. 187; Fisher v. "West Virginia, &c. R. Co. 39 "W. Va. 366, 19 S. E. 578, 23 L. R. A. 758; Pierce Rail- roads, 10; Taylor Corp. §§ 305, 131, 719 § 519] SALE AND EEOEGAKIZATIOIT. 720 keep the road open at all times for the use of the public ; for a cor- poration has no implied authority to delegate the performance of its public duties to another company.^ An unauthorized attempt on the 132; Morawetz Corp. 485, 490. See. also, elaborate note to Brunswick, &o. Co. V. United States Gas Co. 35 Am. St. 385, 390, and note in 103 Am. St. 555. In Central Transp. Co. V. Pullman, &c. Co. 139 U. S. 24, 11 Sup. Ct. 478, 484, Gray, J., states the reason for the rule as follows: "The charter of a corporation, read in the light of any general laws which are applicable, is the measure of its powers, and the enumeration of those powers Implies the exclu- sion of all others not fairly inci- dental. All contracts made by a corporation beyond the scope of those powers are unlawful and void, and no action can be maintained upon them in the courts, and this upon three distinct grounds: The obligation of every one contracting with a corporation to take notice of the legal limits of its powers; the interest of the stockholders, not to be subjected to risks which they have never undertaken; and, above all, the interest of the public that the corporation shall not transcend the powers conferred upon it by law. A corporation cannot, without the assent of the legislature, trans- fer its franchise to another corpora- tion, and abnegate the performance of the duties to the public, imposed upon it by its charter as the consid- eration for the grant of its fran- chise. Neither the grant of a fran- chise to transport passengers, nor a general authority to sell and dis- pose of property, empowers the grantee, while it continues to exist as a corporation, to sell or to lease its entire property and franchise to another corporation. These princi- ples apply equally to companies in- corporated by special charter from the legislature, and to those formed by articles of association under gen- eral laws." ° Morawetz Priv. Corp. (2d ed.) § 1120, citing Beman v. RufCord, 1 Sim. N. S. 550; York, &c. R. Co. v. Winans, 17 How. (U. S.) 30, 39; Thomas v. West Jersey R. Co. 101 U. S. 71, 83; Great Northern R. Co. V. Eastern Counties R. Co. 21 L. J. Ch. 837; cf. Rogers Locomotive, &c. Works V. Erie R. Co. 20 N. J. Eq. 379; Clark v. Washington, 12 Wheat. (U. S.) 40, 54; Roper v. McWhorter, 77 Va. 214. It has been held that by conveying its road and fran- chises, to trustees selected by itself, a railroad company can not evade its legal liability for injuries after- wards done to persons and property by the negligent operation of its road. Acker v. Alexandria, &c. R. Co. 84 Va. 648, 5 S. E. 688; Naglee v. Alexandria, &c. R. Co. 83 Va. 707, 3 S. E. 369, 5 Am. St. 308. So, it has been held that a railroad com- pany cannot, without statutory au- thority, transfer the right to operate its road so as to absolve itself from its duties to the public, or its lia- bility for the torts of the company which operates the road. East Line, &c. R. Co. V. Rushing, 69 Tex. 306, 6 S. W. 834; International, &c. R. Co. V. Eckford, 71 Tex. 274, 8 S. W. 679; International, &c. Co. v. Kuehn, 70 Tex. 582, 8, S. W. 484; Chollette v. Omaha, &c. R. Co. 26 Neb. 159, 41 N. W. 1106, 4 L. R. A. 135; Anderson V. Cincinnati S. R. Co. 86 Ky. 44, 5 S. W. 49, 9 Am. St. 263. In one of these cases it is said that legislative 721 STATUTOEY AUTHOEITY ESSENTIAL TO SALE, [§ 519 part of a railroad company to dispose of its franchise may be ground for the forfeiture of its charter.^ Nor can one railroad corporation purchase the property and franchises of another without such au- thority.* A grant to a railroad corporation of power to sell its line will not be implied unless necessary to give effect to the language of the statute.^ A provision in the charter of a railroad corporation pro- hibiting it from purchasing, selling, leasing, or consolidating with any other corporation owning a parallel or competing line does not carry implied power to sell to a company which does not own such a line. And it has been held that such a sale cannot be legally made, although the two roads are expressly empowered by law to consoli- date.° Neither, it has been held, does the grant of power to purchase other roads imply authority on the part of a corporation to sell its own.'' A general power to sell, except upon foreclosure, is not included in a power granted to a railroad company to mortgage,* consent to the transfer is not suffi- cient of itself to relieve the com- pany from such liahilities ; there must be an exemption granted or a release from the obligations of the company to the public. ChoUette v. Omaha, &c. R. Co. 26 Neb. 159, 41 N. W. 1106, 4 L. R. A. 135. ' Where a railroad company, hav- ing a land grant from the state, dis- posed of the entire interest in and control of the road to another com- pany, reserving the granted land and certain corporate rights, but ceasing to do a railroad business, it was held that, as such sepa- ration of the franchises was not authorized by the legislative acts incorporating the companies, judg- ment of forfeiture and dissolution of both was authorized in quo war- ranto proceedings by the state. State V. Minnesota Cent. R. Co. 36 Minn. 246, 29 Am. & Eng. R. Cas. 440, 30 N. W. 816. * Gulf, &c. R. Co. V. Morris, 67 Tex. 692, 4 S. W. 156. But it would seem that authority given to one corpora- tion to purchase the franchise of another specified corporation gives Ell. Railboads — 16 the latter authority to sell. New York, &c. R. Co. v. New York, &c. R. Co. 52 Conn. 274. "See Southern Pac. R. Co. v. Es- quibel, 4 N. M. 337, 20 Pac. 109, 36 Am. & Eng. R. Cas. 410; East Line, &e. R. Co. V. State, 75 Tex. 434. 12 S. W. 690; Clarke v. Omaha, &c. R. Co. 4 Neb. 458; State v. Consolida- tion Coal Co. 46 Md. 1. » East Line, &c. R. Co. v. State, 75 Tex. 434, 12 S. "W. 690. ' Southern Pac. R. Co. v. Esquibel, 4 N. M. 337, 20 Pac. 109, 36 Am. & Eng. R. Cas. 410. ' Southern Pac. R. Co. v. Esquibel, 4 N. M. 337, 20 Pac. 109. In announc- ing the opinion of the court in this case. Reeves, J., said: "It was ar- gued for the appellant that, if the land could be mortgaged for the means to construct, equip, and op- erate the road, it could be assigned, in the first place, for the same ob- ject. The doctrine that a power to mortgage includes a power to sell is not supported by authority of law. A corporation must exercise its pow- ers in the mode prescribed in its charter. The power to procure 530] SALE AND EEOEGANIZATION, 723 or lease.* But railroads are empowered by general statute in many of the states to purchase the roads of connecting lines.^" And this power is frequently granted by special charter. When the charter of one company authorizes it to purchase the property and franchise of another, this must be construed to be an implied authority to that other company to sell,^^ and where "any railroad company" is author- ized to purchase the property and franchises of a certain corporation they may, it seems, be lawfully purchased by a railroad corporation of another state.^^ § 520. Execution sales. — The franchise of a railroad company, and corporate property essential to the enjoyment of the franchise, are not subject to sale on execution, unless the legislature authorizes or assents to the transfer.^^ But locomotives, cars and other personal pleted road, begun in good faith, but which the company undertaking it has become unable to finish, is alone authorized. Young v. Toledo, &c. R. Co. 76 Mich. 485, 43 N. W. 632. "New York, &c. R. Co. v. New- York, &c. R. Co. 52 Conn. 274. " Boston, &c. R. Co. v. Boston, &c. R. Co. 65 N. H. 393, 23 Atl. 529. But see Merz Capsule Co. v. United Cap- sule Co. 67 Fed. 414; McCutcheon V. Merz Capsule Co. 71 Fed. 787, 31 L. R. A. 415; People v. Ballard, 134 N. Y. 269, 32 N. B. 54, 17 L. R. A. 737. "Louisville, &c. R. Co. v. Boney, 117 Ind. 501, 20 N. B. 432, 3 L. R. A. 435; Indianapolis, &c. G. R. Co. v. State, 105 Ind. 37, 4 N. E. 316; Bax- ter V. Nashville, &c. Turnpike Co. 10 Lea (Tenn.) 488; Gue v. Tide Water Canal Co. 24 How. (U. S.) 257; East Alabama R. Co. v. Doe, 114 U. S. 340, 5 Sup. Ct. 869; Connor V. Tennessee Cent. R. Co. 109 Fed. 931, 939, 940 (citing text); Tippets V. Walker, 4 Mass. 595, 597, per Par- sons, C. J.; Ludlow V. Hurd, 1 Dis- ney (Ohio) 552; Oakland R. Co. v. Keenan, 56 Pa. St. 198; Ammant v. New Alexandria Turnpike Co. 13 Serg. & R. (Pa.) 210, 15 Am. Dec. means to construct the road in Question was not a general power, it was a particular power to be exer- cised for a specific object. The Texas & Pacific R. Co. was author- ized to issue construction and land bonds, and to execute mortgages to secure the bonds on its land grant and other lands the company might acquire; the proceeds of the sale of the bonds to be applied to the con- struction, operation, and equipment of the road, and for the purchase, construction, completion, equipment, and operating of the other roads [which it was authorized to acquire] as contemplated and specified in the acts of congress. The acts require that the bonds and mortgages should contain an extract from the law authorizing them to be issued, and that the mortgages should be filed and recorded in the department of the interior. The appellant was not a mortgagee, nor a purchaser under a mortgage. No mortgage bond was given in aid of the con- struction of the road." "Pittsburgh, &c. R. Co. v. Bed- ford, &c. R. Co. 81% Pa. St. 104. "Stimson Am. Stat. (1892) § 8721. In Michigan the sale of an uncom- 723 EXECUTION SALES. [§' 520 property held by the corporation, if not .in actual use in the operation of the road, are held by some authorities to be subject to sale on exe- cution,^* and there seems to be no reason why property of a railroad corporation not essential to the enjoyment of its franchise should not be subjected to the payment of its debts.^^ The general statutes of many of the states authorize a sale of the property and franchises of a railway corporation upon execution,^® and it is said, perhaps too broadly, that "a general power to alienate franchises necessarily im- plies a liability to have them levied upon."^' The statutory method of sale must be strictly pursued,^^ and, unless otherwise provided, a 593, and note; Leedom v. Plymouth R. Co. 5 W. & S. (Pa.) 265; Stewart V. Jones, 40 Mo. 140; Brady v. John- son, 75 Md. 445, 26 Atl. 49, 20 L. R. A. 737, and note; Wood v. Truckee Turnpike Co. 24 Cal. 474; Hatcher V. Toledo, &c. R. Co. 62 111. 477; Overton Bridge Co. v. Means, 33 Neb. 857, 51 N. W. 240, 29 Am. St. 514; Herman Executions, § 361; Freeman Executions, § 179. "Louisville, &c. R. Co. v. Boney, 117 Ind. 501, 20 N. E. 432; Boston, &c. R. Co. V. Gilmore, 37 N. H. 410, 72 Am. Dec. 336; Pierce v. Emery, 32 N. H. 484; Lathrop v. Middleton, 23 Cal. 257, 83 Am. Dec. 112. See, also, Williamson v. New Jersey, &c. R. Co. 29 N. J. Eq. 311; Stevens v. Buffalo, &c. R. Co. 31 Barb. (N. Y.) 590. In Wall v. Norfolk, &c. R. Co. 52 W. Va. 485, 44 S. E. 294, 64 L. R. A. 501, 94 Am. St. 948, 951 (citing text), it is said that the better view seems to be that rolling stock which may be useful in the operation of the road is not subject at common law to execution or attachment, but that under the provision of the West Virginia constitution, making roll- ing stock subject to execution and sale, it is also subject to attachment. So, a portion of a railroad which the company has abandoned the use of and is proceeding to take up is subject to levy under execution. Benedict v. Heineberg, 43 Vt. 231; Gardner v. Mobile, &c. R. Co. .102 Ala. 635, 15 So. 271. 48 Am. St. 84. ^"Coe V. Columbus, &c. R. Co. 10 Ohio St. 372, 75 Am. Dec. 518; Louis- ville, &c. R. Co. V. Boney, 117 Ind. 501, 20 N. E. 432, 3 L. R. A. 435. " Stimson Am. Stat. (1892), § 8311; Commonwealth v. Susquehanna, &c. R. Co. 122 Pa. St. 306, 15 Atl. 448. 1 L. R. A. 225; Winchester, &c. R. Co. V. Colfelt, 27 Gratt. Duncan v. Mobile, <&c. R. Co. 3 Woods (U. S.) 567; Farmers' Loan, &c. Co. V. Green, &c. R. 6 Fed. 100; American Water, &c. Co. v. Farmers' Loan, &c. Co. 73 Fed. 956; Rumsey v. People's, &c. R. 154 Mo. 215, 55 S. W. 615. And the mort- gage may so provide. Child v. New York, &c. R. 129 Mass. 170. See, also, Easton v. German-American Bank, 127 U. S. 532, 8 Sup. Ct. 1297. ™ Sanxey v. Iowa City Glass Co. 68 Iowa 542, 27 N. W. 747. Debts con- tracted in conserving the property and maintaining its value as a go- ing concern are usually considered preferred claims and paid before the mortgage debt is satisfied. Farmers', &c. Co. v. Kansas City, &c. R. Co. 53 Fed. 182; Seibert v. Minneapolis, &c. R. Co. 58 Minn. 53, 59 N. W. 879. See Finance Com- pany V. Charleston, &c. R. Co. 61 Fed. 369; Bound v. South Carolina R. Co. 58 Fed. 473. Post, § 528. It has, however, been held erroneous to direct payment of claims for sup- plies furnished prior to the receiver- ship first out of the proceeds of the sale, where no provision was made for such payment when the receiver was appointed, and it does not ap- pear that current earnings, before or after, his appointment, were di- verted to paying interest on the 522] SALE AND EEOKGANIZATIOlir. 726 § 522. Sale on default in payment of interest — Sale of road as an entirety. — Where a trust deed provides that the road and property shall be sold upon a default in the payment of principal or interest, but one sale is contemplated, and sufBcient property should be sold to realize the debt, although default has been made in the payment of interest only. And if the property cannot be sold in parts without injury to the whole, it may be sold as an entirety.^' And even though the mortgage contains no provision making the whole debt due upon a default in the payment of interest, a sale of the whole property may be decreed by a court of equity, if it cannot be divided without in- jury.^* Or, it seems that the court may, in a proper case, direct that the property be leased for such a period as will secure the payment of the sum due and the interest accruing.^® Where suit is brought to foreclose a railroad mortgage for default in payment of interest, the bonded debt. Cutting v. Tavares, &c. R. Co. 61 Fed. 150. A claim for cutting and clearing away timber from the road for its original con- struction has also been refused pref- erence on foreclosure of a prior mortgage on the road. Barstow v. Pine BlufC, &c. R. Co. 57 Ark. 334, 21 S. W. 652; Farmers', &c. Co. v. Cand- ler, 81 Ga. 691, 18 S. E. 540. , "Wllmer v. Atlanta, &c. R. Co. 2 Woods (U. S.) 447; Chicago, &c. R. Co. V. Fosdick, 106 U. S. 47, 1 Sup. Ct. 10; Peoria, &c. R. Co. v. Thomp- son, 103 111. 187. This is the general rule as to the sale of mortgaged propferty, which cannot readily be divided. Bound v. South Carolina R. Co. 50 Fed. 853; Farmers' Loan, &c. Co. v. Oregon, &c. R. Co. 24 Fed. 407; Kneeland v. American Loan, &c. Co. 136 U. S. 89, 10 Sup. Ct. 950; 2 Jones Mort. §§ 1181, 1459, 1478, 1616, 1619. ^ See McLane v. Placerville, &o. R. Co. 66 Cal. 606, 6 Pac. 748. In Peoria, &c. R. Co. v. Thompson, 103 111. 187, Mr. Justice Mulkey, in de- livering the opinion of the court, said: "When a railway, its appur- tenances, privileges and franchises are mortgaged as a whole, there is, in our opinion, no power or author- ity to sell them separately. From the very nature of the property, one would be useless without the other. The franchise could not be used at all without the road, and the road could not lawfully be used, as against the state, without the fran- chise. Under such circumstances, to avoid the possibility of conflict- ing ownerships, the law has wisely determined that both must be sold as an entirety. Chicago, Danville and Vincennes R. Co. v. Loewenthal, 93 111. 433." As supporting the text, see Jones on Corporate Bonds and Mort. § 634. Some of the states have statutes providing for the sale of a mortgaged railroad upon fore- closure as an entirety. See Jones on Corp. Bonds and Mort. § 634, and note, citing laws of Indiana, New Jersey, Kansas, Kentucky and New York. "^ Woods Railroads (Minor's ed.), 2003, citing Bardstown, &c. R. Co. v. Metcalfe, 4 Met. (Ky.) 199. But compare Duncan v. Atlantic, &c. R. Co. 4 Hughes (U. S.) 125. 737 BY EEOEIVEE PENDING FOEECLOSUEE. [§' 533 court may properly enter a decree nisi, ascertaining the amount of interest due, and giving the debtor a reasonable time to pay it; and directing that in case of non-payment, the property be sold, and the proceeds applied to the payment of both interest and principal. But under such a decree the debtor may redeem at any time before the sale is confirmed by payment of the unpaid interest and costs.'" The rule stated at the beginning of this section requiring or permitting the sale of the road as an entirety for default in payment of interest does not apply in all cases. If the property is divisible, and interest only is due, there being no provision making the whole debt due, it has been held that no more should be sold than will pay the accrued interest, and then, upon a second default, a further order of sale may be made.*^ So, in case of divisional mortgages, the courts have refused, in several instances, to order the entire system sold.*^ § 523. Sale of consolidated road — Sale by receiver pending fore- closure. — A road formed by the consolidation of several roads, each of which was subject to a mortgage before consolidation, may properly be sold as an entirety upon foreclosure, where it will sell to better advantage as a whole than if sold in divisions, and the interest of the several mortgagees in the fund arising from the sale may be settled by a decree of the court.'* But where the holders of a general mort- gage elect to have the road sold in this manner, the holder of a prior lien upon one division of the road, is entitled to have his claim paid '"Chicago, &c. R. Co. v. Fosdick, U. S. 434, 6 Sup. Ct 809; Campbell 106 U. S. 47, 1 Sup. Ct. 10. See, v. Texas, &c. R. Co. 2 "Woods (U. S.) also, Howell v. "Western R. Co. 94 263, 4 Fed. Cas. No. 2369. But such U. S. 463. a sale may be ordered where it is ''Jones Corporate Bonds and for the advantage of the divisional Mort. § 634, citing Fleming y. Scut- bondholders as well as all inter- ter, 6 "Wall. (U. S.) 747; Tilllnghast ested. Farmers' Loan, &c. Co. v. V. Troy, &c. R. Co. 48 Hun (N. Y.) Cape Fear, &c. R. Co. 82 Fed. 344; 420, 425, 1 N. Y. S. 243, per Learned, Cleveland First Nat. Bank v. Shedd, P. J. See, also. Farmers' Loan, &c. 121 U. S. 74, 7 Sup. Ct. 807; Gibert Co. V. Chicago, &c. R. Co. 27 Fed. v. "Washington City, &c. R. Co. 33 146; Union Trust Co. v. St. Louis, Gratt. ("V^a.) 586. See next follow- &c. R. Co. 5 Dill. (U. S.) 1, 24 Fed. ing section. Cas. No. l4, 403; McFadden v. Mays ''Gibert v. "Washington, &c. R. Co. Landing, &c. Co. 49 N. J. Eq. 176, 22 33 Gratt. (Va.) 586; Campbell v. Atl. 932. Texas, &c. R. Co. 2 Woods (U. S.) '" "Wabash, &c. R. Co. v. Central 263. See, also, last note to last pre- Trust Co. 22 Fed. 138; Union Trust ceding section. Co. v. Illinois Midland R. Co. 117 § 524] SALE AND EEOEGANIZATION. 'J'38 out of the aggregate proceeds of the sale of the entire property before any payment is made to the holders of the general mortgage.^* In a proper case, where the property is of such a nature as to deteriorate rapidly in value, when not in use, and is plainly insufficient in value to meet the company's indebtedness, and where the income from the property will not meet the expense of necessary repairs, it has been held that the court may order the road and its franchise sold by the receiver pending a foreclosure suit.'^ § 524. Discretion of trustees and officers as to time and manner of sale. — After a decree of foreclosure has been obtained, the mortgage trustees are generally invested with discretion as to when they will sell the property under the decree, or whether they will sell it at all pending an appeal, subject, however, to the control which the court has over the execution of its own decrees, and when the trustees think it best for all the bondholders that the decree should not be executed pending the appeal the court will not order them to have it executed on the application of a portion of the bondholders.^* When a sale is ordered made by the proper officer of the court it has been held that he must exercise a sound legal discretion as to the manner of conduct- ing the sale, and as to whether he will strike off the property for such bids as are received, or will adjourn the sale until the attendance of bidders who will pay a reasonable value for it can be obtained.'^ And "Farmers' Loan, &c. Co. v. New- ing over a period of seven months, man, 127 V. S. 649, 8 Sup. Ct. 1364. although bids had been received in ^° Middleton v. New Jersey, &c. B. the meantime, and it was held that Co. 26 N. J. Bq. 269. such adjournments were within the ^ Farmers' Loan, &c. Co. v. Cen- discretion of the officer. It was also tral R. Co. 4 Dill. (U. S.) 533. The held that, while it was customary supreme court will not interfere by for the officer to act under the ad- mandamus to compel the execution vice of the complainant's solicitor, of the decree of the lower court unreasonable directions of the so- by a sale of the road. Jones on licitor were not obligatory and Corp. Bonds apd Mort. § 640. But should not be followed. So, it has the court may, of course, fix the been held that the court may con- time and usually does fix the limit firm a sale made on a day different of time within which it is to be from that fixed by the court. Farm- made. See Columbia Finance, &c. ers' Loan, &c. Co. v. Oregon Pac. R. Co. V. Kentucky Union R. Co. 60 Co. 28 Oreg. 44, 40 Pac. 1089. It is Fed. 794; Chicago, &c. R. Co. v. Fos- not meant, of course, in stating that dick, 106 U. S. 47, 1 Sup Ct. 10. the officer has certain discretion "Blossom V. Railroad Co. 3 Wall, that his action is final or not sub- (U. S.) 196. In this case four sepa- iect to review, rate adjournments were had extend- ' 729 EFFECT OF SALE — ^PDRCHASEE'S TITLE. [§ 535 the court will decline to interfere with this discretion and order an immediate sale at the request of a part of the bondholders, where it does not clearly appear that their rights are prejudiced by the de- lay.'* The rules above stated, of course, fully apply only in the absence of a governing statute, expressly, or impliedly, depriving the trustee or officer of any discretion as to the time and manner of the sale. § 525. Effect of sale — Purchaser's title. — The franchise of being a corporation, not being a part of the mortgaged security, does not pass upon a foreclosure sale.'" The corporate existence of a company is not destroyed by the transfer of all its property to another corporation,*" unless the statute so provides.*^ It continues in existence, until for- mally dissolved, for the purpose of collecting and paying debts, and performing such functions as it may without the ownership of its property.*^ In the absence of any statute or agreement to the con- trary, the foreclosure and sale, duly confirmed, cuts off all the interest of the corporation and stockholders or general creditors claiming un- ™ Farmers' Loan, &c. Co. v. Cen- tral R. Co. 4 Dill. (U. S.) 533. '° Bank of Middlebury v. Bdgerton, 30 Vt. 182, 190; Miller v. Rutland, &c. R. Go. 36 Vt. 452, 498; Atkinson V. Marietta, &c. R. Co. 15 Ohio St. 21; Western Penn. R. Co. v. John- ston, 59 Pa. St. 290; People v. Cook, 110 N. Y. 443, 448, 18 N. B. 113, 36 Am. & Eng. R. Cas. 256, 258; Com- monwealth v. Smith, 10 Allen (Mass.) 448, 87 Am. Dec. 672; Mem- phis, &c. R. Co. V. Railroad Com'rs, 112 U. S. 609, 5 Sup. Ct. 299; Nor- folk, &c. R. Co. V. Pendleton, 156 U. S. 667, 15 Sup. Ct. 413. In Meyer V. Johnston, 53 Ala. 237, 325. Mr. Justice Manning, speaking for the court, said: "Strictly, 'the franchise to exist as a corporation' is not a corporate franchise, or 'franchise of the corporation' at all. It is a fran- chise of the individual corporators, of the natural persons who are shareholders of the capital stock, and pertains to them as such cor- porators. Whereby they are endowed with the privilege and capacity of being constituted into and co-oper- ating together, as a body politic, with power of succession, and with- out individual liability. And the corporation as such. In its collective capacity or by its board of directors, has no more power to sell this fran- chise thus pertaining to the corpo- rators individually than it has to sell their paid-up shares of the capi- tal stock." "Wright V. Milwaukee, &c. R. Co. 25 Wis. 46; Arthur v. Commercial & R. Bank, 9 S. & M. (Miss.) 394; Bruffett V. Great Western R. Co. 25 111. 353. See, also, State v. Superior Court, 31 Wash. 445, 72 Pac. 89, 66 L. R. A. 897. '^Even where the statute so pro- vides, an illegal and fraudulent sale does not work a dissolution. White Mountains R. Co. v. White Moun- tains R. Co. 50 N. H. 50. "Smith V. Gower, 3 Met. (Ky.) 171, 2 Duv. (Ky.) 17; Wright v. Milwaukee, &c. R. Co. 25 Wis. 46. § 525] SALE AND REORGANIZATION. 730 der it in the mortgaged property.*' The purchaser at a foreclosure sale takes only the property which the decree ordered to he sold/* together with the accompanying rights and franchises necessary to its profitable use and lawfully included in the mortgage and sale.*" In " Vatable v. New York, &c. R. Co. 96 N. Y. 49; Thornton v. Wabash R. Co. 81 N. Y. 462; Carpenter v. Catlin, 44 Barb. (N. Y.) 75. See, also, Canada Southern R. Co. v. Geb- hard, 109 U. S. 527, 3 Sup. Ct. 363. "Jones Corp. Bonds and Mort. § 694; Osterberg v. Union Trust Co. 93 U. S. 424; Frank v. New York, &c. R. Co. 122 N. Y. 197, 25 N. B. 332. Only property covered by the mortgage. Wilmington, &c. R. Co. V. Downard (Del.), 14 Atl. 720; St. Louis Bridge Co. v. Curtis, 103 111. 410; Aldridge v. Pardee, 24 Tex. Civ. App. 254, 60 S. W. 789; Mil- waukee, &c. R. Co. V. Milwaukee, &c. R. Co. 20 Wis. 174, 88 Am. Dec. 740. As to what passes under sale of "railroad," see Knevals v. Florida Cent. R. Co. 66 Fed. 224. " Wright V. Milwaukee, &c. R. Co. 25 Wis. 46; New Orleans, &c. Co. v. Delamore, 114 TJ. S. 501, 5 Sup. Ct. 1009; North Carolina, &c. R. Co. V. Carolina, &c. R. Co. 83 N. Car. 489. In a proper case the franchise to op- erate the road may pass. Memphis, &c. R. Co. V. Railroad Com'rs, 112 U. S. 609, 5 Sup. Ct. 299; Gunnison v. Chicago, &c. R. Co. 117 Fed. 629; State V. Central Iowa R. Co. 71 Iowa 410, 32 N. W. 409, 60 Am. R. 806; Parker v. Elmlra, &c. R. Co. 165 N. Y. 274, 59 N. E. 81. As to right of eminent domain, see Lawrence v. Morgan's, &c. R. Co. 39 La. Ann. 427, 2 So. 69, 4 Am. St. 265 (holding that it passed to the purchaser) ; North Carolina, &c. R. Co. v. Caro- lina Cent. R. Co. 83 N. Car. 489. The question whether a right of ex- emption from taxation enjoyed by the old corporation passed to the purchaser or not has been much litigated. The answer to this ques- tion must depend upon the intent of the charter or statute by which such right was conferred. The Su- preme Court of the United States has held in a number of cases that an exemption from taxation is not a franchise whiph will pass by a conveyance of the property and franchises. And that a statute au- thorizing the mortgage of the prop- erty and franchise of a corporation does not include the mere personal privilege like exemption from taxa- tion. Trask v. Magulre, 18' Wall. (U. S.) 391; Morgan v. Louisiana, 93 U. S. 217; Wilson v. Gaines, 103 U. S. 417; Louisville, &c. R. Co. v. Palmes, 109 U. S. 244, 3 Sup. Ct. '193; Memphis, &c. R. Co. v. Rail- road Commissioners, 112 U. S. 609, 5 Sup. Ct. 299; Chesapeake, &c. R. Co. v. Miller, 114 U. S. 176, 5 Sup. Ct. 813. But where a sale is made by authority of the state, of all rights, privileges and immunities of the company, as well as its property and franchise, the state cannot as- sert any rights against the pur- chaser which it did not have as against the old corporation. Knox- ville, &c. R. Co. V. Hicks, 9 Baxt. (Tenn.) 442, commented on in Wil- son V. Gaines, 103 U. S. 417; Wil- mington, &c. R. Co. V. Alsbrook, 146 U. S. 279, 297, 13 Sup. Ct. 72; First Division of St. Paul, &c. R. Co. v. Parcher, 14 Minn. 297; Chicago, &c. R. Co. v. Pfaender, 23 Minn. 217; Hand v. Savannah, &c. R. Co. 17 S. Car. 219; Nichols v. New Haven, &c. 731 :WHAT PASSES TO PURCHASER AT FOREOLOSPRE SALE. [§' 535a a very recent case it was held by the supreme court of the United States that an exemption from taxation, which was enjoyed by one of several companies afterwards consolidated, did not pass to the con- solidated company because of the adoption of a new constitution, in the meantime, prohibiting such exemption, and that the purchaser at foreclosure sale obtains no exemption from taxation and could not successfully set up as a defense' to an action for taxes a judgment rendered in favor of the company in a prior action by the county against it for ta:ies, nor a decree against the county in favor of cer- tain stockholders enjoining the collection of taxes for other years. Neither the mortgage trustee nor the bondholders were parties to these proceedings, and the court held that the purchaser could not avail himself of the judgment or decree because of the lack of privity between the parties.^^ § 525a. What passes to purchaser at f oreclosare sale. — As stated in the last preceding section, the franchise to be a corporation does not pass at foreclosure sale. So, it has been held that charter grants, such as the franc^hise to charge certain rates, do not constitute a eon- tract protected by the federal constitution, but are matters of law and subject to the law fn force at the time of the purchase, reorganization and grant of the right to become a new corporation.*^* And, in a recent case, it was held that the successor of the Union Pacific Eail- road Company by purchase under a first mortgage foreclosure sale did not take the property free from the obligation under an act, passed after the execution of the mortgage in the exercise by con- R. Co. 42 Conn. 103; Atlantic, &c. "Keokuk, &c. R. Co. v. Missouri, R. Co. V. Allen,' 15 Fla. 637; Gon- 152 U. S. 301, 14 Sup. Ct. 592, affirm- zales V. Sullivan, 16 Fla. 791; Jones ing 99 Mo. 30, 6 L. R. A. 222. See, Corp. Bonds and Mort. § 693. The also, Covington, &c. Co. v. Sandford, privilege of regulating its charges 164 XJ. S. 578, 17 Sup. Ct. 198; Ken- conferred upon a railroad company tucky Cent. R. Co. v. Common- does not pass to the purchasers un- wealth, 87 Ky. 661, 10 S. W. 269; der a mortgage foreclosure sale, and and see ante, §§ 330, 331. the reorganization by such purchas- "a Grand Rapids, &c. R. Co. v. Os- ers is the formation of a new cor- born, 193 U. S. 17, 24 Sup. Ct. 310; poration, subject to the laws in Hooker v. Burr, 194 TJ. S. 415, 24 force at the time of the reorganiza- Sup. Ct. 706 ; People's Gas Light, &c. tion. Dow V. Beidelman, 49 Ark. Co. v. Chicago, 194 IT. S. 1, 24 Sup. 325, 455, 5 S. W. 297, 125 U. S. 680, Ct. 520; Union Pac. R. Co. v. Mason 8 Sup. Ct. 1028. But see Parker v. City, &c. R. Co. 199 U. S. 160, 170, Elmira, &c. R. Co. 165 N. Y. 274, 59 26 Sup. Ct. 19. N. E. 81. 526] SALE AND KEOilGANIZATIOlir. 733 gress of its reserved right to alter, amend or repeal, to permit the joint use, by the trains of all roads terminating at Omaha, of the bridge authorized by the statute to be constructed at that point by the Union Pacific Eailroad Company.*"'' But, while the right of a corporation to ex\st may not be mortgaged or sold, all its contract rights, as a general rule, with other corporations or individuals may be, including a contract with a city as to rates, and, upon foreclosure of a mortgage covering them, they usually pass to the purchaser at the foreclosure sale.*®'' § 526. When purchaser takes title free from liabilities and liens, — The purchaser generally takes ,the property freed from the debts*'^ and contracts of the vendor,** except so far as his title is made subject *°b Union Pac. R. Co. v. Mason City, &c. R. Co. 199 U. S. 160, 26 Sup. Ct. 19. *'c Vicksburg v. Vicksburg Water- works Co. 202 U. S. 453, 26 Sup, Ct. 660; Omaba Water Co. v. Omaha, 147 Fed. 1; Julian v. Central Trust Co. 193 U. S. 93, 105, 24 Sup. Ct. 399. As to the difference between charter rights and contract rights, see, also, Detroit v. Detroit Citizens' St. R. Co. 184 U. S. 387-389, 22 Sup. Ct. 410, 417-419. " Hopkins v. St. Paul, &c. R. Co. 2 Dill. (U. S.) 396; Cook v. Detroit, &c. R. Co. 43 Mich. 349, 5 N. W. 390, 9 Am. & Eng. R. Cas. 443; Cooper T. Corbin, 105 111. 224; Lake Brie, &c. R. Co. V. Griffin, 92 Ind. 487; Moyer v. Ft. Wayne, &c. R. Co. 132 Ind. 88, 31 N. E. 567; North Hud- son County R. Co. v. Booraem, 28 N. J. Eq. 450; Vilas v. Page, 106 N. Y. 439, 13 N. B. 743; Ryan v. Hays, 62 Tex. 42; Oilman v. Sheboygan, &c. R. Co. 37 Wis. 317; Wellsbor- ough, &c. Co. V. Griffin, 57 Pa. St. 417; Pennsylvania Transp. Co.'s Ap- peal, 101 Pa. St. 576 (not liable on judgment against old company) ; Sullivan v. Portland, &c. R. Co. 94 U. S. 806; Vatable v. New York, &c. R. Co. 96 N. Y. 49; Lincoln Twp. v. Kansas City, &c. R. Co. (Neb.) 108 N. W. 140. The purchaser of a railroad at foreclosure sale is not liable for damages occasioned by the acts of the old company, which had already accrued at the time of the purchase. Hammond v. Port Royal, &c. R. Co. 15 S. C. 10. (Injuries done to adjoining land.) Where one railroad company is sold to another, a person having a claim against the former for damages on account of personal injuries, can- not maintain an action against the latter; and the old company having been dissolved by the sale, his only right of action remaining is against the stockholders of the old company, who received the purchase money. Chesapeake, &c. Co. v. Griest, 85 Ky. 619, 30 Am. & Bng. R. Cas. 149; Powell V. North Missouri R. Co. 42 Mo. 63; Louisville, &c. R. Co. v. Orr, 91 Ky. 109, 15 S. W. 8. ^'Menasha v. Milwaukee, &c. R. Co. 52 Wis. 414, 9 N. W. 396; Hoard . V. Chesapeake, &c. R. Co. 123 V. S. 222, 8 Sup. Ct. 74; People v. Louis- ville, &c. R. Co. 120 111. 48, 10 N. E. ' 657, and see original opinion in same case in 5 N. E. 379, and 25 Am. & Eng. R. Cas. 235. See Houston, &c. R, Co. v. Shirley, 733 PUECHASEE S TITLE. {§ 536 thereto by statute*® or by the terms of the order of sale.*'^ The act providing for the reorganization of the purchasers into a new cor- 54 Tex. 125; Branson v. Oregonian R. Co. 11 Oreg. 161, 2 Pac. 86; Lake Erie, &c. R. Co. v. Griflan, 92 Ind. 487; Keeler T. Atchison, &c. R. Co. 92 Fed. 545. The purchaser at the foreclosure sale is not bound by a parol agreement made by the president of the railroad compajiy to make a farm crossing and to maintain a fence of a certain de- scription. Hunter v. Burlington, &c. R. Co. 76 Iowa 490, 41 N. W. 305. Nor is he bound by a contract of the corporation to maintain a depot at a certain place. Gulf, &c. R. Co. V. Newell, 73 Tex. 334, 11 S. W. 342, 15 Am. St. 788; People v. Rome, &c. R. Co. 103 N. Y. 95, 8 N. B. 369. Even though the consideration of the contract was a large sum of money voted by the people of the county upon condition that the depot should be forever maintained, and the railroad was empowered by its charter to receive the aid and to make the contract. People v. Louisville, &c. R. Co. 120 111. 48, lO N. E. 657. But it was held by the supreme court of Iowa that a rail- road company that has purchased a line of road at a foreclosure sale of an insolvent company, part of which line was constructed and equipped with money raised by taxes voted to it by a town, assumes the obliga- tions of the company whose line it purchased, and cannot lease such line to another company, so as to surrender the exclusive use thereof, and, by ceasing to operate it, deprive the town of the benefits intended to be derived therefrom. State v. Central Iowa R. Co. 71 Iowa 410, 32 N. W. 409, 60 Am. R. 806. But com- pare Sherwood v. Atlantic, &c. R. Co. 94 Va. 291, 26 S. E. 943. A con- tract between two railroad com- panies in relation to the carriage of freights and division of earnings, providing that this "contract, and any damages for the breach of the same, shall be a continuing lien upon the roads of the two contract- ing companies, their equipment and income, in whosesoever hands they may come," does not constitute a lien or obligation running with the land, so as to make It liable in the hands of a purchaser of one of them for earnings that would have ac- crued during the term of the con- tract. Des Moines, &c. R. Co. V. Wa- bash, &c. R. Co. 135 U. S. 576, 10 ' Sup. Ct 753. "Statutory liens upon the prop- erty existing at the time of the sale continue to operate as liens upon it after the transfer. Hervey v. Illi- nois Midland R. Co. 28 Fed. 169. Where the statute declares judg- ments for personal injuries to be a prior lien upon the property of rail- road companies, the purchasers of the property of such a company upon foreclosure of mortgage takes it subject to all unpaid judgments of this class. And it has been held that the purchasers Were bound to perform a contract entered^ into by the old company for the payment of money in liquidation of a claim for personal injuries. Prazier v. East Tennessee, &c. R. Co. 88 Tenn. 138, 12 S. W. 537. "aHukle V. Atchison, &c. R. Co. 71 Kans. 251, 80 Pac. 603 (quoting text). See Central Ind. Ry. Co. v. Grantham, 143 Fed. 43, 52. If the sale is authorized by law, the pur- chaser ordinarily takes the prop- erty free from any liability for existing debts not secured by prior 536] SALE AND EBORGANIZATION. 734; poration may, however, require, that it shall assume certain debts and liabilities of its predecessor, in which the acceptance of the act amounts to an assumption of the payment of all claims.^" Or the de- cree of the court may order the sale to be made subject to certain liabilities, in which case the purchaser's title is based upon the de- cree, and he cannot question its validity, nor dispute the liability which it imposes upon him.°^ The purchaser also takes his title sub- ject, of course, to all prior valid liens, of which he had or ought to have had notice, not cut off by the foreclosure proceedings.^^ But he may dispute the validity of any such liens except those which are ad- judged in the order of sale to be superior to the title which hie pur- chased.^^ And in g, recent case it is held that the purchaser succeeds to all the rights of the former owner, and of the holders of liens and claims foreclosed, as against an unforeclosed lien, and may intervene in a suit to enforce such lien and assert the equities and rights to which it has succeeded.^* The new company is also liable in equity upon the contracts of its predecessor in so far as it adopts them, and liens and from all oMigations of the mortgagor of a strictly per- sonal character. See, also, Texas Cent. R. Co. v. Lyons (Tex. Clv.- App.), 34 S. W. 362; Dallas Consol. Trac. Co. v. Maddox (Tex. Civ. App.), 31 S. W. 702. ""St. Louis, &c. R. Co. V. Miller, 43 111. 199. See, also, Welsh v. First Div. St. Paul, &c. R. Co. 25 Minn. 314; New Bedford R. Co. v. Old Colony R. Co. 120 Mass. 397. " Wabash R. Co. v. Stewart, 41 111. App. 640; Brown v. Wabash R. Co. 96 111. 297; Farmers' Loan, &c. Co. v. Central R. Co. 17 Fed. 758; Swann v. Wright, 110 U. S. 590, 4 Sup. Ct. 235; See, also, Vilas v. Page, 106 N. Y. 439, 13 N. E. 743; Williams v. Morgan, 111 U. S. 684, 4 Sup. Ct. 638; Olcott v. Headrick, 141 U. S. 543, 12 Sup. Ct. 81. °= Western Union Tel. Co. v. Bur- lington, &c. R. Co. 11 Fed. 1; Ketchum v. St. Louis, 101 U. S. 306; Brooks V. Railway Co. 101 U. S. 443; Morgan Co. v. Thomas, 76 111. 120. A vendor's lien for purchase- money may be enforced against the property in the hands of a corpora- tion composed of the bondholders, by whom it was purchased. West- ern Division of Western North Caro- lina R. Co. v. Drew, 3 Woods (XJ. S.) 691. But see Columbus, &c. R. Co.'s Appeal, 109 Fed. 177. An equitable lien for damages connect- ed with the operation of the road by trustees can be enforced against the property in the hands of the new corporation when it is shown that funds from which the claim for damages should have been paid passed into the hands of the new corporation upon reorganization. Stratton v. European, &c. R. Co. 76 Me. 269. See Houston, &c. R. Co. V. Keller (Tex.), 28 S. W. 724. " Jones Corp. Bonds and Mort. §§ 683, 685, citing Hackensack Water Co. v. DeKay, 36 N. J. Eq. 548, 555; Central National Bank v. Hazard, 30 Fed. 484; Swann v. Wright, 110 U. S. 590, 4 Sup. Ct. 235. . "Connor v. Tennessee Cent. R. Co. 109 Fed. 931. 735 DISPOSITION OF PEOCEEDS OF SALE. [§ 527 claims the benefit for itself.^' Thus the purchasers at a foreclosure sale of the property of a railroad company are liable for unpaid dam- ages for lands appropriated as the right of way by the railroad com- pany and occupied and used as such by the purehasers.^^ The pur- chasers may also, in a ease where it is deemed advisable, assume the payment of the debts of the old corporation, and such an assumption will bind not only them but also their assignees with notice.®^ § 527. Disposition of proceeds of sale. — The proceeds of the sale, after the payment of costs and any other claims properly given prefer- ence, are applied first in satisfaction of bonds secured by the mort- gage foreclosed, giving to each bond its pro rata share in case the proceeds are insufficient to satisfy the whole debt.°* But overdue coupons may be given a preference over bonds which have not yet matured, especially when a part of the series to which they belong had been redeemed before the default occurred.^® Where a bondholder " Lake Erie, &c. R. Co. v. Griffin, 92 Ind. 487; Jacksonville, &c. R. Co. V. Louisville, &c. R. Co. 150 111. 480, 37 N. B. 924. See, also, Wiggins Ferry Co. v. Ohio, &c. R. Co. 142 U. S. 396, 12 Sup. Ct. 188; Walker V. Wilmington, &c. R. Co. 26 S. Car. 80, 1 S. E. 366; Kansas City, &c. R. Co. V. Frohwerk, 68 Kans. 292, 74 Pac. 1124. But compare Sloss Iron, &c. Co. V. South Carolina R. Co. 85 Fed. 133. ""Western Pennsylvania R. Co. v. Johnston, B9 Pa. St. 290; White v. Nashville, &c. R. Co. 7 Heisk. (Tenn.) 518; Gilman v. Sheboygan, &c. R. Co. 37 Wis. 317, 40 Wis. 653; Gillison v. Savannah, &c. R. Co. 7 S. Car. 173; Lake Erie, &c. R. Co. v. Griffin, 92 Ind. 487; Rio Grande, &c. R. Co. V. Ortiz, 75 Tex. 602, 12 S. W. 1129. Compare Moyer v. Ft. Wayne, &c. R. Co. 132 Ind. 88. "'Blair v. St. Louis, &c. R. Co. 24 Fed. 148, 25 Fed. 684. See, also, Island City Bank v. Sachtleben, 67 Tex. 420. But see Hervey v. Illinois Midland R. Co. 28 Fed. 169, holding that the assumption by the pur- chaser of debts of the old corpora- tion creates a personal obligation only and not a lien upon the prop- erty. And the same effect as the last holding is also Columbus, &c. R. Co.'s Appeal, 109 Fed. 177. »» Hodge's Appeal, 84 Pa. St. 359; Barry v. Missouri, &c. R. Co. 34 Fed. 829; Pinkard v. Allen, 75 Ala. 73. See, also, Watkins v. Hill, 8 Pick. (Mass.) 522; Claflin v. South Caro- lina R. Co. 8 Fed. 118. All the bonds secured by the same mort- gage are deemed to have been Is- sued at the same time, and there is no priority in favor of any of them because they bear lower numbers than others. Stanton v. Alabama, &c. R. Co. 2 Woods (U. S.) 523. See, also. Mason v. York, &c. R. Co. 52 Me. 82; Commonwealth v. Sus- quehanna, &c. R. Co. 122 Pa. St. 306, 15 Atl. 448; Appeal of Reed, 122 Pa. St. 565, 16 Atl. 100. Nor does it or- dinarily make any difeerence what the purchaser paid for the bonds. Buncombe v. New York, &c. R. Co. 84 N. Y. 190. "» Stevens v. New York, &c. R. Co. § 527a] SALE AND EEOEGANIZATION. 736 received the bonds in pledge as collateral security for a loan, he is entitled to be repaid only the amount of his loan with interest.*" Any surplus remaining after paying the expenses and satisfying the mort- gage indebtedness goes to the corporation as a trust fund for the payment of other liens or creditors, and not first to the stockholders. And an agreement between the bondholders and the stockholders by which, in consideration of withdrawing opposition to the foreclosure suit, the stockholders are to be paid a portion of the purchase money, is fraudulent as against the general creditors."^ On a sale for default in interest, the proceeds will usually be applied, "first, to the arrears of interest, then to the mortgage debt, then to the junior incumbrances, according to their respective priority of lien, and the surplus to the mortgagor."*^ § 527a. Disposition of proceeds-^FxiTcIiaser not bound to see that they are properly applied. — It is frequently provided in the mortgage or trust deed that the purchaser shall not be bound to see that the proceeds of a proper sale thereunder are properly applied,** but, as a genetkl rule at least, no such provision is necessary. The purchaser who is not a party thereto is not responsible for the misapplication or 13 Blatchf. (tr. S.) 412; Common- 434. As to reimbursement for pay- wealth of Virginia v. Chesapeake, ment of prior liens and the like, &c. Canal Co. 32 Md. 501; Cutting see Nickerson v. Atchison, &c. R. V. Tavares, &c. R. Co. 61 Fed. 150. Co. 17 Fed. 408, Skilton v. Roberts, But see Ketchum v. Duncan, 96 U. 129 Mass. 306. S. 659. «^ See Coler v. Barth, 24 Colo. 31. «° Rice's Appeal, 79 Pa. St. 168; 48 Pac. 656; Mosca Milling, Co. v. Morton v. New Orleans, &c. R. Co. Murto, 18 Colo. App. 437, 72 Pac. 79 Ala. 590; Peck v. New York, &c. 287. R. Co. 59 How. (N. Y.) Pr. 419; «* Damon v. Reeves, 62 Mich. 465, Jesup V. City Bank, 14 Wis. 331. 29 N. W. 42; Sinclair v. Learned, 51 See, also, Duncombe v. New York, Mich. 335, 16 N. W. 672; "Wood v. &c. R. Co. 84 N. Y. 190. Augustine, 61 Mo. 46; Woodwine v. "'Railroad Co. v. Howard, 7 Wall. Woodrum, 19 W. Va. 67. The first (U. S.) 392. two oases hold that this rule applies " 2 Beach Priv. Corp. § 777, citing even where the mortgagee is the Chicago, &c. R. Co. v. Fosdick, 106 purchaser, but Hunter v. Wooldert, U. S. 47. See Chicago, &c. R. Co. v. 55 Tex. 433, seems to hold the con- Peck, 112 111. 408; Gair v. Tuttle, 49 trary. Fed. 198; Citizens' Bank v. Whinery, ""Day v. New Lots, 107 N. Y. 148, 110 Iowa 390, 81 N. W. 694; Perkins 13 N. B. 915. V. Stewart, 75 Minn. 21, 77 N. W. 737 PKEFEEEED CLAIMS--SIX MONTHS' EULE. [§ 528 misappropriation of the proceeds.'* So, as he is not responsible dnd has no interest in the fund after it is properly paid in, it has been held that he cannot maintain an action to recover it where it has been misapplied.*^ § 528. Preferred claims — Six months' rule. — When a court of chancery is requested by the mortgagees to appoint a receiver of the railroad, pending proceedings for foreclosure, it may, and usually will, in the exercise of a sound discretion, impose such terms in reference to the payment from the income during the receivership of outstand- ing debts for labor, supplies, equipment, or permanent improvement of the mortgaged property as may, under the circumstances of the par- ticular case, appear to be reasonable.** It is within the power of the court to use the income of the receivership to discharge such obliga- tions, even where no such order is made at the time the receiver is appointed.*' "He who seeks equity must do equity." Such claims are usually paid out of the earnings of the road in the hands of the receiver, but where equity requires it, they may be paid out of the proceeds of the sale, or corpus of the property.** Ordinarily, however. ""Fosdick V. Schall, 99 U. S. 235; Huidekoper v. Locomotive Works, 99 U. S. 258; Mlltenberger v. Logans- port R. Co. 106 U. S. 286, 1 Sup. Ct. 140; Union Trust Co. v. Soutlier, 107 U. S. 591, 2 Sup. Ct. 295; Burn- liam V. Bowen, 111 U. S. 776, 4 Sup. Ct. 675; United States Trust Co. v. "Wabash, &c. R. Co. 150 U. S. 287, 14 Sup. Ct. 86; Williamson v. Wash- ington, &c. R. Co. 33 Gratt. (Va.) 624; Fidelity, &c. Co. v. Shenandoah Valley R. Co. 86 Va. 1, 9 S. E. 759, 19 Am. St. 858; Douglass v. Cline, 12 Bush (Ky.) 608; Mcllhenny, &c. Co. V. Binz, 80 Tex. 1, 13 S. W. 655, 26 Am. St. 705; Litzenberger v. Jar- vis, &c. Trust Co. 8 Utah 15, 28 Pac. 871, and authorities cited in follow- ing notes, infra. Contra, Coe v. New Jersey, &c. R. Co. 27 N. J. Eq. 37; Metropolitan Trust Co. v. Tona- wanda, &c. R. Co. 103 N. Y. 245. As to apportionment among the several Eix. Railroads — 47 lines of one system, see Central Trust Co. V. Wabash, &c. R. Co. 30 Fed. 332. •"Farmers' Loan, &c. Co. v. Kan- sas City, &c. R. Co. 53 Fed. 182; Fosdick V. Schall, 99 U. S. 235; Cen- tral Trust Co. V. St. Louis, &c. R. Co. 41 Fed. 551. The mortgagor is not accountable to the mortgagee for earnings, while the property re- mains in his possession, until a de- mand is made, even though the mortgage covers income. Dow v. Memphis, &c. R. Co. 124 U. S. 652, 8 Sup. Ct. 673; Galveston R. Co. v. Cowdrey, 11 Wall. (U. S.) 459. "^ Finance Co. v. Charleston, &c. R. Co. 48 Fed. 188; Blair v. St. Louis, &c. R. Co. 22 Fed. 471; Thomas v. Peoria R. Co. 36 Fed. 808; Fosdick V. Schall, 99 U. S. 235; Farmers', &c. Co. V. Kansas City, &c. R. Co. 53 Fed. 182. But not ordinarily, where the suit is by stockholders §' 528] SALE AND EEORGANIZATIOIT. 738 they can only be paid out of the earnings, and it is said in a recent case that such preferences are allowed because of an implied agree- ment on the part of the mortgagees that current debts contracted in the ordinary course of the business shall be paid from current earn- ings before such mortgagees shall have a claim to the income and that there is no such implied agreement as to payment out of the corpus or body of the mortgaged property.®* They may be preferred, not only where they have arisen during the receivership, but also where they arose a limited time before the appointment of the receiver, and it is the practice of the federal courts in most jurisdictions, upon the ap- pointment of a receiver, to impose the condition that debts for ma- terials, supplies, and labor furnished to the mortgagor within six months previous to the appointment shall be paid out of the net in- come or proceeds of the sale before the debt secured by the mortgage is paid.''" This limitation is arbitrary, however, and in some cases it has been fixed at three months,'^ while in others such claims have been given a preference, although they arose more than six months prior to the appointment of the receiver.'^ Much depends upon the circumstances and equities of the particular ease. But it is the ex- ception and not the rule that priority of liens can be displaced in or there is no diversion of income, such preferential claims must have St. Louis, &c. R. Co. V. Cleveland, accrued within six months preced- &c. R. Co. 125 U. S. 658, 8 Sup. Ct. ing the impounding of the income 1011; Denniston v. Chicago, &c. R. and the seizure of the property by Co. 4 Biss. (U. S.) 414; Cutting v. the mortgage bondholders. Westlng- Tavares, &c. R. Co. 61 Fed. 150; house, &c. Co. v. Kansas City, &c. R. Street v. Maryland Cent R. Co. 59 Co. 137 Fed. 26. Fed. 25; Farmers', &c. Co. v. North- " Mlltenberger v. Logansport, &c. ern Pac. R. Co. 68 Fed. 36. R. Co. 106 U. S. 286, 1 Sup. Ct. 140; ""Mersick v. Hartford, &c. R. Co. Finance Co. v. Charleston, &c. R. 76 Conn. 11, 55 Atl. 664, 100 Am. St. Co. 62 Fed. 205. 977. See, also, Fordyce v. Kansas "Burnham v. Bowen, 111 U. S. City, &c. R. Co. 145 Fed. 566. 776, 4 Sup. Ct. 675; Farmers', &c. "Clark V. Central R. &c. Co. 66 Co. v. Kansas City, &c. R. Co. 53 Fed. 803; Kelly, In re, v. Receiver Fed. 182; Hale v. Frost, 99 TJ. S. of Green Bay, &c. R. Co. 5 Fed. 846; 389; Mcllhenny, &c. Co. v. BInz, 80 Thomas v. Peoria, &c. R. Co. 36 Fed. Tex. 1, 13 S. W. 655, 26 Am. St. 705; 808; Putnam v. Jacksonville, &c. R. Atkins v. Petersburg R. Co. 3 Co. 61 Fed. 440; Turner v. Indian- Hughes (U. S.) 307; note to Blair apolis, &c. R. Co. 8 Biss. (U. S.) v. R. Co. 22 Fed. 471; Central Trust 315; Dow V. Memphis, &c. R. Co. 20 Co. v. Wabash, &c. R. Co. 30 Fed. Fed. 260. The general rule is that 332. 739 PREFEEEED CLAIMS — SIX MONTHS RULE. [§ 538 this way/* and such preference is usually confined to claims for cur- rent or operating expenses incurred in keeping up the railroad as a "going concern." Claims for work done in the original construction of the road are not included and are not entitled to a preference.'^ And it was held in a comparatively recent ease, where a railroad went into the hands of a receiver without any funds, and the earnings un- der the receivership were barely sufficient to pay current operating expenses, that arrears of salary due the president should not be paid out of the proceeds of the sale in preference to the mortgage debf^ In a still later case it is held that sureties on an appeal bond executed solely for the accommodation of the company, and without pecuniary advantage to themselves, are not entitled to a preference over the mortgagors, although the judgment appealed from was obtained prior to the foreclosure and appointment of the receiver, and notwithstand- ing the fact that the assets of the company in the hands of the re- ceiver had been preserved and increased, by virtue of such bond, to the extent of the judgment.''* "It must," however, says Chief Justice "Kneeland v. American Loan Co. 136 U. S. 89, 97, 10 Sup. Ct. 950; Thomas v. Western Car Co. 149 U. S. 95, 13 Sup. Ct. 824, 60 Am. & Eng. R. Cas. 443; Bound v. South Car. R. Co. 58 Fed. 473. As to what are not "operating expenses," see Central Trust Co. v. Charlotte, &c. R. Co. 65 Fed. 264; Reyburn v. Consumers', &e. Co. 29 Fed. 561; Manchester Lo- comotive Works v. Truesdale, 44 Minn. 115, 46 N. W. 301, 9 L. R. A. 140. Claims for damages to persons or property arising from th^ opera- tion of the road are classed as op- erating expenses. Brown, Ex parte, 15 S. Car. 518; Klein v. Jewett, 26 N. J. Eq. 474'; Mobile, &c. R. Co. v. Davis, 62 Miss. 271; Union Trust Co. V. Illinois, &c. R. Co. 117 U. S. 434, 6 Sup. Ct. 809. "Toledo, &c. R. Co. v. Hamilton, 134 U. S. 296, 10 Sup. Ct. 546; Wood V. Guarantee, &c. Deposit Co. 128 V. S. 416, 9 Sup. Ct. 131; Lackawanna, &c. Co. V. Farmers', &c. Co. 176 U. S. 298, 20 Sup. Ct. 363; Addison v. Lewis, 75 Va. 701; Farmers' Loan, &c. Co. V. Pine Bluff, &c. R. Co. 57 Ark. 334, 21 S. W. 652; Farmers' Loan, &c. Co. v. Candler, 92 Ga. 249, 18 S. E. 540. But compare Mcll- henny, &c. Co. v. Binz, 80 Tex. 1, 13 S. W. 665, 26 Am. St. 705; ante, § 500. "National Bank v. Carolina, &c. R. Co. 63 Fed. 25. See, also, Addi- son v. Lewis, 75 Va. 701; Wells v. Southern, &c. R. Co. 1 Fed. 270; and compare Blair v. St. Louis, &c. R. Co. 23 Fed. 521; Olyphant v. St. Louis, &c. Co. 22 Fed. 179 (salary of secretary preferred). For other claims held not entitled to prefer- ence, see Fordyce v. Omaha, &c. R. 145 Fed. 544 ; Gregg v. Metropolitan Trust Co. 197 U. S. 183, 25 Sup. Ct. 415. " Farmers' Loan, &c. Co. v. North- ern Pac. R. Co. 68 Fed. 36. The court, in this case, insists that there must be a diversion of funds to the benefit of the bondholders and to the injury of the party seeking the 528] SALE AND EBOKGANIZATION. 740 Fuller, "be regarded as settled that a court of equity may make it a condition of the issue of an order for the appointment of a receiver of a railroad company that certain outstanding debts of the company shall be paid from the income that may be collected by the receiver, or from the proceeds of sale; that preferential payments may be di- rected of unpaid debts for operating expenses, accrued within ninety days, and of limited amounts due to other and connecting lines of road for materials and repairs and for unpaid ticket and freight bal- ances, in view of the interests both of the property and the public, that the property may be preserved and disposed of as a going con- cern, and the company's public duty discharged; and that such in- debtedness may be -given priority, notwithstanding there may have been no diversion of income,' or that the order for payment was not made at the time, and as a condition, of the receiver's appointment, the necessity and propriety of making it depending upon the facts and circumstances of the particular case, and the charabter of the claims.""' preference before the priority of the mortgage lien will be displaced, and disapproves Farmers' Loan &c. Co. V. Kansas City, &c. R. Co. 53 Fed. 182. These two cases seem to mark, in the dicta at least, the opposite extremes to which the federal courts have gone. Sureties have been re- imbursed in other cases. Union T. Co. V. Morrison, 125 U. S. 591, 8 Sup. Ct. 1004; Rome, &c. R. Co. v. Sibert, 97 Ala. 393, 12 So. 69; Dow V. Memphis, &c. Co. 124 U. S. 652, 8 Sup. Ct. 673. But compare Penn- sylvania V. Calhoun, 121 U. S. 251, 7 Sup. Ct. 906. " Finance Co. v. Charleston, &c. R. Co. 62 Fed. 205, citing Miltenberger V. Logansport R. Co. 106 U. S. 286, 311, 1 Sup. Ct. 140; Union Trust Co. V. Souther, 107 U. S. 591, 594, 2 Sup. Ct. 295; Union Trust Co. v. Illinois M. R. Co. 117 U. S. 434, 6 Sup. Ct. 809; Morgan's, &c. Co. v. Texas Cent. R. Co. 137 U. S. 171, 11 Sup. Ct. 61; Kneeland v. Bass Foun- dry, &c. "Works, 140 U. S. 592, 11 Sup. Ct. 857. See, also, Seibert v. Minn. &c. Co. 58 Minn. 69, 59 N. W. 829; Rome, &c. R. Co. v. Sibert, 97 Ala. 393, 12 So. 69. See, also, Virginia, &c. Co. v. Central, &c. Co. 170 U. S. 355, 365, 368, 18 Sup. Ct. 657; Southern R. Co. v. Carnegie Steel Co. 176 U. S. 257, 20 Sup. Ct. 347. This case last cited holds a debt for rails, bought shortly before the appointment of a receiver and needed to properly operate the road, as much a current debt in the ordi- nary course of business as if it were incurred by a receiver under order of court. So, in Fordyce v. Kansas City, &c. R. Co. 145 Fed. 566, it is held that a diversion of the income for the benefit of the bondholders must usually be shown, but that claims for damages in ccmstructing the road are entitled to preference over the mortgage. As to taxes and street assessments, see Clyde v. Richmond, &c. R. Co. 63 Fed. 21; Union L. & T. Co. v. Southern, &c. R. Co. 49 Fed. 267; Cutting v. 741 SETTING SALE ASIDE. [§ 529 § 529. Setting sale aside. — ^Mortgagors may obtain relief from a fraudulent sale upon foreclosure if they apply for it within a reason- able time after discovering the f raudJ* And it has b^en held that a bill for this purpose may be maintained on behalf of the corporation by a single stockholder upon refusal of the corporation to ask that the sale be set aside.'® But where dissenting stockholders and bond- holders institute a suit to set aside a foreclosure sale on the ground of fraud and collusion upon the part of the majority, it is not suffi- cient to make the purchasing and selling companies parties defend- Tavares, &c. R. Co. 61 Fed. 150; Bills V. Boston, &c. R. Co. 107 Mass. 1; Central Trust Co. v. New York, &c. R. Co. 110 N. Y. 250, 18 N. E. 92, 1 Lr. R. A. 260. As to judgments, see Clyde v. Richmond, i&c. R. Co. 56 Fed. 539; Chicago, &c. R. Co. V. McCammon, 61 Fed. 772; Phinizy V. Augusta, &c. R. Co. 63 Fed. 922; Penn Mutual Insurance Co. v. Heiss, 141 111. 35, 31 N. E. 138, 3 Am. St. 273; Finance Co. v. Charleston, &c. R. Co. 61 Fed. 369; Texas, &c. R. Co. V. Bloom, 60 Fed. 979; Texas, &c. R. Co. V. Johnson, 76 Tex. 421, 13 S. W. 463, 18 Am. St. 60, and 151 U. S. 81, 14 Sup. Ct. 250; Central Trust Co. V. Charlotte, &c. R. Co. 65 Fed. 257. "Harwood v. Railroad Co. 17 Wall. (U. S.) 78; Jones Corp. Bonds and Mort. § 651. Suit on behalf of bondholders to set aside a foreclo- sure sale should usually be brought by their mortgage trustees. Meyer v. Utah, &c. R. Co. 3 Utah 280, 3 Pac. 393. See, also, Shaw v. Railroad Co. 100 U. S. 605; New Orleans, &c. R. Co. T. Parker, 143 U. S. 42, 12 Sup. Ct 364. In Kent t. Lake Superior, &c. Co. 144 U. S. 75, 12 Sup. Ct. 650, it is held that bondholders must seek their remedy in the court which rendered the decree and confirmed the sale. See, generally, Wetmore V. St. Paul, &c. R. Co. 3 Fed. 177; Massachusetts, &c. Co. v. Chicago, &c. R. Co. 13 Fed. 857; Campbell v. Railroad Co. 1 Woods (U. S.) 368. ™ Foster V. Mansfield, &c. R. Co. 36 Fed. 627. But where an insolvent railroad company had issued differ- ent series of mortgage bonds, some of the mortgages covering all of its property, and others only part, the principal of some of the mortgages being due, and the company having defaulted on the interest on all of them, and, in addition, it had a large floating debt, running into mil- lions, with no fair prospect of its being able to pay the accrued in- terest on the bonds and the floating debt without a sale of all its prop- erty, it was held that a decree fore- closing all the mortgages, entered by consent of the creditors, should not be set aside at the suit of some of the stockholders on the ground that the principal of some of the mortgages was not yet due, "as it was to the interest of the railroad company that the rights of all the mortgage bondholders should be cut off to enable the company to effect a reorganization which would se- cure and extend its bonded debt, and reduce the rate, of interest thereon, and provide the necessary means to satisfy the floating debt." Carey v. Houston, &c. R. Co. 45 Fed. 438. §■ 529] SALE AND EEOKGANIZATION. 742 ant.'" This right may be barred by laches,*^ and any considerable delay in bringing a bill for this purpose must be satisfactorily ex- plained or a court of equity will deny relief.'^ The stockholders or other parties ia interest cannot wait until new equities arise or until they see that the purchasers, by improving the property, are likely to make it valuable, and then procure a return of the property with its added value, and discharged from the equities which have attached.*^ If the fraud is concealed from the mortgagor and its stockholders for a time, suit may be brought within a reasonable time after it is dis- covered.'* A sale of the property to pay the arrears due a single bond- holder, at a grossly inadequate price and without notice to the other bondholders whose interests are affected, will be set aside at the suit of such bondholders, especially where it is shown that the bondholder who instituted the proceedings and the persons who became purchasers at the sale, several of whom were directors and oflBcers of the road, had entered into a conspiracy to obtain the property at a sacrifice, and. had prevented a reasonable competition at the sale.'" Where a sale ™ Ribon V. Railroad Companies, 16 Wall. (U. S.) 446. Trustees ttirough whom the scheme was consummated should have been made parties, and so should the majority stockholders and bondholders, or a sufficient number of them, at least, If they had participated in the distribution of the proceeds and were required to refund. » Foster V. Mansfield, &c. R. Co. 36 Fed. 627; Sullivan v. Portland, &c. R. Co. 4 Cliff. (U. S.) 212, 94 U. S. 806; Coddington v. Railroad Co. 103 U. S. 409; Graham v. Boston, &c. R. Co. 118 U. S. 161, 6 Sup. Ct. 1009. See, also, Rabe v. Dunlap, 51 N. J. Eq. 40, 25 Atl. 959; Farmers' Loan, &c. Co. v. Rockaway, &c. R. Co. 69 Fed. 9; McHenry v. Schenk, 88 111. 357; Brunson v. Morgan, 84 Ala. 598, 4 So. 589. '^Credit Co. v. Arkansas Cent. R. Co. 15 Fed. 46, 5 McCrary 23; Farmers' Loan, &c. Co. v. Green Bay, &c. R. Co. 6 Fed. 100; Har- wood V. Railroad Co. 17 Wall. (U. S.) 78. The following periods of unexplained delay have been held fatal: Seven years, Sullivan v. Portland, &c. R. Co. 94 V. S. 806, 4 Cliff. (U. S.) 212; ten years, Foster V. Mansfield, &c. Ri Co. 36 Fed. 627; eight years, Coddington v. Pensa- cola, &c. R. Co. 103 U. S. 409; five years, Harwood v. Railroad Co. 17 Wall. (U. S.) 78; eighteen months, Graham v. Birkenhead, &c. R. Co. 2 Mac. & G. (Eng. Ch.) 146; and even less than a year. Northwestern Mortg. Co. V. Bradley, 9 S. Dak. 495, 70 N. W. 648; Wilson v. Wall, 99 Va. 353, 38 S. E. 181. *' Twin Lick Oil Co. v. Marbury, 91 U. S. 587; Kitchen v. St. Louis, &c. R. Co. 69 Mo. 224. " Where the mortgagors remained ignorant for eight years of the fraud which had been practiced, they were permitted to bring suit to set aside the sale two years after the fraud was discovered. White Mountains R. Co. v. White Moun- tains R. Co. 50 N. H. 50. "^ Jackson v. Ludeling, 21 Wall. (U. S.) 616. A decree by which, no 743 SETTING SALE ASIDE. [§ 539 is made under a notice setting forth that the amount of bonds secured by the mortgage foreclosed is ten times as great as it really is, and all competition in bidding is thereby destroyed and the property is purchased by the bondholders, such sale will be set aside at the suit of judgment creditors whose liens are thereby defeated.*^ But the creditors who were defrauded by the sale can alone claim the benefit of a decree setting aside the sale, and neither the mortgage trustee by whom the property was sold on foreclosure, nor the bondholders at whose request the foreclosure and sale were had, can assert any rights under the mortgage; but they hold title to the property under the sale, subject to the equities of such creditors.*^ The parties in interest cannot question the validity of a foreclosure sale, to which they have assented, on the ground that it was a fraud upon the rights of others.*' And creditors cannot ordinarily impeach a completed sale where the trustee representing them has acted in good faith.*® A mortgage trustee in possession cannot without express authority be- come a purchaser at his own sale."" And a director, or other person occupying a fiduciary relation toward the company, must act with perfect fairness, in purchasing its property at a sale under a trust deed to secure debts due to himself, or the sale will be set aside; but the stockholders must act promptly in disaffirming a sale because of the fiduciary relations of the purchaser.*^ Where it is shown that the provision is made for the interests ""Racine, &c. R. Co. v. Farmers' of other bondholders beside the com- Loan, &c. R. Co. 49 111. 331, 95 Am. plainant, will be set aside on appeal. Dec. 595; Ashhurst's Appeal, 60 Pa. New Orleans, &c. R. Co. v. Parker, St. 290; Kitchen v. St. Louis, &c. 143 U. S. 42, 12 Sup. Ct. 364. Co. 69 Mo. 224. »» James v7 Railroad Co. 6 Wall. "Twin Lick Oil Co. v. Marbury, (XT. S.) 752. 91 IT. S. 587. A director of a rail- " Railroad Co. v. Soutter, 13 Wall, road corporation may honestly own (U. S.) 517; Barnes v. Chicago, &c. its bonds secured by mortgage. Dun- R. Co. 122 U. S. 1, 7 Sup. Ct. 1043. comb v. New York, &c. R. Co. 84 N. «= Barnes v. Chicago, &c. R. Co. Y. 190, 88 N. Y. 1. And he can en- 122 U. S. 1, 7 Sup. Ct. 1043, affirm- force them in the usual and ordl- ing 8 Biss. (U. S.) 514; Symmes v. nary way, and may purchase the Union Trust Co. 60 Fed. 830. See, mortgaged property at a sale which also. United States v. Union Pac. R. is fairly made in an effort to en- Co. 98 U. S. 569; Berry v. Broach, 65 force the payment of his debt. Har- Miss. 450, 4 So. 117; Matthews v. pending v. Munson, 91 N. Y. 650. Murchison, 15 Fed. 691. As to when director can not pur- '° Fletcher v. Ann Arbor R. Co. chase, see post, § 535. 116 Fed. 479; Richter v. Jerome, 123 U; S. 233, 8 Sup. Ct. 106. § 529] SALE AND REORGANIZATION. 744 purchasers at a foreclosure sale have conspired with the directors of the corporation in efEecting a fraudulent sale, they will be held as trustees for the benefit of the parties in interest to the full value of the property purchased."^ It has been held that a fraudulent sale cannot be validated by an act of the legislature, since the legisla- ture has no power to transfer the property of one corporation to an- other without due process of law.°^ A decree can only be avoided upon proceedings for that purpose, brought by a party in interest^* and upon sufficient cause shown. Inadequacy of price alone is not sufficient ground for setting aside a sale, where the sale was honestly and fairly made;°^ nor is mere increase in the value of the property sufficient cause for vacating the decree."" A purchase of the mort- gaged property by a combination of the bondholders and other cred- itors is valid unless some iinfair advantage is used to prevent compe- tition and keep down the price, and such creditors have in general all the rights of bona fide purchasers."'' The fact that the railroad com- "^Drury v. Cross, 7 "Wall. (U. S.) 299; Merrill v. Farmers' Loan, &c. Co. 24 Hun (N. Y.) 297; Jones Corp. Bonds and Mort. § 633; post, § 535. »' White Mountains R. Co. v. White Mountains R. Co. 50 N. H. 50. See, also, Roche v. Waters, 72 Md. 264, 19 Atl. 535, 7 L. R. A. 533. This, we think, would undoubtedly be true if the sale were absolutely void for want of jurisdiction, but a mere- ly fraudulent sale would seem to be voidable only, and not necessarily void or beyond the power of the legislature to cure. " One whose interest in the prop- erty expired before the final decree was entered cannot maintain a suit to have the decree reopened. Ward V. Montclair R. Co. 26 N. J. Eq. 260; Graham v. Boston, &c. R. Co. 118 U. S. 161, 6 Sup. Ct. 1009. See, also, Fleming, Ex parte, 2 Wall. (U. S.) 759; Day v. Lyon, 11 N; J. Bq. 331; Symmes v. Union Trust Co. 60 Fed. 830; Hollins v. St. Paul, &c. R. Co. 29 N. Y. St. 208, 9 N. Y. S. 909; Wade v. Thompson, 52 Miss. 367. "Turner v. Indianapolis, &c. R. Co. 8 Biss. (U. S.) 380; Fidelity,, &c. Co. V. Mobile, &c. R. Co. 54 Fed. 26; Jones Corp. Bonds and Mort. § 662. See, also, Bethlehem Iron Co. V. Philadelphia, &c. R. Co. 49 N. J. Eq. 356, 23 Atl. 1077; Cross V. Allen, 141 U. S. 528, 12 Sup. Ct. 67; Lathrop v. Tracy, 24 Colo. 382,, 51 Pac. 486, 65 Am. St. 229. Unless, perhaps, it is so great as to shock the conscience. Graffam v. Burgess,. 117 U. S. 180, 6 Sup. Ct. 686; Fletcher v. McGill,' 110 Ind. 395. »« County of Leavenworth v. Chi- cago, &c. R. Co. 25 Fed. 219. "Thornton v. Wabash R. Co. 81 N. Y. 462; Vose v. Cowdrey, 49 N. Y. 336; Pennsylvania Trans. Co.'s Appeal, 101 Pa. St. 576; Wetmore V. St. Paul, &c. R. Co. 1 McCrary (U. S.) 466; ante, § 521. Holders of junior mortgage bonds cannot have a sale to the first mortgage bondholders set aside where no fraud is shown. Their remedy is to redeem. Robinson v. Iron E. Co.. 135 U. S. 522, 10 Sup. Ct. 907. 745 EEDEMPTION. I§ 530 pany's solicitor acts for the creditors in making tHe purcliase and that the title is taken in his name, does not invalidate the sale, if it ■was honestly conducted and no unfair advantage was taken.^* The validity of the sale, it has been held, cannot be attacked on the ground that the directors of the corporation were actuated by corrupt motives in suffering a default, and that this was known to the trustee, when there is no claim against him of collusion or fraud, and it appears that the default justifying foreclosure actually occurred, and the property was sold for an adequate price."" In a suit to set aside a sale on foreclosure the validity and sufficiency of the proceedings- in the foreclosure suit prior to the sale cannot be questioned, since they were matters proper for adjudication in the foreclosure suit.*"" § 530. Redemption. — A valid foreclosure and sale, duly confirmed, cuts off the equity of redemption,^"^ and the only remedy, if any, in such. a case, is by a suit to vacate the decree,^"^ unless a statutory right to redeem is given.^"^ Where, however, the mortgage trustee enters into possession, upon default, and manages the property for ""Pacific R. Co. V. Ketchum, 101 IT. S. 289. But compare as to pur- chase by the mortgagee or his so- licitor, Bennett, Ex parte, 10 Ves. Jr. 381; Gibson v. Barbour, 100 N. Car. 192, 6 S. B. 766; Adams v. Sayre, 76 Ala. 509; Lockett v. Hill, 1 Woods (U. S.) 552; Callan v. Wil- son, 127 U. S. 540, 8 Sup. Ct. 1301; Houston V. National, &c. Ass'n, 80 Miss. 31, 31 So. 540, 92 Am. St. 565, and note. These cases relate, how- ever, to sales under powers rather than foreclosure sales. ™ Harpending) v. Munson, 91 N. Y. 650. Compare Symmes v. Union Trust Co. 60 Fed. 830. ^•"Robinson v. Iron R. Co. 135 U. S. 522, 10 Sup. Ct. 907. "^ Parker v. Dacres, 130 U. S. 43, 9 Sup. Ct. 433; Turner v. Indian- apolis, &c. R. Co. 8 Biss. (U. S.) 380; Woodruff v. Adair, 131 Ala. 530, 32 So. 515; Grandin v. Emmons, 10 N. Dak. 223, 86 N. W. 723, 54 L. R. Ai. 610, 88 Am. St. 684; Eiceman T. Finch, 79 Ind. 511. As to who may redeem, see note to Horn v. Indianapolis, &c. Bank, 21 Am. St. 231, 245 et seq. ""Delaware, &c. R. Co. v. Scran- ton, 34 N. J. Bq. 429. ^™See Stimson Am. Stat. Law, §§ 1491, 1492; Brine v. Ins. Co. 96 U. S. 627; Parker v. Dacres, 130 U. S. 43, 9 Sup. Ct. 433; Jackson, &c. Co. V. Burlington, &c. R. Co. 29 Fed. 474; Singer Mfg. Co. v. Mc- Collock, 24 Fed. 667. In these cases the state statute was followed by the federal courts. See, also, Bene- dict V. St. Joseph, &c. R. Co. 19 Fed. 173. But a general statute apply- ing in ordinary cases may not au- thorize or apply to a redemption in the case of a railroad. Peoria, &c. R. Co. V. Thompson, 103 111. 187; Hammock v. Farmers' Loan, &c. Co. 105 U. S. 77; Columbia Finance, &c. Co. V. Kentucky Union R. Co. 6» Fed. 794. §' 530] SALE AND EEOEGANIZATIOK, 746 the bondholders, the corporation or stockholders may institute a suit to redeem and hold him to an accounting as trustee for the corporation as well as for the bondholders.^"* So, as we shall hereafter see,^"^ where the transaction is voidable because a director or trustee has improperly purchased at the sale, the courts will usually allow a redemption. The right to redeem is a favorite equity and an oppor- tunity to exercise it should be given before the sale is confirmed, that is, at least where the foreclosure is for failure to pay interest, a decree nisi should be entered declaring "the fact, nature and extent of the default * * * and the amount due on account thereof, which, with any further sums subsequently accruing, and having become due, according to the terms of the security, the mortgagor is required to pay within a reasonable time, to be fixed by the court, and which, if not paid, a sale of the mortgaged premises is directed."^"' Thus, in a recent foreclosure proceeding, for default in payment of inter- est, it was held that, although the mortgage, as construed by the court, did not authorize a decree that the whole debt was due, it was proper to direct payment of the whole debt from the proceeds of the sale of the property as an entirety, but that the decree should also provide that the mortgagor might redeem before sale upon payment of the overdue interest and costs.^"'' In another recent case^"^ involving the right to redeem separate divisional mortgages on railroads afterwards consolidated the judges of the circuit court of appeals for the sixth circuit differed in opinion and each supported the position which he had taken by a very able argument. The mortgages on the separate '°* Ashuelot R. Co. v. Elliott, 57 N. with the mortgage contract other H. 397. See, also, Clark v. Rey- than that arising from his purchase burn, 8 Wall. (U. S.) 318. for a sum sufficient to pay the mort- ^""Post, § 535. gage debt, is impaired by a change ™ Chicago, &c. R. Co. v. Fosdick, in the law, subsequent to the execu- 106 U. S. 47, 1 Sup. Ct. 10. See, tion of the mortgage but prior to also, to same effect, Clark v. Rey- the sale, regarding the time of re- burn, 8 Wall. (U. S.) 318; Howell demption and rate of interest pay- V. Western R. Co. 94 U. S. 463; Fos- able in order to redeem. Hooker ter Fed. Prac. § 322. For form of v. Burr, 194 U. S. 415, 24 Sup. Ct. decree, see Blair v. St. Louis, &c. 706. R. Co. 25 Fed. 132, 237. Four ""Grape Creek, &c. Co. v. Farm- months has been held to be a rea- ers', &c. Co. 63 Fed. 891. See, also, sonable time. Columbia Finance, Holden v. Gilbert, 7 Paige (N. Y.) &c. Co. V. Kentucky Union R. Co. 60 208; Olcott v. Bynum, 17 Wall. (U. Fed. 794. No contract right of an S.) 44. ' independent purchaser at a foreclo- ™Compton v. Jesup, 68 Fed. 263. sure sale, who has no connection 747 EEORGANIZATION BY PUEOHASEE. [§ 531 divisions were made to the same trustee, and Judge Lurton held that the mortgagees were, therefore, to be regarded as the same, and that for this reason, as well as for the further reason that it is the settled policy of the courts to treat a railroad as an entirety and prevent its severance, if possible, there could be no separate redemption of the division covered by one of them, while Judge Taft held that they were separate mortgages and that, under the circumstances of the case, there could be a separate redemption. The case was complicated by a question of suretyship and a question as to the effect of prior decrees in the different states, in regard to both of which the judges disa- greed. They also disagreed as to whether, in fixing the amount to be paid by the redemptioner he was entitled to have the principal and interest of the mortgages to be redeemed reduced by the net earnings received by the purchaser. The case is one of great importance, and merits careful study.^°° It was afterwards taken to the Supreme Court of the United States on certificate, but that court decided it on such grounds that it was found unnecessary to consider the difficult points relating to the question of redemption.^^" § 531. Beorganization by purcliasers, at sale — ^Power of legisla- ture to provide for. — The purchaser of a railroad under a sale upon foreclosure, or otherwise, by legislative authority, does not, by reason of his purchase, take the place of the old corporation and become clothed with corporate powers,^^^ unless the statute expressly so pro- yides.^^^ But the purchaser at a foreclosure sale takes with the prop- erty all franchises which are included and authorized to be included in the mortgage, and are necessary to the successful operation of the "* It Is impossible to give an in- "° Compton v. Jesup, 167 U. S. 1, telligent statement of all the facts 17 Sup. Ct. 795, 807, 808. of the case, with the reasoning and "* Dow v. Beidelman, 49 Ark. 325, numerous authorities cited, without 455, 5 S. "W. 297, 718, 125 U. S. 680, taking more space than we feel jus- 8 Sup. Ct. 1028; Julian v. Central tifled in giving to a review of any Trust Co. 193 U. S. 93, 24 Sup. Ct. one case. The principal questions 399; Norfolk, &c. R. Co. v. Pendle- involved were certified to the su- ton, 156 U. S. 667, 15 Sup. Ct. 413; preme court, but it did not fully "Watson v. Albany, &c. R. Co. Ill settle the law upon the subject. In Ga. 10, 36 S. E. 324; Atkinson v. addition to the authorities cited in Marietta, &c. R. Co. 15 Ohio St. 21; the case referred to, see Horn v. Memphis, &c. R. Co. v. Railroad Indianapolis Nat. Bank, 125 Ind. Commissioners, 112 U. S. 609, 5 Sup. 381, 25 N. E. 558, d L. R. A. 676, 21 Ct. 299; Wellsborough, &c. Co. v. Am. St. 231, and note. Griffin, 57 Pa. St. 417; ante, § 519. '" See Rev. Stat. Tex. § 4260. § 531] SALE AND REORGANIZATION. 748 road, including, it seems, the franchise of eminent domain.^^^ The same reasons which cause nearly all railroads to be built by corpora- tions, apply with equal force to urge the incorporation of the pur- chasers of a railroad at foreclosure sale.^^* The legislature has power to provide for the reorganization of the bondholders into a new cor- poration with the rights and duties of the old corporation, upon strict foreclosure of a railroad mortgage; and it has been held that when the majority effect an organization under legislative authority, a dis- senting minority have no private rights that can be successfully as- serted against such action.^^^^ It has also been held that the bond- holders, under a trust deed of railroad property, acquire their rights subject Jo an obligation to execute the public trust cast upon the mortgaged property by devoting it to the public use for which it was created, and that no rights of any bondholder are violated by the action of the state in creating a new instrumentality to carry into ; effect the original design and to devote the property to the only use which the law of its creation permits, so long as he retains his orig- "^ Lawrence v. Morgan La. R. &c. Co. 39 La. Ann. 427, 2 So. 69, 4 Am. St. 265; Marshall v. Western, &e. R. Co. 92 N. Car. 322; New Orleans, &c. R. Co. v. Delamore, 114 U. S. 501, 5 Sup. Ct. 1009. See, also. North Carolina, &c. R. Co. v. Carolina Cen- tral R. Co. 83 N. Car. 489. In the case of Morgan v. Louisiana, 93 TJ. S. 217, the Supreme Court of the United States, in defining what were the franchises which the purchaser of a railroad had acquired at mar- shal's sale, said: "The franchises of a railroad corporation are rights and privileges which are es- sential to the operations of a corpo- ration, and without which its road and works would be of little value; such as the franchise to run cars, to take tolls, to appropriate earth and gravel for the bed of its road, or water for its engines and the like. They are positive rights and privileges, without the possession of which the road of the company- could not be successfully worked. A conveyance by a railroad com- pany of "all and singular the char- tered rights, privileges, and fran- chises of every kind" laelonging to it, or which should thereafter belong to it, does not Include land grants which are not directly connected with the operation of the road. Shirley v. "Waco Tap. R. Co. 78 Tex. 131, 10 S. W. 543. See, also, Little Rock, &c. R. Co. V. McGehee, 41 Ark. 202. "* See Jones Corp. Bonds and Mort. § 695. ""Gates V. Boston, &c. R. Co. 53 Conn. 333, 5 Atl. 695, 24 Am. & Eng. R. Cas. 143; Canada Southern R. Co. V. Gebhard, 109 U. S. 527, 534, 3 Sup. Ct. 363. So it has been held that such a statute may be amended so as to be made conditional, as au- thority to incorporate is a privilege and not a property right. Railroad Com'rs V. Grand Rapids, &c. R. Co. 130 Mich. 248, 89 N. W. 967, affirmed in 193 U. S. 17, 24 Sup. Ct. 310. U9 EEOKGANIZATION BY PUEOHASEE. [§ 531 inal pro rata share of the trust property.^ ^^ So, it is held that the legislature may constitute the purchasers at foreclosure sale a cor- poration under the charter of the old corporatlon.^^^ Persons acquir- ing rights under a mortgage upon the property of a railroad corpora- tion must be held to have acquired them subject to the power of the legislature to provide for a continuous performance of all public du- ties imposed by law upon the corporation.^^^ Statutes providing for the reorganization of the bondholders to form a new corporation may be altered at the pleasure of the legislature. A change in the law after the issue of the mortgage bonds does not impair the obligation "'Gates T. Boston, &c. R. Co. 53 Conn. 333. In this case Stoddard, J.i said: "There is ao reason why, sub- ject to legislative and judicial con- trol and direction, the majority in interest in common property, of an indivisible nature, consecrated to public use, should not so use that prgperty as to advance the private interests in that property and se- cure the public -welfare." In a case ■where the plaintiff, owning but one per cent of the bonds, refused to ac- cept a reorganization agreement, but sued to collect his bonds; and it appeared that all the other bond- holders had accepted the plan of re- organization and had surrendered their bonds; that their interests de- manded that the reorganization be confirmed, and that it had been sub- stantially confirmed by a judgment of the United States Circuit Court in Oregon, the court held that plain- tiff's bill must be dismissed and that he must surrender his old bonds and accept new ones, as provided in the agreement. PoUitz v. Farm- ers' Loan, &c. Co. 53 Fed. 210. But see Huber v. Martin (Wis.), 105 N. W. 1031. "' Witherspoon v. Texas Pacific R. Co. 48 Tex. 309; Acres v. Moyne, 59 Tex. 623 ; Gulf, &c. R. Co. v. Morris, 67 Tex. 692, 700, 4 S. W. 156. See, also, State v. Sherman, 22 Ohio St. 428; Holland v. Lee, 71 Md. 338, 18 Atl. 661; Boylan v. Kelly, 36 N. J. Eq. 331. In Texas the statute pro- vides as follows: "In case of the sale of the entire roadbed, track, franchise and chartered right of a railroad company, whether by vir- tue of an execution, order of sale, deed of trust, or any other power, the purchaser or purchasers at such sale, and Uieir associates,, shall be entitled to have and exercise all the powers, privileges and franchises granted to said company by its char- ter or by virtue of the general laws; and the said purchaser or pur- chasers and their associates'shall be deemed and taken to be the true own- ers of said charter and corporators' under the same, and vested with all the powers, rights, privileges and benefits thereof, in the same man- ner and to the same extent as if .they were the original corporators of said company, and shall have power to construct, complete, equip and work the road upon the same terms and under the same condi- tions as are imposed by their char- ter and the general laws." Rev. Stat. Tex. § 4260; Pasch. Dig. Vol. I, Art. 4912. Somewhat similar are How. Stat. Mich. (1882), § 4885, and Laws Tenn. 1885, Ch. 84. "'Gates V. Boston, &c. R. Co. 53 Conn. 333, 5 Atl. 695. §' 631a] SALE AND EEOKGANIZATION. 750 of a contract, although the expense of reorganization is thereby in- ereased.^^° So, as the franchise to be a corporation is deemed to be granted anew, the company formed upon reorganization may be made amenable to statutory or constitutional provisions enacted after the charter to the original company was granted and before the reorgani- zation.^^" § 531a. Beorganization through purchasing committee. — The bondholders or persons interested, such as the bondholders, stock- holders and creditors frequently get together for the purpose of pur- chasing and reorganizing and appoint a purchasing or reorganization committee for carrying out their plans, which usually contemplate tbe foreclosure and purchase, or purchase at the foreclosure sale, by the committee and the transfer of the property by the committee so purchasing to a new corporation formed for the purpose of taking such property and carrying on the business. "It rarely happens in the United States," it is said, that foreclosures of railway mortgages are anything else than the machinery by which arrangements between the creditors arid other parties in interest are carried into efEect, and a reorganization of the affairs of the corporation under a new name brought about."^^^ The whole matter is usually arranged by agreement, and the powers and duties of the committee depend upon the agreement,^^^ under which they occupy a position or relation of trust."* As elsewhere shown, the courts have looked with favor upon ™ People V. Cook, 148 U. S. 397, 13 ^ United Water Works Co. v. Sup. Ct. 645, affirming 110 N. Y. Omaha Water Co. 164 N. Y. 41, 58 443, 18 N. E. 113; Railroad Com'rs N. E. 58; Cox v. Stokes, 156 N. Y. V. Grand Rapids, &c. R. Co. 130 , 491, 51 N. B. 320; Thayer v. Wathen, Mich. 248, 89 N. W. 967. 17 Tex. Civ; App. 382, 44 S. W. 906; "° State V. Sherman, 22 Ohio St. Puller v. Venable, 118 Fed. 543. But 411; Trask v. Magulre, 18 Wall. (U. considerable discretion is usually S.) 391; Railroad Co. v. Georgia, 98 ' invested in the committee. Central U. S. 359; Keokuk, &c. R. Co. v. Trust Co. v. Carter, 78 Fed. 225; Missouri, 152 U. S. 301, 14 Sup. Ct. kcHenry v. New York, &c. R. Co. 592; Grand Rapids, &c. R. Co. v. Os- 25 Fed. 65; Mercantile Trust, &c. Co. horn, 193 U. S. 17, 26 Sup. Ct. 310. v. Low, 87 Fed. 241. And the courts But see First Division of St. Paul, are inclined to construe the agree- &c. R. Co. V. Parcher, 14 Minn. 297. ment with some liberality to pro- 1" Canada So. R. Co. v. Gebhard, tect the committee except where 109 U. S. 527, 3 Sup. Ct. 363. there is malfeasance or misfeasance ■=^ Cox V. Stokes, 156 N. Y. 491, 51 or gross negligence. Venner v. N. E. 320; Indiana, &c. R. Co. v. Fitzgerald, 91 Fed. 335; Van Siclen Swannell, 157 111. 616, 41 N. B. 989, v. Bartol, 95 Fed. 793. See, gener- 30 L. B. A. 290. ally, as to their duties and liabili- 751 LIABILITY OF NEW COEPOEATION. [§ 533 such combinations and arrangements when properly planned and carried out, but they must not be unfair and fraudulent, and the trustee or committee must not unduly favor some of the bondholders at the expense of the others who are parties to the agreement. § 532. Statutory reorganization — Liability of new corporation. — Most of the states provide by general statutes for the incorporation of the purchasers of railroad property at foreclosure sale.^^* When they have complied with the statute they become a new and entirely dif- ferent corporation from that whose property and franchises- they ob- tained by purchase at the foreclosure sale, even though the statute ex- pressly invests them with all the rights, franchises, powers and privi- leges possessed by the old corporation.^''^ Under these and similar special acts it is customary to reorganize the persons having an in- terest in the road to form a new corporation for whom the property is purchased by a trustee chosen for that purpose. An agreement of this kind is legal and binding, and the trustee will be compelled to transfer the property to the corporation when organized.^^" But none of the creditors can claim an interest in a reorganized corporation without sharing in the expense of the sale and reorganization.^^^ ties, Lehigh Coal Co. v. Central R. ration if they otherwise have that Co. 34 N. J. Eq. 88; United Water right. Julian v. Central Trust Co. Works Co. V. St(5ne, 127 Fed. 587; 193 U. S. 93, 24 Sup. Ct. 399. Grace v. Noel Mill Co. (Tenn. Ch.) "» People v. Cook, 110 N. Y. 443, 63 S. W. 246; Cushman v. Bonfield, 449, 18 N. E. 113, 36 Am. & Eng. R. 139 111. 219, 28 N. E. 937; Industrial, Cas. 256, 258; State v. Sherman, 22 &c. Trust V. Tod, 93 App. Div. (N. Ohio St. 411; Smith v. Chicago, &c. Y.) 263, 87 N. Y. S. 687, 170 IST. Y. R. Co. 18 Wis. 17. 233, 63 N. E. 285; Reed v. Schmidt, ""Marie v. Garrison, 83 N. Y. 14; 115 Ky. 67, 72 S. W. 367, 61 L. R. A. Munson v. Syracuse, &c. R. Co. 103 270. See, also, note in 40 L. R. A. N. Y. 58, 8 N. E. 355. See, also, 216, on the relations and rights of Wenger v. Chicago, &c. R. Co. 114 members of a syndicate. Fed. 34; Kurtz v. Philadelphia, &c. '«19 Am. & Eng. Ency. of Law R. Co. 187 Pa. St. 59, 40 Atl. 988. (1st ed.) 773. See, also, Vilas v. But see, where there is fraud, Milwaukee, &c. R. Co. 17 Wis. 497; Louisville Trust Co. v. Louisville, Thomas v. Milledgeville R. Co. 99 &c. R. Co. 174 U. S. 674, 19 Sup. Ct. Ga. 714, 27 S. E. 756; State v. Hare, 827; Central of Georgia R. Co. v. 121 Ind. 308, 23 N. E. 145; Moore Paul, 93 Fed. 878; St. Louis Trust v. State, 71 Ind. 478; Vicksburg, Co. v. Des Moines, &c. R. Co. 101 £c. R. Co. V. Elmore, 46 La. Ann. Fed. 632. 1237, 15 So. 701. Such a statute, it '"Hancock v. Toledo, &c. R. Co. is held, does not prevent purchasers 11 Biss. (U. S.) 148; Jones Corp. from selling to any existing corpo- Bonds and Mort. § 691, citing Fi- § 533] SALE. AND EEOEGANIZATION", 752 The statute providing for reorganization sometimes provides that the stockholders of the old corporation may become members of the new corporation upon certain terms.^^* And such provision is sometimes contained in the mortgage or in the reorganization agreement entered into by the purchasers.^^* A stockholder who would claim the benefit of an agreement or statutory provision by which the old stockholders are permitted to become members of the new corporation must show a strict compliance on his part with the terms of the agreement or statute.^^" The New York statute provides that any old stockholder of a company whose property and franchises are purchased by trustees upon foreclosure sale for the purpose of reorganization "shall have the right to assent to the plan of readjustment and reorganization of interests pursuant to which such franchises and property shall have been purchased at any time within six months after the organi- zation of said new company, and by complying with the terms and conditions of such plan become entitled to his pro rata benefits therein according to its terms."^^^ Under this statute it is held that no notice at all to the stockholders need be provided for in a scheme for reorganization entered into in accordance with the terms of the stat- ute, since all stockholders who are reasonably careful of their interests and vigilant in looking after their rights may be presumed to have delity Insurance, &c. Co.'s Appeal, by publication as required by the 106 Pa. St. 144. See, also, Huston's agreement for reorganization. Appeal, 127 Pa. St. 620, 18 AU. 419. Thornton v. Wabash, &c. R. Co. 81 ""See N. Y. Laws 1874, Ch. 430, N. Y. 462; Vatable v. New York, &c. as amended by laws 1876, Ch. 446. R. Co. 96 N. Y. 49. And where the , ^ Unsecured creditors cannot bondholders purchased a railroad at complain of the reorganization foreclosure sale and entered into a scheme as inequitable because tlie reorganization scheme by which any stockholders of the old company are stockholder should be entitled to to become stockholders of the new, exchange his stock for stock of the while the unsecured bondholders new company on payment of fifteen are given second preferred income dollars per share within a specified bonds at par in full for their time, it was held that the adminis- claims. Hancock v. Toledo, &c. R. trator of a deceased stockholder Co. 11 Biss. (U. S.) 148. could not demand new shares in ex- ™The fact that he had no actual change for old ones belonging to notice of the right accorded to his decedent upon tender of that stockholders to take stock until sum after the expiration of the time after the time allowed them for ex- specified. Dow v. Iowa Central R. ercising the privilege had expired Co. 70 Hun (N. Y.) 186, 24 N. Y. gives a stockholder no right to S. 292. " claim stock after the expiration of "' N. Y. Laws 1874, Ch. 430, § 3. that time, where notice was given 753 EEOEGANIZATION BY AGREEMENT — EIGHTS OF MINOEITT. [§ 533 notice of a protracted litigation to foreclose their interests in the corporation, and of a judicial sale made in pursuance thereto after due notice.^^^ And a stockholder who fails to comply with the terms of the plan of reorganization within the time prescribed by it, that being not less than the statutory period of six months, has aio right to come in after the expiration of silch time and claim stock upon an offer to perform the conditions prescribed by the plan. And the fact that he had no actual notice of the adoption of the plan does not enlarge his rights. ^^^ Statutes providing for the reorganization of insolvent corporations do not ordinarily impose any additional liabil- ities upon the purchasers, but simply confer upon them and such persons as they choose to associate with them the power to exist as a corporation and to own and manage the property which they have acquired as a railroad corporation. The new corporation organized thereunder does not become liable for any debts or liabilities of the old company for which the purchasers would not be liable by the terms of their purchase if incorporated.^^* But it does generally be- come liable to perform the public duties imposed by law upon the old corporation. Thus, the new company has been held liable for a failure to maintain and repair bridges forming a part of the highway over its road, where that duty was imposed by law upon its predeces- sor."5 § 533. Beorganization by agreement — ^Bights of minority. — "In the absence of statutory authority, or some provision in the instrument "2 Vatatle v. New York, &c. R. Co. Inal company would invest it as a 96 N. Y. 49. purchaser, so far as the new com- "'Vatable v. New York, &c. R. pany wished to exert those powers Co. 96 N. Y. 49. and privileges. While it occupies '"Houston, &c. R. Co. v. Shirley, this attitude it cannot ignore those 54 Tex. 125; Lake Erie, &c. R. Co. duties to the public which are V. GriflSn, 92 Ind. 487; Vatable v. coupled with the enjoyment of the New York, &c. R. Co. 96 N. Y. 49; corporate privileges." Montclair v. Columbus, &c. R. Co.'s Appeal, 109 New York, &c. R. Co. 45 N. J. Eq. Fed. 177. See ante, § 526. See, also, 436, 18 Atl. 242. See, also, State v. Brockert v. Iowa Cent. R. Co. 93 Central Iowa R. Co. 71 Iowa 410, Iowa 132, 61 N. W. 405. 32 N. W. 409, 60 Am. R. 806; Gates '""New York, &c. R. Co. v. State, v. Boston Air Line, &c. R. Co. 53 50 N. J. L. 303, 32 Am. & Eng. R. Conn. 333, 5 Atl. 695; Gage v. Pon- Cas. 186. In announcing the opinion tiac, &c. R. Co. 105 Mich. ■ 335, 63 of the court In this case, Judge Reed N. W. 318; Dyer County v. Chesa- sald of the defendant company: "It peake, &c. R. Co. 87 Tenn. 712, 11 proceeded to exercise all the powers S. W. 943; Sherwood v. Atlantic, &c. -with which the charter of the orig- R. Co. 94 Va. 291, 26 S. E. 943. Eix. Railboads— 48 * §■ 533] SALE AND REORGANIZATION". 754 which creates the trust, nothing can be done by a majority, however large, which will bind a minority without their consent,"^^" and a re- organization cannot, therefore, be effected, without a foreclosure, by a majority of the bondholders in such a manner as to deprive dis- senting bondholders of their rights under the mortgage.^^'' But pro- visions may be, and often are, inserted in the mortgage or trust deed which enable a majority of the bondholders to modify the mortgage rights of all^^^ and sometimes "go far towards organizing the bond- holders into a body corporate to take the place and perform the func- tions of the original corporation upon the insolvency of the latter."^'* And some of the courts have gone very far in upholding reorganization schemes adopted by the majority.^*" As a foreclosure cuts off or bars the rights of the stockholders and creditors against whom the decree is rendered, it is usually the safest way in which to prepare for a re- organization upon the insolvency of the corporation. Unsecured cred- itors and stockholders often have it in their power, however, to so embarrass and delay the foreclosure proceedings that it is found ex- pedient for the mortgage creditors and other parties interested in the property to agree upon some scheme of reorganization whereby,, after the foreclosure sale, all parties interested shall be allowed, upon equitable terms, to come into a new company which shall own the property and carry on the business. This may be necessary in order "" Canada Southern R. Co. v. Geb- sent of a bondholder to a reorgani- hard, 109 XJ. S. 527, 534, 3 Sup. Ct. zation scheme is not implied from 363; Gilfillan v. Union Canal Co. his silence. Philadelphia, &c. R. Co. 109 U. S. 401, 403, 3 Sup. Ct. 304. v. Love, 125 Pa. St. 488, 17 Atl. 455.. Minority stockholders have a right ^^'Follit v. Eddystone Granite to complain where the majority Quarries, L. R. (1892) 3 Ch. 75; stockholders attempt to reorganize Sneath v. Valley Gold, L. R. (1893) and sell to a new corporation with- 1 Ch.M77. out their consent. See Price v. Hoi- "° Taylor Priv. Corp. § 816 ; Sage- comb, 89 la. 123, 56 N. W. 407; v. Central R. Co. 99 U. S. 334; Smith V. Smith, 125 Mich. 234, 84 Shaw v. Railroad Co. 100 U. S. 605. N. W. 144. "°See Pollitz v. Farmers' Loan "'Holllster v. Stewart, 111 N. Y. &c. Co. 53 Fed. 210; Symmes v. 644, 19 N. E. 782; Taylor v. Atlantic, Union Trust Co. 60 Fed. 830; Shaw &c. R. 55 How. Pr. (N. Y.) 275; v. Railroad Co. 100 U. S. 605; Gates Poland V. Lamoille Valley R. Co. 52 v. Boston, &c. R. Co. 63 Conn. 333, Vt. 144; Bill v. New Albany, &c. 5 Atl. 695; Canada Southern R. Co. R. 2 Biss. (U. S.) 390. See, also, v. Getahard, 109 U. S. 527, 3 Sup. Mason v. Pewabic Min. Co. 25 Fed. Ct. 363; Cowell v. City, &c. Co. 882, 133 U. S. 50, 10 Sup. Ct. 224. (Iowa) 105 N. W. 1016; Mills v. Pot- And it has been held that the con- ter, 189 Mass. 238, 75 N. E. 627. 755 LACHES AND ESTOPPEL. [§ 534 to preserve intact a system of railways, to obtain funds required in the reorganization, or to prevent the appointment of a receiver and the issuance of receiver's certificates, or the allowance of other pre- ferred claims growing out of the operation of the road, which would lessen the value of the property or imperil the security of the bond- holders, and it is, therefore, better for them to "give up something of their own security" in order to avoid the delay and danger of loss. Under such schemes of reorganization the old stockholders are usually allowed to become shareholders in the new corporation upoii the payment of a certain sum for each share of stock held by them, or upon some other equitable basis, and the bondholders are generally permitted to exchange the old bonds for new ones issued by the new company. Of course, in the absence of any statutory provision upon the subject, no one who has not signed the agreement can be com- pelled to come into the new company, and where all the interested parties have agreed to the plan of reorganization their rights are measured by the agreement.^*^ Such schemes of reorganization, when fair and properly guarded, are legal and are encouraged by the courts in order to prevent loss and insure the operation of the road for the benefit of the public.^*^ § 534. Rights and obligations of the parties — ^Laches and estoppel. — In the absence of a statute or provision in the mortgage giving the majority power to bind the minority, it has been held that bondholders who refuse to participate in the reorganization are not bound to do so, but may usually insist on being paid in cash.^*' They are entitled to their proportion of the money realized from the sale, but nothing more, unless they come in within the time limited by the agreement.^** *"See, generally, 2 Cook Stock The stockholders may also combine and Stockholders (3d ed.), § 886; with them. Pennsylvania Transpor- Walt Insolv. Corp. § 451; Jones tation Co.'s Appeal, 101 Pa. St. 576. Railroad Securities, § 614. "'Brooks v. Vermont, &c. R. 22 "''Robinson v. Philadelphia, &c. Fed. 211. See, also, Philadelphia, R. Co. 28 Fed. 340; Riker v. Alsop, &c. R. Co. v. Love, 125 Pa. St. 488, 27 Fed. 251; Gates v. Boston, &c. R. 17 Atl. 455. Compare PoUitz v. Co. 53 Conn. 333, 5 Atl. 695; Mackin- Farmers' Loan, &c. Co. 53 Fed. 210, tosh V. Flint, &c. R. 34 Fed. 582; 213. Shaw V. Railroad Co. 10(1 U. S. 605; '"Zuccani v. Nacupai, &c. Co. 61 Kropholler v. St. Paul, &c. R. 1 L. T. R. 176; Vose v. Cowdrey, 49 McCrary (U.. S.) 299. The bond- N. Y. 336; Vatable v. New York, holders may combine to purchase at &c. R. Co. 96 N. Y. 49; Landis v. the sale. Terbell v. Lee, 40 Fed. 40. Western Pass. R. Co. 133 Pa. St. § 534] SALE AND EEOEGANIZATION. 756 Even in the absence of any specific limitation they should act within a reasonable time and may, by their own laches, lose their rights to come in,^*^ or to set aside the sale.^** 'So, pi course, one who takes part in the reorganization may thereby estop himself from thereafter repudiating it.^*' The provisions of the reorganization agreement must be duly complied with^^* and a change in the plan cannot be made by the reorganization committee, unless the authority is clearly given.^** But where the reorganization agreement makes the reorgani- zation committee the agents of the signers, notice to the committee is notice to all the signers. ^°'' One who has signed and complied with the reorganization agreement and is wrongfully excluded may recover damages,^^^ or, in other cases, equity will protect him and may even enforce the agreement.^^^ 579, 19 Atl. 556; Appeal of Huston, 127 Pa. St. 620, 18 Atl. 419; Bound V. South Carolina R. Co. 78 Fed. 49. But minority bondholders have been permitted by the court to come In and participate in the purchase where they made their application before the sale. Duncan v. Mobile, &c. R. 3 Woods (U. S.) 597. See, also, Walker v. Montclair, &c. R. Co. 30 N. J. Eq. 525. "'Zebley v. Farmers', &c. Co. 63 Hun (N. Y.) 541, 18 N. Y. S. 526; Carpenter v. Catlin, 44 Barb. (N. Y.) 75; Dow v. Iowa Central R. Co. 70 Hun (N. Y.) 186, 24 N. Y. S. 292; Holland v. Cheshire R. 151 Mass. 231, 24 N. E. 206; Landis v. Western Penna. R. Co. 133 Pa. St. 579, 19 Atl. 556. ""Wetmore v. St. Paul, &c. R. 1 McCrary (U. S.) 466; Carey v. Hous- ton, &c. R. Co. 52 Fed. 671; Farm- ers', &c. Co. V. Bankers', &c. Co. 119 N. Y. 15, 23 N. E. 173. See, also. Mills V. Potter, 189 Mass. 238, 75 N. B. 627; Cole v. Birmingham, &c. R. Co. (Ala.) 39 So. 403. "'Symmes v. Union Trust Co. 60 Fed. 830; Matthews v. Murchison, 15 Fed. 691; Crawshay v. Soutter, 6 Wall. (U. S.) 739. See, also, St. Louis, &c. Co. V. Sandoval, &c. Co. 116 111. 770, 5 N. E. 370; United States V. Union Pac. R. Co. 98 U. S. 569; Hollins v. St. Paul, &c. R. Co. 29 N. Y. St. 208, 9 N. Y. S. 909; Butterfleld v. Cowing, 112 N. Y. 486, 20 N. E. 369. "*In order to hold a dissatisfied subscriber. Miller v. Rutland, &c. R. Co. 40 Vt. 399, 94 Am. Dec. 413; Martin v. Somerville, &c. Co. 27 How. Pr. (N. Y.) 161; United Water Works Co. V. Omaha, &c. Co. 164 N. Y. 41, 58 N. B. 58; United Water Works Co. V. Stone, 127 Fed. 587. And by those who desire to come into the new company, in order to entitle them to do so. Thornton v. Wabash, &c. R. Co. 81 N. Y. 462; Van Alstyne v. Houston, &c. R. Co. 56 Tex. 377; Appeal of Fidelity, &c. Co. 106 Pa. St. 144; Fuller v. Vena- ble, 118 Fed. 543. "'Dutenhofer v. Adirondack R. Co. 14 N. Y. S. 558. ™Cox V. Stokes, 78 Hun (N. Y.) 331, 29 N. Y. S. 141. "1 Reading, &c. Co. v. Reading, &c. Works, 137 Pa. St. 282, 21 Atl. 169; Harris v. Davis, 44 Fed. 172. "^May compel an accounting. Riker v. Alsop, 27 Fed. 251; Cush- 757 FRAUD IN THE SALE OR REORGANIZATION. [§ 535 § 535. Fraud in the sale or reorganization. — A secret agreement, whereby one of the parties seeks to obtain an undue advantage, will not be tolerated by the eourts,^"^ and a sale may be set aside where the mortgage trustee enters into a combination with part of the bondholders to purchase at the sale for a small price and reorganize in such a manner as to sacrifice the interests of the other bond- holders.^'* But, as we have already seen, any number of stockholders or creditors may purchase for themselves so long as they do so in good faith without preventing competition or taking any undue, ad- vantage of the others.^'' It has been held that a purchase by a director,^'® or a trustee^^^ at his own sale is constructively or prima facie fraudulent and voidable, but mortgage trustees are sometimes authorized by the courts to make a certain bid or purchase at the sale for the benefit of all the bondholders,^'* and in some cases purchases by directors in good faith have been upheld.^'' But the company, or mortgagor, may usually avoid the sale to a trustee by redeeming,^"" man v. Borifield, 139 111. 219, 28 N. E. 937. May enforce agreement of purchaser to allow others to partici- pate. Cornell v. Utica, &c. R. Co. 61 How. Pr. (N. Y.) 184; Marie v. Garrison, 83 N. Y. 14. ^== "White, ex parte, 2 S. Car. 469; Bliss V. Matteson, 45 N. Y. 22. ^" Sahlgard v. Kennedy, 1 Mc- Crary (U. S.) 291. See, also, Lake St. El. R. Co. V. Ziegler, 99 Fed. 114. ^=' Ante, § 529. See, also. Carter v. Ford Plate Glass Co. 85 Ind. 180; Hayden v. Official, &c. Co. 42 Fed. 875; Osborne v. Monks (Ky.), 21 S. W. 101; Ketchum v. Duncan, 96 U. S. 659; Kitchen v. St. Louis, &c. R. Co. 69 Mo. 224; Wetmore v. St. Paul &c. R. Co. 3 Fed. 177. "»2 Cook Stock and Stockholders, §§ 653, 886; Cumberland, &c. Co. v. Sherman, 30 Barb. (N. Y.) 553; Jones V. Arkansas, &c. Co. 38 Ark. 17; Wilkinson v. Bauerle, 41 N. J. Eq. 635, 7 Atl. 514; European, &c. R. Co. V. Poor, 59 Me. 277; Iron, &c. Co., Re, 19 Ont. R. 113, 33 Am. & Eng. Corp. Cas. 277. The com- pany's attorney may purchase for the bondholders. Pacific R. v. Ketchum, 101 U. S. 289. "'Washington, &c. R. v. Alexan- dria, &c. R. 19 Gratt. (Va.) 592, 100 Am. Dec. 710. But he may purchase at a sale brought about by other parties. Allan v. Gillette, 127 U. S. 589, 8 Sup. Ct. 1331. "« 2 Cook Stock and Stockholders, § 885; Sage v. Central R. 99 U. S. 334; Rogers v. Wheeler, 43 N. Y. 598. "'Saltmarsh v. Spaulding, 147 Mass. 224, 17 N. E. 316 ; Harpending V. Munson, 91 N. Y. 650; Twin Lick Oil Co. V. Marbury, 91 IT. S. 587; Hill V. Nisbet, 100 Ind. 341; Hallam V. Indianola Hotel Co. 56 Iowa 178, 9 N. W. 111. See, also, for acts of officers in effecting reorganization held not to be fraudulent. Symmes V. Union Trust Co. 60 Fed. 830. "'"Kitchen v. St. Louis, &c. R. 69 Mo. 224; Racine, &c. R. v. Farmers', &c. Co. 49 111. 331, 95 Am. Dec. 595; Wasatch, &c. Co. v. Jennings, 5 §' 535] SALE AND EEOKGANIZATION. 758 and a director who fraudulently purchases may be compelled to trans- fer the property or account as a trustee.^"^ It has been held that prop- erty fraudulently transferred to a new company formed by the mem- bers of an old company, with the intention of cheating, hindering and delaying the creditors of the old corporation, may be reached by them on execution.^"^ So, where a company was apparently properly incorporated and executed notes as a corporation, it was held that it could not escape liability upon the notes by attempting to dissolve on the ground that the incorporation was invalid and by reorganizing and reincorporating.^®' As a general rule, it may, perhaps, be said that any sale or device by which all the assets of an insolvent corpora- tion are to be parceled out among the stockholders, leaving creditors unpaid, is a fraud upon such creditors, and, in a proper case, they may follow the assets or the purchase-money in the hands of the stockholders. Thus, it has been held that a foreclosure sale made after the company had become insolvent, and expedited by an arrangement between the bondholders and the stockholders whereby the former received part of their debt and the latter the balance of the proceeds, is fraudulent as to the unsecured creditors, who may be allowed to intervene and obtain satisfaction of their debts out of the proceeds of the sale set apart for the stockholders.^®* In another case^"^ an in- solvent railroad company sold all its property to another company for bonds of the latter guarantied by a banking company, and the contract of sale provided that, in consideration for the guaranty, the banking company should become the owner of the stock and income bonds of the selling company, while the bonds of the buying company, instead Utah 243, 15 Pac. 65; Hoyle v. Am. Dec. 372. See, also, Blair v. St. Plattsburgh, &c. R. Co. 54 N. Y. Louis, &c. R. Co. 22 Fed, 36. A 314, 13 Am. Dec. 595. See, also, transfer of all the property of a James v. Cowing, 82 N. Y. 449. railroad company to a new company "'Harts v. Brown, 77 111. 226; formed by the members of the old Hope V. Valley City Salt Co. 25 W. with the same officers and a mere Va. 789; Allen v. Jackson, 122 111. exchange of stock was held fraudu- 567, 13 N. E. 840; Jackson v. Ludel- lent as against creditors in San ing, 21 Wall. (U. S.) 616; Coving- Francisco, &c. R. Co. v. Bee, 48 Cal. ton, &c. R. Co. V. Bowler's Ex., 9 398. Bush (Ky.) 468; Bradbury v. • "= Empire Mfg. Co. v. Stuart, 46 Barnes, 19 Cal. 120; Tobin, &c. Co. Mich. 482, 9 N. W. 627. V. Fraser, 81 Tex. 407, 17 S. W. 25; >»* Railroad Co. v. Howard, 7 Wall. Raleigh v. Fitzpatrick, 43 N. J. Eq. (U. S.) 392. 501, 11 Atl. 1. !» Chattanooga, Rome, &c. R. Co. "' Booth V. Bunce, 33 N. Y. 139, 88 v. Evans, 66 Fed. 809. 759 EEOEGANIZATION BY THE COUETS. [§ 536 of being held as assets by tbe officers of the selling company, were to be distributed among its shareholders and the owners of its income bonds. The court held that, as against unsecured creditors of the vendor 'company, its income bonds in the hands of the banking com- pany should be treated as paid and canceled, saying that the device was "doubly fraudulent." It may be stated, as a general rule, under these decisions, that a sale of all the property of an insolvent railroad company, under an arrangement whereby the stockholders of the sell- ing company or such stockholders and the owners of its income bonds receive the entire purchase-price or proceeds of the sale, is fraudulent as against unsecured creditors known to exist by both parties at the time of the sale, and that, even in the absence of express notice of their existence upon the part of the purchaser, the purchasing com- pany, knowing that the purchase-price will be placed beyond their reach, is bound to inquire as to whether there are any unsecured cred- itors and is chargeable with the knowledge which an inquiry would disclose.^^^ § 536. Reorganization by the courts. — It is, perhaps, not strictly correct to say that the courts will reorganize a corporation, but in many cases they have done what they could to further the reorganiza- tion of railroad companies in the interests of the public and of all par- ties concerned.^°^ Thus, in a recent case,^^^ the court approved a mas- ter's report wherein he laid down the rule that "a court of equity in foreclosure proceedings upon railroad mortgages, in view of the num- ber and variety of persons and interests to be affected, and their prob- able sacrifice without combination for their protection, will facilitate combinations and schemes of reorganization to the end that a small •" See, also, Vance v. McNabb, &c. ordinarily formulate reorganization Coke Co. 92 Tenn. 47, 20 S. W. 424; plans. Paton v. Northern Pac. R. Central of Georgia R. Co. v. Paul, 93 Co. 85 Fed. 838; Lake St. El. R. Co. Fed. 878; Louisville Trust Co. v. v. Ziegler, 99 Fed. 114; Wabash, &c. Louisville, &c. R. Co. 174 U. S. 674, R. Co. v. Central Trust Co. 22 Fed. 19 Sup. Ct. 827; Montgomery, &c. 138. But they often do what they R. Co. v. Branch, 59 Ala. 139; Bar- can to encourage them. See Shaw thold V. Holladay, &c. Co. 91 Mo. v. Little Rook, &c. R. Co. 100 V. S. . App. 233; McVicker v. American, 605; Robinson v. Philadelphia, &c. &c. Co. 40 Fed. 861; San Francisco, R. Co. 28 Fed. 340; Reed v. Schmidt, &c. R. Co. V. Bee, 48 Cal. 398 ; Ewing 115 Ky. 67, 72 S. W. 367, 61 L. R. a! V. Composite, &c. Co. 169 Mass. 72, 270. 47 N. E. 241. "» Piatt v. Philadelphia, &c. R. Co. ^ See ante, § 533. Courts do not 65 Fed. 872. § 536] SALE AND REORGANIZATION. 760 minority of interests shall not enforce unreasonable and inequitable concessions from the majority, or the majority crash out or subject to disadvantage the rights of the minority."^^' The court also granted permission to the receiver to pay to a syndicate which had proposed to effect a reorganization by the advancement of funds for the purchase of overdue coupons, a commission of two and one-half per cent on the money advanced in case the reorganization was perfected, stating that it would "regard with satisfaction any and every legitimate effort to terminate the receivership." It took care to observe, however, that receivers "should not enlist, on either side, in conflicts among those interested in the property," and that it would not pass upon the merits of rival schemes of reorganization nor coerce the judgment or control the action of the parties interested. So, in another case,^^* the court confirmed a plan of reorganization, over the objection of the minority, who were compelled to surrender their old bonds and ac- cept new ones upon being duly secured. And in many eases the courts have approved a fair reorganization by the majority where all interests were properly protected.^'^ ™ Citing Sage v. Central R. Co. 99 ™ PoUitz v. Farmers', &c. Co. 53 TI. S. 334; Carey v. Houston, &c. R. Fed. 210. Co. 45 Fed. 438; Robinson v. Phila- ™ See cases cited in last two pre- delphia, &c. R. Co. 28 Fed. 340; ceding notes; also Shaw v. Little Cook Stoct and Stockholders (3d Rock, &c. R. Co. 100 U. S. 605; Fidel- ed.), § 886. See, also, Clark v. Can- ity Ins. &c. Co. v. Roanoke St. R. tral R. &c. Co. 66 Fed. 16. But Co. 98 Fed. 475. compare Chahle v. Nicaragua, &c. Co. 59 Fed. 846. CHAPTEK XXII. KECEIVBKS. Sec. Sec. 537. Receivers generally. 555. 538. Jurisdiction of courts of equi- ty — Statutory provisions. 556. 539. Jurisdiction is sparingly exer- cised — Purpose of appoint- 557. ment. 540. General rules as to when re- 558. ceivers of railroads will be appointed. 541. Receivers will not be appoint- 559. ed merely because parties consent. 560. 542. Extent to which jurisdiction has been exercised. 561. 543. Insolvency as ground for ap- pointment of receiver. 562. 544. When insolvency is sufficient 563. without default. 564. 545. Default in payment of indebt- edness as ground for ap- 565. pointment. 546. Appointment in foreclosure 566. proceedings. 547. Other grounds for appoint- ment. 567. 548. Appointment upon application 568. of unsecured creditors. 549. Appointment upon application 569. of secured creditors. 550. Appointment upon application of stockholders. 570. 551. Appointment upon application of corporation. 571. 552. "What court may appoint. 553. Court first obtaining jurisdic- 572. tion retains it — Conflict of jurisdiction. 573. 554. Extraterritorial jurisdiction. 761 Ancillary appointment — Com- ity. Procedure — ^Bx parte applica- tion. Parties to proceedings for ap- pointment of receiver. Appointment upon motion or petition and notice — Aflida- vits. Who may appoint — Appoint- ment in vacation. Suit must generally be pend- ing. Who may be appointed re- ceiver. Order appointing receiver. Effect of appointment. Collateral attack on appoint- ment. Title and possession of re- ceiver. Authority, rights and duties of receiver — Control by court. Contracts of receiver. Suits by receivers — Authority to sue. When receiver may maintain suit — Defenses to receiver's suit. Right of receiver to sue in other jurisdictions — Comity. Suits against receivers — Leave to sue must be obtained. Effect of failure to obtain leave to sue. Effect of recent Act of Con- gress. § 537] EBOEIVEES. 763 Sec. Sec. 574. Rule where suit has been com- 579. menced before appointment 580. of receiver. 575. Protection of receiver by the 581. court. 582. 576. Liability of receivers — Gener- 583. ally. 584. 577. Liability for torts. 585. 578. Receiver is bound to perform 586. public duties — Mandamus. 587. Liability on contracts. Liability on claims arising from operation of the road. Liability of corporation. Receivers of leased lines. Receiver's accounts. Compensation of receiver. Attorney's fees. Removal and discharge. Effect of removal or discharge. § 537. Receivers generally. — A receiver is a person^ appointed by the court to take charge of property pending litigation, or in pur- suance thereof.^ The appointment of a receiver is an auxiliary equita- ble remedy, devised, on account of the inadequacy of any remedy at law, to prevent loss or injury to property in litigation and preserve it, pendente lite, for the sake of all interested, to be finally disposed of as the court may decree.* In the case of a receiver of a railroad his duties usually involve the operation of the road for a time, and often until the receivership is terminated, under the control of the court.* A receiver stands indifferent between the parties, and occupies a fiduciary relation to all the creditors.^ He is, in a sense, an officer of the court, and the court will protect the property in his hands.® ^ In many of the states provision is made for the appointment of cor- porations commonly called "trust companies." ''High Receivers, § 1; Devendorf v. Bickinson, 21 How. Pr. (N. Y.) 275; Merritt v. Merritt, 16 Wend. (N. Y.) 405; Baker v. Backus, 32 III. 79; Farmers' Loan, &c. Co. v. Ore- gon Pac. R. Co. 31 Oreg. 237, 48 Pac. 706, 65 Am. St. 822; Foster's Fed. Pr. § 239; 3 Pom. Bq. Jur. § 1330. "Stilwell v. Williams, 6 Madd. 38; Bank of Mississippi v. Duncan, 52 Miss. 740; Folsom v. Evans, 5 Minn. 418; Myers v. Estell, 48 Miss. 372; Lyman v. Cent. Vermont R. Co. 59 Vt. 167, 10 Atl. 346. There are, how- ever, cases where a receiver finally disposes of property; as, for in- stance, under statutes authorizing a receiver to wind up the affairs of a corporation. *See Erb v. Morasch, 177 U. S. 584, 20 Sup. Ct. 819; Davis v. Gray, 16 Wall. (U. S.) 203; Meyer v. John- ston, 53 Ala. 237; Vermont, &c. R. Co. v. Vermont Cent. R. Co. 46 Vt. 792; Dayton, &c. Co. v. Felsenthal, 116 Fed. 961; Continental Trust Co. V. Toledo, &c. R. Co. 59 Fed. 514; Vanderbllt v. Central R. Co. 43 N. J. Eq. 669, 12 Atl. 188. "Porter v. Williams, 9 N. Y. 142, 59 Am. Dec. 519; Davis v. Gray, 16 Wall. (U. S.) 203, 217; Vermont, &c. R. Co. V. Vermont Cent. R. Co. 34 Vt. 1. " 3 Pom. Eq. Jur. § 1336 ; Davis v. Gray, 16 Wall. (U. S.) 203, 218; Walling V. Miller, 108 N. Y. 173, 2 Am. St. 400. 763 EECEIVEES GENEKALLT. [§' 53r In the absence of a statute authorizing it he cannot be sued, ordinarily at least, without permission of the court by whom he was appointed/ So, as a rule, he can only bring suit in his own name when authorized by statute or by the court.' As a general rule he derives his title from the debtor, and can only maintain suit where the debtor could have done so." But there are exceptions to this general rule, for a receiver may sometimes bring suits which the debtor could not main- tain. The paramount duty of a receiver is to secure assets for the payment of the debtor's liabilities, and he may for that purpose bring and sustain suits, such as a suit to set aside a fraudulent con- veyance made by the debtor, that the latter could not successfully prosecute.^" 'Barton v. Barbour, 104 U. S. 126; Keen v. Breckenridge, 96 Ind. 69; Wayne Pike Co. v. State, Whittaker, 134 Ind. 672, 34 N. B. 440; De Graffenried v. Brunswick, &c. Co. 57 Ga. 22; Davis v. Ladoga Creamery Co. 128 Ind. 222. 27 N. E. 494; Chris- tian Jensen Co., Matter of, 128 N. Y. 550, 28 N. E. 665. See, how- ever, Foster's Fed. Pr. § 251, for recent act of congress authorizing suit in some cases, and Kinney v. Crocker, 18 "Wis. 74; Allen v. Cen- tral R. Co. 42 Iowa 683; Lyman v. Central, &c. R. Co. 59 Vt. 167; Ma- lott V. Shimer, 153 Ind. 35, 54 N. E. 101, 74 Am. St. 278; FuUerton v. Fordyce, 121 Mo. 1, 25 S. W. 587,' 45 " Am. St. 505. 'Garver v. Kent, 70 Ind. 428; Green v. Winter, 1 Johns. Ch. (N. Y.) 60; Wilson v. Welch, 157 Mass. 77, 31 N. E. 712. See, also, Pendle- ton V. Russell, 144 U. S. 640, 12 Sup. Ct. 743. As to when the rule does not apply, see Ponder v. Catterson, 127 Ind. 434, 26 N. E. 66. "Jacobson v. Allen, 12 Fed. 454, 457; LaFollett v. Akin, 36 Ind. 1; Republic, &c. Co. v. Swigert, 135 111. 150, 25 N. E. 680, 12 L. R. A. 328; Burch v. West, 33 111. App. 359. "Graham Button Co. v. Spiel- mann, 50 N. J. Eq. 120, 24 Atl. 571; Cole V. Satsop R. Co. 9 Wash. 487, 37 Pac. 700, 43 Am. St. 858, 10 Lew- is Am. R. & Corp. R. 604; Voor- hees V. Indianapolis, &c. Co. 140 Ind. 220, 39 N. E. 738; National, &c. Bank v. Vigo Co. Nat'l Bank, 141 Ind. 352, 40 N. B. 799; Taylor Priv. Corp. §§ 274, 814; 2 Beach Eq. 905; Elliott Gen. Pr. § 393. The receiver of a corporation may avoid a chattel mortgage on its property on the ground that it was not filed accord- ing to law. Farmers' Loan, &c. Co. V. Minneapolis, &c. Works, 35 Minn. 543, 29 N. W. 349. A receiver of a corporation may properly bring an action to set aside and vacate a judgment against the corporation on the ground that it was obtained in fraud of creditors, without con- sideration, and by collusion with the officers of the corporation. Whittle- sey V. Delaney, 73 N. Y. 571. A re- ceiver of a corporation may repudi- ate the illegal transfer of its securi- ties by its officers and secure them as assets. Talmage v. Pell, 7 N. Y. 328. A receiver of an insolvent cor- poration appointed at the instance of creditors is clothed with all their rights and can sue to recover un- paid stock subscriptions in cases 538] KECEIVEES. 764 § 538. Jurisdiction of courts of equity — Statutory provisions. — The power to appoint a receiver is, we think, inherent in courts of equity, and in those code states in which the court of equity has lost its sepa- rate identity the power has descended to the courts having equitable jurisdiction.^^ It may be exercised in aid of their jurisdiction, as a general rule, whenever necessary in order to accomplish complete jus- tice, but not, ordinarily, where the law affords any other safe or expedient remedy.^^ The appointment of receivers for railroad cor- porations is regulated largely by statute in many of the states,^* and where the corporation cannot sue. Cole V. Satsop R. Co. 9 Wash. 487, 37 Pac. 700, 43 Am. St. 858. "Bitting V. Ten Eyck, 85 Ind. 357; McElwaine v. Hosey, 135 Ind. 481, 490, 35 N. E. 272; Folsom v. Evans, 5 Minn. 418; Hopkins v. Worcester, &c. Canal Prop. L. R. 6 Eq. 437; Williamson v. Wilson, 1 Bland (Md.) 420; U. S. Trust Co. v. New York, &c. R. Co. 101 N. Y. 478, 5 N. E. 316; Meyer v. Johnston, g3 Ala. 237; High Receivers, § 9; Beach Law of Railways, § 708; note, 64 Am. Dec. 482. There is, however, considerable conflict as to whether the power to appoint receivers of railroad companies is inherent in courts of equity. See Gardner v. London, &c. R. Co. L. R. 2 Ch. 201; American, &c. Co. v. Toledo, &c. R. Co. 29 Fed. 416, 421; Vanderhilt v. Central R. Co. 43 N. J. Eq. 669, 12 Atl. 188; Cole v. Philadelphia, &c. Ry. Co. 140 Fed. 944. "Sollory V. Leaver, L. R. 9 Eq. 22; Cremen v. Hawkes, 2 Jones &, La T. 674; Corey v. Long, 43 How. Pr. 492; Rice v. St Paul, &c. R. Co. 24 Minn. 464; High Receivers, § 10; Elliott Gen. Pr. § 394. "A receiver may be appointed at the request of a creditor or stock- holder, upon the expiration of the corporate charter, in most of the states. Stimson Am. Stat. (1892), §§ 8332, 8360. Or upon voluntary dissolution. Stimson Am. Stat. (1892), citing laws of Massachu- setts, New Jersey, Minnesota, Dela- ware, Alabama. Or upon dissolution by decree of court or otherwise. Stimson Am. Stat. (1892), citing laws of Massachusetts, New York, Delaware, Montana, Ohio, West Vir- ginia, North Carolina, Texas, Cali- fornia, Oregon, Washington, Idaho, Wyoming, Utah; § 8900, citing laws of New Jersey. So when the corpo- ration is insolvent or in Imminent danger of insolvency. Stimson Am. Stat. (1892), §§ 8332, 8360, citing laws of North Carolina, Texas, Ore- gon, Washington, Idaho, Montana, Wyoming, Utah; § 8900, citing laws of New Jersey and Kentucky. A receiver may be appointed upon non-user or abuser or its corporate rights or the doing of any acts for- feiting such rights. Stimson Am. Stat. (1892) §§ 8332, 8360, citing laws of North Carolina, Oregon, Washington, Idaho, Montana, Utah, R. S. Ind. 1894, § 1236. Neglect for sixty days to run trains regularly, R. S. 1883, Me. Ch. 51, § 47. Neg- lect for ten days to run dally trains, N. J. 1886, R. § 42. The Indiana statute authorizes the appointment of a receiver where, in the discre- tion of the court or the judge there- of in vacation, it may be necessary to secure ample justice to the par- ties. R. S. Ind. 1894, § 1236. Under 765 JUEISDIOTIOK OP COUKTS OP EQUITY. [§■ 538 in England^* as well. And it has been held that specification by the legislature of the cases in which a receivership may be had excludes every other case and prohibits the appointment, except as author- ized.^^ But it seems to us that the better rule is that the right is inherent in courts of equity, that such statutes are but declaratory of the common law and must be construed in the light of equity juris- prudence, and that they do not abridge the inherent power of the court of equity.^* The inherent authority of a court of equity to take charge this statute it was held that a re- ceiver of a turnpike company would be appointed at the suit of stock- holders, upon a showing that the majority of the directors have con- verted and misappropriated the cor- porate revenues, tolls and earnings and suffered the road to become badly out of repair and wholly im- passable for six weeks, although there is no prayer for a dissolution of the corporation. "Wayne Pike Co. T. Hammons, 129 Ind. 368, 27 N. E. 487. » 30 and 31 Vict. Ch. 127, § 4. Sec- tion 4 of this act, known as the Rail- way Companies act of 1867, pro- vides that no part of the rolling stock or plant used or provided by a company for the purposes of the traflSc on their railway, or of their stations or workshops, shall be lia- ble to be taken on execution at law or in equity after the road is opened for traffic; but the person who has recovered a judgment against the corporation which remains unpaid may obtain the appointment of a receiver, and, if necessary, of a man- ager for the business of the com- pany, on application to the court of chancery in England or Ireland, ac- cording to the situation of the rail- way owned by the company. When- ever the judgment creditor of a rail- way company is unpaid the appoint- ment of a receiver or manager is a matter of right. Manchester, &c. R. Co., In re, L. R. 14 Ch. DIv. 645. " Fellows V. Hermans, 13 Abb. Pr. N. S. (N. Y.) 1. The code of Georgia does not materially alter the equitable jurisdiction of the courts to appoint receivers. Skin- ner V. Maxwell, 66 N. Car. 45. In England it has been held that a court of chancery, in the absence of statute authority, has no power to appoint a manager for a railroad. Gardner v. London, &c. R. Co. L. R. 2 Ch. 201. But the weight of au- thority in the United States is, we think, the other way, although there is some question as to the better rule. "Beach Rec. f 10; 20 Am. & Eng. Encyc. of Law 333, 339; 1 Elliott's General Practice, § 394; Bitting v. Ten Eyck, 85 Ind. 357; note to 64 Am. Dec. 482; BIspham's Prin. Eq. (4th ed.), § 576; Skinner v. Max- well, 66 N. Car. 45; McElwaine v. Hosey, 135 Ind. 481, 490, 35 N. E. 272; U. S. Trust Co. v. New York, &c. R. Co. 101 N. Y. 478, 5 N. E. 316, 25 Am. & Eng. R. Cas. 601; Hol- lenbeck v. Donnell, 94 N. Y. 342. In Davis v. Gray, 16 Wall. (U. S.) 203, 220, Swayne, J., says: "As re- gards the statutes, we see no reason why a court of equity, in the exer- cise of Its un,doubted authority, may not accomplish all the best results intended to be secured by such leg- islation, without its aid." § 539] EECEIVEES. 766 of and operate a railroad and control the extensive business interests therewith connected with a view to its continuance, has been denied in some jurisdictions on the grounds that a court of chancery will not assume the management of a business except with a view to its winding up or to keep it a going concern with a view to its sale, and that the public functions of the railroad corporation cannot be dele- gated or transferred, but must be discharged by the company itself.^'^ In such instances the defect of power has generally been supplied by statute,^* and in some states the power of courts of equity has thus been greatly extended and enlarged. Such statutes, however, are some- what strictly construed.^' § 539. Jurisdiction is sparingly exercised — ^Purpose of appoint- ment. — The appointment of a receiver is a power to be somewhat sparingly exercised, and in America it is exercised reluctantly with re- gard to railroads, the courts proceeding cautiously with reference to the circumstances of each particular case and reserving a broad dis- cretion^" on account of the inability of a court of equity in all cases to "Gardner v. London, &c. R. Co. L. R. 2 Ch. 201; Attorney-General V. Utica Ins. Co. 2 Johns. Ch. (N. Y.) 371; Second Ward Bank v. Up- mann, 12 Wis. 499; East Line, &c. Co. V. State, 75 Tex. 434, 12 S. W. 690. Compare Attorney-General v. Utica Ins. Co. 2 Johns. Ch. (N. Y.) 371; Attorney-General v. Bank of Niagara, Hopk. Ch. (N. Y.) 354; Slee V. Bloom, 5 Johns. Ch. 366, 381; Howe v. Deuel, 43 Barb. (N. Y.) 504; Belmont v. Brie R. Co. 52 Barb. (N. Y.) 637; Baker v. Backus, 32 111. 79; Neall v. Hill, 16 Cal. 145, 76 Am. Dec. 508. In Decker v. Gardner, 124 N. Y. 334, 26 N. E. 814, the court says: "The court of chan- cery * * * declined until the power was conferred by statute to sequestrate corporate property through the medium of a receiver, or to dissolve corporate bodies, or restrain the usurpation of corporate powers." " See 30 and 31 Vict. Ch. 126, § 4; 36 and 37 Victoria, §§ 3; 27; Acts N. Y. 1825, Ch. 325, § 15; Acts Tex. 1887, p. 120, § 1, subd. 3; Connelly V. Dickson, 76 Ind. 440; Hellebush V. Blake, 119 Ind. 349, 21 N. E. 976. " Bangs V. Mcintosh, 23 Barb. (N. Y.) 591; High Receivers, § 289; 20 Am. & Bng. Bncyc. of Law 271, and note; Chamberlain v. Rochester, &c. Co. 7 Hun (N. Y.) 557. " Sage V. Memphis, &c. R. Co. 125 U. S. 361, 8 Sup. Ct. 887, and cases cited; Stevens v. Davison, 18 Gratt. (Va.) 819, 98 Am. Dec. 692; PuUan V. Cincinnati, &c. R. Co. 4 Biss. (IT. S.) 35; People v. Albany, &c. R. Co. 7 Abb. Pr. N. S. (N. Y.) 265; Smith v. Port Dover, &c. R. Co. 12 Ont App. 288; Simpson v. Ottawa, &c. R. Co. 1 Ch. Chamb. (Ont.) 126. In Overton v. Memphis, &c. R. Co. 10 Fed. 866, Judge Caldwell said: "None of the prerogatives of a court of equity have been pushed to such extreme limits as this, and there is none so likely to lead to abuses. It 767 RULES FOE APPOINTMENT OF RECEIVERS. ^[§ 540 properly care for the large business interests involved.''^ Courts of equity, however, will assume the management of railroads when a proper case presents itself, with a view tothe winding up of insolvent companies, or the sale of their property for the benefit of creditors, and, if it is shown to be necessary, will continue the operation of the roads by the intervention of receivers in order that they may be sold without depreciation of the property, and in order that the public in- terests shall not suffer. They are thus enabled to protect and enforce the rights of creditors and stockholders and to insure the discharge of the public function of the corporation.^^ Where the appointment of receivers to manage railroads is authorized by statute, the circum- stances under which the "appointment may be made and the manner of their appointment are often specifically set forth; but these stat- utes are largely declaratory of the common law as administered by the courts of other jurisdictions,^^ and, in the absence of specific provi- sions in the statute, the jurisdiction of a court of equity may be said in general to extend to all cases where its interference is necessary to protect the property or to enforce the rights of persons interested in it, whether creditors or stockholders.^* § 540. General rules as to when receivers of railroads will be ap- pointed. — It is frequently said that the appointment of a receiver is is not the province of a court of appointed, "does not materially al- equity to take possession of the ter the equitable jurisdiction" ot, property, and conduct the business the courts of that state. Skinner v. of corporations or individuals, ex- Maxwell, 66 N. C. 45. In New Jer- cept where the exercise of such ex- sey the statute provides that a re- traordinary jurisdiction is indispen- ceiver may be appointed for any sably necessary to save or protect railroad which fails for ten days some clear right, of a suitor, which to run daily trains. N. J. Supp. p. would otherwise be lost or greatly 834, pi. 42. Delaware Bay, &c. R. endangered, and which cannot be Co. v. Markley, 45 N. J. Bq. 139, 16 saved or protected by any other ac- Atl. 436. tion or mode of proceeding." =* Stevens v. Davison, 18 Gratt. ''^ Kelly V. Alabama, &c. E. Co. 58 (Va.) 819, 98 Am. Dec. 692; Meyer Ala. 489. See Gardner v. London, v. Johnson, 53 Ala. 237; Skinner v. &c. R. Co. L. R. 2 Ch. 201. Maxwell, 66 N. Car. 45; Sandford v. 22 See post, § 542; Long Branch, Sinclair, 8 Paige (N. Y.) 373; Conro &c. R. Co. In re, 24 N. J. Eq. 398; v. Port Henry Iron Co. 12 Barb. Beach Receivers, 329; Cook Stock (N. Y.) 27; Lawrence v. Greenwich and Stockholders and Corporation Fire Ins. Co. 1 Paige (N. Y.) 587; Law, § 863. Conro v. Gray, 4 How. Pr. 166; Da- ^ It is held in North Carolina that vis v. Gray, 16 "Wall. (U. S.) 203, the code, which specifies certain 219. cases in which a receiver may be § 540] EECBIVEES. 768 within the sound discretion of the court.^^ This does not mean that the court can, without error, arbitrarily appoint a receiver where such appointment is unauthorized and wholly uncalled for, or refuse the appointment where the right is clear, fixed and definite, but that a sound discretion is to be exercised according to well-established princi- ples of law.^° It is only in clear cases that the power will be ex- ercised, and as a general rule there must be a suit pending.^' "Verplanfe v. Caines, 1 Johns. Ch. (N. Y.) 57; Walker, Ex parte, 25 Ala. 81; Owen v. Homan, 4 H. L. Cas. 997, 1032; Oakley v. Paterson Bank, 2 N. J. Eg. 173; Simmons Hardware Co. v. Waibel, 1 So. Dak. 488, 47 N. W. 814, 11 L. R. A. 267, 36 Am. St. 755; Smith v. Port Dover, &c. R. Co. 12 On- tario App. R. 288, 25 Am. & Eng. R. Cas. 639; Farmers' Loan, &c. Co. V. Chicago & A. R. Co. 27 Fed. 146; Mays V. Rose, Freem. Ch. (Miss.) 703, 718. See Elliott's Gen. Pr. 394, and cases cited. " Mercantile Trust Co. v. Missouri, &c. R. Co. 36 Fed. 221; Orphan Asylum v. McCartee, 1 Hopk. Ch. (N. Y.) 423 (372); Milwaukee R. Co. V. Soutter. 5 Wall. (U. S.) 660; Lenox v. Notrebe, Hempst. (U. S.) 225; Vose v. Reed, 1 Woods (U. S.) 647; Pond v. Framingham, &c. R. Co. 130 Mass. 194; Daniels' Ch. Pr. (6th ed.) 1664. The action of the trial court is subject to review on appeal. Tysen v. Wabash R. Co. 8 Biss. (U. S.) 247; Winthrop Iron Co. V. Meeker, 109 U. S. 180, 3 Sup. Ct. Ill; La Societe Prancaise d'Epargnes, &c. v. District Court, ,53 Cal. 495; Smith v. Port Dover, &c. R. Co. 12 Ont. App. 288, 25 Am. & Eng. R. Cas. 639; Cook v. Detroit, &c. R. Co. 45 Mich. 453, 8 N. W. 74. Compare Dawson v. Parsons, 137 N. Y. 605, 33 N. E. 482. "Pressley v. Harrison, 102 Ind. 14, 1 N. E. 188; Pressley v. Lamb, 105 Ind. 171, 4 N. B. 682; Crowder T. Moone, 52 Ala. 220; National Bank v. Kent Circuit Judge, 43 Mich. 292, 5 N. W. 627; Jones v. Bank, 10 Colo. 464, 17 Pac. 272; Wiltsie » Mortgage Foreclosures, § 630. Mr. Foster, in his Federal Practice, says: "Independently of statutory authority, a court of equity will ordinarily appoint a re- ceiver of the property of a corpora- tion in only seven cases: Firstly, at the suit of mortgagees or other holders of liens upon it; secondly, at the suit of judgment creditors seeking eauitable assets; thirdly, at the suit of persons interested, whether as stockholders or credit- ors, in the property, where there is a breach of duty by the directors, and an actual or threatened loss; fourthly, where a corporation has been dissolved and has no officer to attend to Its affairs; fifthly, where for a long time the corpora- tion has ceased to transact business, and its officers have ceased to act; sixthly, where the governing body is so divided and engaged in such mutual contention that its members cannot act together; and, seventhly, in one case a receiver was appointed at the application of the corpora- tion itself, made before a default in the payment of interest upon bonds secured by mortgagees, where it was for the interest of the public that the business carried on by the corporation — a railroad company — should be continued without inter- ruption, and the corporation was 769 RULES FOE APPOINTMENT OP RECEIVERS. [§• 540 The English courts of chancery have always been averse to ap- pointing receivers for railway property in operation,^^ and our courts have often expressed reluctance in exercising the power in the ab- sence of statutory authority.^* Such reluctance is based upon the fact that the interests invol\ied are generally large, the manage- ment intricate, and that the corporation is charged with a public duty of which it should not be divested, and its officers are charged with corporate duties which should not be delegated.'" A receiver will not be appointed, as a rule, unless it clearly appears prima facie that the plaintiff is entitled to a final decree.'^ The remedy has been termed an equitable attachment,'^ and will not be employed to change the man- agement of railroad property simply because stockholders or creditors are dissatisfied with the present existing management.*' They must show that they have an equitable right and that it will be impaired unless the property available for ita satisfaction is protected by the appointment of a receiver.'* A court will not appoint a receiver upon hopelessly insolvent, and there was danger of a^ attempt by creditors to gain a preference, by attachment or otherwise, in such a manner as would have prevented the continu- ance of the corporate business." '^ Gardner v. London, &c. R. Co. L. R. 2 Ch. 201, 212; Latimer v. Ayles- bury, &c. R. Co. L. R. 9 Ch. Div. 385. 2° Sage V. Memphis, &c. R. Co. 125 U. S. 361, 8 Sup. Ct. 887; Meyer v. Johnston, 53 Ala. 237; Kelly v. Ala- bama, &c. R. Co. 58 Ala. 489; Amer- ican Loan, &c. Co. v. Toledo, &c. R. Co. 29 Fed. 416; Overton v. Mem- phis, &c. R. Co. 10 Fed. 866; Stevens V. Davison, 18 Gratt. (Va.) 819, 98 Am. Dec. 692. '"Gardner v. London, &c. R. Co. L. R. 2 Ch. 201. See St. Louis, &c. R. Co. V. Dewees, 23 Fed. 519. Brewer and Treat, JJ. ''Mays V. Rose, Freem. Ch. (Miss.) 703, 718; Beecher v. Bln- inger, 7 Blatchf. (U. S.) 170; Wil- kinson V. Dobbie, 12 Blatchf. (U. S.) 298; Cofer v. Echerson, 6 Iowa Ell. Railboads — 49 502; Gregory v. Gregory, 33 N. Y. Super. Ct. 1, 39; Owen v. Homan, 3 Macn. & G. 378, aff'd 4 H. L. Cas. 997; Lloyd v. Passingham, 16 Ves. 59. The. plaintiff must show that he has a present existing right in the property in order to have a re- ceiver appointed. Steele v. Aspy, 128 Ind. 367, 27 N. E. 739. ^^ Cincinnati, &c. R. Co. v. Sloan, 31 Ohio St. 1. ''American, &c. Co. v. Toledo, &c. R. Co. 29 Fed. 416, 420, 421; Fluker V. Emporia City R. Co. 48 Kans. 577, 30 Pac. 18. In the absence of g'ross abuse or fraud, the remedy of the stockholders is to elect new officers. Edison v. Edison, &c. Co. 52 N. J. Eq. 620, 29 Atl. 195. ''Cincinnati, &c. R. Co. v. Sloan, 31 Ohio St. 1; Union Mutual Life Ins. Co. V. Union Mills, &o. Co. 37 Fed. 286; Union Trust Co. v. St. Louis, &c. R. Co. 4 Dillon (U. S.) 114; Cheever v. Rutland, &c. R. Co. 39 Vt. 653; Woods' Railroads (Minor edition) 2015. 541] EECEIVEES. 770 slight grounds and merely because a receivership would do no harm f nor upon good grounds where it would be useless, as, for instance, where there are no assets nor anything which could be made available to satisfy a judgment;^" nor where it appears that in the latter ease the plaintiff expects some of the defendants to pay his claim rather than suffer annoyance from a receiver.^^ Indeed, a court of equity will not interfere in any case where such interference would be a "vain and fruitless thing ;"^* nor where there is an adequate remedy at law.^° § 541. Eeceiver will not be appointed merely because parties con- sent. — The mere fact that the parties consent to the appointment of a receiver is not suflflcient,*" especially where the rights of third persons axe likely to be affected,*^ or the property is in the hands of a person not made a party to the suit.*^ If it appears that the consent was given for the mere purpose of preventing the seizure of the property of the corporation upon legal process, and without any intent to satisfy the plaintiff's demands against it, the receiver will be dis- charged.*^ Courts confine themselves strictly to the business of set- tling, according to the principles of law and equity, the real contro- == Smith V. Port Dover, &c. R. Co. 12 Ont. App. R. 288, 25 Am. & Eng. R. Cas. 639; Orphan Asylum See. V. McCartee, 1 Hopk. Ch. (N. Y.) 429 (488); Blondheim v. Moore, 11 Md. 365. ™ Bigelow V. Union Freight R. Co. 137 Mass. 478. See Birmingham, &o. R. Co. In re. L. R. 18 Ch. Div. 155, 3 Am. & Eng. R. Cas. 616. Where the company is shown to have no as- sets a receiver will not he appoint- ed. Barton v. Enterprise Loan, &c. Assn. 114 Ind. 226, 16 N. E. 486, 5 Am. St. 608. =' Smith V. Port Dover, &c. Co. 12 Ont. App. 288, 25 Am. & Eng. Cas. 639. ^ Simpson v. Ottawa, &c. R. Co. 1 Ch. Chamh. 126. A receiver will only be appointed where the amount of the judgment warrants the ex- pense. Weekly Notes (Eng. 1884), 63. '»Rice V. St. Paul, &c. R. Co. 24 Minn. 464; Pullan v. Cincinnati, &c. R. Co. 4 Biss. (U. S.) 35; Overton v. Memphis, &c. R. Co. 10 Fed. 866; Stevens v. Davidson, 18 Gratt. (Va.) 819, 98 Am. Deo. 692; Milwaukee, &c. R. Co. V. Soutter, 2 Wall. (U. S.) 510, 523. "Whelpley v. Erie R. Co. 6 Blatchf. (U. S.) 271. See Sage v. Memphis, &c. R. Co. 18 Fed. 571; Vermont, &c. R. Co. v. Vermont Cent. R. Co. 50 Vt. 500; Vila v. Grand Island, &c. Co. 68 Neb. 222, 94 N. W. 136, 97 N. W. 613, 63 L. R. A. 791, 110 Am. St. 400. "Whelpley v. Erie R. Co. 6 Blatchf. (U. S.) 271. "Searles v. Jacksonville, &c. R. Co. 2 Woods (tr. S.) 621 Einstein V. Rosenfeld, &c. Mills, 38 N. J. Bq. 309; Gluck v. Becker Rec. of Corp. 61. '"Sage V. Memphis, &c. R. Co. 18 Fed. 571. 771 HOW FAE JURISDICTION HAS BEEN EXERCISED. [§ 543 versies whicli come within the "workshop of jurisprudence," and should never lend themselves to the schemes of those who wish to manipulate railroad securities for purposes of adventurous specula- tion." § 542. Extent to which jurisdiction has been exercised. — Courts of equity, by reason either of inherent power or statutory authority, in the United States, and in most of the states, have interposed with re- ceivers for railway property to the extent necessary to accomplish the desired auxiliary aid, sometimes accompanying the dissolution of the corporation and winding up its affairs, sometimes operating the road until the income shall have discharged the primary obligation,*^ and at other times operating and improving the road with view to its advantageous sale. They have even interfered to complete a road in construction which had been retarded on account of the temporary lack of funds,** and in rare instances have taken charge of lines to compel them to properly perform their public duty.*' But the right, in such cases, to divest the corporate ^officers of their powers and supersede them by receivers, when the court can command such of- ficers by injunction or other process, has been questioned,*' and, al- though the remedy has been extended in some eases, other courts have refused to appoint receivers on account of fraudulent mismanagement by corporate ofiBcers where such mismanagement is in itself ground for their removal.*' While courts of equity are cautious in the exer- cise of this remedy, no rule can be laid down which would clearly "American Loan, &c. Co. v. To- &c. R. Co. 65 N. H. 393, 23 Atl. 529, ledo, &c. R. Co. 29 Fed. 416. and see next following section. " Sage V. Memphis, &c. R. Co. 125 " Long Branch, &c. R. Co. In re, V. S. 361, 8 Sup. Ct. 887, and Sage 24 N. J. Eq. 398; Beach Receivers, V. Memphis, &c. R. Co. 18 Fed. 571. 329; Fishback v. Citizens' St. R. See Barton v. Barbour, 104 V. S. 126, Co. Nat. Corp. (Super. Ct. Marion 137, 138. Co. Ind.) March 4, 1892. "Allen v. Dallas, &c. R. Co. 3 «See Cook Stock and Stockhold- Woods (U. S.) 316; Kennedy v. St. ers, infra, §§ 745 and 863, and cases Paul, &c. R. Co. 2 Dillon (U. S.) cited; Waterbury v. Merchants', &c. 448. See, also, Boston, &c. Co. v. Co. 50 Barb. (N. Y.) 157; Feather- Pacific Short Line, &c. Co. 104 Iowa stone v., Cooke, L. R. 16 Eq. 298. 311, 73 N. W. 839. But mere in- ^^ See preceding note; Edison v. solvency is not ordinarily sufficient Edison, &c. Co. 52 N. J. Eq. 620, 29 ground of itself. Farmers' Loan &c. Atl. 195. But compare Forbes v. Co. V. Chicago, &c. R. Co. 27 Fed. Memphis, &c. R. Co. 2 Woods (U. 146; Boston, &c. R. Co. v. Boston, S.) 323; Fisher v. Concord R. Co. 50 N. H. 200. § 543] EECEIVERS. 773 define the grounds for its exercise or draw boundaries which would confine it, since the power of the equity court has been so enlarged by statute that its arm can be interposed in nearly every instance where complete justice would otherwise fail, and the railroad corporation^" now enjoys few exemptions from the rules which apply to the receiver- ship of other corporations. § 543. Insolvency as ground for appointment of receiver. — In- solvency of a railway corporation is not of itself ground for the ap- pointment of a receiver, unless made so by statute. Even if insolvency be shown the court will refuse to appoint a receiver, unless it can in- terfere usefully to prevent the impairment of some equitable right or of the value of some claim against the corporation.^^ Where in- solvency is conceded or evident, with no probability of recovery, and there are dissensions among the parties in interest, or disagreements within the corporate management, which threaten dissipation of the assets and endanger the securities of parties in interest, a receiver will be appointed at the suit of the proper party. '^^ But, ordinarily, if it be shown that it is for the best interest of all concerned to leave the directors in charge of affairs, a receiver will not be appointed f* nor will the remedy usually be exercised if the corporation, in obedience to a statute, is making the same disposition of the earnings of the road that a receiver would be required to make, and no assets would be available in his hands for payment of the plaintiif's debt.'* Where, in addition to the insolvency of a railroad company, its property is in the hands of parties who deny the right of the stockholders to share in the management of the property, equity may, in order to afford re- '» See Barton V. Barbour, 104 U. S. souri, &c, R. Co. 36 Fed. 221; At- 126, 137, 138, in dissenting opinion, lantic Trust Co. v. Consolidated, &c. " Denike v. N. Y. &c. Co. 80 N. Y. Co. 49 N. J. Eq. 402, 23 Atl. 934, 11 599; Farmers' Loan, &c. Co. v. Chi- R. & Corp. L. J. 223; Bill v. New cage, &c. R. Co. 27 Fed. 146; Mc- Albany, &c. R. Co. 2 Biss. (U. S.) George v. Big Stone, &c. Co. 57 t'ed. 390; Ralph v. Wisner, 100 Mich. 262. In absence of statute, a court 164, 58 N. W. 837; Kelly v. Ala- of equity has no authority to sit as bama, &c. R. Co. 58 Ala. 489. See, a court of insolvency to liquidate also, Cole v. Philadelphia, &c. R. the afCairs of an insolvent railway Co. 140 Fed. 944. company. Pond v. Farmingham, &c. "'Union T. Co. v. St. Louis, &c. R. R. Co. 130 Mass. 194; Supreme Sit- Co. 4 Dillon (U. S.) 114; Tysen v. ting, &c. v. Baker, 134 Ind. 293, 33 Wabash R. Co. 8 Biss. (U. S.) 247. N. E. 1128; Lawrence, &c. Co. v. °* Smith v. Port Dover, &c. R. Co. Rockbridge Co. (Va.) 47 Fed. 755. 12 Ont. App. R. 288, 25 Am. & Bug. "Mercantile Trust Co. v. Mis- R. Cas. 639. 773 WHEN INSOLVENCY SUPFICIENT WITHOUT DEFAULT. • [§"544 lief to such stockholders, on their petition, appoint a receiver to take possession of the property.'* So, if a corporation has been rendered insolvent by the fraudulent mismanagement of its oflBcers, who re- main in charge of its affairs, upon a proper application by the parties in interest, its property may be put into the hands of a receiver.'" So, where the officers of an insolvent corporation resign their respect- ive offices and abandon its property to the court," it is proper to appoint a receiver to take charge of the effects of the corporation and to preserve them for the benefit of all the parties in interest.'* § 544. When insolvency is sufficient without default. — As a general rule inadequacy of mortgage security, coupled with insolvency of the mortgagor, showing that a receiver is necessary, is sufficient ground for the relief.'* Where the company is manifestly insolvent, is unable to meet its obligations to pay floating debts, and cannot borrow money, and is in imminent peril of breaking up, although no default has yet occurred, it has been held that a receiver may be appointed, at the suit of a bondholder, in order to preserve the corporate property,*" but a receiver will not be appointed because of expected insolvency at some future time."^ In all cases it must be shown that the insolvency will endanger or impair the plaintiff's rights unless the property is pre- served by a receiver. °^ In general, it is only an extreme case that will move a court of equity to exercise this extraordinary power because of insolvency,"^ and it must usually appear to be necessary in order to =° Bill v. New Albany, &c. R. Co. 2 ed where the purchasers gf the Biss. (IT. S.) 390. equity of redemption at an as- »» Forbes v. Memphis, &c. R. Co. 2 signee's sale have diverted the use Woods (U. S.) 323. See Fisher v. of the property and appropriated Concord R. Co. 50 N. H. 200. the income to which the mortgagee " Smith V. Danzig, 64 How. Pr. is entitled. Gest v. New Orleans, &c. (N. Y.) 320. R. Co. 30 La. Ann. 28; Brown, Ex =' Gluck and Becker Rec. of Corp. parte, 58 Ala. 536. § 18. ""Brassey v. N. Y. &c. R. Co. 19 '"High Receivers, § 376; Kelly v. Fed. 663, 17 Am. & Eng. R. Cas. Alabama, &c. R. Co. 58 Ala. 489 ; Rug- 285. See, also. Cole v. Philadelphia, gles V. Southern Minnesota R. Co. &c. R. Co. 140 Fed. 944. (U. S. Dist. of Minn.) 5 Chicago "'Edison v. Edison, &c. R. Co. 52 Legal News 110; Kerp v. Michigan, N. J. Eq. 620, 29 Atl. 195. &c. R. Co. 6 Chicago Legal News "'^ Lawrence Iron Works v. Rock- 101; Dow V. Memphis, &c. R. Co. bridge Co. 47 Fed. 755; McGeorge 20 Fed. 260, 17 Am. & Eng. R. Cas. v. Big Stone Gap Imp. Go. 57 Fed. 324; Central Trust Co. v. Chat- 262. tanooga, &c. R. Co. 94 Fed. 275; ='Pullan v. Cincinnati, &c. R. Co. Cheever v. Rutland, &c. R. Co. 39 4 Biss. (U. S.) 35. Vt. 653. A receiver will be appoint- § 545] . EECEIVEES. 774 preserve the best interests of all concerned.'* Insolvency is sometimes, by statute, made a ground for the appointment of a receiver,"^ and in that case, when the fact of insolvency is established, the court grants the application as a matter of course. °° § 545. Default in payment of indebtedness as ground for appoint- ment. — Eeceivers are most frequently appointed over railway property in order to protect mortgagees and bondholders whose securities are a lien upon the road, in case of default in payment of the principal or interest upon obligations thus secured.^'' But default in itself is not necessarily ground for this extraordinary remedy f^ it must be shown, in addition, that ultimate loss will result to the mortgagees or bond- holders if the property is permitted to remain in the hands of the com- pany,'' or that the right of foreclosure exists and that a receiver is necessary to aid the foreclosure.'" Even though possession has been refused upon a demand made by trustees under a mortgage after there has been a default in the payment of interest upon bonds secured thereby, a receiver will not be appointed unless it is shown to be neces- sary in order to prevent loss to the bondholders,'^ and it has been held that a receiver will not be appointed in a case where the default '" Stark V. Burke, 5 La. Ann, 740 ; Florence v. United States, &c. Co. People V. Northern R. Co. 42 N. Y. 104 Ala. 297, 16 So. 110. 217. « High Receivers, § 376. ^ Sewell v. Cape May, &c. R. Co. <^ Sage v. Memphis, &c. R. Co. 125 30 Am. & Eng. R. Cas. 155. Failure U. S. 361, 8 Sup. Ct. 887; Morrison to pay a judgment duly rendered is v. Buckner, 1 Hempst. (U. S.) 442; cause for the appointment of a re- Whitehead v. "Wooten, 43 Miss. 523; ceiver by the laws of England and American, &c. Co. v. Toledo, &c. of Kentucky. Eng. Railway Com- R. Co. 29 Fed. 416; Tysen v. Wa- panies Act, § 4; Acts 1890, Ky. Ch. bash, &c. R. Co. 8 Blssell (U. S.) 1039, § 1. The appointment of a re- 247; Williamson v. New Albany R. ceiver or manager under this section Co. 1 Biss. (U. S.) 198; Beach Re- is a matter of right whenever the ceivers, § 330. judgment creditor of a railroad cor- "° Union Trust Co. v. St. Louis, poration is unpaid. Manchester, &c. &c. R. Co. 4 Dill. (U. S.) 114; R. Co., In re, L. R. 14 Ch. Div. 645. Cheever v. Rutland, &c. R. Co. 39 "Beach Receivers, § 417; Attor- Vt. 653. ney-General v. Bank of Columbia, 1 '» American Loan, &c. Co. v. To- Paige (N. Y.) 511. The facts show- ledo, &c. R. Co. 29 Fed. 416; Beach ing insolvency should be specifically Receivers, § 331. set forth, as a mere general allega- "Union Trust Co. v. St. Louis, tion is usually held insufficient. &c. Co. 4 Dill. (U. S.) 114; Cheever Newfoundland, &c. Co. v. Schack, 40 v. Rutland, &c. R. Co. 39 Vt. 653. N. J. Eq. 222, 1 Atl. 23; Bank of 775 DEFAULTS AS GEOUND FOE APPOINTMENT. [§ 545 is waived by agreement for extension of time, but the directors after- ward disagree and a portion of them rescind the agreement and pe- tition for a receiver.'^ But where, in ease of default, there is some other attendant circumstance or condition present which endangers the security of a bondholder, creditor or other party in interest, or where the default is evidence of, or accompanies, some fraudulent or unwise mismanagement by the oflBcers or directors which threatens loss to stockholders or others, a receiver may be appointed, as, for instance, where there has been a default for ten years in the payment of interest on the company's bonds, and the officers refuse to permit an inspection of the company's books by the bondholders,^* or where trustees fail to take possession of the trust property upon default, as required by the instrument creating the trust, and this without re- gard to any probable deficiency of the trust property to discharge the debts secured by the deed of trusts* Where the mortgage covers the tolls and income of a road and the earnings are diverted, causing de- fault in payment of the mortgage debt, a receiver will ordinarily be appointed, '^ whether the default be followed by foreclosure or not. Default in the payment of taxes, the company allowing portions of its property to be sold for such taxes, has been held to be a strong indication of such hopeless insolvency as would justify the appoint- ment of a receiver.'® A receiver may be appointed before default where insolvency is manifest and it is shown that default is imminent and that the corporation is on the verge of dissolution.^'^ So, a receiver was appointed at the suit of the corporation where it appeared "American Loan, &c. Co. v. To- v. Dallas, &c. R. Co. 3 Woods (U. S.) ledo, &c. R. Co. 29 Fed. 416. 316. "Pullan V. Cincinnati, &c. R. Co. "Ruggles v. Southern Minnesota 4 Biss. (U. S.) 35. R. Co. 5 Chic. L. N. 110; Hopkins '* Wllmer v. Atlanta, &c. R. Co. 2 v. Worcester and Birmingham Canal Woods (U. S.) 409; Shaw V. Norfolk Proprietors, L. R. 6 Bq. 437; De Co. R. Co. 5 Gray (Mass.) 162. See Winton v. Brecon, 26 Beav. 533; Al- Sacramento, &c. R. Co. v. Superior len v. Dallas, &c. R. Co. 3 Woods Court, 55 Cal. 453; Rice v. St. Paul, (U. S.) 316; Whitehead v. Wooten, &c. R. Co. 24 Minn. 464. It has been 43 Miss. 523; Morrison v. Buckner, 1 held that where the deed of trust au- Hempst. (U. S.) 442. thorized trustees to take possession '* Putnam v. Jacksonville, &c. Co. upon default, the default itself is 61 Fed. 440. sufficient ground for a receiver, " Brassey v. New York, &c. R. Co. without reference to the Inadequacy 19 Fed. 663, 22 Blatchf. (U. S.) 72; of the mortgage security. Allen Long Dock Co. v. Mallery, 12 N. J. Eq. 431. § 546] EECEIVEES. 776 that public interest required that the business be uninterrupted and default in payment of interest would have been followed by such a struggle among creditors as would have prevented continuance of the corporate business/' As a general rule, however, the plaintiff must first pursue his remedy at law if an adequate remedy is open to him, or if he have a simpler equitable remedy he must pursue that before asking for the extraordinary aid of a receivership; and it has been held that the fact that the right of possession and sale is given to trustees does not change the rule'* in case possession is refused. In such cases a receiver will ordinarily be denied unless the trustee has first attempted to recover possession by other legal or equitable means available.*" It is held that the fact that the charter of a corporation specially authorizes the appointment of a receiver in a particular contingency does not oust the courts of jurisdiction to appoint one in a proper case.'^ § 546. Appointment in foreclosure proceedinga. — The right to a receiver does not necessarily accompany the right to foreclose;*^ but it is held to exist in foreclosure proceedings where for any reason "the complainant will not be in as good a position at the final decree as at present."*^ In the language of a judge who is now a member of the Supreme Court of the United States, "It should appear that there in some danger to the property; that its protection, its preservation, the interests of the various holders, require possession by the court before a receiver should be appointed. It does not go as a matter of course; and yet it is not a matter that a court can refuse simply be- " Wabasli, &c. R. Co. v. Central, '^ Mercantile Trust Co. v. Missouri, &c. R. Co. 22 Fed. 138, 272, 23 Fed. &c. R. Co. 36 Fed. 221, 36 Am. & 513, 515. But see Hugh. v. McRae, Eng. R. Gas. 259; American Loan, Chase 466. &c. Co. v. Toledo, &c. R. Co. 29 Fed. ™Dow V. Memphis, &c. R. Co. 20 416; Williamson v. New Albany, &c. Fed. 260; Kennedy v. St. Paul, &c. R. Co. 1 Biss. (U. S.) 198; Tysen v. R. Co. 2 Dill. (U. S.) 448; McLane Wahash, &c. Co. 8 Biss. (U. S.) 247. v. Placerville, &c. R. Co. 66 Cal. 606, <^ Ruggles v. South. Minn. R. Co. 6 Pac. 748. 5 Chic. L. N. 110; Kerp v. Michigan, ™Rice V. St. Paul, &c. R. Co. 24 &c. R. Co. 6 Chic. L. N. 101; United Minn. 464. States Trust Co. v. New York, &c. «>Fripp V. Chard R. Co. 11 Hare R. Co. 101 N. Y. 478, 5 N. E. 316; 241; Allen v. Dallas, &c. R. Co. 3 Decker v. Gardner, 124 N. Y. 334, 26 Woods (U. S.) 316; Warner v. Ris- N. B. 814; United States Trust Co. ing Fawn Iron Co. 3 Woods (U. S.) v. N. Y. &c. R. Co. 67 How. Pr. 390. 514; note, 64 Am. Dec. 486. 777 APPOINTMENT IN FORECLOSURE PROCEEDINGS. [§ 546 cause it is an annoyance."^* Generally, insolvency of the mortgagor, coupled with inadequacy of the mortgage security, is sufBcient ground for this relief,*^ and when the interest has long heen unpaid and the value of the property is manifestly insufficient, a receiver will usually be appointed.*" If the entire assets of an insolvent corporation are insufficient to afEord security for the payment of the mortgage indebt- edness, and the corporation is appropriating its earnings to its own use, a receiver will be appointed pending a suit to foreclose,*' but where it is clear that upon foreclosure the property will bring enough to pay the debt, interest and costs, the court will usually decline to exercise that power on the ground that there is another adequate rem- edy.** An application was refused on this ground in a case where mortgagees were seeking to foreclose a mortgage executed by authority of the legislature giving the mortgagees the right of possession.*® The mere disagreement of mortgage creditors in a suit to foreclose is not sufficient ground for the appointment of a receiver, as equity will not interpose except to afEord some incidental relief, and will not ex- tend- its arm simply to manage the property.'" Where the mortgage ** Mercantile Trust Co. t. Missouri, &c. R. Co. 36 Fed. 221, 224, 36 Am. & Bng. R. Cas. 259. «= Kelly V. Trustees, 58 Ala. 489; Ruggles V. Southern Minn. R. Co. 5 Chic. L. N. 110; Kerp v. Michigan, &c. R. Co. 6 Chic. L. N. 101; Pre- linghuysen v. Colden, 4 Paige Ch. (N. Y.) 204; Astor v. Turner, 2 Barb. (N. Y.) 444. ™ PuUan v. Cincinnati, &c. R. Co. 4 Biss. (U. S.) 35. See Farmers' Loan, &c. Co. v. Winona, &c. R. Co. 59 Fed. 957. "Dow V. Memphis, &c. R. Co. 20 Fed. 260; Cheever v. Rutland, &c. R. Co. 39 Vt. 653. See Brassey v. N. Y. &c. R. Co. 19 Fed. 663; Kerp V. Michigan, &c. R. Co. 6 Chic. L. N. 101. The court will never appoint a receiver, except where the right and necessity to do so are clear. Dow V. Memphis, &c. R. Co. supra; Overton v. Memphis, &c. R. Co. 10 Fed. 866; Texas, &c. R. Co. v. Rust, 17 Fed. 275; Sage v. Memphis, &c. R. Co. 18 Fed. 571; Credit Co. v. Arkansas Cent. R. 15 Fed. 46. See ante, § 545. °*Pullan V. Cincinnati, &c. R. Co. 4 Biss. (U. S.) 35; Shotwell v. Smith, 3 Bdw. Ch. (N. Y.) 588; Burlingame v. Parce, 12 Hun (N. Y.) 144. "Where a railroad company has sublet a leased line contrary to the provisions of the lease, a re- ceiver will not be appointed in a suit by the lessor to enforce a for- feiture of the lease when it ap- pears that the lessor is responsible, and is operating the road. Boston, &c. R. V. Boston, &e. R. 65 N. H. 393, 25 Atl. 529. '"Rice V. St. Paul, &c. R. Co. 24 Minn. 464. See, also. Patten v. Ac- cessory Transit Co. 4 Abb. Pr. (N. Y.) 235; Boston, &c. R. Co. v. New York, &e. R. Co. 12 R. I. 220. "American Loan, &c. Co. v. Toledo, &c. R. Co. 29 Fed. 416. But the fact that the company is well managed does not always preclude the ap-. § 547] EEOEIVEES. 778 covers the tolls and income of the road, which would otherwise be diverted from payment of the debt, a receiver will be appointed in- cidental to the foreclosure.^^ So, where a road hopelessly insolvent is about to be foreclosed, and owing to dissensions among bondholders there is no other way to apply the rents and profits of the road to its debts, an application for a receiver may be granted.*^ And a receiver has been appointed, after decree, at the suit of bondholders entitled to the net income, when, according to statute, the sale must be de- layed six months.*^ Where, in a suit to foreclose, the court directs the officers of the corporation to remain in possession, to conduct the business subject to its orders, and to account to the court, it has been held that these officers are thereby constituted receivers of the court.'* § 547. Other grounds for appointment. — It is difficult to classify cases in which a receiver will be appointed, for the reason that the grounds and purpose of the relief and the extent to which it may be pursued, lie so largely in the discretion of the court.*^ There is a large number of eases in which receivers have been appointed which do not fall under the classes just discussed. Where there is no person author- ized to hold the corporate property, the majority of the stockholders failing to elect directors,''^ or where the corporation has ceased to act and the officers have converted the property to their own use,®^ when the officers, owning a majority of the stock and controlling the road, fail to keep it in repair, thereby endangering the rights of stock- pointment of a receiver. Van Ben- "Benedict v. St. Joseph, &c. R. thuysen v. Central, &c. R. Co. 63 Co. 19 Fed. 173. Hun (N. Y.) 627, 17 N. Y. S. 709. »* Fifty-four First Mortgage Bonds, »^De Winton v. Brecon, 26 Beav. In re, 15 S. C. 304; Brown, Ex parte, 533; Allen v. Dallas, &c. R. Co. 3 15 S. C. 518. See "Williams, Ex parte. Woods (U. S.) 316. TMs follows the 18 S. C. 299, as to rights of pur- general doctrine that where the chasers in such a case, mortgage provides that the mort- "' See Mercantile Trust Co. v. Mls- gagee shall have the rents, default souri, &e. R. Co. 36 Fed. 221. in payment of the debt may be suf- " Lawrence v. Greenwich Fire Ins. ficient cause for appointment of a Co. 1 Paige (N. Y.) 587; Dobson v. receiver to collect such rents. See Simonton, 78 N. C. 63; Edison v. "Whitehead v. Wooten, 43 Miss. 523; Edison, &c. Co. 52 N. J. Eq. 620, 29 also. Central Trust Co. v. Chat- Atl. 195. tanooga, &c. R. Co. 94 Fed. 275. " Conro v. Gray, 4 How. Pr. (N. »2 Mercantile Trust Co. v. Missouri, Y.) 166; Chicago, &c. R. Co. v. Ca- &c. R. Co. 36 Fed. 221, 36 Am. & son, 133 Ind. 49, 32 N. B. 827. Eng. R. Cas. 259. 779 OTHER GEOUNDS FOR APPOINTMENT. [§ 547 holders and rendering the road unproductive/* or squander or em- bezzle its assets, with the connivance of the directors ;°° where the directors execute a lease, which works injury to the stockholders, in violation of a by-law forbidding contracts involving the franchises of the road j^"" where purchasers of an assignee in bankruptcy are operat- ing the road for their exclusive benefit and appropriate the income to which the mortgage bondholders are entitled ;^''^ or where the gov- erning body is so divided by dissension that it cannot conduct the cor- porate business,^"^ it has been held that a receiver may be appointed upon proper application. So, where several railroad companies, ten- ants in common of the right to pass through a tunnel or to use a rail- road station erected for their joint use,^°^ are engaged in a dispute as to their respective rights therein, it has been held that the court may appoint a receiver to protect the rights of the injured party, if such rights cannot readily be protected by other means. The dissolution of a corporation by decree of court is cause for the ap- pointment of a statutory receiver in most, if not all, of the states.^"* It has been held that bondholders have a right to have a receiver ap- pointed to complete a road, the construction of which has been stopped on 'account of lack of funds, when completion by a certain time is the condition of a valuable land grant which constitutes their principal security.^"^ The fact that stockholders of a corporation dis- obey an injunction restraining them from voting to efEeet an illegal "'Wayne Pike Co. v. Hammons, Co. 21 N. J. Eq. 298; Russell v. East 129 Ind. 368, 27 N. B. 487, 491. Anglican R. Co. 3 M. & G. 104; Fripp " Forbes V. Memphis, &c. B. Co. 2 v. Chard R. Co. 11 Hare 239; Woods (U. S.) 323; Fisher v. Con- Shrewsbury R. Co. v. Chester R. Co. cord R. Co. 50 N. H. 200. A receiver 14 L. T. 217, 433; Midland R. Co. v. may be appointed to investigate the Ambergate R. Co. 10 Hare 359; validity of sales made by a corpo- Beach Receivers, § 339. ration, during and with knowledge ^"Stimson Am. Stat. (1892), of Insolvency. Nichols v. Perry, 11 § 8335. , See Texas Trunk R. Co. v. N. J. Bq. 126. State, 83 Tex. 1, 18 S. W. 199, hold- "" Stevens v. Davidson, 18 Gratt. ing that a court declaring a for- (Va.) 819, 98 Am. Dec. 692. feiture of the franchises of a rail- "iQest V. New Orleans, &c. R. Co. road company may appoint a re- 30 La. Ann. 28. ceiver to operate the road in such '<° Featherstone v. Cooke, L. R. 16 a manner as to subserve the public Eq. Cas. 298; Trade Auxiliary Co. interests. V. Vickers, L. R. 16 Bq. Cas. 303; ^"^ Allen v. Dallas, &c. R. Co. 3 Edison v. Edison, &c. Co. 52 N. J. Woods (U. S.) 316; Kennedy v. St. Eq. 620, 29 Atl. 195. Paul, &c. R. Co. 2 Dillon (U. S.) ™ Delaware, &c. R. Co. v. Erie R. 448. § 548] EECEIVEES.- V80 or unauthorized consolidation, is not a ground for the appointment of a receiver for the corporation, since, in the absence of any authority to consolidate, the original corporation would continue to exist in its integrity, with all its rights of property and franchises unaffected by such acts of the 'stockholders.^"" Where the application alleges that all the property of the company is mortgaged to one class of creditors ; that it owes large amounts to other creditors, one of whom has at- tached all its property, and that it is proposing to lease its property to him for a long term of years at a rental which is insufficient to pay the interest upon its indebtedness, but there is no allegation that the plaintiff has any lien upon, or any particular right in, any of the property, and there is no showing of any fraud or breach of trust on the part of those who are managing the corporate affairs, a receiver will not be appointed.^"^ It has also been held that a receiver will not be appointed at the suit of one who has purchased stock alleged to have been illegally issued, and who claims the right to recover the purchase-price of such stock, when it appears that the money received for the sale of the stock has been mingled with the general funds of the corporation, so that it cannot be traced nor identified.^"* Failure to perform a public duty has been held to be ground for the appoint- ment of a receiver;^"* but the doctrine has not received any general application, and is of doubtful soundness. Indeed, we think it is clearly unsound as applied to ordinary cases in which there is nothing more than nonfeasance. § 548. Appointment upon application of unsecured creditors. — Ordinarily the application of unsecured creditors for the appointment of a receiver will be denied on the ground that there is a remedy at law,^^" but when the remedy at law has been found unavailing or is ^™ Railway Co. v. Jewett, 37 Ohio "' Pond v. Farmlngham, &c. R. Co. St. 649. Injunction, at the suit of 130 Mass. 194. the state, to prevent a corporation ™Whelpley v. Erie R. Co. 6 from misusing and abusing its cor- Blatchf. (U. S.) 271. porate franchises and privileges and ^^ Long Branch, &c. R. Co., In re, maintaining its property as a nui- 24 N. J. Eq. 398; Flshback v. Citl- sance, though Its acts also constitute zens' St. R. Co. Nat. Corp. Rep. (Ind. a crime, may be aided, when neces- Super. Ct. of Marion county), March sary, by the more effective remedy 4, 1892; Beach Receivers, § 329. of a receiver. Columbian Athletic ""Putnam v. Jacksonville, &c. R. Club V. State, 143 Ind-. 98, 40 N. E. Co. 61 Fed. 440; Milwaukee, &c. R. 914, 28 L. R. A. 727, 62 Am. St. 407. Co. v. Soutter, 2 Wall. (U. S.) 510, 781 APPLICATIOK OF UNSECURED CKEDITOES. [§ 548 manifestly useless,^ ^^ and the corporation has equitable assets which are not available upon execution/^^ or which are in danger of being dissipated^^^ the equitable relief may be invoked; but courts have refused to interfere where the liability had not been liquidated or established,^^* where labor claims existed against several companies operating one road, but their accounts were in confusion, and the dis- tribution of the debt was in doubt, such claims not having been re- duced to judgment 5^^" and in one case, where a receiver was about to be discharged, the court refused to continue him in order to settle claims which were in dispute, and which were comparatively small.^^® Where it appears that an execution issued upon a judgment against the cor- poration has been returned nulla bona, but that there are equitable assets which cannot be reached by execution a court of equity will appoint a receiver.^^^ And even though no execution has been issued in 523; Parmly v. Tenth "Ward Bank, 3 Edw. Ch. 395 (417) ; Beach Law of Railways, § 696; High Receivers, § 10, and cases cited. The ease must undoubtedly be exceptional to justify this relief in a suit by a sim- ple creditor. Johnson v. Parnum, 56 Ga. 144; Ballin v. Ferst, 55 Ga. 546 ; Gregory v. Gregory, 1 J. & S. 1. See 3 Pom. Eq. Jur. § 1334. But see, where the defendant admits in- solvency and joins in the prayer, Horn V. Pere Marquette R. Co. 151 Fed. 627. ^"- Sage V. Memphis, &c. R. Co. 125 U. S. 361, 8 Sup. Ct. 887; Conro v. Gray, 4 How. Pr. (N. Y.) 166; State V. Georgia Co. (N. C.) 54 Am. & Eng. R. Cas. 299. »»2 Covington Draw Bridge Co. v. Shepherd, 21 How. (U. S.) 112; Fur- ness V. Caterham R. Co. 25 Beav. 614; Palmer v. Clark, 4 Abb. N. C. (N. Y.) 25; Wood v. Dummer, 3 Mason (U. S.) 308; Ward v. Mfg. Co. 16 Conn. 593; Adler v. Milwau- kee Mfg. Co. 13 Wis. 57 (63); Grif- fith V. Mangam, 73 N. Y. 611; Bart- lett V. Drew, 57 N. Y. 587; Curling V. Marquis Townshend, 19 Ves. 628; Bloodgood V. Clark, 4 Paige (N. Y.) 574; Osborn v. Heyer, 2 Paige (N. Y.) 342; Johnson v. Tucker, 2 Tenn. Ch. 398. ™ Turnbull v. Prentiss Lumber Co. 55 Mich. 387, 21 N. W. 375. "*Cook V. Detroit, &c. R. Co. 45 Mich. 453, 8 N. E. 74; Putnam v. Jacksonville, &c. R. Co. 61 Fed. 440. ""Putnam v. Jacksonville, &c. R. Co. 61 Fed. 440. "'Milwaukee, &c. R. Co. v. Sout- ter, 2 Wall. (U. S.) 510, 523. "'Covington Draw Bridge Co. v. Shepherd, 21 How. (U. S.) 112; Fur- ness V. Caterham R. Co. 25 Beav. 614; Palmer v. Clark, 4 Abb. N. C. (N. Y.) 25; Wood V. Dummer, 3 Mason (U. S.) 308; Ward v. Mfg. Co. 16 Conn. 593; Adler v. Milwau- kee, &c. Co. 13 Wis. 57 (63) ; Grifr fith V. Mangam, 73 N. Y. 611; Bart- lett V. Drew, 57 N. Y. 611; Bartlett V. Drew, 57 N. Y. 587. In Union Trust Co. V. Illinois Midland R. Co. 117 U. S. 434, 458, 6 Sup. Ct. 809, the court said: "The co-plaintiffs with Hervey were judgment cred- itors of the Paris and Decatur Co., with executions returned unsatis- fied. The bill set out the precarious condition of all the property held and used by the Illinois Midland Co., and the necessity for a receiver § 548] RECEIVERS. 782 the latter ease circumstances may be present whicli call for the same remedy.^'^* An application by a judgment creditor for the appoint- ment of a receiver may be entertained where the bill alleges that the property is so heavily mortgaged that any attempt to enforce the plaintiff's debt by sale on execution would be unavailing, since no bids for more than a nominal amount would be received; while if the > property were placed in the hands of a receiver and carefully operated for the transportation of passengers and freight there would be a large surplus each year for the payment of his debt.^^° The equitable aid in the interest of all the creditors of all four of the corporations [the Illinois Midland Co., and the three corporations of which it was com- posed, and whose debts it had as- sumed] to prevent the levy of exe- cutions upon such property; and it prayed for a judicial ascertainment and marshalling of all the debts of all the corporations, and their pay- ment and adjustment as the respec- tive rights and Interests of the cred- itors might appear, and for general relief. The plaintiffs set forth that they represented a m^ority of the stock in all the corporations. This bill was quite sufficient to enable a court of equity to administer the property and marshal the debts, in- cluding those due the mortgage bondholders, making proper parties before adjudging the merits." Courts are sometimes required by statute! to make an appointment un- der such circumstances. Manches- ter, &c. R. Co., In re, L. R. 14 Ch. Div. 645. But it generally rests in the discretion of the court, in view of all the circumstances. Plaintiff alleged that he had recovered a judgment against one of the defend- ant companies, and that it had transferred its road to the other de- fendant, that the grantee never op- erated the road, nor had the grantor , any power to make the transfer, which was made for the sole pur- pose of defrauding plaintiff; and it prayed a receiver. A receiver was appointed. Louisville, &c. R. Co. v. Southworth, 38 111. App. 225. ™ Sage V. Memphis, &c. R. Co. 125 V. S. 361, 8 Sup. Ct. 887; Conro V. Gray, 4 How. Pr. (N. Y.)^ 166. A tax is a "debt" which the state and county may enforce against a corporation by creditors' bill for the appointment of a receiver. The state and county are not precluded from bringing such a suit because there is a specific remedy for the collection of taxes in the revenue act; nor because the state has the right to have the charter of the cor- poration declared forfeited when it fails to pay its taxes. State v. Georgia Co. (N. Car. 1893) 54 Am. & Eng. R. Cas. 299. In Kentucky the enforcement of judgments against railway companies, by an equitable suit for the ■ appointment of a receiver to take possession of and operate the road until the debts against the company shall be paid is provided for by statute. Act April 24, 1890 (Pub. Acts 1889-90, c. 1039, p. 109). ™ Sage V. Memphis, &c. R. Co. 125 U. S. 361, 8 Sup. Ct. 887. In an- nouncing the opinion of the court in this case, Mr. Justice Harlan said: "We do not mean to say that a single judgment creditor or any number of such creditors of a rail- 783 _ APPLICATION OP SECURED CREDITORS. [§ 549 formerly so frequently invoked to assist creditors at large, grew out of the narrowness of the legal remedy by execution, often useless be- cause it could not reach equitable assets.^^" In many of the code states statutory provision has been made for the appointment of receivers in proceedings supplementary to execution, thus doing away in some cases with the "creditors' bill" of chancery practice ;^^^ and in addition the statutes have given wider scope to the writ of execution, extend- ing legal relief to many cases where resort to equity was formerly necessary. Thus the instances in which the unsecured creditor has no other remedy are now less numerous than under the English chancery practice and the requirement that a strong, clear case must be made,^^^ in connection with the reluctance of the courts to divest such large interests of the corporate management in order to satisfy claims which are generally comparatively small,^^' has resulted in a very rare and sparing exercise of this power of the court of equity in aid of the unsecured creditor of a railway corporation, although the appointment of a statutory receiver of the effects of a judgment debtor, on supplementary proceedings, is very frequent.^^* ' § 549. Appointment upon application of secured creditors. — It is to preserve the security of the mortgagee or bondholder that the con- trol of the property and business of railway corporations is most often assumed by a court of equity.^^° Besides being available in connection with foreclosures^^* the remedy of a receivership is often employed road company are entitled, as mat- not a nullity." See, also. Sage v. ter of right, to have its property Memphis, &c. R. Co. 18 Fed. 571, put in the hands of a receiver, where the receiver was discharged merely because of its failure or re- because appointed by collusion, f usal to pay its debts. Whether a ™ 3 Pom. Bq. Jur. § 1415. receiver shall be appointed is al- "'High Receivers, § 401. ways a matter of discretion, to be ^^3 Pom. Bq. Jur. § 1415. exercised sparingly and with great "^Milwaukee, &c. Co. v. Soutter, caution in the case of quasi public 2 Wall. (U. S.) 510, 523. Under corporations operating a public N. Y. statute receiver will not be highway, and always with reference appointed at suit of a creditor at to the special circumstances of each large. Lehigh, &c. Co. v. Central R. case as it arises. All that we say of N. J. 43 Hun (N. Y.) 546. in this connection is that, under ^Heroy v. Gibson, 10 Bosw. (N. the circumstances presented in this Y.) 591; Coates v. Wilkes, 92 N. C. case, the appointment of a receiver 376; Flint v. Webb, 25 Minn. 263. was within the power of the court. "'High Receivers, § 376; ante. The order appointing him to oper- § 545, and cases cited, ate and manage the property was ^° See ante, § 546. § 549] EECEIVEHS. 784 at the suit of mortgagees or bondholders in eases of default/^^ in- solvency/^' fraud or mismanagement by officers, or the commission or some other act that endangers the mortgage security.^^* Exi- gencies may arise to threaten the destruction or depreciate the value of the property which would not justify foreclosure and which might, before cause for foreclosure could accrue, materially impair the pe- titioner's security,^'" and equity many times intervenes with a receiver in such cases; or in cases where the mortgage covers the tolls and income of the road, they may be so diverted as to give cause for the appointment of a receiver.^^^ Where bonds are secured by a deed of trust in the nature of a mortgage, it is frequently provided that the mortgagee or trustee may take possession upon default. In that case, if the trustees, being denied possession, have a remedy at law or an ordinary remedy in equity to obtain possession, they must, as a rule, first pursue such remedy before a receiver will be appointed^'^ unless such remedy be manifestly useless^'^ or such a condition exist as would make a receiver necessary immediately after possession should be ac- quired.^^* Where there is a trust deed in the nature of a mortgage, the trustee must first have failed, refused or neglected to perform his duty under the trust deed before the individual bondholder can himself petition for a receiver, to act instead of the trustee, or in conjunction with him, but where the trustee has failed to do his duty the bond- holder may invoke the aid of a receiver.^^^ And it has been held that when the trustee, on being applied to in pursuance of the terms "'See ante, § 545. 5 Chic. L. N. 110; Tysen v. "Wabash '^'See ante, § 543. R. Co. 8 Biss. (U. S.) 247; Allen v. "^'See ante, § 547. Dallas, &c. R. Co. 3 Woods (U. S.) "° Brassey v. New York, &c. R. Co. 316, 326. 19 Fed. 663, 17 Am. & Eng. R. Cas. ^ Rice v. St. Paul, &c. R. Co. 24 285; American L. & T.' Co. v. To- Minn. 464; High Receivers, § 379. ledo, &c. R. Co. 29 Fed. 416, 417; "imperial Mercantile Credit As- Kennedy v. St. Paul, &c. Co. 2 Dill, sociation v. Newry, &c. R. Co. Ir. (U. S.) 448; Whelpley v. Brie R. Rep. 2 Eq. 1. Co. 6 Blateh. (U. S.) 271; Long ""Crewe v. Bdleston, 1 DeG. & J. Dock Co. V. Mallery, 12 N. J. Eq. 93, 109, per Lord Justice Turner; 431; Mercantile Trust Co. v. Mis- Allen v. Dallas, &c. R. Co. 3 Woods souri, &c. R. Co. 36 Fed. 221; Penn- (U. S.) 316; High Receivers, § 382. sylvania Co. &c. v. Jacksonville, &c. "' Shaw v. Norfolk, &c. R. Co. 5 R. Co. 55 Fed. 131. Gray (Mass.) 162; Wilmer v. At- '='Dumville v. Ashbrooke, 3 Russ. lanta, &c. R. Co. 2 Woods (U. S.) 99, note *; Hopkins v. Worcester, 409; Sacramento, &c. R. Co. v. Su- &c. Proprietors, L. R._ 6 Eq. 437; perior Ct. 55 Cal. 453; Rice v. St. Ruggles V. Southern Minn. R. Co. Paul, &c. R. Co. 24 Minn. 464. 785 APPLICATION OF SECtTEED CKEDITOES. [[§ 549 ' of the trust, refuses to sue, the bondholders may themselves sue, but must make the trustee, the corporation and all other bondholders parties.^'^ If one or more bondholders have a right to institute pro- ceedings they necessarily act for all standing in a similar positioiji and cannot secure individual relief at the expense of others holding the same security ;^^^ and it has been held that where the sufficiency of the security is doubtful all other creditors similarly situated must have notice in order that they may protect their interests.^^* The rule laid down by Lord Eldon in the leading English case has been fol- lowed in some states as the fundamental law concerning the right of a junior mortgagee to invoke the appointment of a receiver, but it is based upon the common-law theory of the mortgage. This rule is to the effect that while the first mortgagee is in possession and any por- tion of the mortgage debt remains unpaid,^^* the junior mortgagee can only secure' the appointment of a receiver by paying off the bal- ance of the first mortgage or offering to pay such claim, and in the general application of the rule it has been held that where the elder mortgagee has not asserted his right to possession or to the rents and income the junior mortgagee has a right to do so;^*" but a re- ceivership on the application of the junior mortgagee will not operate to defeat the priority or the rights of the elder mortgagee,^* ^ except that in some cases it is held that his right of election to take posses- sion is defeated,^*^ the court having taken possession for all parties. "'Commonwealth v. Susquehanna, 43; Miltenherger v. Logansport, &c. &c. R. Co. 122 Pa. St 306, 15 Atl. R. Co. 106 U. S, 286, 1 Sup. Ct. 140. 448, 1 L. R. A. 225. »« Berney v. Sewell, 1 Jac. & W. "'Jackson v. Ludeling, 21 Wall. 627; Cortleyeu v. Hathaway, 11 N. (U. S.) 616; Vose v. Bronson, 6 J. Bq. 42, 64 Am. Dec. 478. Wall. (U. S.) 452; Stanton v. Ala- '*" Beverly v. Brooke, 4 Grattan hama, &c. R. Co. 2 Woods (U. S.) (Va.) 187; High Receivers, § 689. 523; New Orleans, &c. R. Co. v. Lord Eldon, in Berney v. Sewell, 1 Parker, 143 U. S. 42, 58, 12 Sup. Ct. Jac. & W. 627, held that the appoint- 364; Galveston R. Co. v. Cowdrey, I'l ment of a receiver at the applica- Wall. (U. S.) 459. tion of a junior mortgagee could ^=» Railway Co. v. Orr, 18 Wall, not prejudice the right of the elder (U. S.) 471. See Overton v. Mem- mortgagee to take possession at any phis, &c. R. Co. 10 Fed. 866; Pen- time and thus dispossess the re- nock V. Coe, 23 How. (N. Y.) 117; ceiver. It seems, however, that this Taylor Priv. Corp. § 815. doctrine has yielded in Virginia to "'Berney v. Sewell, 1 Jac. & W. the generally accepted theory that 627. a receiver, as an officer of the court, ""Ranney v. Peyser, 83 N. Y. 1; takes possession for all parties in Howell V. Ripley, 10 Paige (N. Y.) interest and "holds such possession Ell. Railroads — 50 until his function is discharged. § 549] RECEIVERS. 786 The stringency of this rule has been relaxed in many of the states, in the federal courts and even in rare English cases, and where a clear case is made showing that the mortgagee in possession is irresponsible, is committing waste or material injury, endangering the security, or is fraudulently or carelessly mismanaging the property so as to impair the junior mortgage, a receiver may be appointed at the suit of the junior mortgagee.^*^ As we have seen, if the senior mortgagee be in possession and conduct the business so as to imperil the second mort- gage security a receiver may be appointed, or if he have the right, by the terms of his mortgage, to take possession and refuses or neg- lects to do so, the junior mortgagee may sometimes invoke the aid of a receiver to secure the rents and profits. So, also, in cases where the mortgagor retains possession, the junior mortgagee may some- times invoke the remedy to insure the proper management of the property and to compel the proper application of the revenues. It has been held that at the petition of the junior mortgagee a receiver may be directed to borrow money in order to pay the interest on first mortgage bonds where default would precipitate foreclosure and prove disastrous to the second mortgage security^** and a receiver has been appointed on the application of a junior mortgagee to operate a road and apply the revenues where lack of harmony existed in the man- agement, and without the rents and profits the security was wholly inadequate, and where, under the existing management, the junior mortgagee might be postponed indefinitely.^*^ The interference of the court under such circumstances I'ests upon the ground of neces- sity to compel a proper appli Mercantile Trust Co. v. Mis- Gratt. (Va.) 187; Meaden v. Sealey, souri, &c. R. Co. 36 Fed. 221, 1 L. 6 Hare 620; Codrington v. Parker, 16 R. A. 397. Ves. 469; Lloyd v. Passingham, 16 "°Hiles v. Moore, 15 Beav. 175; Ves. 59; Huguenin v. Baseley, 13 Bryan v. Cormick, 1 Cox 422; High Ves. 105; Corcoran v. Doll, 35 Cal. Receivers, § 682. 476; Rowe v. Wood, 2 Jac. & W. "'Buchanan v. Berkshire, &c. Co. 553; Boston, &c. R. Co. v. New York, 96 Ind. 510, 531. &c. R. Co. 12 R. I. 220; Wiltsie Mortgage Foreclosures, § 680. 787 APPOINTMENT UPON APPLICATION OF STOCKHOLDERS, '[§ 550 § 550. Appointment upon application of stockholders. — As a gen- eral rule a receiver will not be appointed upon the application of a stockholder, because of mismanagement or internal dissensions, until after he has applied to the directors and ofiBcers of the corporation, and, in some cases, to the other stockholders.^** But, as we have al- ready seen,^*^ where the directors and persons in charge are fraudu- lently depriving the minority stockholders of their rights, dissipating the property and the like, so that it would be useless to apply to them for relief, and especially if they have already brought about a state of insolvency, a receiver may generally be appointed on the application of stockholders.^^" So, where a controlling interest in the stock of one railroad company was purchased by another, which thus secured the election of a board of trustees consisting of its own officers and em- ployes, and such board then executed an illegal traffic agreement or lease whereby the entire control of the franchises and property of the former company was surrendered to the latter, it was held that minority stockholders of the former could maintain a bill to annul such agreement without first applying to the board of trustees for relief, and the court appointed a receiver upon their application, which also showed that the company, as managed by the company owning the majority of its shares, could not pay operating expenses and was wholly insolvent.^^^ But a receiver will not be appointed upon i^Hand v. Dexter, 41 Ga. 454; 16 Eq. 298; Albert v. State, 65 Ind. Converse v. Dimock, 22 Fed. 573; 413; Hall V. Astoria, &c. Co. 5 R. & Rathbone v. Parkersburg, &c. Co. 31 Corp. L. J. 412; Wayne Pike Co. v. W. Va. 798, 8 S. E. 570; Strong v. Hammons, 129 Ind. 368, 27 N. E. McCagg, 55 Wis. 624, 13 N. W. 895; 487; Conro v. Gray, 4 How. Pr. (N. Pond V. Framingham, &c. R. Co. 130 Y.) 166; Haywood v. Lincoln Lum- Mass. 194; Hawes v. Oakland, 104 ber Co. 64 Wis. 639, 28 N. W. 184; U. S. 450. See, also, Roman v. Wool- Porter v. Industrial, &c. Co. 5 Misc. folk, 98 Ala. 219, 13 So. 212-; Hardee (N. Y.) 262, 25 N. Y. S. 328; Towle V. Sunset Oil Co. 56 Fed. 51; , v. American, &c. Society, 60 Fed. Wheeler v. Pullman, &c. Co. 143 III. 131; Lewis, In re, 52 Kan. 660, 35 197, 32 N. B. 420, 17 L. R. A. 818; Pac. 287; Schmidt v. Mitchell, 101 Fluker v. Emporia City R. Co. 48 Ky. 570, 41 S. W. 929, 72 Am. St. Kans. 577, 30 Pac. 18. 427; Du Puy v. Transportation, &c. ""Ante, §§ 543, 547. Co. 82 Md. 408, 33 Atl. 889, 34.Atl. ™See 1 Morawetz Priv. Corp. 910. See, also. Culver Lumber Co. §§ 242, 245, 273; Miner v. Belle Isle, v. Culver (Ark.), 99 S. W. 391. Sev- &c. Co. 93 Mich. 97, 53 N. W. 218, eral of these decisions are based 17 L. R. A. 412; State v. Second on statutory provisions, but the Judicial Dist. Ct. 15 Mont. 324, 39 others seem to have been decided on Pac. 316, 27 L. R. A. 392, 48 Am. St. general principles of equity. 682; Featherstone v. Cooke, L. R. ""Earle v. Seattle, &c. R. Co. 56 § 551] EECBIVEES, 788 the application of a stockholder acting in the interest of persons hostile to the company ;^^' and mere insolvency is generally insufficient to authorize the appointment of a receiver at the instance of a stock- Holder, in the absence of any statutory provision upon the subject.^°* In many of the states, however, there are statutory provisions au- thorizing the appointment of a receiver, in certain cases, at the suit of a stockholder.^^* A former shareholder is not entitled to a receiver, upon the ground of mismanagement by the officers and directors, after he has parted with all his interest in the corporation and its efEects,^^^ and in no case in which a stockholder seeks the appointment of a receiver upon the ground of a breach of trust or mismanagement by those in control will the court appoint a receiver if he has participated or acquiesced for a long time therein.^^" § 551. Appointment upon application of corporation. — A receiver may be appointed, in a proper case, upon the application of the com- pany itself. Thus, it has been held that a receiver may be appointed upon the application of a railroad company where it is shown that the company is hopelessly insolvent, that its property is likely to be seized by different courts and scattered abroad, its assets dissipated and its system disrupted and broken Up into fragments to the ir- reparable injury and damage of all persons having an interest in the road.^°^ It is said, however, that the court, in such a case, cannot Fed. 909. See, also, Evans v. Union statutes are referred to and the au- Pac. R. Co. 58 Fed. 497; Stevens v. thorities reviewed. Davison, 18 Gratt. (Va.) 819, 98 Am. "= Smith v. Wells, 20 How. Pr. (N. Dec. 692. But compare "Wallace v. Y.) 158. See, also, Dimpfell v. Ohio, Pierce-Wallace Pub. Co. 101 Iowa &c. R. Co. 110 U. S. 209, 3 Sup. Ct. 313, 70 N. W. 216, 38 L. R. A. 122, 573. 63 Am. St. 389. In Putnam v. Ruch, ^™Hyde Park, &c. Co. v. Kerber, 5 54 Fed. 216, a receiver was appoint- Bradw. (111.) 132; Gray v. Chaplin, ed upon the application of a stock- 2 Russ. 126; Hager v. Stevens, 2 holder because the charter had been Halst. Ch. 374 (6 N. J. Eq. 374) ; repealed. Hood v. First Nat. Bank, 29 Fed." "'Belmont v. Erie R. Co. 52 Barb. 55; Downing v. Dunlap, &c. R. Co. (N. Y.) 637. 93 Tenn. 221, 24 S. W. 122. iMjjlerryman v. Carroll, &c. Co. 4 "'Wabash, &c. R. Co. v. Central Railw. & Corp. L. J. 12; ante, § 543. T. Co. 22 Fed. 272; Quincy, &c. R. But see Cole v. Philadelphia, &c. R. Co. v. Humphreys, 145 U. S. 82, 12 Co. 140 Fed. 944. Sup. Ct. 787; Central Trust Co. v. «* See Supreme Sitting, &c. v. Wabash, &c. R. Co. 29 Fed. 618, 623 ; Baker, 134 Ind. 293, 33 N. E. 1128, Brassey v. New York, &c. R. Co. 19 20 L. R. A. 210, and note, where the Fed. 663. 789 APPOINTMENT UPON APPLICATION OF CORPORATION. [§ 551 displace vested liens, but must require the property to be held and preserved by the receiver for the benefit of all concerned, as their interests may appear.^^* It undoubtedly requires a very strong show- ing to justify the appointment of a receiver upon the application of the corporation, but vre think there are cases in which the court has the power to make the appointment, and is justified in exercising it. There are decisions, however, which seem to hold that a receiver can never be appointed upon the application of the corporation. In one of them it is said that a statutory provision that no receiver of a cor- poration shall ever be appointed upon its own petition is but a legisla- tive declaration of the rule recognized by courts of equity.^^' In an- other case it is said : "That a court of equity has no inherent power, except in some few eases of particular jurisdiction, to appoint a re- ceiver, except as an incident to and in a suit pending, has hitherto, with the exception of the Wabash case,**" been a universally accepted doctrine ; and outside of that case the doctrine that a court of equity, without statutory authority, has jurisdiction, upon the application of an insolvent corporation, to take charge and administer its affairs through a receiver, not only has no support, but whenever suggested has been repudiated."^^^ It is doubtless the general rule that there 1=8 Quincy, &c. R. Co. v. Hum- in the preceding note, as well as in phreys, 145 U. S. 82, 12 Sup. Ct. the case now under consideration. 787. »' State v. Ross, 122 Mo. 435, 25 S. «» Texas, &c. R. Co. v. Gay, 86 W. 947, 23 L. R. A. 534. Citing Tex. 571, 26 S. W. 599, 25 L. R. A. Jones v. Leadville, 10 Colo. 464, '17 . 52, citing Robinson v. Hadley, 11 Pac. 272; French Bank Case, 53 Cal. Beav. 614; Leddel v. Starr, 19 N. J. 495; Smith v. Los Angeles Super. Eq. 159; Marr v. Littlewood, 2 Myl. Ct. 97 Cal. 348, 32 Pac. 322; Hugh & Cr. 455. See, also, Kimhall v. v. McRea, Chase, Dec. 466, Fed. Cas. Goodburn, 32 Mich. 10. In another No; 6840; People v. St. Clair Circuit case the same court suggests that Judge, 31 Mich. 456; Kimball v. the directors, as trustees for stock- Goodburn, 32 Mich. 10; Neall v. Hill, holders and creditors, would be the 16 Cal. 145, 76 Am. Dec. 508; French proper parties to institute the suit. ,v. GifEord, 30 Iowa 148; Whitehead Mcllhenny v. Binz, 80 Tex. 1, 13 S. v. Wooten, 43 Miss. 523; Attorney- W. 655, 26 Am. St. 705. General v. Utica Ins. Co. 2 Johns. ""Wabash, &c. R. Co. v. Central Ch. 371; Whitfield, Ex parte, 2 Atk. T. Co. 22 Fed. 269, and Central Trust 315, 330; Wait Insolv. Corp. § 183; Co. V. Wabash, &c. R. Co. 29 Fed. Gluck & B. Receivers, § 27. See, 618. These cases, which we have also, Vila v. Grand Island, &c. Co. already cited, go further, perhaps, 68 Neb. 222, 94 N. W. 136, 97 N. W. than the others heretofore cited in 613, 63 L. R. A. 791, 110 Am. St. the same connection, and are criti- 400. cized in one of the Texas cases cited § 552] RECEIVERS. 790 must ordinarily be a pending suit, and that a corporation cannot have a receiver appointed on its ex parte application alone, and it may be true that the "Wabash Case," in so far as it seems to authorize the appointment of a receiver, in the absence of a pending suit, violates the general rule, but it is said that there is no rule without exceptions, and, in any event, we think that where a suit is pending, as, for in- stance, where all interested persons are made parties and the com- pany asks other relief in addition to the appointment of a receiver, the facts may be such and the emergency so great as to require the appointment upon the application of the company.^*^ § 552. What court may appoint. — The power of appointing a re- ceiver is generally exercised only by courts having original jurisdic- tion.^°^ But where an appellate court has jurisdiction of the suit by appeal, and of the parties, it may appoint a receiver of the property in controversy pending the appeal, if necessary in order to protect its appellate jurisdiction, or to make its decree effective.^'* On the other hand, it has been held that where a mortgage is foreclosed and an appeal taken from the decree of foreclosure, the suit may be consid- ered as still pending for the purpose of an application for a receiver of the rents and profits, and that the court that rendered the decree is the proper court to hear and determine the application.^"^ The gen- eral rule is that an appeal removes the entire case, or so much as is appealed to the appellate court, but there may be collateral or inde- pendent matters, distinct from the questions involved in the' appeal, which are not taken from the jurisdiction of the trial eourt.^°° Owing, to the fact that all long lines of railroad pass through many counties, and frequently through several states, and that the immediate juris- "^See Dickerman v. Northern T. 95 U. S. 1; Pacific R. Co. v. Missouri Co. 176 U. S. 181, 20 Sup. Ct. 311; Pacific R. Co. 15 Am. R. 80; Allen Park V. New York, &c. R. Co. 70 v. Harris, 4 Lea (Tenn.) 190. Fed. 641. ™Brinkman v. Ritzinger, 82 Ind. "' Pacific R. Co. v. Ketchum, 95 U. 358. See, also. Beard v. Arbuckle, 19 S. 1. W. Va. 145; Grantham v. Lucas, 15 '"West V. Weaver, 3 Heisk. W. Va. 425, 431; Lottimer v. Lord, (Tenn.) 589. See Kerr v. White, 7 4 E. D. Smith (N. Y.) 183; Penn Baxt. (Tenn.) 394. For a case Mut. Ins. Co. v. Semple, 38 N. J. where, under the circumstances, the Eq. 314. But compare Havemeyer Supreme Court of the United States v. Superior Court, 84 Cal. 327, 24 declined to appoint a receiver, but Pac. 121, 10 L. R. A. 627, 18 Am. St. without denying its jurisdiction to 192. do so, see Pacfiic R. Co. v. Ketchum, ™ Elliott App. Proc; §§ 541-546. 791 COURT FIRST OBTAINING JURISDICTION RETAINS IT. [§' 553 diction of a circuit court of the United States is usually more ex- tensive than that of the local courts, and because it is desirable to have the receiverships of the various parts of a railroad controlled by courts which administer a uniform system of laws and are governed by the same rules when sitting as courts of equity, applications for the appointment of receivers for railroad corporations are usually made to the federal courts. These courts are controlled by the prin- ciples of equity as developed in the high court of chancery of Eng- land, which principles, indeed, are followed in the interpretation and construction of the various statutes that have been enacted to regulate the appointment of receivers.^^^ In the states in which courts of law and courts of equity remain distinct, the power to appoint receivers is usually in the courts of chancery, while in the code states it is usually in the courts of general jurisdiction having both law and equity jurisdiction. The particular court having jurisdiction to ap- point a statutory receiver of a corporation for insolvency, non-user or abuse of its corporate rights, or any other cause leading to its dis- solution, is generally determined by the statutory law in the several states having statutes upon this subject. ^®^ It was formerly the prac- tice, in many cases, to refer the matter to a master to select the re- ceiver,^®" but this practice is seldom resorted to at the present time, and, in most jurisdictions, the appointment must be made by the court. A court commissioner, it has been held, has no jurisdiction to ' appoint a receiver.^'" Where a suit is pending in a federal court for the foreclosure of a railroad mortgage and the appointment of a re- ceiver, it will take jurisdiction of another bill filed by lienholders, without regard to the citizenship of the parties, on the ground that their right to enforce their liens in the state court will be cut off when the federal court takes possession of the property, and hence their. suit may be regarded as an ancillary suit.^'^ § 553. Court first obtaining jurisdiction retains it — Conflict of jurisdiction. — The court which first acquires jurisdiction of an action "' It has been held that the fed- "" See WUtsie Mortg. Foreclosures, eral courts will follow the supreme §§ 629, 640-644. court of the state in Its interpreta- ™Quiggle v. Trumbo, 56 Cal. 626. tion of a state statute, but that the "'■ Central Trust Co. v. Bridges, 57 Texas satute does not apply to re- Fed. 753. See, also, Conwell v. ceivers of a federal court. Guar- White Water Canal Co. 4 Biss. (U. anty Trust Co. v. Galveston City R. S.) 195; Krippendorf v. Hyde, 110 Co. 107 Fed. 311. U. S. 276, 4 Sup. Ct. 27; Pacific R. ™ Stlmson Am. St. (1892) §§ 8332, Co. v. Missouri Pac. R. Co. 1 Mc- 8335, 8360, 8901. Crary 647, 3 Fed. 772. § 553] EECEIVEES. 793 for the appointment of a receiver will retain it to the end of the liti- gation, to the exclusion of other courts of co-ordinate jurisdiction.^'* One court will not attempt, by a writ of mandamus, to control the action of receivers appointed by another court.^^* A state court will refuse to entertain a suit to foreclose against property in the hands of a federal court,^'* and a federal court will not entertain a bill to compel an accounting by a receiver who is acting under the order of a state court by which he was appointed.^'" Nor will a federal court enjoin a receiver in possession of a railroad under the appointment of a state court from issuing receiver's certificates, or restrain the parties from carrying out an agreement sanctioned by the state court.^'* But the pendency of an action in a state court to set aside an assignment as fraudulent and have a receiver appointed has been held to be no bar to a creditors' bill in a federal court by parties not before the state court."' Where a receiver has been regularly appointed and has ob- tained possession of the property, he cannot be interfered with by the officers of another court in which a second suit has been begun.^'^ Indeed it would seem to be the better law that it is not necessary that "'Gaylord v. Fort Wayne, &c. R. Co. 6 Biss. (U. S.) 286; Bill v. New Albany, &c. R. Co. 2 Biss. (U. S.) 390; Ohio, &c. R. 'Co. v. Fitch, 20 Ind. 498; McCarthy v. Peaks, 18 How. Pr. 138, 9 Abb. Pr. (N. Y.) 164; O'Mahony v. Belmont, 37 N. Y. Super. Ct. 380; Pugh v. Brown, 19 Ohio 202, 211; Stearns v. Stearns, 16 Mass. 167; Judd v. Bankers', &c. Co. 31 Fed. 182; Riesner v. Gulf, &c. R. Co. 89 Tex. 656, 36 S. W. 53, 33 L. R. A. 171, 59 Am. St. 84; High Receivers, §§ 49, 50. "' State v. Marietta, &c. R. Co. 35 Ohio St. 154. See, also. Shields v. Coleman, 157 U. S. 168, 15 Sup. Ct. 570. "'Milwaukee, &c. R. Co. v. Mil- waukee, &c. R. Co. 20 Wis. 165 (174), 88 Am. Dec. 735. See, also, State V. Miller, 54 Kans. 244, 38 Pac. 269. But compare Attorney-General, In re, 113 Wis. 623, 88 N. W. 912. "' Conkling v. Butler, 4 Biss. (U. S.) 22. ™Reinach v. Atlantic, &c. R. Co. 58 Fed. 33. See, generally, as to when federal court will not inter- fere with or displace receiver ap- pointed by state court, Lancaster v. AshevlUe St. R. Co. 90 Fed. 129; Central Trust Co. v. South Atlantic, &c. R. Co. 57 Fed. 3; Davis v. Rail- road Co. 1 Woods (U. S.) 661; Wood V. Oregon, &c. Co. 55 Fed. 901. "'Rejall V. Greenhood, 60 Fed. 784. But see Central Trust Co. v. South Atlantic, &c. R. Co. 57 Fed. 3. "° Young V. Montgomery, &c. R. Co. 2 Woods (U. S.) 606; Wilmer v. Atlanta, &c. R. Co. 2 Woods (U. S.) 409 ; Port Wayne, &c. R. Co. v. Mel- lett, 92 Ind. 535; O'Mahony v. Bel- mont, 5 J. & S. (N. Y.) 380. Prop- erty in the hands of a receiver of a state court cannot be levied upon by the United States marshal in be- half of a judgment creditor. Wis- wall V. Sampson, 14 How. (U. S.) 52. 793 COURT FIRST OBTAINING JURISDICTION RETAINS IT. [§' 553 the court which first takes iurisdiction of the case, shall also first take, by its officers, actual possession of the property in controversy, and that it is sufficient that it shall have jurisdiction of the subject- matter and of the parties, and that its aid shall have been regularly invoked.^^* The fact that an action covering substantially the same issues is hegim in a state court after the filing of a bill against a railroad company in the United States Circuit Court in which the ap- pointment of a receiver is asked for, but before an. appointment is made, and that the state court proceeds to appoint a receiver and to put him in possession of the property, will not affect the jurisdiction of the circuit court; but it will proceed in due course to appoint a receiver, if occasion for such action is shown, and will assert its juris- diction.^^" And it is even held that after the technical but not neces- ™ Illinois Steel Co. v. Putnam, 68 Fed. 515; Adams v. Mercantile Trust Co. 66 Fed. 617; May v. Print- up, 59 Ga. 128; Union Trust Co. v. Rockford, &c. R. Co. 6 Biss. (U. S.) 197, per Blodgett, J.; Kerp v. Michi- gan, &c. R. Co. 6 Chicago Leg. News 101; Sedgwick v. Menck, 6 Blatch. (XJ. S.) 156. But see Moran v. Sturges, 154 TJ. S. 256, 14 Sup. Ct. 1019. In Texas it is held that on an appeal from an order of a state court appointing a receiver of a rail- road, where It appears that the fed- eral court had already appointed a receiver for such road, hut it does not appear when the suit in which he was appointed was instituted, the order of the state court will not be disturbed. Texas Trunk R. Co. v. State, 83 Tex. 1, 18 S. W. 199; "Wil- mer v. Atlanta, &c. Co. 2 Woods 409. (Woods, J.) In New York, under the code, the court has jurisdiction of a cause and all the subsequent proceedings from the time process is served or a provisional remedy is allowed, and a second court will de- cline to take iurisdiction or appoint a receiver where the first court has granted an injunction. McCarthy v. Peake, 18 How. Pr. 138; High Re- ceivers, § 49. In Gaylord v. Fort Wayne, &c. R. Co. 6 Biss. (U. S.) 286, Drummond, J., says: "The principle upon this subject is prop- erly stated in the opinion of the circuit court of the northern district of Illinois, in the case of the XJ. T. Co. V. Rockford, R. Co., reported in 7 Chicago Legal News 33: that the court which first takes cognizance of the controversy is entitled to re- tain jurisdiction to the end of the litigation, and incidentally to take the possession or control of the res, the subject-matter of the contro- versy, to the exclusion of all inter- ference from other courts of con- current jurisdiction, and that the proper application of this principle does not require that the court which first takes jurisdiction of the controversy shall also first take the actual possession of the thing in controversy." ''"Memphis v. Dean, 8 Wall. (U. S.) 64; Jones Corp. Bonds, § 463. In Bill V. New Albany, &c. R. Co. 2 Biss. (U. S.) 390, it was held that such action on the part of the state court would, if justice required it, be treated as an interference, and the federal court would refuse to 553] EECEIVEES. 794 sarily final dismissal of a suit in the federal court, a suit in a state court for the appointment of a receiver will not supersede the juris- diction of the federal court as to any further matters connected with the receivership in that court.^^^ It has been held, however, that when the second suit relates to a different cause of action, this rule does not apply, although the thing which the litigation concerns is the same in both cases, and that, in such a case, priority of possession determines the priority of right to hold the property/*^ Where a re- ceiver appointed by a state court in a suit between the railroad com- pany and a judgment creditor was in actual possession, it was held that the United States Circuit Court had no jurisdiction to compel such receiver to surrender possession to a receiver appointed by it in a suit between the mortgage creditors and the company, instituted be- fore the suit in the state court was begun.^^' The soundness of this recognize a decree of foreclosure rendered in the state court in an action brought after suit was be- gun in the federal court, but before final adjudication. "'Union Trust Co. v. Rockford, &c. R. Co. 6 Biss. (IT. S.) 197. "^Memphis v. Dean, 8 "Wall. (U. S.) 64. In Wilmer v. Atlanta, &c. R. Co. 2 Woods (U. S.) 409, Woods, J., in taking the opposite view, says: "It is well settled that realty out of the state may be reached by acting on the person. Mitchell v. Bunch, 2 Paige Ch. (N. Y.) 606,. 22 Am. Dec. 669; Ramsey v. Brailsford, 2 Des. (S. Car.) 582, note 2 Am. Dec. 698. In the case in Paige it was held that if the person of the de- fendant is within its jurisdiction, the court has jurisdiction as to his property situated without such ju- risdiction. When the property Is situated outside the territorial juris- diction of the court, the court may require ass'gnments to be made by the defendant to the receiver. * * * Especial attention Is called to the cases of WIswall v. Sampson, 14 How. (N. Y.) 52; Chittenden v. Brewster, 2 Wall. (U. S.) 191; Bill V. The New Albany R. ,Co. 2 Biss. (XJ. S.) 390. An examination of the cases cited will show that actual seizure of property has not been considered necessary to the jurisdic- tion of the court In a case where the possession of the property Is necessary to the relief sought. The commencement of the action and service of process, or, according to some of the cases, the simple com- mencement of the suit by the filing of the bill, is sufficient to give the court jurisdiction to the exclusion of all other courts. * * * if this court, upon the bill filed In this case, has the power to take pos- session of the entire property grant- ed by the trust deed, as we have already decided it has, then the fil- ing of the bill asking this court to take possession of and administer the trust property, and the service of process excluded the jurisdiction of all other courts to take posses- sion of and administer the same property or any part thereof." But see opinion of Bradley, J., in next note. ''= Wilmer v. Atlanta, &c. R. Co. 2 Woods (U. S.) 409, 425, per Mr. 795 COURT FIKST OBTAINING JUKISDICTION RETAINS IT. [§' 553 decision has many times been questioned/'* although it has received Justice Bradley. In refusing a writ of assistance to put the receiver ap- pointed by Judge Woods of tlie fed- eral court in possession of the prop- erty, Mr. Justice Bradley said:. "It is too well settled to admit of con- troversy that where two courts have concurrent jurisdiction of a subject of controversy the court which first assumes jurisdiction has it exclu- sive of the other. But where the objects of the suit are different, this rule does not apply, although the thing about or in reference to which the litigation is had is the same in both cases. * * * The contro- versy not being the same nor the parties the same, there Is no con- flict as to the question or cause. But » * * there has arisen a conflict of jurisdiction as to the thing or subject-matter. * * * The test), I think, is this: Not which action was first commenced, nor which cause of action has pri- ority or superiority, but which court first acquired jurisdiction over the property. If the Fulton county court had the power to take possession when it did so, and did not invade the possession or juris- diction of this court, its possession will not be interfered with by this court; the parties must either go to that court and pray for the removal of its hand, or, having procured an adjudication of their rights in this court must wait until the action of that court has been brought to a close and judicial possession has ceased. Service of process gives ju- risdiction over the person. Seizure gives jurisdiction over the property; and until it is seized, no matter when the suit was commenced, the court does not have jurisdiction. The al- leged collusion and fraud of the par- ties cannot alter the case. It is a question between the two courts; and we must respect the possession and jurisdiction of the sister court. We cannot take, the property out of its hands unless it has first wrong- fully taken it out of our hands. This, as we have shown, has not been done. The application for a writ of assistance and for an at- tachment must be denied." See, also. Barton v. Keyes, 1 Flippin (U. S.) 61; Levi v. Columbia, &c. Ins. Co. 1 Fed. 206; Walker v. Flint, 7 Fed. 435; Erwin v. Lowry, 7 How. (U. S.) 172; Griswold v. Central, &c. R. Co. 9 Fed. 797; Covell v. Heyman, 111 U. S. 176, 3 Sup. Ct. 355; Heidritter v. Oilcloth Co. 112 U. S. 294, 5 Sup. Ct. 135; Beach Mod. Bq. § 723. ^' See May v. Printup, 59 Ga. 128, where it was held that the filing of a bill is sufficient to give jurisdic- tion of the thing in controversy, in a case where the only recovery can be out of the property; and that a state court which takes possession of a railroad pending an application to the United States Circuit Court for the appointment of a receiver should surrender such possession when it is shown that the suit in the state court was filed by collu- sion of the parties after the suit in the federal court was begun. In Adams v. Mercantile Trust Co. 66 Fed. 617 (C. C. of App.), Pardee, X, says, concerning the opposing views of Judge Woods and Mr. Justice Bradley, Wilmer v. Atlanta, &c. Co. supra: "The vfews expressed by Judge Woods have been accepted and followed in this circuit, at least, and we fully concur therein, as a correct exposition of the law^ and one particularly applicable to the § 553] EECEIVEBS. 796 recognition in some jurisdictions.^*' It has been held, however, that the general rule that the court which first takes cognizance of a suit has the exclusive right to decide every question arising therein, is sub- ject to limitations, that it is only when property is in possession of the court, either actually or constructively that it can be protected from the process of other courts,^** and that other courts may take any action which does not amount to an interference with the possession of the first court acquiring jurisdiction.^*^ So, in a comparatively recent case,^** it was held that the fact that a prior suit for foreclosure present case; while the decision of Mr. Justice Bradley, doubted by himself, is open to the objection that thereby jurisdiction is fre- quently made to depend upon a race between marshals and sheriffs, like- ly to result in unseemly controver- sies between the state and federal courts." In Illinois Steel Co. v. Put- nam (C. C. of App.), 68 Fed. 515, 517, McCormick, J., says: "Where a bill in equity brings under the di- rect control of the court all the property and estate of the defend- ants, * * * and the possession and control of the property are nec- essary to the exercise of the juris- diction of the court, the filing of the bill and service of process is an equitable levy on the property, and pending the proceedings such prop- erty may properly be held to be in gremio legis. The actual seizure of the property is not necessary to pro- duce this effect, where the posses- sion of the property is necessary to the granting of the relief sought. In such cases the commencement of the suit is sufScient to give the court whose jurisdiction is invoked the exclusive right to control the prop- erty." ^"Merchants', &c. Bank v. Trus- tees, 63 Ga. 549; East Tenn. &c. R. Co. V. Atlanta, &c. R. Co. 49 Fed. 608.. ""Buck V. Colbrath, 3 Wall. (U. S.) 334. '''Andrews v. Smith, 19 Blatchf. (U. S.) 100, 5 Fed. 833. The ap- pointment of a receiver by one court will not be regarded as an in- terference with the jurisdiction of another court, which has granted an injunction concerning property without taking it into possession. San Antonio, &c. R. Co. v. Davis (Tex. Civ. App.), 30 S. W. 693. ^^East Tennessee, &c. R. Co. v. Atlanta, &c. R. Co. 49 Fed. 608. The court said: "The rule upon that subject in this state is deducible from the decision of the supreme court in Merchants', &c. Bank v. Trustees, 63 Ga. 549, where the court uses this language: 'But it would seem here that the stockhold- ers' bill has been pending here for a long time in the circuit court of the United States, and no receiver is yet appointed. Perhaps none ever will be. Is the judgment cred- itor to wait until one is to be ap- pointed? He is not even in this case made a party to the bill in the United States court. If he were, and if the bill there filed was simi- lar to this in review here, and could accomplish the same end, to wit, the collection of this debt by the judg- ment creditor, having the final proc- ess of the state court in his hands, even then we should rule that neither law, nor equity, nor comity would require the equity court to wait upon the United States court 797 EXTEATEEEITOEIAL JUEISDIOTIOKT. [§ 554 was pending in the state court, with no immediate purpose to ask for a receiver, did not prevent the federal court from taking jurisdic- tion, and appointing a receiver, and that after such receiver had taken possession he could not be required to deliver possession to a receiver afterwards appointed by the state court in the prior suit. § 554. Extraterritorial jurisdiction. — A court of equity cannot, as a rule at least, acquire extraterritorial jurisdiction by appointing receivers for property lying entirely outside of the state or district in which such court is organized.^^" Many cases are found, however, in which a receiver has been appointed over property lying within the jurisdiction and other property lying outside of the state or country where the parties interested in the property were personally before the court and subject to its orders, and the property in separate juris- dictions went to make up an entity or belonged to the same corporate body.'^*" Thus, where a single railroad corporation created by the concurrent legislation of several states owns a line extending into each of those states, a court having jurisdiction over the corporate body may acquire control of all its property by requiring it to execute , assignments, or otherwise transfer the title to the receiver.^'^ And it was held in one case that even though recefvers had already been appointed by the state courts of Georgia, North Carolina and South Carolina to take charge of the several parts of a railroad incorporated by and extending across the three states, but having its principal office at Atlanta, in the state of Georgia, the circuit court for the northern district of Georgia, in which suit had been brought before in a case like this.' The application Pac. R. 69 Fed. 871; Ellis v. Boston, of that decision is that neither law, &c. R. Co. 107 Mass. 1; Mead v. New equity, nor comity will require the York, &c. R. Co. 45 Conn. 199, 223; United States court to wait upon State v. Korthern Cent. R. Co. 18 the state court in a case like this." Md. 193; ante, § 27. See, also, **° Atkins V. Wabash, &c. R. C6. 29 Blackburn v. Selma, &c. R. Co. 2 Fed. 161; Booth v. Clark, 17 How. Flip. (U. S.) 525, 3 Fed. Cas. 526; (U. S.) 321; Texas, &c. R. Co. v. Central Trust Co. v. Wabash, &c. R. Gay, 86 Tex. 571, 26 S. W. 599, 25 Co. 29 Fed. 618. High Receivers, L. R. A. 52, where the court care- § 42, and authorities cited, fully reviews the authorities bear- ^"Muller v. Dows, 94 IT. S. 444; ing upon the question. But see Northern Indiana R. Co. v. Michl- Lewls V. American, &c. Co. 119 Fed. gan Cent. R. Co. 15 How. (U. S.) 391, where the corporation made no 233; Port Royal, &c. R. Co. v. King, objection. 93 Ga. 63, 19 S. E. 809, 24 L. R. A. "»Muller v. Dows, 94 U. S. 444; 730. Farmers' Loan, &c. Co. v. Northern § 554] EECEIVEES. 798 any suit had been instituted in the state courts, had jurisdiction to appoint a receiver for the whole line.^^'' On the other hand, it has been held that a federal court in one state has no jurisdiction over a railroad in another state and cannot appoint a receiver of such rail- road, although it is the property of a consolidated corporation created by congress.^°^ It is somewhat difficult to reconcile or distinguish the apparently conflicting decisions upon this subject, but we are inclined to think that the true distinction is this : Where the corporation is not within the jurisdiction of the court, or where no part of the property is within its jurisdiction, and it cannot get possession or control of the property without sending its process to another state, it has no power to appoint a receiver of such property; but where the corpora- tion is a corporation of the same state, consolidated or otherwise, although it may have lines extending into other states, if it is an in- "'"Wllmer v. Atlanta, &c. Co. 2 Woods (U. S.) 409. In announcing the opinion of the court appointing a receiver, Judge "Woods said: "As the property of the defendant com- pany is one entire and indivisible thing, and as it is all covered by one deed of trust, there seems to be no good reason why this court should not appoint a receiver for the whole, even though a part of the property may extend into another state. The court having jurisdiction of the de- fendant can compel it to do all in its power to put the receiver in pos- session of the entire property. If other persons outside of the terri- torial jurisdiction of this court have seized the property of the defendant the receiver may be compelled to ask the assistance of the courts of that jurisdiction to aid him in ob- taining possession, but that is no reason why we should hesitate to appoint a receiver for the whole property. We think the courts of other jurisdictions would feel con- strained, as a matter of comity, to afford all necessary aid in their power to put the receiver of this court in possession." But on a sub- sequent application to that court for a writ of assistance to enable the receiver to get possession of the property of the railroad company in Georgia, which the receiver ap- pointed by the courts of that state refused to surrender, the applica- tion was refused by Judge Bradley. The reason upon which Judge Brad- ley based his refusal of the writ was that the 'state court had first acquired jurisdiction over the prop- erty by taking actual possession thereof, and such jurisdiction should not, therefore, be disturbed by a court of co-ordinate jurisdic- tion in a suit by other plaintiffs upon a different cause of action. See Guarantee Trust- Co. v. Phila- delphia, &c. R. Co. 69 Conn. 709, 38 Atl. 792, 38 L. R. A. 804. ^" Texas, &c. R. Co. v. Gay, 86 Tex. 571, 25 S. W. 599, 25 L. R. A. 52. The court also held that the person so appointed, being permitted by the company to take possession and op- erate the road, was merely the agent of the company and that the company was liable for his negli- gence. 799 ANCILLARY APPOINTMENT — COMITY. [§ 555 divisible entirety and the court has jurisdietion of all necessary par- ties, a receiver may be appointed for the entire road. § 555. Ancillary appointment — Comity. — ^Eailroad receiverships are generally extended over the property of the company in other jurisdictions by ancillary appointment, for the rule of comity and the interests of all concerned require that the road should be operated as an entirety and under one management.^** For thi^ reason the question considered in the preceding section, as to the power of a court to appoint a receiver of an entire road extending into other jurisdictions, is not of such vital importance as it would otherwise be. It is customary to appoint as ancillary receiver the same person that was originally appointed and to leave the management of the re- ceivership very largely to the court in which the receiver was first appointed, to which court the receivers are usually required to ac- count.^°^ But it is held that these matters, so far as the appointment and control of the ancillary receiver are concerned, rest in the dis- cretion of the court appointing him.^°° In a recent case^°^ the court refused to appoint a separate receiver for a branch line of a street railway where a receiver had already been appointed for the entire railway. Where a new suit is brought in the same court concerning ™New York, &c. R. Co. v. New v. Wabash, &c. R. Co. 29 Fed. 618; York, &c. R. Co. 58 Fed. 268; Port Port Royal, &o. R. Co. v. King, 93 Royal, &c. R. Co. v. King, 93 Ga. Ga. 63, 19 S. B. 909, 24 L. R. A. 730; 63, 19 S. E. 809, 24 L. R. A. 730; Chattanooga, &c. R. Co. v. Felton, Dillon V. Oregon, &c. R. Co. 66 Fed. 69 Fed. 273. See, also, Baldwin v. 622; Piatt v. Philadelphia, &c. R. Hosmer, 101 Mich. 432, 59 N. W. Co. 54 Fed. 569. See, also. Guar- 432; "Ware v. Supreme Sitting (N. antee Trust Co. v. Philadelphia, &c. J.), 28 Atl. 1041; Clyde v. Richmond R. Co. 69 Conn. 709, 38 Atl. 792, 38 R. Co. 56 Fed. 539. Li. R. A. 804; Person v. Leary, 126 ""Atkins v. Wabash, &c. R. Co. N. Car. 504, 36 S. B. 35, 127 N. Car. 29 Fed. 161; Central Trust Co. v. 114, 37 S. E. 149. But see Mercan- Texas, &c. R. Co. 22 Fed. 135. See, tile Trust Co. v. Kanawha, &c. R. also, Shinney v. North American, Co. 39 Fed. 337, in which it was &c. Co. 97 Fed. 9; Sands v. Greely, held, contrary to the ruling in some 88 Fed. 130; Security Sav. &c. Ass'n of the other cases above cited, that v. Moore, 151 Ind. 174, 50 N. E. 869. a United States circuit court would "' Clap v. Interstate R. Co. 61 Fed. not take jurisdiction of a bill whose 537. The court said that the ap- only purpose is to obtain an ancil- pointment of a separate receiver lary receivership. would do no good, but would simply ""Jennings v. Philadelphia, &c. R. complicate matters and cause addi- Co. 23 Fed. 569; Central Trust Co. tional expense. 555] RECEIVERS. 800 the same property, requiring the aid of a receiver, as, for instance, where creditors obtain the appointment of a receiver and a new suit is brought by the mortgage trustees to foreclose, the receivership will be extended so as to reach the subject-matter of the second suit, and independent receivers will not be appointed.^** The appointment of a receiver by the courts in one jurisdiction will be recognized by the courts of other jurisdictions, and his title to the property of the in- solvent corporation be enforced by those courts,^"' so long, at least, as his claims are not opposed to those of the citizens of the state in which he is compelled to sue.^"" The rule of comity between the courts of different states requires that a receiver appointed by a competent court of another state, with authority to sue, shall be permitted to maintain a suit in his own name,^"^ but this courtesy will not, ordi- narily, be extended so as to work detriment to citizens of the state in which the suit is brought.^"^ Comity does not, as a rule, require that property should be turned over to a receiver appointed by the courts of another state if such action is opposed to the interests of ™ Lloyd V. Chesapeake, &c. R. Co. 65 Fed. 351; Mercantile Trust Co. V. Kanawha, &c. R. Co. 39 Fed. 337; Buswell V. Supreme Sitting, &c. 161 Mass. 224, 36 N. B. 1065, 23 L. R. A. 846; Oilman v. Ketcham, 84 Wis. 60, 54 N. W. 395, 23 L. R. A. 52, 36 Am. St. 899; State v. Jacksonville, &c. R. Co. 15 Fla. 201; Howell v. Ripley, 10 Paige (N. Y.) 43. ""Metzner v. Bauer, 98 Ind. 425; Patterson v. Lynde, 112 111. 196; Central Trust Co. v. Wabash, &c. R. Co. 29 Fed. 618; Buswell v. Supreme Sitting, &c. 161 Mass. 224, 36 N. B. 1065, 23 L. R. A. 846; Failey v. Tal- bee, 55 Fed. 892; Farmers' Loan, &c. Co. v. Northern Pac. R. Co. 69 Fed. 871; Hale v. Tyler, 104 Fed. 757; Davis v. Gray, 16 Wall. (U. S.) 219; Boulware v. Davis, 90 Ala. 207, 8 So. 84, 9 L. R. A. 601. See, gen- erally, as to the title and rights of a receiver in other jurisdictions than that in which he is appointed. Oilman v. Hudson River, &c. Co. 84 Wis. 60, 54 N. W. 395, 23 L. R. A. 52, and note, 36 Am. St. 899; Schuy- ler's, &c. Co., Re, 136 N. Y. 169, 32 N. E. 623, 20 L. R. A. 391, and note; Actions by Foreign Receivers, 37 Cent. L. J. 315. =«' Chandler v. Siddle, 3 Dill. (U. S.) 477; Bagby v. Atlantic, &c. R. Co. 86 Pa. St. 291. See, also, To- ronto Oen. Trust Co. v. Chicago, &c. R. Co. 123 N. Y. 37, 25 N. B. 198, 20 Am. St. 718. ■""Metzner v. Bauer, 98 Ind. 425; Bagby v. Atlantic, &c. R. Co. 86 Pa. St. 291;' Hurd v. Elizabeth, 41 N. J. Law 1; Lycoming Fire Ins. Co. v. Wright, 55 Vt. 526; Peters v. Fos- ter, 56 Hun (N. Y.) 607, 10 N. Y. S. 389; Toronto, &c. Trust Co. v. Chi- cago, &c. R. Co. 123 N. Y. 37, 47, 25 N. E. 198. But see Booth v. Clark, 17 How. (U. S.) 322; Day v. Postal Telegraph Co. 66 Md. 354; Hazard V. Durant, 19 Fed. 471. '""Runk V. St. John, 29 Barb. (N. Y.) 585; Merchants' Nat. Bank v. McLeod, 38 Ohio St. 174. 801 ANCILLAKT APPOINTMENT — COMITY. [§' 555 local creditors, and courts will not, in such a case, enforce the claims of such a receiver in opposition to those of citizens of their own state.^"^ It has also been held that a receiver appointed by a foreign court does not acquire, by such appointment, any title superior to that of a non-resident attaching creditor;^"* as the available legal remedy of a receiver is coextensive only with the jurisdiction of the court by which he was appointed when the right of precedence or pri- ority of creditors is asserted in respect to property or funds of a non- resident debtor which the receiver has not yet reduced to possession.^"^ But in regard to this question, as in regard to the entire subject of the relative rights of a receiver in a foreign jurisdiction, and attach- ing or garnishing creditors, the authorities seem to be hopelessly in conflict. The solution of the problem depends so largely upon the idea of comity entertained in the particular jurisdiction in which the ques- tion arises, that it is impossible to lay down any rule that will be ap- plied in all jurisdictions. We think, however, that one who is a resi- dent of the same state in. which the debtor resides and in which a receiver has been appointed should not be permitted to go into a foreign jurisdiction and there obtain relief which he could not obtain in his own state, by attachment or garnishment proceedings, securing a priority over the receiver appointed for the entire property.^°° But, ^"Hurd V. Columbus Ins. Co. 55 =«»Catlin v. Wilcox, &c. Co. 123 Me. 228; Day v. Postal Tel. Co. 66 Ind. 477, 24 N. E. 250, 8 L,. R. A. 62, Md. 354, 7 Atl. 608; Runk v. St. 18 Am. St. 338; State v. Jackson- John, 29 Barb. (N. Y.) 585; Faw- vlUe, &c. R. Co. 15 Fla. 201; Farm- cett v. Supreme Sitting, &c. 64 Conn, ers', &c. Ins. Co. v. Needles, 52 Me. 170, 29 Atl. 614, 24 L. R. A. 815 (a 17; Hunt v. Columbian Ins. Co. 55 questionable decision); Lycoming, Me. 290. &c. Insurance Co. v. Wright, 55 Vt. ^"Gilman v. Ketcham, 84 Wis. 60, 526; Thurston v. Rosenfield, 42 Mo. 54 N. W. 395, 23 L. R. A. 52, and 474, 97 Am. Dec. 351. "That the note, 36 Am. St. 899; Bagby v. At- ofiBcer of a foreign court should not lantic, &c. R. Co. 86 Pa. St. 291; be permitted, as against the claims Merchants' Nat. Bank v. McLeod, 38 of creditors resident here, to re- Ohio St. 174. See, also. Cole v. Cun- move from this state the assets of ningham, 133 U. S. 107, 10 Sup. Ct. the debtor, is a proposition that 269; Bacon v. Home, 123 Pa. St. seems to be asserted by all the de- 452, 16 Atl. 794, 2 L. R. A. 355; cisions." Hurd v. Elizabeth, 41 N. Waite, Re, 99 N. Y. 433; Woodward J. L. 1. V. Brooks, 128 111. 222, 20 N. E. 685, ="» Patterson v. Lynde, 112 111. 196; 3 L. R. A. 702, 15 Am. St. 104; Hal- Catlin V. Wilcox, &c. Co. 123 Ind. sted v. Straus, 32 Fed. 279 ; Whipple 477, 24 N. B. 250, 8 L.' R. A. 62, 18 v. Thayer, 16 Pick. (Mass.) 25, 26 Am. St. 338. Am. Dec. 626. Ell. Rau,boads — 51 555] EECEIVEES. 802 as we have already seen, it is held by some courts, in accordance with what is probably the weight of authority, that a resident of a third state may obtain priority over a foreign receiver. It seems to us, how- ever, that, to be consistent, the court ought, at least, to refuse to aid an attaching non-resident creditor to obtain priority over a receiver of the property, although he was appointed in a foreign jurisdiction.""^ There is more reason for holding, in accordance with the exception generally made in favor of domestic creditors, that the courts of one state may allow its own creditors to obtain priority, by attachment or garnishment of property therein, over a foreign receiver who has not yet taken actual possession of such property,""* but the practical effect of such action might sometimes be very disastrous to great interests and its justice may well be doubted. Some courts, however, have gone so far as to hold that after a receiver has taken actual possession of property and brought it in the course of his duty into another juris- diction, domestic creditors therein may attach it and thus obtain a superior right to it.""" This seems to us to be palpably erroneous and unsound."^" Where a suit in which a state court has appointed a re- "" See Long v. Girdwood, 150 Pa. St. 413, 24 Atl. 711, 23 L. R. A. 32, and note; May v. First Nat. Bank, 122 111. 551, 13 N. E. 806; Schuyler's, &c. Co., Re, 136 N. Y. 169, 32 N. E. 623, 20 L. R. A. 391, and note; Kurd V. Elizabeth, 41 N. J. L. 1; Bock- over V. Life Assn. 77 Va. 85. "^ Taylor v. Columbian Ins. Co. 14 Allen (Mass.) 353; Warren v. Union Nat. Bank, 7 Phila. 156; Cleveland, &c. Co. v. Crawford, 9 Railw. & Corp. L.^ J. 171. See, also, Willits V. Waite, 25 N. Y. 577; Hunt V. Columbian Ins. Co. 55 Me. 290, 92 Am. Dec. 592; Lichtenstein v. Gillett, 37 La. Ann. 522; Rhawn v. Pearce, 110 111. 350, 51 Am. R. 691. ™ Humphreys v. Hopkins, 81 Cal. 551, 22 Pac. 892, 6 L. R. A. 792, 15 Am. St. 76 (Thornton and McFar- land, JJ., dissenting.) ""Chicago, &c. R. Co. v. Keokuk, &c. Co. 108 111. 317, 48 Am. R. 557; Pond V. Cooke, 45 Conn. 126, 29 Am. R. 668; Cagill v. Wooldridge, 8 Baxt. (Tenn.) 580, 35 Am. R. 716; Killmer V. Hobart, 58 How. Pr. (N. Y.) 452. See, also, the criticism of Mr. Free- man in 15 Am. St. 81. See further, upon the general subject of attach- ment and garnishment of property over which a receiver has been ap- pointed and protection of receivers by the courts, Schindelholz v. Cul- lum, 55 Fed. 885; Central Trust Co. v. Chattanooga, &c. R. Co. 68 Fed. 685; United States Trust Co. v. Omaha, &c. R. Co. 61 Fed. 531; Ver- mont, &c. R. Co. V. Vermont Cent. R. Co. 46 Vt. 792; Chafee v. Quidnick Co. 13 R. I. 442; Sercomb v. Catlln, 128 111. 556, 21 N. E. 606, 15 Am. St. 147; Reynolds v. Adden, 136 U. S. 348, 10 Sup. Ct. 843; Barnett v. Kin- ney, 147 U. S. 476, 13 Sup. Ct. 403; Straughan v. Hallwood, 30 "W. Va. 274, 4 S. E. 394, 8 Am. St. 29, and note; Parsons v. Charter Oak Ins. Co. 31 Fed. 305; McAlpin v. Jones, 10 La. Ann. 552; Relfe v. Rundle, 103 U. S. 222; Cole v. Oil Well, &c. 803 PEOCEDUEE — ^EX PAETE APPLICATION. [§■ 556 eeiver is removed to the TJnited States Circuit Court under the law for the removal of causes, the receiver is not thereby discharged, but re- mains in possession until removed by the federal court,- and may be required to account to it for the manner in. which he has discharged his trust.''^^ § 556. Procedure — ^Ex parte application. — Courts of equity are very unwilling to appoint a receiver upon an ex parte application^^^ since it would be unjust to condemn a man unheard and to dispossess him of property prima facie his, and hand over its enjoyment to an- other whose claim to it he has had no opportunity to contest.^" But where it is shown that the defendant has left the state or cannot be found,^" or where, for some other reason, it becomes absolutely neces- Co. 57 Fed. 534; Ames v. Union, &c. R. Co. 60 Fed. 966. =" Hinckley v. Gilman, &c. Co. 100 U. S. 153; Mack v. Jones, 31 Fed. 189. =" Cleveland, &c. R. Co. v. Jewett, 37 Ohio St. 649; People v. Albany, &c. R. Co. 55 Barb. (N. Y.) 344, 369; People V. Albany, &c. R. Co. 7 Abb. Pr. N. S. (N. y.) 265; Devoe v. Ithaca, &c. R. Co. 5 Paige (N. Y.) 521; Whitehead v. Wooten, 43 Miss. 523; Bisson v. Curry, 35 Iowa 72; Blondheim v. Moore, 11 Md. 365; Cook V. Detroit, &c. R. Co. 45 Mich. 453, 8 N. W. 74; Young v. Rollins, 85 N. Car. 485; Vila v. Grand Island, £c. Co. 68 Neb. 222, 94 N. W. 136, 97 N. "W. 613, 63 L. R. A. 791, 110 Am. St. 400. See, also, as to the necessity for due notice to the op- posing party. State v. Jacksonville, &c. R. Co. 15 Fla. 201; Fredenheim V. Rohr, 87 Va. 764, 13 S. E. 193; RufCner v. Mairs, 33 W. Va. 655, 11 S. E. 5; Turgeau v. Brady, 24 La. Ann. 348; Meridian News, &c. Co. V. Diem, &c. -Co. 70 Miss. 695, 12 So. 702; Crowder v. Moore, 52 Ala. 221; French v. GifEord, 30 Iowa 148; Johns V. Johns, 23 Ga. 31; Word v. iWord, 90 Ala. 81, 7 So. 412; Howe V. Jones, 57 Iowa 130, 8 N. W. 451, 10 N. W. 299; Turnbull v. Prentiss Lumber Co. 55 Mich. 387, 21 N. W. 375. In Whitney v. Hanover Nat. Bank, 71 Miss. 1009, 15 So. 33, 23 L. R. A. 531, it was held that the ap- pointment of a receiver for a bank on its own ex parte application was void and subject to collateral at- tack. '^'^ Arnold v. Bright, 41 Mich. 207, 2 N. W. 16; Baker v. Backus, 32 111. 79. Notice is sometimes re- quired by statute. May v. Greenhill, 80 Ind. 124; Moritz v. Miller, 87 Ala. 331; Whitehead v. Wooten, 43 Miss. 623. ^'People V. Norton, 1 Paige (N. Y.) 17; Sandford v. Sinclair, 8 Paige (N. Y.) 373; Gibbons v. Main- waring, 9 Sim. 77; Dowling v. Hud- son, 14 Beav. 423. See Whitehead V. Wooten, 43 Miss. 523; Pressley V. Harrison, 102 Ind. 14, 19. Thus, where no officer of the corporation can be found on whom service of no- tice can be made, the court may, in its discretion, appoint a receiver without notice to the corporation. Maish V. Bird, 59 Iowa 307; Dayton V. Borst, 31 N. Y. 435. So, where a foreign corporation has discontin- § 556] EECEIVEKS. 804 sary for the court to interfere before there is time to give notice to the opposite party, in order to prevent the destruction or loss of prop- erty/^^ a receiver may be appointed without notice. The particular facts and circumstances which render such a summary proceeding proper should be set forth in the bill or petition on which the appli- cation is founded/^* and the court should, it seems, in case a receiver ued its organization, and its oflScers have neglected to hold meetings, hut have converted the corporate prop- erty to their own use, sold it, and retain the proceeds of the sale. De Bemer v. Drew, 57 Barh. (N. Y.) 438. But where It is shown that all the property of the defendant is in the hands and under the control of another railroad corporation which is operating the road, the non-resi- dence of the defendant's officers will not excuse a failure to give notice to its lessee of an application for a receiver. Wahash R. Co. v. Dyke- man, 133 Ind. 56, 32 N. E. 823. ^ Piatt V. Philadelphia, &c. R. Co. 54 Fed. 569; Cleveland, &c. R. Co. V. Jewett, 37 Ohio St. 649; Oil Run Petroleum Co. v. Gale, 6 W. Va. 525, 545; Gibson v. Martin, 8 Paige Ch. (N. y.) 481; Simsv. Adams, 78 Ala. 395; Hardy v. McClellan, 53 Miss. 507; Ashurst v. Lehman, 86 Ala. 370; Olmstead v. Distilling, &c. Co. 67 Fed. 24. In a suit by judgment creditors against a railroad com- pany for the appointment of a re- ceiver, although the complaint al- leged that executions had been lev- ied on defendant's rolling stock, pre- venting its operation, that it and its predecessor were both Insolvent, that there were large quantities of stock along the road under contract for immediate shipment, and a great quantity of grain to be threshed within the next ten days, which would be shipped over defendant's road if it was in operation, and that if trains were not running on the road at once, great damage would accrue both to citizens and to de- fendants, it was, nevertheless, held that the facts alleged did nol justify the appointment of a receiver with- out notice to defendant. Chicago, &c. R. Co. V. Cason, 133 Ind. 49, 32 N. E. 827. See Wabash, &c. R. Co. V. Dykeman, 133 Ind. 56, 32 N. E. 823. ="' People V. Albany, &c. R. Co. 55 Barb. (N. Y.) 344, affirmed 57 N. Y. 161; Wabash R. Co. v. Dykeman, 133 Ind. 56, 32 N. E. 823; French V. GifCord, 30 Iowa 148; Moritz v. Miller, 87 Ala. 331, 6 So. 269; Ver- planck V. Mercantile Ins. Co. 2 Paige (N. Y.) 438. Affidavits of the belief of plaintiff or his attorneys that im- mediate action is necessary for the protection of complainants, and that the defendants would make use of the delay occasioned by giving no- tice to spirit away or dispose of their effects, have been held insuffi- cient. Moritz V. Miller, 87 Ala. 331, 6 So. 269; Thompson v. Tower Mfg. Co. 87 Ala. 733, 6 So. 928. In Wa- bash R. Co. V. Dykeman, 133 Ind. 56, 32 N. E. 823, the court said: "The statement in the verified complaint that there was an emergency for the immediate appointment of a re- ceiver, without notice, was not a sufficient showing. This was a mere statement of an opinion. The facts on which the opinion was founded should have been pleaded in order to enable the court to judge of its correctness." 805 PAETIES TO PEOCEEDINGS POE APPOINTMENT. [§' 557 is granted, save to the defendant the right thereafter to apply, upon meritorious grounds, for relief against the order.^^' § 557. Parties to proeeedings for appointment of receiver. — If the property of the defendant corporation is in the possession of a lessee, such lessee should be made a party to the proceedings for the ap- pointment of a receiver^^* and served with notice of the application.^^" But it seems that a receiver of the rents and profits may be appointed without making the lessee a party.^^" It has also been held that an insolvent stockholder is not a necessary party defendant to a proceed- ing for the appointment of a receiver and to compel individual stock- holders to pay their subscriptions for the benefit of the corporate creditors.^^^ Many of the states have laws providing that upon the dissolution of any corporation if a receiver is not appointed by some court of competent authority the directors or managers of the affairs of such corporation at the time of its dissolution, by whatever name they may be known in law, shall be the trustees of creditors and stock- holders of the corporation dissolved, and shall have full power to settle the affairs of the corporation, collect and. pay the outstanding debts and divide among the stockholders the moneys and other prop- erty that shall remain after the payment of debts and necessary ex- penses.^^^ After the title to the corporate property has vested in the officers as trustees under such a statute, a receiver can afterward be appointed only in an action or proceeding to which they are parties.^^^ § 558. Appointment upon motion or petition and notice — Affida- vits. — Since the appointment of a receiver is generally regarded as an interlocutory order,, and not as in any sense a decision upon the "'People T. Norton, 1 Paige (N. "^ Wilson v. California, &c. Co. 95 Y.) 17. Mich. 117, 54 N. "W. 643. ^'Kerp V. Michigan, &c. R. Co. 6 "Stimson Am. St. (1892), § 8356, Chicago Leg. N. 101; Wabash R. citing the laws of New York, New Co. V. Dykeman, 133 Ind. 56, 32 N. Jersey, Ohio, Wisconsin, Kansas, Ne- B. 823; Wiltsie Mort. Foreclosures, braska, Maryland, Delaware, Ten- § 157. See, also, Searles v. Jackson- nessee, Missouri, Texas, California, ville, &c. R. Co. 2 Woods (U. S.) Nevada, Colorado, Washington, Da- 621, 626. kota, Idaho, Wyoming, Alabama, »» Wabash R. Co. v. Dykeman, 133 Florida, New Mexico, Oklahoma. Ind. 56, 32 N. E. 823. === People v. O'Brien, 111 N. Y. 1, ='"'Kerp V. Michigan, &c. R. Co. 6 7 Am. St. 684; Parker v. Browning, Chicago Leg. N. 101. 8 Paige (N. Y.) 388, 35 Am. Dec. 717. § 558] RECEIVERS. 806 merits,^^* the appointment is usually made upon motion/"' or peti- tion "supported by affidavit,"* with notice to the opposite party."^ It is the better practice to pray for a receiver in the original bill/^' but a receiver may be appointed on the final hearing, even after decree, although not prayed for in the original bill."^ In passing upon the necessity for a receiver the court will consider the sworn answer of the defendant,^^" and aflBdavits offered in its support."" Under the ^Cincinnati, &c. R. Co. v. Sloan, 31 Ohio St. 1; Chicago, &c. Min. Co. V. United States, &c. Co. 57 Pa. St. 83; Hottenstein v. Conrad, 9 Kan. 435. =^Hursh V. Hursh, 99 Ind. 500; Hottenstein v. Conrad, 9 Kan. 435; Commercial, &c. Bank v. Corbett, 5 Sawy. (U. S.) 172; Blakeney v. Du- faur, 15 Beav. 40, 42; Cooke v. Gwyn, 3 Atk. 689 (653). ^'An application for the appoint- ment of a receiver pending litiga- tion is made upon petition or mo- tion. Affidavits and counter affida- vits may be filed, or oral testimony heard as to the necessity for a re- ceiver. Pouder v. Tate, 96 Ind. 330; Hursh V. Hursh, 99 Ind. 500. See Wiltsie Mort. Foreclosures, § 633; 1 Elliott Gen. Pr. § 395. """See ante, § 556. it has been held unnecessary to serve notice on a trustee for bondholders, who is insane and confined in an asylum in a foreign country. Bttlinger v. Persian, &c. Co. 66 Hun 94, 30 N. Y. S. 772. In Beck v. Ashkettle, 18 R. I. 374, 27 Atl. 505, it was held that personal notice was necessary under the statute, and that leaving a copy at the last and usual abode of the debtor, who had absconded, was insufficient. We doubt the soundness of this decision. See as to short notice being sufficient in an emergency, Mlltenberger v. Lo- gansport R. Co. 106 IT. S. 286, 1 Sup. Ct. 140, 158; Haugan v. Net- land, 51 Minn. 552, 53 N. W. 873. '^See Bea;ch Receivers, § 130; U. S. Equity Rule 21; 1 Elliott Gen. Pr. § 395. =^ Connelly v. Dickson, 76 Ind. 440; Bowman v. Bell, 14 Sim. 392; Shannon v. Hanks, 88 Va. 338, 13 S. E. 437. See, also, Merritt v. Gib- son, 129 Ind. 155, 27 N. E. 136, 15 L. R. A. 277. =»» Rankin v. Rothschild, 78 Mich. 10, 43 N. W. 1077; Goodman v. Whlt- comb, 1 J. & W. 569; 1 Elliott Gen. Pr. § 395. As a general rule the an- swer is to be taken as true in so far as it is responsive to the allega- tions of the bill, at least In the ab- sence of sufficient evidence to the contrary. Thompson v. DifCenderfer, 1 Md. Ch. 489; Voshell v. Hynson, 26 Md. 82; Buchanan v. Comstock, 57 Barb. (N. Y.) 568; Callanan v. Shaw, 19 Iowa 183. The answer of one defendant only, where a ma- terial co-defendant has not an- swered, must be regarded merely as an affidavit. Kershaw v. Mathews, 1 Russ. (Eng. Ch.) 362. "Where af- fidavits are offered in support of the answer and to overcome the case made by the affidavits in support of the motion, counter affidavits may be admitted on the part of the plain- tiff. There can be no just reason for excluding any facts material to the judgment of the court and which will enable it to act intelligently in the exercise of a sound discretion. Young V. Rollins, 85 N. Car. 485, 12 Am. & Eng. R. Cas. 455. *"' Pouder v. Tate, 96 Ind. 330; 807 WHO MAT APPOINT — ^APPOINTMENT IN VACATION. [§ 559 modern practice affidavits may also be received in opposition to the answer.^^^ A receiver may be appointed, in a proper case, before answer^'* and even before an appearance is entered,^^* but the court will only act where a clear case of necessity for the appointment of a receiver at such a time is made ouf^" § 559. Who may appoint — ^Appointment in Tacation. — In the ab- sence of a statute specially authorizing such a proceeding, a receiver cannot be appointed by a judge or judges of a court in vacation.^^" It is competent, however, for the legislature by statute to grant to a judge in vacation authority to appoint a receiver,^^^ even upon an ex parte application.^^* It has been held by the supreme court of Hursh v. Hursh, 99 Ind. 500; Ladd V. Harvey, 21 N. H. 514; Rhodes v. Lee, 32 Ga. 470. ™2 Dan. Chane. PI. & Pr. 1736; 2 Beach Mod. Eq. Pr. § 729. See, also, Hayes v. Heyer, 4 Sandf. Ch. (N. y.) 485 (517); Sobernheimer v. Wheeler, 45 N. J. Bq. 614, 18 Atl. 234. ^' Vann v. Barnett, 2 Bro. Ch. 158; "Williams v. Jenkins, 11 Ga. 595; Whitehead v. Wooten, 43 Miss. 523; Weis V. Goetter, 72 Ala. 259; 2 Beach Mod. Eq. Pr. § 724. But see Ranger v. Champion, &c. Co. 52 Fed. 609; Union Mut. L. Ins. Co. v. Union, &c. Co. 37 Fed. 286. ^Tanfleld v. Irvine, 2 Russ. 149. See, also, Henshaw v. Wells, 9 Humph. (Tenn.) 568. =» Latham v. Chaffee, 7 Fed. 525; Turnbull v. Prentiss Lumber Co. 55 Mich. 387, 21 N. W. 375; Micou v. Moses, 72 Ala. 439; Clark v. Ridgely, 1 Md. Ch. 70. Facts should be spe- cifically stated and not merely upon information and belief. Cofer v. Echerson, 6 Iowa 502; Heavilon v. Farmers' Bank, 81 Ind. 249; Hanna v. Hanna, 89 N. Car. 68; Grandin v. LeBar, 3 N. Dak. 447, 50 N. W. 151. ™ Newman v. Hammond, 46 Ind. 119; Hammock v. Loan, &c. Co. 105 U. S. 77; Hervey v. Illinois Midland R. Co. 28 Fed. 169. See, also. Chase V. Miller, 88 Va. 791, 14 S. E. 545; Conkling v. Ridgley, 112 111. 36, 54 Am. R. 204. But compare Walters V. Anglo-American, &c. Co. 50 Fed. 316; Greeley v. Provident Sav. Bank, 103 Mo. 212, 15 S. W. 429. May do so in chambers. Horn v. Pere Mar- quette R. Co. 151 Fed. 627. ^ Pressley v. Lamb, 105 Ind. 171, 4 N. E. 682. See, also. First National Bank v. U. S. Encaustic Tile Co. 105 Ind. 227, 4 N. E. 846; Brewster V. Hartley, 37 Cal. 15, 99 Am. Dec. 237; Bitting v. Ten Eyck, 85 Ind. 357; McMurtry v. Tuttle, 13 Neb. 232, 13 N. W. 213; Morriss v. Vir- ginia Insurance Co. 85 Va. 588, 8 S. E. 383; Greeley v. Provident Sav. Bank, 103 Mo. 212, 15 S. W. 429. In Pressley v. Lamb, supra, the court held that a judge in vacation, acting under the statute authorizing the appointmeht of a receiver, is ex- ercising quoad hoc "the judicial power of the state." ^Real Estate Associates v. Su- perior Court, 60 Cal. 223. An ap- pointment of a receiver can only be made in the Absence of notice to the opposite party, in Indiana, upon suf- ficient cause shown by aflSdavit. R. S. ind. 1894, § 1244. See Pressley v. Harrison, 102 Ind. 14, 1 N. E. 188; Hardy v. McClellan, 53 Miss. 507. § 560] KECEIVEES. 808 Georgia that the appointment of a receiver for a corporation is not necessarily the exercise of a judicial power, but that such an appoint- ment might be made by the legislature, or authorized by it to be made by the executive department of the state.^'° The case referred to has been cited by several text-writers,^*" apparently with approval, but we doubt its soundness. Other questions relating to the subject of this section have already been considered elsewhere.^* ^ §' 560. Suit must generally be pending. — Since the appointment of a receiver by a court of equity is generally held to be merely an auxiliary proceeding in aid of a pending suit to determine the ulti- mate rights of the parties to the property for which a receiver is sought,^*^ it is the general rule that a receiver can only be appointed for a corporation when there is a suit actually pending and that a court of chancery is not ordinarily justified in appointing a receiver before the filing of a complaint or bill.^*^ Under the ancient practice of the court of chancery in England, a receiver was not appointed until after the coming in of the defendant's answer, but it is now settled, both in this country and in England, that the appointment may be made before answer, provided a special necessity therefor is shown to exist.^** Except under extraordinary circumstances, as where the defendant had left the state to avoid process or the like, the rule seems to have been that a court could get no jurisdiction to appoint a receiver until after service of process and notice of the motion.^*^ If an immediate necessity therefor is shown to exist, the application for a receiver may be entertained when the action is commenced, which, under the rule in Indiana, is when process is issued, or an ap- ^^ Carey v. Giles, 9 Ga. 253. See, "^"Dale v. Kent, 58 Ind. 584; Press- also, Foote V. Forbes, 25 Kan. 359; ley v. Harrison, 102 Ind. 14, 1 N. B. United States v. Ferreira, 13 How. 188; Merchants' &c. Bank v. Kent, (U. S.) 40; Toledo, &c. R. Co. v. 43 Mich. 292, 5 N. "W. 627; Hardy v. Dunlap, 47 Mich. 456, 11 N. W. 271. McClellan, 53 Miss. 507; Guy v. ="°High Receivers, §§ 39, 343; Doak, 47 Kans. 236, 27 Pac. 968; Beach Receivers, § 407. Crowder v. Moone, 52 Ala. 220; ante, ^' See ante, § 552. § 540. See, also, Vila v. Grand ^^ Hottenstein v. Conrad, 9 Kan. Island, &c. Co. 68 Neb. 222, 94 N. W. 435; Cooke v. Gwyn, 3 Atk. 698 136, 97 N. W. 613, 63 L. R. A. 791; (653); Bufkin v. Boyce, 104 Ind. Brant, In re, 96 Fed. 257, and au- 53, 3 N. E. 615; Chicago, &c. Min. thorities cited. Co. V. U. S. Petroleum Co. 57 Pa. "* High on Receivers, §§ 105,106. St. 83; Cincinnati, &c. R. Co. v. =« Whitehead v. Wooten, 43 Miss.- Sloan, 31 Ohio St. 1. 523; Edwards Receivers 13, 14. 809 WHO MAY BE APPOINTED EECEIVEE. [§' 561 pearance to the action entered, in the manner recognized.^*" In a recent case where the service was defective and the defendant had entered a special appearance to quash the notice, it was held that a suit was pending so as to warrant the appointment of a receiver.^*' § 561. Who may be appointed receiver. — It is customary, where all the parties in interest are before the court and can agree upon a person to act as receiver, to appoint the receiver chosen by them.^*^ Where this cannot be done, two or more persons are often agreed upon, each of whom is expected to represent and look after the interests of one of the parties.^*® But the court is not necessarily controlled by the expressed wish of the parties, in making its selection of a receiver. Other interests may be affected by the action of the court besides those of the parties to the suit. It is also practically impossible in many cases to obtain the consent of the several holders of the capital stock of the corporation and of the different series of bonds secured by mortgage upon its property.^^" As was well said by Justice Miller, in pronouncing a judgment removing the receivers chosen by the parties, to make way for a receiver selected by the court : "A receiver is strictly and solely the officer of the court. It is his duty so to conduct the business that the lawful rights and legal interest of all persons in the property and in the business shall be protected, as far as possible, with equal and exact Justice. This is much more likely to be done by a receiver who has no interest in the capital stock of the road, none in its debts, and no obligation to those who have. Such a person, acting under the control of the court, seeking its advice, and bound in a sufficient surety for the faithful performance of his duty, is the proper one for such an office. On the other hand, while '" Pressley v. Harrison, 102 Ind. a receiver, of course I shall appoint 14, 18, 1 N. E. 188, per Mitchell, J. whoever you agree upon." See, also, See Pressley v. Lamb, 105 Ind. 171, Pound, In re, 42 Ch. D. 402. 4 N. B. 682, and dissenting opinion °"' Jones Corp. Bonds and Mortg. of Judge Mitchell, on page 191 et § 459. seq.; Jones v. Bank of Leadville, 10 ''°°In Sage v. Memphis, &c. R. Co. Colo. 464, 17 Pac. 272; Crowder v. 18 Fed. 571, it appeared that a re- Moone, 52 Ala. 220; Jones v. Schall, ceiver had been appointed by collu- 45 Mich. 379, 8 N. W. 68. sion between the plaintiff and de- "' Hellebush v. Blake., 119 Ind. fendant, for the purpose of prevent- 349, 21 N. E. 976. ing unsecured creditors from recov- "^ In Mercantile Trust Co. v. Mis- ering their claims by actions at law, souri, &c. R. Co. 36 Fed. 221, Judge and the court removed the receiver. Brewer said: "If parties agree upon § 561] EECEIVEES. 810 it may be true that a large personal interest may stimulate the activity and direct the vigilance of the receiver, it is equally true that such vigilance, whenever occasion offered, will be directed unduly to ad- vancing that personal interest, and that activity to securing personal advantages."^^^ In accordance with this rule, a party to the cause should not, as a rule, be appointed receiver.^°^ But a party whose interest extends only to a single claim is sometimes appointed receiver to wind up the business of the corporation.^^* Stockholders and di- rectors of insolvent corporations should not be appointed unless the case is exceptional and urgent;^"* nor, as a general rule, should persons nearly related to a party or to the judge,^^^ preferred or other cred- itors having hostile interests to the majority,^^* or others whose inter- ests or relations are such that they cannot well stand indifferent between the interested parties.^^^ Where insolvency is due to the mismanagement of the officers, it would be clearly inadvisable to hand over the road to those whose administration has proved disastrous.^^* ^" Meier v. Kansas Pac. R. Co. 5 Dill. (U. S.) 476. See, also. Wood V. Oregon, &c. Co. 55 Fed. 901; Shan- non V. Hanks, 88 Va. 338, 13 S. E. 437. ^''^ Young V. Rollins, 85 N.. C. 485; Finance Co. v. Charleston, &c. R. Co. 45 Fed. 43^. Neither the solic- itor employed by complainant, nor - his law partner, is such a disinter- ested person as may properly be ap- pointed to act as receiver in a fore- closure suit. Merchants', &c. Nat. Bank v. Kent Circuit Judge, 43 Mich. 292, 5 N. W. 627; Baker v. Backus, 32 111. 79. But see Shan- non V. Hanks, 88 Va. 338, 13 S. B. 437. Special circumstances may jus- tify the appointment of a party. Robinson v. Taylor, 42 Fed. 803, 812; Blakeney v. Dufaur, 15 Beav. 40. '^' In the matter of Knickerbocker Bank, 19 Barb. (N. Y.) 602; Taylor V. Life Assn. of America, 3 Fed. 465. 2" Atkins V. "Wabash, &c. R. Co. 29 Fed. 161; Farmers' Loan, &c. Co. v. Northern Pac. R. Co. 61 Fed. 546. See, also, McCuUough v. Merchants', &c. Co. 29 N. J. Kq. 217; Attorney- General V. Bank, 1 Paige (N. Y.) 511. But compare Fifty-four First Mortgage Bonds, In re, 15 S. Car. 304. Certainly an officer who is speculating in the stock of a corpo- ration should not be appointed. Olmstead v. Distilling, &c. Co. 67 Fed. 24. ="= Williamson v. Wilson, 1 Bland 418; 25 U. S. St. at Large, Ch. 373, § 7. '^ People's Bank v. Fancher, 21 N. Y. S. 545. ="' See Lupton v. Stephenson, 11 Ir. Bq. 484; New York, &c. R. Co. V. New York, &c. R. Co. 58 Fed. 268; Sutton v. Jones, 15 Ves. 584; Benneson v. Bill, 62 111. 408. ""Williamson v. New Albany, &c. R. Co. 1 Biss. (U. S.) 198; People v. Third Avenue Savings Bank, 50 How. Pr. (N. Y.) 22; Wait Insolv. Corp. § 171. See, also, Atkins v. Wabash, &c. R. Co. 29 Fed. 161; Finance Co. v. Charleston, &c. R. Co. 45 Fed. 436. 811 WHO MAT BE APPOINTED RECEIVER. .[§ 561 A person who cannot, with the aid of others, manage a business successfully, is as a general rule regarded as unfit to wind it up alone.^°* But since it is necessary that the receiver of a railroad shall be some person who, by reason of his responsibility and business capacity and of his familiarity with the conduct of a business enter- prise of this character is fully competent to have the management of the road, cases may arise in which it is proper that officers of the corporation, to whom no fault is imputed, should be made receivers.^"" The selection of the receiver is a matter resting very largely in the discretion of the court, and while the court will usually be guided by the rules already stated, the relatioiiship of the receiver either to the parties or the cause will seldom constitute an absolute disqualification, in the absence of any statutory provision upon the subject. Thus, a party to the suit may be perfectly competent in some cases.^"^ So may a relative of one of the parties,^"^ or a non-resident.^°* And one ^' McCullougli V. Merchants' Loan, &c. Co. 29 N. J. Bq. 217; Jones Cor- porate Bonds and Mortg. § 459. "■^ Meyer v. Johnston, 53 Ala. 237. An order that the president and di- rectors of a railroad corporation, under the order and subject to this court, shall continue in possession of the road, conduct and carry on its business, and make a report to the court of its condition, earnings, profits and expenditures, was held to constitute such president and di- rectors receivers of the road. But upon their failure to file accounts and perform the other duties re- quired of them, they were removed and a single receiver appointed in order to place the property "more substantially in the hands and un- der the custody and order of this court." Gibbes v. Greenville, &c. R. Co. 15 S. Car. 304. The fact that one is an officer of a railroad com- pany will not prevent his appoint- ment as receiver thereof where he is familiar with the condition and necessities of the railway, is an eflB- cient manager, and the insolvency of the company was not promoted by bad management on his part, and where the parties interested consent. Farmers' Loan, &c. Co. v. Northern Pac. R. Co. 61 Fed. 546; Fowler v. Jarvis, &c. Co. 63 Fed. 888; Ralston V. "Washington, &c. R. Co. 65 Fed. 557. See, also, Manchester, &c. R. Co., In re, 14 Ch. D. 645; Mercantile Trust, &c. Co. V. Florence, &c. Co. Ill Ala. 119, 19 So. 17; Fowler v. Jarvis, &c. Co. 63 Fed. 888; Barber V. International Co. 73 Conn. 587, 48 Atl. 758; Moran v. "Wayne Cir. Judge, 125 Mich. 6, 83 N. W. 104. So, held where the officer was spe- cially fitted for the place and all parties agreed upon him except a small minority of the bondholders, although he had not only been an officer but was also related to some of the large stockholders and bond- holders. Bowling Green Trust Co. V. "Virginia, &c. Co. 133 Fed. 186. =" Hubbard v. Guild, 1 Duer (N. Y.) 662. ^"''High Receivers, § 67. See Shainwald v. Lewis, 8 Fed. 878. ="= Taylor v. Life Assn. 3 Fed. 465 ; Farmers' Loan, &c. Co. v. Cape Fear, &c. R. Co. 62 Fed. 675; "Wil- 562] EECEIVEES. 813 corporation, having authority to act as trustee and receiver, may be appointed receiver of another corporation.''** § 562. Order appointing receiver. — The order of appointment should clearly designate the property over which the receiver is ap- pointed,^"" and the court may embody such directions and impose such conditions therein as are just and proper.^"" The penalty of the bond should usually be fixed and the general terms of the order prescribed at the time it is granted.^"^ But it is customary, in most jurisdictions, for the attorney of the moving party to draw up and submit the form of order to the opposite party and to the court, after which it is filed with the clerk in the form approved by the court.^°* Copies are also required, in some jurisdictions, to be served upon all the interested parties.^"' If the mortgagor is in possession the order may direct him to deliver possession to the receiver,^^" and it is proper to direct the receiver therein to account from time to time and to keep down incumbrances out of the rents and profits.^'^ It may also, in a proper case, reserve to other incumbrancers or parties the right to afterwards come in, and may state that the appointment is made without preju- dice.^'^ In short, the court may give therein all such directions as are mer v. Atlanta, &c. R. Co. 2 "Woods 12 Fla. 315. The order may provide (U. S.) 409. See, also, Roby v. that the company shall turn over to Smith, 131 Ind. 342, 30 N. E. 1093, the receiver its books and papers. 15 L. R. A. 792, 31 Am. St. 439; American Const. Co. v. Jacksonville, Farmers' Loan, &e. Co. v. Chicago, &c. R. Co. 52 Fed. 937 (also its &c. R. Co. 27 Fed. 146. But, for seal) ; Engel v. South, £c. Co. 66 L. obvious reasons, the appointment of T. R. 155. a non-resident is not advisable. '"'Wiltsie Mortgage Foreclosures, Meier v. Kansas Pac. R. Co. 5 Dill. § 644. (II. S.) 476; Borton V. Brines-Chase ""'Wiltsle Mortgage Foreclosures, Co. 175 Pa. St. 209, 34 Atl. 597. § 644. ™* Knickerbocker Bank, In re, 19 ™ Whitney v. Belden, 4 Paige Ch. Barb. (N. Y.) 602; Kimmerle v. Do- (N. Y.) 140; Rankin v. Pine, 4 Abb. •wagiac Mfg. Co. 105 Mich. 640, 63 Pr. (N. Y.) 309; Wiltsie Mort. Fore- N. W. 529 (trust company) ; Ver- closures, § 644. mont, &c. R. Co. v. Vermont Cent. ""Griffith v. Griffith, 2 Ves. Sen. R. Co. 46 Vt. 792. 400; Everett v. Belding, 22 L. J. Ch. ="='Crow V. "Wood, 13 Beav. 271; 75. O'Mahoney v. Belmont, 62 N. Y. 133; ™2 Dan. Chanc. PI. & Pr. 1573. 2 Dan. Chanc. PI. & Pr. 1737. ™ Smith v. Effingham, 2 Beav. =" United States Trust Co. v. New 232; "Wiltsie Mort. Foreclosures, York, &c. R. Co. 25 Fed. 800; Cen- § 645. The court may withhold tral -Trust Co. v. St. Louis, &c. R. from the, receiver a portion of the Co. 41 Fed. 551; "West v. Chasten, assets upon which there is a mort- 813 EFFECT OF APPOINTMENT, [§ 563 just and proper to enable the receiver to perform his duties imtil the further order of the court and to preserve the rights of interested parties until the merits of the case can be fully determined. But the court has no power, ordinarily at least, to take into its custody or control, through a receiver, upon a bill to foreclose a mortgage, prop- erty not covered by the mortgage, nor to make any order which will delay and hinder creditors from subjecting property not covered by the mortgage to the payment of their debts.^'' § 563. Effect of appointment.^As already stated, the appoint- ment of a receiver usually determines no rights and is not an adjudi- cation upon the merits of the case.^^* It gives him the right to the possession and control of the property,^^" but it does not divest or retroactively affect existing liens or vested rights of third persons.^^° It has also been held that it does not deprive secured creditors of the right to possess and enforce their securities, and if the receiver has obtained possession of them he may be compelled to deliver them up.^''' But the lienholder may be compelled to go into the same court to enforce his lien where the entire estate is being administered.^^^ The legal title is not transferred to the receiver by a mere inter- locutory appointment,^" but, at least after he has once taken posses- gage about to "be enforced under Court, 8 Wash. 210, 35 Pac. 1087, 25 power of sale. Welhl v. Atlanta, L. R. A. 354; Artizan's Bank v. &c. Co. 89 Ga. 297, 15 S. E. 282. Treadwell, 34 Barb. (N. Y.) 553; ™ Scott V. Farmers' Loan, &c. Co. Wilson v. Allen; 6 Barb. (N. Y.) 69 Fed. 17; Hook v. Bosworth, 64 542; Lorch v. Aultman, &c. Co. 75 Fed. 443. Ind. 162; Davenport v. Kelly, 42 N. =" Ante, § 558; Colvin, In re, 3 Md. Y. 193; Snow v. Winslow, 54 Iowa Ch. Dec. 278; Beverley v. Brooke, 4 200, 6 N. W. 191. Gratt. (Va.) 187; Tripp v. Chard R. ''"Risk v. Kansas, &c..Co. 58 Fed. Co. 11 Hare 264; Central, &c. Co. v. 45. Buchanan, 90 Fed. 454; 1 Elliott's ™ Ellis v. Vernon Ice, &c. Co. 86 Gen. Pr. § 194. Tex. 109, 23 S. W. 858; Wiswall v. ™Post, § 565. Property in his Sampson, 14 How. (U. S.) 52; Rob- possession is in custodia legis. Mer- inson v. Atlantic, &c. R. Co. 66 Pa. chants' Ins. Co., In re, 3 Biss. (U. St. 160; Skinner v. Maxwell, 68 N. S.) 162; Robinson v. Atlantic, &c. Car. 400. See, also. Cole v. Phila- Co. 66 Pa. St. 160; 1 Elliott's Gen. delphia, &c. R. Co. 140 Fed. 944; Pr. § 195. But see Illinois Steel Co. Park v. New York, &c. R. Co. 70 V. Putnam, 68 Fed. 515. Fed. 641. "» Favorite v. DeardorflC, 84 Ind. "° Foster v. Townshend, 2 Abb. N. 555; Arnold v. Weimer, 40 Neb. 216, Cas. (N. Y.) 29; Attorney-General 58 N. W. 709; State v. Superior v. Coventry, 1 P. Wms. 306; Fos- § 563] EECEIVEES. 814 sion, he has a possessory title or special property.^'* His rights to the property are superior to subsequent attachments, or executions'*^ in the same jurisdiction, but not to prior valid attachments,^*' or execu- tions already levied.'** The appointment of a receiver for a corpora- tion does not dissolve the corporation.'** Pending suits against the corporation are not necessarily abated,'*^ but the right of the cor- poration to sue is generally suspended by the appointment.'** It may keep up its organization and still perform many acts as a corporation, notwithstanding the fact that the custody, control and management of its property are in the hands of a receiver.'*^ The subject of the dick Y. Schall, 99 U. S. 235; Union Bank v. Kansas City Bank, 136 U. S. 223, 10 Sup. Ct. 1013; Manlove V. Burger, 38 Ind. 211; Tilllnghast V. Champlin, 4 R. I. 173, 67 Am. Dec. 510; St. Louis, &c. Co. v. San- doval, &c. Co. Ill 111. 32; Ellis v. Boston, &c. R. Co. 107 Mass. 1; Keeney v. Home Ins. Co. 71 N. Y. 396, 27 Am. R. 60. =»° Chicago, &c. R. Co. v. Keokuk, 108 111. 317, 48 Am. R. 557; Boyle V. Townes, 9 Leigh (Va.) 158; ging- erly V. Fox, 75 Pa. St. 112. His title dates back to the time of mak- ing the order. East Tennessee, &e. R. Co. V. Atlanta, &c. R. Co. 49 Fed. 608; Steele v. Sturges, 5 Abb. Pr. (N. Y.) 442; Maynard v. Bond, 67 Mo. 315. ='1 McDonald v. Charleston, &c. R. Co. 93 Tenn. 281, 24 S. W. 252; State v. Ellis, 45 La. Ann. 1418, 14 So. 308; Harrison v. Waterberry, &c. Co. (Tex.), 27 S. W. 109; Skinner v. Maxwell, 68 N. Car. 400; Ames v. Trustees, 20 Beav. 332; Swift's. &c. Works V. Johnsen, 26 Fed. 828. See, also, Horn v. Pere Marquette R. Co. 151 Fed. 627. But see as to real estate when there is no conveyance to the receiver, St. Louis, &c. Co. V. Sandoval, &c. Co. Ill 111. 32. "'' Jones V. Bank, 10 Colo. 464, 20 Am. & Bng. Corp. Cas. 554; Kitt- redge v. Osgood, 161 Mass. 384, 37 N. E. 369. "' Chautauqua, &c. Bank v. Rlsley, 19 N. Y. 369, 75 Am. Dec. 347; Becker v. Torrance, 31 N. Y. 631; Talladega, &c. Co. v. Jenifer, £c. Co. 102 Ala. 259, 14 So. 743. =«*Kincaid v. Dwinelle, 59 N. Y. 548; State v. Railroad Comrs. 41 N. J. L. 235; Heath v. Missouri, &c. R. Co. 83 Mo. 617; Jones v. Bank. 10 Colo. 464, 20 Am. & Bng. Corp. Cas. 554; National Bank v. Insurance Co. 104 U. S. 54; Taylor Priv. Corp. § 432. ^'Mercantile Ins. Co. v. Jaynes, 87 111. 199; Toledo, &o. R. Co. v. Beggs, 85 111. 80. 28 Am. R. 613; St. Louis, &c. R. Co. V. Holladay, 131 Mo. 440, 33 S. W. 49; Wilder v. New Orleans, 87 Fed. 843. So it is held that it may still be sued. Wyatf v. Ohio, &c. R. Co. 10 111. App. 289 Pringle v. Woolworth, 90 N. Y. 502 Allen V. Central R. Co. 42 Iowa 683 St. Joseph, &c. R. Co. v. Smith, 19 Kans. 225. ^«Post, § 568; Kokomo City St. R. Co. V. Pittsburgh, &c. R. Co. 25 Ind. App. 335, 58 N. E. 211. But see American Bank v. Cooper, 54 Me. 438; People v. Barnett, 91 111. 422. There are probably exceptions to this rule in regard to franchises or matters in which the receiver may have no interest. ==' See McCalmont v. Philadelphia, &c. R. Co. 7 Fed. 386, 3 Am. & Eng. 815 COLLATERAL ATTACK ON APPOINTMENT. [§' 564 liabilities of the corporation and of the receiver will be treated in another section. § 564. Collateral attack on appointment. — The order or judgment appointing a receiver is not open to collateral attack for any errors in the proceedings if the appointment was made by a court having jurisdiction of the case. It can only be assailed, as a rule, in a direct proceeding for that purpose.^** Thus, where a receiver was appointed by the judge in vacation, under a statute authorizing such an appoint- ment in certain actions, and a. complaint was duly filed and both parties appeared before the judge, it was held that the appointment could not be collaterally attacked by a creditor for error of the judge in deciding that the complaint stated a cause of action of the kind designated, nor for any other mere irregularity or error in the order and proceedings.^*' So, where a complaint for the foreclosure of a mortgage prayed for the appointment of a receiver to collect the rents, it was held that it challenged the mortgagor to assert his right to the rent as well as to contest the appointment of a receiver, and that a decree adjudging that the mortgagee was entitled to the rfents and appointing a receiver to collect them and apply them to the mortgage debt rendered the matter res adjudicata and could not be collaterally attacked by the mortgagor.'"'" But it has been held that a stockholder may show, in a suit by a receiver to collect an unpaid R. Cas. 163; State v. Merchant, 37 glian R. Co. 3 Macn. & G. 104; Ed- Ohio St. 251, 9 Am. & Bng. R. Cas. rington v. Pridham, 65 Tex. 612; 516; Lehigh, &c. Co. v. Central, &c. Greenawalt v. Wilson, 52 Kans. 109, R. Co. 35 N. J. Eq. 349; Louisville, 34 Pac. 403; Skinner v. Lucas, 68 &c. R. Co. V. Cauble, 46 Ind. 277; Mich. 424, 36 N. W. 203; Comer v. State V. Wabash R. Co. 115 Ind. 466, Bray, 83 Ala. 217, 3 So. 554; Shields 17 N. E. 909; Ohio, &c. R. Co. v. v. Coleman, 157 U. S. 168, 15 Sup. Russell, 115 111. 52, 23 Am. & Eng. R. Ct. 570; Booher v. Perrill, 140 Ind. Cas. 149. 529, 40 N. E. 36; Kerr Receivers, =»' Richards v. People, 81 111. 551; 166. But see State v. Ross, 122 Mo. Attorney-General v. Guardian, &c. 435, 25 S. W. 947, 23 L. R. A. 534; Ins. Co. 77 N. Y. 272; Jones v. Blun, Edee v. Strunk, 35 Neb. 307, 53 N. 145 N. Y. 333, 39 N. E. 954; Davis W. 70; Whitney v. Hanover Nat. V. Shearer, 90 Wis. 250, 62 N. W. Bank, 71 Miss. 1009, 15 So. 33, 23 1050; Smith v. Hopkins, 10 Wash. L. R. A. 531, where receiver's title 77, 38 Pac. 854; Keokuk, &c. Co. v. is necessarily in question. Davidson, 13 Mo. App. 561; Cook ==" Pressley v. Lamb, 105 Ind. 171, V. Citizens' Nat. Bank, 73 Ind. 256; 189, 4 N. B. 682. Hatfield v. Cummings, 153 Ind. 280, "° Storm v. Ermantrout, 89 Ind. 50 N. E. 817; Russell v. East An- 214. 665] EECEIVEES. 816 subscription, that the receiver was improperly appointed by a decree not binding upon the stockholder.^'^ The soundness of this decision, however, is questionable.^'^ § 565. Title and possession of receiver. — The appointment of a receiver gives him the right to immediate possession and control of the property over which he is appointed.^'^ Where the defendants, or persons .claiming under them, refuse to surrender possession, the court appointing him will assist the receiver by an order directing the sur- render of the specific property to him^'* and will, if necessary, enforce its order by attachment.'"' In Iowa it is held that a receiver may call upon the sheriff to aid in enforcing his right to take possession of property committed to his charge by the courf " But where a third person holds property under claim of title the court will, in general, require the title of the receiver to be established by action before it will interfere.''^ The title of a receiver vests, by relatibn, at the date ''"i Chandler v. Brown, 77 111. 333. See, also, Libtiy v. Rosetrans, 55 Barb. (N. Y.) 202. ^'^See Taylor Priv. Corp. § 542; Schoonover v. Hinckley, 48 Iowa 82; Burton v. Schildbach, 45 Mich. 504, 8 N. "W. 497. The appointment of a receiver cannot be attacked on the ground of mere irregularity or error, in a proceeding by him to en- force a mechanic's lien in favor of the corporation for which he is re- ceiver. Florence, &c. Co. v. Hanby, 101 Ala. 15, 13 So. 343. ''"^Fosdick V. Schall, 99 U. S. 235; Ellis V. Boston, &c. R. Co. 107 Mass. 1; Yeager v. Wallace, 44 Pa. St. 294; Union Trust Co. v. Weber, 96 111. 346, 3 Am. & Eng. R. Cas. 583. See, also, Appleton Water Works Co. v. Central Trust Co. 93 Fed. 286. But see Illinois Steel Co. v. Putnam, 68 Fed. 515; Wiswall v. Sampson, 14 How. (U. S.) 52. ™*Geisse v. Beall, 5 Wis. 224; Thornton v. Washington Savings Bank, 76 "Va. 432; Cohen, In re, 5 Cal. 494; People v. Central City Bank, 53 Barb. (N. Y.) 412. See, also, Horn v. Pere Marquette R. Co. 151 Fed. 627. =»= Miller v. Jones, 39 111. 54. Or punish interference as a contempt. Thomas v. Cincinnati, &c. R. Co. 62 Fed. 803; Secor v. Toledo, &c. R. Co. 7 Biss. (U. S.) 513. Or enjoin it. Fidelity Trust, &c. Co. v. Mobile St. R. Co. 53 Fed. 687; Metropolitan Trust Co. V. Columbus, &c. R. Co. 95 Fed. 18. '^ State V. Rivers, 66 Iowa 653, 24 N. W. 260. '"Gelpeke v. Milwaukee, &c. R. Co. 11 Wis. 454; Coleman v. Salis- bury, 52 Ga. 470; Levi v. Karrick, 13 Iowa 344; Parker v. Browning, 8 Paige (N. Y.) 388, 35 Am. Dec. 717. In Gelpeke v. Milwaukee, &c. R. Co. 11 Wis. 454, Dixon, C. J., speaking for the court, said: "I know of no case where It has been adjudged that the possession of a stranger, who sets up a superior title, in pur- suance of which he claims to have entered and to hold, might be thus disturbed. * * * Courts can only act in such cases, where the rights of the parties are obvious, and not SlY AUTHORITY, EIGHTS AND DUTIES OS EECEIVBK. [§ 566 of his appointment, notwithstanding delay on his part in qualifying.^"^ Indeed, it is held that even though the receiver does not qualify at all, but declines to act, the property is still in the custody of the court,^"" since a receiver is only the ministerial officer of the coiirt which ap- points him and his possession is the possession of the court.^"" This rule has even been applied as against the claim of a state for taxes, and it is held that property in the hands of a receiver of a federal court cannot be reached by proceedings for the collection of state taxes without the consent of such court.'"^ Where a person purchases prop- erty with notice that proceedings are pending for the appointment of a receiver, it has been held that he takes it subject to the rights of such receiver, if one is granted.^"^ § 566. Authority, rights and duties of receiver — Control by court. — The term "receiver," as used in England, is employed to designate a person appointed by a court of chancery at the suit of some party in interest who receives rents, or other income, and pays ascertained outgoings with a view to conserving property until it can be sold for the payment of debts and liabilities of an insolvent person or corpora- tion. If it is necessary to' continue the business a "manager" is ap- pointed.^"' But in the United States a receiver of a railroad is understood to be a ministerial officer of a court of chancery, appointed as an indifferent person between the parties to a suit, whose duty it is not only to preserve the tangible property of the corporation, but, also, its franchises and business, that the value of the railroad as a whole may not be impaired,^"* and that the rights of the public to have it kept in operation as a public highway may not be infringed. the subject of doubts or serious con- ""Weed v. Smull, 3 Sandf. Ch. (N. troversy." Y.) 273. "" Maynard v. Bond, 67 Mo. 315 ; ™ Manchester, &c. R. Co., In re, L. Rutter V. Tallls, 5 Sandf. (N. Y.) R. 14 Ch. 645. A manager of a rail- 610; Hardwick V. Hook, 8 Ga. 354. way company may be appointed at '" Skinner v. Maxwell, 68 N. Car. the suit of a Judgment creditor. 38 400. and 39 Vict. Ch. 31; 30 and 31 Vict. =°» Robinson v. Atlantic, &c. R. Co. Ch. 127. 66 Pa. St. 160; Ohio, &c. R. Co. v. "* Barton v. Barbour, 104 U. S Fitch, 20 Ind. 498; Skinner v. Max- 126; Wallace v. Loomis, 97 XJ. S well, 68 N. Car. 400; Merchants' Ins. 146, 162; Milwaukee, &c. R. Co. v, Co., In re, 3 Biss. (U. S.) 165. Soutter, 2 Wall. (U. S.) 510; Mer =°i Oakes v. Myers, 68 Fed. 807; cantile Trust Co. v. Missouri, &c. R. Tyler, In re, 149 U. S. 164, 13 Sup. Co. 36 Fed. 221; Florida v. Jackson- Ct. 785. ville, &c. R. Co. 15 Fla. 201, 206. Ell. Raileoads — 52 § 566] KECEIVEKS. 818 To this end he is empowered to hire and pay workmen, agents, and all necessary assistants, to make contracts for the carriage of passengers and freight, and to do such other acts as are necessary in maintaining the railroad as a going concern.^"^ In the management of such a com- plicated business as the operation of a railroad a large discretion is necessarily given to a receiver. It may, perhaps, be laid down as a general proposition that all outlays made by the receiver, in good faith, in the ordinary course, with a view to promote the business of the road and to render it profitable and successful, are fairly within the line of discretion which is necessarily allowed to a receiver in- trusted with the management and operation of a railroad in his hands.^"" Thus, rebates of freight, paid in accordance with a cus- tomary practice necessary to secure business for the railway, when not illegal, the purchase-price of a truck and team of horses, and the expenses of drayage and wharfage have been held to be outlays properly within the discretion of the receiver.^"" So of counsel and witness fees in necessary litigation involving the receivership.^"* But the receiver should usually seek the advice of the court in advance, especially in case of any unusual expenditures,^"' and even then, if the hearing is ex parte, the judge may afterwards change has mind.^^" =°° Ordinarily, the duties of a re- naw Circuit Judge, 117 Mich. 246, ceiver only comprise the operation 75 N. W. 466, 41 L. R. A. 817. and management of the road, the ""Cowdrey v. Railroad Co. 1 payment of current expenses, and Woods (U. S.) 334; Cowdrey v. Gal- the application of the residue of veston, &c. R. Co. 93 U. S. 352; Mar- the earnings and receipts to the ex- tin v. New York, &c. R. Co. 36 N. tinguishment of the indebtedness, to J. Eq. 109. See, also Continental secure which the receiver was ap- Trust Co. v. Toledo, &c. R. Co. 59 pointed. Bank of Montreal v. Chi- Fed. 514. cago, &c. R. Co. 48 Iowa 518. While "' Cowdrey v. Railroad Co. 1 a receiver may, of course, purchase Woods (U. S.) 334, affirmed in 93 U. material essential for the operation S. 352. of the road, he cannot bind the trust ™' Cowdrey v. Railroad Co. 1 by a purchase of material not want- Woods (U. S.) 334; Trustees of In- ed, excessive in price and defective ternal, &c. Fund v. Greenough, 105 in quality. I "high Coal, &c. Co. v. U. S. 527 ; Montgomery v. Peters- Central R. Co. 35 N. J. Eq. 426. See, burg Sav. &c. Co. 70 Fed. 746. generally, as to his appointment and ~ Cowdrey v. Galveston, &c. R. powers for the purpose of keeping Co. 93 U. S. 352. it a going concern, Erb v. Morasch, ""Missouri Pac. R. Co. v. Texas, 177 U. S. 584, 20 Sup. Ct. 819; Van- &c. R. Co. 31 Fed. 862. See, also, derbilt v. Central R. Co. 43 N. J. Chamberlain, Ex parte, 55 Fed. 704, Eq. 669, 12 Atl. 188; Merley v. Sagi- 706. 819 CONTRACTS OE RECEIVERS. [§ 567 § 567. Contracts of receivers. — A receiver may, in general, make binding contracts on any subject within the scope of his authority; and one who has, in good faith, executed such a contract, should not be denied compensation, even though the contract should appear to have been improvident and opposed to the best interests of the trust.' ^^ He may contract to carry freight at a specified rate even from points beyond the terminus of his road to a point on such road, and an order of court is not necessary to authorize him to do so.*^^ So, he may effect insurance upon the property in his hands without special au- thority from the court.'^' But a receiver cannot bind the company by a contract to perform duties of a personal nature through a long series of years,'^* nor bind the trust property by a lease involving a large expenditure of money and extending beyond the time of the receivership.^^^ Where an executory contract cannot, consistently with the interests of the trust, be enforced against the receiver, and the contractor has in good faith expended money in preparation for its performance, it is said that he should yet be made whole by an allow- ance of damages out of the fund, unless it appears that he has been guilty of collusion or bad faith.'^^ For a court of equity cannot '" Vanderbilt v. Central R. Co. 43 N. J. Eq. 669, 12 Atl. 188. A re- ceiver of a railroad who is operat- ing the road and managing and con- trolling its business will be pre- sumed to have authority to make contracts relative to the carriage of goods, until the authority conferred upon him by the court is shown. Bayles v. Kansas Pac. R. Co. 13 Colo. 181, 22 Pac. 341, 5 L. R. A. 480. "^ Kansas Pac. R. Co. v. Bayles, 19 Colo. 348, 35 Pac. 744. See, also, San Antonio, &c. R. Co. v. Barnett (Tex. Civ. App.), 44 S. W. 20; Philadelphia Investment Co. v. Ohio, &c. R. Co. 41 Fed. 378; Vanderbilt V. Little, 51 N. J. Eq. 289, 26 Atl. 1025; Farmers' Loan, &c. Co. v. Northern Pac. R. Co., 120 Fed. 873, 57 C. C. A. 533; Northern Pac. R. Co. V. American, &c. R. Co. 195 U. S. 439, 25 Sup. Ct. 84. ='= Thompson v. Phoenix Ins. Co. 136 U. S. 287, ,10 Sup. Ct. 1019, 3 Lewis' Am. R. & Corp. R. 119. See, also. Brown v. Hazlehurst, 54 Md. 26. '"Martin v. New York, &c. R. Co. 36 N. J. Eq. 109, 12 A,m. & Eng. R. Cas. 448. In this case the receiver agreed with a landowner to give him a free annual pass for himself oyer the road during his life, in part consideration of the release of a right of way across his land, and the court held that the contract could not be enforced against the company. "■^Chicago Vault Co. v. McNulta, 153 V. S. 554, 14 Sup. Ct. 915. =" Little V. Vanderbilt, 26 Atl. 1025; Vanderbilt v. Little, 51 N. J. Eq. 289, 26 Atl. 1025. If the con- duct of the receiver require it, the court might compel him to reim- burse the fund for what would thus be taken from it. Vanderbilt v. Cen- tral R. Co. 43 N. J. Eq. 669, 12 Atl. § 567] EECEIVERS. 820 revoke or annul at the pleasure of the chancellor the contracts of a receiver within the scope of the authority conferred by the order appointing him.^^^ But one who contracts with a receiver must be assumed to know that, if he seeks to enforce his contract, it must come under the scrutiny of a court of equity; and it will not be en- forced when it appears that the unreasonableness and improvidence of the contract were brought to his notice before he had taken any steps toward its performance.*^* And no contracts beyond such as are essential or at least proper in order to the successful operation of the road may be made without the sanction of the court.*^' There are some contracts, of course, made by the corporation before the ap- pointment of a receiver which remain binding after his appointment, but there are others which are not binding upon him unless he, in some way, ratifies them.^^" Where a receiver is appointed for a rail- road which embraces leased lines he does not necessarily assume re- sponsibility for the covenants of the leases, nor take the place of the lessees, but he is entitled to a' reasonable time in which to determine whether to adopt or renounce them.^^^ But in extraordinary cases, involving a large outlay of money, the receiver should apply to the court in advance and obtain its authority for the purchase or im- provement proposed,^^^ and this is always the safest course in case of doubt. In several cases the courts have refused to confirm the action 188. See Moran v. Lydecker, 27 541; Kansas Pac. R. Co. v. Bayles, Hun (N. Y.) 582. 19 Colo. 348, 35 Pac. 744; Girard, '"Vanderbilt v. Central R. Co. 43 &c. Co. v. Cooper, 51 Fed. 332; Cen- N. J. Eq. 669, 12 Atl. 188. tral Trust Co. v. Wabash, &c. R. Co. "' In Lehigh Coal, &c. Co. v. Cen- 52 Fed. 908 ; Ames v. Union Pac. R. tral R. Co. 35 N. J. Eq. 426, the Co. 60 Fed. 966; Howe v. Harding, court, by Van Fleet, V. C, said: 76 Tex. 17, 13 S. W. 41, 18 Am. St. "All persons dealing with receivers 17; 1 Lewis' Am. R. & Corp. 502. do so at their peril, and are bound °'' Clyde v. Richmond, &c. R. Co. to take notice of their incapacity to 63 Fed. 21; Ames v. Union Pac. R. conclude a binding contract without Co. 60 Fed. 966, citing numerous the sanction of the court." But see authorities; St. Joseph, &c. R. Co. as to reimbursement for expenses v. Humphreys, 145 U. S. 105, 12 Sup. and losses incurred in good faith, Ct. 795, 60 Am. & Eng. R. Cas. 431, Vanderbilt v. Little, 51 N. J. Eq. and note; United States Trust Co. 289, 26 Atl. 1025. v. Wabash, &c. R. Co. 150 U. S. 287, "» Lehigh Coal, &c. Co. v. Central 14 Sup. Ct. 86. But see New York, R. of N. J. 35 N. J. Eq. 426; Mc- &c. R. Co. v. New York, &c. R. Co. Minnville, &c. R. Co. v. Huggins, 3 58 Fed. 268. Baxt. (Tenn.) 177; Taylor v. Phila- "'^Bradley, J., in Cowdrey v. Rail- delphia, &c. R. Co. 9 Fed. 1. road Co. 1 Woods (U. S.) 331. '"' Seattle, &c. R. Co., In re, 61 Fed. 821 SUITS BY RECEIVERS — AUTHORITY TO SUB, [§■ 568 of receivers in i educing wages of employes without notice to the em- ployes.^^* A receiver, in a suit to foreclose a second mortgage, may be directed to pay interest on first mortgage bonds to prevent the foreclosure of the first mortgage, where it is to the interest of the second mortgage bondholders and the general creditors to prevent such foreclosure, although the application is opposed by the first mortgage bondholders and a majority of the second mortgage bond- holders who are also interested in the first mortgage.'^* So, a receiver may be authorized in a proper case to complete work already begun,'^"* or to pledge collaterals to secure loans necessary for the operation of the road.^^' § 568. Suits by receivers — ^Authority to sue. — The right of a cor- poration to sue is generally suspended by the appointment of an acting receiver.'^^ But the receiver, unless specially empowered by statute, cannot, ordinarily, maintain a suit upon any debt or claim accruing to the corporation which he represents without an order from the court appointing him, directing such suit to be brought.^^' A general per- mission to bring all necessary suits is usually given, however, in the =^Ames V. Union Pac. R. Co. 60 Fed. 674; Ames v. Union Pac. R. Co. 62 Fed. 7, 4 Inters. Com. R. 619. As to controversies with employes, see, generally, Piatt v. Philadelphia, &c. R. Co. 65 Fed. 660; Arthur v. Oakes, 63* Fed. 310; United States Trust Co. v. Omaha, &c. R. Co. 63 Fed. 737; Thomas v. Cincinnati, &c. R. Co. 62 Fed. 17; Continental Trust Co. v. Toledo, &c. R. Co. 59 Ked. 514; Seat- tle, &c. R. Co., In re, 61 Fed. 541; Ellis v. Boston, &c. R. Co. 107 Mass. 1; Dexter v. Union Pac. R. Co. 75 Fed. 947. '^ Lloyd v. Chesapeake, &c. R. Co. 65 Fed. 351. =2= Florence, &c. Co. v. Hanhy, 101 Ala. 15, 13 So. 343; Miltenberger v. Logansport, &c. R. Co. 106 U. S. 286, 1 Sup. Ct. 140; Morrison v. Forman, 177 111. 427, 53 N. E. 73; Gibert v. Washington City, &c. R. Co. 33 Gratt. (Va.) 586. But not, ordinarily, to complete the road. See last three authorities above cited. ='^» Clarke v. Central R. &c. Co. 54 Fed. 556. ™ Davis V. Ladoga Creamery Co. 128 Ind. 222, 27 N. E. 494; Griffin v. Long island R. Co. 102 N. Y. 449; Curtis V. Mcllhenny, 5 Jones Eq. (N. C.) 290. '^"Garver v. Kent, 70 Ind. 428; Davis V. Ladoga Creamery Co. 128 Ind. 222, 27 N. B. 494; Bishop v. McKllIican, 124 Cal. 321, 57 Pac. 76, 71 Am. St. 68; Screven v. Clark, 48 Ga. 41; Davis v. Snead, 33 Gratt. (Va.) 705; Battle v. Davis, 66 N. C. 252; Merritt v. Merritt, 16 Wend. (N. Y.) 405; Coope v. Bowles, 28 How. Pr. (N. Y.) 10; Patrick v. Eells, 30 Kans. 680, 2 Pac. 116; State V. Games, 68 Mo. 289; Glenn v. Bu- sey, 5 Mackey (D. C.) 233; Booth v. Clark, 17 How. (U. S.) 322; Ward V. Swift, 6 Hare (Eng.) 309. See, also, ante, § 537. § 568] EECEIVEES. 822 order making the appointment.^^" But authority to sue will extend only to causes of action embraced within the terms of the order.^^" The weight of authority is to the effect that even where leave to sue has been granted, a receiver cannot, in the absence of statutory author- ity, institute and conduct actions in his own name, in matters con- cerning his receivership, unless specially authorized by the court from which he receives his appointment,*'^ and that he must, unless so authorized, bring his action in the name of the corporation or party in whom was the right of action before the receiver was appointed.''^ The reason for this is that the legal title to choses in action or other property which he is authorized to reduce to possession, is ordinarily not transferred to the receiver, but remains in the owner. Neither the reason nor the rule, it seems, controls in case a receiver brings suit upon a contract made with him as such,'*' or seeks to recover damages for the seizure and conversion of property after it came into his possession,"* since a receiver, being the instrument used by the court in accomplishing its purpose, or carrying into effect its decree, must be presumed to have the power to take all such steps as are essential to enforce the performance of contracts and agreements made with him in the course of his receivership,'"* and to protect the property in his possession."^ That a court of eqiiity may empower ^ Beach Receivers, § 651. Such plaint that the court appointing the general authority may he given by plaintiff as receiver authorized him an order made subsequent to the or- to sue in his own name in matters der appointing the receiver. La- concerning his receivership, or he throp V. Knapp, 37 Wis. 307. cannot recover in an action in his ™ Beach Receivers, § 651. An or- own name for a debt due the corpo- der authorizing the receiver to • sue ration. Garver v. Kent, 70 Ind. 428. for all the assets of every kind and But see Boyd v. Royal Ins. Co. Ill character does not give a right to N. Car. 372, 16 S. E. 389. maintain an action for injury to ™ Ponder v. Catterson, 127 Ind. property not in the receiver's pos- 434, 26 N. E. 66. session. Alexander v. Relfe, 9 Mo. ™ Singerly v. Pox, 75 Pa. St. 112 ; App. 133. See Screven v. Clark, 48 Kehr v. Hall, 117 Ind. 405, 20 N. B. Ga. 41. 279. A receiver may maintain re- ™ King v. Cutts, 24 Wis. 627; Yea- plevin for property which has been ger v. Wallace, 44 Pa. St. 294; New- wrongfully taken out of his posses- ell v. Fisher, 24 Miss. 392; Manlove sion. Boyle v. Townes, 9 Leigh V. Burger, 38 Ind. 211; High Receiv- (Va.) 158. ers, § 209. ™Pouder v. Catterson, 127 Ind. ^ Cases in preceding note. Where 434, 26 N. E. 66. statute authority is lacking, it must ™ Kehr v. Hall, 117 Ind. 405, 20 N. appear by the averments of the com- E. 279. 823 SUITS BY EECEIVEES — AUTHORITY TO SUE. [§■ 568 its receiver to bring all actions in his own name as receiver which may be necessary, instead of suing in the name of the corporation or joining it with him even in the absence of any statutory provisions on the subject is the settled doctrine of nearly all the modern cases.^^'^ And the courts of some of the states have gone to the extent of holding that the appointment of a receiver authorizes him, virtute officii, to bring all necessary suits in the discharge of his trust, and makes him so far the assignee of the legal title that he must sue in his own name.^^* Authority is expressly given to the receiver by statute in many of the states to prosecute and defend actions in his own name as '"Davia V. Gray, 16 Wall. (U. S.) 203; Frank v. Morrison, 58 Md. 423; Inglehart v. Bierce, 36 111. 133; La- throp V. Knapp, 27 Wis. 215; Hard- wick v. Hook, 8 Ga, 354; Helme v. Llttlejohn, 12 La. Ann. 298; Boyle V. Townes, 9 Leigh (Va.) 158; Henning v. Raymond, 35 Minn. 303, 29 N. W. 132; Wray v. Jamison, 10 Humph. (Tenn.) 185; High Receiv- ers, § 209; Beach Receivers, § 688; Gluck & Becker Rec. of Corp. pp. 155, 156. But in Pennsylvania and some other states, where the re- ceiver Is the mere custodian of the property, he is held to have no title upon which to maintain a suit in his own name, but, if authorized to bring suit, must sue in the name of the corporation. Dick v. Struthers, 25 Fed. 103; Yeager v. Wallace, 44 Pa. St. 294; Farmers', &c. Ins. Co. v. Needles, 52 Mo. 17; Comer v. Bray, 83 Ala. 217, 3 So. 554. ^ Helme v. Littlejohn, 12 La. Ann. 298; Baker v. Cooper, 57 Me. 388; Wray v. Jamison, 10 Humph. (Tenn.) 185. In Wilkinson v. Ru- therford, 49 N. J. L. 241, 8 Atl. 507, the court said : "It has already been shown that there is no statutory defi- nition of the powers of the receiver. The question, consequently, that arises, is as to the inherent abilities of a receiver by force of the usual rules of jurisdiction. I caiinot agree to the doctrine that a receiver is a mere custodian of the property of the person whom, in certain cases, he is made to supplant, and it would seem he is an assignee of the assets within the scope of his office. There seems to be no reason why his powers should not be held to be co-extensive with his functions; and it is clear that he cannot conven- iently perform those functions un- less upon the theory that some in- terest in the property, akin to that of an assignee's, passes to him. The receiver is to discharge the execu- tory duty of collecting the debts, and taking into his possession, even against antagonistic claims, the tan- gible property; and after his ap- pointment, a sale of such property by the insolvent would, it is pre- sumed, be absolutely void; and yet, if the Interest in the property was not vested in the receiver, it would be difficult to find ground on which to validate the transaction. * * * These embarrassments, as well as many others of a like kind, are obvi- ated by the adoption of the doctrine that, virtute officii, a receiver be- comes a provisional assignee of the property committed to him, and this doctrine is recognized in the case of Harrison v. Maxwell, 44 N. J. L. 316." § 569] RECEIVERS. 824 receiver.*^' Where this power is made' absolute it is not necessary for him to show a special authority from the court appointing him to prosecute an action/*" though he must set forth sufficient facts to show his character as receiver, and that he is the person authorized by the statute to act on behalf of the corporation.^" Where, as is the case in Indiana, a receiver is given power to bring and defend actions, collect debts, etc., in his own name, "under the control of the court, * * * and generally to do such acts respecting the property, as the court or judge thereof may authorize," the complaint must allege that suit was brought by direction of the court appointing the receiver or it will be fatally defective.^*^ § 569. When receiver may maintain suit — ^Defenses to receiver's suit. — The court may empower its receiver to sue upon any rights of action which belong to the person or corporation whose property has been put into the receiver's hands.^*' But a receiver usually has no power to maintain suits where the party whose effects he receives could not have sued, and the fact that an order of court directs him to bring the suit will not add to his right to maintain it.'** This rule. =»Stimson Am. Stat. (1892) § 8362, citing laws of California, Idaho, Washington, Montana, Wy- oming, Utah, Mississippi, Rhode Island, Ohio, Michigan, Maryland, North Carolina, Colorado. See Rev. Stat. Ind. 1894, § 1242. ™ Miller v. Mackenzie, 29 N. J. Eq. 291. '" Miami Exporting Co. v. Gano, 13 Ohio 269; Asheville Division No. 15 V. Aston, 92 N. Car. 578; Gluck & Becker Rec. of Corp. 156. '•^ Carver v. Kent, 70 Ind. 428; Moriarity v. Kent, 71 Ind. 601. See Bavis V. Ladoga Creamery Co. 128 Ind. 222, 27 N. E. 494. ^'Griffin v. Long Island R. Co. 102 N. Y. 449, 7 N. B. 735; Coope v. Bowles, 28 Howe Pr. (N. Y.) 10, 42 Barb. (N. Y.) 87; Litchfield Bank V. Peck, 29 Conn. 384; Mcllrath v. Snure, 22 Minn. 391. As to suits against stockholders for unpaid sub- scriptions, see Cutting v. Damerel, 88 N. Y. 410; Sagory v. Dubois, 3 Sandf. Ch. (N. Y.) 466; Means' Ap- peal. 85 Pa. St. 75; Lathrop v. Knapp, 37 Wis. 307; Starke v. Burke, 5 La. Ann. 740; Schoonover V. Hinckley, 48 Iowa 82; Clarke v. Thomas, 34 Ohio St. 46; Stillman V. Dougherty, 44 Md. 380; Sawyer V. Hoag, 17 Wall. (U. S.) 610; Up- ton V. Tribilcock, 91 U. S. 45. In Illinois a suit can be maintained against the stockholders only when they were made parties to the suit in which a receiver was appointed. Chandler v. Brown, 77 111. 333. As to suits against corporate officers for breach of trust and for gross mis- management and neglect of duty, see Mccarty's Appeal, 110 Pa. St. 379, 4 Atl. 925 ; Ackerman v. Halsey, 37 N. J. Eq. 356. »"La FoUett v. Akin, 36 Ind. 1; State V. Sullivan, 120 Ind. 197, 21 N. B. 1093, 22 N. E. 325; Hyde v. Lynde, 4 N. Y. 387. 825 EIGHT OF EECEIVER TO SUE IN OTHER JURISDICTIONS. [§ 570 however, as we have elsewhere shown,^*^ is not without its exceptions, for there are cases in which a receiver may maintain a suit that the corporation could not have maintained. As a general rule, the same defenses may be interposed to an action by the receiver on a demand due the corporation that could have been set up in a suit by the cor- poration itself .^*° This rule is subject to the exception, however, that where the receiver is suing in the interest of the creditors, no defense is available against him which could not equitably be opposed to a suit by them. Thus, it has been held that a receiver appointed at the instance of creditors may recover dividends that were fraudulently paid by the corporation after it became insolvent,^*' or a subscription which the creditors themselves could enforce although the corporation could not,^** and it has been held that a debtor cannot interpose a judgment recovered upon a promissory note of the corporation as a set-off to an action by the receiver to enforce payment of his indebted- ness due the corporation.^*' § 570. Right of receiver to sue in other jurisdictions — Comity. — Some authorities hold that a receiver owing his appointment to the common law jurisdiction of a court of equity cannot sue outside of the jurisdiction of the court which appointed him.^^" This rule is gen- "« Ante, § 537. (N. Y.) 13; Litchfield Bank v. »« Brooks V. Bigelow, 142 Mass. 6, Church, 29 Conn. 137; Williams v. 6 N. E. 766; Litchfield Bank v. Peck, Traphagen, 38 N. J. Eq. 57. See, 29 Conn. 384; Cox v. Volkert, 86 Mo. also, Lanier v. Gayosq, &c. Inst. 9 505; Chase v. Petroleum Bank, 66 Heisk. (Tenn.) 506. But a set-off Pa. St. 169; Moise v. Chapman, 24 may sometimes be allowed. See Ga. 249; Van Wagoner v. Paterson, High Receivers, § 247; Cox v. Vol- &c. Co. 23 N. J. Law 283; Thomas v. kert, 86 Mo. 505; Colt v. Brown, 12 Whallon, 31 Barb. (N. Y.) 172; Gray (Mass.) 233; Hade v. McVay, Hade v. McVay, 31 Ohio St. 231. 31 Ohio St. 231; Berry v. Brett, 6 =" Osgood v. Ogden, 4 Keyes (N. Bosw. (N. Y.) 627. Y.) 70. ==° Farmers', &c. Ins. Co. v. Needles, ="Cole v. Satsop R. Co. 9 Wash. 52 Mo. 17; Hope Mut. L. Ins. Co. v. 487, 37 Pac. 700, 43 Am. St. 858. Taylor, 2 Robt. (N. Y.) 278; War- See, generally, as to collection of ren v. Union Nat. Bank, 7 Phila. subscriptions by receivers, note to (Pa.) 156; Moseby v. Burrow, 52 Thompson v. Reno Sav. Bank, 3 Am. Tex. 396. See Bartlett v. Wilbur, 53 St. 797, 833. Md. 485; Graydon v. Church, 7 ^'^ Where the effect of allowing a Mich. 36; Moreau v. Du Bellet (Tex. set-off would be to prefer one cred- Civ. App.) 27 S. W. 503. See, also, iter over another, a set-off will not "Actions by Foreign Receivers," 37 be allowed. Singerly v. Fox, 75 Pa. Cent. L. J. 315. St. 112; Clark v. Brockway, 3 Keyes § 570] BECEIVEKS. 826 erally followed, in the older cases, and also, in some of the more re- cent ones, by the federal courts with regard to receivers appointed by the United States courts in other districts,^" and is based upon the ground that a court of chancery has no authority to act beyond its jurisdiction, and that consequently a receiver at common law is not clothed with power to sue in a foreign jurisdiction.^^^ But the better rule, as it seems to us, and one which is well sustained by authority, is that, although a receiver has not, as a matter of absolute right, any extraterritorial jurisdiction or authority to sue in a foreign juris- diction, yet as a matter of comity, receivers duly appointed and quali- fied, and invested with authority to sue for and collect the corporate ^' Booth v. Clark, 17 How. (U. S.) 322; Wilkinson v. Culver, 23 Blatchf. (U. S.) 416; Brigham v. Ludding- ton, 12 Blatchf. (U. S.) 237; Holmes V. Sherwood, 3 McCrary (U. S.) 405; Hazard v. Durant, 19 Fed. 471, Fowler v. Osgood, 141 Fed. 20. See, . also, Quincy, &c. R. Co. v. Hum- phreys, 145 XJ. S. 82, 12 Sup. Ct. 787; Hale v. AUinson, 188 U. S. 56, 23 Sup. Ct. 244; Great Western Min. &c. Co. V. Harris, 198 U. S. 561, 25 Sup. Ct. 770. In Booth v. Clark, supra, the court said: "A receiver has no extraterritorial power of of- ficial action; none which the court appointing him can confer, with au- thority to enable him to go into a foreign Jurisdiction to take posses- sion of the debtor's property; none which can give him, upon the prin- ciple of comity a privilege to sue in a foreign court or another juris- diction, as the judgment creditor himself might have done, where his debtor may be amenable to the tri- bunal which the creditor may seek. * * * We think that a receiver could not be admitted to the comity extended to judgment creditor with- out an entire departure from chan- cery proceedings as to the manner of his appointment, the securities which are taken from him for the performance of his duties, and the direction which the court has over him in the collection of the assets of the debtor and the application and distribution of them." It may be that the act of March 3, 1887, as corrected August 13, 1888, found in 25 U. S. Stat. L. 433, may have some bearing upon this question, but so far as we know, the point has never been made. '^^ But where the receivers were appointed under statutory provi- sions existing at the organization of the corporation and entering into and forming part of its charter, by which the rights and duties of such receivers were defined, it was held that the shareholders and creditors of the corporation were charged with notice of the charter right of the corporation to have all of its property transferred to a receiver if it should become Insolvent, and must be held to have impliedly agreed that, in such case, they would be bound by the laws of the state in which the corporation was organ- ized, so far as they formed a part of the charter of the company. Par- sons V. Charter Oak L. Ins. Co. 31 Fed. 305; Davis v. Life Association, 11 Fed. 781; Relfe v. Rundle, 103 XJ. S. 222; Bockover v. Life Associa- tion, 77 Va. 85. 827 EIGHT OF EECEIVEE TO SUE IN OTHER JURISDICTIONS. [§ 570 assets situated in other states, may, and usually will, be permitted to maintain suits in the courts of such other states/^^ This rule, how- ever, is said to be subject to the exception that while a receiver may invoke the aid of a foreign court in obtaining possession of property or funds within its jurisdiction, aid will only be exteiided as against those who were parties to, or in some way in privity with, the pro- ceedings in which his appointment was made, or who are in possession of the property or effects of the estate without right.'^*" It is generally the policy of each state to retain within its control the property of a foreign debtor until all domestic claims have been satisfied, and in many of the states comity will not be extended by the courts to enable a receiver to take possession of, and withdraw from the state, property or funds which were already in such state and which resident creditors are seeking to subject to the payment of their debts, by proceedings duly instituted for that purpose.^^^ After a receiver has reduced the property or effects of the corporation to possession he becomes vested with a special property therein, and is entitled to protect this special property, while it continues, by action, in like manner as if he was the absolute owner.'^^ This property interest of the receiver will usually be recognized and enforced by the courts of other states, not alone upon principles of comity, but as a matter of right.^^^ If he recovers judgment against a debtor in his own name as receiver, he may main- tain an action against the debtor in another jurisdiction upon such "= Bagby v. Atlantic, &c. R. Co. 86 Ind. 477, 24 N. E. 250, 8 L. R. A. Pa. St. 291; Hurd v. Elizabeth, 41 62, 18 Am. St. 340. N. J. L. 1; Metzner v. Bauer, 98 Ind. ^''Hurd v. Elizabeth, 41 N. J. L. 425; Hoyt v. Thompson, 5 N. Y. 320; 1; Lycoming Fire Insurance Co. v. Sercomb v. Catlin, 128 111. 556, 21 Wright, 55 Vt. 526; Willltts v. N. E. 606, 15 Am. St. 147; Lycoming Waite, 25 N. Y. 577. See State v. Fire Ins. Co. v. "Wright, 55 Vt. 526; Jaclisonville, &c. R. Co. 15 Fla. 201; High Receivers, §§ 239, 244; ante, Thurston v. Rosenfield, 42 Mo. 474, § 555. See, also, "Actions by For- 97 Am. Dec. 351. "We decline to eign Receivers," 37 Cent. L. J. 315, extend our wonted courtesy so far and authorities cited on page 318; as to work detriment to citizens of Wyman v. Eaton, 107 Iowa 214, 77 our own state who had been In- N. W. 865, 43 L. R. A. 695, 70 Am. duced to give credit to the foreign St. 193; Howarth v. Angle, 162 N. insolvent." Runk v. St. John, 29 Y. 179, 56 N. E. 489, 47 L. R. A. 725; Barb. (N. Y.) 585. See ante, § 555. Wigton V. Bosler, 102 Fed. 70 ; New ™ Pouder v. Catterson, 127 Ind. York, &c. R. Co. v. New York, &c. 434, 26 N. E. 66; Kehr v. Hall, 117 R. Co. 58 Fed. 268; Davis v. Gray, Ind. 405, 20 N. B. 279; Gluck and 16 Wall. (U. S.) 219. Becker Rec. of Corp. 185. =" Catlin V. Wilcox, &c. Co. 123 =" See ante, §§ 555, 563. 571] RECEIVERS. 828 judgment, as a judgment creditor.^''* So where he takes the debtor's note in payment of a claim due the corporation, the receiver may bring suit in a foreign state to collect the note.^^^ A receiver may take property of which he has obtained legal possession into other jurisdictions without affecting his title thereto. And the citizens of other states into which the property is taken by the receiver in the performance of his duties, cannot proceed against such property by attachment for the 'debts of the corporation.^'" So, if property is wrongfully and without the receiver's consent, taken out of his pos- session, it has been held that he may follow it and reclaim it wher- ever found, and the courts of foreign states will aid him to recover it.^°^ § 571. Suits against receivers — ^Leave to sue must be obtained. — In the absence of any statutory provisions on the subject, it is the general rule that a suit cannot be maintained against a receiver with- out leave of the court appointing him,*"^ but it has been held that where the suit is brought in such court, the fact that it entertains the suit is sufficient to establish the granting of leave to sue.**^ Since ^'Wilkinson v. Culver, 25 Fed. 639. ''" Inglehart v. Bierce, 36 111. 133. ™Crapo V. Kelly, 16 "Wall. (U. S.) 610; Pond v. Cooke, 45 Conn. 126; Chicago, &c. R. Co. v. Keokuk, &c. Co. 108 111. 317; Cagill v. Wooldridge, 8 Baxter (Tenn.) 580. But It has been held in California that cars belonging to a railroad which is be- ing operated by a receiver appointed by the United States Circuit Court in another state may be attached for a debt due a citizen of California, if they are sent into that state in the transaction of the business of the company. Humphreys v. Hop- kins, 81 Cal. 551, 22 Pac. 892, 6 L. R. A. 792, 15 Am. St. 76. See, how- ever, comments on this case in note to § 555, ante. See Gluck and Becker Rec. of Corp. 186. =°'McAlpin V. Jones, 10 La. Ann. 552. "^Wiswall V. Sampson, 14 How. (U. S.) 52; Barton v. Barbour, 104 U. S. 126; St. Joseph, &c. R. Co. v. Smith, 19 Kans. 225; Rogers v. Mo- bile, &c. R. Co. (Tenn.) 12 Am. & Eng. R. Cas. 442; Martin v. Atchi- son, 2 Idaho 590, 33 Pac. 47; Keen V. Breckenridge, 96 Ind. 69; Melendy V. Barbour, 78 Va. 544; Little v. Du- senberry, 46 N. J. Law 614, 50 Am. R. 445; De Graffenried v. Bruns- wick, &c. R. Co. 57 Ga. 22; Heath v. Missouri, &c. R. Co. 83 Mo. 617, 623; Miller v. Loeb, 64 Barb. (N. Y.) 454; Meredith, &c. Bank v. Simpson, 22 Kans. 414; Reed v. Richmond, &c. R. Co. (Va.) 33 Am. & Eng. R. Cas. 503; Reed v. Axtell & Myers, 84 Va. 231, 4 S. B. 587. A judgment in favor of a receiver in an action against him begun without leave of court is, it seems, a nullity, and con- stitutes no defense to a subsequent action. Comer v. Pelton, 61 Fed. 731. ""Ft. Dodge V. Minneapolis, &c. R. Co. 87 Iowa 389, 54 N. W. 243. In this case it was held that, where 839 SUITS AGAINST EECEIVEKS. [§ S'^l the receiver is but the "hand" of the court, it is held that any inter- ference with his possession and control of the property by suit or otherwise is an intefrference with the process of the court, and not to be tolerated.^ °* And it is argued that to permit the institution of such suits and the taking of judgments against the receiver would result in the creation of new liens upon the property in the hands of the receiver, over which the court would have no control, thereby clouding the title to the property, and that the whole purpose of the litigation in equity and of the taking possession of property through the receiver, would be defeated.^*^ In accordance with this view it was held that a court had no jurisdiction to entertain a suit against the receiver of a railroad corporation, where it was shown that leave to sue had not been obtained, although the receiver was appointed by a court of the state of Virginia and was transacting business in the District of Columbia, where the suit was -brought.^"^ The court also held that the rule requiring leave to sue applies not only to cases where the purpose of the suit is to take from the receiver property which is actually in his possession, placed there by order of the court, but embraces as well any suit to recover judgment against a receiver for a money demand, even though the cause of action arose out of the operation of a railroad by the receiver.^"^ In cases where leave to mandamus against a receiver is in- pass upon the general question as stituted in the court which appoint- to the right to sue foreign receivers ed him, and the court entertains the doing business outside of the juris- action, he cannot object that it is diction by which they were appolnt- an improper remedy, or that the re- ed. In Fort Dodge v. Minneapo- lief sought might have been ob- lis, &c. R. Co. 87 Iowa 389, 54 N. tained in a more summary and less W. 243, 55 Am. & Eng. R. Cas. 58, formal manner. See, also, Ratcliff it was held that comity does not v. Baer, &c. Co. (Ark.) 72 S. "W. demand that the enforcement of a 896. statute requiring the construction ™ Thompson v. Scott, 4 Dillon of railroad crossings should be de- (U. S.) 508; Barton v. Barbour, 104 f erred to await the action of the U. S. 126. courts of another state, which ap- "= Thompson v. Scott, 4 Dillon (U. pointed a receiver in rfeference to S.) 508. the property of the corporation situ- "" Barton v. Barbour, 104 U. S. ated in that state. 126. But in this case the injury '"Barton v. Barbour, 104 U. S. sued for was received while travel- 126. Mr. Justice Woods, in deliver- ing on defendant's road in Virginia, ing the opinion of the court in this and the fund from which payment case, said: "The evident purpose of was sought to be enforced was in a suitor who brings his action Virginia, and the court declined to against a receiver without leave is § 571] EECEIVEES. 830 sue is essential, it may be given, in the ease of a railroad operated by a receiver, by a general leave to aU persons having demands against the receiver as such, for liabilities incurred by him in operating the road, without applying to the court for leave to do so, to bring suit thereon in any other court having jurisdiction.^'* An application for to obtain some advantage over the other claimants, upon the assets in the receiver's hands. His judg- ment, if he recovered one, would be against the defendant in his capac- ity as receiver, and the execution would run against the property in his hands as such." See this case severely criticized in Lyman v. Cen- tral Vermont R. Co. 59 Vt. 167, 10 Atl. 346, and see also cases .cited in notes 6, 2, infra, pages 803, 804. ""'Dow V. Memphis, &c. R. Co. 20 Fed. 260. In this case the following order was made: That persons hav- ing demands or claims of any char- acter against the receiver may, with- out applying to this court for leave to do so, bring suit thereon against the receiver in any court in this state having jurisdiction, or may file their petition and have their claim adjudicated in this court at their election. This clause shall not be construed as authorizing the levy of any writ or process on the prop- erty in the hands of the receiver, or taking the same from his cus- tody or possession. Judge Caldwell said: "The general license to sue the receiver is given because it is desirable that the right of the citi- zen to sue in the local state courts on the line of the road should be in- terfered with as little as possible. It is doubtless convenient and a sav- ing and protection to the railroad company and its mortgage bond- holders, to have the litigation grow- ing out of the operation of a long line of railroad concentrated in a single court, and on the equity side of that court, where justice is administered without the intervention of a jury. But, in proportion as the railroad and its bondholders profit by such an ar- rangement, the citizen dealing with the receiver is subjected to incon- venience and expense, and he is de- prived of the forum, and the right of trial by jury, to which, in every other case of legal cognizance, he has the right to appeal for redress. It is not necessary, for the accom- plishment of the purposes for which receivers of railroads are appointed, to impose such burdens and depriva- tions on citizens dealing with the re- ceiver; and neither the railroad company nor its bondholders have any equity to ask it. Where prop- erty is in the hands of a receiver simply as a custodian, or for sale or distribution, it is proper that all persons having claims against it, or upon the fund arising from its sale, should be required to assert them in the court appointing a re- ceiver. But a very different ques- tion is presented where the court assumes the operation of a railroad hundreds of miles in length, and advertises itself to the world as a common carrier. This brings it into constant and extensive business relations with the public. Out of the thousands of contracts it enters into daily as a common carrier, some are broken and property is damaged and destroyed, and passen- gers injured and killed by the neg- ligent and tortious acts of its re- ceiiver and its agents. * * * T^riien 831 EFFECT OF FAILUEE TO OBTAIN LEAVE TO SUE. [§■ 573 leave to sue is addressed to the sound discretion of the eourt/"^ and should not be granted unless the petition states a prima facie cause of action against the receiver; but the court should not, as a rule, un- dertake to decide the case in advance.^^" § 572. Effect of failure to obtain leave to sue. — It has been held that a complaint in such a suit which does not allege that leave to bring an action has been obtained .is insufficient on demurrer.^'^ But a complaint which does not aver that leave to sue has been obtained is sufficient to withstand a motion in arrest of judgment after verdict iipon issue joined.^'^ The objection that the action was begun without leave of court should be interposed by the receiver at the first oppor- tunity, if he relies upon the protection of the court as a defense. After he has voluntarily submitted to the authority of the court and joined issue without objection, it has been held to be too late for him to urge that leave to sue him was not first obtained.^'* It has been a court, through its receiver, he- comes a common carrier, and enters the lists to compete with other com- mon carriers for the carrying trade of the country, it ought not to claim or exercise any special privileges denied to its competitors and op- pressive to the citizen. The court appointing a receiver cannot, of course, permit any other jurisdic- tion to interfere with its possession of the property, or control its ad- ministration of the fund, but in the case of long lines of railroad, the question of the legal liability of its receiver to the demands of the citi- zen, growing out of the operation of the road, should be remitted to the tribunals that would have juris- ^ diction if the controversy had arisen between the citizen and the railroad company, giving to the citizen the option of seeking his redress in such tribunals, or in the court appoint- ing the receiver." "^ Meeker v. Sprague, 5 Wash. St. 242, 31 Pac. 628. But see Conwell V. Lawrence, 46 Kans. 83, 26 Pac. 461. "'"Jordan v. "Wells, 3 Woods (U. S. C. C.) 527. See Palys v. Jewett, 32 N. J. B3q. 302, to the effect that leave will usually be granted unless there is some good reason for not granting it. , ™Keen v. Breckenridge, 96 Ind. 69; Wayne Pike Co. V. State, 134 Ind. 672, 34 N. B. 440; Barton v. Barbour, 104 U. S. 126. But see Kinney v. Crocker, 18 Wis. 74; St. Joseph, &c. R. Co. v. Smith, 19 Kans. 225; Allen v. Central R. Co. 42 Iowa 683. "' Elkhart Car Works Co. v. Ellis, 113 Ind. 215, 15 N. E. 249. "'" Elkhart Car Works Co. v. Ellis, 113 Ind. 215, 15 N. E. 249; Hubbell V. Dana, 9 How. Pr. (N. Y.) 424; Roxbury v. Central Vermont R. Co. 4 R. & Corp. L. J. 204; Naumburg V. Hyatt, 24 Fed. 898, 901; Mulcahey V. Strauss, 151 111. 70, 37 N. E. 702; Flentham v. Steward, 45 Neb. 640, 63 N. W. 924. See Jerome v. Mc- Carter, 94 U. S. 734; Comer v. Fel- ton, 61 Fed. 731; and see article in 25 Am. L. Reg. (N. S.) 289, in which the position is taken that the § s-^s] BECEIVEES. 832 held, however, that parties -who bring such a suit without leave may be punished for contempt,^'* and that the proceedings may be re- strained,^'^ or stayed, or set aside on motion.^'" The constitutional right to sue in the federal courts in certain cases does not enable a litigant to maintain a suit without leave in one of those courts against a receiver appointed by a state eourt.^'' It has been held, however, that where the receiver, wrongfully or by mistake, takes possession of the property of a third person, such person may bring suit therefor against him personally as a matter of right ; for, in such case, the re- ceiver would be acting ultra vires, and cannot be held to represent the court by which he was appointed.^' ^ A number of cases, also, while admitting the general doctrine that a court of equity may draw to itself all controversies to which the receiver is a party, hold that it is not bound to do so, but may properly leave the determination of actions at law for money demands, the exact amount of which is un- certain, to be determined by other courts of competent jurisdiction,^''' and that the lack of leave to sue does not affect the jurisdiction of the court in which such a suit is brought,^^" and does not invalidate a receiver cannot give jurisdiction by waiving the objection. "* Kennedy v. Indianapolis, &c. R. Co. 3 Fed. 97; Wlswall v. Sampson, 14 How. (U. S.) 52, 67. '"Evelyn v. Lewis, 3 Hare 472; Tink V. Rundle, 10 Beav. 318. '"De Groot v. Jay, 30 Barb. (N. Y.) 483; Taylor v. Baldwin, 14 Abb. Pr. (N. Y.) 166. '"Reed v. Axtell, 84 Va. 231, 4 S. E. 587. ™ Parker v. Browning, 8 Paige (N. Y.) 388, 35 Am. Dec. 717; Paige v. Smith, 99 Mass. 395; Hills v. Parker, 111 Mass. 508, 15 Am. R. 63. In this latter case the owner of a locomotive in use upon the road of an insolvent railroad corpo- ration was permitted to maintain an action of replevin against the receiver of such corporation to re- cover his property, without having first obtained leave of court. Chris- tian Jansen Co., In re, 128 N. Y. 550, 28 N. E. 665, holds that even though property Is wrongfully in the possession of a corporation, it cannot be replevied without leave of court after it comes into the pos- session of a receiver appointed in voluntary proceedings to dissolve the corporation. ™ St. Joseph, &c. R. Co. v. Smith, 19 Kans. 225; Kinney v. Crocker, 18 Wis. 74; Allen v. Cent. R. &c. 42 Iowa 683; Chautauqua County Bank V. Risley, 19 N. Y. 369, 75 Am. Dec. 347; Blumenthal v. Brainerd, 38 Vt. 402, 91 Am. Dec. 349. "Lyman v. Central Vermont R. Co. 59 Vt. 167, 10 Atl. 346; Blumen- thal V. Brainerd, 38 Vt. 402, 91 Am. Dec. 349; Nichols v. Smith, 115 Mass. 332; Kinney v. Crocker, 18 Wis. 74; Allen v. Central R. Co. 42 Iowa 683. In Kinney v. Crocker, supra, the court said: "A court of equity will, on proper application, protect its own receiver, when the possession which he holds under the order of the court is sought to be 833 EFFECT OF RECENT ACT OP CONGRESS. [§ srs judgment rendered by such court in case the proceedings are not stayed by the court which appointed the receiver.*^^ § 573. Effect of recent Act of Congress. — It would seem highly proper that suits upon causes of action arising from the negligent operation of a railroad by a receiver, or from a breach of contracts made in the course of such operation/*'' should be tried in a court of law with the aid of a jury, and this is sometimes urged as a reason ' for denying that leave to sue is jurisdictional.^** The view that leave disturbed." And again: "But in all these cases it is not a question of jurisdiction in the courts of law, but only a question whether equity will exercise its own acknowledged jurisdiction of restraining suits at law, under such circumstances, and itself dispose of the matter involved. It follows that although a plaintiff in such case, desiring to prosecute a legal claim for damages against a receiver might, in order to relieve himself from the liability to have his proceeding arrested by an exer- cise of its equitable jurisdiction, very properly obtain leave to prose- cute; yet his failure to do so is no bar to the jurisdiction of the court of law, and no defense to an other- wise legal action in the trial. There can be no room to question this con- clusion in all cases where there is no attempt to interfere with the ac- tual possession of property which the receiver holds under the order of the court of chancery, but only an attempt- to obtain a judgment at law in a claim for damages." =»iDe Groot v. Jay, 30 Barb. (N. Y.) 483; Taylor v. Baldwin, 14 Abb. Pr. 166. 282 For instances in which such suits have been maintained, see Al- len V. Central R. Co. 42 Iowa 683; Blumenthal v. Brainerd, 38 Vt. 402, 91 Am. Dec. 349; Newell v. Smith, 49 Vt. 255; Paige v. Smith, 99 Ell. Railroads — 53 Mass. 395; Nichols v. Smith, 115 Mass. 332; Barter v. Wheeler, 49 N. H. 9, 6 Am. R. 434; Kain v. Smith, 80 N. Y. 458; Lyman v. Central Ver- mont R. Co. 59 Vt. 167, 10 Atl. 346; Lamphear v. Buckingham, 33 Conn. 237; Ballou v. Farnum, 9 Allen (Mass.) 47. See, also, Klein v. Jewett, 26 N. J. Bq. 474. '^^ In a dissenting opinion in the* case of Barton v. Barbour, 104 U. S. 126, Mr. Justice Miller said: "In the case before us the plaintiff sues to recover damages for a personal injury, caused by an act done by the receiver or his agents in the transaction of business as a com- mon carrier, in which he was large- ly and continuously engaged. Why should the receiver not be sued like any one else on such a cause of ac- tion, in any court of competent ju- risdiction? The reply is because he is a receiver of the road ■ on which plaintiff was injured, and holds his appointment at the hands of a Vir- ginia court of chancery. If this be a sufficient answer, then the rail- road business of the entire country, amounting to many millions of dol- lars per annum, may be Withdrawn from the jurisdiction of the ordi- nary courts having cognizance of such matters, and all the disputes arising out of these vast transac- tions must be tried alone in the court which appointed the receiver. § 573] EEOEIVEKS. 834 to sue in such a case ought not to be required has been taken by Con- gress, and it is now provided^** that every receiver or manager of any property appointed by any court of the United States may be sued in respect of any act or transaction of his in carrying on the business connected with such property, without the previous leave of the court in which such receiver or manager was appointed ; but such suit shall be subject to the general equity jurisdiction of the court in which he was appointed, so far as the same shall be necessary to the ends of justice. It is held that this act gives an absolute right to sue a re- ceiver appointed by a federal court in any court having jurisdiction of the subject-matter.^*^ The judgment of the court trying such suit is as final and conclusive against the receiver as against any other suitor, and will not be disturbed by the court appointing him because of any suggestion that he has not obtained justice in the other court.^*^ Not only this, but the right of trial by jury, which has been regarded as secured to every man by the con- •stitutions of the several states and of the United States, is denied to the person injured, and though his case has no element of equitable jurisdiction he is compelled to sub- mit it to a court of chancery or to one of the masters of such court. In an action for a personal injury, whi'ch has always been considered as eminently fitted for a jury, and especially in the assessment of dam- ages, this constitutional right is de- nied because the receiver of a rail- road, and not its owners, committed the wrong." We fail to see, how- ever, how these considerations meet the question. They may constitute forcible reasons against requiring a trial without a jury in the court which appointed the receiver, but they do not seem to be in point upon the mere question of the jurisdic- tion of another court where no leave to sue is granted. Leave will be given unless there is good reason for withholding it, and trial by jury may be had in any proper case. ™Act of Congress of March 3, 1887, as corrected by act of August 13, 1888, § 3, 24 U. S. St. 554, 25 U. S. St. 436; 2 Desty's Fed. Proc. § 231. "== Texas, &c. R. Co. v. Gay, 86 Tex. 571, 26 S. W. 599, 25 L. R. A. 52; Dillingham v. Russell, 73 Tex. 47, 11 S. "W. 139, 3 L. R. A. 634, 15 Am. St. 753; Central Trust Co. v. St. Louis, &c. R. Co. 40 Fed. 426; McNulta V. Lockridge, 141 U. S. 327, 332, 12 Sup. Ct. 11. See, also, Ma- lott V. Shimer, 153 Ind. 35, 54 N. E. 101, 74 Am. St. 278. Notwithstand- ing an order of court discharging the receiver and restoring the prop- erty to the receiver without fore- closure, and giving a limited time within which all claims must be presented, a suit may subsequently be brought against the receiver per- sonally to recover damages for per- sonal injuries due to the negligence of his employes. Texas, &c. R. Co. V. Johnson, 151 U. S. 81, 14 Sup. Ct. 250. But see Decker v. Gardner, 124 N. Y. 334, 26 N. B. 814, 11 L. R. A. 480. 380 "This court will not entertain the suggestion that its receiver will not obtain justice in the state 835 EFFECT OF RECENT ACT OF CONGRESS. .[§ 573 The act applies to receivers appointed before it was passed as well as to those afterwards appointed, and they may be sued without leave in the same manner as those subsequently appointed.^^^ And it has been held that a receiver may be sued under the provisions of this act, in respect to an act of his predecessor in the office.^'^ Actions for personal injuries caused by a station platform being out of repair are included,^^° as well as actions for injuries caused in the running of trains. But it has been held that such statute does not authorize a suit by a stockholder against the directors and receivers, without leave of court, upon a cause of action which accrued before the appoint- ment of the receivers and upon which they have refused to bring suit.''" Neither is a proceeding in garnishment a suit against the re- ceiver for "any act or transaction of his," within the meaning of the statute.''^ The subjection of such suits to the general equity juris- diction of the court does not invest it with appellate or supervisory jurisdiction over state courts in which the suits may be brought, and it cannot annul, vacate or modify their judgments. This provision courts." Central Trust Co. v. St. Louis, &c. R. Co. 41 Fed. 551, 42 Am. & Eng. R. Cas. 26; Dillingham v. Hawk, 60 Fed. 494. The appoint- ing court has no jurisdiction to en- join the prosecution of an action against its receiver where author- ized by the statute. Texas, &c. R. Co. V. Johnson, 151 U. S. 81, 14 Sup. Ct. 250; Central Trust Co. v. East Tennessee, &c. R. Co. 59 Fed. 523. But this statute does not limit nor destroy the right of the federal court to protect property in the hands of its receivers from external attack. Tyler, Ex parte, 149 U. S. 164, 191, 13 Sup. Ct. 785, 793. '"See Texas, &c. R. Co. v. Cox, 145 U. S. 593, 12 Sup. Ct. 905. But see Missouri Pac. R. Co. v. Texas, &c. R. Co. 41 Fed. 311. ==»McNulta V. Lockridge, 141 U. S. 327, 12 Sup. Ct'. 11. But see Jones V. Schlapback, 81 Fed. 274. ^FuUerton v. Fordyce, 121 Mo. 1, 25 S. W. 587, 42 Am. St. 516. See, also. Central Trust Co. v. St. Louis, &c. R. Co. 40 Fed. 426; McNulta v. Lockridge, 137 111. 270, 31 Am. St. 362; Texas, &c. R. Co. v. Cox, 145 U. S. 593, 12 Sup. Ct 905. ™Swope v. Villard, 61 Fed. 417. And that it does not authorize an independent suit, without leave of court, to foreclose a mortgage on property in the hands of a receiver. American Loan, &c. Co. v. Central Vt. R. Co. 84 Fed. 917. "'Central Trust Co. V. Chatta- nooga, &c. R. Co. 68 Fed. 685; Cen- tral Trust Co. V. East Tennessee, &c. R. Co. 59 Fed. 523. Contra, Irwin V. McKechnie, 58 Minn. 145, 59 N. W. 987, 26 L. R. A. 218, 49 Am. St. 495. As to the general rule forbid- ding garnishment of property in the hands of a receiver, see Jackson v. Lahee, 114 111. 287, 2 N. E. 172; Co- lumbian Book Co. V. De Golyer, 115 Mass. 67; Taylor v. GlUean, 23 Tex. . 508; McGowan v. Myers, 66 Iowa 99, 23 N. "W. 282; Smith v. McNamara, 15 Hun (N. Y.) 447. § 574] EECEIVEES. 836 merely gives the United States court a right to control suits which seek to deprive the receiver of possession of the property, and all process of execution which would have the effect, so far as may be necessary to the ends of justice, in preventing the road from being broken into parts, or deprived of its rolling stock, so as to impair the value as a going concern.'"^ In other words, the time and mode of paying a judgment rendered by a state court remain under the con- trol of the court appointing the receiver, although the amount of such judgment cannot be changed. Some of the states have similar statutes, conferring a general authority upon all persons to sue re- ceivers engaged in operating railroads under appointment by any court of equity. The act of congress giving permission to sue a federal receiver applies in any court of competent jurisdiction and is not limited to suits in the federal courts.^"^ But it does not give permis- sion to sue a receiver of a state court without the consent of the court appointing him,^"* and it has been held that a receiver cannot be sued under such act, without leave of court, for alleged wrongful acts com- mitted in the operation of the road before he became receiver.'*^ § 574. Bule where suit has been commenced before appointment of receiver. — Where suit has been commenced against the corporation before the appointment of a receiver such suit may be prosecuted to judgment, and such judgment will establish as against the receiver the rightful amount of the claim.''® In some jurisdictions, however, "^Eddy V. Lafayette, 49 Pad. 807; erty In his hands. Coster v. Park- Central Trust Co. V. St. Louis, &o. ersburg Branch R. Co. 131 Fed. 115; R. Co. 41 Fed. 551; Dillingham v. Minot v. Martin, 95 Fed. 734. See, Hawk, 60 Fed. 494. also, to the effect that a receiver re- ™ Central Trust Co. v. East Tenn. quired to manage and operate the &c. R. Co. 59 Fed. 523; Texas, &c. property according to the laws of R. Co. V. Johnson, 151 U. S. 81, 14 the state in which it is situated In Sup. Ct. 250. Applied to a receiver the same manner as the owner or appointed by a territorial court in possessor thereof, under said act, is Wheeler v. Smith, 81 Fed. 319. subject to a law of the state making =»' Porter v. Sabin, 149 U. S. 473, railroad companies liable for the 13 Sup. Ct. 1008. negligence of employes having su- «"= Jones V. Schlapback, 81 Fed. perlor authority, Pelrce v. Van Du- 274. But compare McNulta v. Lock- sen, 78 Fed. 693, 69 L. R. A. 705. ridge, 141 U. S. 327, 12 Sup. Ct. 11. ™ Pine Lake Iron Co. v. Lafayette See, also, to the effect that the stat- Car Works, 53 Fed. 853. But such ute relates only to suits arising out a judgment does not constitute a of the acts of the receiver relative lien upon the property in the re- to his duties concerning the prop- ceiver's hands. Bell v. Chicago, &c. 837 SUIT COMMENCED BEFORE APPOINTMENT. [§ 574 the receiver should be substituted as a party defendant. The recovery of a judgment against the receiver appointed by a court of equity has no further effect than to fix the amount of the plaintiff's claim. An execution issued thereon cannot be levied upon the property in the receiver's hands without leave from the court by which the receiver was appointed.^'' This rule is not changed as to the United States courts by the provisions of the "Federal Judiciary Act," but the levy- ing of execution or other judicial process upon property in the hands of its receivers is, by that act, left under the control of the court which they represent.*'* Indeed, the very object of appointing a receiver would be defeated, if he could be stripped of the property piecemeal by process issued by rival courts at the suit of individual creditors. It has been held that a sale of property upon execution while it was in the possession of a receiver and without leave of court was illegal and void, although the levy was made before the receiver was appointed.*'' R. Co. 34 La. Ann. 785. See, also, Clark V. Bacorn, 116 Fed. 617. The receiver of a railroad company may be substituted as defendant in an ac- tion for tort committed by the com- pany before his appointment. Decker V. Gardner, 58 Hun (N. Y.) 602, 11 N. Y. 388. But see Jones v. Penn- sylvania R. Co. 19 D. C. (8 Mackey) 178, holding that the fact that a re- ceiver of the property of a railroad company has been appointed will not affect the right of recovery against the company Itself for per- sonal injuries, where the receiver has allowed existing officers to man- age the business, and received the net earnings of the road, without taking any part in its management, the same remaining with the com- pany. Receivers have been allowed to come in in many cases. Rust v. United Water Works Co. 70 Fed. 129; Andrews v. Steele City Bank, 57 Neb. 173, 77 N. W. 342. But it is held that he is not a necessary party and need not be substituted. Speckert v. German Nat. Bank, 98 Fed. 151; United States Vinegar Co. V. Spanner, 143 N. Y. 676, 38 N. B. 731; Kittridge v. Osgood, 161 Mass. 384, 37 N. E. 369. =*'Coe v. Columbus, &c. R. Co. 10 Ohio St. 372, 75 Am. Dec. 518; Skin- ner V. Maxwell, 68 N. C. 400; Russel V. East Anglian R. Co. 6 Eng. Rail- way & Canal Cases 501; Missouri, &c. R. Co. V. Love, 61 Kans. 433, 59 Pac. 1072. "'See Central Trust Co. v. St. Louis, &c. R. Co. 41 Fed. 551. ™ Walling V. Miller, 108 N. Y. 173, 15 N. E. 65, 2 Am. St. 400. Earl, J., speaking for the court, says: "The lien of the execution was not de- stroyed by the appointment of. the receiver, but the rights and inter- ests of all parties in the property were thereafter to be adjusted by the court which appointed the re- ceiver, and the property could not be taken out of the possession of the receiver, and sold upon execu- tion, without leave of court. The execution creditor could bring hi., lien to the attention of the court in the action in which the receiver was appointed, and ask to have the exe- § 575] EECEIVEES. 838 § 575. Protection of receiver by the court. — Not only in the mat- ter of suits, but in all other respects, the court will protect its receiver in his possession and control of the property committed to his care. An attempt to disturb him in the discharge of his duties with refer- ence to such property may be a contempt of court.*"" The offender may be attached, and, if the circumstances justify it, punished by fine and imprisonment.*"^ The wrongful seizure of property in the hands of a receiver upon process from another court is a contempt on the part of the officers executing the writ.*"^ And it is also contempt of the court appointing the receiver to take property from his pos- session upon distraint for rent.*°^ Actual violence ofEered to a re- ceiver in the discharge of his duties, or such threats of violence as to intimidate -the receiver may amount to such an interference.*"* So may violence or threats by which the servants or employes of the cution satisfied out of the proceeds of the property. But persons hav- ing liens upon the property had no right to interfere with its posses- sion hy the receiver and without any application to or adjudication of the court, sell and dispose of it, and thus dissipate it, and deprive the court of jurisdiction to admin- ister it." See, also, Pelletier v. Greenville, &c. Co. 123 N. Car. 596, 31 S. E. 855, 68 Am. St. 837. It has been held otherwise where the sheriff retains actual possession un- der an attachment. State v. Su- perior Court, 8 Wash. 210, 35 Pac. 1087, 25 L. R. A. 354; State v. Graham, 9 Wash. 528, 36 Pac. 1085. "•"Secor V. Toledo, &c. R. Co. 7 Biss. (U. S.) 513; King v. Ohio, &c. R. Co. 7 Biss. (U. S.) 529; United States V. Kane, 23 Fed. 748; Wa- bash, &c. R. Co., In re, 24 Fed. 217; Higgins, In re, 27 Fed. 443; Chafee V. Quidnick Co. 13 R. I. 442; O'Ma- honey v. Belmont, 62 N. Y. 133 ; Ver- mont & Canada R. Co. v. Vermont Cent. R. Co. 46 Vt. 792; Hazelrigg V. Bronaugh, 78 Ky. 62; Richards v. People, 81 111. 551; Helmore v. Smith, 56 L. J. Ch. Div. 145. *" See cases in preceding note. An interference with the possession and use of a street railway in the hands 'of a receiver may be en- joined. Fidelity Trust, &c. Co. v. Mobile St. R. Co. 53 Fed. 687. The rule that property in the hands of a receiver is in custodia legis, and that interference with such posses- sion without leave of the court is a contempt, is as applicable in the case pf seizure thereof to enforce payment of taxes due the state as in any other case. Tyler, Ex parte, 149 U. S. 164, 191, 13 Sup. Ct. 785, 793. "2 Commonwealth v. Young, . 11 Phila. (Pa.) 606. See Albany City Bank v. Schermerhorn, 9 Paige (N. Y.) Ch. 373; Citizens' Bank v. Bay, &c. 110 Mich. 683, 68 N. W. 649; Mer- cantile Trust Co. V. Baltimore, &c. R. Co. 79 Fed. 389; Royal Trust Co. V. Washburne, &c. R. Co. 113 Fed. 531. "'Noe V. Gibson, 7 Paige (N. Y.) Ch. 513. *°* Fitzpatrick v. Eyre, 1 Hogan (Irish Rolls) 171. 839 PHOTECTIOlf OF RECEIVER BY THE COURT. [§' 575 receiver are prevented from carrying on the business as directed by the court. It is the duty of the court to see that property which is put into its hands, or in the hands of its receivers, is absolutely pro- tected, and that nobody, directly or indirectly, wrongfully interferes with the management of that property.*"" Where the employes of an- other road who have struck, or any other persons, prevent the servants of a receiver from working and thereby interfere with the operation of the road as directed by the order of the court, they are guilty of contempt of court.*"' The employes of a railroad operated by a re- ceiver have the same right to quit work that other employes have, and it is not unlawful for them to use arguments and persuasion to induce their fellow employes to do the same. But if a mere request, or mere advice to quit work, is accompanied by such a demonstration of force as is calculated to intimidate the receiver's employes, and induce them to abandon his service against their will, it will be pun- ished as a contempt.*"^ In case of a disagreement between the receiver and his employes, the proper course for them to pursue is to petition the court for an order directing a just and equitable settlement of the differences. The court will direct the receiver to enter into such agreements and contracts with his employes as may give them reason- able protection and at the same time guard the rights of creditors and others interested in the trust property.*"^ Punishment for con- tempt is usually by fine and imprisonment, which is largely within the discretion of the court against which the contempt was commit- ted,*"" and while the court will not be tenacious of any mere preroga- *>= United States v. Kane, 23 Fed. petition of the Brotherhood of Lo- 748. comotlve Engineers for an order ™Higgins, In re, 27 Fed. 443; Wa- directing the receiver to enter into bash R. Co., In re,' 24 Fed. 217; a contract with them prescribing Doolittle, In re, 23 Fed. 544; King v. the terms of service, the qualifica- Ohio, &c. R. Co. 7 Biss. (U. S.) 529; tioris necessary for promotion, and Secor V. Toledo, &c. R. Co. 7 Biss. the rate of compensation. He re- (U. S.) 513. ' quired the petitioners, however, to "'United States v. Kane, 23 Fed. waive rule 12 of the Brotherhood, 748; Higgins, In re, 27 Fed. 443. by which it is provided that mem- See, also, Arthur v. Oakes, 63 Fed. bers shall refuse to handle the cars 3l5; Farmers' Loan, &c. Co. v. of roads with which the Brother- Northern Pac. R. Co. 60 Fed. 803; hood are at variance, since such Debs, In re, 158 U. S. 564, 15 Sup. rule is illegal, and a compliance Ct. 900. -with it would compel the engineers «» Waterhouse v. Comer, 55 Fed. to violate the interstate commerce 149, 53 Am. & Eng. R. Cas. 329. In law. this case. Judge Speer granted the "° Higgins, In re, 27 Fed. 443. § 576] KECEIVEES. 840 tive to notice an unintentional interference,*^" or to visit severe punishment upon the offenders for a first or unpremeditated of' fense,*^^ it is the duty of the court to see that property which is put into its hands, or in the hands of its receivers, is absolutely pro- tected, arid the punishment must be made severe enough to restrain and prevent all interference with such property.*" It is no defense to a proceeding for contempt in interfering with the receiver's posses- sion of property placed in his hands by the court, to show that the order appointing him was erroneously or improvidently made.*^^ An order of the court which is not void cannot be assailed in a collateral proceeding,*^* and the court will not in a proceeding to punish a con- tempt review the questions which were passed upon when the receiver was appointed.*^^ The fact that railroad companies are in some sense public agents presents an additional reason why judicial control should be extended as far as possible to prevent an interference with them in the exercise of their public functions.*^' An injunction will be granted, in a proper case, restraining unlawful interference by sstrikers or others, and its violation is punishable as a contempt of court. This matter, however, will be fully considered hereafter. § 576. Liability of receivers — Generally. — A receiver is the mere officer of the court by which he was appointed and cannot question any order made by the court with reference to the control of the re- ceivership property, but must implicitly obey all such orders.*^^ It follows from this that the only personal liability which can ordinarily attach to a receiver in the operation of a railroad is for some wrong- ful or unauthorized act of his own. His liability for acts done in the discharge of his duties is official only, and such acts bind only the trust estate.*^' It accords with sound principle and reason that a re- There is said to be no appeal from People v. Sturtevant, 9 N. Y. 263, the judgment of the court in such 59 Am. Dec. 536; Howard v. Palmer, a case. Walk. (Mich.) 391; Russell v. Bast "" Doolittle, In re, 23 Fed. 544. Anglian R. Co. 3 M. & G. 104. *" Doolittle, In re, 23 Fed. 544, "" Delaware, &c. R. Co. v. Erie R. and United States v. Kane, 23 Fed. Co. 21 N. J. Eq. 298. 748. "'Herrlck v. Miller, 123 Ind. 3(54, "^United States v. Kane, 23 Fed. 24 N. E. 111. 748. "5 See Texas, &c. R. Co. v. Cox, "'Kerr Receivers, 166. 145 U. S. 593, 12 Sup. Ct. 905; Mc- *" Cook V. Citizens' National Bank, Nulta v. Lochbrldge, 141 U. S. 327, 73 Ind. 256. 12 Sup. Ct. 11. A receiver is not *" Richards v. People, 81 111. 551; personally liable for the torts of his 841 LIABILITY OF EECEIVEE& — GENEEALLT. [§ 576 ceiver exercising the franchise of a railroad company shall be held amenable, in his official capacity, to substantially the same rules of liability that are applicable to the company while it exercises the same powers of operating the road.*^* And this is the rule estab- lished by the great weight of modern authority.*^" As has been seen, there is a conflict of authority as to whether this liability can be enforced by suit, or must be asserted by petition in the court by which the receiver was appointed, but the cases are practically unanimous in holding that a receiver who assumes to exercise the rights and powers of a common carrier becomes answerable in his official capac- employes. Kaln v. Smith, 80 N. Y. 458; Cardot v. Barney, 63 N. Y. 281, 20 Am. R. 533; Meara v. Holbrook, 20 Ohio St. 137, 5 Am. R. 633; Klein v. Jewett, 26 N. J. Bq. 474; Brskine v. Mcllrath, 60 Minn. 485, 62 N. W. 1130; Mersey Docks v. Gibbs, 11 H. L. Cas. 686. Nor on contracts properly made in his of- ficial capacity. Walsh v. Raymond, 58 Conn. 251, 20 Atl. 464, 18 Am. St. 264; Livingston v. Pettigrew, 7 Lans. (N. Y.) 405. See, also, Piatt V. New York, &c. R. Co. 170 N. Y. 451, 63 N. E. 532; Schmidt v. Gay- ner, 59 Minn. 303, 62 N. "W. 265. Nor for costs in actions which he prosecutes by direction of court. Columbian Ins. Co. v. Stevens, 37 N. Y. 536; Devendorf v. Dickinson, 21 How. Pr. (N. Y.) 275. But a re- ceiver is personally liable upon un- authorized contracts entered into by him. Ryan v. Rand, 20 Abb. N. Cas. (N. Y.) 313. See, also, Peoria, &c. V. Hickey, 110 Iowa 276, 81 N. W. 473, 80 Am. St. 296 ; Cake v. Mohum, 164 U. S. 311, 17 Sup. Ct. 100. And for wrongful and negligent acts on his part by which loss is occasioned. Ricks v. Broyles, 78 Ga. 610, 3 S. B. 772, 6 Am. St. 280; Carr v. Mor- ris, 85 Va. 21, 6 S. B. 613; Brooks V. Miller, 29 W. Va. 499. See, also, Brwin v. Davenport, 9 Heisk. (Tenn.) 44; Kain v. Smith, 80 N. Y. 458. See, also. State, &c. Bank V. Farming, &c. Co. 118 Iowa 698, 92 N. W. 712; KIrker v. Owings, 98 Fed. 499. He is also liable like any other trustee for profits which he makes out of a use of the money or property belonging to the trust estate. Ryan v. Morrill, 83 Ky. 352; Schwartz v. Keystone Oil Co. 153 Pa. St. 283, 25 Atl. 1018. «»Sprague v. Smith, 29 Vt. 421, 70 Am. Dec. 424; Little v. Dusen- berry, 46 N. J. L. 614, 50 Am. R. 445. ^^i" Blumenthal v. Brainard, 38 Vt. 402, 91 Am. St. 349; Newell v. Smith, 49 Vt. 255; Lyman v. Cen- tral Vermont R. Co. 59 Vt. 167, 10 Atl. 346; Melendy v. Barbour, 78 Va. 544; Toledo, &c. R. Co. v. Beggs, 85 111. 80, 28 Am. R. 613; Heath v. Missouri, &c. R. Co. 83 Mo. 617; Klein v. Jewett, 26 N. J. Eq. 474; Kinney v. Crocker, 18 Wis. 74; Paige V. Smith, 99 Mass. 395; Sloan V. Central Iowa R. Co. 62 Iowa 728, 16 N. W. 331; Farlow v. Kelly, 108 U. S. 288, 2 Sup. Ct. 555; Cowdrey V. Galveston, &c. R. Co. 93 U. S. 352; Brown, Ex parte, 15 S. C. 518. See, also, Wall V. Piatt, 169 Mass. 398, 48 N. E. 270; Burkes v. Ellis, 105 Tenn. 702; Central Trust Co. v. East Tenn. &c. R. Co. 69 Fed. 353. § 577] RECEIVERS. 843 ity for all injuries and losses sustained by persons dealing with him in that capacity to the same extent in general that the corporation would have been liable.*^^ § 577. Liability for torts. — Upon the principle referred to in the preceding section receivers are held liable for damages for personal injuries sustained by passengers*" and employes,*^^ by reason of defects in the road or equipment,*^* or the negligence or misconduct "* Ohio, &c. R. Co. V. Anderson, 10 111. App. 313; Melendy v. Barbour, 78 Va. 544; Brown, Bx parte, 15 S. C. 518; Lyman v. Central Vermont R. Co. 59 Vt. 167, 10 Atl. 346 ; Meara V. Holbrook, 20 Ohio St. 137, 5 Am. R. 633; Klein v. Jewett, 26 N. J. Eq. 474; Sloan v. Central Iowa R. Co. 62 Iowa 728, 16 N. W. 331; Rogers V. Mobile, &c. R. Co. (Tenn.) 12 Am. & Eng. R. Cas. 442; McNulta v. Lockridge, 137 111. 270, 27 N. E. 452, 31 Am. St. 362; note to Naglee v. Alexandria, &c. R. Co. 5 Am. St. 308, 315. "^Newell V. Smith, 49 Vt. 255; Mobile, &e. R. Co. v. Davis, 62 Miss. 271; Dillingham v. Russell, 73 Tex. 47, 11 S. "W. 139, 3 L. R. A. 634, 15 Am. St. 753; Bartlett v. Keim, 50 N. J. L. 260, 13 Atl. 7; Little v. Du- senberry, 40 N. J. L. 614, 50 Am. R. 445; Fullerton v. Pordyee, 121 Mo. 1, 25 S. W. 587, 42 Am. St. 516. But see Cardot v. Barney, 63 N. Y. 281, 20 Am. R. 533. •^Rogers v. Mobile, &c. R. Co. 12 Am. & Eng. R. Cas. 442; Brown, Ex parte, 15 S. Car. 518; Meara v. Hol- brook, 20 Ohio St. 137, 5 Am. R. 633; Sloan v. Central Iowa R. Co. 62 Iowa 728, 16 N. W. 331; Durkin v. Sharp, 88 N. Y. 225. The receiver of a railroad company, who is op- erating the road, cannot escape lia- bility for injuries to his employes owing to the insufficient number of trackmen employed to keep the track in good repair, on the ground that the lack of sufficient trackmen was due to the want of funds in his hands, as the road was not paying running expenses. Graham v. Chap- man, 58 Hun (N. Y.) 602, 11 N. Y. S. 318. It is held in Texas that the receiver is not liable for the death of an em- ploye under a statute giving a right of action against the "proprietor, owner, charter, or hirer" of a rail- road for injuries resulting in death caused by his negligence or that of his employes. Yoakum v. Selph, 83 Tex. 607, 19 S. W. 145; Houston, &c. R. Co. V. Roberts (Tex. Sup.), 19 S. W. 512; Texas Pac. R. Co. v. Col- lins, 84 Tex. 121, 19 S. W. 365. In a joint action against a railroad company and its receiver for the death of a servant, caused by the negligence of the receiver, a recov- ery cannot be had against the com- pany, where the receiver was not primarily liable. Texas Pac. R. Co. V. Collins, 84 Tex. 121, 19 S. W. 365. ™ The fact that the defect existed when the receiver took possession does not relieve him from liability for an injury, caused thereby while he is operating the road. A receiver is as much bound to remedy exist- ing defects which render the opera- tion of the road unsafe, as he is to discover and repair new defects as they arise. Texas, &c. R. Co. v. Geiger, 79 Tex. 13; Bonner v. May- field, 82 Tex. 234, 18 S. W. 305. 843 LIABILITY rOE TORTS. [§ 577 of the receiver's servaBts.*^" Eeeeivers as such have also been held liable for damage or loss of goods entrusted to them for carriage,*^" for injuries inflicted upon travelers,*^' for injuries to stock arising from a failure to fence the road,*^* and, in general, for all damages for torts for which the corporation itself would be liable under similar circum- stances.*^' Where the liability of a railroad company is merely statu- *^A receiver, like any other com- mon carrier, is liable for the dam- ages occasioned by a malicious as- sault upon a passenger by the con- ductor in charge of a train, acting within the scope of his employment. Dillingham v. Russell, 73 Tex. 47, 11 S. W. 139, 3 L. R. A. 634, 15 Am. St. 753. See, also. Hunt v. Conner, 26 Ind. App. 41, 59 N. B. 50. •=» Kansas Pacific R. Co. v. Searle, 11 Colo. 1, 16 Pac. 328; Paige v. Smith, 99 Mass. 395; Kinney v. Crocker, 18 Wis. 74; Newell v. Smith, 49 Vt. 255; Melendy v. Bar- hour, 78 Va. 544. See Mobile, &c. R. Co. v. Davis, 62 Miss. 271; Cowdrey V. Galveston, &c. R. Co. 93 U. S. 352. "'Lehigh Coal, &c. Co. v. Central R. Co. 42 N. J. Eq. 591, 8 Atl. 648; McNulta V. Lockridge, 137 111. 270, 27 N. B. 456, 31 Am. St. 362. *=» Central Trust Co. v. Wabash, &c. R. Co. 26 Fed. 12. See, also, Parrell v. Union Trust Co. 77 Mo. 475, 13 Am. & Bug. R. 'Cas. 552; Brockert v. Central Iowa R. Co. 82 Iowa 369, 47 N. W. 1026. It was held by the Supreme Court of Mis- souri in the case of Combs v. Smith, 78 Mo. 32, that an action may be maintained against the receiver of a corporation for a tort committed by the corporation or its servants before his appointment. And Judge Caldwell, in Dow v. Memphis, &c. R. Co. 20 Fed. 260, held that where the bill for foreclosure was filed more than a year after default in the pay- ment of the mortgage debt, the re- ceiver should be required to pay out of the earnings of the road, all debts due from the railroad company for operating expenses, including dam- ages for injuries to persons or prop- erty, for a period of six months prior to the appointment of the re- ceiver. See Miltenberger v. Logans- port R. Co. 106 U. S. 286, 1 Sup. Ct. 140. And some states have statutes prohibiting any railway company from creating mortgage liens which shall be superior to judgments for injuries to persons or property. But the weight of authority hold that, in the absence of statutory provisions on the subject, the owner of a judgment in tort for injuries to person or property infiicted in the operation of the railroad before the receiver was appointed is merely a general creditor of the corporation, and, as such, is not entitled to any priority of payment over the mort- gagees. Central Trust Co. v. Bast Tennessee, &c. R. Co. 30 Fed. 895; Farmers' Loan, &c. Co. v. Green Bay, &c. R. Co. 45 Fed. 664; Dexter- ville, &c. Mfg. Co., In re, 4 Fed. 873. See Frazier v. Bast Tennessee, &c. R. Co. 88 Tenn. 138, 12 S. W. 537. ™ In Klein v. Jewett, 26, N. J. Eq. 474, Van Fleet, V. C, speaking for the court, said: "A receiver operat- ing a railroad under the order of a court of equity stands, in respect to duty and liability, just where the corporation would if it were operat- ing the road. * * * Whether the § 577] EECEIVKES. 844 tory, however, it does not always follow that its receiver will also be liable to the same extent, for the statute may not embrace receivers within its terms or meaning. Thus, it has been held that a receiver is not a ''proprietor, owner, charterer or hirer" of a railroad within the meaning of a statute giving a right of action for damages on ac- count of injuries, resulting in death, caused by the negligence of any person of the class designated or his servants or agents.*^" So, it has been held that a statute providing that certain persons engaged in the service of any railway corporation shall be deemed vice-principals and that certain other persons engaged in such service shall be deemed fellow servants, does not apply to the employes of the receiver of such a corporation.*^^ But, on the other hand, it has been held that a statute making railroad companies liable for injuries to an employe, caused by the negligence of coemployes of a certain class, applies to a receiver of such a company and his employes.*^ ^ No general rule can be laid down upon this subject, but we think that, ordinarily, such a statute applying to railroad companies would also apply to their receivers engaged in the operation of the road. The question receiver is regarded as the oflBcer of the law or the representative of the proprietors of the corporation or its creditors, or as combining all these characters, he is entrusted with the powers of the corporation and must, therefore, necessarily be bur- dened with its duties and liabilities. There can be no such thing as an ir- responsible power, exerting force or authority, without being subject to duty, under any system of laws framed to do justice. It is an in- separable condition of every grant of power by the state, whether ex- pressed or not, that it shall be prop- erly exercised, and that the grantee shall be liable for injuries result- ing directly and exclusively from his negligence." •» Turner v. Cross, 83 Tex. 218, 18 S. W. 578, 15 L. R. A. 262; Dilling- ham V. Blake (Tex.), 32 S. W. 77; Allen V. Dillingham, 60 Fed. 176; Burke v. Dillingham, 60 Fed. 729. But see Murphy v. Holbrook, 20 Ohio St. 137, 5 Am. R. 633. *" Campbell v. Cook, 86 Tex. 630, 26 S. W. 486, 40 Am. St. 878, 59 Am. & Eng. R. Cas. 482, distinguishing Church of Holy Trinity v. United States, 143 U. S. 457, 12 Sup. Ct. 511. ™Hornsby v. Eddy, 56 Fed. 461; Rouse V. Harry, 55 Kans. 589, 40 Pac. 1007; Union Trust Co. v. Thomason, 25 Kans. ,1; Peirce v. Van Dusen, 78 Fed. 693, 24 C. C. A. 280, 69 L. R. A. 705. See, also, Eddy v. Lafayette, 163 U. S. 456, 16 Sup. Ct. 1082. But see Beeson v. Busenbark, 44 Kans. 669, 25 Pac. 48, 10 L. R. A. 839; Henderson v. Walker, 55 Ga. 481; Campbell v. Cook, 86 Tex. 630, 26 S. "W. 486, 40 Am. St. 878. A stat- ute of limitations in favor of the company has also been held appli- cable in an action against the re- ceiver. Bartlett v. Keim, 50 N. J. L. 260, 13 Atl. 7. 845 MANDAMUS TO COMPEL AOTIOir. [§' 578 I can only be determined, however, by a reference to the terms and pur- pose of the particular statute under consideration in each case.*'* § 578. Receiver is bound to perform duties to public — ^Mandamus. — A receiver is also bound, in general, to perform the public duties imposed" by law upon the corporation whose franchises he is exercis- ing. It has been held that he may be compelled, by mandamus, to con- struct a crossing which the railroad company has neglected or refused to build;*'* but the general rule is that a receiver will not be com- pelled to operate the road or perform a similar public duty by man- damus, both because the court which appointed him may order and compel him to do so, and mandamus usually lies only when there is no other adequate and simple remedy, and because another court will not interfere with the court which appointed him.*'^ The court which appointed him may compel him to perform such duty, and it has been held that the failure of the court to provide funds with which to perform it is not a good excuse for failing to obey the order of the aourt.*'° There may be public duties, however, not connected with the operation of the road, which the company, rather than the receiver, is still obliged to perform, and where the duties are statutory the terms of the statute may be such as not to include receivers, although they will generally be required to perform such public duties connected with the operation of the road as the company was obliged to perform. The fact that the receiver is empowered by statute to operate the rail- road for the use of the public does not make him a public officer, so as' to destroy this liability.*'^ The duty of operating the road imposed on the receiver by such a statute is the same duty to the public which is imposed upon every railroad corporation acting under statutory au- thority. Its object is to secure the continued operation of the road as a commcTn carrier with the same rights and subject to the same liabilities as before the railroad corporation became insolvent. But it seems that where a road cannot be operated except at a loss, and the franchise has become forfeited, the receiver may be permitted by the court to dismantle it and sell the rails, after repeated attempts and *" See post, § 1341. *»» Peckham v. Dutchess, &c. R. Co. "*Fort Dodge v. Minneapolis, &c. 145 N. Y. 385, 40 N. E. 15. R. Co. 87 Iowa 389, 54 N. W. 243, 55 «' Little v. Dusenberry, 46 N. J. L. Am. & Eng. R. Cas. 58. 614, 50 Am. R. 445, 25 Am. & Bng. ""State V. Marietta, &c. R. Co. 35 R. Cas. 632. But see Hopkins v. Ohio St. 154. Connel, 2 Tenn. Ch. 323. § 579] RECEIVERS. 846 failure to sell the road, and that a purchaser who held receivers' certificates is not bound to reconstruct and operate it.*^'* § 579. liability on contracts. — The receiver, as a general rule, cannot be compelled to perform a contract of the corporation, where no lien was created in favor of the other contracting party.*'* Where, however, a receiver continued to use a right of way, which had been obtained by the company in consideration of an agreement by it to pay the owner a certain sum each month for the use of water from a spring upon his land, it was held that the receiver was bound to perform the contract so long as he used the right of way.*'" And he may become liable as receiver by adopting advantageous contracts.**" It is improper for a receiver to contract for supplies with a company composed of the superintendent and other officers of the railroad company for which he is the receiver, but he may give an unusually low rate of freight in order to introduce into general use a cheap and valuable article, which, if brought into general demand, would add greatly to the freight receipts of the road.**^ The liability of a re- ceiver, as such, upon contracts made by him in the course of the re- ceivership, depends, of course, very largely upon the nature and terms of the contract and his authority to make it, although there are cases in which the court will aiford relief to one who has con- tracted with a receiver who had no authority to enter into the eon- *"a See State v. Jack, 145 Fed. 281, solve the company from liability for affirming 113 Fed. 823.; Northern consequent breaches of its contracts. Pac. R. V. Washington Ter. 142 U. Brown v. Warner, 78 Tex. 543, 14 S. S. 492, 12 Sup. Ct. 283. W. 1032, 11 L. R. A. 394. 22 Am. St. *=> Express Co. v. Railroad Co. 99 67. U. S. 191. See, also. Central Trust ™Howe v. Harding, 76 Tex. 17, Co. v. East Tenn. &c. Co. 79 Fed. 19; 13 S. W. 41, 1 Lewis Am. R. & Corp. General Electric Co. v. Whitney, 74 R. 502. Fed. 664; U. S. Trust Co. v. Wabash, ""Whightsel v. Felton, 95 Fed. &c. R. Co. 150 U. S. 287, 14 Sup. Ct. 923; St. Joseph, &c. R. Co. v. Hum- 86; Southern Iron Car Line v. East phreys, 145 U. S. 105, 12 Sup. Ct. Tenn. &c. R. Co. (Tenn. Ch.) 42 S. 795; Woodruff v. Erie R. Co. 93 N. W. 529. The receiver of a railroad Y. 609; Wells v. Higgins, 132 N. Y. company is not liable for removing 459, 30 N. E. 861; Mercantile Trust, a switch, which the company had &c. Co. v. Southern, &c. Co. 113 Ala. agreed to maintain, where he has 543, 21 So. 373; De Wolf v. Royal not adopted the company's contract Trust Co. 173 111. 435, 50 N. E. 1049. as his own, for his appointment and *" Clarke v. Central R. &c. Co. 66 acts in managing the property, as Fed. 16. an officer of the court, do not ab- 847 CLAIMS ARISING FROM OPERATION OF ROAD. [§ 580 tract.**^ The receiver is not personally liable, under ordinary cir- cumstances, to one who contracts with him as receiver in regard to matters connected with his trust.**' § 580. Liability on claims arising from operation of the road. — The official liability of the receiver for claims arising from the opera- tion of the road ceases with his final discharge.*** But provision is usually made in the order discharging him, for the payment of such claims either by the railroad company or by the purchasers of the property.**^ The expenses attending the operation of the road by the receiver may properly constitute a first claim upon all moneys received from such operation, superior to the lien of mortgage cred- itors.**" Claims for damages to persons or property arising from the operation of the road are classed as operating expenses, and are en- titled as such to priority of payment over mortgage bonds.**^ So, *« See ante, § 567. ""Livingston v. Pettigrew, 7 Lan- sing (N. Y. Sup. Ct.) 405; Newman V. Davenport, 9 Baxter (Tenn.) 538; Ellis V. Little, 27 Kans. 707, 41 Am. R. 434. "* Davis V. Duncan, 19 Fed. 477; Farmers' Loan, &c. Co. v. Central R. Co. 7 Fed. 537; Archambeau v. Piatt, 173 Mass. 249, 53 N. E. 816; Ryan, v. Hays, 62 Tex. 42; Mobile, &c. R. Co. V. Davis, 62 Miss. 271. An order of a federal court discharging the receiver, restoring the property to the company without foreclosure, and requiring that all claims against the receiver shall be presented to th» court before a given date, in de- fault whereof they shall be barred, does not, in view of the judiciary act of 1887-88, making receivers lia- ble to suit in any competent court without leave of the appointing court, prevent the subsequent recov- ery in a state court of a judgment in personam for personal injuries, or its enforcement by the same court. Texas, &c. R. Co. v. Johnson, 151 U. S. 81, 14 Sup. Ct. 250. "° See Farmers' Loan, &c. Co. v. Central R. Co. 7 Fed. 537; Texas, &c. R. Co. v. Adams, 78 Tex. 372, 14 S. W. 666, 22 Am. St. 56. ""Mobile, &c. R. Co. v. Davis, 62 Miss. 271; Brown, Ex parte, 15 S. Car. 518; Texas, &c. R. Co. v. John- son, 76 Tex. 421, 13 S. W. 463, 18 Am. St. 60; Eastern and Midland R. Co., In re, L. R. 45 Ch. D. 367, 45 Am. & Bng. R. Cas. 71; Clark v. Central R. &c. Co. 66 Fed. 803 ; Wal- lace V. Loomis, 97 U. S. 146; Beach Receivers, §§ 366, 367. "' Brown, Ex parte, 15 S. Car. 518; Klein v. Jewett, 26 N. J. Eq. 474; Mobile, &c. R. Co. v. Davis, 62 Miss. 271; Cowdrey v. Galveston, &c. R. Co. 93 U. S. 352; Green v. Coast Line, &c. R. Co. 97 Ga. 15, 24 S. B. 814, 54 Am. St. 379, and note; South Carolina, &c. R. Co. v. Carolina, &c. R. Co. 93 Fed. 543. But see At- lantic, &c. Co. V. Dana, 128 Fed. 209. Such claims must be paid, in the first instance, out of the income of the property. But if that prove in- sufficient, payment may be made out of the proceeds arfsing from a sale § 581] RECEIVERS. 848 also, are rents accruing during the receivership upon rolling stock held by the corporation under a conditional sale*^' together with the cost of necessary supplies*^' and the wages of employes. *°'' Where the receiver undertakes the operation of another road than that over which he was appointed, under a lease, he assumes the same liability as any other lessee; and the fact that the contract of lease was entered into with the permission of the court does not remove such liability, where the act of the receiver in making it was purely voluntary.*^ ^ §■ 581. Liability of corporation. — The corporation itself is not or- dinarily, under the authorities, held liable either civilly*^^ or of the road. Union Trust Co. v. Illinois Midland R. Co. 117 U. S. 434, 6 Sup. Ct. 809. "'Kneeland v. American L. & T. Co. 136 U. S. 89, 10 Sup. Ct. 950; Eastern aiid Midland R. Co., In re, L. R. 45 Ch. D. 367, 45 Am. & Eng. R. Cas. 71; Woodrufe v. Erie R. Co. 93 N. Y. 609; Beach Receivers, § 372. As to prior accrued instalments due upon such rolling stock at the time the receiver was appointed, the ven- dors are simply general creditors. Fidelity Ins. Co. v. Shenandoah Val- ley R. Co. 86 Va. 1, 9 S. E. 759, 19 Am. St. 858; Kueeland v. American L. & T. Co. supra; Thomas v. Peoria, &c. R. Co. 36 Fed. 808. ""Williamson v. Washington City, &c. R. Co. 33 Gratt. (Va.) 624; Po- land v. Lamoille Valley R. Co. 52 Vt. 144; Kneeland v. Bass Foundry, &c. Works, 140 U. S. 592, 11 Sup. Ct. 857; Burnham v. Bowen, 111 U. S. 776, 4 Sup. Ct. 675; see post, § 590. ""Hoover v. Montclair, &c. R. Co. 29 N. J. Eq. 4; Meyer v. Johnston, 53 Ala. 237; Langdon v. Vermont, &c. R. Co. 54 Vt. 593; McLane v. Placerville, &c. R. Co. 66 Cal. 606, 6 Pac. 748; Union Trust Co. v. Il- linois Midland R. Co. 117 U. S. 434, 6 Sup. Ct. 809; Cowdrey v. Galves- ton, &c. R. Co. 93 U. S. 352; Stanton V. Alabama, &c. R. Co. 2 Woods (U. S.) 506; Kennedy v. St. Paul, &c. R. Co. 2 Dill. (U. S.) 448. " «' Kain v. Smith, 80 N. Y. 458. *=^ Godfrey v. Ohio, &c. R. Co. 116 Ind. 30, 37 Am. & Eng. R. Cas. 8; Ohio, &c. R. Co. V. Davis, 23 Ind. 553, 85 Am. Dec. 477; Memphis, &c. R. Co. V. Hoechner, 67 Fed. 456; Kansas Pac. R. Co. v. Wood, 24 Kans. 619; Turner v. Hannibal, &c. R. Co. 74 Mo. 602 ; Stevens v. Atchi- son,' &c. R. Co. 87 Mo. App. 26; Ohio, &c. R. Co. V. Russell, 115 111. 52, 3 N. E. 561; McNulta v. Lock- ridge, 137 111. 270, 27 N. E. 452, 31 Am. St. 362; Kansas Pac. R. Co. v. Searle, 11 Colo. 1, 16 Pac. 328; Kan- sas, &c. R. Co. v. Dorough, 72 Tex. 108, 10 S. W. 711; Thurman v. Cherokee R. Co. 56 Ga. 376; Mem- phis, &c. R. Co. V. Stringfellow, 44 Ark. 322, 51 Am. R. 598; Erwin v. Davenport, 9 Heisk. (Tenn.) 44; Metz V. Buffalo, &c. R. Co. 58 N. Y. 61, 17 Am. R. 201; Davis v. Duncan, 19 Fed. 477. See, also. Chamber- lain V. New York, &c. R. Co. 71 Fed. 636; Sibson v. Hamilton, &c. Co. 21 Wash. 362, 58 Pac. 219; Missouri, &c. R. Co. V. Wood (Tex.), 52 S. W. 93; and Archambeau v. New York, &c. R. Co. 170 Mass. 272, 49 N. E. 435 (citing text). But the posses- sion of the receiver must usually be 849 LIABILITY OF COEPOKATION. [§ 581 criminally*^^ for any acts or upon any contracts of a receiver who has full possession of its property and entire charge of its affairs. Where, however, the receiver has used money which should have been applied to the payment of plaintiff's claim in the purchase of property which is afterward surrendered to the corporation upon the receiver's discharge, it seems that a court of equity will hold the corporation liable for such claim to the extent of the property so received by it.*°* The corpora- tion, it has been held, continues liable for taxes imposed upon its prop- erty or business while managed by a receiver.*^^ And where the duty of exclusive in order to exonerate the company, and It should not hold it- self out to the public as operating the road. Railroad Co. v. Brown, 17 Wall. (U. S.) 445. And there are other cases in which the company has been held liable, as where the receiver was collusively appointed or the profits were invested in bet- terments. See Texas, &c. R. Co. v. Gay, 86 Tex. 571, 26 S. W. 599, 25 L. R. A. 52; Holman v. Galveston, &c. R. Co. 14 T&x. Civ. App. 499, 37 S. W. 464; Houston, &c. R. Co. v. McFadden, 91 Tex. 194, 40 S. W. 216. 42 S. W. 593; Stewart v. Railroad Co. 8 Ohio N. P. 179. ">" State V. Wabash, &c. R. Co. 115 Ind. 466, 17 N. E. 909, 1 L. R. A. 179. «• The net earnings of the road in the hands of the receiver are charge- able with the expenses of operating the road, including injuries to per- sons and property. And where such earnings have been diverted to the purchase of property and permanent improvements equity will follow them. Mobile, &c. R. Co. v. Davis, 62 Miss. 271; Texas, &c. R. Co. v. Johnson, 76 Tex. 421, 13 S. W. 463, 18 Am. St. 60, and note; Texas, &c. R. Co. V. White, 82 Tex. 543, 18 S. W. 478; Houston, &c. R. Co. v. Crawford, 88 Tex. 277, 31 S. W. 176, 28 L. R. A. 761, 53 Am. St. 572; Garrison v. Texas, &c. R. Ell. Railed ads — 54 Co. (Tex.) 30 S. W. 725; Texas, &c. R. Co. V. Bloom, 60 Fed. 979. See, also, Texas, &c. R. Co. v. Johnson, 151 U. S. 81, 60 Am. & Eng. R. Cas. 496, and note; Texas, &c. R. Co. v. Bloom, 164 U. S. 636, 17 Sup. Ct. 216; Brunner, &c. Co. v. Central, &c. Co. 18 Ind. App. 174, 47 N. E. 686. But where there is no evi- dence that earnings have been di- verted to the betterment of the road, an instruction that the company is not liable is proper. Texas, &c. R. Co. V. Hoffman, 83 Tex. 286, 18 S. W. 741. Rights of other parties may sometimes prevent the applica- tion of the doctrine stated in the text, and it is one not ,to be care- lessly applied. It is possible that the court went too far in some cases cited, but we believe the doctrine is just and equitable. «= Philadelphia, &c. R. Co. v. Com- monwealth, 104 Pa. St. 80. In this case, the court held the defendant liable for a tax upon the gross re- ceipts coming into the hands of the receiver. The court said: "If the owner of this property was not to bear the burden of the public charges against it, we are at a loss to determine upon whom they should fall. The receivers, the ap- pointees of the United States Cir- cuit Court, were owners neither of these receipts nor of the property whence they were derived, and they § 582] EEOBIVEES. 850 a railroad corporation to erect fences along its line is made absolute by statute, the corporation may be held liable for damages resulting from a failure to maintain such fences while a receiver is in charge of its property.*"* The appointment of a receiver does not relieve the corpo- ration from the consequences of any neglect of duty in theoriginal con- struction or subsequent maintenance of its road, but it may be held lia- ble for damages directly traceable to its fault, even though they accrue during the receivership. Thus, a corporation is liable for damages re- sulting from the flooding of land caused by the negligent construction of one of its culverts, although the overflow occurred while the road was in the hands of a receiver.*"^ § 582. Keceivers of leased lines. — A receiver may, with the con- sent of the lessors, continue in possession of leased lines operated by the insolvent corporation, but his appointment as receiver does not necessarily make him an assignee of the leases so as to give the rentals priority over the mortgages.*^* And where the road is operated under were not personally accountable for the taxes upon them. The decree of the circuit c(j,urt made no change in the title to this property. * * * The commonwealth was entitled to her taxes, and that the owner of the property taxed should be made to pay the charges upon it is a conclu- sion that is but just and reasona- Ijle." In New York, where the prop- erty of an insolvent corporation has been sequestrated, and is in the hands of a receiver appointed in a foreclosure proceeding who has In his hands money derived from its gross earnings sufficient to pay the taxes, — a direct application for an order on him for payment may be made to the court in the foreclosure proceeding, by the attorney-general by petition, making the corporation and the receiver parties. Central Trust Co. V. New York City, &c. R. Co. 110 N. Y. 250, 18 N. B. 92, 1 L. R. A. 260, 13 Cent. 404, 18 N. Y. S. 30, 4 R. & Corp. L. J. 462. *° Louisville, &c. R. Co. v. Cauble, 46 Ind. 277; Ohio, &c. R. Co. v. Fitch, 20 Ind. 498; Kansas, &c. R. Co. v. "Wood, 24 Kans. 619; Ohio, &c. R. Co. V. Russell, 115 111. 52, 3 N. E. 561. It seems to us, however, that where the receiver has possession and entire and exclusive control of the road and all its assets, the re- ceiver rather than the corporation should be sued when the injury is caused by his own failure to fence, unless the terms of the statute are such as to require a different rule. «' Union Trust Co. v. Cuppy, 26 ' Kans. 754; Kansas Pacific R. Co. v. Wood, 24 Kans. 619. But the re- ceiver is also liable for maintaining the nuisance erected by the corpora- tion. Union Trust Co. v. Cuppy, supra. «= Central Trust Co. v. Wabash, &c. R. Co. 34 Fed. 259; ante, § 567. Rent accrued under a railroad lease prior to the appointment of receiv- ers for the lessee is an unsecured liability entitled to no priority. New York, &c. R. Co. v. New York, &c. R. 851 EECEIVEES OF LEASED LINES. [§' 582 an order of court directing separate accounts to be kept with the leased lines, and expressly recognizing the right of the lessors to take possession of the leased lines for non-payment of rent upon making proper application therefor, the lessors cannot assert such a lien against the earnings of the general system.*^* The fact that the leased line was held subject to resumption of control by the lessors at any time negatives the claim that the rental was a necessary expense originating in the course of the receiver's administration.**" And where it appears that the earnings of the road did not suffice to pay for necessary labor and supplies used in operating the road, no equity can arise for the payment of rental on the theory of diverted earn- ings.*®^ On the other hand, where the court appoints receivers for a company, for the benefit of that company and its creditors, no part of the expenses of the receivership are chargeable against the property of another road, leased by the insolvent company, the receivership not being for the benefit of the lessor or its creditors.*'^ In proceed- ings to compel a receiver in a foreclosure suit to pay rent for use of tracks and terminal facilities, where the amount of rent was left uncertain, a contract between other parties, oppressive in its terms, is not a test of the amount of rent which the receiver should pay; and it not being shown that the sum paid by the receiver was in- sufficient, the dismissal of the proceedings was proper.*'^ It has been Co. 58 Fed. 268. But there may be v. Wabash W. R. Co. 150 U. S. 287, a liability for rentals by adoption. 14 Sup. Ct. 86; Seney v. Wabash W. Central Trust Co. v. Continental, &o. R. Co. 150 U. S. 310, 14 Sup. Ct. 94; Co. 86 Fed. 517; Miltonberger v. Lo- United States Trust Co. v. Wabash, gansport, &c. R. Co. 106 V. S. 286, 1 &c. R. Co. 150 TJ. S. 287, 14 Sup. Ct. Sup. Ct. 140. See, also, Thomas v. 86, 60 Am. & Eng. R. Cas. 480; ante. Western Car Co. 149 U. S. 95, 60 Am. § 567. See, also, Johnson v. Lehigh, & Eng. R. Cas. 443. &c. Co. 130 Fed. 932. «=Quincy, &c. R. Co. v. Hum- «»Quincy, &c. R. Co. v. Hum- phreys, 145 U. S. 82, 12 Sup. Ct. 787. phreys, 145 U. S. 82, 12 Sup. Ct. 787. A railroad receiver, even though ap- *»' Quincy, &c. R. Co. v. Hum- pointed on the petition of the com- phreys, 145 U. S. 82, 12 Sup. Ct. 787 ; pany itself, and for the express pur- Park v. New York, &c. R. Co. 57 Fed. pose of preventing the disintegra- 799. See, also. Cox v. Terre Haute, tion of the system, does not become &c. R. Co. 133 Fed. 371. liable for rentals upon leased lines, *"" Brown v. Toledo, &c. R. Co. 85 eo instanti, by the mere act of tak- Fed. 444. Ing possession, but is entitled to a "'Peoria, &c. R. Co. v. Chicago, reasonable time to ascertain the sit- &c. R. Co. 127 U. S. 200, 8 Sup. Ct. uation of affairs and determine 1125. what to do. United States Trust Co. § 583] ^ BECEIVEES. 852 held, however, that receivers who take possession of cars held by an insolvent railroad company under a lease, with full authority to do , so, and operate the cars with full knowledge of the lease and the burdens assumed by the company, are bound by the lease as as- signees of the company.*"* It has also been held that the court has power, on consulting the receivers, and without notice to the mort- gagees, to order the lease of another road which is found necessary to the profitable management of the mortgaged property, and to undertake the payment of rent for its use.*"° § 583. Receiver's accounts. — Since a receiver is only the minis- terial officer of the court by which he was appointed, deriving his authority from its orders,*"^ he is required to render to the court a strict account of his management of the trust.*"' These accounts must be made at such times as the court may direct,*"' and a failure to render an account when required may be cause for the removal of the receiver.*"' The court, at the instance of a party interested, will compel the receiver to render an account at the appointed time.*'" The receiver's accounts are usually referred to a master,*'^ whose action in passing them is held to be judicial rather than ministerial,*'^ *"Easton v. Houston, &c. R. Co. Stimson Am. Stat. (1892), citing 38 Fed. 784; Sparhawk v. Yerkes, laws of New York, Ohio, Michigan, 142 U. S. 1, 13, 12 Sup. Ct. 104; Mississippi and Nebraska. Woodruff V. Brie R. Co. 93 N. Y. *» Mahry v. Harrison, 44 Tex. 286. 609; Otis, In re, 101 N. Y. 580, 585, See, also, De Winton v. Brecon, 28 5 N. B. 571. Beav. 200; Adams v. Woods, 8 Cal. *|» Mercantile Trust Co. v. Missou- 306. ri, &c. R. Co. 41 Fed. 8, 43 Am. & *" Bertie v. Lord Abingdon, 8 Eng. R. Cas. 469. See United States Beav. 53. So declared by statute in Trust Co. V. Wabash, &c. R. Co. 150 New York: Rev. Stat. Part 3, Ch. 4, U. S. 287, 14 Sup. Ct. 86, 60 Am. & Tit. 2, § 42. Eng. R. Cas. 480. *™ Adams v. Woods, 8 Cal. 306; *"■ A receiver cannot question the Lowe v. Lowe, 1 Tenn. Ch. 515. An order of the court in reference to action at law for default of a re- the trust property in his hands, ceiver cannot be maintained against Herrick v. Miller, 123 Ind. 304, 24 his sureties before an accounting. N. E. 111. French v. Dauchy, 134 N. Y. 543, 31 "'Hooper v. Winston, 24 111. 353; N. B. 1041. Akers v. Veal, 66 Ga. 302. See, also, *" Foster Federal Practice 383, as to when an account should be ap- § 257. proved. Heffron v. Rice, 149 111. 216, - "" Cowdrey v. Railroad Co. 1 36 N. E. 562, 41 Am. St. 271. Provi- Woods (U. S.) 331, affirmed In Gal- sion for an accounting by receivers veston R. v. Cowdrey, 11 Wall. (U. is made by statute in several states. S.) 459. 853 COMPENSATIOIT OF EECEIVEKS. [§ 584 and may render the accounts so passed proof against collateral at- tack.*" The books, contracts and accounts of a receiver are in the cus- tody of the law, and bondholders, stockholders or creditors are en- titled, upon reasonable application, to the privilege of inspecting them.*''* Although no appeal ordinarily lies in favor of a receiver from an order of court made with reference to trust property in the receiver's hands,*^® he may appeal from a judgment of the court erroneously fixing the amount of property in his hands, and directing him to turn over more than he has in his custody, or from a final decree ascertaining the balance for which he is liable.*'"' §584. Compensation of receiver. — ^Receivers are allowed compen- sation for services rendered in the proper discharge of their duties as officers of the court, and it has been said that an order should not be made directing the receiver to pay over the entire fund in his hands without in some way providing for the payment of his com- missions.*'^ The receiver's compensation is payable out of the assets in his hands,*''^ and it has been held that a receiver who has been ™ Farmers' Loan, &c. Co. v. Cen- tral R. Co. 1 MoCrary (U. S.) 352, 2 Fed. 751. Unless exceptions to the receiver's account are first taken be- fore the master, and the receiver is given an opportunity to sustain his report by any additional evidence at his command the federal courts will decline to consider them when taken before the court. Cowdrey v. Rail- road Co. 1 Woods (U. S.) 331, af- firmed in Galveston R. v. Cowdrey, 11 Wall. (U. S.) 459. It has been held, however, that the receiver of a corporation to which lands were fraudulently conveyed may be com- pelled, in an action for fraud, to ac- count for rents and profits received by him from such lands, after his accounts as receiver have been ap- proved in court, and he has been discharged. Pondir v. New York, &c. R. Co. 72 Hun (N. Y.) 384, 25 N. Y. S. 560, 31 Abb. N. C. 29. '"Jones Corporate Bonds & Mort- gages, § 531, citing Fowler's Peti- tion, 9 Abb. N. C. (N. Y.) 268; La- fayette Co. V. Neely, 21 Fed. 738. In New York the statute provides that the receiver's accounts, statements, and all books and papers of the cor- poration in the hands of such re- ceiver, shall, at all reasonable times, be open for the inspection of all persons having an interest therein. Rev. Stat. Part 3, Ch. 4, Tit. 2, § 42. *" Herrick v. Miller, 123 Ind. 304, 24 N. E. 111. *™ Hinckley v. Oilman, &c. R. Co. 94 U. S. 467; Hovey v. McDonald, 109 U. S. 150, 3 Sup. Ct. 136; How v. Jones, 60 Iowa 70, 14 N. W. 193; Adair County v. Ownby, 75 Mo. 282. "'Weston V. Watts, 45 Hun (N. Y.) 219. '"Hayes v. Ferguson, 83 Tenn 1, 54 Am. R. 398; Jaffray v. Raab, 72 Iowa 335; Seligman v. Laussy, 60 Ga. 20; Beckwith v. Carroll, 56 Ala. 12; Ferguson v. Dent, 46 Fed. 88; Izard, Ex parte, L. R. 23 Ch. Div. 75; High Receivers (3d ed.), § 796. 584] EEOEIVEES. 854 legally and properly appointed cannot be compelled to accept a judg- ment against the person procuring his appointment in payment for his services.*'" Where the funds in court are not sufficient to ade- quately compensate the receiver, the person procuring his appointment may be compelled to pay him in a proper case.**" The rate of com- pensation is fixed by statutes applying to certain classes of receiver- ships in some of the states,**^ and where it is so fixed that rate must be allowed, regardless of the value of the services rendered.**^ But the rule in England**^ and in the United States, in all eases in which the compensation is not definitely fixed by law,*** is that the amount of compensation to be allowed is a matter within the sound discretion of the court by whom the receiver was appointed, and is to be governed by the particular circumstances of the case.**^ Where the duties of the "» Radford v. Folsom, 55 Iowa 276, 7 N. "W. 604. In Hoppensack v. Hop- pensack, 61 How. Pr. (N. Y.) 498, it was held that the receiver, being an oflBcer of the court, must be com- pensated out of the funds In the hands of the court, and that the owner thereof, in case they were wrongfully taken, must look to the person who procured the appoint- ment of the receiver for redress. But the weight of authority favors the rule that a receiver who is im- properly appointed and whose ap- pointment is set aside, must look only to the plaintiff for remunera- tion. Weston V. Watts, 45 Hun (N. Y.) 219; French v. Glfford, 31 Iowa 428; Moyers v. Coiner, 22 Fla. 422. Periodic allowances or payments he- fore the termination of the receiver- ship are frequently made. See Cow- drey V. Railroad Co. 1 Woods (U. S.) 331; Martin v. Martin, 14 Oreg. 165, 12 Pac. 234; Henry v. Henry, 103 Ala. 582, 15 So. 916; Neave v. Douglas, 26 L. J. Ch. 756; Wilkin- son V. Washington, &c. Co. 102 Fed. 28; Battery, &c. Bank v. Western, &c. Bank, 126 N. Car. 531, 36 S. E. 39. *™Tome V. King, 64 Md. 166, 21 Atl. 279; Chapman v. Atlantic, &c. Co. 119 Fed. 257; Ephraim v. Pa- cific Bank, 129 Cal. 589, 62 Pac. 177; Farmers' Nat. Bank v. Backus, 74 Minn. 264, 77 N. W. 142. «'20 Am. & Eng. Ency. of Law 169. *=■ Price V. White, 1 Bailey Eq. (S. Car.) 240. A court cannot allow a greater compensation than the per cent upon funds passing through the receiver's hands, which the stat- ute fixes as his compensation. Ori- ent Mut. Ins. Co., In re, 66 Hun (N. Y.) 633, 21 N. Y. S. 237. "»High Receivers (3d ed.), § 782; Beach Receivers, § 760. "* United States Trust Co. v. New York, &c. R. Co. 101 N. Y. 478, 5 N. E. 316. Some states provide by statute that the court shall make a proper allowance to the receiver by way of compensation. Stimson Am. Stat. (1892), § 8367, citing laws of Indiana, Mississippi, Ohio, Michi- gan; Rev. Stat. Me. 1883, Ch. 51, § 51; Gen. Stat. R. I. Ch. 140, § 46; Code Va. 1887, § 3411. ""Cowdrey v. Railroad Co. 1 Woods (tr. S.) 331; Jones v. Keen, 115 Mass. 170; Day v. Croft, 2 Beav. (Eng.) 488; Crumllsh's Admr. 855 COMPENSATIOlSr OI" EECEIVERS. [§ 584 receiver are very slight,**" or where one of the parties in interest serves as receiver to protect his own interests,**' the court may be justified in granting him little or no compensation. And in case the duties of a receiver prove more arduous than he or the court expected he may be allowed compensation in addition to that fixed by the order under which he was appointed.**' If the receiver's duties are im- T. Shenandoah, &c. R. Co. 40 W. Va. 627, 22 S. B. 90; Northern Ala. R. Co. v. Hopkins, 87 Fed. 505; Sher- ley v. Mattlngly, 21 Ky. L. 289, 51 S. W. 189; Geyser Mm. Co. v. Salt Lake Bank, 16 Utah 163, 51 Pac. 151. Sometimes he Is given the same compensation as the president of the road, and his duties and re- sponsibilities may be such as to entitle him to even greater com- pensation. Central Trust Co. v. Wabash, &c. R. Co. 32 Fed. 187, 188. Receivers of railroads are fre- quently allowed as much as $10,000 a year. See 1 Foster's Fed. Pr. § 258; 2 Beach Mod. Eq. Pr. § 739. '^ Marr v. Littlewood, 2 M. & Craig (Eng.) 454. A railroad receiver, re- siding at a distance from the prop- erty, who entrusts the active man- agement to others, will not be al- lowed the full compensation usually paid to railroad presidents and re- ceivers who are the active executive heads of going railroads. Central Trust Co. of New York v. Cincin- nati, &c. R. Co. (C. C.) 58 Fed. 500. See, also, Boston, &c. Co. v. Cham- berlain, 66 Fed. 847. «' Steel V. Holladay, 19 Greg. 517, 25 Pac. 77; Berry v. Jones, 11 Heisk. (Tenn.) 206, 27 Am. R. 742; Blake- ney v. Dufaur, 15 Beav. (Eng.) 40. «8 Farmers' Loan, &c. Co. v. Cen- tral R. Co. 8 Fed. 60; Adams v. Has- kell, 6 Cal. 475; Stuart v. Boul- ware, 133 tr. S. 78, 10 Sup. Ct. 242. In Farmers' Loan, &c. Co. v. Central R. Co. supra, the opinion was ex- pressed that a receiver should be allowed compensation in case he performs duties in addition to those ordinarily required of a receiver, and he was allowed a fee for serv- ices as counsel. But in other cases where claims have been made by receivers for compensation for legal services rendered while acting as such, the claims have been disal- lowed and the opinion expressed that a receiver acting also in other capacities should be paid for his services in the capacity of receiver only. This rule is based upon the public policy which forbids receiv- ers and other trustees from entering into contracts by which they may make a personal profit from the management of the trust estate. It is said that the temptation to earn fees as counsel would be liable to warp the receiver's judgment as to what suits are proper and neces- sary. State V. Butler, 15 Lea (Tenn.) 113; Battaile v. Fisher, 36 Miss. 321. See as to the general rule, that a receiver cannot employ himself to perform services in addi- tion to his duties as a receiver. Bank of Niagara, In re, 6 Paige (N. Y.) 213; Holcombe v. Holcombe, 13 N. J. Eq. 413, 417; Easton v. Houston, &c. R. Co. 40 Fed. 189; Martin v. Mar- tin, 14 Greg. 165, 12 Pac. 234; Beach Receivers, § 768. In Kimmerle v. Dowagiac, &c. Co. 105 Mich. 640, 63 N. W. 529, it Is held that a corpora- tion appointed as a receiver is not entitled to additional compensation for its agent who performed the du- ties of the office. § 585] KECEIVEKS. 856 perfectly performed because of his negligence or misconduct, the court may reduce the amount of his compensation,**" and, in a proper case, may even refuse him any compensation whatever.* °'' It is the practice in most jurisdictions to fix the amount in a general order or to make allowances to the receiver for his own compensation and necessary counsel fees on his ex parte application, but it is said in a recent case that, in the absence of any well-settled rule of practice or general or- der, motions to fix the compensation of receivers or their counsel should not be heard ex parte, and that notice should be given to all parties in interest.*'^ In case the compensation allowed is too large or too small, it has been held that an appeal may be taken from the order.*"^ But an appellate court will not interfere to correct the allowance made by the court appointing the receiver unless it has clearly abused the discretion with which it is vested.*"^ And if the facts upon which the allowance was based are not before the appel- late court, it will refuse to consider the question as to whether such allowance was excessive.*'* § 585. Attorney's fees. — ^The receiver is entitled to the benefit of legal counsel, and the court may upon application appoint one of the attorneys practicing before it to serve as his legal adviser.*'^ The fees of such counsel for necessary services in connection with the manage- ment of the trust will be allowed by the court and paid out of the trust property.*"" The amount must depend largely upon the cir- ^ Beach Receivers, § 758. *" Greeley v. Provident Sav. Bank, «Clapp V. Clapp, 49 Hun (N. Y.) 103 Mo. 212, 15 S. "W. 429; Jones v. 195. See, also. Sheets Lumber Co., Keen, 115 Mass. 170. In re, 52 La. Ann. 1337, 27 So. 809; "'Blair v. St. Louis, &c. R. Co. 20 Harrison v. Boydell, 6 Sim. 211. Fed. 348. ■'°' Merchants' Bank v. Crysler, 67 ""Cowdrey v. Railroad Co. 1 Fed. 388, citing Daniel Ch. PI. & Pr. Woods (U. S.) 331; Howes v. Davis. 1592, 1593. 4 Abb. Pr. (N. Y.) 71. As to allow- *°^ Russell V. First Nat. Bank, 65 ance to receiver for fees paid coun- lowa 242, 21 N. W. 585; Herndon v. sel, see Phinizy v. Augusta, &c. R. Hurter, 19 Fla. 397; Tompson v. Co. 98 Fed. 776. Where there are no Huron, &c. COi 5 Wash. 527, 32 Pac. surplus earnings, an attorney who 536; Magee v. Cowperthwaite, 10 recovers for a railroad, in the hands Ala. 966. of a receiver, engines formerly "» Stuart V. Boulware, 133 U. S. 78, leased by it to another road, and 10 Sup. Ct. 242; Greeley v. Provi- rent for their use, which recovery dent Sav. Bank, 103 Mo. 212, 15 S. inures to the benefit of the security W. 429; Morgan v. Hardee, 71 Ga. holders, is entitled to a reasonable 736; Heffron v. Rice, 149 111. 216, 36 compensation, to be paid out of the N. B. 562, 41 Am. St. 271. corpus of the property. Louisville, 857 attoenby's fees. J§ 585 cumstances of the particular case, and in fixing it, as in fixing the compensation of the receiver, the court is invested with a wide dis- cretion.*"' Indeed, the receiver usually pays the counsel and the , court makes the allowance to the receiver.*"^ Kot only the fees of the receiver's counsel but also those of counsel for complainant in the suit for the appointment of a receiver have been ordered paid out of the proceeds of a sale of the property. Such an allowance, if made with moderation and a jealous regard for the rights of those interested in the fund, is not only admissible but agreeable to the principles of equity and justice.*"" Where a receiver is appointed with the consent of all interested parties, and to the advantage of all, the services rendered by the complainant's attorneysj, being for the common bene- fit, should be paid for from the assets of the company-^"" And even though the creditors do not all consent, if the litigation result in favor of the plaintiff and the fund be administered for the benefit of all the creditors, it is only fair that all should bear their ratable proportion of the expense of procuring the receiver's appointment. In many cases the claims of complainant's counsel have been allowed in whole or in part^"^ before the litigation was ended, and while it still remained a matter of doubt whether the party who employed the attorney had any interest in the fund. But this practice is to be dis- couraged. The better course is to defer making any allowance to plaintiff's counsel until it shall have been demonstrated that his em- ployment was necessary to protect the interests of the creditors.^"^ &c. R. Co. v. Wilson, 138 U. S. 501, tion should be disposed of, and it 11 Sup. Ct. 405. should become apparent wliether the •" Crumlish's Admr. v. Shenan- property in the receiver's hands doah, &c. H. Co. 40 W. Va. 625, 22 were sufficient to pay all expenses. S. E. 90. , Though a receiver may, under cer- *" Stuart V. Boulware, 133 U. S. tain circumstances, employ counsel 78, 10 Sup. Ct. 242. See, also, Phin- to advise him with regard to the izy v. Augusta, &c. R. Co. 98 Fed. property in his charge, the necessity 776. must be apparent, or a claim for *" Trustees v. Greenough, 105 U. attorney's fees will be disallowed. S. 527, 536, per Mr. Justice Bradley. Terry v. Martin, 7 N. M. 54, 32 Pac. '»° Bound v. South Carolina R. Co. 157. 43 Fed. 404. ^' In a dissenting opinion deliv- =»i In Central Trust Co. v. Wabash, ered in the case of Trustees v. Green- fee. R. Co. 23 Fed. 675, it was held ' ough, 105 U. S. 527, 538, Mr. Justice that a partial allowance would be Miller said: "While I agree to the made for the fees of complainant's decree of the court in this case, I do counsel upon application, leaving not agree to the opibion, so far as it the balance to stand until the litiga- 'is an argument in favor of a prin- § 586] EECEIVEKS. 858 If an opposite course is pursued, it may be found that the entire fund in the possession of the court has been consumed by expenses, and that nothing remains for the creditors in whose interest the litigation pur- ported to have begun.^"' §586. Removal and discharge. — The court appointing a re- ceiver'"* has power to remove him at any time upon cause shown, and fill his place with some one who will discharge its duties in a satisfactory manner. This power of removal is held to be a necessary ciple on which is founded the gross- him that sum for procuring a fore- est judicial abuse of the present day, closure. See as to distinction be- namely, the absorption of a prop- tween allowing fees to the receiv- erty or a fund which comes into er's counsel and refusing to allow control of a court, by making allow- them to counsel for the trustees or ances for attorney's fees and other for the corporation for former serv- expenses, pending the litigation, ices, Pennsylvania Ins. &c. Co. v. payable out of the common funds, Jacksonville, &c. R. Co. 93 Fed. 60; when it may be finally decided that Petersburg, &c. Ins. Co. v. Dellatorre, the party who employed the attor- 70 Fed. 643; Finance, &c. Co. v. ney, or incurred the cost, never had Charleston, &c. R. Co. 52 Fed. 526; any interest in the property or fund Grigg v. Mercantile Trust Co. 109 in litigation. This system of paying Fed. 220; Central Trust Co. v. Thur- out of a man's property some one man, 94 Ga. 735, 20 S. B. 141; else engaged in the effort to wrest Chesapeake, &c. R. Co. v. Atlantic, that property from him, can never &c. Co. 62 N. J. Eq. 751, 48 Atl. 997; receive my approval." Mauran v. Crown, &c. Co. 23 R. I. ™In Trustees v. Greenough, 105 324, 50 Atl. 331. See, also, Baxter TJ. S. 527, 536, Mr. Justice Bradley, v. Lowe, 93 Fed. 358. speaking for the court, said : "Some- '"Another court to which the times, no doubt, these allowances cause has been removed by due have been excessive and perhaps il- process of law has the same power legal; and we would be very far in this respect as the court by which from expressing our approval of the receiver was appointed, and re- such large allowances to trustees, re- ceivers appointed by a state court ceivers, and counsel, as have some- are as completely under the control times been made, and which have of a federal court, to which the justly excited severe criticism." In cause is afterward removed, as if Cowdrey v. Galveston, &c. R. Co. 93 originally appointed by the federal U. S. 352, the supreme court upheld court. Texas, &c. R. Co. v. Rust, an allowance of five thousand dol- 17 Fed. 275 ; Hinckley v. Gilman, &c. lars in favor of counsel employed R. Co. 100 U. S. 153; Dillon Re- by certain bondholders to foreclose moval of Causes, § 80, p. 99. See a mortgage, after the civil war had Atkins v. Wabash, &c. R. Co. 29 caused the discontinuance of a for- Fed. 161. But see Young v. Mont- mer suit in which the trustees gomery, &c. R. Co. 2 Woods (U. S.) agreed with their solicitor to pay 606. 859 EEMOVAL AND DISCHARGE. .[§ 586 incident of the power to a;fpoint a receiver and to control his actions/"^ and its exercise rests in the sound discretion of the court.'""' A re- ceiver may be removed and superseded for a failure to give bond with sufficient sureties/"^ if he becomes insolvent/"* for physical or men- tal disability by which he is rendered incapable of discharging the duties of his office/"" or for any misconduct^^" or negligence by which the interests of the trust estate are menaced or endangered." ^^ Such a personal interest in the conduct of the business as might lead the receiver to sacrifice the interests of other claimants may also be cause for his removal."^^ And where it is shown that the receiver was ap- pointed at the instance of the principal stockholder who has con- trolled the corporation, and who procured his appointment for a fraud- ulent purpose, the receiver will be removed and a new receiver ap- pointed.°^' But a receiver whose management has been efficient and impartial will not be removed at the request of a controlling stock- ™» Crawford v. Ross, 39 Ga. 44; "Walters v. Anglo-American, &c. Co. 50 Fed. 316; Colvin, In re, 3 Md. Ch. 278, 300; McCullough v. Mer- chants', &c. Co. 29 N. J. Eq. 217; Gluck & Becker Rec. of Corp. § 114; 2 Beach Mod. Eq. Pr. § 749. '"High Receivers (3d ed.), § 824. See, also, Milwaukee, &c. R. Co. v. Souter, 2 Wall. (U. S.) 510; Cin- cinnati, &c. R. Co. V. Sloan, 31 Ohio St. 1; Young v. Rollins, 90 N. Car. 125. ""Where the bond becomes insuf- ficient a receiver may be required to find additional sureties, and, upon his failure to do so, may be removed. Schakelford v. Schakel- ford, 32 Gratt. (Va.) 481. ™ Crawford v. Ross, 39 Ga. 44; Monroe v. Schermerhorn, 1 Clarke Ch. (N. Y.) 366. '"» Richardson v. Ward, 6 Mad. 266. "°An unlawful and unjust dis- crimination by' the receiver of a railroad in favor of one shipper and against rival shippers is sufficient ground for his removal. Beers v. Wabash, &c. R. Co. 29 Fed. 161; Handy v. Cleveland, &c. R. Co. 31 Fed. 689. See Keeler v. Brooklyn El. R. Co. 9 Abb. N. Cas. (N. Y.) 166. See, generally. Fowler v. Jar- vis, &c. Co. 63 Fed. 888, 66 Fed. 14; Clarke v. Central R. &c. Co. 66 Fed. 16; St. George's Estate, In re, 19 L. R. Ir. 566. '" St. George's Estate, In re, 19 L. R. Ir. 566. ™ Williamson v. Wilson, 1 Bland (Md.1 418; Etowah, &c. Co. v. Wills, &c. Co. 106 Ala. 492, 17 So. 522; Keeler v. Brooklyn El. R. Co. 9 Abb. N. Cas. (N. Y.) 166; Beers v. Wa- bash, &c. R. Co. 29 Fed. 161; Pripp V. Chard R. Co. 22 L. J. Ch. 1084, 11 Hare 241. Where two receivers, appointed to represent rival inter- ests, are unable to agree as to the conduct of the business, the court should remove them and appoint a single disinterested person to act In their stead. Meier v. Kansas Pac. R; Co. 5 Dill. (U. S.) 476. ™Phinizy v. Augusta, &c. R. Co. 56 Fed. 273. § 58(3] EECEIVEES, 860 holder and his associates, when the litigation is not for the purpose of foreclosing a mortgage, but is instituted by a minority stockholder on the ground that the indebtedness of the corporation was being wrongfully increased for the benefit of the controlling stockholders.'^* When the object for which the receiver was appointed has been at- tained"^ ° or the litigation in aid of which he was appointed has terminated by abatement or otherwise,"^" the receivership should be terminated and the receiver finally discharged.''^^ And where it ap- pears that the appointment of a receiver for the property of a railroad corporation was procured by collusion between the corporation and a creditor, for the piurpose of putting the property beyond the reach of judicial process and without any intention of applying it in satis- faction of the petitioning creditor's claim, the court will discharge the receiver of its own motion.'^* A court of equity will not conduct the business of the corporation through a receiver unless the interests of the parties unmistakably require it.'^° It has been held that a re- ceiver continues to be subject to the duties and possessed of the privi- leges annexed to his office until discharged by a formal order of court, notwithstanding the , litigation has ended, or other conditions have arisen which make it the duty of the court to discharge him.'^" "•Street v. Maryland Cent. R. Co. 291; McCosker v. Brady, 1 Barb. Ch. 58 Fed. 47. (N. Y.) 329. "= Sewell V. Cape May, &c. R. Co. ™ Sage y. Memphis, &c. R. Co. 18 (N. J.) 30 Am. & Bng. R. Cas. 155. Fed. 571; Wood v. Oregon, &c. Co. Upon payment of the plaintiff's 55 Fed. 901; Wilson v. Barney, 5 claim, and the receiver's lawful Hun (N. Y.) 257. The receiver will charges, the court is bound to dis- be discharged in any case where it charge the receiver, even though is shown to the court that the order some of the defendants desire that appointing a receiver was improvl- he h§ retained. Milwaukee, &c. R. dently or wrongfully made. Mc- Co. V. Soutter, 2 Wall. (U. S.) 510; Henry v. New York, &c. R. Co. 25 Davis V. Duke of Marlborough, 2 Fed. 114; Milwaukee, &c. R. Co. v. Swanst. * p. 167, per Lord Eldon. Soutter, 2 Wall. (U. S.) 510, 523; ""National, &c. Assn. v. Mariposa Copper Hill, &c. Co. v. Spencer, 25 Co. 60 Barb. (N. Y.) 423; Whiteside Cal. 11, 16. V. Prendergast, 2 Barb. Ch. (N. Y.) "»Sage v. Memphis, &c. R. Co. 18 472; Milwaukee, &c. R. Co. v. Sout- Fed. 571; Overton v. Memphis, &c. ter, 2 Wall. (U. S.) 510; Field v. R. Co. 10 Fed. 866; Ferry v. Bank, Jones, 11 Ga. 413. 15 How. Pr. (N. Y.) 445. =" But the discontinuance or abate- ™ State v. Gibson, 21 Ark. 140. ment of the action does not of it- See, also, Fountain v. Mills, 111 Ga. self terminate the receivership. 122, 36 S. B. 428; Baker v. Baker, 36 State V. Gibson, 21 Ark. 140; New- App. Div. (N. Y.) 485, 55 N. Y. St. man v. Mills, 1 Hog. (Irish Rolls) 824. 861 EFFECT OF REMOVAL OR DISCHARGE. [§ 587 § 587. Effect of removal or discharge. — The removal of a receiver does not necessarily terminate the receivership. Since the receiver is a mere officer of the court, he may be superseded without affecting the trust which he is called upon to administer. The removal of a re- ceiver to make way for a successor appointed by the court does not affect claims against the property arising from the operation of the railroad by the first receiver. The management of the court is one even if it becomes necessary to change the receiver more than once.^^^ After the receiver has been discharged by the court he is no longer liable to an action either for the debts of the corporation or for any debts or liabilities incurred during his receivership.^^^ Nor is the corporation, as a general rule, personally liable for the latter.^^^ The corporation may, however, be held liable for the acts and defaults of the receiver's servants to the extent that earnings of the road have been used in the purchase of property surrendered to the corpora- tion by the receiver upon his final diseharge.^^* But after the dis- charge of the receiver and the restoration of the property to the cor- poration, the jurisdiction of the court over the receivership is ended, and it has even been held that a provision in the decree relieving the property from liability for claims not filed within a specified time, in the suit in which the receiver was appointed, is void.^^^ '"Gibbes v. Greenville, &c. R. Co. son (Tex.), 24 S. W. 952. But it has 15 S. Car. 304; Bond v. State, 68 been held that the company is liable Miss. 648, 9 So. 353. for injuries caused by the negli- '^ Lehman v. McQuown, 31 Fed. gence of a receiver appointed 138; Farmers' Loan, &c. Co. v. Cen- through collusion, whether the tral R. Co. 7 Fed. 537; New York, court had jurisdiction to appoint &c. Tel. Co. V. Jewett, 115 N. Y. 166, or not. Texas, &c. R. Co. v. Gay, 21 N. E. 1036; Ryan v. Hays, 62 86 Tex. 571, 26 S. W. 599, 25 L. R. Tex. 42; Texas, &c. R. Co. v. Adams, A. 52. The court regarded the re- 78 Tex. 372, 14 S. "W. 666, 22 Am. St. ceiver as the agent of the company. 56; Bond v. State, 68 Miss. 648, 9 "=* Mobile, &c. R. Co. v. Davis, 62 So. 353. A judgment against an Miss. 271; Texas, &c. R. Co. v. John- ancillary receiver after his dis- son, 76 Tex. 421, 13 S. W. 463, 18 charge is not binding, even though Am. St. 60. See Texas, &c. R. Co. the court did not know of his dis- v. Griffin,' 76 Tex. 441, 13 S. "W. 471. charge. Reynolds v. Stockton, 140 ™ Missouri, &c. R. Co. v. Chilton U. S. 254, 11 Sup. Ct. 773. (Tex.), 27 S. W. 272; Texas, &c. R. "== Godfrey v. Ohio, &c. R. Co. 116 Co. v. "Watts (Tex.), 18 S. W. 312, Ind. 30, 18 N. E. 61; Davis v. Dun- following Texas, &c. R. Co. v. John- can, 19 Fed. 477, 17 Am. & Bng. R. son, 76 Tex. 421, 13 S. W. 463, 18 Cas. 295; Texas, &c. R. Co. v. Wat- Am. St. 60. CHAPTEE XXIII. ebceivee's certificates. Sec. 588. 589. 590. 591. 592. Definition and nature of re- ceiver's certificates. Power of courts to authorize. Purposes for which receiver's certificates may be issued — extent of power. Order giving authority to is- sue. Lien created by receiver's cer- tificates. Sec. 593. 594. 595. 596. 597. Statutory provisions as to lien. Kegotiahility of receiver's cer- tificates. Rights of holders of receiver's certificates. Who may question validity of receiver's certificates. Payment and redemption of certificates. § 588. Definition and nature of receiver's certificates. — A re- ceiver's certificate has been defined as "a non-negotiable evidence of debt, or debenture, issued by authority of a court of chancery as a first lien upon the property of a debtor corporation in the hands of a receiver."^ It frequently becomes necessary that a receiver of a railroad should borrow money in order to keep the road in repair and operate it for the good of the public, to prevent the loss of busi- ness and good will, and to preserve it as a "going concern" for the ben- efit of all parties interested. Unless good security can be given it would be impossible to borrow the money, and it is to the interest, both of the public and of the parties, that some just means of obtaining the money and giving security should be devised. This is accomplished by the issue of certificates of indebtedness, negotiable in form, for the payment of which, out of the proceeds of the property in its hands, the faith of the court is pledged.^ ^ Beach Receivers, § 379. See, also. Turner v. Peoria, &c-. R. Co. 95 111. 134, 35 Am. R. 144; notes in 54 Am. St. 431, 71 Am. St. 377, 379, 381, 83 Am. St. 72 et seq. ^Taylor v. Philadelphia, &c. R. Co. 14 Phila. (Pa.) 451, 461. "The certificates are not debts of the com- pany, but of the receivers, backed by the pledged faith of the court, that the property, on the proceeds of which they are charged, is in its possession, subject to be, and that it will be, disposed of by it for the payment of them. This results from the fact that they are but a 862 863 POWEK OF COURTS TO AUTHORIZE. [§' 589 § 589. Power of courts to authorize. — Since the best and cheap- est mode of conserving a railroad is by operating trains thereon, and keeping it in repair for their use, and since this is the only way in which the public duties and obligations of the railroad can be dis- charged and a forfeiture of its charter prevented, power to raise money for the repair and operation of the road necessarily accompa- nies the power to assume control of it for the benefit of the corporate creditors.^ This power is a part of the jurisdiction, exercised by a court of equity, by which it undertakes to protect and preserve the trust funds in its hands.* It may be stated as a general rule, there- fore, that where it is necessary that a receiver should expend money substitute for common methods by which money is raised for the use of a receiver in a particular case, a mode of appropriating, In advance, a portion of the value of the prop- erty, in order to enable the court to save a greater value thereof from destruction." Meyer v. Johnston, 53 Ala. 237. = Meyer v. Johnston, 53 Ala. 237. 'Wallace v. Loomis,, 97 V. S. 146. In some states the issue of receiver's certificates in certain cases is au- thorized by statute. In announcing the opinion of the court in the case of Meyer v. Johnston, 53 Ala. 237, Judge Manning said: "It was not necessary that the question of the power of a court to authorize the issue of first lien certificates of in- debtedness to enable a receiver to raise money he. might need, should be decided before the introduction of railroads. But these properties, with their appurtenances, vast in ex- tent and value, yet very perishable if unused and neglected, existing as the estates of private Individuals associated into corporations, but es- sentially public works, in whose op- erations the public at large and the state are concerned, when drawn into litigation, must be dealt with by the courts according to the na- ture and circumstances of the sub- ject. And any one can understand that the best and cheapest mode of conserving a railroad may be by op- erating trains thereon and keeping it in repair for their use. To pre- serve its value, it must generally be continued in operation, and be sold as a going concern." The court also said that if the road were permitted to become a useless wreck, "the in- convenience and loss which this would infiict on the population of large districts, coupled with the benefit to parties who are power- less to take care of themselves, of preventing the rapid diminution of value, and derangement and disor- ganization that would otherwise re- sult, seem to require — not for the completion of an unfinished work, or the improvement, beyond what is necessary for its preservation, of an existing one — but to keep it up, to conserve it as a railroad property, if the court has been obliged to take possession of it, that the court should borrow money for that pur- pose, if it can not otherwise do so in sufBciently large sums, by caus- ing negotiable certificates of indebt- edness to be issued, constituting a first lien on the proceeds of the property, and redeemable when it is sold or disposed of by the court." § 590] eeoeiver's certificates. 864 for the repair of a railroad in his hands, in order to keep it in operation, the court by which he was appointed has power to authorize him to borrow money necessary to make such repairs, and to make the indebtedness so incurred a first lien upon the property in its hands. And it is equally well settled that the court may authorize the re- ceiver to issue receiver's certificates as evidence of such indebtedness.^ But, as will be further shown in the next section, the power is one that is to be cautiously and somewhat sparingly exercised." § 590. Purposes for which receiver's certificates may be issued — Extent of power. — Where a portion of the road has been built in a hasty manner with materials which answer only a temporary use,^ or where valuable property rights will be lost by a failure to complete unfinished portions of the road within a limited time,^ it may be neces- sary for the receiver to borrow money with which to build such parts of the road, and the court may authorize him to issue certificates therefor.^ But this jurisdiction must not be exercised to the extent of improving the owners and lienholders out of their property. The whole power of the court, when exercised to its fullest extent, without the consent of the lienholders express or implied, is usually confined to making necessary repairs and protecting the property as it is.^" 'Meyer v. Johnston, 53 Ala. 237; Martin v. New York, &c. R. Co. 36 Turner v. Peoria, &c. R. Co. 95 111. N. J. Eq. 109, 12 Am. & Bng. R. Cas. 134, 35 Am. R. 144; Wallace v. 448. Loomis, 97 U. S. 146; Miltenberger "Jerome v. McCarter, 94 U. S. V. Logansport, &c. R. Co. 106 U. S. 734. In this case the United States 286, 1 Sup. Ct. 140; Union Trust Co. had made a large grant of land to v. Illinois Midland R. Co. 117 U. S. a company engaged in digging a 434, 6 Sup. Ct. 809. canal, conditioned upon the comple- ° See Shaw v. Little Rock, &c. R. tion of the canal within a certain Co. 100 U. S. 605; Newhold v. Peoria, time. The receiver was authorized &c. R. Co. 5 111. App. 367; State v. to borrow the money necessary for Edgefield, &c. R. Co. 6 Lea (Tenn.) its completion by the issue of re- 353. ceiver's certificates, and, upon ap- ' Stanton v. Alabama, &c. R. Co. peal, the supreme court approved 2 Woods (U. S.) 506. their issue. See, also, Kennedy v. » Kennedy v. St. Paul, &c. R. Co. St. Paul, &c. R. Co. 2 Dill. (U. S.) 2 Dili. (U. S.) 448, 5 Dill. (U. S.) 448; Bank of Montreal v. Chicago, 519. The receiver cannot bind the &c. R. Co. 48 Iowa 518; Houston company by an oral contract to give First Nat. Bank v. Ewing, 103 Fed. a landowner an annual pass dur- 168. ing life in consideration of a grant '"Jones Corporation Bonds and of necessary land for a right of way. Mortgages, § 543, citing Snow v. 865 PURPOSES FOK WHICH THESE CERTIFICATES MAT BE ISSUED. [§ 590 The propriety of every expenditure is to be judged by the necessity of making it in order to preserve the value of the trust estate.^^ This power extends, as a general rule, only to such expenditiires as are necessary for the protection of the property.^^ And the court will not, ordinarily, authorize expenditures for the completion of a road unless it is morally certain that the property in consequence will sell for a higher price. ^^ A receiver should not be permitted to expend money Winslow, 54 Iowa 200; Taylor v. Philadelphia, &c. R. Co. 9 Fed. 1; Credit Co. v. Arkansas Cent. R. Co. 5 McCrary (U. S.) 23; Metropolitan Trust Co. V. Tonawanda Valley, &c. R. Co. 103 N. Y. 245, 8 N. B. 488, per Danforth, J. " Shaw T. Railroad Co. 100 U. S. 605. "Aside from any consideration of the mortgagor and others having the right to redeem, against whom a court of equity has power analo- gous to that of a mortgagee in pos- session to incur charges for the preservation and repair of the prop- erty it has taken possession of through its receiver, a court of equity has no power to Impair the obligation of a mortgage contract, ' hy creating a superior lien without the mortgagee's consent, unless it be in the exercise of a like equitable power of preserving and protecting the property. The law does not per- mit the obligation of contracts to be impaired. The constitution of the United States inhibits even a state from doing an act which shall have that effect. And, certainly, a court, which is a portion of the gov- ernment of the state, cannot have a power which is denied to the state in convention assembled. If, there- fore, the action of a chancellor in this cause goes to the extent of tak- ing the property of the defendant corporation into its hands for the purpose, through his appointees, of completing an unfinished work, or Ell. Railroads — 55 of enlarging or improving a finished one, beyond what is necessary for its preservation, and to that end raising money, by charging the rail- road and its appurtenances witfi liens which are to supersede older ones, without the consent of the holders of these, he has inadvertent- ly passed beyond the boundaries of a chancellor's jurisdiction. In our opinion no such power is vested or resides in any judicial tribunal." Jones Corporate Bonds and Mort- gages, § 551, quoting from the opin- ion of Manning, J., in Meyer v. Johnston, 53 Ala. 237, 345. "^ Jones Corporate Bonds and Mortgages, § 559, citing Hand v. Sa- vannahi &c. R. Co. 17 S. Car. 219, 270, per McGowan; Metropolitan Trust Co. V. Tonawanda Valley, &c. R. Co. 103 N. Y. 245, 249, 8 N. B. 488, per Danforth, J. The certifi- cates of a receiver of an insolvent railroad company, issued under an order of court to obtain money to operate the road, are paramount liens. Central Trust Co. v. Tappan, 53 Hun (N. Y.) 638, 6 N. Y. S. 918. But see as to mechanic's lien, Stew- art, &c. Co. V. Missouri Pac. R. Co. 28 Neb. 39, 44 N. W. 47. ^' Jones Corporate Bonds and Mortgages, § 545, citing Investment Co. V. Ohio, &c. R. Co. 36 Fed. 48. In this case the circumstances were as follows: The petition of a re- ceiver of an insolvent railroad for authority to borrow a large sum of § 590] receivee's certificates. 866 or incur obligations to secure mere speculative advantages. A greater latitude is permitted to receivers of railroads than to receivers of other corporations in the matter of incurring debts for management and operation, because of the public rights which are involved and of the consequences of a failure on the part of the railroad to discharge its public duties.^* Accordingly the courts have authorized the issue of certificates to construct the unfinished portions of an incomplete railroad, and to purchase the necessary rolling stock, machinery and supplies for its operation,^^ and even to pay debts of the company for money and issue his certificates therefor, showed that part of the amount was to be used in complet- ing a portion of the road and widen- ing its gauge; $35,000 for purchas- ing and laying track over another portion already graded and bridged at an expense of f 49,000; $47,243.18 to pay claims for material fur- nished, which were not a lien on the road; $20,000 to reimburse bond- holders for advances to meet ar- rearages of wages and avert a strike; $100,000 to purchase leased rolling stock for which the com- pany paid an annual rental of $28,000, the lessors cancelling a claim for $7,000 unpaid rent, if the purchase was made; $4,000 to re- lay a line of track on a connecting road, and thus cancel a debt of $8,000 due that road, and secure enough additional business to pay the cost in three months, and $29,430 to make final payment on valuable real estate. A majority of the holders of both the first and second mortgage bonds consented to the certificates being issued; the re- maining holders of first and second mortgage bonds not consenting, and a number of them, together with other lienholders, objecting. The court held that, as it was doubtful whether the improvements would add to the selling price of the road, the petition should be denied abso- lutely as to the items of $35,000 and $20,000, and as to the item of ■ $47,248.18, unless all lienholders con- sented; but that certificates should be issued for the other items, if de- sired by the consenting bondholders, with leave thereafter to petition to have them made a charge on the non-consenting bondholders. Invest- ment Co. V. Ohio, &c. R. Co. 36 Fed. 48. See, also. Hand v. Sa- vannah, &c. R. Co. 10 S. Car. 406; Street v. Maryland Cent. R. Co. 59 Fed. 25; Rochester, &c. Co. v. Roch- ester, &c. R. Co. 29 Misc. (N. Y.) 222, 60 N. Y. S. 409; Rutherford v. Pennsylvania R. Co. 178 Pa. St. 38, 35 Atl. 926. "Jones Corporate Bonds and Mortgages, § 555. See, also. Farm- ers' Loan, &c. Co. v. Grape Creek, &c. Co. 50 Fed. 481, 16 L. R. A. 603, and note; Wood v. Guarantee Trust Co. 128 U. S. 416, 9 Sup. Ct. 131; Morgan's &c. Co. v. Texas, &c. R. Co. 137 U. S. 171, 11 Sup. Ct. 61; Fidelity, &c. Co. v. Roanoke, &c. Co. 68 Fed. 623; Snively v. Loomis Coal Co. 11 Nat. Corp. Rep. 207. "'Wallace v. Loomis, 97 V. S. 146; Smith V. McCuIlough, 104 U. S. 25; Miltenberger v. Logansport R. Co. 106 U. S. 286; Swann v. Clark, 110 U. S. 602, 4 Sup. Ct. 241; Bank of Montreal v. Thayer, 7 Fed. 622; Meyer v. Johnston, 53 Ala. 237; Bank of Montreal v. Chicago, &c. R. 867 PURPOSES FOE WHICH THESE CERTIFICATES MAT BE ISSUED. [§' 590 taxes, labor, and materials due prior to the appointment of the re- ceiver.^" But it was held in a comparatively recent case that where a receiver is appointed at the suit of a stockholder and not upon the application of a bondholder, and no earnings have been diverted to pay interest on the bonds, there is no lien or equity requiring the issuance of receiver's certificates for money to pay labor or material claims, existing before the appointment of the receiver, out of the corpus of the property.^' The power to issue receiver's certificates, however, is one which should be sparingly exercised. '^^ It is liable to great abuse ; and while it is usually resorted to under the pretext that it will enhance the security of the bondholders, it not infrequently re- sults in taking from them the security they already havej and appro- priating it to pay debts contracted by the court.^' Co. 48 Iowa 518; Turner v. Peoria, &c. R. Co. 95 111. 134, 35 Am. R. 144; Gibert v. Washington City, &c. R. Co. 33 Gratt. (Va.) 586; Mercantile Trust Co. V. Kanawha, &c. R. C9. 50 Fed. 874.- "Union Trust Co. v. Illinois Mid- land R. Co. 117 U. S. 434, 6 Sup. Ct. 809; Taylor v. Philadelphia, i6c. R. Co. 7 Fed. 377; Langdon v. Vermont, &c. R. Co. 53 Vt. 228; Humphreys V. Allen, 101 111. 490. See, also. Mer- cantile Trust Co. V. Baltimore, &c. R. Co. 82 Fed. 360; McKittrick v. Arkansas Cent. R. Co. 152 U. S. 573, 14 Sup. Ct. 661. "Street v. Maryland, &c. R. Co. 59 Fed. 25. See, also, Cutting v. Tavares, &c. R. Co. 61 Fed. 150; Farmers' Loan, &c. Co. v. Northern Pac. R. Co. 68 Fed. 36. But com- pare Farmers' Loan, &c. Co. v. Kan- sas City, &c. R. Co. 53 Fed. 182, and note. See, generally, § 528, ante. " Credit Co. v. Arkansas Cent. R. Co. 5 McCrary (U. S.) 23, 15 Fed. 46; Investment Co. v. Ohio, &c. R. Co. 36 Fed. 48; Kneeland v. Amer- ican, &c. Co. 136 U. S. 89, 10 Sup. Ct. 950. » Caldwell, J., in Credit Co. v. Ar- kansas Cent. R. Co. 5 McCrary (U. S.) 23, 15 Fed. 46. He aidds: "The history of Wallace v. Loomis, 97 U. S. 146, 162, 2 Woods 506, under the title of Stanton v. Alabama, &c. R. Co., furnishes an instructive lesson on this subject." Mr. Beach, in his work on receivers, § 379, says : "With- in the past twelve or fifteen years these certificates, to the ainount of many millions of dollars, have been issued, and the courts are constant- ly authorizing the further issue of them, ostensibly for the preserva- tion of the property and in the in- terest of the bondholders, but, it is believed, in a majority of cases in which they are issued, to the hin- drance and delay of a prompt fore- closure, to the impairment of the bondholder's security and to the scandal of the courts of equity." Mr. Jones, in his work on Corporate Bonds and Mortgages, § 541, says: "Complaint as to the management of railroad receivers has generally come, not from the stockholders, be- cause it is seldom they care to re- deem, but from mortgage bondhold- ers; and as often, perhaps, from those at whose solicitation the re- ceiver was appointed as from others who may hold under junior mort- § 591] receiver's certificates. 868 § 591. Order giving authority to issue. — Certificates can only be issued in strict conformity to the order of court authorizing them/" and may be issued only for the purposes mentioned in such order,^^ and upon a valid consideration.^^ Notice should usually be required gages, and who, therefore, have a right to redeem. The history of such management in this country shows that the bondholders chiefly interested have sometimes found themselves improved out of their interest in the property." And, in a note which he appends, he adds: "Judge Baxter is reported to have expressed himself strongly, in a re- cent case before the Circuit Court of the United States, against the practice of placing railroads in the hands of receivers. He cited the case of a railroad in Georgia which cost $15,000,000. The receiver, who was in charge for three years, is- sued certificates to the value of $1,500,000, and when the road was sold the proceeds were not sufficient to pay the certificates. In another case, in Detroit, a road cost over $8,000,000. When the road came to be sold eminent counsel requested the judge to fix the minimum price for the sale, suggesting that such price should be a sum sufficient to cover the charges of the receiver and his counsel. 11 Chicago Legal News 8." '" State V. Edgefield, &c.' R. Co. 6 Lea (Tenn.) 353; Newbold v. Peoria, &c. R. Co. 5 111. App. 367. '''Newbold v. Peoria, &c. R. Co. 5 111. App. 367; Fidelity Ins. Co. v. Shenandoah, &c. Co. 42 Fed. 372. ^''Certificates Issued without con- sideration are held absolutely void. Union Trust Co. v. Chicago, &c. R. Co. 7 Fed. 513; Turner v. Peoria, &c. R. Co. 95 111. 134. In Bank of Montreal v. Chicago, &c. R. Co. 48 Iowa 518, the court says: "The re- ceiver, being an officer of the court, has no implied powers other than those derived from the order of the court. Such being true, we think it clear he could not issue certifi- cates which would constitute a first lien on the road except for money borrowed, material furnished, or la- bor performed. When the material was furnished or labor performed, he was authorized to issue the cer- tificates therefor, and not until then. And if he made a contract for the construction of the road, he might issue certificates as the material was furnished or the labor performed, and on the completion of the road he could issue his certificates in final payment. But the power Is not con- ferred' to issue certificates in pay- ment for material not furnished or labor not performed. On the con- trary, we are of the opinion, it fair- ly appears he was prohibited from so doing. If the necessity existed for enlarged powers, they should have been applied for. * * * As the certificates on their face state they were 'issued under and by vir- tue of certain provisions of an or- der duly entered by the district court of Clinton county, Iowa, on July 27, 1876,' the plaintiff is charge- able with notice of all such order contains. Whether under the order the receiver had the power to is- sue negotiable securities, or for property agreed to be delivered at a future day, were legal questions which the plaintiff was bound to de- termine at his peril. The receiver's authority was bounded and limited by the order. He had no general 869 ORDER GIVING ADTHOEITT TO ISSUE, [§ 591 to be given to the parties in interest before an order should be made authorizing the receiver to issue certificates.^^ But a full opportunity to be heard as to the propriety of the expenditures and the right to make them a first lien has been held equivalent to prior notice/* and, as a matter of fact, such orders are frequently made without prior notice. When it is desirable to incur expenses in building or repair- ing the railroad, beyond what is essential for its preservation, the consent, express or implied, of those whose rights of property will be affected, should be had.^^ It has been held that when a receiver con- tracts debts under a consent order, such debts are not binding upon bondholders who refused their consent, but they may insist upon the enforcement against the property of such liens as they held prior to the granting of the order.^* Cases in which the right of the court to authorize the issue of certificates constituting a lien upon the property superior to that of mortgage bondholders has been called in question, have not often arisen, since the consent, express or implied, of those interested in the fund has usually been obtained. ^^ Prior lien- holders who have not consented and who were not parties to the suit in which the issue of receiver's certificates was authorized are entitled to come into court to dispute the necessity of the expenditures which the certificates were issued to meet, and to assert the superiority of their liens.^' Joining with the receiver in a petition for authority to powers, except such, as could be de- proper case, authorize the issue of rived therefrom. It Is true he had certificates constituting a lien upon power to issue certificates, but this the interest of such of the bond- was not unlimited. It was only in holders as have asked for them, certain cases he could do so. And leaving the interests of the non- being an officer of the court and consenting bondholders unaffected vested with the care of property in by the order. Investment Co. v. his charge as such ofBcer, we think Ohio, &c. R. Co. 36 Fed. 48. the plaintiff was bound to know "Jones Corporate Bonds and whether these certificates were is- Mortgages, § 551, citing Central sued in accordance with the terms Trust Co. v. Seasongood, 130 U. S. and contingencies contemplated by 482, 9 Sup. Ct. 575; Kennedy v. St. the order." Paul, &c. R. Co. 2 Dill. (U. S.) 448, =» Mitchell, Ex parte, 12 S. Car. 83. 5 Dill. (U. S.) 519; Stanton v. Ala- =* Union Trust Co. v. Illinois, &c. bama, &c. R. Co. 2 Woods (U. S.) R. Co. 117 U. S. 434, 6 Sup. Ct. 809, 506; Hoover v. Montclair, &e. R. Co. 25 Am. & Bug. R. Cas. 560. 29 N. J. Eq. 4; Vermont, &c. R. Co. " Jones Corporate Bonds and v. Vermont Central R. Co. 50 Vt. Mortgages, § 559. 500. ™ Hand v. Savannah, &c. R. Co. 17 ^ While the court, under some clr- S. Car. 219. The court may, in a cumstances, and for some purposes. 592] eeceiver's ceetificates. 870 borrow money on the credit of the property, or acquiescing without op- position in an order conferring such authority, is suiBcient consent to bind a party to the suit in which the order was made.''* §592. Lien created by receiver's certificates. — Eeceiver's certifi- cates are usually made a first lien upon the income and entire property in the hands of the receiver. The nature or extent of the lien, in the absence of any statute upon the subject, depends upon the terms of the order of the court authorizing the certificates to be issued. It is not to be understood by this, however, that the lien will hold good if and in advance of the prior lien- holders being made parties, may have jurisdiction to charge the property with the amount of receiv- er's certificates issued hy its author- ity, it cannot, it is said, without giving such parties their day in court, deprive them of their priority of lien. When such prior lienhold- ers are brought before the court they become entitled, upon the plainest principles of justice and equity, to contest the necessity, va- lidity, effect and amount of all such certificates, as fully as if such questions were then for the first time presented for determination. If it appears that they ought not to have been made a charge upon the property superior to the lien cre- ated by the mortgages, then the contract rights of the prior lien- holders must be protected. On the other hand, if it appears that the court did what ought to have been done, even had the trustees and the bondholders been before it at the time the certificates were author- ized to be issued, the property should not be relieved from the charge made upon it for its protec- tion and preservation. Hervey v. Illinois Midland R. Co. 28 Fed. 169, 176, affirmed in Union Trust Co. v. Illinois, &c. R. Co. 117 XJ. S. 434, 6 Sup. Ct. 809. An appeal lies from an order authorizing receiver's cer- tificates. Farmers' Loan, &c. Co. v. Petitioner, 129 U. S. 206, 9 Sup. Ct. 265. "The lien of receiver's certi- ficates continues as long as the or- der authorizing their issuance re- mains in force, though such order was made without notice to parties interested; and the fact that a ref- erence is had to determine all claims against the receiver, and a report is confirmed which makes no allusion to the certificates, is not an adjudication against them, when it appears that they were not present- ed or considered, and that their holder had no notice of the refer- ence." Mercantile Trust Co. v. Ka- nawha, &c. R. Co. 50 Fed. 874. ^ Jones Corporate Bonds and Mortgages, § 552, citing Humphreys V. Allen, 101 111. 490; Metropolitan Trust Co. V. Tonawanda Valley, &c. R. Co. 103 N. Y. 245, 8 N. E. 488, reversing 40 Hun (N. Y.) 80. See, also. Central Trust Co. v. Marietta, &c. R. Co. 75 Fed. 193, 209. Re- ceiver's certificates issued under an order made after a decree Of -fore- closure and sale of property, con- taining a provision authorized by the order making them a lien on the property, will constitute a first lien thereon, if the order is not appealed from. Farmers' Loan, &c. Co., In re, 129 U. S. 206, 9 Sup. Ct. 265. 871 LIEN CREATED BY EECEIVEE'S CERTIFICATES. [§' 593 the order is improperly made and unauthorized, nor that the lien can be made superior to that of the state for taxes or the like. But certificates issued to raise money for the repair and preservation of the road may be made a superior lien upon the property in the hands of the court to that of the first mortgage, although issued at the suit of ]unior mortgagees and without the consent of the holders of a senior mortgage.^" Parties who have acquiesced with knowledge that the receivers have obtained loans upon the credit of the property are es- topped to deny that such loans constitute a prior and first lien upon such property.*^ The court may order the property in its hands to be sold subject to the lien of the certificates which have been issued by its receiver,^^ or the lien may be transferred to the proceeds of the sale.^^ If the property is sold subject to the lien of the certificates, it seems that such lien may be enforced by the holder in an independent suit.^* It has also been held that one class of receiver's certificates may have priority over another according to their terms,^° and that where the mortgage has been foreclosed and the time for redemption has expired, receiver's certificates issued thereafter on a creditors' bill filed by stockholders could not be given a preference over the mort- gage where the corporation was a mining company and the court had power merely to wind up the corporation.^* " Meyer v. Johnston, 53 Ala. 237, « Swann v. Clark, 110 U. S. 602, 348; Union Trust Co. v. Illinois, &c. 4 Sup. Ct. 241; Mercantile Trust Co. R. Co. 117 U. S. 434, 6 Sup. Ct. 809; v. Kanawha, &c. R. Co. 58 Fed. 6, Wallace v. Loomis, 97 U. S. 146. 60 Am. & Bng. R. Cas. 513, 526. But See, also. Central Trust Co. v. Ma- see Turner v. Peoria, &c. R. Co. 95 rietta, &c. R. Co. 75 Fed. 193. It 111. 134, 35 Am. R. 144. has even happened that the entire ^ Bibber-White Co. v. White Biver, estate has been consumed in the &c. R. Co. 115 Fed. 786 ; Bank of payment of debts and receiver's cer- Commerce v. Central, &c. Co. 115 tiflcates. See Royal Trust Co. v. Fed. 878. Washburn, &c. R. 120 Fed. 11; Kent ™Standley v. Henrie, &c. Co. 27 V. Lake Superior, &c. Co. 144 U. S. Colo. 331, 61 Pac. 600. So it has 75, 12 Sup. Ct. 650. been held that certificates issued by '' Jones Corp. Bonds and Mortg. a state court to a judgment creditor § 553. in a suit in which the mortgagee "' Mercantile Trust Co. v. Kana- was not made a party will not bind wha, &c. R. Co. 50 Fed. 874. a federal court on decree for fore- »' Mercantile Trust Co. v. Kana- closure. Metropolitan Trust Co. v. wha, &c. R. Co. 58 Fed. 6, 60 Am. & Lake Cities, &c. R. Co. 101 Fed. 897. Eng. R. Cas. 513. See, also, Illinois Se^, also. Pool v. Farmers' &c. Co. Trust, &e. Bank v. Pacific R. Co. 115 7 Tex. Civ. App. 334, 27. S. W. 744. Cal. 285, 47 Pac. 60. § 593] eeceivek's cektificates. 873 § 593. Statutory provisions as to lien. — In some of the states statu- tory provisions are found which authorize receivers to borrovr money and create liens upon the mortgaged property in certain cases. ^'^ Such statutes, in the main, simply declare the rule followed by chancery courts, and especially by the federal courts, which we have already stated. Sometimes, however, they extend that rule to private business corporations and authorize liens to be created for money borrowed for some purposes other than those generally authorized by the courts in the absence of such a statute. It may be that the legislature has no power to impair the obligation of existing contracts in this way, but, as the public statutory law enters into every contract, .such legislation is doubtless constitutional as to future contracts. The authority of the court to create superior liens by receiver's certificates may, doubt- less, be limited as well as extended by such statutes, but whether this is the effect in any particular instance must depend largely upon the particular statute in question. It may also be a matter of doubt as to how far, if at all, such statutes can bind the federal courts. § 594. Negotiability of receiver's certificates. — It is sometimes said that receiver's certificates are negotiable, and it is true that they .are usually negotiable in form, that is, they are made payable to order or bearer, and may be transferred from hand to hand by assignment or delivery. But they are not negotiable, in the strict sense of that term, like bills of exchange or promissory notes. In other words, re- ceiver's certificates are not commercial paper, whatever the form that may be given to them, and a second or subsequent holder can assert no greater rights than were acquired by the first taker.^^ An assignee, "See 19 Am. & Eng. Ency. of judged cases. All agree in holding Law, 752; Beach Receivers, § 395. that such certificates are not promis- '^ Union Trust Co. v. Chicago, &c. sory notes or hills of exchange. Mc- R. Co. 7 Fed. 513; Central Nat. Curdy v. Bowes, 88 Ind. 583, citing Bank v. Hazard, 30 Fed. 484; Stan- ahove cases, and Baird v. Under- ton V. Alahama, &c. R. Co. 31 Fed. wood, 74 111. 176; Newbold v. Peoria, 585; Turner v. Peoria, &c. R. Co. 95 &c. R. Co. 5 Bradwell (111.) 367; 111. 134, 35 Am. R. 144; Tiedeman Dawkes v. Lord De Lorane, 3 Wils. Commerc. Paper, § 498. A receiver's 207; Mechanics' Bank v. New York, certlflcate has none of the elements &c. R. Co. 13 N. Y. 599, 623. "A re- of a negotiable instrument; it is the ceiver's certificates, which are or- mere acknowledgment that a debt dered to be paid out of the income is due the payee, payable out of a of the road from time to time, are specific fund. There is entire har- in the nature of a call loan, and the mony upon this point in the ad- holder has a right to presume that 873 EIGHTS OP HOLDERS OF KBCEIVEE'S CERTIFICATES. [§ 59& therefore, can only recover to the extent that the original payee or holder could have recovered.'" The transfer of such a certificate by written indorsement does not render the transferer liable as an in- dorser of commercial paper, or as a guarantor, nor does such an in- dorsement imply a warranty that the certificate is collectible and will be paid.*" § 595. Eights of holders of receiver's certificates. — Eeceiver's cer- tificates are usually drawn upon an uncertain fund and do not create against any one an absolute and unconditional liability.*^ As a gen- eral rule, the fund alone is liable for their payment, and their va- lidity depends upon the order of court, and such order can be sustained only when the certificates are issued for certain limited purposes and may sometimes be modified, in effect at least, by further action ad- justing the rights of parties who have not had their day in court. It may readily be seen, therefore, that the rights of the holders of such certificates are somewhat precarious, and that even a bona fide pur- chaser from the original holder occupies a very different position from the bona fide holder of commercial paper under the law merchant. Holders of such certificates must take notice of the terms of the order under which they were issued and are bound to know whether they were issued in accordance with such terms and for an authorized pur- pose.*^ Certificates issued in excess of the receiver's authority are void even in the hands of a bona fide holder for value,*^ and, where the certificates were disposed of by the receivers at much less than their face value, the holders have been permitted to claim only the sum actually advanced with interest upon surrendering the certificates, 41 the receiver will notify him when ''Newbold v. Peoria, &c. R. Co. 5- the loan is to be called or the money 111. App. 367. But the fact that the paid." Mercantile Trust Co. v. Ka- court erred in some ruling or that nawha & O. Ry. Co. 50 Fed. 874. the bill on which the receiver was " Turner v. Peoria, &c. R. Co. 95 appointed was subject to demurrer 111. 134, 35 Am. R. 144. does not necessarily make the cer- "McCurdy v. Bowes, 88 Ind. 583. tificates void. Farmers' Loan, &c. "Credit Co. v. Arkansas, &c. R. Co. v. Centralia, &c. R. Co. 96 Fed. Co. 15 Fed. 46; Tiedeman Commerc. 636. Paper, § 498; Beach Receivers, ** Stanton v. Alabama, &c. R. Co. § 396. 2 Woods (U. S.) 506. See, also,. " Bank of Montreal v. Chicago, &c. Union Trust Co. v. Illinois, &c. R. R. Co. 48 Iowa 518; Mercantile Co. 117 U. S. 434, 6 Sup. Ct. 809; Trust Co. V. Kanawha, &c. R. Co. 58 Central Nat. Bank v. Hazard, 30 Fed. 6, 60 Am. & Bng. R. Cas. 513. Fed. 484. But the purchaser of re- § 596] EEOEIVEK's CEETIFICAfl:ES. 874 Where, however, the court authorizes them to be sold at a certain dis- count, and they are sold within the limit fixed by the court, it has been held that the purchasers thereof are entitled to their face value, as established by the order of the court.*^ If the certificates are is- sued without consideration they are invalid, even in the hands of an innocent holder for value.^^ Certificates may be exchanged directly for material furnished or labor performed if the exchange is made for an adequate consideration.*' But they are valid only to the ex- tent of the consideration actually received.** § 596. Who may question validity of receiver's certificates. — ^Al- though receiver's certificates are not negotiable instruments under the law merchant, yet, when they are regularly issued under the order of court, bondholders and purchasers of the property at foreclosure sale may be estopped from questioning their validity and priority of lien after they have been sold to good faith purchasers. As we have already seen, prior lienholders and bondholders, where no notice has been given to them or their trustees and no hearing has been afforded them as to the propriety of the expenditures and the right to make the certificates a prior lien, will generally be allowed to question their validity or right to priority, at least before they are issued to bona fide purchasers.*" But those who consent or are given due notice and an celver's certificates is not bound to inadequate consideration, a subse- oversee the application of the quent bona fide holder for value will money which he advances. Where be protected only to the amount ac- a purchaser of receiver's certificates tually advanced by the first pur- has paid their par value to the re- chaser. Central Nat. Bank v. Haz- ceiver, without notice of any facts ard, 30 Fed. 484. to put him upon inquiry, his lien is " Jones Corporate Bonds and not affected by the fact that the re- Mortgages, § 550, citing Taylor v. ceiver appropriates the money to Philadelphia, &c. R. Co. 14 Phila. his own use. Mercantile Trust Co. (Pa.) 451, 461; People v. Erie R. V. Kanawha, &c. R. Co. 50 Fed. 874. Co. 54 How. Pr. (N. Y.) 59. See "Union Trust Co. v. Illinois, &c. Coe v. New Jersey, &c. R. Co., 27 R. Co. 117 U. S. 434, 6 Sup. Ct. 809. N. J. Eq. 37. " Jones Corp. Bonds and Mortg. " Bank of Montreal v. Chicago, &c. § 566, citing Turner v. Peoria, &c. R. Co. 48 Iowa 518. R. Co. 95 111. 134, 35 Am. R. 144; «See Mitchell, Ex parte, 12 S. Bank of Montreal v. Chicago, &c. R. Car. 83; Hand v. Savannah, &c. R. Co. 48 Iowa 518; Union Trust Co. Co. 17 S. Car. 219; Hervey v. II- V. Chicago, &c. R. Co. 7 Fed. 513. linois Midland R. Co. 28 Fed. 169; See, also. Beach on Receivers, § 397. Coe v. New Jersey, &c. R. Co. 27 N. If the certificates are issued for an J. Bq. 37; United States Rolling 875 WHO MAY QUESTION VALIDITY. [§' 596 opportunity to be heard cannot afterwards question their validity or priority.^"* Nor can bondholders who, with knowledge of the facts, permit certificates to be issued without objection under the order of the court, question their validity or priority of lien after they have been issued and sold to bona fide purchasers.^^ Especially is this true where the bondholders appoint a committee of their own number to represent them all and such committee consents to the issuance of the certificates.°^ So, where the road is sold under a decree of fore- closure which makes it subject to the lien of the receiver's certificates, the purchaser at the foreclosure sale is estopped from questioning the validity of the lien.°* The receiver who obtained the order and issued Stock Co., In re, 55 How. Pr. (N. Y.) 286; article in 12 Am. L. Rev. «60, and 13 Am. L. Rev. 40. In Snow V. Winslow, 54 Iowa 200, it was held that where the road was sold to satisfy the certificates it must be regarded as. sold subject to a mechanic's lien, to enforce which suit had been instituted before the receiver was appointed, and that such lien was not divested or af- iected as the holder thereof was not made a party and did not consent ■to the appointment of the receiver or the order or decree of the court. ""Ante, § 591. " Humphreys v. Allen, 101 111. 490, 4 Am. & Eng. R. Cas. 14; Langdon V. Vermont, &c. R. Co. 53 Vt. 228, 4 Am. & Eng. R. Cas. 33. See, also. Union Gold Mining Co. v. Rocky Mountain Nat. Bank, 96 U. S. 640; liovett V. German Reformed Church, 12 Barb. (N. Y.) 67. In the Ver- mont case cited in this note it was ield that although the purpose for which the receiver was appointed liad been accomplished so that he might have been discharged, yet if he continued to act as receiver and issued obligations as such, with the knowledge and assent of all parties interested, they were estopped to deny, as against bona fide holders, that the obligations were what they purported to be, namely, receiver's obligations entitled to priority of payment out of the assets of the trust. '''' Langdon v. Vermont, &c. R. Co. 63 Vt. 228, 4 Am. & Eng. R. Cas. 33. ='Swann v. Clark, 110 U. S. 602, 4 Sup. Ct. 241; Mercantile Trust Co. V. Kanawha, &c. R. Co. 58 Fed. 6, 60 Am. & Eng. R. Cas. 513, 526. See, also. Central Trust Co. v. Shef- field, &c. R. Co. 44 Fed. 526. In this last case it appeared that, by con- sent of all parties, the receiver of a railroad company, though not en- gaged in operating the road, was authorized by order of court to is- sue certificates which should con- stitute a lien on the company's prop- erty superior to certain prior mort- gages, and that the money obtained on such certificates was used in pre- serving and improving the property. It was held that the purchasers of the property, who purchased with the understanding that the receiv- er's certificates, under the order of the court, constituted a prior lien on the property, which they were to pay, at a subsequent sale to fore- close such mortgages, were estopped from denying the validity of the cer- tificates. § 597] eeceiver's ceetificates. 876 the certificates thereunder cannot, it is obvious, object to their priority of lien nor can the mortgagor nor his assignees.'** And a property owner along the line of the road cannot restrain the completion of the road by questioning the validity of the receiver's certificates.^^ § 597. Payment and redemption of certificates. — As we have seen, receiver's certificates are not promises to pay money absolutely, creat- ing a personal liability, but are rather to be considered as acknowledg- ments of indebtedness for the payment of which out of some specific fund usually to be ascertained thereafter the faith of the court is said to be pledged. As a general rule, therefore, an independent action will not lie to enforce them, but the application for their payment or re- demption should be made to the court which authorized them to be issued.^" The court may, doubtless, in a proper ease, order them to be paid out of the fund in the hands of the receiver, but as the income or assets in the hands of the receiver will seldom be found sufficient to redeem the certificates and pay necessary expenses, and as the courts cannot often tell in advance just what will be the condition of the trust or what questions may arise, certificates are seldom redeemed in advance of the foreclosure sale, and it is customary, therefore, to pro- vide in the order authorizing their issue that they shall be a lien on the proceeds of the sale and payable out of the purchase-money.^' In- stead of this, however, the court may order that the lien shall remain upon the property which the purchaser shall take subject to such lien.^' In such a case, as elsewhere stated, it has been held that the lien may be enforced against the property in the hands of the pur- chaser or his grantees in an independent action.°° It has also been held that, although the order authorizing the certificates provided that they should be a first and paramount lien upon the property, a final decree vesting in the purchaser of the property a title free from all liens operated pro tanto to set the order aside and transferred the lien, if any, to the proceeds of the sale."" It was further held, in the same case, "•Jerome v. McCarter, 94 TJ. S. in which an independent suit may 734. See, also, Central Trust Co. v. be brought, see ante, § 592. Seasongood, 130 U. S. 482, 9 Sup. "Beach Receivers, § 401. Ct. 575; Vilas V. Page, 106 N. Y. 439, ■'» Mercantile Trust Co. v. Kana- 452, 13 N. B. 743. wha, &c. R. Co. 58 Fed. 6. ""Moran v. Lydecker, 11 Abb. N. ™Ante, § 592. Cas. (N. Y.) 298. ™ Mercantile Trust Co. v. Kana- ™ Turner v. Peoria, &c. R. Co. 95 wha, &c. R. Co. 58 Fed. 6, distin- 111. 134, 35 Am. R. 144. For cases guishing "Vilas v. Page, 106 N. Y. 439, 13 N. E. 743. 877 PAYMENT AND EBDEMPTION OF CEETIFICATES. [§ 597 that the holder of the receiver's certificates who was guilty of laches in not acting before the final decree, could not follow the proceeds of the sale into the hands of bondholders who received the same on dis- tribution by final decree, notwithstanding the fact that the court had failed to redeem its pledge to make the certificates a paramount lien by providing on distribution for their payment. If the fund or prop- erty is insufficient to redeem or pay all the certificates in full, the holders must usually share pro rata in the proceeds.'^ But the rights of the holders of a portion of the certificates may, of course, be waived or made subordinate to those of others by agreement, and if the pro- ceeds are insufficient to pay the latter, the former may get nothing.®^ "Turner v. Peoria, &c. R. Co. 95 was made and whose certificates 111. 134, 35 Am. R. 144. were not paid in full, might even "" Fletcher v. Waring, 137 Ind. 159, recover from the other party the 36 N. E. 896. Under the agreement amount paid for a right of way for in this case it was held that the which the certificates were issued party in whose favor the waiver to the latter. Sec. Sec. 598. Scope of the chapter. 607. 599. Railroad company is subject to state insolvency law. 608. 600. Trust fund doctrine. 601. When a corporation is deemed 609. insolvent — ^Effect of insolv- 610. ency. 602. Assignments by corporations. 611. 603. Preferences by corporations. 612. 604. Preference of stockholders and officers. 605. Statutory preference of em- ployes. 613. 606. What constitutes a dissolu- tion. 614. CHAPTEK XXIV. INSOLVENCY AND DISSOLUTION. Judicial determination of dis- solution. Voluntary dissolution — Sur- render of charter. Proceedings to dissolve. Dissolution in case of consoli- dated company. Effect of dissolution. Corporation may have a quali- fied existence after dissolu- tion. Disposition of property on dis- solution. Rights of creditors upon disso- lution. §598. Scope of the chapter. — ^We have already considered in a general way the subject of the dissolution of a corporation by forfeiture or repeal of its charter and by expiration of the time to- which its charter life is limited. But. we have not considered what becomes of the property after dissolution, nor have we treated specifically of in- solvency and the relations and rights of the various parties when a corporation becomes insolvent, except as incidentally connected with the subjects of foreclosure sales and receivers. In this chapter we shall treat briefly of these matters, including assignments and preferences, although some of the questions considered can seldom arise in railroad cases and the general rules upon the subject may not be applicable, in some instances, to such cases. § 599. Railroad company is subject to state insolvency law. — ^Do- mestic railroad corporations, like all other corporations, are usually subject, to a certain extent at least, to the insolvency laws of the states wherein they are respectively incorporated and may be proceeded 878 879 TRUST FUND DOOTEINB. [§ 600 against under those laws.^ But such laws, as a general rule at least, have no extra territorial effect.^ A voluntary assignment of personal property, however, if valid where it is made, will usually be treated as valid everywhere and may operate to transfer personal property of the assignor wherever it is found,^ unless, perhaps, where it is contrary to good morals or repugnant to the policy or positive institutions of the state in which it is found.* But this rule does not apply to the same extent to assignments of real estate.^ The effect of state in- solvency laws upon consolidated corporations will be discussed else- where. § 600. Trust fund doctrine. — When a company becomes insolvent its capital stock with all its other property is said to become assets or to constitute a trust fund for the payment of its debts.® This is the well-known "trust fund" doctrine to which we have elsewhere referred. It is usually stated substantially as we have stated it, but the state- ment, perhaps, needs explanation. It does not mean that there is any direct trust lien upon thq property of the corporation in favor of creditors, nor that the corporation may not manage or dispose of it in the usual course of business while the corporation is "a going con- 1 Central Nat. Bank v. Worcester v. Webster, 2 Wall. Jr. (U. S.) 131; Horse R. Co. 13 Allen (Mass.) 105; Burrill Assignments, § 275; Story Piatt V. New York, &c. R. Co. 26 Confl. L. § 423a. Many courts re- Conn. 544. The Maryland Act of fuse to enforce foreign assignments 1888 providing for the payment of to the prejudice of the citizens of wages and salaries due employes of their own state, holding that the insolvent employers does not sub- rule of comity does not require them ject corporations to the insolvent to do so in such a case, laws of the state. Ellicott Machine 'Burrill on Assignments, §§ 275, Co. V. Speed & Co. 72 Md. 72, 18 Atl. 279; Welder v. Maddox, 66 Tex. 37S, 863. 1 S. W. 168, 59 Am. R. 617; Blake = Glenn v. Clabaugh, 65 Md. 65, 3 v. Williams, 23 Mass. 286, 17 Am. Atl. 902; Warren v. First Nat Bank, Dec. 372; Herver v. Rhode Island, 149 111. 9, 38 N. E. 122, 25 L. R. A. &c. Works, 93 U. S. 664; Dickinson, 746 ; Franzen v. Hutchinson, 94 Iowa Ex parte, 29 S. Car. 453, 7 S. E. 593, 95, 62 N. W. 698. But see as to the 1 L. R. A. 685, 13 Am. St. 749. effect of insolvent laws on non-resi- " Burrill on Assignments, § 277 ; dents: Brown v. Smart, 145 U. S. Osborn v. Adams, 18 Pick. (Mass.) 454, 12 Sup. Ct. 958; Macdonald v. 245. First Nat. Bank, 47 Minn. 67, 49 N. " Wabash, &c. R. Co. v. Ham, 114 W. 395, 13 L. R. A. 462, 28 Am. St. U. S. 587, .594, 5 Sup. Ct. 1081; 328. Graham v. LaCrosse, &c. R. Co. 102 'Baltimore, &c. R. Co. v. Glenn, TJ. S. 148, 161. 28 Md. 287, 92 Am. Dec. 688; Caskie § 600] INSOLVENCY AND DISSOLUTION. 880 cern" with a reasonable prospect of eontinuing and there is no in- tention of suspending, although it may be insolvent in the sense that its liabilities are greater than its assets, or in the sense that it may not be able to fully meet its' obligations as they become due. It simply means, according to recent decisions, that when the corporation is insolvent and a court of equity has possession of its assets for ad- ministration, they must be appropriated to the payment of its debts before any distribution to the stockholders.'^ In such a case equity will compel the payment of a balance due on unpaid stoek.^ The history of the evolution of the "trust fund" doctrine is an interesting one, but it would not be profitable to pursue it here. Some of the courts have undoubtedly misapplied and unduly extended it, but it may well be questioned if others, in the present reaction, are not inclined to im- duly limit it. We have stated the doctrine as explained in the latest decisions of the Supreme Court of the United States, but it may be somewhat difficult to reconcile the rule thus stated with other state- ments of the rule made by the federal, as well as the state, courts, although we are inclined to think there is no real conflict. Thus, it is said that "when a, corporation is dissolved or becomes insolvent and determines to discontinue the prosecution of business its property is thereafter affected by an equitable lien or trust for the benefit of creditors," and that the directors then hold a fiduciary relation to creditors and cannot prefer themselves in view of expected suspension on account of insolvency, although the corporation might, while still "a going concern," secure them for advancements made to carry on- the business with the reasonable expectation of successfully overcom- ing financial embarrassment.' This is a much more reasonable doc- ' Hollins V. Brierfield, &c. Co. 150 Fed. 809, 14 C. C. A. 116. See, also, U. S. 371, 14 Sup. Ct. 127; Fogg American Exchange Nat. Bank v. V. Blair, 133 U. S. 534, 541, 10 Sup. Ward, 111 Fed. 782, 49 C. C. A. 611, Ct. 338; Henderson v. Indiana Trust 52 L. R. A. 356; Sabin v. Columbia, Co. 143 Ind. 561, 40 N. B. 516; First &c. Go. 25 Oreg. 15, 34 Pac. 692, 42 Nat. Bank v. Dovetail, &c. Co. 143 Am. St. 756, and note. Ind. 550, 40 N. B. 810, 52 Am. St. * Richardson v. Green, 133 U. S. 435; Worthen v. Griffith, 59 Ark. 30, 10 Sup. Ct. 280; Morgan v. New 562, 28 S. W. 286, 43 Am. St. 50; York, &c. R. Co. 10 Paige Ch. (N. Y.) O'Bear, &c. Co. v. Volter (Ala.), 17 290, 40 Am. Dec. 244; Barcalow v. So. 525; Thomson-Houston, &c. Co. Totten (N. J.), 32 Atl. 2. v. Henderson, &c. Co. 116 N. Car. "Sutton Mfg. Co. v. Hutchinson, 112, 21 S. B. 951; Alberger v. Nat. 63 Fed. 496; Sabin v. Columbia Fuel Bank, 123 Mo. 313, 27 S. W. 657; Co. 25 Oreg. 15, 34 Pac. 692, 42 Am. Chattanooga, &c. R. Co. v. Evans, 66 St. 756. But compare Sanford 881 WHEN A COKPOKATION IS DEEMED INSOLVENT. [§ 601 trine than that which forbids any preference after the company has become insolvent even though it is "a going concern" and has reason- able expectation of overcoming its financial embarrassment, and the only question is as to whether the "trust fund" doctrine should have been applied at all so long as the corporation had not quit business and its property had not been taken charge of by the court. The capital stock and properties of a corporation, however, constitute a trust fund for the payment of its debts in such a sense that when there is a misappropriation of the funds of a corporation, equity, on behalf of the creditors of such corporation, will follow the fund so diverted,^" unless it has passed into the hands of a bona fide purchaser.^^ § 601. When a corporation is deemed insolvent — ^Effect of insolv- ency. — It is extremely difficult to formulate any general rule for de- termining just when a corporation is to be deemed insolvent. It has been said that a corporation is insolvent when it is not able to pay its debts, as they become due in the usual course of business,^" or when it has not property or assets sufficient to pay its debts.^' But it fre- Fork, &c. Co. V. Howe, &c. Co. 157 U. S. 312, 15 Sup. Ct. 621. See fur- ther on this subject, §§ 603, 604. '"Chicago, &c. R. Co. v. Chicago &c. Third Nat. Bank, 134 U. S. 276, 10 Sup. Ct. 550; Wabash, &c. R. Co. V. Ham, 114 U. S. 587, 5 Sup. Ct. 1081; Railroad Co. v. Howard, 7 Wall. (U. S.) 392, 409; Blsh v. Brad- ford, 17 Ind. 490; Rorke v. Thomas, 56 N. Y. 559; Chattanooga, &c. R. Co. V. Evans, 66 Fed. 809, 14 C. C. A. 116; Chicago, &c. Bridge Co. v. Fowler, 55 Kans. 17, 39 Pac. 727; Hastings v. Drew, 76 N. Y. 9; Walt Insolv. Corp. §§ 150, 156; Taylor Priv. Corp. § 656. See, also, MofCat V. Smith, 101 Fed. 771, 41 C. C. A. 671. When one corporation trans- fers all its assets to another corpo- ration without having paid its debts, the latter takes the property as a trustee subject to a lien in favor of the creditors of the old company. National Bank of Jefferson v. Texas Invest. Co. 74 Tex. 421, 12 S. W. 101; Eli.. Railboads — 56 Montgomery, &c. Co. v. Dienelt, 133 Pa. St. 585, 19 Atl.. 428, 19 Am. St. 663. It has also been held that when a corporation has sold all its prop- erty, franchises, etc., and thus in effect has been dissolved, its cred- itors may enforce their demands in a court of equity against the former stockholders, the proceeds of the property being considered assets in the hands of stockholders for the payment of debts. But no action can be maintained against the pur- chasing company if the purchase was made in good faith. Chesa- peake, &c. R. Co. V. Griest, 85 Ky. 619, 4 S. W. 323. "Fisk V. Union Pac. R. Co. 10 Blatchf. (U. S.) 518; Sanger v. Up- ton, 91 U. S. 56, 60. "Atwater v. American, &c. Bank, 152 111. 605, 38 N. E. 1017; Mish v. Main, 81 Md. 36, 31 Atl. 799; People V. Excelsior, &c. Co. 3 How. Pr. N. S. (N. Y.) 137. "Wait Insolv. Corp. §§ 28, 29. § 602] INSOLVENCY AND DISSOLUTION. 882. quently happens that a corporation or an, individual may not be able to pay all debts as they mature, and may yet have assets far in excess of the liabilities. So, a corporation or an individual may not at some particular time have assets equal to the liabilities and yfet may be able to meet all debts as they fall due or make such arrangements as will prevent financial embarrassment. It seems to us, therefore, that a corporation should not be deemed insolvent merely because its as- sets are insufficient to meet all its liabilities at any particular time,, if it is still prosecuting business with the prospect and expectation of continuing to do so successfully. It is certainly not insolvent in such a sense as to justify the application of the "trust fund" doctrine, even if that can be applied in any case of mere insolvency, although it may, perhaps, be insolvent within the meaning of some statute. The mere insolvency of a corporation, however, does not per se work its dissolution, although it may be cause 'for a judgment dissolving it.^* A corporation may exist without property,^^ and mere insolvency or impairment of capital, without surrender or forfeiture of the charter,, does not prevent the members of the corporation from furnishing "re- newed capital, and then poceeding to use the corporate powers."^* So long, at least, as the corporation proceeds in good faith, with the reasonable expectation of paying its debts and successfully carrying on its business, it would seem that it is not insolvent in such a sense as to prevent the corporation from continuing the management of its assets in the regular course of business or to authorize creditors to interfere.^''" § 602. Assignments by corporations. — At common law, and under the statutes of most of the states, an insolvent corporation may make See, also, Chicago Life Ins. Co. v. L. R. A. 897; Fields v. United States, Auditor, 101 III. 82; Toof v. Martin. 27 App. (D. C.) 433. 13 Wall. (U. S.) 40; European, &c. "Cofiurn v. Boston, &c. Co. 10 Society, In re, JS. R. 9 Eq. 122. Gray (Mass.) 243. "Angell & Ames Corp. § 775; "2 Morawetz Priv. Corp. § 786; Shenandoah Valley R. Co. v. Grif- Wait Insolv. Corp. § 34; Paulding fith, 76 Va. 913; Moseby v. Burrow, v. Chrome Steel Co. 94 N. Y. 334,. 52 Tex. 396. See, also. Fields v. 338; Pond v. Framingham, &c. R. United States, 27 App. (D. C.) 433. Co. 130 Mass. 194; Baker v. Louisi- ^^ BrufCett V. Great Western R. Co. ana, &c. R. Co. 34 La. Ann. 754; 25 111. 353; Boston Glass Mfg. Co. v. Warren v. First Nat. Bank, 149 111. Langdon, 24 Pick. (Mass.) 49, 35 9, 38 N. E. 122, 25 L. R. A. 746. See, Am. Dec. 292; Wait Insolv. Corp. also, Sabin v. Columbia, &c. Co. 25 § 356. See, also, State v. Superior Oreg. 15, 34 Pac. 692, 42 Am. St. 756, Court, 31 Wash. 445, 72 Pac. 89, 66 and note. 883 ASSIGNMENTS BY COEPOEATIONS. [§■ 603 a general assignment in trust for the benefit of its creditors.^' In the absence of any provision to the contrary, the assignment may be made by the directors without any action upon the part of the stockholders,^* and it has also been held that this power may be exercised by a quorum of the board of directors at a regularly called meeting at which a bare quorum is present.^" The president of the corporation, however, has no implied authority to do so by virtue of his office.^^ Such an assignment does not carry with it the prerogative franchises, such as that of being a corporation, and does not operate as a dissolution.^^ Owing to the peculiar nature of a railroad company it may be that the rules applicable to assignments and preferences by ordinary busi- ness corporations do not all apply with full force to railroad companies. " Vanderpoel v. Gorman, 140 N. Y. 563, 35 N. E. 932, 24 L. R. A. 548, 37 Am. St. 601 ; De Ruyter v. Trustees, 3 Barb. Ch. (N. Y.) 119, citing au- thorities from many states; Shock- ley v. Fisher, 75 Mo. 498; Wilkinson V. Bauerle, 41 N. J. Bq. 635, 7 Atl. 514; Lamb v. Cecil, 25 "W. Va. 288; Tripp V. Northwestern Nat. Bajak, 41 Minn. 400, 43 N. W. 60; Warner V. Mower, 11 Vt. 385; McCallie & Jones V. Walton, 37 Ga. 611, 95 Am. Dec. 369 ; Stat© v. Bank, 6 Gill & J. (Md.) 205, 26 Am. Dec. 561; Burrill Assignments (6th ed.), § 45, and numerous authorities there cited. See, also. United; States, &c. Co. v. American, &c. Co. 181 U. S. 434, 21 Sup. Ct. 670; Smith v. Wells, &c. Co. 148 Ind. 333, 46 N. E. 1000; Grand, &c. Co. v. Rude, &c. Co. 60 Kans. 196, 55 Pac. 848; Louisville, &c. Co. V. Btheridge, &c. Co. (Ky.), 43 S. W. 169; Birmingham, &c. Co. V. Freeman, 15 Tex. Civ. App. 451, 39 S. W. 626. But see Meloy v. Cen- tral Nat. Bank, 17 Wash. L. R. 68. "De Camp v. Alward, 52 Ind. 468; Ardesco Oil Co. v. North American, &c. Co. 66 Pa. St. 375, 382; Hutch- inson V. Green, 91 Mo. 367, 1 S. W. 853; Wright v. Lee, 2 S. Dak. 596, 51 N. W. 706, 4 S. Dak. 237, 55 N. W. 931; Descombes v. Wood, 91 Mo. 196, 4 N. W. 82, 60 Am. R. 239; Cal- umet Paper Co. v. Haskell, &c. Co. 144 Mo. 331, 45 S. W. 1115, 66 Am. St. 425. Compare Chew v. Elling- wood, 86 Mo. 260, 273, 56 Am. R. 429, and Eppright v. Nickerson, 78 Mo. 482. """Buell V. Buckingham, 16 Iowa 284, 85 Am. Dec. 516; Chase v. Tut- tle, 55 Conn. 455, 12 Atl. 874, 3 Am. St. 64; Simon v. Sevier Assn. 54 Ark. 58, 14 S. W. 1101. ^Richardson v. Rogers, 45 Mich. 591, 8 N. W. 526. See, also. Cham- berlain V. Bromberg, 83 Ala. 576, 3 So. 434. And an assignment to him- self is void. Rogers v. Pell, 89 Hun (N. Y.) 159, 35 N. Y. 17. ^Germantown Pass. R. Co. v. Fit- ler, 60 Pa. St. 124, 100 Am. Dec 546, and note; Town v. Bank, 2 Doug. (Mich.) 530; Arthur v. Commercial, &c. Bank, 9 Sm. & M. (Miss.) 394, 48 Am. Dec. 719; Parsons v. Eureka Powder Works, 48 N. H. 66; Hurlbut V. Carter, 21 Barb. (N. Y.) 221; State V. Bank, 6 Gill. & J. (Md.) ,205, 26 Am. Dec. 561; Shryock v. Bashore, 82 Pa. St. 159; Ohio L. &c. Co. V. Merchants', &c. Co. 30 Tenn. 1, 53 Am, Dec. 742. But see State V. Real Estate Bank, 5 Ark 595, 41 § 603] INSOLVENCY AND DISSOLUTION, 884 § 603. Preferences by corporations. — As a general rule, in the ab- sence of any charter or statutory provision to the contrary, a corpora- tion may exercise the right to make an assignment to the same extent and in the same manner as a natural person. Preferences in general assignments are prohibited in many of the states, but where they are permitted they may be made, in the absence of any provision to the contrary, by corporations as well as by individuals.^' And even where preferences in general assignments are forbidden, they may usually be made by mortgage, securing particular creditors, or by transfer of property to them in good faith before a general assignment is^ made.^* § 604. Preference of stockholders and officers. — It is generally held that stockholders, who are also creditors, may be preferred in good faith as such creditors.''^ It is also held, in some jurisdictions, that directors and officers may likewise be preferred f but there are Am. Dec. 109; Smith v. New York, &c. Co. 18 Abb. Pr. (N. Y.) 419, and dissenting opinion of Story, J., in Beaston v. Farmers' Bank, 12 Pet. (U. S.) 102, 138. =» Gould v. Little Rock, &c. R. Co. 52 Fed. 680; Bier v. Gorrell, 30 W. Va. 95, 3 S. B. 30, 8 Am. St. 17; Coats V. Donnell, 94 N. Y. 168; Bis- sell V. Besson, 47 N. J. Eq. 580, 22 Atl. 1077; Ringo v. Biscoe et al., 13 Ark. 563; Rollins v. Shaver, &c. Co. 80 Iowa 380, 45 N. W. 1037, 20 Am. St. 427; Catlin v. Eagle Bank, 6 Conn. 233; Knoxville Iron Co. v. Wilkins, &c. Co. 74 Ga. 493; note to Lyons-Thomas Hardware Co. v. Perry Stove Co. 86 Tex. 143, 24 S. W. 16, 22 L. R. A. 802; Burrill As- signments, § 45. Contra, Rouse v. Merchants' Nat. Bank, 46 Ohio St. 493, 22 N. E. 293, 5 L. R. A. 378, 15 Am. St. 644, followed, as the law of Ohio, in Smith, &c. Purifier Co. v. McGroarty, 136 U. S. 237, 10 Sup. Ct. 1017; Lyons-Thomas Hardware Co. v. Perry Stove Co. 86 Tex. 143, 24 S. W. 16, 22 L. R. A. 802; Kankakee Woolen Mill Co. v. Kampe, 38 Mo. App. 229. ="Bank of Montreal v. Potts, &c. Co. 90 Mich. 345, 51 N. W. 890; Warner v. Littlefield, 89 Michl. 329, 50 N. W. 721; Rollins v. Shaver, &c. Co. 80 Iowa 380, 45 N. W. 1037, 20 Am. St. 427; Ragland v. McFall, 137 III. 81, 27 N. B. 75; Henderson V. Indiana Trust Co. 143 Ind. 561, 40 N. B. 516, and authorities cited in last note, supra. ^BniT V. McDonald, 3 Gratt. (Va.) 215; Lexington, &c. Co. v. Page, 17 B. Mon. (Ky.) 412, 66 Am. Dec. 165; Reichwald v. Commercial Hotel Co. 106 111. 439; Warfleld, &c. Co. v. Marshall, &c. Co. 72 Iowa 666, 34 N. W. 467, 2 Am. St. 263; Garrett v. Burlington, &c. Co. 70 Iowa 697, 29 N. W. 395, 59 Am. R. 461. Contra, Swepson v. Exchange, &c. Bank, 9 Lea (Tenn.) 713. And see Howell V. Crawford (Ark.), 89 S. W. 1046. ''"Planters' Bank v. Whittle, 78 Va. 737; Brown v. Grand Rapids, &c. Co. 58 Fed. 286, 22 L. R. A. 817; Gould V. Little Rock, &c. R. Co. 52 885 PEEFEEENCE OF STOCKHOLDEES AND OEEICEBS. [§ 604 other authorities to the effect that, after a corporation has become clearly insolvent, directors and officers cannot take advantage of their position to obtain a preference for unsecured debts which there was no agreement to secure while the corporation was solvent or at the time the debts were created.''^ A corporation may, however, in good faith, and while solvent, borrow money from a director, or officer, for use in its business, and give a mortgage to him to secure its pay- ment, and the fact that the corporation afterwards becomes insolvent does not impair the validity of his security .''' Indeed, according to Fed. 680; Bank of Montreal v. Potts, &c. Co. 90 Mich. 345, 51 N. W. 512; Buell v. Buckingham, 16 Iowa 284, 85 Am. Dec. 516 ; Garrett v. Burling- ton, &c. Co. 70 Iowa 697, 29 N. W. 395; 59 Am. R. 461; Smith v. Skeary, 47 Conn. 47; Duncomb v. New York, &c. R. Co. 84 N. Y. 190; Hospes V. Car Co. 48 Minn. 174, 50 N. W. 1117, 15 L. R. A. 470, 31 Am. St. 637; Schufeldt v. Smith, 131 Mo. 280, 31 S. W. 1039, 29 L. R. A. 830, 52 Am. St. 628; Blaloch v. Kernersville, &c. Co. 110 N. Car. 99, 14 S. B. 501; Nappanee Canning Co. V. Reid, Murdoek, &c. Co. 159 Ind. 614, 64 N. E. 870, 1115, 59 L. R. A. 199, citing, in the majority and dissenting opinions, most of the au- thorities on both sides. In a later case the Appellate Court of Indiana recommended to the Supreme Court that the Indiana case above cited be overruled, but the supreme court re- affirmed the doctrine. City Nat. Bank v. Goshen, &c. Co. 163 Ind. 214, 71 N. E. 652. " Corey v. "Wadsworth, 99 Ala. 68, 11 So. 350, 23 L. R. A. 618, 42 Am. St. 29 (overruled in O'Bear, &c. Co. V. Volfer, 106 Ala. 205, 17 So. 525, 54 Am. St. 31) ; Olney v. Conanicut, &c. Co. 16 R. I. 597, 18 Atl. 181, 5 L. R. A. 361, 27 Am. St. 767, and note; Haywood v. Lincoln Lumber Co. 64 Wis. 639, 26 N. W. 184; Sicardl v. Keystone Oil Co. 149 Pa. St. 148, 24 Atl. 163; Consolidated Tank Line Co. V. Kansas City, &c. Co. 45 Fed. 7; Beach v. Miller, 130 111. 162, 22 N. E. 464, 17 Am. St. 291, and note; Rose- boom V. Whlttaker, 132 111. 81, 23 N. E. 339; Smith v. Putnam, 61 N. H. 632; Adams v. Kehlor, &c. Co. 35 Fed. 433; Sweeney v. Grape Sugar Co. 30 W. Va. 443, 4 S. E. 431, 8 Am. St. 88; Howe, &c. Co. v. San- ford, &c. Co. 44 Fed. 231 (reversed in Sanford Fork, &c. Co. v. Howe, &c. Co. 157 U. S. 312, 15 Sup. Ct. 621) ; Farmers' Loan, &c. Co. v. San Diego, &c. R. Co. 45 Fed. 518; Strai- ten V. Allen, 16 N. J. Eq. 229; Brad- ley V. Farwell, 1 Holmes (U. S.) 433; Hill v. Pioneer Lumber Co. 113 N. Car. .173, 18 S. E. 107, 21 L. R. A. 560, 37 Am. St. 621; Gaslight, &c. Co. V. Terrell, L. R. 10 Eq. 168; Montgomery v. Phillips, 53 N. J. Eq. 203, 31 Atl. 622; Bosworth v. Jack- sonville, &c. Bank, 64 Fed. 615; Ing- wersen v. Edgecombe, 42 Neb. 740, 60 N. W. 1032; Portland, &c. Co. v. Rossiter, 16 S. Dak. 633, 94 N. W. 702, 102 Am. St. 726, and note. See, also. Sawyer v. Hoag, 17 Wall. (U. S.) 610. '^O'Conner, &c. Co. v. Coosa, &c. Co. 95 Ala. 614, 10 So. 290, 36 Am. St. 251; Twin Lick Oil Co. v. Mar- bury, 91 U. S. 587; Hotel Co. v. Wade, 97 U. S. 13; American Ex- change Nat. Bank v. Ward, 111 Fed. 782, 49 C. C. A. 611, 52 L. R. A. 356; 604] INSOLVENCT AND DISSOLUTION. 886 what seems to be the better reason and the later authorities a corpora- tion may, in good faith, secure its directors who have lent their credit to it, "to induce a continuance of the loan of that credit, and obtain renewals of maturing paper at a time when the corporation, though not in fact possessed of assets equal to its indebtedness, is, a going concern, and is intending and expecting to continue its business."^" And where advancements are made by directors under an agreement, made at the time, that they are to have securities, it has been held that the mere fact that such securities are not given to them until after the corporation becomes insolvent will not aflEect their validity where the entire transaction is in good faith.^" Such transactions will, how- ever, be closely scrutinized,^^ and the rule announced in the later de- Paulding v. Chrome Steel Co. 94 N. Y. 334; Mullanphy Bank v. Schott, 135 111. 655, 26 N. B. 640, 25 Am. St. 401; Neal's Appeal, 129 Pa. St. 64, 18 Atl. 564; Pyle Works, Re, 63 L. T. R. 628; Saltmarsh v. Spaulding, 147 Mass. 224, 17 N. B. 316. " Per Brewer, J., in Sanford Pork, &c. Co. r. Howe, Browne & Co. 1.57 U. S. 312, 15 Sup. Ct. 620. See, also, Sabin v. Columbia Fuel Co. 25 Oreg. 15, 35 Pac. 692, 42 Am. St. 756; Holt V. Bennett, 146 Mass. 437, 16 N. E. 5; Gould V. Little Rock, &c. R. Co. 52 Fed. 680; Henderson v. Indiana Trust Co. 143 Ind. 561, 40 N. E. 516; County Court v. Baltimore, &c. R. Co. 35 Fed. 161; Hopson v. .ffitna, &c. Co. 50 Conn. 597; Illinois Steel Co. v. O'Donnell, 156 111. 624, 41 N. E. 185, 31 L. R. A. 265, 47 Am. St. 245. See, also. Hill v. Standard, &e. Co. 198 Pa. St. 446, 48 Atl. 432. "So a mortgage executed by a corporation whose debts exceed Its assets, to secure a liability incurred by it or on its behalf. Will be sus- tained, if it appears to have been given in good faith to keep the cor- poration upon its feet and enable it to continue the prosecution of its business. A corporation Is not re- quired by any duty it owes to cred- itors to suspend operations the mo- ment it becomes financially embar- rassed, or because it may be doubtful whether the objects of its creation can be attained by further effort up- on its part. It is in the line of right and of duty, when attempting, in good faith, by the exercise of its law- ful powers and by the use of all legitimate means, to preserve its ac- tive existence, and thereby accom- plish the objects for which it was created. In such a crisis in its af- fairs, and to those ends, it may ac-' cept financial assistance from one of its directors, and by a mortgage upon its property secure the pay- ment of money then loaned or ad- vanced by him, or in that mode pro- tect him against liability then in- curred in its behalf by him." Per Harlan, J., in Sutton Mfg. Co. v. Hutchinson, 63 Fed. 496, 501. Com- pare Wyman v. Bowman, 127 Fed. 257. ^ See Stout v. Yaeger Mill Co. 13 Fed. 802; Baker v. Harpster, 42 Kans. 511, 22 Pac. 415. See, also, Skinner v. Smith, 134 N. Y. 240, 31 N. E. 911. ''Richardson's Exr. v. Green, 133 U. S. 30, 43, 10 Sup. Ct. 280; Twin Lick Oil Co. V. Marbury, 91 U. S. 887 STATUTORY PREFEEENCE OF EMPLOYES. [§' 605 visions of the federal courts would not, perhaps, be extended by them to cases in which a general assignment is made or a mortgage exe- cuted to secure a director after the corporation has become hopelessly insolvent and has no intention of continuing business. Under such circumstances "entirely different considerations come into view," says ■Justice Harlan in a recent ease,^^ from which we have already quoted. "In our judgment, when a corporation becomes insolvent and intends not to prosecute its business, or does not expect to make further effort to accomplish the objects of its creation, its managing officers or ■directors come under a duty to distribute its property or its proceeds ratably among all creditors, having regard, of course, to valid liens or charges previously placed upon it. Their duty is 'to act up' to the end or design' for which the corporation was created,^^ and when they can no longer do so their function is to hold or distribute the property in their hands for the equal benefit of those entitled to it. Because of the existence of this duty in respect to a common fund in their hands to be administered, the law will not permit them, although creditors, to obtain any peculiar advantage for themselves to the prejudice of other creditors."^* It is not, however, altogether safe to predict that this decision will be followed in every jurisdiction without' question.^^ § 605. Statutory preference of employes. — Statutes exist in many of the states giving laborers and employes a lien or preference upon 587, 588. See, also, Rickerson, &c. decision, for the Lipplncott case was Co. V. Farrell, &c. Co. 75 Fed. 554; an extreme case and went much fur- James Clark Co. v. Colton, 91 Md. ther than Judge Harlan did. 195, 46 Atl. 386, 49 L. R. A. 698. '" The opinion of Justice Harlan, °" Sutton Mfg. Co. V. Hutchinson, so far as it states that the corpora- 63 Fed. 496, 502. See, also, Bosworth tion is not required hy any duty to V. Jacksonville Nat. Bank, 64 Fed. creditor to suspend operations the 615. moment it becomes embarrassed and '^ 1 Bl. Comm. 480. that it may accept financial aid from =' Sutton Mfg. Co. V. Hutchinson, the directors in good faith to keep 63 Fed. 496, 502. The court cites it going and secure them, is quoted Lipplncott V. Shaw Carriage Co. 25 with approval In Wyman v. Bow- Fed. 577, and cases following it. The man, 127 Fed. 257, 275, 276, and cited authority of that case and of some and distinguished in Chick v. Fuller, of the others cited is weakened, if 114 Fed. 22, 29. See, also, Moffat v. not destroyed, by the decision in Smith, 101 Fed. 771; Northwestern, Sanford Fork, &c. Co. v. Howe, &c. Co. v. Cotton, &c. Co. 70 Fed. Browne & Co. 157 IT. S. 312, 15 Sup. 155, 160; Easton v. Iowa, 188 TJ. S. Ct. 621, but this does not necessarily 220, 23 Sup. Ct. 288, 292. Impair the force of Judge Harlan's 606] INSOLVENCY AND DISSOLUTION. 888 the insolvency or dissolution of a corporation. It is generally held that such statutes are to be liberally construed;^* but different courts have not always reached the same conclusion as to what persons are entitled to the benefit of the statute, although the provisions of many of the statutes are very similar. An independent contractor is clearly not a laborer or an employe within the meaning of such a statute.^'^ 'Not are the regular ofBcers of a corporation ordinarily included,^* although it has been held that a head miller/® the superintendent of a gas com- pany/" and the foreman or 'Tdoss" of a mine*^ are entitled to the bene- fit of the statute.*^ An attorney, employed for a special purpose, is not entitled to a preference under a statute preferring "wages or salaries to clerks, servants or employes."*^ _ § 606. What constitutes a dissolution. — As elsewhere stated, a dis- solution may result from the expiration of the time to which the cor- ^' Pendergast v. Yandes, 124 Ind. 159, 24 N. E. 724, 8 L. R. A. 849, 3 Lewis Am. R. & Corp. 645; Min- ing Co. V. Cullins, 104 U. S. 176; Bass V. Doerman, 112 Ind. 390. 14 N. E. 377. =' Vane v. Newcombe, 132 U. S. 220, 10 Sup. Ct. 60; Tod v. Kentucky Union R. Co. 52 Fed. 241, 18 L. R. A. 305; Delaware, &c. R. Co. v. Ox- ford Iron Co. 33 N. J. Eq. 192. Nor a sub-contractor, although he per- sonally works with the men em- ployed by him to work on part of a railroad, which he has contracted to construct at a fixed price. Rogers v. Dexter, &c. R. Co. 85 Me. 372, 27 Atl. 257, 21 L. R. A. 528. See, also, Lehigh Coal, &c. Co. v. Central R. Co. 29 N. J. Eq. 252. == Black, Appeal of, 83 Mich. 513, 47 N. W. 342. =» England v. Beatty Organ, &c. Co. 41 N. J. Eq. 470, 4 Atl. 307; Wells v. Southern, &c. R. Co. 1 Fed. 270. "Pendergast v. Yandes, 124 Ind. 159, 24 N. B. 724, 8 L. R. A. 849, 3 Lewis Am. R. & Corp. 645. It ap- peared, however, that he was not an officer or general manager, but mere- ly superintended the digging of trenches and laying of pipes. "Capron v. Strout, 11 Nev. 304; Mining Co. v. Cullins, 104 U. S. 176. *■ But compare Seventh Nat. Bank V. Shenandoah Iron Co. 35 Fed. 436; Missouri, &c. R. Co. v. Baker, 14 Kans. 563; Pennsylvania, &c. R. Co. V. LeufCer, 84 Pa. St. 168, 24 Am. R. 189; People v. Remington, 45 Hun (N. Y.) 329. See, also, notes to Pen- dergast v. Yandes, 3 Lewis Am. R. & Corp. Cas. 645, 650, and Tod v. Kentucky Union R. Co. 52 Fed. 241, 18 L. R. A. 305, where the various statutes are referred to and the con- flicting authorities collected. Also ante, § 186. *= Lewis V. Fisher, 80 Md. 139, 30 Atl. 608, 26 L. R. A. 278, 45 Am. St. 327; Louisville, &c. R. Co. v. Wilson, 138 U. S. 501, 11 Sup. Ct. 405. See, also, Manchester, &c. Co., In re, L. R. (1893) 2 Ch. Div. 638, 60 Am. & Eng. R. Cas. 541. But compare Gur- ney v. Atlantic, &c. R. Co. 58 N. Y. 358. 889 WHAT CONSTITUTES A DISSOLUTION. [§■ 606 porate life was limited, or by repeal of the charter under the reserved power of repeal ; but, with these and one or two other exceptions, the general rule is that a corporation remains in esse until dissolved by judicial decree. Many acts and omissions may be cause for dissolution without operating of themselves to dissolve the corporation. Thus, as we have seen, insolvency does not work a dissolution;** nor does suspension of business,* ° omission to elect officers,** failure to exer- cise corporate powers,*^ lease or sale of all the corporate property,** the assignment of such property for the benefit of creditors,*" or the appointment of a receiver.^" The acquisition of all the stock by a single member does not necessarily work a dissolution ;°^ nor does a " Nor does a judicial decree of in- solvency, together with an injunc- tion against continuing business, and the appointment of a receiver. Second Nat. Bank v. New York, &c. Co. 11 Fed. 532; Coburn v. Boston, &c. Co. 10 Gray (Mass.) 243. See, also, Hasselman v. Japanese, &c. Co. 2 Ind. App. 180, 27 N. B. 318, 28 N. E. 207. "Nimmons v. Tappan, 2 Sweeny (32 N. Y. Super.) 652; Mickles v. Rochester City Bank, 11 Paige (N. Y.) 118, 42 Am. Dec. 103; State v. Barron, 58 N. H. ^70; Kansas City Hotel Co. V. Sauer. 65 Mo. 278; Val- ley Bank v. Ladies', &c. Sewing So- ciety, 28 Kans. 423. "Allen V. New Jersey Southern R. Co. 49 How. Pr. (N. Y.) 14; Bos- ton Glass Manufactory v. Langdon, 41 Mass. 49, 35 Am. Dec. 292; Pack- ard V. Old Colony R. Co. 168 Mass. 92, 46 N. E. 433; Harris v. Missis- sippi Valley, &c. R. Co. 51 Miss. 602; Wait Insolv. Corp. § 372. "Rollins v. Clay, 33 Me. 132; Swan Land, &c. Co. v. Frank, 39 Fed. 456; Russell v. McLellan, 14 Pick. (Mass.) 63; Brandon Iron Co. v. Gleason, 24 Vt. 228; Slee v. Bloom, 5 Johns. Ch. (N. Y.) 366, reversed in Slee v. Bloom, 19 Johns. (N. Y.) 456, 10 Am. Dec. 273. "Hill v. Fogg, 41 Mo. 563; Bruf- fett v. Great Western, &c. R. Co. 25 111. 353; Swan Land, &c. Co. v. Frank, 39 Fed. 456; State v. West- ern, &c. Co. 40 Kans. 96, 19 Pac. 349, 10 Am. St. 166; Troy, &c. R. Co. V. Kerr, 17 Barb. (N. Y.) 581; Commonwealth v. Central Pas. R. Co. 52 Pa. St. 506; Sewell v. Bast Cape, &c. Co. 50 N. J. Eq. 717, 25 Atl. 929. "Boston Glass Manufactory v. Langdon, 24 Pick. (Mass.) 49, 35 Am. Dec. 292; DeCamp v. Alward, 52 Ind. 468; State v. Bank, 6 Gill & J. (Md.) 205, 26 Am. Dec. 561. Ante, § 602. "Moseby v. Burrow, 52 Tex. 396; Kincaid v. Dwinelle, 59 N. Y. 548; Heath v. Missouri, &c. R. Co. 83 Mo. ■617; State v. Railroad Commission- ers, 41 N. J. L. 235; National Bank v. Insurance Co. 104 U. S. 54; Dewey v. St. Albans, &c. Co. 56 Vt. 476, 48 Am. R. 803 ; Ohio, &c. R. Co. v. Russell, 115 111., 52, 3 N. E. 561; Rosenblatt v. Johnston, 104 U. S. 462; Jackson v. Mclnnis, 33 Oreg. 529, 54 Pac. 884, 55 Pac. 535, 43 L. R. A. 128, 72 Am. St. 755; Kirkpat- rick V. State Board, 57 N. J. L. 53, 29 Atl. 442. '^ Newton Mfg. Co. v. White, 42 Ga. 148; Louisville Banking Co. v. Eisenman, 94 Ky. 83, 21 S. W. 531 and 1049, 19 L. R. A. 684; Russell v. McLellan, 14 Pick. (Mass.) 63. § 607] INSOLVENCY AND DISSOLUTION. 890 consolidation necessarily operate as a complete dissolution of the old companies in all cases,'^ although, it may do so.'^' The question is generally one of intent to be determined from the statute and agree- ment of consolidation.^* So, where the statute provides for a dissolu- tion upon the failure to perform certain conditions or upon the hap- pening of some contingency, it is largely a question of legislative intent as to whether the corporation is dissolved upon such failure or the happening of such contingency. As a general rule it is not dis- solved by the mere failure to perform conditions subsequent,°° nor by the happening of a contingency made by the statute a ground for forfeiture.^® § 607, Judicial determination of dissolution. — A judicial determi- nation of the existence of such grounds in the particular instance and decree of forfeiture or dissolution is usually essential. But it is held that the legislature, in the charter or governing statute, may provide for a dissolution in certain cases of the kind specified without judicial See, also, Hopkins v. Roseclare, &c. Co. 72 111. 373; Swift v. Smith, 65 Md. 428, 5 Atl. 534, 57 Am. R. 336; Button V. Hoffman, 61 Wis. 20, 20 N. W. 667, 50 Am. R. 131; Wilde v. Jenkins, 4 Paige (N. Y.) 481; Sharps v. Dawes, 46 L. J. Q. B. 104; Parker v. Bethel Hotel Co. 96 Tenn. 252, 34 S. W. 209, 31 L. R. A. 706. But see contra, Bellona Company's Case, 3 Bland (Md.) 442. '"'Lightner v. Boston & Albany R. Co. 1 Lowell (U. S.) 338, 340; Cen- tral R. &c. Co. V. Georgia, 92 U. S. 665; Boardman v. Lake Shore, &c. R. Co. 84 N. Y. 157, 181; Meyer v. Johnston, 64 Ala. 603; Philadelphia, &c. R. Co. V. Maryland, 10 How. (U. S.) 376. ■^McMahan v. Morrison, 16 Ind. 172, 79 Am. Dec. 418; Clearwater v. Meredith, 1 Wall. (U. S.) 25, 40; Shields v. Ohio, 95 tr. S. 319; Bishop V. Brainerd, 28 Conn. 289; Pullman Palace Car Co. v. Missouri Pac. R. Co. 115 U. S. 587, 594, 6 Sup. Ct. 194. See, also, Cheraw, &c. R. Co. v. Com- missioners, 88 N. Car. 519; Kansas, &c. R. Co. V. Smith, 40 Kans. 192, 19 Pac. 636; Fee v. New Orleans, &c. Co. 35 La. Ann. 413. "Wabash, &c. R. Co. v. Ham, 114 U. S. 587, 595, 5 Sup. Ct. 1081; Cen- tral R. &c. Co. V. Georgia, 92 U. S. 665, 670. ■^ Brooklyn Cent. R. Co. v. Brook- lyn City R. Co. 32 Barb. (N. Y.) 358; New York Elevated R. Co., In re, 70 N. Y. 327, 338; State v. Fagan, 22 La. Ann. 545; Chesapeake, &c. Co. V. Baltimore, &c. R. Co. 4 G. & J. (Md.) 1, 121, 127; Briggs v. Cape Cod, &c. Canal Co. 137 Mass. 71; Santa Rosa, &c. R. Co. v. Central St. R. Co. (Cal.) 38 Pac. R. 986. ™ La Grange, &c. R. Co. v. Rainey, 7 Coldw. (Tenn.) 420; Taylor Priv. Corp. § 432; 2 Morawetz Priv. Corp. ' § 1006. So, where the statute pro- vides that a corporation shall be dis- solved by a mortgage sale of its franchise and property, it is not dis- solved by an Illegal and fraudulent sale. White Mts. R. Co. v. White Mts. R. Co. 50 N. H. 50. 891 VOLUNTARY DISSOLUTION — SUEEENDEE OE OHAETEE. [§ 608 deeree.^^ This doctrine, however, should not be unduly extended, and, in order to justify its application in any case, it should clearly appear that the legislature intended that the matters specified should per se "work a dissolution, and not merely that they should be sufficient cause for dissolution;^^ § 608. Voluntary dissolution — Surrender of charter. — Ordinary business corporations, where the rights of the state or the public do not intervene, may cease to do business and surrender their charters by a unanimous vote of the stockholders,^* although some authorities hold that the surrender of a charter must be accepted by the state. '"' But most of the cases holding that an acceptance on the part of the state is necessary were decided under special charters or under the old doctrine that the dissolution of a corporation extinguished all its debts. There seems to be no valid reason why a purely private cor- poration, incorporated under general laws and charged with no pub- lic duties, should not be allowed to voluntarily cease business and dissolve or surrender its charter without an express acceptance on the part of the state.°^ Nor is a uiianimous vote of the stockholders always essential. A private business corporation should not be compelled "Brooklyn, W. &c. R. go.. Matter son College, 63 Pa. St. 428; Slee v. of, 75 N. Y. 335; Brooklyn Steam, Bloom, 19 Johns. (N. Y.) 456, 10 &c. Co. V. Brooklyn, 78 N. Y. 524; Am. Dec. 273; Mobile, &c. R. Co. v. Oakland R. Co. v. Oakland, &c. R. State, 29 Ala. 573; Webster v. Co. 45 Cal. 365, 13 Am. R. 181. See Turner, 12 Hun (N. Y.) 264; Bruce review of cases in Bybee v. Oregon, v. Piatt, 80 N. Y. 379; 3 Purdy's &c. R. Co. 139 U. S. 663, 11 Sup. Ct. Beach Prlv. Corp. § 1310; 1 Beach 641. Priv. Corp. § 781; 1 Cook Stock and ^ See La Grange, &e. R. Co. v. Stockholders, § 629. Rainey, 7 Coldw. (Tenn.) 420; Flint, ""Kincaid v. Dwinelle, 59 N. Y. &c. Co. V. "WoodhuU, 25 Mich. 99, 448; Mosehy v. Burrow, 52 Tex. 396; 12 Am. R. 233; Vermont, &c. R. Co. Boston Glass Manufactory v. Lang- V. Vermont Cent. R. Co. 34 Vt. 1; don, 24 Pick. (Mass.) 49, 35 Am. People V. Manhattan Co. 9 Wend. Dec. 292; Town t. Bank, 2 Doug. (N. Y.) 351, 382; Galveston, &c. R. (Mich.) 530, and 2 Beach Priv. Corp. V. State, 81 Tex. 572, 17 S. W. 67; § 781, where other authorities are Santa Rosa, £c. R. Co. v. Central St. cited pro and con. R. Co. (Cal.) 38 Pac. 986; New "'Taylor Priv. Corp. § 434; 2 York, &c. Co. V. Smith, 148 N. Y. Beach Priv. Corp. § 781; Holmes, 540, 42 N. B. 1088; 3 Purdy's Beach &c. Co. v. Holmes, &c. Co. 127 N. Y. Priv. Corp. § 1314. 252, 27 N. B. 831, 24 Am. St. 448; ™ Mumma v. Potomac Co. 8 Peters Merchants' and Planters' Line v. (IT. S.) 281; Read v. Frankfort Waganer, 71 Ala. 581. Bank, 23 Me. 318; Houston v. Jeffier- 608] INSOLVENCY AND DISSOLUTION. 893 to contimie a losing business, which is certain to result in financial catastrophe or the failure of the object for which the company was incorporated, and, in such a case, a majority of the stockholders may surrender the charter and take steps to wind up the business."^ And there are cases of this kind in which even the minority may compel the corporation to wind up its business.*' But a charter cannot be voluntarily surrendered and the corporation dissolved in such a manner and under such circumstances as to escape liability for debts or pre- clude suits therefor."* For this purpose the corporation still has a qualified existence,"^ which is generally provided for by statute. Eail- road companies, unlike strictly private corporations, owe a duty to the public, and they cannot, therefore, voluntarily cease to do business and dissolve without the consent of the state, no matter what may be the true rule in regard to strictly private corporations. 'No matter whether all the stockholders consent or not, the corporation cannot evade its duties to the public by a voluntary dissolution and surrender or transfer of its charter and franchises without the consent of the state,*" except, perhaps, where it is clearly insolvent and incapable of '"Treadwell v. Salisbury Mfg. Co. 7 Gray (Mass.) 393, 66 Am. Dec. 490; Black v. Delawarte, &c. Co. 22 N. J. Eg. 130; Hancock v. Holbrook, 9 Fed. 353; Price v. Holcomb, 89 Iowa 123, 56 N. W. 407; Lauman v. Lebanon, &c. R. Co. 30 Pa. St. 42, 72 Am. Dec. 685; McCurdy v. Myers, 44 Pa. St. 535; Trisconi v. WinsMp, 43 La. Ann. 45, 9 So. 29, 26 Am. St. 175; O'Connor v. KnoXville Hotel Co. 93 Tenn. 708, 28 S. W. 308; 1 Morawetz Priv. Corp. § 413; 3 Purdy Beach Priv. Corp. § 1310; 1 Beach Priv. Corp. & 781; Taylor Priv. Corp. & 610. But see Polar Star Lodge v. Polar Star Lodge, 16 La. Ann. 53; Berry v. Broach, 65 Miss. 450, 4 So. 117. "'Marr v. Bank, 4 Coldw. (Tenn.) 471; O'Connor v. Knoxville, &c. Co. 93 Tenn. 708, 28 S. W. 308; Mas- ters V. Electric, &c. Co. 6 Daly (N. Y.) 455; Bristol, &c. Bank, In re, L. R. 44 Ch. Div. 703; Miner v. Belle Isle Ice Co. 93 Mich. 97, 53 N. W. 218, 17 L. R. A. 412. But not ordi- narily, Denike v. New York, &c. Co. 80 N. Y. 599; Pyrolusite, &c. Co., Matter of, 29 Hun (N. Y.) 429; Har- don V. Newton, 14 Blatchf. (U. S.) 376; Suburban Hotel Co., In re, L. R. 2 Ch. 737; Pratt v. Jewett, 9 Gray (Mass.) 34; Curien v. Santinl, 16 La. Ann. 27. °* Portland, &c. Co. v. Portland, 12 B. Mon. (Ky.) 77; Kincaid v. Dwin- elle, 59 N. Y. 548, 552; Baptist Meet- ing House V. Webb, 66 Me. 398; Directors of Binghamton, &c. Co., In re, 143 N. Y. 261, 38 N. E. 297; Tay- lor Priv. Corp. § 431. I" 1 Morawetz Priv. Corp. § 411. ™ Lauman v. Lebanon Valley R. Co. 30 Pa. St. 42, 72 Am. Dec. 685; Central R. &c. Co. v. Collins, 40 Ga. 582; Wilson v. Central Bridge Co. 9 R. I. 590; Treadwell v. Salis- bury Mfg. Co. 7 Gray (Mass.) 393, 66 Am. Dec. 490. See, also. State v. Western, &c. R. Co. 95 N. Car. 602; New Orleans, &c. R. Co. v. State, 112 893 PKOCEEDINGS TO DISSOLVE. [§ 609 performing such duties.'' But it has been held that where a railroad company has lost all its property by judicial sale, has done no business for a great many years, and has neither elected new officers nor had any old officers within the state during such period, a surrender of its charter and acceptance of such surrender by the state will be pre- sumed.°* § 609. Froceedings to dissolve. — ^The dissolution of a corporation will not be decreed in a foreign jurisdiction,*^ but a valid decree of dissolution in the state in which the charter was granted is generally binding everywhere."' Notwithstanding such a decree, however, it has been held that, for the protection of home creditors, the corporation may be treated in another state in which it does business and in :which such creditors reside, as still in existence in a certain sense for the purpose of enabling them to reach its effects in that state,'^ at least where an action has been commenced against it therein before the de- cree of dissolution in the state of its birth.'^ Statutes exist in most of the states providing more or less specifically the mode of dissolv- ing and winding up a corporation, and keeping it alive for that pur- pose after it has surrendered its charter or is so far dissolved as to be unable to carry on its regular business.''^ In the absence of a statute U. S. 12, 5 Sup. Ct. 19; Attorney- wind up its affairs. Republican, &o. General v. Superior, &c. R. Co. 93 Mines v. Brown, 58 Fed. 644, 48 Am. Wis. 604, 67 N. W. 1138. & Eng. Corp. Cas. 28. "Boston, &c. R. Co. v. New York, "Remington v. Samana Bay Co. &c. R. Co. 13 R. I. 260. See, also, 140 Mass. 494, 5 N. E. 292. State V. Jack, 145 Fed. 281. " Life Assn. v. Fassett, 102 111. ^ Combes v. Keyes, 89 Wis. 297, 62 315. N. W. 89, 27 L. R. A. 369, 46 Am. St. " Hunt v. Columbian, &c. Co. 55 839. Me. 290, 92 Am. Dec. 592; Henry v. ™Wilkins v. Thome, 60 Md. 253; Stuart, 14 Phila. (Pa.) 110; 2 Mora- Importing, &c. Co. V. Locke, 50 Ala. wetz Priv. Corp. § 988. 332; Society V. New Haven, 8 Wheat. "See St. Louis, &c. Coal Co. v. (U. S.) 464; Merrick v. Van Sant- Sandoval Coal Co. Ill 111. 32; Mari- voord, 34 N. Y. 208; Folger v. Co- ners' Bank v. Sewall, 50 Me. 220; lumbian, &c. Co. 99 Mass. 267, 96 Herron v. Vance, 17 Ind. 595; Stet- Am. Dec. 747, and note; North, &c. son v. City Bank, 12 Ohio St. 577; Co. V. People, 147 111. 234, 35 N. E. Von Glahn v. De Rosset, 81 N. Car. 608; Bast Line, &c. R. Co. v. State, 467; Folger v. Chase, 18 Pick. 75 Tex. 434, 12 S. W. 690. A fed- (Mass.) 63; Tuscaloosa, &c. Assn. ■». eral court, sitting as a court of Green, 48 Ala. 346. For New York equity, has no power, in the absence and other statutes, see 3 Purdy's of any statute conferring it, to dis- Beach Priv. Corp. § 1304; 2 Beach .solve a foreign corporation and Priv. Corp. §§ 779, 780; 2 Morawetz § 609] INSOLVENCY AND DISSOLUTION. 894 giving courts of equity jurisdiction it is generally, although not uni- formly, held that proceedings for the forfeiture of a charter must be had in a court of law, usually by quo warranto, at the suit of the state or its proper representatives.'^* But the right of the state to have the charter forfeited and the right of creditors and stockholders to the protection of a court of equity are two different things. On the one hand, it is true that there are many grounds or circumstances which would be cause for forfeiture at the suit of the state without giving the stockholders or creditors any right to interfere, no matter whether the state enforces the forfeiture or waives it. So, on the other hand, there may be circumstances under which creditors or stockholders may obtain relief even to the extent of winding up the affairs of the corporation and virtually dissolving it, although there might not be sufficient ground for forfeiture by the state; and insolvency, which may be cause for forfeiture, may also, under certain circumstances, as, for instance, where it is impossible to accomplish the purpose of the in- corporation, be cause for winding up the corporate affairs at the suit of creditors or shareholders, at least under the statutes of many of the states.''^ Priv. Corp. §§ 1036, 1037; Marstaller v. Mills, 143 N. Y. 398, 38 N. B. 370. "See ante, §§ 53, 54; Folger v. Columbian, &c. Co. 99 Mass. 267, 96 Am. Dec. 747, and note in which many authorities are cited. Repub- lican M. S. Mines v. Brown, 58 Fed. 645, 24 L. R. A. 776; Strong v. Mc- Cagg, 55 Wis. 624, 13 N. W. 895; Wheeler v. Pullman, &c. Co. 143 111. 197, 32 N. E. 420, 17 L. R. A. 818; Decker. V. Gardner, 124 N. Y. 334, 26 N. E. 814, 11 L. R. A. 480; Hinck- ley V. Pfister, 83 Wis. 64, 53 N. W. 21; People v. Weigley, 155 111. 491, 40 N. E. 300. In Conklin v. United States, 140 Fed. 219, it is held that a court of equity, without statutory authority, can not decree the disso- lution of a corporation. " See Mickles v. Rochester, &c. Bank, 11 Paige (N. Y.) 118, 126, 42 Am. Dec. 103; Ward v. Sea Ins. Co. 7 Paige (N. Y.) 294; Hitch v. Haw- ley, 132 N. Y. 212, 30 N. E. 401; Hurst V. Coe, 30 W. Va. 158, 3 S. E. 564; Merchants' & Planters' Line v. Waganer, 71 Ala. 581; O'Connor v. Knoxville, &c. Co. 93 Tenn. 708, 28 S. W. 308; Baker v. Backus, 32 111. 79; Hunt v. Le Grand, &c. Co. 143 111. 118, 32 N. E. 525; Newfoundland R. Co. V. Schack, 40 N. J. Bq. 222, 1 Atl. 23; Miner v. Belle Isle Ice Co. 93 Mich. 97, 53 N. W. 218, 17 L. R. A. 412, 6 Lewis' Am. R. & Corp. 660; 2 Beach Priv. Corp. §§ 782, 783; 1 Pom. Eq. Jur. § 171; 1 Mora- wetz Priv. Corp. § 284. In New York it seems that creditors must be judgment creditors before they can maintain such a suit. Cole v. Knick- erbocker, &c. Co. 23 Hun 255. But see Ailing v. Wenzel, 133 111. 264, 24 N. B. 551; 2 Lewis' Am. R.'& Corp. 727 (see Ailing v. Wenzel, 133 111. 264, 24 N. E. 551; White v. Univer- sity Land .Co. 49 Mo. App. 450. 895 DISSOLUTION IN CASE OF CONSOLIDATED COMPANY. [§' 610 § 610. Dissolution in case of consolidated company.^Where by the consolidation of corporations of several states a new corporation is formed, which exists under the laws of two or more states it has been held that each of the original companies remains liable to be pro- ceeded against under the insolvent laws of the state by which it was created on account of its separate indebtedness.'® In case it has main- tained no distinct place of business and has chosen no new officers in the state, the original place of business of the defendant corpora- tion will be regarded as continuing to be such for the purposes of the suit ; and its former officers, for purposes of service and place of suit^ will be regarded as the officers of the company.'' It has also been held that the new corporation formed by such consolidation is liable to be proceeded against in bankruptcy in either of the states under whose laws it was formed,'^ and it may be wound up and dissolved in one state without its franchise in the other states being affected.'® Each sta!te usually retains jurisdiction over the portion of the road within its borders,*" but the effect of the consolidation upon the old companies depends, as we have elsewhere stated, very largely upon the statute and agreement of consolidation in the particular ease. §■ 611. Effect of dissolution. — It was formerly held that, upon the dissolution of a corporation, its real estate reverted to the grantor and its personal property to the state or sovereign, and that the debts due to it and from it were forgiven and extinguished, but this is na longer the rule.*^ The modern doctrine is well stated by Justice Miller " Piatt V. New York, &c. R. Co. 26 lerbach, 37 Cal. 543, 99 Am. Dec. Conn. 544. 300, 336; People v. O'Brien, 111 N. " Piatt V. New York, &c. R. Co. 26 Y. 1, 18 N. E. 692, 7 Am. St. 684, 717. Conn. 544. That It is not the rule at least as to ™ Boston, &c. R. Co., In re, 9 other than public corporations, see Blatch. (U. S.) 101. Huber v. Martin (Wis.), 105 N. W. "Hart V. Boston, &c. R. Co. 40 1031; Mormon Church v. United Conn. 524. See, also. East Line, &c. States, 136 U. S. 1, 17, 10 Sup. Ct. R. Co. V. State, 75 Tex. 434, 12 S. W. 792; Higginson, In re (1899), 79 L. 690. Compare Graham v. Boston, T. Rep. 673. Debts are not extin- &c. R. Co. 118 U. S. 161, 6 Sup; Ct. guished. Blake v. Portsmouth, &c. 1009; Covington, &c. Bridge Co. v. R. Co. 39 N. H. 435; Howe v. Rob- Mayer, 31 Ohio St. 317. inson, 20 Fla. 352 ; McCoy v. Farmer, =" Walt Insolv. Corp. § 445. 65 Mo. 244. Nor are contract obliga- 11 Taylor Priv. Corp. § 437; 1 Cook tlons generally. Mumma v. Potomac Stock and Stockholders, § 641; notes Co. 8 Peters (U. S.) 281; Wait In- to State Bank v. State, 12 Am. Dec. solv. Corp. § 382. Nor a covenant 234, 239; Miners' Ditch Co. v. Zel- in a lease to pay rent. People v. Na- § 612] INSOLVENCY AND DISSOLUTION. 896 in a recent case.*^ Speaking of the effect of the repeal of a charter, he says: "In short, whatever power is dependent solely upon the grant of the charter, and which could not be exercised by unincorpo- rated private persons under the general laws of the state, is abrogated by repeal of the law which granted these special rights. Personal and real property acquired by the corporation during its lawful existence, rights of contract or choses in action so acquired, and which do not, in their nature, depend upon the general powers conferred by the charter, are not destroyed by such repeal; and the courts may, if the legislature does not provide some special remedy, enforce such rights by the means within their power. The rights of the shareholders of such a corporation to their interest in its property are not annihilated by such a repeal, and there must remain in the courts the power to protect those rights."*^ § 612. Corporation may have a qualified existence after dissolu- tion. — The corporation may be, and is, by statute in many of the states, kept alive in a qualified sense for a certain period in order to wind up its affairs, but it cannot carry on new business under its charter. Thus, where such a statute provided that it should continue to be a body corporate for three years for the purpose of closing up its business and disposing of its property, it was held that the minority stock- holders were entitled to have the property sold and the proceeds, after paying debts, distributed as in case of the termination of a partner- ship ; that the majority had no right to transfer the assets to a new corporation designed to continue the business of the old, at a valuation fixed by themselves, and to compel the minority to accept a pro rata amount of stock in the new company or a pro rata amount in cash at such valuation, and that the directors could be compelled to account to the stockholders for their acts and doings where they continued the business of the corporation for a year after its dissolution.^* As a tional Trust Co. 82 N. Y. 283. But St. 684; Miner v. New York, &c. R. it Is held that stock cannot be trans- Co. 123 N. Y. 242, 25 N. B. 339; ferred after dissolution so as to pass People v. De Graw, 133 N. Y. 254, the legal title. James t. Woodruff, 30 N. E. 1006; Brown v. Schicier, 2 Denio (N. Y.) 574. 118 Fed. 981; ante, §§ 328, 335, 525. ^ Greenwood v. Freight Co. 105 U. " Mason v. Pewabic Mining Co. S. 13, 18. 133 U. S. 50, 10 Sup. Ct. 224, 1 Lewis ™See, also, International, &c. R. Am. R. & Corp. 227. See, also, to Co. V. State, 75 Tex. 356, 378, 12 S. same effect, Frothingham v. Bar- W. 685; People v. O'Brien, 111 N. Y. ney, 6 Hun (N. Y.) 366. But the 1, 18 N. B. 692, 2 L, R. A. 255, 7 Am. court will not always appoint a re- 897 QUALIFIED EXISTENCE AFTEE DISSOLUTION. [§ 613 general rule, in the absence of any provision to the contrary, a cor- poration can neither sue nor be sued after its dissolution,* ° and suits already commenced against it are abated.*® In. many of the states, however, the statutes to which we have already referred keep the cor- poration alive for the purpose of suing and being sued in winding up its affairs.*' In other states receivers or trustees are appointed for this purpose.** It has also been held, in a state in which corporations are kept alive by statute for the purpose of suing and being sued, that a corporation which continued .to do business, without winding up, after its charter had expired, could be sued in the corporate name for a tort committed by it while carrying on such business;** but it has been held in Indiana that stockholders are not bound by a contract made by the ofiBcers of a corporation after the repeal or forfeiture of its charter.*" ceiver and order a sale, for, where the valuation is just, a company may, prior to its dissolution, trans- fer its assets to a new company to discharge its liabilities and carry on the business and give the stockhold- ers the option of taking cash or stock in such new company, where there is no question of its ability to carry out the arrangement. Bal- timore, &c. R. Co. V. Cannon, 72 Md. 493, 20 Atl. 123, 3 Lewis Am. E. & Corp. Cas. 202; Sawyer v. Du- buque, &c. Co. 77 Iowa 242, 42 N. W. 300; Treadwell v. Salisbury, &c. Co. 7 Gray (Mass.) 393, 66 Am. Dec. 490; Buford v. Keokuk Northern Line, &c. Co. 3 Mo. App. 159. ==Dobson V. Simonton, 86 N. Car. 492 ; Merrill v. Suffolk Bank, 31 Me. 57, 50 Am. Dec. 649; Miami, &c. Co. V. Gano, 13 Ohio 269; Gold v. Clyne, 58 Hun (N. Y.) 419, 12 N. Y. S. 531; Logan V. Western, &c. R. Co. 87 Ga. 533, 13 S. E. 516; City Ins. Co. v. Commercial Bank, 68 111. 348; Bank of Louisiana v. Wilson, 19 La., Ann. 1; Nelson v. Hubbard, 96 Ala. 238, 11 So. 428, 17 L. R. A. 375. Ell. Railboads — 57 " National Bank v. Colby, 21 Wall. (TJ. S.) 609; Saltmarsh v. Planters', &c. Bank, 17 Ala. 761; Thornton v. Marginal Freight R. Co. 123 Mass. 32; New York, &c. Co., In re, 67 N. Y. St. 549, 33 N. Y. S. 726; Mc- Culloch V. Norwood, 58 N. Y. 562; Ingraham v. Terry, 11 Humph. (Tenn.) 572; Terry v. Merchants' &c. Bank, 66 Ga. 177; note to May V. State Bank, 40 Am. Dec. 726, 737. But compare Giles v. Stanton, 86 Tex. 620, 26 S. W. 615; Lindell v. Benton, 6 Mo. 361; Piatt v. Archer, 9 Blatchf. (U. S.) 559. " Stetson V. City Bank, 2 Ohio St. 167; Foster v. Essex Bank, 16 Mass. 245, 8 Am. Dec. 135; Greenbrier Lumber Co. v. Ward, 30 W. Va. 43, 3 S. B. 227; Herron v. Vance, 17 Ind. 595; Kansas City Hotel Co. v. Sauer, 65 Mo. 279; and authorities cited in 1 Beach Priv. Corp. § 785; Angell & Ames Corp. § 779a. "1 Beach Priv. Corp. §§ 785, 786; Taylor Priv. Corp. § 436. »» Miller v. Newberg, &c. Co. 31 W. Va. 836, 8 S. E. 600, 13 Am. St. 903. "Wilson V. Tesson, 12 Ind. 285. § 613] INSOLVENCY AND DISSOLUTION, 898 § 613. Disposition of property on dissolution. — Creditors do not lose their rights nor do stockholders lose their interest in the property upon the dissolution of a corporation. The assets of the corporation become a trust fund for the payment of corporate creditors, and the surplus belongs to the stockholders.®^ Debts due the corporation, choses in action,'^ and certain so-called franchises or rights and pow- ers/^ which may be regarded as property, survive the dissolution, and may be treated and disposed of as other property for the benefit of creditors and shareholders. But the franchise to be a corporation does not survive,** and it would seem that all such franchises or powers as are "dependent solely upon the grant of the charter, and which could not be exercised by unincorporated private persons under the general laws of the state," are abrogated by the repeal of the law which granted them, under the reserved power of repeal."* So, it has been held that the special privilege of immunity from taxation does not ordinarily " Commercial Fire Ins. Co. v. Board, 99 Ala. 1, 14 So. 490, 42 Am. St. 1; People v. National Trust Co. 82 N. Y. 283; Hemaa v. Britton, 88 Mo. 549; Bacon v. Robertson, 18 How. (TJ. S.) 480, 486; Lum v. Rob- ertson, 6 Wall. (TJ. S. 277; Lothrop V. Stedman, 42 Conn. 583, 13 Blatchf. (V,. S.) 134; Montgomery, &c. R. Co. V. Branch, 59 Ala. 139; Western, &c. R. Co. V. Rollins, 82 N. Car. 523; Shamokin Valley, &c. R. Co. v. Ma- lone, 85 Pa. St. 25. See ante, § 600. The authorities above cited show that it is virtually a trust fund for shareholders, after creditors are paid, as well as for the creditors themselves. But see Knott v. Even- ing Post, 124 Fed. 342. "' Mumma v. Potomac Co. 8 Pet. (U. S.) 281; New Jersey v. Yard, 95 IT. S. 104; Read v. Frankfort Bank, 23 Me. 318; Thornton v. Mar- ginal Freight R. Co. 123 Mass. 32. " International, &c. R. Co. v. State, 75 Tex. 356, 378, 12 S. W. 685; Hall V. Sullivan R. Co. 1 Brunner's C. C. 613;^ New Orleans, &c. R. Co. v. Dela- mpre, 114 U. S. 501, 5 Sup. Ct. 1009; People V. O'Brien, 111 N. Y. 1, 18 N. B. 692, 2 L. R. A. 255, 7 Am. St. 684, and note. See, also, Scotland v. Thomas, 94 U. S. 682; Hannibal, &c. R. Co. V. Marion County, 36 Mo. 294; Greenwood v. Union Freight Co. 105 U. S. 13. " See Memphis, &c. R. Co. v. Rail- road Com'rs, 112 U. S. 609, 5 Sup. Ct. 299; Willamette Mfg. Co. v. Bank, 119 U. S. 191, 7 Sup. Ct. 187; South- ern, &c. Co. V. Orton, 32 Fed. 457; Coe V. Columbus, &c. R. Co. 10 Ohio St. 372, 75 Am. Dec. 518, and note. " Greenwood v. Freight Co. 105 U. S. 13 ; Tomlinson v. Jessup, 15 Wall. (U. S.) 454; Railroad Co. v. Maine, 96 U. S. 499; Sinking Fund Cases, 99 U. S. 700; Brie, &c. R. Co. v. Casey, 26 Pa. St. 287; International, &c. R. Co. v. State, 75 Tex. 356, 378, 12 S. W. 685; Shields v. Ohio, 95 U. S. 319. See, also. Grand Rapids Bridge Co. v. Prange, 35 Mich. 400, 24 Am. R. 585; Commonwealth v. Smith, 10 Allen (Mass.) 448, 87 Am. Dec. 672; Snell v. Chicago, 133 111. 413, 24 N. B. 532, 8 L. R. A. 858; St. Louis R. Co. V. Gill, 156 U. S. 649, 15 Sup. Ct 484, 11 Lewis Am. R. & Corp. 709. 899 EIGHTS OE CREDITORS UPON DISSOLUTION. [§' 614 survive the dissolution of the corporation.^' If the legislature has failed to make provision for the collection of debts, the distribution of the assets and the protection of creditors and shareholders, equity will provide the means.'^ After the claims of creditors are satisfied the stockholders are entitled to share in the surplus in proportion to the amount of their respective interests.®* Common and preferred stockholders share alike,"* unless otherwise provided by statute or contract. If, however, a dividend has been properly declared out of surplus profits, leaving the capital of the company unimpaired, a shareholder entitled thereto may have it preferred to the claims of creditors, even though he may not have demanded it until after the company has become insolvent.^"" § 614. Rights of creditors upon dissolution. — ^As we have already seen, the law protects, as far as possible, the interests of creditors upon the dissolution of a corporation. As a general rule the rights of . creditors are such as they have at the time of the dissolution, and cannot be enlarged by subsequent proceedings after the corporate as- sets have passed into the hands of an assignee or receiver.^"^ And shareholders or directors who are also lawful creditors are generally entitled, as such creditors, to share pro rata with the other creditors.^"^ "Morgan v. Louisiana, 93 U. S. 446; Wood v. Dummer, 3 Mason (U. 217; Railroad Co. v. Georgia, 98 U. S.) 308; Dudley v. Price, 10 B. Mon. S. 359; Railroad Cd. v. Hamblen, (Ky.) 84; Bridgewater Nav. Co., In 102 U. S. 273. See, also, Minne- re, 3 R. & Corp. L. J. 591; Hart- apolis, &c. R. Co. v. Gardner, 177 U. man v. Ins. Co. 32 Gratt. (Va.) 242 S. 332, 20 Sup. Ct. 656; Norfolk, &c. (in proportion to their "in-put"); R. Co. v. Pendleton, 156 U. S. 667, 2 Beach Priv. Corp. § 789. 15 Sup. Ct. 413. But see Tomlin- " McGregor v. Home Ins. Co. 33 N. son T. Branch, 15 Wall. (U. S.) 460; J. Eq. 181; London, &c. Co., In re, Humphrey v. Pegues, 16 Wall. (U. L. R. 5 Eq. 519. S.) 244. See ante. §§ 330-331. ™Le Roy v. Globe Ins. Co. 2 Edw. " Greenwood v. Freight Co. 105 U. Ch. (N. Y.) 657. See, also, Van S. 13; Howe v. Robinson, 20 Fla. Dyck v. McQuade, 86 N. Y. 38; Peti- 352; McCoy v. Parmer, 65 Mo. 244; tion of Le Blanc, In re, 14 Hun (N. Van Glahn v. De Rosset, 81 N. Car. Y.) 8. 467; Curran v. Arkansas, 15 How. ™ Marr v. Bank, 4 Coldw. (Tenn.) (U. S.) 304; Moore v. Schoppert, 22 471; Dean & Son's Appeal, 98 Pa. St. W. Va. 282; Hightower v. Thornton, 101; Rosebloom v. Whittaker, 132 8 Ga. 486, 52 Am. Dec. 412. 111. 81, 23 N. E. 339; Clinksales v. ■* Krebs v. Carlisle Bank, 2 Wall. Pendleton, &c. Co. 9 S. Car. 318. C. C. 33; Heath v. Barmore, 50 N. ^'"Bristol Milling, &c. Co. v. Pro- Y. 302; Shorb v. Beaudry, 56 Cal. basco, 64 Ind. 406. § 614] ' INSOLVENCY AND DISSOLUTION. 900 Unsecured creditors usually share pro rata, as do creditors of the same class with each other, but those who have taken a valid mortgage or similar security, or have otherwise obtained a lawful priority, will usually have the preference.^"^ It is held, however, in a comparatively recent case, that the holders of railroad bonds guaranteed by another corporation are not entitled, upon the insolvency of such corporation, to have a dividend declared in their favor, or to have money retained in court to meet a possible future liability on the guaranty, as against other creditors whose claims are past due, where the railroad company is solvent and the bonds are not due.^"* ™See Taylor Priv. Corp., Ch. court; that their claim was not a XVII ; Florsheim, &c. Co. v. Wetter- provable claim as it was not yet due mark, 10 Tex. Civ. App. 102, 30 S. and the liability was not fixed; and W. 505. that they had no right to share as ™ Gay Mfg. Co. v. Gittings, 53 creditors in the present distribution Fed. 45. The court held that the of assets, bondholders had no standing in CHAPTEE XXV. ACTIONS BY AND AGAINST COEPOBATIONS. Sec. 615. Generally — Suits by corporar tions. 616. When incorporation must be alleged. 617. Actions and suits against cor- porations. 618. Power of corporation over liti- gation — Power to compro- mise and arbitrate. 619. Estoppel to deny corporate ex- istence. 620. When stockholders may sue. 621. Service of process. 621a. Resident agent — ^Rule in fed- eral courts. 621b. Agent need not reside in state ■ — ^Agent casually in state. 622. Return of service. 623. Venue of actions against cor- porations. 624. ^ Attachment and garnishment. 625. Duty and liability of garni- shee. 626. What may be reached in gar- nishment. 627. Garnishment of employes' wages. 628. Injunction — Generally. 629. Injunction where the company seeks to take or condemn lands. Sec. 630. 631. 632. 633. 634. 635. 636. 637. 638. 639. 640. 641. 642. 643. 644. Injunction where railroad is laid in a street. Enjoining a nuisance. Injunction at suit of the com- pany. "strikers." at suit of stock- injunction — Eng- Enjolning Injunction holder. Mandatory lish cases. Rule in the United States — Il- lustrative cases. Mandamus — Generally. Mandamus to compel comple- tion and operation of road. Mandamus to compel restora- tion of highway and con- struction of crossings or viaducts. Mandamus to compel carriage of freight. Mandamus to compel the com- pany to maintain stations and furnish increased facili- ties. When mandamus will not lie. Who may be relator. Quo warranto. § 615. Generally— Suits by corporations. — ^The power to sue and be sued is one of the necessary incidents of a corporation,^ since to be ^ In several of the states it is pro- sued in the courts like natural per- vided by the state constitutions that sons. Stimson Am. Stat., citing con- all corporations may sue and be stitutions of New York, Michigan, 901 § 616] ACTIONS BY AND AGAINST OOEPOEATIONS. 903 recognized by law as a collective body with enforceable rights is es- sential to its legal existence.^ It has been held that the consent of a majority of the directors or trustees of a corporation is necessary to entitle it to sue;^ but it is certainly not the general rule that the directors must take action before a suit can be instituted, and, in any event, in the absence of proof to the contrary, the court will presume that the suit was properly authorized.* A corporation may, in general, avail itself of any legal remedies which would be available to an indi- vidual under similar circumstances. It may bring an action at law upon a contract,^ and may by the usual remedies recover damages for any kind of wrong which it suffers." It may sue in trespass for an in- jury to its business,^ and in equity, in a proper case, for an injunction to prevent injuries to its property.* It may have a writ of mandamus to compel the performance by others of legal duties owed to it.° In a proper case it may also maintain a bill of interpleader.^" § 616, When incorporation must be alleged. — It is frequently re- quired by statute that a plaintiff corporation shall allege the fact of Minnesota, Kansas, Nebraska, North Carolina, California, Nevada, Ala- bama; 4 A. & B. Bnc. of Law, 189. In Colorado a corporation may sue and be sued as an individual, and its insolvency does not change the rule. Breene v. Merchants', &c. Bank,' 11 Colo. 97, 17 Pac. 280. n Morawetz Priv. Corp. (2d ed.) 356. This power existed at com- mon law. 1 Blackstone Com. 475. See, also, Bangor, &c. R. Co. v. Smith, 47 Me. 34; Baltimore, &c. R. Co. V. Gallahue, 12 Gratt. (Va.) 655, 65 Am. Dec. 254; Heaston v. Cincin- nati, &c. R. Co. 16 Ind. 275, 79 Am. Dec. 430; Wilder v. Chicago, &c. R. Co. 70 Mich. 382, 38 N. W. 289, 35 Am. & Eng. R. Cas. 162; New Or- leans Terminal Co. v. Teller, 113 La. Ann. 733, 37 So. 624. ' Dart V. Huston, 22 Ga. 506. But see American Ins. Co. v. Oakley, 9 Paige (N. Y.) 496, 38 Am. Dec. 561; Colman v. West Virginia, &c. Co. 25 W. Va. 148; Trustees v. Connolly, 157 Mass. 272, 31 N. E. 1058; Davis T. Memphis, &c. R. Co. 22 Fed. 883. * Bangor R. Co. v. Smith, 47 Me. 34; Angell & Ames Corp. § 370. The affidavit in support of an applica- tion by a corporation for change of venue on account of local prejudice may be made by the secretary of the corporation. St. Louis, &c. R. Co. V. Fowler, 113 Mo. 458, 20 S. W. 1069. °JE3akright v. Logansport, &c. R. Co. 13 Ind. 404. "Morawetz Priv. Corp. § 358. ' A corporation may sue to recover damages for a libel against it in its business. Metropolitan, &c. Co. V. Hawkins, 4 H. & N. 87; Hahne- mannian Life Ins. Co. v. Beebe, 48 111. 87, 95 Am. Dec. 519; Knicker- bocker Life Ins. Co. v. Ecclesine, 42 How. Pr. (N. Y.) 201; Trenton Mut. Life Ins. Co. v. Perrine, 23 N. J. L. 402. ' See post, 628. • See post, 637. " Salisbury Mills v. Townsend, 109 Mass. 115. 903 WHEN INCORPORATION MUST BE ALIEGED. [§ 616 its incorporation,^^ and to do so is always the better practice. A failure to aver corporate existence in an action by or against a corporation cannot, however, be taken advantage of by a demurrer for want of facts.^^ Pleading the general issue,^^ or going to trial on the merits^^* generally amounts to an admission of the plaintifE's corporate exist- ence and capacity to sue. In some states, as apparently at common law, it is not necessary to allege the incorporation of a plaintiff cor- poration.^^ The theory of the cases so holding is that the "name carries " Texas, &c. R. Co. v. Virginia, &c. Co. (Tex.) 7 S. W. 341; Adams v. Lamson, &c. Co. 59 Hun (N. Y.) 127, 13 N. Y. S. 118; Miller v. Pine Min. Co. 2 Idaho 1206, 31 Pac. 803. See, also. Bliss Code PI. (3d ed.) § 246 et seq. '^John T. Noye Mfg. Co. v. Ray- mond (Super. Ct. Bute.), 8 Misc. 353, 28 N. Y. S. 693; Fulton Fire Ins. Co. V. Baldwin, 37 N. Y. 648; Bliss Code PI. (3d ed.) § 408a. See, also, Stanly v. Richmond, &c. R. Co. 89 N. Car. 331; Cone Export, &c. Co. V. Poole, 41 S. Car. 70, 19 S. B. 203, 24 L. R. A. 289; Wiles v. Trustees of Phillipi Church, 63 Ind. 206; Nolte V. Lebhert, 34 Ind. 163; Sey- mour V. Thomas Harrow Co. 81 Ala. 250, 1 So. 45; Bliss Code PI. § 408. "Mississippi, &c. R. Co. v. Cross, 20 Ark. 443; Cicero, &c. D. Co. v. Craighead, 28 Ind. 274; Heaston v. Cincinnati, &c. R. Co. 16 Ind. 275, 79 Am. Dec. 430; Rockland, &c. Co. V. Sewall, 78 Me. 167; Beatty v. Bartholomew, &c. Society, 76 Ind. 91; Litchfield Bank v: Church, 29 Conn. 137; Bailey v. Valley, &c. Bank, 127 111. 332, 19 N. B. 695_; Remhert v. South Carolina R. Co. 31 S. Car. 309, 9 S. B. 968. See, also, 3 Elliott Ev. § 1930. The rule is different in England and some of the states. Henriquez v. Dutch West Indies Co. 2 Ld. Raym. 1532; Holloway v. Memphis R. Co. 23 Tex. 465, 76 Am. Dec. 68; Jackson v. Bank, 9 Leigh (Va.) 240; Williams v. Bank of Michigan, 7 Wend. (N. Y.) 540; Oregonian R. Co. v. Oregon, &c. Co. 23 Fed. 232; Bank of Ja- maica v. Jeiferson, 92 Tenn. 537, 22 S. W. 211, 36 Am. St. 100. As to plea of nul tiel corporation, see Johnson v. Hanover, &c. Bank, 88 Ala. 271, 6 So. 909; Michigan Ins. Bank V. Bldred, 143 U. S. 293, 12 Sup. Ct. 450; Excelsior Draining Co. V. Brown, 47 Ind. 19; Schloss v. Montgomery Trade Co. 87 Ala. 411, 13 Am. St. 51. "United States v. Insurance Com- panies, 22 Wall. (U. S.) 99; Lehigh Bridge Co. v. Lehigh Coal Co. 4 Rawle (Pa.) 9. See St. Cecilia Academy v. Hardin, 78 Ga. 39, 3 S. E. 305; Sengf elder v. Mut. L. Ins. Co. 5 Wash. St. 121, 31 Pac. 428; Wright V. Fire Ins. Co. 12 Mont. 474, 31 Pac. 87, 19 L. R. A. 211. Cor- porate capacity need not be proved unless it be challenged by an affirm- ative allegation of no corporation. Dry Dock, &c. R. Co. v. North, &c. R. Co. 3 Misc. (N. Y.) 61, 22 N. Y. S. 556. "German Reformed Church v. Von Puechelstein, 27 N. J. Eq. 30; Union Cement Co. v. Noble, 15 Fed. 502. See Baltimore, &c. R. Co. v. Sherman, 30 Gratt. (Va.) 602; Max- well Code PI. 161; Bliss Code PI. § 247. Many of the states provide by statute that in suits where a cor- poration is a party, no evidence of §■ 617] ACTIONS BY AND AGAINST CORPORATIONS. 904 with it the assertion of a fact," and it is sufHeient if the name of the plaintiff imports a corporation.^* § 617. Actions and suits against corporations. — Suits may, in gen- eral, be brought against a corporation upon any cause of action on which an individual would be liable under similar circumstances,^' and two or more corporations may become jointly liable in the same manner as individuals.^* It is sufficient at common law to sue a cor- poration by its corporate name, without an averment of the act of incorporation.^" But in several of the states an allegation of the de- its corporate existence need be of- fered unless the same is denied by verified plea. Rosenberg v. Claflin Co. 95 Ala. 249, 10 So. 521; Michigan Ins. Bank v. Bldred, 143 U. S. 293, 12 Sup. Ct. 450, construing Code Wis. § 4199; Jones v. Ross, 48 Kans. 474, 29 Pac. 680; Swift & Co. v. Craw- ford, 34 Neb. 450, 51 N. W. 1034; Vulcan V. Myers, 58 Hun (N. Y.) 161, 11 N. Y. S. 663; Canal St. Gravel R. Co. v. Paas, 95 Mich. 372, 54 N. W. 907; McBIwee Mfg. Co. v. Trowbridge, 68 Hun (N. Y.) 28, 22 N. Y. S. 674. But it has been held that this does not dispense with an allegation that the defendant is a corporation. State v. Chicago, &c. Co. 4 S. D. 261, 56 N. "W. 894, 46 Am. St. 783. "Smythe v. Scott, 124 Ind. 183, 24 N. E. 685. See Cincinnati, &c. R. Co. v. McDougall, 108 Ind. 179; Shearer v. R. S. Peele & Co. 9 Ind. App. 282, 36 N. B. 455; Bliss Code PI. (3d ed.) § 251. As to judicial notice, see 3 Elliott Bv. § 1929. "A corporation is liable for the torts of its servants committed in the course of their employment. Chestnut Hill T. Co. v. Rutter, 4 Serg. & R. (Pa.) 6, 8 Am. Dec. 675. See ante, §§ 213, 214. The corpora- tion is liable, generally, to the same extent and in the same manner that a natural individual would be lia- ble under like circumstances. First Baptist Church v. Schenectady R. Co. 5 Barb. (N. Y.) 79. A corpora- tion may be liable for malicious prosecution. Springfield Engine & T. Co. V. Green, 25 111. App. 106; Gulf, &c. R. Co. V. James, 73 Tex. 12, 10 S. W. 744, 15 Am. St. 743. A corporation may become civilly re- sponsible for libel. Missouri Pac. R. Co. V. Richmond, 73 Tex. 568, 11 S. W. 555, 4 L. R. A. 280, 15 Am. St. 794, 29 Cent. L. J. 69; Fogg v. Boston, &c. R. Co. 148 Mass. 513, 20 N. B. 109, 12 Am. St. 583. ""An action may be maintained jointly against two railroad com- panies for injuries received in a col- lision caused by the concurrent wrongful acts or negligence of both defendants. Flaherty v. Minneap- olis, &c. R. Co. 39 Minn. 328, 40 N. W. 160, 1 L. R. A. 680, 12 Am. St. 654. One of them, however, in a proper case, may ask judgment over against its codefendant, if judgment is rendered against it. Gulf, &c. R. Co. V. Hathaway, 75 Tex. 557, 12 S. W. 999. 41 Am. & Eng. R. Cas. 219. '"Exchange Nat. Bank v. Capps, 32 Neb. 242, 49 N. W. 223, 29 Am. St. 433; Maxwell Code PI. 161. Des- ignating the defendant by a name which imports a corporation is a sufficient allegation of Its corporate existence. Cincinnati, &c. R. Co. v. 905 POWER OF COEPOEATIOlf OVEE LITIGATION. [§ 61S fendant's corporate existence miist be contained in the complaint in such a suit.^" Proof of the facts so averred, however, in most states, is not required unless they are denied under oath.^^ Where a corpora- tion formed by the consolidation of several corporations is sued for the debt of one of the constituent companies, it has been held that the declaration should show against which company it arose, and the facts necessary to fix liability upon the new corporation.'''' § 618. Power of corporation over litigation — Power to compromise and arbitrate. — The expediency or inexpediency of litigation is a mat- ter for the corporation, or the directors, acting in good faith within the scope of their powers, to determine, and their action in bringing' and defending suits affecting the rights and obligations of the cor- poration is usually binding upon the stockholders.^^ A corporation may, therefore, compromise a pending lawsuit when the directors be- ' lieve it to be to the best interests of the corporation to do so.^* It may McDougall, 108 Ind. 179, 8 N. B. 571; Adams Express Co. v. Harris, 120 Ind. 73, 21 N. B. 340, 7 L. R. A. 217, 16 Am. St. 315. In an action on a note signed by a company in its corporate name, it is not necessary to aver its corporate existence, as it is estopped by such signature to deny it. GriflSn v. Asheville Light, &c. Co. Ill N. Car. 434, 16 S. B. 423. It has been held that the corpora- tion is the only proper party to de- fend and that a director c'annot in- tervene as defendant even though the corporation has failed to pay its franchise tax. Rippstein v. Haynes, &c. R. Co. (Tex. Civ. App.) 85 S. W. 314. ^"Rothschild v. Grand Trunk R. Co. 14 N. Y. S. 807; Saunders v. Sioux City, &c. Co. 6 Utah 431, 24 Pac. 532; People v. Central Pac. R. Co. 83 Cal. 393, 23 Pac. 303; Miller V. Pin Mining Co. 2 Idaho 1206, 31 Pac. 803; State v. Chicago, &c. R. Co. 4 S. Dak. 261, 56 N. W. 894, 46 Am. St. 783. See Bliss Code PI. (3d ed.) § 260. ^^ Calumet Paper Co. v. Knight^ &c. Co. 43 111. App. 566; Hummel v. First Nat. Bank, 2 Colo. App. 571,. 32 Pac. 72; Dry Dock, &c. Co. v. North, &c. R. Co. 3 Misc. (N. Y.) 61, 22 N. Y. S. 556. But proof is required in some states of the due incorpora- tion of a foreign corporation. Bank of Jamaica v. Jefferson, 92 Tenn. 537, 22 S. W. 211, 36 Am. St. 100. See Hummel v. First Nat. Bank, 2 Colo. App. 571, 32 Pac. 72. ^Langhorne v. Richmond City R. Co. (Va.) 19 S. E. 122. == Farnum v. Ballard, &c. Shop, 12 Gush. (Mass.) 507; Graham v. Bos- toni &c. R. Co. 14 Fed. 753, affirmed in 118 U. S. 161, 6 Sup. Ct. 1009; MacDougall v. Gardiner, L. R. 1 Ch. D. 13; note to Bissit v. Kentucky, &c. Co. 15 Fed. 353, 361. ^*Donohoe v. Mariposa, &c. Co. 66 Cal. 317, 5 Pac. 495; Stewart v. Hoyt, 111 V. S. 373, 4 Sup. Ct. 519; New Albany v. Burke, 11 Wall. (U.. S.) 96. § 619] ACTIONS BY AND AGAINST COEPOKATIONS. 906 also refer matters to arbitration,^^ and has implied power to execute a bond in a judicial proceeding in which it is interested.^" So, it may appeal or refuse to appeal a case, and not even a majority of the stockholders can have an appeal dismissed which the directors, acting in good faith, have ordered to be taken and prosecuted to final determi- nation in the appellate eourt.^^ §619. Estoppel to deny corporate existence. — In suits against a body of persons as a corporation where they assume to act as a cor- poration under color of an apparent organization, in pursuance of a law authorizing it, they are generally estopped to set up the irregu- larity of the corporate organization as a defense to the corporate lia- bility which would otherwise have attended their actions.^* And a person who enters into a contract with such a de facto corporation is usually estopped to deny its corporate existence in a suit upon that contract.^* Thus, while it is true that persons cannot dispute the cor- porate liability on such a contract because of the unauthorized or irregular organization of the company, on the other hand, those who deal with them as a corporation may be estopped from treating them as partners. If the corporation was organized under authority of law, persons seeking to enforce contracts into which they have entered with ^Boston, &c. R. Co. v. Nashua, &c. Co. 24 Mich. 389;' Imboden v. Eto- R. Co. 139 Mass. 463, 31 N. E. 751; wah, &c. Mfg. Co. 70 Ga. 86; Smel- Alexandrla Canal Co. v. Swann, 5 ser v. Wayne, &c. Turnpike Co. 82 How. (U. S.) 83. Ind. 417; Cravens v. Eagle, &c. Co. " Collins v. Hammock, 59 Ala. 448. 120 Ind. 6, 21 N. B. 891, 16 Am. St. "Railway Co. v. Ailing, 99 U. S. 298; Keene v. Van Reuth, 48 Md. 463. See, also, Silk Mfg. Co. v. 184; McCord, &c. Co. v. Glenn, 6 Campbell, 27 N. J. L. 539. Under Utah 139, 21 Pac. 500; French v. the Ohio statute stockholders may Donohue, 29 Minn. Ill; Beekman v. appeal in certain cases. Henry v. Hudson River, &c. Co. 35 Fed. 3; Jennes, 47 Ohio St. 116, 24 N. E. Butchers', &c. Bank v. MacDonald, 1077. 130 Mass. 264; Cahall v. Citizens', "^ Kelley V. Newburyport Horse R. &c. Assn. 61 Ala. 232; Griffin v. Co. 141 Mass. 496, 6 N. E. 745; Asheville, &c. Co. Ill N. Car. 434, 16 Blackburn v. Selma, &c. R. Co. 2 S. E. 423. One who deals with a Flippin (U. S.) 525; Georgia Ice Co. corporation as existing in fact, is v. Porter, 70 Ga. 637; Empire Mfg. estopped to deny as against the cor- Co. V, Stuart, 46 Mich. 482, 9 N. W. poration that it has been legally or- 527; Griffln v. Asheville, &c. Co. Ill ganized. Close v. Glenwood Ceme- N. Car. 434, 16 S. E. 423. See ante, tfery, 107 U. S. 466, 2 Sup. Ct. 267, § 190; also 3 Elliott Ev. §§ 1932, per Mr. Justice Gray; Bliss Code 1940. PI. (3d ed.), § 252 et seq. Ante, "Swartout v. Michigan, &c. R. § 190; also 3 Elliott Ev. § 1940. 907 WHEN STOCKHOLDEKS MAT SUE. [§ 620 it cannot, as a rule, take advantage of any failure to observe the legal formalities necessary to a valid organization, in order to charge the shareholders as partners.^" But where the organization was without any authority of law for its existence, the fact that the persons called themselves a corporation will not enable them to escape from personal liability for their acts.*^ § 620. When stockholders may sue. — As already intimated, suits to enforce corporate rights or to avert threatened wrongs to the cor- porate interests should be brought by the oflBcers of the corporation in its name, and a stockholder, as such, has generally no right to sue."^ But where the directors refuse to enforce the corporate rights,^ ^ and are proceeding ultra vires, or are fraudulently combining with others to despoil the corporation,^* a stockholder may maintain a suit in his » Stout v. Zulick, 48 N. J. L. 599; Humphreys v. Mooney, 5 Colo. 282; First Nat. Bank v. Almy, 117 Mass. ,476; Planters', &c. Bank v. Padgett, 69 Ga. 159; Second Nat Bank v. Hall, 35 Ohio St. 158. Ante, § 190. See note in 29 Am. St. 601. "Hill V. Beach, 12 N. J. Bq. 31; Lewis V. Tilton, 64 Iowa 220, 19 N. W. 911, 52 Am. R. 436; Methodist Episcopal Church v. Pickett, 19 N. Y. 482. See, also, notes in 29 Am. St. 602 and 17 L. R. A. 550. But see Winget v. Quincy, &c. Assn. 128 111. 67, 21 N. E. 12. "^Waterman Corp. § 138; 2 Beach Priv. Corp. § 878. See, also. Wolf T. Pennsylvania R. Co. 195 Pa. St. 91, 45 Atl. 936; McCloskey v. Snow- den, 212 Pa. St. 249, 61 Atl. 796, 108 Am. St. 867; Johns v. McLester, 137 Ala. 283, 34 So. 174, 97 Am. St. 29 and elaborate note. ^'Morgan v. Railroad Co. 1 Woods (U. S.) 15; Detroit v. Dean, 106 U. S. 537, 1 Sup. Ct. 560; Shawhan v. Zinn, 79 Ky. 300; Dodge v. Wool- sey, 18 How. (U. S.) 331. It must appear that their refusal is a breach of trust on their part and not a mere error of judgment in a matter properly within their discretion. Pacific R. Co. V. Missouri Pac. R. Co. 2 McCrary (U. S.) 227; Dimp- fell V. Ohio, &c. R. Co. 110 U. S. 209, 3 Sup. Ct. 573. '^ Where such a state of facts is shown as to clearly Indicate that the corporate management is ad- verse or indifferent to the interests of the corporation and that it would be useless to request the corporation to sue, a stockholder may sue in the first instance. Barr v. New York, &c. R. Co. 96 N. Y. 444; Crumlish V. Shenandoah Valley Railroad Co. 28 W. Va. 623; Wilcox v. Bickel, 11 Neb. 154, 8 N. W. 436; Doud v. Wis- consin, &c. R. Co. 65 Wis. 108, 56 Am. R. 620; Davis v. Gemmel, 70 Md. 356, 17 Atl. 259; Barr v. Pitts- burgh, &c. Co. 40 Fed. 412. But, unless this is true, a request should precede suit and an earnest effort should first be made to have the corporation sue. Taylor v. Holmes, 127 U. S. 489, 8 Sup. Ct. 1192; Dimp- fell v. Ohio, &c. R. Co. 110 U. S. 209, 3 Sup. Ct. 573 ; Foote v. Cunard, &c. Co. 17 Fed. 46; Chicago v. Cameron, 120 111. 447. See ante, §§ 165, 167. § 621] ACTIONS BY AND AGAINST COEPOKATIONS. 908 own name to enforce those rights/' especially if he can show that ir- remediable loss will accrue if he is not allowed to bring suit.'' But it has been held that the corporation should, in such a case, be made a party defendant,'^ although the relief prayed is really in its favor.'* § 621. Service of process. — Process cannot, of course, be served upon a corporation aggregate directly. At common law service was required to be made upon some agent bearing the relation to the cor- poration of a head officer, whose knowledge would be that of the cor- poration.'' The statutes of the various states prescribe the agents of the company upon whom service of process shall be made in order to be valid as service upon the company itself. These statutes resemble each other though they vary much in detail.'"' Where the method of serving process upon a corporation is prescribed by statute that method " Hawes v. Oakland, 104 U. S. 450, where the court states in the form of distinct propositions what must he shown in order to enable a stock- holder to sue. =" Detroit v. Dean, 106 U. S. 537, 542, 1 Sup. Ct. 650. It is suggested that each probable loss from a fail- ure to permit the bringing of a suit against an outsider, to recover damages for past injuries, would be very difficult to show in almost all cases. Waterman Corp. § 142. But see Chicago v. Cameron, 120 111. 447, 458, 11 N. E. 899, where the stock- holders were permitted to sue to cancel bonds wrongfully issued twelve years before. See, generally, upon the subject, the elaborate note in 97 Am. St. 29 et seq. See as to right of transferee to have transfer of stocks and enforce the right in the courts of another state than that creating the corporation, Westmin- ster Nat. Bank v. New BJngland, &c. Works, 73 N. H. 465, 62 Atl. 971, 111 Am. St. 637. »'Shawhan v. Zinn, 79 Ky. 300; Hawes v. Oakland, 104 U. S. 450; Slattery v. St. Louis, &c. Co. 91 Mo. 217, 4 S. W. 79, 60 Am. R. 245; Byers v. Rollins, 13 Colo. 22; Ken- nebec, &c. R. Co. V. Portland, &c. R. Co. 54 Me. 173; Mount v. Radford Trust Co. 93 Va. 427, 25 S. E. 244;, Morshead v. Southern Pac. R. Co. 123 Fed. 350; Holton v. Wallace, 77 Fed. 61; note in 97 Am. St. 45. =* Jones V. BoUes, 9 Wall. (U. S.) 364. See, also, Flynn v. Brooklyn City R. Co. 158 N. Y. 493, 53 N. B. 520. Relief cannot be granted un- less the corporation is brought be- fore the court so that the decree may conclude it. Shawhan v. Zinn, 79 Ky. 300. =°Heltzell V. Chicago, &c. R. Co. 77 Mo. 315; Newell v. Great Western R. Co. 19 Mich. 336; Glaize v. South Carolina R. Co. 1 Strobh. Law (S. Car.) 70; Boyd ,v. Chesapeake, &c. Canal Co. 17 Md. 195, 75 Am. Dec. 646; Newby v. Van Oppen, L. R. 7 Q. B. 293. Service on the officers of a domestic corporation was held to be service upon the corporation, but it seems that jurisdiction over a foreign corporation could not be thus acquired under the early com- mon law. 1 Elliott Gen. Pr. § 359. *° Stimson Am. Stat., Vol. 3. 909 BEETICE OF PROCESS. [§ 631 is generally, but not always, held to be exclusive of any other.*^ The statute of Indiana provides that service may be made upon the presi- dent or other chief officer, or if its chief officer is not found in the county, then upon its cashier, treasurer, director, secretary, clerk, gen- eral or special agent. If none of these officers is to be found in the county, process may be served upon any person authorized to transact business in the name of such corporation.*'' Under this statute it is held that service upon the conductor of a passenger train,*' or a freight train,** or upon a local freight agent,*" is valid and efEective as service upon the railroad company by which he is employed ;*° since the term "special agent" must be held to include persons holding such a special authority.*' But it has been held by the Supreme Court of Michigan that the "general or special agent" of a corporation upon whom a summons in garnishment may be served under a similar statute, is an ageift having a general or special controlling authority, either gener- ally or in respect to some department of corporate business, and that a ticket agent is not such an agent.** So, it has been held that where " Cosgrove v. Tebo, &c. R. Co. 54 Mo. 495; Union Pac. R. Co. v. Pills- bury, 29 Kans. 652; North v. Cleve- land, &c. R. Co. 10 Ohio St. 548; Congar v. Galena, &c. R. Co. 17 Wis. 477; Hartford Fire Ins. Co. v. Owen, 30 Mich. 441. And the method pre- scribed in a special statute is held to be exclusive of the methods pre- scribed in a prior general statute. St. Paul, &c. R. Co.," In re, 36 Minn. 85, 30 N W. 432. Contra, State v. Hannibal, &c. R. Co. 51 Mo. 532; Jeffersonville, &c. R. Co. v. Dunlap, 29 Ind. 426; Fowler v. Detroit, &c. R. Co. 7 Mich. 79. ~ "^R. S. Ind. 1894, § 318. "New Albany, &c. R. Co. v. Grooms, 9 Ind. 243; New Albany, &c. R. Co. V. Tilton, 12 Ind. 3, 74 Am.. Dec. 195. « Ohio, &c. R. Co. V. Quier, 16 Ind. 440. "And this is true even though there be a superintendent and di- rector of the company residing in the same county. Toledo, &c. R. Co. V. Owen, 43 Ind. 405. For other cases holding service of process upon a local depot or station agent valid, see St. Louis, &c. R. Co., Ex parte, 40 Ark. 141; Hudson v. St. Louis, &c. R. Co. 53 Mo. 525; Ruthe v. Green Bay, &c. R. Co. 37 Wis. 344; Smith v. Chicago, &c. R. Co. 60 Iowa 512, 15 N. W. 303; Missouri Pac. R. Co. V. Collier, 62 Tex. 318. In St. Louis, &c. R. Co. v. De Ford, 38 Kans. 299, 16 Pac. 442, it was held that service of a summons upon a section foreman, as "a local super- intendent of repairs" of a railroad company, was a valid service upon the company. Contra, Richardson V. Burlington, &c. R. Co. 8 Iowa 260. "The return must state the agency held by the person upon whom service was made or it will be held insuflScient. Dickerson v. Burlington, &c. R. Oo. 43 Kans. 702, 23 Pac. 936. "New Albany, &c. R. Co. v. Grooms, 9 Ind. 243. "Lake Shore, &c. R. Co. v. Hunt, 39 Mich. 469. See, also, Abraham Bros. V. Southern R. Co. (Ala.), 42 So. 837. § G21a] ACTIONS BY AND AGAINST CORPORATIONS. 910 the statute provides for service upon a "passenger or freight agent" of the company it refers to such a person in the service of the com- pany and that in an action against the last of several connecting carriers service upon the agent of the first carrier is insufficient.*" Service must usually be made upon the de facto officers, or agents, or persons in possession of the offices under claim of rights, who, having control of the business and property of the company, are in a position to care for and protect its rights. Service upon persons claiming to be officers de jure, but not having possession of the offices they claim, is not sufficient.^" In the case of foreign corporations conducting busi- ness within the jurisdiction, the head officer or managing agent in charge of such business is the proper person upon whom to serve process, in the absence of any statutory provision designating the officer or agent upon whom service may be made.^'^ But where there is a general statute providing for the service of process upon corporate agents, and there are no special provisions relative to service upon foreign corporations, such corporations are within the operation of the general statute.^^ § 621a. Resident agent — ^Rule in federal courts."^^^ — Most of the states have statutes regulating the method of serving foreign corpora- tions with process. These statutes usually require that foreign railroad or other corporations acting within their jurisdiction shall keep specified agents therein who are fully authorized to accept service of " Louisville, &c. R. Co. v. Chest- its general counsel had stated to nut & Bro. 115 Ky. 43, 72 S. W. 351. plaintite's counsel that such agent But, under the particular circum- was authorized to accept service, stances of the case, a construction Taylor, &c. Co. v. Adams Express company was held the agent of the Co. 71 N. J. L. 523, 59 Atl. 10. railroad company so as to make the "' St. Clair v. Cox, 106 U. S. 350, latter subject to suit and service 355, 1 Sup. Ct. 354; Newby v. Van upon the officers of the former good Oppen, L. R. 7 Q. B. 293 ; "Weight v. in a suit against the latter in Buie Liverpool, &c. Ins. Co. 30 La. Ann. V. Chicago, &c. R. Co. 95 Tex. 51, ,65 1186; New York, &c. R. Co. v. Purdy,. S. W. 27, 55 L. R. A. 861. See, also, 18 Barb. (N. Y.) 574. Lehigh Min. &c. Co. v. Kelly, 160. U. °^ Hannibal, &c. R. Co. v. Crane, S. 327, 16 Sup. Ct. 307. 102 111. 249; Midland Pac. R. Co. v. "Berrian v. Methodist Soc. in McDermid, 91 111. 170; Chicago, &c. New York, 4 Abb. Pr. (N. Y.) 424. R. Co. v. Manning, 23 Neb. 552, 37 But it has been held that the cor- N. W. 462. poration cannot question that the ""a Part of this section was part of service was on a proper agent where § 621 In the original edition. 911 EESIDENT AGENT RULE IN FEDERAL COURTS. [§ 621a process/' Where such is the case service upon such agent is sufficient to support jurisdiction in an action against a foreign corporation either in the state courts or/* when not inconsistent with the acts of congress, in the federal court sitting in such state.°^ If no agent is designated to receive service of process, as required by law, service may be made upon a managing agent as at common law.°® Where "' Such a regulation is witliin the constitutional power of a state. La- fayette Ins. Co. V. French, 18 How. (U. S.) 404; Hannibal, &c. R. Co. V. Crane, 102 111. 249, 40 Am. R. 581; Gibson v. Manufacturers', &c. Co. 144 Mass. 81, 10 N. E. 729; 1 Elliott Gen. Pr. § 359, and numerous authorities there cited. See, also, ante, § 24. But it is held that the Idaho statute does not apply to rail- road companies. Boyer v. Northern Pac. R. Co. 8 Idaho 74, 66 Pac. 826, 70 L. R. A. 691, and note on the gen- eral subject. A corporation which does business in a state whose gen- eral laws prescribe a certain method of serving process upon foreign cor- porations will be held to have sub- mitted to the provisions of the law. Weymouth v. Washington, &c. R. Co. 1 McArthur (D. C.) 19; Mora- wetz Priv. Corp. (2d ed.) § 982. "Reyer v. Odd Fellows, &c. Assn, 157 Mass. 367, 32 N. E. 469, 34 Am. St. 288; Chicago, &c. R. Co. v. Walker, 9 Lea (Tenn.) 475; Shane V. Mexican Internat. R. Co. 8 Tex. Civ. App. 441, 28 S. W. 456, 13 Am. & Eng. Ency. of Law 2d ed.), 894, and other authorities there cited. See, also, as to the effect that the company is estopped from setting up its failure to comply with the law, Fisk v. Chicago, &c. R. Co. 53 Barb. (N. Y;) 513; Ehrman v. Teu- tonic, &c. Co. 1 Fed. 471; American, &c. Co. V. Lea, 56 Ark. 539, 20 S. W. 416. As to effect of failure of state agent to receive service, see Na- tional Surety Co. v. State, 120 Fed. 593, 61 L. R. A. 394. "Barrow S. S. Co. v. Kane, 170 U. S. 100, 18 Sup. Ct. 526; Van Dres- ser V. Oregon R. &c. Co. 48 Fed. 205 ; Schollenberger, Ex parte, 96 IT. S. 369. ""State V. Pennsylvania R. Co. 42 N. J. L. 490; New York, &c. R. Co. V. Purdy, 18 Barb. (N. Y.) 574; Thomas v. Placerville, &c. Mining Co. 65 Cal. 600. The statutes of some of the states require service upon a "managing agent" within the jurisdiction. There is considerable conflict in tlie cases as to what con- stitutes a managing agent. The su- perintendent and general manager of a foreign corporation owning a road within the state are held to be such agents. Bank of Commerce V. Rutland, &c. R. Co. 10 How. Pr. (N. Y.) 1. So of the vice-president and general superintendent. Nor- folk, &c. R. Co. V. Cottrell, 83 Va. 512, 3 S. B. 123. Or, a general pas- senger agent or other person hav- ing general control of a particular department or branch of the busi- ness. Tuchband v. Chicago, &c. R. Co. 115 N. Y. 437, 22 N. E. 360. But see Maxwell v. Atchison, &c. R. Co. 34 Fed. 286. In Ohio it seems that a suit in personam cannot be main- tained against a foreign corporation unless it has a managing agent with- in the state. Barney v. New Albany, &c. R. Co. 1 Handy (Ohio) 571. Ticket sellers have been held not to be managing agents. Doty v. Michi- gan Cent. R. Co. 8 Abb. Pr, (N. Y.) 427; Mackereth v. Glasgow, &c. R. Co. L. R. 8 Bxch. 149. But see Smith V. Chicago, &c. R. Co. 60 Iowa •§ 621a] ACTIONS BY AND AGAINST COEPOEATIONS. 912 foreign corporations engaged in business in a state whose law pro- vides that they may be summoned by process served upon an agent in charge of their business, it was held that they were "found" in the district in which such agent is doing business within the meaning of a former act of congress, and that service of process upon such an agent would confer jurisdiction upon the United States courts, to the same extent that the state courts would acquire jurisdiction by a similar service of process.^^ But the act of August 13, 1888, has ■changed this rule by providing that "where the jurisdiction is founded only on the fact that the action is between citizens of different states, suit shall be brought only in the district of the residence of either the plaintiff or defendant.'"^' 512, 15 N. W. 303; Brown v. Chi- cago, &c. R. Co. 12 N. Dak. 61, 95 N. "W. 153, 102 Am. St. 364 (station agent Is) ; Tuchband v. Chicago, &o. E. Co. 115 N. Y. 440, 22 N. B. 360; Missouri Pac. R. Co. v. Collier, 62 Tex. 318, and a haggage master is not. Plynn v. Hudson River R. Co. 6 How. Pr. (N. Y.) 308. See fur- ther on this subject, 1 Elliott Gen. Pr. § 359, and note to Hampson v. Wears, 66 Am. Dec. 116, 120. See, also, New York, &c. R. Co. v. Fre- mont, &c. R. Co. 66 Neb. 159, 92 N. W. 131, 59 L. R. A. 939, and note; Brown v. Chicago, &c. R. Co. 12 N. Dak. 61, 95 N. W. 153, 102 Am. St. 561, and note to Abbeville, &c. R. Co. V. "Western, &c. Co. 85 Am. St. 930-935. "Block V. Atchison, &c. R. Co. 21 Fed. 529; McCoy v. Cincinnati, &c. R. Co. 13 Fed. 3; Lung Chung v. Northern Pac. R. Co. 19 Fed. 254; SchoUenberger, Ex parte, 96 U. S. 369; Morawetz Priv. Corp. (2d ed.) § 982; Van Dresser v. Oregon R. &c. Co. 48 Fed. 202. In this latter case it was held that a foreign railroad company which had formed a com- bination with other lines extending into the state of Oregon, and which, through its agents, was engaged in making contracts in that state for the carriage of passengers and freight over such connecting lines and its own road was bound by a service of summons upon the agent through whom such contracts were made. But see St. Clair v. Cox, 106 U. S. 350, 1 Sup. Ct 354. In Globe Accident Ins. Co. v. Reld, 19 Ind. App. 203, 49 N. E. 291, 292 (citing text) it is held that the corporation is "found" in the state where it has an agent and is doing business and is sued. See Eel River R. Co. v. State, 143 Ind. 231, 42 N. E. 617. See, also, Buie v. Chicago, &c. R. Co. 95 Tex. 51, 65 S. "W. 27, 55 L. R. A. 861. ^ Construed in Southern Pac. R. Co. V. Denton, 146 U. S. 202, 13 Sup. Ct. 44; Shaw v. Quincy Mining Co. 145 U. S. 444, 12 Sup. Ct. 935; Mc- Cormick, &c. Co. v. Walthers, 134 U. S. 41, 10 Sup. Ct. 485. See post, § 623. Also Green v. Chicago, &c. R. Co. (U. S.), 27 Sup. Ct. 595. See, also, Great Southern, &c. Co. v. Jones, 177 U.S. 449,20 Sup. Ct. 690; Wells Co. V. Gastonia, &c. Co. 198 U. S. 177, 25 Sup. Ct. 640; Rush V. Foos Mfg. Co. 20 Ind. App. 515, 51 N. E. 143, 147. Privilege may be waived. Horn v. Pere Marquette R. Co., 151 Fed. 627. 913 AGENT NEED NOT BESIDE IN STATE. [§ 631b § 621b.°^ Agent need not reside in state — ^Agent casually in state. — It is not necessary that the officer or agent upon whom process is served shall reside within the jurisdiction, if he has the control of the business of the corporation at a particular place therein, at which his official residence as an officer of the corporation is established.^" On the other hand, service upon an officer or agent casually within the state, when he is not there in the performance of the duties of his office, and is not authorized in any way to submit the corporation to the jurisdiction of the courts, is not such service as will bind a for- eign corporation, which has no office and transacts no business within the state.°^ Thus, in a recent case, where a director was casually ™ Part of this section was part of § 621 in the first edition. "■Porter v. Chicago, &c. R. Co. 1 Neb. 14; Governor v. Raleigh, &c. R. Co. 3 Ired. Eq. (N. Car.) 471. "^ Latimer v. Union Pac. R. Co. 43 Mo. 105, 97 Am. Dec. 378; Fitzger- ald, &c. Construction Co. v. Fitzger- ald, 137 V. S. 98, 11 Sup. Ct. 36, 39; Newell V. Great Western R. Co. 19 Mich. 336; Goldey v. Morning News, 42 Fed. 112, 156 U. S. 518, 15 Sup. Ct. 559 (on appeal) ; Midland Pac. R. Co. V. McDermid, 91 111. 170; Dallas V. Atlantic, &c. R. Co. 2 Mc- Arthur (D. C.) 146; Phillips v. Bur- lington Library Co. 141 Pa. St. 462, 21 Atl. 640; Barnes v. Mobile, &c. R. Co. 12 Hun (N. Y.) 126. But see Shickle, &c. Co. v. Wiley, &c. Co. 61 Mich. 226, 1 Am. St. 571; Klopp v. Creston, &c. Co. 34 Neb. 808, 52 N. W. 819, 33 Am. St. 666; Pope v. Terre Haute, &c. Co. 87 N. Y. 137. See note in 70 L. R. A. 513, 532. In Chicago, &c. R. Co. v. Walker, 9 Lea (Tenn.) 475, it was held that serv- ice upon the "Southern passenger agent" of defendant company, in an action for breach of a contract en- tered into with him, was invalid because of his lack of authority to receive service of process. The agent had no authority to sell tick- ets for his principal, and had no Ell. Raxlboads — 58 regular place of business. His busi- ness was to travel over the territory south of the Ohio river, and over Virginia, Arkansas and Texas, and Induce travelers to take a route which led over his road, to assist them in checking their baggage and to conduct them to the nearest tick- et office where a ticket over his road could be purchased. But see Van Dresser v. Oregon R. &c. Co. 48 Fed. 202. In United States Graphite Co. V. Pacific, &c. Co. 68 Fed. 442, the rule stated in the text was held ap- plicable although the officer served was in the state on business of the corporation, which, however, had no office or agency there. See, also, Goldey v. Morning News, 156 U. S. 518, 15 Sup. Ct. 559; Eirich v. Don- nelly, &c. Co. 104 Fed. 1; Clews v. Woodstock, &c. Co. 44 Fed. 31; Fi- delity Trust, &c. Co. V. Mobile St. R. Co. 53 Fed. 850. Contra, Gravely v. Southern, &c. Co. 47 La. Ann. 389, 16 So. 866; Shickle, &c. Co. v. Wiley Const. Co. 61 Mich. 226, 28 N. W. 77, 1 Am. St. 571; Pope v. Terre Haute, &c. Co. 87 N. Y. 137. And see Hous- ton V. Filer, &c. Co. 85 Fed. 757, and Brush Creek Coal, &c. Co. v. Morgan, &c. Co. 136 Fed. 505. A thorough review of the authorities will be found in 2 Am. L. Reg. & Rev. (N. S.) 680. 622] ACTIONS BY AND AGAINST COEPOEATIONS. 914 within the state for a few days, but the corporation did no business there and had no property within the state, service on such director was held insuflBeient by the supreme court of the United States."^ § 622. Eetum of service. — The return of service upon an officer of a corporation should show his official position in such a manner as to make it clear that the service was upon the officer or agent desig- nated by the statute, and that he was served in his official or repre- sentative character.^^ So, where the statute permits service upon a subordinate officer only when the president or highest officer is absent or a non-resident, the return of service upon the subordinate should show the absence or non-residence of the president or chief officer.^* A return that the summons was served on the "general manager" of the defendant corporation, naming him, was held insufficient where the statute required that the service should be upon its "president or other principal officer."'^ And a return of service "personally on S. C. Hoge, agent in charge of the Central of Georgia Eailway Company" has been held not sufficient to show service upon the company.®" But a service may be good when the return shows that the proper officer ■" Remington v. Central Pac. R. Co. 198 U. S. 95, 25 Sup. Ct. 577. Citing Conley v. Mathieson Alkali Works, 190 U. S. 406, 23 Sup. Ct. 728; Geer V. Mathieson Alkali "Works, 190 U. S. 428, 23 Sup. Ct. 807. But In another recent case it is held that service on a general officer who voluntarily comes into the state to adjust a dif- ference between the corporation and the plaintiff with reference to the subject-matter of the suit, is suffi- cient. Brush Creek Coal, &c. Co. V. Morgan, &c. Co. 136 Fed. 505. But see Buffalo, &c. Brick Co. v. Ameri- can, &e. Co. 141 Fed. 211. "^ Jones V. Hartford Ins. Co. 88 N. Car. 499; Oxford Iron Co. v. Sprad- ley, 42 Ala. 24; O'Brien v. Shaw's Flat, &c. Co. 10 Cal. 343; Powder Co. V. Oakdale, &c. Co. 14 Phila. (Pa.) 166; 1 Elliott Gen. Pr. § 359. , "St. Louis, &c. R. Co. V. Dorsey, 47 111. 288; Miller v. Norfolk, &c. R. Co. 41 Fed. 431; Toledo, &c. R. Co. V. Owen, 43 Ind. 405; Hoen v. At- lantic, &c. R. Co. 64 Mo. 561. But see Kansas City, &c. R. Co. v. Daugh- try, 138 U. S. 298, 11 Sup. Ct. 306. As to what is sufficient in this re- gard, see Colorado, &c. Co. v. Lom- bard Investment Co. 66 Kans. 251, 71 Pac. 584, 97 Am. St. 373 ; "Western Un. Tel. Co. v. Llndley, 62 Ind. 371; Chicago, &c. Elec. Co. v. Congdon, &c. Co. Ill 111. 309; Cincinnati Hotel Co. V. Central Trust, &c. Co. 11 Ohio Dec. (reprint) 255. See, generally, El Paso, &c. R. Co. V. Kelly (Tex.), 87 S. W. 660. •"Dale V. Blue Mountain, &c. Co. 15 Pa. Co. Ct. 513, affirmed in 167 Pa. St. 402, 31 Atl. 633. ^ Burnett v. Central, &c. R. Co. 117 Ga. 521, 43 S. E. 854, 97 Am. St. 175. The court regarded it as serv- ice upon Hoge in his individual ca- pacity rather than upon the corpora- tion. But see Keener v. Eagle Lake, &c. Co. 110 Cal. 627, 43 Pac. 14. 915 VENUE OF ACTIONS AGAINST- COEPOEATIONS. [§623 was served, although the writ merely names the defendant company without designating the officer upon whom it should be served.'^ § 623, Venue of actions against corporations. — An action against a corporation for personal injuries or other trespass of a personal na- ture/^ being of a transitory character, may usually be brought in any county in which service upon the corporation can be obtained.*" But a statute which provides that an action shall be brought and tried in the county in which the defendant resides or is found applies to cor- porations as well as to natural persons.'" As elsewhere shown, rail- road companies are usually required to have an agent upon whom process can be served in each state, and are sometimes made, in effect, residents of each county through which their line runs and in which they have an agent for the purpose of suing or being sued,'^ although, "" Illinois Steel Co. v. San Antonio, &c. R. Co. 67 Fed. 561. "South Florida R. Co. v. "Weese, 32 Fla. 212; Dave v. Morgan's Lou- isiana, &c. R. Co. 46 La. Ann. 273, 14 So. 911; Atchison, &c. R. Co. v. Wor- ley (Tex. Civ. App.), 25 S. W. 478; Heiter v. East St. Louis Connecting R. Co. 53 Mo. App. 331; Williams v. East Tennessee, &c. R. Co. 90 Ga. 519. °»The statutes of several of the states expressly provide that rail- roads may be sued in ordinary ac- tions in any county of the state through which the road runs. Wil- liams V. East Tennessee, &c. R. Co. 90 Ga. 519, 16 S. E. 303 ; South Flor- ida R. Co. V. Weese, 32 Fla. 212, 13 So. 436. Wherever the company has an agent. Schoch v. Winona, &c. R. Co. 55 Minn, 479, 57 N. W. 208; Atch- ison, &c. R. Co. V. Worley (Tex.), 25 S. W. 478; Red River, &c. R. Co. v. Blount, 3 Tex. Civ. App. 282, 22 S. W. 93(). See, also, note in 70 L. R. A. 691 et seq. A declaration against a railroad company which alleges I that the defendant damaged plain- ! tiffs by constructing a railroad upon their land in the county in which suit is brought, sufficiently shows that the railroad lies wholly or part- ly in that county t6 withstand a gen- eral demurrer for want of facts to constitute a cause of action. Bast Georgia, &c. R. Co. v. King, 91 Ga. 519, 17 S. E. 939. As to what actions are transitory, see, also, Hanna v. Grand Trunk R. Co. 41 111. App. 116 ; Nonce v. Richmond, &c. R. Co. 33 Fed. 429; Heiter v. East St. Louis, &c. R. Co. 53 Mo. App. 331; 1 Elliott Gen. Pr. § 253. As to mandamus, see Loraine v. Pittsburg, &c. R. Co. 205 Pa. St. 132, 54 Atl. 580, 61 L. R. A. 502 (holding that it will be in the county where the track in ques- tion is). ™Holgate V. Oregon Pac. R. Co. 16 Ore. 123, 17 Pac. 859. See, also, Sherrill v. Chesapeake, &c. R. Co. 89 Ky. 302, 12 S. W. 465; Boyer v. Northern Pac. R. Co. 8 Idaho 74, 166 Pac. 826, 70 L. R. A. 691, and note. "See ante, § 24; St. Louis, &c. R. Co. V. Traweek, 84 Tex. 65, 19 S. W. 370; Bristol v. Chicago, &c. R. Co. 15 111. 436; Slavens v. South. Pac. R. Co. 51 Mo. 308, 310; Schoch v. Wi- nona, &c. R. Co. 55 Minn. 479, 57 N. W. 208; Newberry v. Arkansas, &c. §■ 623] ACTIONS BY AND AGAINST CORPORATIONS. 916 when citizens of a foreign state and not of that where sued they cannot be prohibited from removing a cause to the federal courts under proper circumstances. But it has been held that such a company, in- corporated in one state only, although it has a place of business in another state, cannot be sued in a United States circuit court of the latter state, which is in a different district from that in. which the company is incorporated, by a citizen of a third state,^^ although a suit between corporations organized in difEerent states may be brought in the district in which the plaintiff is incorporated as well as that in which the defendant is incorporated, when the jurisdiction is founded solely on diverse citizenship under the act of congress of August 13, 1888.''^ A state statute which provides that suits against a railroad company may be brought in any county into which its line extends is subordinate, in so far as the federal courts are concerned, to the act of congress above referred to, and where another statute of the state declares that "the public office of a railroad corporation shall be con- sidered the domicile of such corporation," a domestic railroad com- pany of such state is an "inhabitant" of the district in which such public office is located, and cannot be sued in a circuit court of the United States in another district through which its road extends.'* R. Co. 52 Kan. ei3, 35 Pac. 210; Constr. Co. v. Glbney, 160 U. S. 217, Louisville, &c. R. Co. v. Saucier 16 Sup. Ct. 272; Citizens', &c Co. v. (Miss.), 1 So. 511. See, also, Ala- Union, &c. Co. 106 Fed. 97. As to tama, &c. R. Co. v. Fulghum, 87 Ga. right of non-resident to sue non-res- 263, 13 S. E. 649. ident corporation in state court, '^ Shaw V. Quincy Mining Co. 145 where cause of action is transitory, U. S. 444, 12 Sup. Ct. 935, 6 Lewis see Reeves v. Southern R. Co. 121 Am. R. & Corp. 357; Campbell v. Du- Ga. 561, 49 S. E. 674, 70 L. R. A. 513, luth, &c. R. Co. 50 Fed. 241; South- and note. ern Pac. Co. v. Denton, 146 U. ' S. "= N. K. Fairbank & Co. r. Cincln- 202, 13 Sup. Ct 44. There are cases nati, &c. R. Co. 54 Fed. 420; St. in the federal circuit courts to the Louis, &c. R. Co. v. McBride, 141 U. contrary, but the first decision of the S. 127, 11 Sup. Ct. 982, holding also supreme court, supra, has settled that the objection to jurisdiction on the law upon the subject. But see this ground may be waived. See as Hohorst, In re, 150 U. S. 653, 14 Sup. to right of non-resident stockholder Ct. 221, holding that a foreign cor- to sue in district where corporation poration might be sued by a citizen was created, Jellenik v. Huron, &c. of a state in any district thereof in Co. 177 U. S. 1, 20 Sup. Ct. 559. which valid service could be had. " Galveston, &c. R. Co. v. Gonzales, See, also, Barrow, &c. Co. v. Kane, 151 U. S. 496, 14 Sup. Ct. 401, 57 Am. 170 U. S. 100, 18 Sup. Ct. 526. And & Bng. R. Cas."71. see as to waiver. Interior, &c. 917 VENUE OE ACTIONS AGAINST CORPORATIONS. [§ 633 In some jurisdictions, where the statute does not, in effect, make railroad companies residents of the different counties through which their lines run and in which they have agents, it is held that the resi- dence of a railroad company will be presumed to be in the county in which its principal office is located, and that the venue should be laid in that county." It was also held, in a recent case, that an action for personal injuries might be brought in the county in which the company had its principal office, although the injury was inflicted in another county in the same state, and although the statute provided that the company might be sued in the county in which the injury was inflicted.'" And it has been held in Texas that a railroad com- pany whose road extends into and is operated by it in Texas, may be there sued and served with process notwithstanding the cause of action arose in another state of which the plaintiff is a citizen.'' Local ac- tions, such as those involving the title or possession of land, or for injuries thereto, must generally be brought in the county or district in which the land is situated,'* but this subject is largely regulated by "Thorn v. Railroad Co. 26 N. J. L. 121; Transportation Co. v. Scheu, 19 N. Y. 408; Railroad Co. v. Cooper, 30 Vt. 476, 73 Am. Dec. 319; Pelton v. Transportation Co. 37 Ohio St. 450; Jenkins v. Stage Co. 22 Cal. 537. But, as a general rule, a transi- tory action against a non-resident may be brought in any county in which process can be served upon him. 1 Elliott Gen. Pr., § 254, and authorities there cited, in note 3, p. 313. ™ The court regarded the statute as permissive and cuijiulative and not exclusive. Williams v. East Ten- nessee, &c. R. Co. 90 Ga. 519, 16 S. E. 303. "Missouri, &c. R. Co. v. Keller- man (Tex. Civ. App.), 87 S. W. 401. ™ See 1 Elliott Gen. Pr. § 252, and authorities there cited. Unless oth- erwise provided by statute, the gen- eral rule is that an action is transi- tory "when the transaction out of which it grows, or the occurrence upon which it is founded, is one that might have taken place anywhere." 1 Elliott Gen. Pr. § 253, citing Mos- tyn V. Pabrigas, 1 Cowp. 161, 1 Smith Lead. Cases 652. "Actions are deemed transitory when the trans- actions on which they are founded might have taken place anywhere, but are local where their cause is in its nature necessarily local." Nonce V. Richmond, &c. R. Co. 33 Fed. 429, 433, 434. For actions held local, see East Tennessee, &c. R. Co. v. Atlan- ta, &c. R. Co. 49 Fed. 608 (bill for appointment of receiver held of a "local nature" within meaning of XJ. S. Rev. Stat. §§ 740, 742); Cox v. St. Louis, &c. R. Co. 55 Ark 454, 18 S. W. 630 (suit to restrain company from removing earth from plaintiff's land) ; Morris v. Missouri Pac. R. Co. 78 Tex. 17, 14 S. W. 228, 9 L. R. A. 349, 22 Am. St. 17 (action for flooding lands,. but the contrary is held in Archibald v. Mississippi, &c. R. Co. 66 Miss. 424, 6 So. 238) ; Indi- ana, &c. R. Co. V. Foster, 107 Ind. 430, 8N. E. -264 (action for damages § 634] ACTIONS BY AND AGAINST COHPORATIONS. 918 legislative enactments. Other questions as to the venue in actions against consolidated corporations and in different kinds of suits and actions are discussed elsewhere, in connection with the particular cases in which they arise.''' It may be well, however, in this connection, to call attention to a recent case decided by the supreme court of Indiana. A domestic railroad company had surrendered its property and franchises and ceased to do business, but, on quo warranto pro- ceedings, the court held that its legal residence was in the county where its principal office was located when it ceased to do business ; that the suit was properly instituted in that county but service might be had, under the statute, upon its agent in another county appointed to receive service, it having no office and no agent in the state except such agent who had been appointed by it for the purpose of receiving and accepting service.*" • § 624. Attachment and garnishment. — Jurisdiction over a cor- poration, to a limited extent at least, may sometimes be obtained by attachment or garnishment. These I'emedies or proceedings, however, are creatures of statute, and, as the statutory provisions vary in differ- ent states, we shall not attempt to treat the subject in detail, but it may be well to call attention to some rules of a general nature that are peculiarly applicable to railroad companies. Attachment and gar- nishment are usually auxiliary or provisional remedies and can only be pursued when authorized by statute and in conformity with the statu- tory provisions as to the procedure.'^ If personal service upon the to land by fire from locomotive) ; In 19 L,. R. A. 577, 67 L. R. A. 209, Atkins V. ■Wabash, &c. R. Co. 29 Fed. and 94 Am. St. 552. For instances 161 (suit to foreclose mortgage); in which attachment was held to lie Postal, &c. Co. V. Norfolk, &c. Co. 88 against railroad companies, see See- Va. 920, 14 S. E. 803; Drinkhouse v. ley v. Missouri, &c. R. Co. 39 Fed. Spring Valley, &c. Co. 80 Cal. 308, 252; Curtis v. Bradford, 33 Wis. 22 Pac. 252; Mississippi, &c. R. Co. 190; South Carolina R. Co. v. Peo- V. Ward, 2 Black (U. S.) 485; Du pie's Sav. Inst. 64 Ga. 18, 12 Am. & Breuil v. Pennsylvania Co. 130 Ind. Eng. R. Cas. 432; Kitchen v. Chat- 137, 29 N. E. 909. ham, &c. R. Co. 17 New Bruns. 215; '"See, generally. Chapter III, Le- Breed v. Mitchell, 48 Ga. 533; Fith- gal Status. ian v. New York, &c. R. Co. 31 Pa. ""Eel River R. Co. v. State, 155 St. 114. For instances in which it Ind. 433, 58 N. B. 388. was held that attachment would not " See, generally, Pennsylvania R. lie, see Central R. &c. Co. v. Georgia, Co. V. Rogers, 52 W. Va. 450, 44 S. E. &c. Co. 32 S. Car. 319, 11 S. E. 192; 300, 62 L. R. A. 178, and authorities Phillipsburgh Bank v. Lackawanna cited in notes and briefs; also notes R. Co. 27 N. J. L. 206; Farnsworth 919 ATTACHMENT AND GARNISHMENT. ■[§ 624 .company is properly obtained in the main action a personal judgment ,may be rendered against it in a proper case,'^ but if it is a non-resi- dent and does not appear or otherwise waive service, no personal judgment can be rendered against it.'^ So far as the property itself is concerned, however, jurisdiction is generally obtained, in case of a non-resident, by its seizure and by giving notice by publication in compliance with the statute.^* But if no property is found and no personal service is had, no judgment can be rendered against a non- resident defendant who does not appear or waive service.'^ As a gen- eral rule any property subject to execution may be attached, and en- gines and cars not in actual use are usually regarded as personal property liable to attachment.'* But it is held that a railroad car of a foreign company sent into a state with freight to be delivered in such state and reloaded and sent back to the foreign state from which it came in the customary and usual manner of transacting interstate commerce cannot be attached in the state to which it so came to be unloaded and reloaded.'^ A railroad company may be subject to gar- V. Terre Haute, &c. R. Co. 29 Mo. 75; Martin v. Mobile, &e. R. Co. 7 Bush (Ky.) 116. *=Mahany v. Kephart, 15 W. Va. 609 ; Drake Attachment, § 5. «'l Elliott Gen. Pr. §§ 243, 378; Eastman v. Wadleigh, 65 Me. 251, 20 Am. R. 695 ; Eliot v. McCormick, 144 Mass. 10, 10 N. E. 705; Cooper V. Reynolds, 10 Wall. (U. S.) 308; Wade Attachment, § 267. '^Neufelder v. German American Ins. Co. 6 Wash. 336, 33 Pac. 870, 22 L. R. A. 287, 290, 36 Am. St. 166; Cooper V. Reynolds, 10 Wall. (U. S.) 308; King v. Vance, 46 Ind. 246; 1 Elliott Gen. Pr. §§ 243, 378. »=Pennoyer v. Neffl, 95 U. S. 714; Cooper V. Smith, 25 Iowa 269; Bruce V. Cloutman, 45 N. H. 37, 84 Am. Dec. Ill; Clymore v. Williams, 77 111. 618. See, also. Kirk v. United States, 137 Fed. 753, 755; Mexican C. R. Co. V. Pinkney, 149 U. S. 194, 209, 13 Sup. Ct. 859; New Mexico v. Baker, 196 U. S. 432, 25 Sup. Ct. 375. See, generally, note in 67 L. R. A. 209, and note in 69 Am. St. 115 et seq. A debt, at least when payable in such state, may be considered property or Its equivalent. «» Hall V. Carney, 140 Mass. 131, 3 N. E. 14; Boston, &c. R. Co. v. Gil- more R. Co. 37 N. H. 410, 72 Am. Dec. 336; Dinsmore v. Racine, &c. R. Co. 12 Wis. 725. See, also, brief in Wall v. Norfolk, &c. R. Co. 52 W. Va. 485, 44 S. B. 294, 64 L. R. A. 501, 504, 94 Am. St. 948. " Connery v. Quincy, &c. R. Co. 92 Minn. 20, 99 N. W. 365, 64 L. R. A. 624, 104 Am. St. 659; Wall v. Nor- folk, &c. R. Co. 52 W. Va. 485, 44 S. E. 294, 64 L. R. A. 501, 94 Am. St. 948. The latter case also holds that another company having such car in Its possession and so carrying on Interstate commerce is not liable to garnishment by reason of its pos- session received against the com- pany against which an attachment was issued. See, also, Michigan Cent. R. Co. v. Chicago, &c. R. Co. 1 111. App. 399. These are important 624] ACTIONS BY AND AGAINST CORPORATIONS. 920 nishment the same as a natural person, although not specially men- tioned in the statute/* but it has been held in Michigan that a statu- tory provision for the service of process in suits against foreign cor- porations does not apply to the service of a writ of garnishment.** One or two courts have held that the same considerations of public policy which exempt public officers in the discharge of their duties from garnishment apply to common carriers,*" and there may be cases in which the garnishment would so interfere with the duties of the company to the public that the courts should refuse to permit the garnishment to be enforced, as in the eases cited, but ordinarily, if the statute authorizing the garnishment applies to the case, it would seem to be the duty of the courts to enforce it. Many authorities hold, however, that a non-resident corporation cannot, ordinarily, be held accountable as garnishee unless it has property of the defendant within the state in which the proceedings are had, or is bound to pay him money or deliver him goods in that state.*^ Thus, it has been held decisions and are based largely upon public policy and the commerce clause in the federal constitution in connection with the interstate com- merce law. But compare Hum- phreys v. Hopkins, 81 Cal. 551, 22 Pac. 892, 6 L. R. A. 792, 15 Am. St. 76. '° Pennsylvania R. Co. v. Peoples, 31 Ohio St. 537; Baltimore, &c. R. Co. v. Gallahue, 12 Gratt. (Va.) '655, 65 Am. Dec. 254; Taylor v. Burling- ton, &c. R. Co. 5 Iowa 114 ; Hannibal, &c. R. Co. V. Crane, 102 111. 249, 40 Am. R. 581; Hughes v. Oregonian R. Co. 11 Ore. 158, 2 Pac. 94. A for- eign corporation doing business in the state was held subject to gar- nishment in the first case above cited. So, in Weed Sewing Machine Co. V. Boutelle, 56 Vt. 570, 48 Am. R. 821; Barr v. King, 96 Pa. St. 485; Burlington, &c. R. Co. v. Thompson, 31 Kans. 180, 1 Pac. 622, 47 Am. R. 497, 16 Am. & Eng. R. Cas. 480; Car- son v. Memphis, &c. R. Co. 88 Tenn. 646, 13 S. W. 588, 17 Am. St. 921; Fairbank v. Cincinnati, &c. R. Co. 54 Fed. 420. =» Milwaukee, &c. R. Co. v. Bre- voort, 73 Mich. 155, 41 N. W. 215; First Nat. Bank v. Burch, 76 Mich. 608, 43 N. W. 453. '" Michigan Cent. R. Co. v. Chicago, &c. R. Co. 1 111. App. 399. See, also, Holland v. Leslie, 2 Harr. (Del.) 306, and authorities cited in note 87, supra. "■ Wright V. Chicago, &c. R. Co. 19 Neb. 175, 27 N. W. 90, 56 Am. R. 747; Missouri Pac. R. Co. v. Sharitt, 43 Kans. 375, 23 Pac. 430, 8 L. R. A. 385, 19 Am. St. 143, 44 Am. & Eng. R. Cas. 657, and authorities cited by "Valentine, J.; Cronin v. Foster, 13 R. I. 196; Louisville, &c. R. Co. v. Dooley, 78 Ala. 524; Young v. Ross, 31 N. H. 201; Todd v. Missouri Pac. R. Co. 33 Mo. App. 110; Buchanan V. Hunt, 98 N. Y. 560; Schmidlapp V. LaConflance Ins. Co. 71 Ga. 246; Wade Attachment, § 344. See, gen- erally, . to the effect that the court must have jurisdiction both of the garnishee and the property as well, 8 Am. & Eng. Ency. Law 1129, 1150, and authorities there cited; Bates v. Chicago, &c. R. Co. 60 Wis. 296, 19 921 ATTACHMENT AND GARNISHMENT. [§ 624 that a company of one state operating a road running into another state as lessee cannot be charged as garnishee in the latter state in an action for a debt payable in the former state, in which the plain- tiff and defendant both reside.'^ But there is sharp conflict among the authorities and we shall not attempt to reconcile or review the conflicting authorities upon this general subject as to the situs of the debt or the jurisdiction of the court.^^ It is held in Illinois that a railroad company doing business in that and another state may be garnished in Illinois by a resident in the other state for a debt owing by the company to another resident of that state, and that the motives of the plaintiff are immaterial.^* In Tennessee it has been held that a company which owns and operates a continuous line through that N. "W. 72, 50 Am. R. 369; Pennsyl- vania R. Co. v. Pennook, 51 Pa. St. 244; Douglass v. Phenix Ins. Co. 138 N. Y. 209, 33 N. E. 938, 20 L. R. A. 118, 34 Am. St. 448. See, also, note to Illinois Cent. R. Co. v. Smith, 19 L. R. A. 577; Central Trust Co. v. Chattanooga, &c. R. Co. 68 Fed. 685. »^Towle V. Wilder, 57 Vt. 622; Gold V. Housatonic R. Co. 1 Gray (Mass.) 424. But see supra, note 1; and see Georgia, &c. R. Co. v. Stol- lenwerck, 122 Ala. 539, 25 So. 258. »" To the effect that it is upon the control and jurisdiction of the debt- or rather than the situs of the debt, see Chicago, &c. R. Co. v. Sturm, 174 U. S. 710, 19 Sup. Ct. 797; King v. Cross, 175 U. S. 396, 20 Sup. Ct. 131; Mooney v. Buford, &c. Co. 72 Fed. 32; Rothschild v. Knight, 176 Mass. 48, 57 N. E. 337; Wyeth v. Hard- ware, &c. Co. 127 Mo. 242, 29 S. W. 1010, 27 L. R. A. 651, 48 Am. St. 626; Tootle V. Coleman, 107 Fed. 41, 57 Li. R. A. 120. But compare Louis- ville, &c. R. Co. V. Nash, 118 Ala. 477, 23 So. 825, 41 L. R. A. 331, 72 Am. St. 181; Central R. Co. v. Brin- son, 109 Ga. 354, 34 S. E. 597, 77 Am. St. 382; Bullard v. ChafCee, 61 Neb. 83, 84 N. W. 604, 51 L. R. A. 715, holding otherwise if the debt is not payable in such jurisdiction. The court also seems to have laid some stress upon this alleged dis- tinction in the case first cited from the reports of the supreme court of the United States. But the later cases of Harris v. Balk, 198 U. S. 215, 25 Sup. Ct. 625, and Louisville, &c. R. Co. V. Deer, 200 U. S. 176, 26 Sup. Ct. 207, seem to settle the rule that this makes no difference. See, generally, Goodwin v. Clayter, 137 N. C. 224, 49 S. E. 173, 67 L. R. A. 209 and note, 107 Am. St. 479, and National Bank v. Furtick, 2 Marv. (Del.) 35, 42 Atl. 479, 44 L. R. A. 115, 69 Am. St. and note. The au- thorities are so fully reviewed and the question is so carefully consid- ered in the notes referred to that it is unnecessary to discuss it at length here. •* Wabash R. Co. v. Dougan, 142 111. 248, 31 N. E. 594, 34 Am. St. 74. See, also, Drake v. Laka. Shore, &c. R. Co. 69 Mich. 168, 37- N. W. 70, 13 Am. St. 382; Stevens' -i\ Brown, 20 W. Va. 450; Lancashire 'Ins. Co. v. Corbett, 165 111. 592, isSj. B. 631, 36 L. R. A. 640, 56 Am. St. 275; Pome- roy V. Rand, &c. Co. 157 111. 176, 41 N. E. 636. But see post, § 627, notes 2, 3, on p. 895. § 625] ACTIONS BY AND AGAINST COEPOEATIONS. 933 and several other states, having a separate charter from each of them, is a resident and domestic corporation of Tennessee, and subject as such to garnishment therein, by a citizen thereof, although the claim sought to be reached was contracted in one of the other states and is due to a non-resident.'° §625. Duty and liability of garnishee. — If the corporation is properly served as garnishee it, must appfiar and answer, disclosing the facts. It answers, ordinarily, under its corporate seal, by its proper officer or agent."" If the principal defendant has not been personally served and does not appear it is generally the duty of the garnishee, which it owes to the defendant, to question the jurisdiction of the court, if it has none, and this it should always do in case of doubt, for its own protection.'^ It has also been held that the garnishee must present the question of the defendant's right to exemption,"' and this, we think, is the true rule where wages are garnished, which are expressly exempted therefrom by statute, and, possibly, in all eases where the garnishee has knowledge of the right of the defendant to exemption, but, in the absence of knowledge, where such a statute does not exist or does not apply, we think the garnishee is not necessarily, bound to raise the question. Indeed, as the right to exemption is gen- "^ Mobile, &c. R. Co. v. Barnhill, 91 may permit the garnishee to file an Tenn. 395, 19 S. W. 21, 50 Am. & amended answer in furtherance of Eng. R. Cas. 646. But see Wells v. justice. Crerar v. Milwaukee, &c. East Tenn. &c. R. Co. 74 Ga. 548. R. Co. 35 Wis. 67. =« Oliver v. Chicago, &c. R. Co. 17 "Debs v. Dalton, 7 Ind. App. 84, 111. 587; Baltimore, &c. R. Co. v. 34 N. E. 236; Emery v. Royal, 117 Gallahue, 12 Gratt. (Va.) 655, 65 Ind. 299, 20 N. E. 150; Pierce v. Am. Dec. 254. The answer must Carleton, 12 111. 358, 54 Am. Dec. usually be verified by the proper of- 405 ; Laidlaw v. Morrow, 44 Mich, ficer. Chicago, R. I. &c. R. Co. v. 547; Kellogg v. Freeman, 50 Miss. Mason, 11 111. AJp. 525; Memphis, 127; Thayer v. Tyler, 10 Gray &c. R. Co. V. Whorley, 74 Ala. 264. (Mass.) 164; Drake Attachment, But the affidavit need not be made § 965. by the same officer upon whom the °' Mineral Point R. Co. v. Barron, writ was served, and It has been 83 111. 365; Terre Haute, &c. R. Co. held that i'y may be made by any v. Baker, 122 Ind. 433, 24 N. E. 83 ; officer having knowledge of the Clark v. Averill, 31 Vt. 512, 76 Am. facts. Duke v. Rhode Island, &c. Dec. 131; Davis v. Meredith, 48 Mo. Works, 11 R. I. 599; Whitworth v. 263; Mull v. Jones, 33 Kans. 112, 5 Pelton, 81 Mich. 98, 45 N. W. 500 Pac. 388; Smith v. Dickson, 58 Iowa (affidavit by assistant treasurer). 444, 10 N. W. 850. It has also been held that the court 923 WHAT MAT BE EEAOHED IN GARNISHMENT. [§■ 636 erally considered a mere personal privilege, it would seem that, upon principle, the garnishee can neither insist upon such a defense, where the principal defendant waives it, nor be held liable for not making it, in the absence of a special statute. "^ The garnishment usually binds the garnishee, as to the debt or property in his hands, from the date of the service of the writ,^"" and his liability is ordinarily determined by his accountability to the defendant at that time.^"^ But where the writ is served on one agent of a corporation, while the property is in the actual possession of another agent, and the latter delivers it to the owner before the first agent can, in the exercise of reasonable dili- gence, notify the other, it has been held that the corporation is not liable.^"^ The garnishee may, in general, set up any defense that he would have had if sued by the defendant,^"^ and if he has been gar- nished in a prior proceeding for the same matter he may set up that fact."^ § 626. What may be reached in garnishment. — Eeal estate is not subject to garnishment unless the statute so provides j^''^ nor, it seems. " See 1 Elliott Gen. Pr. § 388, and notes, where the subject is fully con- sidered. 100 pjrst Nat. Bank v. Armstrong, 101 Ind. 244; Brashear v. West, 7 Pet. (U. S.) 608; Emanuel v. Bridger, L. R. 9 Q. B. 286; Holmes v. Tutton, 5 El. & B. 65. But in Smith v. Boston, &c. R. Co. 33 N. H. 337, it is said that his liability Is determined by the state of facts ex- isting at the time of his disclosure and set forth therein. "'Baltimore, &c. R. Co. v. Wheel- er, 18 Md. 372; Huntington v. Rls- don, 43 Iowa 517; Getchell v. Chase, 124 Mass. 366; Lieberman v. Hoff- man, 102 Pa. St. 590; Cleanay v. Junction R. Co. 26 Ind. 375; Reagan V. Pacific R. Co. 21 Mo. 30. ™ Bates T. Chicago, &c. R. Co. 60 Wis. 296, 19 N. W. 72, 50 Am. R. 369. This seems to us a just decision. "=1 Elliott Gen. Pr. § 388; Drake Attachment, § 458; Hazen v. Emer- son, 9 Pick. (Mass.) 144 (statute of limitations); Benton v. Lindell, 10 Mo. 557; Pennell v. Grubb, 13 Pa. St. 552 (set-off); Cox v. Russell," 44 Iowa 556, 562; Wheeler v. Emerson, 45 N. H. 526. See, generally. Center V. McQueston, 24 Kan. 480; Schuler V. Israel, 120 U. S. 506, 7 Sup. Ct. 648; Saner v. Nevadaville, 14 Colo. 54, 23 Pac. 87; North Chicago, &c. Co. v. St. Louis, &c. Co. 152 U. S. 596, 14 Sup. Ct. 710. But see, as to property fraudulently transferred. Lamb v. Stone, 11 Pick. (Mass.) 527; Cummings v. Fearey, 44 Mich. 39, 6 N. W. 98. See, generally, as to garnishee's defenses, notes in 13 Am. Dec. 341 and 100 Am. Dec. 511. 'M Wade Attachment, § 382; Hous- ton y'. Walcott, 7 Iowa 173; Royer v. Fleming, 58 Mo. 438; Everdell v. Sheboygan, &c. Co. 41 Wis. 395; Dealing v. New York, &c. R. Co. 8 N. Y. St. 386; Robarge v. Central Vt. R. Co. 18 Abb. N. Cas. (N. Y.) 363. But see Alabama, &c. R. Co. v. Chumley, 92 Ala. 317, 9 So. 286. '"'How V. Field, 5 Mass. 390; Sted- man v. Vickery, 42 Me. 132; Hunter § 636] ACTIONS BY AND AGAINST COEPOEATIONS. 924 is money set apart for the payment of interest on railroad mortgage bonds,^°° nor are funds in the hands of an officer or agent of the com- pany garnishable in an ordinary action against the company itself/"^ for the possession by an agent of money collected for his principal is usually deemed to be the possession of the principal.^"' It is said, with what appears to be good reason, that stock cannot be garnished in the hands of a railroad company for the debts of the stockholders, as the corporation, while a "going concern," is not required to pay the stockholders anything but proper dividends and they are not its creditors.^"' But provision is usually made for reaching shares of stock, or the stockholder's interest, by attachment,^^" and an unpaid subscription for which a call has been made is subject to garnishment at the instance of the corporate creditors,^ ^^ although it is held other- wise where no call has been made.^^^ It has been held that property in transit, in another county, in the hands of a railroad company, can- not be garnished,^^^ but that property may be garnished, after it has v. Case, 20 Vt. 195 ; Risley v. Welles, 5 Conn. 431; National, &c. Bank v. Brainerd, 65 Vt. 291, 26 Atl. 723. ^°° Galena, &c. R. Co. v. Menzies, 26 111. 122. But see Smith v. Eastern R. Co. 124 Mass. 154; Mississippi, &c. R. Co. V. United States Exp. Co. 81 111. 534. '"Wilder v. Shea, 13 Bush (Ky.) 128; Fowler v. Pittsburgh, &c. R. Co. 35 Pa. St. 22; First Nat. Bank v. Davenport, &c. R. Co. 45 Iowa 120; Pettingill v. Androscoggin R. Co. 51 Me. 370; McGraw v. Memphis, &c. R. Co. 5 Coldw. (Tenn.) 434. Contra, Littleton Nat. Bank v. Portland, &e. Co. 58 N. H. 104; Bverdell v. She- boygan, &c. R. Co. 41 Wis. 395. '<» Flanagan v. Wood, 33 Vt. 332; Hall V. Filter Mfg. Co. 10 Phlla. (Pa.) 370; Neuer v. O'Fallon, 18 Mo. 277, 59 Am. Dec. 313. "»Ross V. Ross, 25 Ga. 297; Plant- ers', &c. Bank v. Leavens, 4 Ala. 753; Mooar v. Walker, 46 Iowa 164; Younkin v. Collier, 47 Fed. 571. See, also. Smith v. Downey, 8 Ind. App. 175, 34 N. E. 823; Ashley v. Quin- tard, 90 Fed. 84. But see Harrell v. Mexico, &c. Co. 73 Tex. 612, 11 S. W. 863; Baker v. Wasson, 53 Tex. 150. See, generally, Simpson v. Jersey City, &c. Co. 165 N. Y. 193, 58 N. E. 896, 55L. R. A. 796, and note. "° Chesapeake, &c. R. Co. v. Paine, 29 Gratt. (Va.) 502; Shenandoah Valley R. Co. v. Griffith, 76 Va. 913, 13 Am. & Eng. R. Cas. 120, and note; 1 Cook Stock and Stockholders, § 404. But only, as a rule, in the state in which the company is in- corporated. Winslow V. Fletcher, 53 Conn. 390, 55 Am. R. 122, 13 Am. & Eng. Corp. Cas. 39; 1 Cook Stock and Stockholders, § 485. "'Kern v. Chicago, &c. Assn. 140 111. 371, 29 N. E. 1035; Joseph v. Davis (Ala.), 10 So. 830; Hannah v. Moberly Bank, 67 Mo. 678. . "=Teague v. Le Grand, 85 Ala. 493, 5 So. 287, 7 Am. St. 64; Bunn Appeal, 105 Pa. St. 49, 51 Am. R. 166; Brown v. Union Ins. Co. 3 La. Ann. 177; McKelvey v. Crockett, 18 Nev. 238, 2 Pac. 386. '"Bates V. Chicago, &c. R. Co. 60 Wis. 296, 19 N. W. 72, 50 Am. R. 369; Illinois C. R. Co. v. Cobb, 48 935 "WHAT MAT BE REACHED IN GARNISHMENT. [§ 636 reached its destination, while held by the company as a warehouse- man.^^* And so property in possession of the carrier awaiting ship- ment has been held subject to garnishment at any time before its transit has commeneed.^^^ Property in custodia legis is, as a general rule, exempt from attachment or garnishment in the hands of the officer,^ ^° but there are some cases in which the earnings or other property of a railroad company have been permitted by the courts to be attached or garnished in the hands of a receiver,^^^ and such earn- ings, although subject to a mortgage, are generally liable to garnish- ment until a foreclosure is had or possession is taken by the trustee.^ ^° 111. 402; Bingham t. Lamping, 26 Pa. St. 240; Pennsylvania R. Co. v. Pennock, 51 Pa. St. 244, 254; "West- ern R. Co. V. Thornton, 60 Ga. 300. See, also, Chicago, &c. R. Co. v. Painter, 15 Neb. 394; Montrose Pickle Co. V. Dodsen, &c. Co. 76 Iowa 172, 40 N. "W. 705, 14 Am. St. 213; Stevenot v. Eastern R. Co. 61 Minn. 104, 63 N. "W. 256, 28 L. R. A. 600. Contra, Adams v. Scott, 104 Mass. 164, and compare "Walker v. Detroit, &c. R. Co. 49 Mich. 446. In several of the cases first cited there were peculiar circumstances, and in none of them, perhaps, was it necessary to decide that this is an invariable rule. There are forcible reasons, however, for affirming that this is the general rule where the property is actually in transit at a distant point. As to when goods in transitu may be attached, see note in 14 Am. & Eng. R. Cas. 700, 709; Locke For- eign Attachment 32. ""Cooley V. Minnesota, &c. Co. 53 Minn. 327, 55 N. "W. 141, 39 Am. St. 609, 55 Am. & Eng. R. Cas. 616. "= Landa v. Hoick, 129 Mo. 663, 31 S. "W. 500, 50 Am. St. 459, and note. But see post, §§ 1538, 1673. "» Drake Attachment, § 281; Hill r. La Crosse, &c. Railroad Co. 14 "Wis. 291, 80 Am. Dec. 783; Taylor V. Carryl, 24 Pa. St. 259; Averill v. Tucker, 2 Cranoh. (U. S.) 544; Peo- ple v. Brooks, 40 Mich. 333, 29 Am. R. 534; Field v. Jones, 11 Ga. 413; Beach Receivers, § 228; High Re- ceivers, § 151. See, also, as to judg- ment of foreign^ court, "Wabash R. Co. V. Tourville,' 179 U. S. 322, 21 Sup. Ct. 113; Boyle v. Musser, &o. Co. 88 Minn. 456, 93 N. "W. 520, 97 Am. St. 538. "'Phelan v. Ganebin, 5 Colo. 14; •First Nat. Bank v. Portland, &o. R. Co. 2 Fed. 831; Humphreys v. Hop- kins, 81 Cal. 551, 22 Pac. 892, 6 L. R. A. 792, 51 Am. St. 76. And see Con- over V. Ruckman, 33 N. J. Eq. 303; Galther v. Ballew, 4 Jones L. (N. Car.) 488, 69 Am. Dec. 763; Hurl- burt V. Hicks, 17 Vt. 193, 44 Am. Dec. 329; "Wehle v. Conner, 83 N. Y. 231; "Warren v. Booth, 51 Iowa 215, 1 N. "W. 502. ^ Smith V. Eastern, &c. R. Co. 124 Mass. 154; Mississippi, &c. R. Co. V. United States Express Co. 81 111. 534; De Graff v. Thompson, 24 Minn. 452; Galveston, &c. R. Co. v. Cowdrey, 11 "Wall. (U. S.) 459; Gil- man V. Illinois, &c. Co. 91 U. S. 603; Noyes V. Rich, 52 Me. 115. But see Dunham v. Isett, 15 Iowa 284. In Milwaukee, &c. R. Co. v. Brooks, &c. "Works, 121 U. S. 430, 7 Sup. Ct. 1094, 30 Am. & Eng. R. Cas. 499, it was held that funds belonging to a leased road operated temporarily by the mortgage trustee of the lessor § 637] ACTIONS BY AND AGAINST COEPOKATIONS, 926 Bonds of a foreign corporation in the hands of an agent for sale have been held in New York not to be liable to attachment against the company."^ And it has been held in Massachusetts that a railroad company, which has an arrangement with other companies having lines that form a continuous connection, to make monthly settlements with the company whose road joins its own, including therein amounts due the other connecting roads beyond, is not liable, as trustee in for- eign attachment, to the first connecting carrier for money due the other companies under the agreement.*^" § 627. Garnishment of employes' wages. — Eailroad companies are frequently garnished in actions against their employes, but in most of the states there are statutes providing that the wages of employes for a specified period, or to a specified amount, shall be exempt. It has been held that a foreign railroad company, doing business in an- other state, may be garnished in the latter state for the debt of a non- resident employe contracted out of such state,^^^ and that a corpora- tion organized under the laws of the United States, where the wages are earned in a state in which both the employe and the creditor re- side, may be garnished in another state in which the company is per- sonally served. ^^^ But, on the other hand, it has been held by another road could be garnished in his gan, 142 111. 248, 31 N. E. 594, 34 hands by a creditor of the lessee Am. St. 74. company. See, also, Root, &c. v. '^ Burlington, &c. R. Co. v. Thomp- Davis, 51 Ohio St. 29, 36 N. E. 669, son, 31 Kans. 180, 1 Pac. 622, 47 Am. 23 L. R. A. 445. R. 497; Carson v. Memphis, &c. R. "» Coddington v. Gilbert, 17 N. Y. Co. 88 Tenn. 646, 13 S. W. 588, 17 489. See, also, as to bonds pledged Am. St. 921. See, also, Chicago, &c. as collateral or in the hands of third R. Co. v. Sturm, 174 TJ. S. 710, 19 persons. Tweedy v. Bogart, 56 Conn. Sup. Ct. 797; King v. Cross, 175 TJ. 419, 15 Atl. 374; Galena, &c. R. Co. S. 396, 20 Sup. Ct. 131; Howland v. V. Stahl, 103 111. 67, with which com- Chicago, &c. R. Co. 134 Mo. 474, 36 pare Warren v. Booth, 53 Iowa 742, S. W. 29 ; Harris v. Balk, 198 tJ. S. 5 N. "W. 598. 215, 25 Sup. 625, Bolton v. Pennsyl- ""Chapin v. Connecticut, &c. R. vania R. Co. 88 Pa. St. 261; N'eu- Co. 16 Gray (Mass.) 69. So, where f elder v. German American Ins. Co. goods are shipped over several roads 6 Wash. 336, 33 Pac. 870, 22 L. R. A. it is held that the consignee is 287, 36 Am. St. 166; note to Good- net liable as garnishee to the road win v. Clayter, 67 L. R. A. 209, ante, delivering the goods for freight § 624. But compare Central Trust due the others. Gould v. Newbury- Co. v. Chattanooga, &c. R. Co. 68 port R. Co. 14 Gray (Mass.) 472. Fed. 685, and numerous authorities See, however, as to consolidated there cited, company, Wabash, &c. R. Co. v. Dou- "' Mooney v. Union Pac. R. Co. 60 927 GARNISHMENT OF EMPLOYES' WAGES. [§■ 627 court that wages due from a company incorporated in one state to an ■employe in that state cannot be reached by a creditor in another state by attachment against the debtor and garnishment of the corpora- tion.^^* In any event, the garnishee proceedings bind only the amount due at the date of the service of the writ, and do not reach wages subsequently earned.^^* So, under statutes providing that the debt must be due "absolutely, and without contingency," it is held that where the contract of employment provides that the amount of work done during one month and the wages to be paid therefor shall be estimated and determined after the end of the month, such earnings cannot be garnished. in the hands of the company before the end of the month.^^^ Exemption laws have no extraterritorial effect,^^^ and, as a general rule, neither a debtor nor his garnishee can obtain the benefit of the exemption laws of the state in which they reside when sued in another state ;^^^ but, where wages are exempt in both states. Iowa 346, 14 N. W. 343. Followed in Oberfelder v. Union Pac. R. Co. 60 Iowa 755, 14 N. W. 255, and ap- proved in Carson v. Memphis, &o. R. Co. 88 Tenn. 646, 13 S. W. 588, 17 Am. St. 921. See, also, note to Goodwin v. Claytor, 67 L. R. A. 209, and ante, § 624. "^^ Louisville, &c. R. Co. v. Dooley, 78 Ala: 524. See, also, Drake v. Lake Shore, &c. R. Co. 69 Mich. 168, 37 N. W. 70, 13 Am. St. 382; Louisville, &c. R. Co. v. Nash, 118 Ala. 477, 23 So. 825, 41 L. R. A. 331, 72 Am. St. 181; Atchison, &c. R. Co. V. Maggard, 6 Colo. App. 85, 39 Pac. 985. But it will generally be found in these cases that the garnishee had no property of the defendant, or did not owe him a debt in the state in which the suit was brought. The general subject is considered and other authorities on both sides are reviewed in the note to Good- win V. Claytor, 67 L. R. A. 209, et seq; and in the note to National Bank v. Furtick, 69 Am. St. 99, 112, 116. '=* Burlington, &c. R. Co. v. Thomp- son, 31 Kan. 180, 1 Pac. 622, 47 Am. R. 497. ^^ Williams v. Androscoggin, &c. R. Co. 36 Me. 201, 58 Am. Dec. 742; Fellows V. Smith, 131 Mass. 363. See, also, Dawson v. Iron Range, &c. R. Co. 97 Mich. 33, 56 N. W. 106. But compare Ware v. Gowen, 65 Me. 534. ™ Freeman Executions, § 209. See, also, Central Trust Co. v. Chatta- nooga, &c. R. Co. 68 Fed. 685; Chi- cago, &c. R. Co. V. Sturm, 174 U. S. 710, 19 Sup. Ct. 797; Pennsyl- vania R. Co. V. Rogers, 52 W. Va. 450, 44 S. E. 300, 62 L. R. A. 178. But see Drake v. Lake Shore, &e. R. Co. 69 Mich. 168, 37 N. W. 70, 13 Am. St. 382; Missouri Pac. R. Co. V. Sharitt, 43 Kan. 375, 23 Pac. 430, 8 L. R. A. 385, 19 Am. St. 143, and authorities there cited in opin- ion and in note. "'The garnishee is not bound, therefore, to claim any exemption for the debtor. Burlington, &c. R. Co. V. Thompson, 31 Kan. 180, 1 Pac. 622, 47 Am. R. 497; East Ten- nessee, &c. R, Co. V. Kennedy, 83 § 627] ACTIONS BT AND AGAINST CORPORATIONS. 928 it has been held that the debtor will be entitled to the exemption, and that it is the duty of the garnishee to claim it for him.^''^ The law upon this subject, however, is not well settled, and the question is not entirely free from doubt.^^' Indeed, it has been held that a resident of a state, in which the debt is contracted and payable, is not subject to attachment or garnishment in another state.^'" Thus, where the statute made it a criminal ofEense for any person to send a claim against a resident debtor out of the state for collection, in order to evade the exemption laws, it was held that injunction would lie to restrain a resident of the state from sending the claim to another state and there prosecuting attachment proceedings for the purpose of evading the exemption law.^'^ In another case it was held that a railroad company was liable to an employe for wages earned and due Ala,.' 462, 3 So. 852, 3 Am. St. 755; Morgan v. Neville, 74 Pa. St. 52; Carson v. Memphis, &c. R. Co. 88 Tenn. 646, J3 S. W. 588, 17 Am. St. 921; Mooney v. Union Pac. R. Co. 60 Iowa 346, 14 N. W. 343, 9 Am. & Eng. R. Cas. 131; Bichelburger v. Pittsburgh, &c. R. Co. (Ohio) 9 Am. & Eng. R. Cas. 158; Lieber v. Union Pac. R. Co. 49 Iowa 688, 22 N. W. 919; Broadstreet v. Clark, 65 Iowa 670. But see Pierce v. Chicago, &c. R. Co. 36 Wis. 283. ™ Mineral Point R. Co. v. Barron, 83 111. 365; Chicago, &c. R. Co. v. Ragland, 84 111. 375; Wabash R. Co. V. Dougan, 142 111. 248, 31 N. B. 594, 34 Am. St. 74; Terre Haute, &c. R. Co. V. Baker, 122 Ind. 433, 24 N. E. 83; Wright v. Chicago, &c. R. Co. 19 Neb. 175, 27 N. W. 90, 56 Am. R. 747; Missouri Pac. R. Co. v. Maltby, 34 Kan. 125, 8 Pac. 235; Missouri Pac. R. Co. t. Whipsker, 77 Tex. 14, 13 S. W. 639, 8 L. R. A. 321, 19 Am. St. 734; Kansas City, &c. R. Co. v. Gough, 35 Kan. 1, 10 Pac. 89. In several of these cases, however, the statute of the state in which the suit was brought was construed as exempting wages at- tached or garnished in the state, no . matter whether the employe is a resident or a non-resident. ^ See Moore v. Chicago, &c. R. Co. 43 Iowa 385; Carson v. Memphis, &c. R. Co. 88 Tenn. 646, 13 S. W. 588, 17 Am. St. 921; Chicago, &c. R. Co, V. Meyer, 117 Ind. 563, 19 N. E. 320; Baltimore, &c. R. Co. v. May, 25 Ohio St. 347; note in 67 L. R. A. 222; and ante, § 624. ""Bush V. Nance, 61 Miss. 237; Wilson V. Joseph, 107 Ind. 490, 8 N. E. 616; Kestler v. Kern, 2 Ind. App. 488, 28 N. B. 726; Illinois Cent. R. Co. v. Smith, 70 Miss. 344, 12 So. 461, 19 L. R. A. 577, 35 Am. St. 651. ""Wilson V. Joseph, 107 Ind. 490, 8 N. B. 616; Cole v. Cunningham, 133 U. S. 107, 10 Sup. Ct. 269; Keyser v. Rice, 47 Md. 203, 28 Am. R. 448; Bngel v. Scheuerman, 40 Ga. 206, 2 Am. R. 573; Snook v. Snetzer, 25 Ohio St. 516; Dehon v. Foster, 4 Allen (Mass.) 545; Mum- per V. Wilson, 72 Iowa 163, 33 N. W. 449, 2 Am. St. 238; Zimmerman V. Franke, 34 Kan. 650, 9 Pac. 747; Missouri Pac. R. Co. v. Maltby, 34 Kan. 125, 8 Pac. 235; Mason v. Beebee, 44 Fed. 556. 939 INJUNCTION — GENERALLY. [§ 638 in the state in which suit was brought and in which all parties resided, notwithstanding the pendency of garnishment proceedings against the company in another state to readh the same wages.^^^ The court took the ground that it had sole jurisdiction ; that it would not presume that the foreign court, upon being duly advised, would pro- ceed to judgment against the garnishee, and that, in any event, it would protect and enforce the exemption laws of its own state. § 628. Injunction — Generally. — A railroad company is subject in general in a court of equity to the same remedies as an individual.^^* In other words, the jurisdiction of equity is the same in its general nature over corporations as it is over natural persons. As a general rule any wrongful invasion by it of the rights of others may be pre- vented by injunction,^^* provided a complete remedy at law is not available.^^^ Equity will usually refuse to interfere, however, where "= Illinois Cent. R. Co. v. Smith, 70 Miss. 344, 12 So. 461, 19 L. R. A. 577, 35 Am. St. 651. See, also, Mis- souri Pac. R. Co. V. Sharritt, 43 Kan. 375, 23 Pac. 430, 8 L. R. A. 385, 19 Am. St. 143, 44 Am. & Bng. R. Cas. 657. For a review of the conflicting decisions upon the gen- eral subject, see note to the first case above cited in 19 L. R. A. 577; and elaborate note in 67 L. R. A. 209, where the most recent authori- ties are reviewed. "=In Stockton v. Central R. Co. 50 N. J. 52, 24 Atl. 964, 17 L. R. A. 97, an injunction was granted at the suit of the attorney-general to re- strain a railroad company from carrying out a lease in excess of corporate power which tended to the public injury and to defeat pubKc policy by creating or fostering a monopoly. ^"Wrongs of a repeated and con- tinuous character which occasion damages estimable only by conjec- ture and not by any accurate stand- ard may be enjoined. Such dam- ages are irreparable within the meaning of the United States stat- Ell. RAn:,BOAos — 59 ute providing for an injunction where the party does not have a plain, adequate and complete rem- edy at law. Payne v. Kansas, &c. R. Co. 46 Fed. 546. The prosecution of an action at law may be enjoined in a proper case. Chicago, &c. R. Co. V. Pullman Palace Car Co. 49 Fed. 409. "« Planet, &c. Co. v. St. Louis, &c. R. Co. 115 Mo. 613, 22 S. W. 616. Condemnation proceedings will not be enjoined on the ground that there has been a previous condemnation of the same land for the same pur- pose, resulting in a verdict assess- ing compensation, since that fact is in itself an adequate legal defense, which can be pursued by motion in the second condemnation suit. Chi- cago, &c. R. Co. V. Chicago, 143 111. 641, 32 N. E3. 178; Northern Pac. R. Co. V. Cannon, 49 Fed. 517. Where the plaintiffs all have different in- terests, the fact that a number of actions at law arise out of the same transaction and depend upon the same matters of fact and law is not suflttcient warrant for enjoining the prosecution of such actions, and the § 628] ACTIONS BY AND AGAINST CORPORATIONS. 930 ail injunction would work great injury to the defendant^^* and the plaintiff will suffer but a slight injury for which he can readily be compensated by damages.^^' The courts may, it seems, take into con- sideration the fact that companies are common carriers and quasi public in their nature, and refuse to grant an injunction for slight cause where it would prevent or obstruct the operation of the road and not only cause great injury to it, but also inconvenience the public.^'* This is particularly true in regard to preliminary injunctions before the case can be heard upon its merits. With this possible exception, however, the rules governing injunctions generally are applicable, in joinder of the different parties in- terested in a single suit in chancery as defendants to prevent a multi- plicity of suits. Tribbette v. Illi- nois Central R. Co. 70 Miss. 182, 12 So. 32, 19 L. R. A. 660, 35 Am. St. 642. "Where proceedings by a city to open a boulevard across a rail- way company's tracks are pending on appeal, a bill to enjoin the city from such proceedings, on the ground that irreparable injury will be done to the company, will not lie, as the question is a legal one, which will be disposed of in the condemnation proceedings. Detroit, &c. R. Co. V. Detroit, 91 Mich. 444, 52 N. W. 52. One holding land un- der a judgment of condemnation may maintain suit to restrain eject- ment proceedings and to quiet title, although such judgment is a perfect defense to the action of ejectment. Poltz V. St. Louis, &c. R. Co. 60 Fed. 316. An action of ejectment to recover land upon which it has,, with the consent of plaintiff and his grantor, built its tracks, cattle sheds, and warehouse, may be enjoined at the suit of a railroad company, al- though it has no title. South, &c. R. Co. v. Alabama, &c. R. Co. 102 Ala. 236, 14 So. 747. "° Scranton v. Delaware, &c. Canal Co. 12 Pa. Co. Ct. 283. See, also, Levi V. Worcester, &c. St. R. Co. (Mass.) 78 N. B. 853. A preliminary injunction will not be granted to re- strain a company "from the fur- ther operation and management" of a leased railroad on the allegation, among others, that the roads are "parallel and competing," and the lease ultra vires, and contrary to the provision of the constitution where all the grounds for equitable relief are denied; since it would in- volve difficult questions of law and fact, and would, if granted, work incalculable injury to defendant and the public. Gummere v. Lehigh Val. R. Co. 12 Pa. Co. Ct. 106. See New York, &c. R. Co. v. O'Brien, 100 N. Y. S. 316. ^" Savannah, &c. Canal Co. v. Su- burban, &c. R. Co. 93 Ga. 240, 18 S. E. 824; Abraham v. Meyers, 29 Abb. N. C. (N. Y.) 384, 23 N. Y. 225, 228. See, also, Chicago, &c. R. Co. V. McKeigue, 126 "Wis. £74, 105 N. "W. 1030. 138 Torrey v. Camden, &c. R. Co. 3 C. E. Green Ch. (N. J.) 293; Cook V. North, &c. R. Co. 46 Ga. 618; Gammage v. Georgia, &c. R. Co. 65 Ga. 614. See, also, Indiana, &c. R. Co. V. Allen, 113 Ind. 581, 15 N. E. 446; Gray v. Manhattan, &c. R. Co. 128 N. Y. 499, 28 N. B. 498. See, also, Montgomery, &c. Co. v. Montgomery, &c. Co. 139 Fed. 353. 931 INJUNCTION AGAINST CONDEMNATION. ■[§■ 639 the main, at least, whete an injunction is sought against a railroad company. We need not, therefore, further consider the elementary rules, but will refer to the specific classes of cases in which injunc- tions are usually sought against railroad companies. § 629. Injunction where the company seeks to take or condemn' lands.^Where a railroad company that is so imperfectly incorporated as not to possess the power of eminent domain, is seeking to condemn property of another corporation necessary for its use in carrying on its business, it has been held that such condemnation proceedings may be enjoined.^'* But it is the general rule that the existence of a cor- poration, acting as such under a law authorizing it and with, which it has attempted to comply, cannot be collaterally attacked, and the fact that there may be cause for forfeiting its charter will not support ejectment or an injunction at the suit of a landowner whose property it has condemned or is about to condemn.^*" A railroad company may be enjoined at the suit of a party injured thereby from appropriating land for which it has failed to make compensation as required by law,^*^ but an injunction will not be granted against the use of land "»Hoke V. Georgia R., &c. Co. 89 Ga. 215, 15 S. E. 124. And the abuse of its eminent domain powers by a railroad corporation may always be enjoined, in a proper case, without reference to insufficiency of legal remedies or irreparable damages. Western R., &c. v. Alabama, &c. R. Co. 96 Ala. 272, 11 So. 483, 17 L. R. A. 474. But see Maingault v. Springs, 199 U. S. 473, 26 Sup. Ct. 127. ""Brooklyn, &c. R. Co. In re, 125 N. Y. 434; Cincinnati, &c. R. Co. v. Clifford, 113 Ind. 460; Bravard V. Cincinnati, &c. R. Co. 115 Ind. 1, 17 N. E. 183; New York, &c. R. Co. V. New York, &c. R. Co. 52 Conn. 274; Briggs v. Cape Cod Canal, 137 Mass. 71. See, also, Rafterty v. Cen- tral Traction Co. 147 Pa. 'St. 579, 23 Atl. 884, 30 Am. St. 763, 6 Lewis' Am. R. & Corp. 287. See also post, § 957. ^''Lake Erie, &c. R. Co. v. Miche- ner, 117 Ind. 465, 20 N. E. 254; Ray V. Atchison, &c. R. Co. 4 Neb. 439; Spencer v. Point Pleasant, &c. R. Co. 23 "W. Va. 406, 20 Am. & Eng. R. Cas. 125; Kansas City, &c. R. Co. V. St. Joseph, &c. R. Co. 97 Mo. 457, 10 S. "W. 826, 3 L. R. A. 240; Chattanooga, &c. R. Co., v. Jones, 80 Ga. 264, 9 S. E. 1081; Elliott Roads and Streets (2d. Ed.) § 242, 10 Am. & Eng. Ency. Law 969, and numerous authorities there cited. See, also, post, §§ 1049, 1096. But it has been held that an injunction will not be granted where the land has been condemned in a court of competent jurisdiction, but the landowner has appealed therefrom, and the case is pending on appeal. Traverse City, &c. R. Co. V. Seymour, 81 Mich. 378, 45 N. W. 826. See Dillon v. Kansas City, &c. R. Co. 43 Fed. 109. The construction of a rail- road over condemned land will not be restrained for errors of 629] ACTIONS BT AND AGAINST OOEPOEATIONS. 933 by a railroad company which has taken without right, where the owner has acquiesced in the appropriation until the company has expended money thereon, and the public interest has become in- volved.^*^ Where the corporation is given power to take lands for the use of its road, it may, within the statutory limits, exercise its discre- tion as to what shall be taken ; and the fact that it owns^*^ or could acquire by purchase^** adjoining lands which would answer its pur- pose will not entitle the landowners to an injunction where the com- pany acts in good faith. Where the company is acting in bad faith with the purpose of securing lands which it is not empowered to hold, equity may interfere.^*' In the case of a suit for an injunction by one having only a remote or indirect interest in lands, which are sub- ject to condemnation, and in which all other interests have been se- cured by the company, it has been held that the court may dissolve the injunction upon a bond being filed by the company to pay all law in the condemnation proceed- ings. Cooper V. Anniston, &c. R. Co. 85 Ala. 106, 4 So. 689. The fact that the right to immediate posses- sion is in another who has pur- chased the right to use and occupy the land for a term of twenty years at a sale thereof for non-payment of taxes, does not deprive the land- owner of the right to an Injunction to prevent a railroad from occupy- ing the land until compensation is made. Pratt v. Roseland R. Co. 50 N. J. Eq. 150, 24 Atl. 1027. Even in states where an injunction is only granted to restrain irreparable in- juries, a railroad company may he enjoined from making excavations upon land which they have not con- demned. Baltimore, &c. R. Co. v. Lee, 75 Md. 596, 23 Atl. 901. "^Roberts v. Northern Pacific R. Co. 158 U. S. 1, 15 Sup. Ct. 756; Organ v. Memphis, &c. R. Co. 51 Ark. 235, 11 S. W. 96; Osborne v. Missouri Pac. R. Co. 35 Fed. 84, 37 Fed. 830; Denver, &c. R. Co. v. Domke, 11 Colo. 247, 17 Pac. 777; Chambers v. Baltimore, &c. R. Co. 139 Pa. St. 347, 21 Atl. 2; Midland, &c. R. Co. V. Smith, 113 Ind. 233; Indiana, &c. R. Co. v. Allen, 113 Ind. 581, 15 N. E. 446, and authori- ties there cited; Pettibone v. Rail- road Co. 14 Wis. 479; Chicago, &c. R. Co. V. Goodwin, 111 111. 273; 53 Am. R. 622; Lexington, &c. R. Co. V. Ormsby, 7 Dana (Ky.) 276; Har- low V. Marquette, &c. R. Co. 41 Mich. 336, 2 N. W. 48; Western, &c. R. Co. V. Johnston, 59 Pa. St. 290. Contra, Louisville, &c. R. Co. v. Llebfried, 92 Ky. 407, 17 S. W. 870. "' Stark V. Sioux City, &c. R. Co. 43 Iowa -501; Dougherty v. Wabash, &c. R. Co. 19 Mo. App. 419. ^" Lodge V. Philadelphia, &c. R. Co. 8 Phlla. (Pa.) 345; Ford v. , Chicago, &c. R. Co. 14 Wis. 609, 80 Am. Dec. 791; New York, &c. R. Co. V. Kip, 46 N. Y. 546, 7 Am. R. 385; Eldridge v. Smith, 34 Vt. 484. i« Flower v. London, &c. R. Co. 2 Dr. & Sm. 330; Great Western R. Co. V. May, L. R. 7 H. L. 283; Ev- ersfleld v. Mid Sussex R. Co. 3 De G. & J. 286. 933 INJUNCTION WHEEE EAILBOAD IS LAID IN A STREET, [§ 630 damages awarded to the complainant in an action at law.^** A rail- road company may be enjoined from shutting up a private right of way which furnishes the only convenient egress from the plaintiff's land to the public highway, even after the acts complained of have actually been committed.^*' Where the railroad company has obtained possession of land for its right of way under contract to construct its road in a particular manner, it has been "held that it may be enjoined from violating the contract. Thus a contract by a railroad company to maintain and keep open two existing passage ways for stock under its road through a certain farm is sufficiently certain to entitle the owner of the farm to an injunction against its violation, although the size, nature, and location of the ways are not stated in the contract. ^^' § 630. Injunction where railroad is laid in a street. — An abutting owner may enjoin it from occupying a street or other public highway, and operating its road therein without authority, upon proof of special damage,^** at least where he owns the fee of the land to the center of ^"Columbus, &c. R. Co. v. Withe- row, 82 Ala. 190, 3 So. 23. "'Lakeman v. Hannibal, &c. R. Co. 36 Mo. App. 363. And an. in- junction will be granted to prevent the closing of a private right of way under the railroad track re- served by the landowner at the time of the conveyance of the rail- road right of way, by which com- munication between two parts of the same farm are established. Rock Island, &c. R. Co. v. Dimick, 55 Am. & Eng. R. Cas. 65. See, also, Lake Erie, &c. R. Co. v. Young, 135 Ind. 426, 35 N. E. 177, 41 Am. St 430, 58 Am. & Eng. R. Cas. 665. '^Rock Island, &c. R. Co. v. Dim- ick, 144 111. 628, 32 N. E. 291, 19 L. R. A. 105. "«Hart V. Buckner, 54 Fed. 925; Ward V. Ohio River R. Co. 35 W. Va. 481; Georgia, &c. R. Co. v. Ray, 84 Ga. 376, 43 Am. £ Eng. R. Cas. 95; Riedinger v. Marquette, &c. R. Co. 62 Mich. 29; Kavanagh v. Mo- bile, &c. R. Co. 78 Ga. 271, 2 S. E. 636; Metropolitan City R. Co. v. City of Chicago, 96 111. 620; State v. Dayton, &c. R. Co. 36 Ohio St. 434; Barker v. Hartman Steel Co. 129 Pa. St. 551, 18 Atl. 553; Colum- bus, &c. R. Co. V. Witherow, 82 Ala. 190, 3 So. 23; Bell v. Edwards, 37 La. Ann. 475; Cornwall v. Louis- ville, &c. R. Co. 87 Ky. 72, 7 S. W. 553; Charles H. Heer, &c. Co. V. Citizens' R. Co. 41 Mo. App. 63; Story v. New York El. R. Co. 90 N. Y. 122, 48 Am. R. 146; Conner v. Covington, &c. R. Co. 14 Ky. L. 135, 19 S. W. 597. See, also, post § 1096. Where a railroad has been laid in a street by authority of the legislature, an injured party who has a complete remedy by way of damages for any direct injury will not be granted an injunction. Hyland v. Short Route R. Transfer Co. 10 Ky. L. 900, 11 S. W. 79. But see Georgia, &c. R. Co. v. Ray, 84 Ga. 376, 11 S. E. 352, 43 Am. & Eng. R. Cas. 95. Where a company is authorized to construct and operate § 630] ACTIONS BY AND AGAINST COEPOKATIONS. 934 the street.^'" Indeed, where his easement of access will be destroyed, we think he is entitled to pursue this remedy whether he owns the fee or not.^^^ The fact that the time allowed by the charter in which to build the road has expired has been held sufficient to show that the building of the road is illegal and unauthorized.^'^ It is held in some states that even where the consent of the legislature and of the municipal authori- a railroad track in a street, a court cannot restrict the number of trains to be operated as a condition prece- dent to the construction of the road. Kentucky, &c. Bridge Co. v. Krie- ger, 93 Ky. 243, 19 S. W. 738. In Colorado, an abutter whose fee is not sought to be taken cannot en- join the construction and operation of a railroad merely because he does not receive in advance compensa- tion for the damage suffered or to be suffered by him. Denver, &c. R. Co. V. Domke, 11 Colo. 247, 17 Pac. 777. In West Virginia the abutting owners on a street, part of which is occupied by a railroad, whether they own the fee in the land cov- ered by the street or not, are not entitled to enjoin excavation and construction along the street in a careful and proper manner, unless the consequent injury to them will be such as will destroy the value of their property, and therefore be equivalent to a virtual taking of it by the railroad company. Arbenz V. Wheeling, &c. R. Co. 33 W. Va. 1, 10 S. B. 14, 40 Am. & Eng. R. Cas. 284. See Paquet v. Mt. Tabor St. R. Co. 18 Ore. 233, 29 Pac. 906; Van Horn v. Newark, &c. R. Co. 48 N. J. Eq. 332, 21 Atl. 1034. "" Where the fee is in the munici- pality some authorities hold that an abutting owner has only an action at law for his damages. Mills V. Parlin, 106 111. 60; Osborne v. Missouri Pac. R. Co. 147 U. S. 248, 13 Sup. Ct. 299. See, also, Smith v. Point Pleasant, &c. R. Co. 23 W. Va. 451; Heath v. Des Moines, &c. R. Co. 61 la. 11. It has also been held that the fact that the street has been declared vacated by an invalid ordi- nance gives an abutting owner no right to an injunction, since the or- dinance, being invalid, does not operate to. revest the title to the street in the abutting owners. Cor- coran V. Chicago, &c. R. Co. 149 111. 291, 37 N. E. 68. "' See Elliott Roads and Streets (2d ed.) § 665, 526-529, 536; Rail- roads as Additional Servitude to Streets, 1 Am. & Eng. R. Cas. (N. S.) 1; Lockwood v. Wabash R. Co. 122 Mo. 86, 26 S. W. 698, 24 L. R. A. 516, 43 Am. St. 547, 1 Am. & Eng. R. Cas. (N. S.) 16, and note; Dooly Block V. Salt Lake, &c. Co. 9 Utah 31, 33 Pac. 229, 24 L. R. A. 610, 8 Lewis' Am. R. & Corp. 327; Aben- droth V. Manhattan R. Co. 122 N. Y. 1, 25 N. E. 496, 11 L. R. A. 634, 19 Am. St. 461; Field v. Barling, 149 111. 556, 37 N. E. 850, 24 L. R. A. 406, 41 Am. St. 311, and note; 2 Dillon Munic. Corp. (4th ed.), §§ 704, 704a, 726, 923c; I Hare Const. L. 370, 375; Theobold v. Louisville, &c. R. Co. 66 Miss. 279, 6 So. 230, 4 L. R. A. 735, 14 Am. St. 564; Adams V. Chicago, &c. R. Co. 39 Minn. 286, 39 N. W. 629, 1 L. R. A. 493, 12 Am. St. 644; White v. Northwestern, &c. R. Co. 113 N. Car. 610, 18 S. E. 330, 22 L. R. A. 627. "'^Bonaparte v. Baltimore, &c. R. Co. 75 Md. 340, 23 Atl. 784, 49 Am. & Eng. R. Cas. 198. 935 INJUNCTION WHERE RAILROAD IS LAID IN A STREET. [§ 630 ties has been obtained the abutting owner may enjoin the construction or operation of the railroad until his damages are assessed and paid."' Where the right to lay a railroad track in a street is prohibited, until the damage is ascertained and paid to abutting owners, it has been held that the company may be enjoined from operation of the road until payment of the damages, although a prior Judgment for the dam- ages has been obtained in an action at law, but remains unpaid.^"* But the right to an injunction for this cause may be lost by the abut- ting owner's acquiescence in the construction of the road,^^' or in its use for a length of time, after construction.^^" The public may enjoin an unauthorized use of a public street or other highway by an action on behalf of the state in the name of the attorney-general or other proper offieer,^'^ or the suit for an injunction may be maintained in the name of the town or city,^^* or other municipality to which the ^" Cox V. Louisville, &c. K. Co. 48 Ind. 178; Georgia, &c. R. Co. v. Ray, 84 Ga. 376, 11 S. B. 352; Barber v. Saginaw Union R. Co. 83 Mich. 299, 47 N. W. 219; Pennsylvania R. Co. V. Angel, 41 N. J. Eq. 316, 4 Atl. 432, 36 Am. R. 1; Imlay v. Union Branch R. Co. 26 Conn. 249, 68 Am. Dec. 392; Wager v. Troy, &c. R. Co. 25 N. Y. 526; Stroub v. Manhattan R. Co. 15 N. y. S. 135, 39 N. Y. St. 378. See Kemble, Appeal of, 140 Pa. 14, 21 Atl. 225. Contra, Paquet v. Mt. Tabor St. R. Co. 18 Ore. 233, 22 Pac. 906; Ohio River R. Co. v. Gibbens, 35 W. Va. 57, 12 S. E. 1093; O'Brien V. Baltimore Belt R. Co. 74 Md. 363, 22 Atl. 141, 13 L. R. A. 126; Randall V. Jacksonville St. R. Co. 19 Fla. 409. See Western R. Co. v. Ala- bama, &c. R. Co. 96 Ala. 272, 11 So. 483, 17 L. R. A. 474. Abutting own- ers will not be granted an injunc- tion against a railroad company to prevent its entering into a contract with the county commissioners whereby it is permitted to main- tain its tracks in a street at a grade alleged to be illegal; the proper remedy is mandamus requiring the county commissioners to perform their duties under the law. Dyer v. Cincinnati, &c. R. Co. 7 Ohio Cir. Ct. 255. ■ ^"Harbach v. Des Moines, &c. R. Co. 80 Iowa 593, 44 N. W. 348. 11 L. R. A. 113. '"= Merchants', &c. Co. v. Chicago, &c. R. Co. 79 Iowa 613,. 44 N. W. 900; Burkam v. Ohio, &c. R. Co. 122 Ind. 344, 23 N. B. 799. ™ Merchants', &c. Co. v. Chicago, &c. R. Co. 79 Iowa 613, 44 N. W. 348. See, also, Sunderland v. Mar- tin, 113 Ind. 411, 15 N. B. 689. "' Attorney-General v. Delaware, &c. R. Co. 27 N. J. Eq. 631; Attor- ney-General V. Metropolitan R. Co. 125 Mass. 515, 28 Am. R. 264; Com- monwealth V. Pittsburgh, &c. R. Co. 24 Pa. St. 159, 62 Am. Dec. 372. "*Rio Grande R. Co. v. Browns- ville, 45 Tex. 88; Philadelphia v. Friday, 6 Phila. 275; Philadelphia V. Railway Co. 8 Phila. 648; Green- wich V. Easton, &c. R. Co. 24 N. J. Eq. 217; Springfield v. Connecticut River R. Co. 4 Cush. (Mass.) 63. And a removal of tracks already laid may be compelled by a com- pany which afterward obtains au- thority to lay its tracks in the § 631] ACTIONS BY AND AGAINST C.OEPOEATIONS. 936 state, has confided the care, management and control of the highway involved."" § 631. Enjoining a nuisance. — An injunction may generally be had at the suit of the state to restrain unauthorized acts by which the public has been or will be injured."" As a public nuisance is a criminal offense which may be reached by indictment or information in the ordinary course of a prosecution for crime, it has been doubted whether an injunction will lie to restrain it at the suit of the state, or its proper representative. But the jurisdiction of equity in such cases is well established in England, as is shown by the authorities already cited, and we think the authorities, both in that country and in this, justify us in stating that the proper public officer may, in a proper case, by a suit in the name of the state, enjoin a railroad com- pany from maintaining a public nuisanee.^"^ This is certainly true street, although the first company improved and reclaimed the street. Galveston Wharf Co. v. Gulf, &c. R. Co. 81 Tex. 494, 17 S. W. 57. Un- less expressly authorized, a railroad company is not presumed to have the right to condemn and appropri- ate to its use land already dedi- cated to the public for streets; and either the municipal corporation or the owner of the fee may enjoin such use. Cornwall v. Louisville, &c. R. Co. 87 Ky. 72, 7 S. W. 553. "'Commissioners v. Long, 1 Pars. Eq. Cas. (Pa.) 143; Township of North Manheim, Appeal of (Pa.), 14 Atl. 137, 36 Am. & Bug. R. Cas. 194. "" Attorney-General v. Chicago, &c. R. Co. 35 Wis. 425; Stockton v. Central, &c. Co. 50 N. J. Eq. 52, 24 Atl. 964, 17 L. R. A. 97; Ware v. Regent's Canal Co. 3 De Gex & J. 212; Attorney-General v. Great Northern R. Co. 4 De Gex & S. 75; Taylor v. Salmon, 4 Mylne & C. 134, 141; Brice Ultra Vires, 506-509. See United States v. Union Pac. R. Co. 98 U. S. 569. "' District Attorney v. Lynn, &c. R. Co. 16 Gray (Mass.) 242; People V. Sturtevant, 9 N. Y. 263, 59 Am. Dec. 536; Attorney-General v. Chi- cago, &c. R. Co. 35 -Wis. 425; Georgetown v. Alexandria Canal Co. 12 Pet. (U. S.) 91; People's Gas Co. V. Tyner, 131 Ind. 277, 283, 31 N. E. 59, 16 L. R. A. 443, 31 Am. St. 433; State v. Saline Co. 51 Mo. 350, 11 Am. R. 454; Carleton v. Rugg, 149 Mass. 550, 22 N. B. 55, 5 L. R. A. 193, 14 Am. St. 446; State v. Craw- ford, 28 Kan. 726, 42 Am. R. 182; Mayor v. Jacques, 30 Ga. 506; Peo- ple V. St. Louis, 10 111. 351, 357, 48 Am. Dec. 339; Attorney-General v. Hunter, 1 Dev. Bq. (N. Car.) 12; State V. Saunders, 66 N. H. 39, 25 Atl. 588, 18 L. R. A. 646; Littleton V. Fritz, 65 Iowa 488, 22 N. W. 641, 54 Am. R. 19; Columbian Athletic Club V. State, 143 Ind. 98, 40 N. B. 914, 28 L. R. A. 727, 52 Am. St. 407. In the last case just cited it was held, after a careful review of many of the authorities, that injunction would lie and that a receiver might also be appointed in aid of the in- junction. 937 ENJOINING A NUISA'NCE. [§ 631 where the relief sought is not merely to prevent the commission of a crime, but to prevent the abuse of corporate powers and privileges to the injury of the public. A prosecution for the crime or a suit to dis- solve the corporation or forfeit its charter will not afford adequate relief in such a case, because, in the meantime, the corporation, unless restrained by the courts, may persist in its course of crime and its abuse of corporate privileges. An injunction is, therefore, necessary to accomplish complete justice and prevent continued injury to the public. So, of course, injunction will lie, in a proper case, at the suit of an individual who is specially injured by a public nuisance.^"^ But where no nuisance yet exists and it is merely claimed that injury will arise from the use to which property is proposed to be devoted, and not from the character of the property or structure, an injunction will not be awarded if the structure and the use to which it is to be put are authorized and lawful in themselves and the apprehended injury is merely contingent or uncertain.^'' Indeed, we think it may be safely affirmed that where a structure, such as a coal chute, a water- tank, or the like, essential to the operation of the railroad, is properly constructed, the remedy of an individual inconvenienced by its use, if any he has, must, ordinarily, be an action for damages.^'* And even "= Elliott Roads and Streets 496 569; Dumesnil v. Dupont, 18 B. (2d ed.) § 665; Pennsylvania R. Co. Mon. (Ky.) 800, 68 Am. Dec. 750; V. Angel, 41 N. J. Eq. 316, 7 Atl. 432, Earl of Ripen v. Hobart, 1 Cooper 56 Am. R. 1; Cogswell v. New York, (Temp. Brougham) 333; 1 High &c. R. Co. 103 N. Y. 10, 8 N. E. 537, Inj. §§ 743, 788; 2 Wood Nuisances 57 Am. R. 701; note to South Caro- (3d ed.) §§ 796, 797. See, also, Dal- lina, &c. Co. v. South Carolina R. ton v. Cleveland, &c. R. Co. 144 Ind. Co. 4 L. R. A. 209; Wylie v. El- 121, 43 N. E. 130. wood, 134 111. 281, 25 N. E. 570, 9 ^"See Gilbert v. Showerman, 23 L. R. A. 726, 23 Am. St. 673, and Mich. 448; Owen v. Phillips, 73 Ind. note Field v. Barling, 149 111. 556, 284; Barnard v. Sherley, 135 Ind. 37 N. E. 850, 24 L. R. A. 406, 41 547, 558, 34 N. E. 600, 35 N. E. 117, Am. St. 311; Innis v. Cedar Rapids, 24 L. R. A. 568, 41 Am. St. 454, and &c. R. Co. 76 Iowa 165, 40 N. W. 701, authorities there cited; Robb v. 2 L. R. A. 282; Gold v. Philadelphia, Carnegie Bros. & Co. 145 Pa. St. 115 Pa. St. 184, 8 Atl. 386. 324, 22 Atl. 649, 14 L. R. A. 329, 27 "'Rouse V. Martin, 75 Ala. 510, 51 Am. St. 694; Huckenstine's Appeal, Am. R. 463; Duncan v. Hayes, 22 N. 70 Pa. St. 102, 10 Am. R. 669; Good- J. Eq. 25; Rhodes v. Dunbar, 57 Pa. all v. Crofton, 33 Ohio St. 271, 31 St. 274, 98 Am. Dec. 221; Powell v. Am. R. 535. Of course we do not Macon, &c. R. Co. 92 Ga. 209, 17 S. mean to say that an individual who E. 1027; Keiser v. Lovett, 85 Ind. is specially injured may not have 240, 44 Am. R. 10; Pflngst v. Senn, an injunction, in a proper case, 94 Ky. 556, 23 S. W. 358, 21 L. R. A. where this remedy at law is inade- 632] ACTIONS BY AKD AGAINST COKPOEATIONS. 938 this remedy is not, ordinarily, open to him where the structure is properly constructed in a proper place and the inconvenience is such only as necessarily results from its authorized use.^°^ § 632. Injunction at suit of the company. — A railroad company may have an injunction, in a proper case, to protect its rights from a threatened invasion. It may enjoin an interference with its roadbed by piling obstructions thereon,^"" or by tearing up its track or placing obstacles in the way of constructing its road upon a proposed route which it has located according to law.^"^ So, it has been held that it may enjoin a constant or continuous use of its track by a trespasser.^"' If the former owner wrongfully threatens to resist the occupancy by the railroad company of lands which it has acquired by regular con- demnation proceedings, he may be restrained by injunction.^"' So, where a riparian proprietor had conveyed to a railroad company a quate, against a nuisance caused by the use of a thing as well as against the thing itself. See note 1, supra, p. 903. ™ Dunsmore v. Central, &c. R. Co. 72 Iowa 182, 33 N. "W. 456; Penn- sylvania Co. V. Lippincott, 116 Pa. St. 472, 9 Atl. 871, 2 Am. St. 618; Pennsylvania R. Co. v. Marchant, 119 Pa. St. 541, 13 Atl. 690, 4 Am. St. 659; Barnard v. Sherley, 135 Ind. 547, 553, 34 N. E. 600, 24 L. R. A. 568, 41 Am. St. 454; Booth v. Rome, &c. R. Co. 140 N. Y. 267, 35 N. E. 592, 24 L. R. A. 105, 37 Am. St. 552 (railroad company held not liable for incidental injury caused by blasting on its own land a place to lay its tracks) ; Randle v. Pacific, &c. Co. 65 Mo. 325; Parrott v. Cin- cinnati, &c. R. Co. 10 Ohio St. 624; Cosby V. Owensboro, &c. R. Co. 10 Bush (Ky.) 288. ™ Henderson v. Ogden City R. Co. 7 Utah 199, 26 Pac. 286. But it has been held that a preliminary in- junction will not be granted to re- strain the erection of buildings on land claimed by the railroad com- pany as its right of way, where it appears that the defendant also claims title to the land. Delaware, &c. R. Co. v. Newton, &c. Co. 137 Pa. St. 314, 21 Atl. 171. "'Rochester, &c. R. Co. v. New York, &c. R. Co. 110 N. Y. 128, 17 N. E. 680; Easton, &c. R. Co. v. Easton, 133 Pa. St. 505, 19 Atl. 486, 19 Am. St. 658 (city enjoined); Asheville St. R. Co. V. Asheville, 109 N. Car. 688, 14 S. E. 316 (chief of police en- joined from tearing up track). See, also, MlUville, &c. Co. v. Goodwin (N. J.), 32 Atl. 263; Belllngton. &c. R. Co. V. Alston, 54 W. Va. 597, 46 S. E. 612, 613, citing text; Seaboard Air Line R. Co. v. Olive (N. Car.), 55 S. E. 263. i"« Atchison, &c. R. Co. v. Spauld- ing, 69 Kan. 431, 77 Pac. 106, 66 L. R. A. 587, 105 Am. St. 175. See, generally, as to enjoining tres- passes, note in 99 Am. St. 731-753. ""Montgomery R. Co. v. Walton, 14 Ala. 207. Any interference with the easement of the company by the owner of the fee may be en- joined. Chance v. East Texas R. Co. 63 Tex. 152. 959 INJUNCTION AT SUIT OF THE COMPANY. [§' 633 right of way, with "such exclusive interest and estate in said strip of land" as the company could have acquired by condemnation under the statute, it was held that a subsequent grantee of the fee from such original proprietor had no right to construct along the river bank, and upon such right of way, a levee which would raise the water flowing in the stream at times of ordinary flood, although in some places beyond the low-water banks, so as to endanger the bridge, trestlework and track of the railroad, and that the company was en- titled to have the same enjoined.^'"' While there is conflict among the decisions upon the question as to what constitutes surface water, the authorities cited by the court fully sustain the ruling upon that branch of the case, and, as the railroad company had not only a domi- nant estate, to which that of the defendant was servient,^'^ but also had the right, at least as against the defendant, to the exclusive pos- session and control of the land within its right of way or location, for railroad purposes,^''^ it seems clear that the construction of the levee, as proposed, would have been a very material invasion of the plaintiff's rights, and that the decision of the court was undoubtedly sound. The grantees of land who purchased it with knowledge that a railroad company had laid pipes across it from a certain, spring to a tank, under a contract with a former owner of the land, may be en- joined from interfering with such pipes; and the fact that the tank is not located in the exact place specified in the contract is immaterial, where the change does not affect the position of the pipes, which, Owing to the topography of the country, are necessarily laid just where ""Cairo, &c. R. Co. v. Brevoort, 62 R. A. 226, 16 Am. St. 801; Hayden Fed. 129. The river referred to in v. Skillings, 78 Me. 413, 6 Atl. 830. this case is a navigable river form- ™ Jackson v. Rutland, &c. R. Co. ing the boundary between two 25 Vt. 150, 60 Am. Dec. 246; Brain- states, and the court also held that ard v. Clapp, 64 Mass. 6, 57 Am. the question involved was not, Dec. 74; Proprietors, &c. v. Nashua, therefore, a local question, but was &c. R. Co. 104 Mass. 1, 6 Am. R. 181; one depending on the general prln- Hayden v. Skillings, 78 Me. 413, 6 ciples of law, so that the decisions Atl. 830; St. Louis, &c. R. Co. v. of the courts of one of the states Clark, 119 Mo. 357, 25 S. W. 192; were not binding on the federal Chicago, &c. R. Co. v. McGrew, 104 court. Mo. 282, 297, 15 S. W. 931; Shelby '"Davidson v. Nicholson, 59 Ind. v. Chicago, &c. R. Co. 143 111. 385, 411; Robinsin v. Thrailkill, 110 Ind. 32 N. B. 438; Atlantic, &c. Tel. Co. 117, 10 N. B. 647; Herman v. Rob- v. Chicago, &c. R. Co. 6 Biss. (U. S.) erts, 119 N. Y. 37, 23 N. B. 442, 7 L. 158. § 633] ACTIONS BY AND AGAINST COEPOEATIONS. 940 they are.^''' A railroad company may enjoin another company hav- ing a right of way across its land from interfering with its use of its own property as a freight yard as permitted by the contract granting the easement, even though some uncertain damages would result to the grantee company from such use because of its interference with the grantee's use of its tracks.^'* So, a street railway company which has laid its track in a street under a grant from a city may enjoin another company, to which the city afterward grants similar rights, from tearing up the plaintiff's track or placing its own track over that of the plaintiff in derogation of the latter's rights.^'° A threat- ened invasion of an exclusive right granted to a street railway com- pany to build a road over the lands of a railroad company to its depot may also be enjoined.^^" Where a shipper threatened to bring a great number of separate actions for damages against a railroad company for the separate cars as to which he alleged he was entitled to recover under the state law prohibiting a charge for carriage above a cer- tain rate it was held that he could be enjoined from suing separately for the overcharge on each car.^'^ An injunction may also be granted "' Diffendal v. Virginia Midland R. Co. 86 Va. 459, 10 S. B. 536. "* Chicago, &c. R. Co. v. Lake Shore, &c. R. Co. 30 111. App. 129. "'See Hamilton St. R. &c. Co. v. Hamilton, &c. Co. 5 Ohio Cir. Ct. 319; Kansas City, &e. R. Co. v. Kan- sas City, &c. R. Co. 129 Mo. 62, 31 S. "W. 451; Indianapolis Cable St. R. Co. V. Citizens' St. R. Co. 127 Ind. 369, 24 N. E. 1054, and 26 N. E. 893; Citizens' Coach Co. v. Camden, &c. R. Co. 33 N. J. Eq. 267, 36 Am. R. 542. See, also, Donora Southern R. Co. V. Pennsylvania R. Co. 213 Pa. St. 119, 62 Atl. 367. See, generally, as to joint use of streets and tracks, Booth Street Railways, Ch. V; El- liott Roads and Streets 566 (2d Ed., § 765 ) , et seq. Where the grant to use a street is not exclusive — and the rule against monopolies will gener- ally prevent an exclusive grant — the company cannot enjoin another company from using another por- tion of the street under a subse- quent grant. Pennsylvania, &c. R. Co. V. Philadelphia, &c. R. Co. 157 Pa. St. 42, 27 Atl. 683, 56, Am. & Bng. R. Cas. 610. See, also. West Jersey R. Co. v. Camden, &c. R. Co. 52 N. J. Bq. 31, 29 Atl. 423, 2 Am. L. Reg. & Rev. (N. S.) 38, and note; Chicago, &c. R. Co. v. Whiting, &c. R. Co. 139 Ind. 297, 38 N. B. 604, 26 L. R. A. 337, 47 Am. St. 264 (hold- ing that injunction would not lie to restrain a street railway com- pany from crossing a steam railroad company's tracks in a street). "» Fort Worth St. R. Co. v. Queen City R. Co. 71 Tex. 165. 9 S. W. 94. '"Texas, &c. R. Co. v. Kuteman, 54 Fed. 547. As to when an injunc- tion may be granted to restrain the bringing of a multiplicity of suits, and the plaintiffs compelled to sub- mit to the jurisdiction of a court of equity, see Trlbette v. Illinois Cen- tral R. Co. 70 Miss. 182, 12 So. 32, 19 L. R. A. 660, 35 Am. St. 642; Western Union Tel. Co. v. Poe, 61 941 INJUNCTIOIT AT SUIT OF THE COMPANY. [§ 632 to prevent a railroad company from violating its contract by whicli it has agreed to stop trains within a certain distance of the other company's road, and not to cross until signaled to do so by the flag- man.^" Where it is shown that the extension of a city street so as to cross the tracks and yards or depot grounds of a railroad company would render them useless to the railroad company, or, in other words, where the two public uses cannot co-exist, the city may be enjoined, in the absence of an express statute conferring the right, from so extending the street.^''® Until a railroad company has com- plied with the requirements of the statute giving it authority to cross another railroad, it has no right to enter upon that company's prem- ises to build its road,^'° and an injunction may be granted to restrain it from so doing.^*^ An injunction will not lie, however, for a naked Fed. 449; Lake Brie, &c. R. Co. v. Young, 135 Ind. 426, 35 N. E. 177, 41 Am. St. 430; Carney v. Hadley, 32 Fla. 344, 14 So. 4, 22 L. R. A. 233, 37 Am. St. 101. But compare Chi- cago V. Chicago City R. Co. 222 111. 560, 78 N. B. 890. It has been held that the federal courts have no jur- isdiction to restrain by injunction a criminal prosecution by a state under an unconstitutional law of such state. Minneapolis, &c. R. Co. V. Milner, 57 Fed. 276. ™ Cornwall, &c. R. Co.'s Appeal, 125 Pa. St. 232, 17 Atl. 427, 11 Am. St. 889. ™ Cincinnati, &c. R. Co. v. City of Anderson, 139 Ind. 490, 38 N. E. 167, 47 Am. St. 285; Fort Wayne v. Lake Shore, &c. R. Co. 132 Ind. 558, 32 N. B. 215, 18 L. R. A. 367, 32 Am. St. 277; Baltimore, &c. R. Co. v. North, 103 Ind. 486; Winona, &c. R. Co. V. Watertown, 4 S. Dak. 323, 56 N. W. 1077; New Jersey, &c. R. Co. V. Long Branch, 39 N. J.. L. 28; Mil- waukee, &c. R. Co. v. Faribault, 23 Minn. 167; Prospect Park, &c. Co. v. Williamson, 91 N. Y. 552; Housa- tonic R. Co. V. Lee, &c. R. Co. 118 Mass. 391; Elliott Roads and Streets 167, 168 (2d Ed., § 319, et seq.). But see Illinois Cent. R. Co. V. Chicago, 141 111. 586, 30 N. E. 1044, 17 L. R. A. 530; Little Miami, &c. R. Co. v. Dayton, 23 Ohio St. 510; Detroit, &c. R. Co. v. Detroit, 91 Mich. 444, 52 N. W. 52. "^'Lake Shore, &c. R. Co. v. Cin- cinnati, &c. R. Co. 116 Ind. 578, 19 N. E. 440. "'Northern Pac. R. Co. v. St. Paul, &c. R. Co. 1 McCrary (U. S.) 302, 3 Fed. 702; Pennsylvania R. Co. V. Consolidation Coal Co. 55 Md. 158. In Pennsylvania Co. v. Lake Brie, &c. R. Co. 146 Fed. 446, it is held that a lessee of a railroad has such an interest as will entitle it to maintain an injunction against another company illegally interfer- ing with the enjoyment of the leased property by an unauthorized crossing. But in cases where the interests of the public demand it the injunction may be dissolved upon the filing of a bond to pay damages and costs adjudged against it in the condemnation proceedings by which it is authorized to acquire title. Northern Pac. R. Co. v. St. Paul, &c. R. Co. 2 McCrary (U. S.) 260, 4 Fed. 688. § 633] ACTIONS BY AND AGAINST COKPOKATIONS. 942 trespass without irreparable injury, and upon this ground it has been held that it will not lie where one railroad company enters upon the roadbed of another and constructs its tracks without first making compensation as required by law/'^ and the same court has held that where two street railway companies are operating their respective roads under legal authority, their roads crossing each other at the intersection of two streets, the mere fact that one of them is pro- ceeding to lay a double track at the crossing will not entitle the other to an injunction, where no irreparable injury is shown and the com- pany is solvent and able to Kspond in damages.^*' But the general rule is that injunction will lie where compensation is not paid or tendered,^** and it seems to us that an entry under claim and color of right, which may ripen into a title, is not a mere fugitive trespass that can cause no irreparable injury.^^^ § 633. Enjoining "strikers." — The great strike of the members of the American Eailway Union in 1894, and other strikes about the same time, gave rise to a number of decisions in which old principles were applied to a comparatively new state of facts by the courts of equity, thus illustrating the rule that equity will keep pace with the needs of society and accommodate its methods of procedure to the development of the public interests by applying its, remedies to the varying demands for equitable relief.^'" It has been said that there is no such thing as a peaceable and lawful strike,^*^ but a United States court of appeals has taken a different view, holding that a strike is not unlawful if it is merely a combination of employes to withdraw ^' Mobile, &c. R. Co. v. Alabama, »=' See Webb v. Portland, &c. Co. 3 &c. R. Co. 87 Ala. 520, 6 So. 407, Sumner (U. S.) 189. and cases cited. . ™See Toledo, &c. R. Co. v. Penn- '«= Highland Ave. &c.H. Co. v. Bir- sylvania Co. 54 Fed. 746; Southern mingham Union R. Co. 93 Ala. 505, Cal. R. Co. v. Rutherford, §2 Fed. 9 So. 568. See, also, Chicago, &c. 796; Joy v. St. Louis, 138 U. S. 1, R. Co. V. Illinois, &c. R. Co. 113 111. 50, 11 Sup. Ct. 243. See, also, O'Neil 156; Pennsylvania R. Co. v. Na- v. Behanna, 182 Pa. St. 236, 37 Atl. tional Docks, &c. R. Co. 56 Fed. 697. 843, 38 L. R. A. 382, 61 Am. St. 702, ™ Evans v. Missouri, &c. R. Co. 64 and note; Gray v. Building Trades Mo. 453; Gardner v. Newburgh, 2 Council, 91 Minn. 171, 97 N. W. 663, Johns Ch. (N. Y.) 162; Georgia 63 L. R. A. 753, 103 Am. St. 477, and Midland, &c. R. Co. v. Columbus, &c. note. R. Co. 89 Ga. 205, 15 S. B. 305, 51 '" See Farmers', &c. Co. v. North- Am. & Eng. R. Cas. 538; High Inj. ern Pac. R. Co. 60 Fed. 803; The § 391; Elliott Roads and Streets Legal Side of the Strike Question, 185 (2dEd., § 242); ante, § 629. 33 Am. L. Reg. (N. S. 1894) 609, 614. 943 ENJOINING "STEIKEKS." [§ 633 from the service of their employer for the purpose of accomplishing some lawful purpose.^'* Combinations of workmen for their common benefit, to develop skill in their trade, to prevent the overcrowding thereof, to obtain better wages than they might be able to obtain in- dividually, and to accumulate a fund for these purposes, are not necessarily unlawful. Nor, as a general rule, is it imlawful — except in so far as it involves a breach of contract, for which an injunction will seldom, if ever, be granted — for a man to quit the service of his employer and bestow his labor where he will.^'° But where employes endeavor to enforce their demands by forcibly preventing others from working in their places, or by destroying property or preventing its use, a court of equity has power to enjoin them and may enforce its order by punishing the violators for contempt. Conspiracies to obstruct or interfere with the business and management of railroad companies, especially when the carriage of mail is obstructed, by threats, intimidation and violence, have often been enjoined as a vio- lation of the interstate commerce law,^°" and also as constituting an obstruction of the highways. of interstate commeree.^^^ But these are not the only grounds upon which strikers may be enjoined. An in- junction may be granted at the suit of a railroad company upon the ground of irreparable injury and in order to prevent a multiplicity of actions.^°^ So, in a proper case, the court may even grant a man- "» Arthur v. Oakes, 63 Fed. 310, 25 Elliott, 62 Fed. 801; United States L. R. A. 414. See, also. Longshore, v. Workingmen's Amalgamated &c. Co. V. Howell, 26 Ore. 527, 38 Council, 54 Fed. 994, affirmed in Pac. 547, 28 L. R. A. 464, and note, Workingmen's, &c. Council v. 46 Am. St. 640. United States, 57 Fed. 85; Water- "° See Longshore, &c. Co. v. How- house v. Comer, 55 Fed. 149, 19 L. ell, 26 Ore. 527, 38 Pac. 547, 28 L. R. A. 403. R. A. 464, 46 Am. St. 640; Carew v. ^'Debs, In re, 158 U. S. 564, 15 Rutherford, 106 Mass. 1, 8 Am. R. Sup. Ct. 900. 287; Reynolds v. Everett, 144 N, Y. """The Legal Side of the Strike 189, 39 N. E. 72 (not unlawful to Question," 33 Am. L. Reg. (N. S. use persuasion to induce others 1894) 609; Blindell v. Hagan, 54 to leave) ; Arthur v. Oakes, 63 Fed. Fed. 40, affirmed in Hagan v. Blin- 310; Bohn Mfg. Co. v. HoUis, 54 dell, 56 Fed. 696; Coeur D'Alene, &c. Minn. 223, 55 N. W. 1119, 21 L. R. Co. v. Miners' Union, 51 Fed. 260; A. 337, 40 Am. St. 319. Lake Erie, &c. R. ^o. v. Bailey, 61 >™ United States v. Debs, 64 Fed. Fed. 494; Wick China Co. v. Brown, 724; Toledo, &c. R. Co. v. Pennsyl- 164 Pa. St. 449, 30 Atl. 261; Mur- vania Co. 54 Fed. 746, 19 L. R. A. dock v. Walker, 152 Pa. St. 595, 25 395; Southern Cal. R. Co. v. Ruth- Atl. 492, 34 Am. St. 678; Sherry v. erford, 62 Fed. 796; United States v. Perkins, 147 Mass. 212, 17 N. E. 307, Agler, 62 Fed. 824; United States v. 9 Am. St. 689. §■ 634] ACTIONS BY AND AGAINST COEPOKATIONS. 944 datory injunction. Thus, where the chief officer of the Brotherhood of Locomotive Engineers had issued an order requiring the members thereof who were in the employ of certain railroad companies to re- fuse to handle and deliver cars or freight in course of transportation from one state to another, the court granted a mandatory injunction compelling him to rescind it.^°' As we have already stated, and as most of the authorities we have cited hold, the violation of an injunction against strikers may be punished as a contempt. It has been held that an injunction against strikers who are named as defendants and all others who aid and abet them is binding not only upon all who are served although they are not made parties to the suit,^** but also upon others of the class designated who have notice of the injunction, al- though they are not served with a copy of the order. ^'^ It is also well settled that any unlawful interference with a railroad in the hands of a receiver is punishable as a contempt,^"* and "picketing" has been held to constitute a violation of an injunction.^"^ § 634. Injunction at suit of stockholder. — A stockholder, in a proper case, may enjoin the corporation and those in control of it from acts by which a forfeiture of the charter will be incurred, or from other acts amounting to a breach of the trust reposed in them by the stockholders.^®^ He may enjoin the making of material and "= Toledo, &c. R. Co. v. Pennsyl- See, also, United States v. Debs, 64 vania Co. 54 Fed. 730, 19 L. R. A. Fed. 724; 2 Beach Mod. Bq. § 894. 387. See, also, Chicago, &c. R. Co. "'Thomas v. Cincinnati, &c. R. V. Burlington, &c. R. Co. 34 Fed. Co. 62 Fed. 803; United States v. 481; Coe v. Louisville, &c. R. Co. 3 Debs, 64 Fed. 724; Secor v. Toledo, Fed. 775; High Inj. § 2; Toledo, &c. &c. R. Co. 7 Biss. (U. S.) 513; Hig- R. Co. v. Pennsylvania Co. 54 Fed. gins. In re, 27 Fed. 443; United 746, 19 L. R. A. 395; Beadel v. States v. Kane, 23 Fed. 748; Frank Perry, L. R. 3 Eq. 465; Broome V. v. Denver, &c. R. Co. 23 Fed. 757. New York, &c. Co. 42 N. J. Bq. 141, See, also, Arthur v. Oakes, 63 Fed. 7 Atl. 851. 310; Acker, In re, 66 Fed. 290. "* Toledo, &c. R. Co. v. Pennsyl- "»' Atchison, &c. R. Co. v. Gee, 139 vania Co. 54 Fed. 746; United States Fed. 582; Allis-Chalmers Co. v. Iron V. Agler, 62 Fed. 824. See, also. Holders' Union, 150 Fed. 155. United States v. Elliott, 64 Fed. 27. "" Wilcox v. Bickel, 11 Neb. 154, ""Lennon, Ex parte, 64 Fed. 320, 8 N. W. 436; Bagshaw v. Eastern, affirmed in Lennon, In re, 150 U. S. &c. R. Co. 7 Hare 114; Gamble v. 393, 14 Sup. Ct. 123; Rapalje Con- Queen^ County, &c. Co. 123 N. Y. tempt, 46; Ewing v. Johnson, 34 91, 25 N. B. 201, 9 L. R. A. 527; How. Pr. (N. Y.) 202; Waffle V. Pond v. Vermont Valley R. Co. 12 Vanderheyden, 8 Paige (N. Y.) 45. Blatchf. (U. S.) 280; March v. Bast- 945 INJUNCTION AT SUIT OF STOCKHOLDEE. [§ 634 ftindamental changes in the original contract of association,^"® the diversion of corporate funds to purposes not authorized by the charter and outside of the objects for which the corporation was organized,^"" and ultra vires acts generally, such as unauthorized consolidations, leases, or the like.^"^ He may prevent the payment of dividends where no money has in fact been earned from which to pay them,^"^ and so, it has been held, where losses have consumed the surplus earnings set apart to pay them,^''^,or where the stock upon which dividends are claimed is spurious.^"* He may also restrain the holding of a corporate election, in a proper case, if great and irreparable injury to him would result therefrom,^"" and the illegal voting of shares in further- ance of a conspiracy to get control of the corporation,^"* or the illegal forfeiture of his own shares.^"^ So, a stockholder of a railroad company which has located and partially constructed its lines may maintain a bill to enjoin a rival company from appropriating the partially completed work to its own use, through the collusion of the em R. Co. 40 N. H. 548, 77 Am. Dec. 31 Atl. 833, 28 L. R. A. 304; see 732. But in order to warrant such ante, §§ 376, 328, 406, 479, 493. interference there must he a gross ahuse of its powers, which will re- sult in injury to the complainant, York, &c. R. Co. 5 Abb. Pr. (N. Y.) or the acts complained of must be 277; Biirnes v. Pennell, 2 H. L. Cas. clearly in excess thereof. Union 497; ante, §317. Pac, &c. R. Co. V. Lincoln County, 3 ™ Fawcett v. Laurie, 1 Dr. & Sm. Dill. (U. S.) 300; Jones v. Little 192. Where a specific fund has been ='"' Painesville, &c. R. Co. v. King, 17 Ohio St. 534; Carpenter v. New Rock, 25 -Ark. 301. "° Zabriskie v. Hackensack, &c. R. Co. 18 N. J. Bq. 178, 90 Am. Dec. set apart to pay dividends, and money belonging to other funds is lost the dividends must be paid. 617; Stevens v. Rutland, &c. R. Co. LeRoy v. Globe Ins. Co. 2 Edw. Ch. 29 Va. 545, 4 Thomp. Corp. § 4517. '°° Marseilles Land Co. v. Aldrich, 86 111. 504; Kean v. Johnson, 9 N. J. Eq. 401; Baltimore, &c. R. Co. v. Wheeling, 13 Gratt. (Va.) 40; Dodge V. Woolsey, 18 How. TU. S.) 331; Central R. Co. v. CoUfns, 40 Ga. (N. Y.) 657. ^" Underwood v. New York, &c. R. (Jo. 17 How. Pr. (N. Y.) 537. ""» Walker v. Devereaux, 4 Paige (N. Y.) 229; Webb v. Ridgely, 38 Md. 364; Wright v. Bundy, 11 Ind. 404; Hilles v. Parrish, 14 N. J. 582; Cherokee, &c. Co. v. Jones, 52 Eq. 380. See, also, ante, § 174. Ga. 276. ' Moses V. Tompkins, 84 Ala. 613, 'Young V. Rountout, &c. Co. 61 4 So. 763; Memphis, &c. R. Co. v. Hun (N. Y.) 619, 15 N. Y. S. 443; Botts V. Simpsonville, &c. Co. 88 Ky. 54, 10 S. W. 134, 2 L. R. A. Woods, 88 Ala. 630, 7 So. 108, 7 L. R. A. 605, 16 Am. St. 81. "" Moore v. New Jersey, &c. Co., 23 594; Small v. Minneapolis, &c. Co. N. Y. St. 213, 5 N. Y. S. 192; Moses 45 Minn. 264, 47 N. W. 797; Byrne v. Tompkins, 84 Ala. 613, 4 So. 763. V. Schuyler, &c. Co. 65 Conn. 336, Ell. Railroads — 60 § 635] ACTIONS BY AND AGAINST COEPOEATIONS. 946 directors of his own company.'"" But a court of equity will not inter- fere by injunction to control the discretion of the officers in matters which come fairly within their powers, where the contemplated acts do not amount to a breach of trust, but it appears that the real ground of complaint is a difference of opinion as to what the interests of the corporation require.^"* And the alleged invalidity of their title has been held not to be sufficient ground for restraining de facto directors from acting as such.''^" The interest of the stockholder does not, ordinarily, extend to the acts of third persons with reference to the corporate property, and a stockholder is not entitled to an in- junction to restrain slander of the title of property belonging to the corporation.^^^ And even where a stockholder might have been en- titled to an injunction if he had acted in time or if he had not taken part or acquiesced in the act of which he complains, his acquiescence or laches may estop him from afterwards maintaining the suit.^^" § 635. Mandatory injunctions — ^English cases. — Where the pre- vention of threatened acts by injunction is sought, together with the continuance of certain other acts, a court of equity, having acquired jurisdiction for one purpose, will retain the suit for all purposes of relief, and may compel by mandatory injunction the permanent or continuous performance of affirmative acts, notwithstanding there might be no right to a mandamus.^^^ In suits against railroad compa- nies the English courts of equity have not only enjoined the further commission of acts complained of in the several cases, but have also required the company to do many affirmative acts, such as to con- struct and maintain at a specific point a first-claSs depot building,"* "^ Weidenfeld v. Sugar Run R. Co. ™ Langdon v. Hillside, &c. Co. 41 48 Fed. 615, 51 Am. & Bng. R. Cas. Fed. 609. 505. '''^See note in 97 Am. St. 49, 50. "Ellerman v. Chicago Junction And see generally, ante, §§ 167, 328. R., &c. Co. 49 N. J. Eq. 217, 23 Atl. ™ Wheeling v. Mayor, 1 Hughes 287; Hunter v. Roberts, &c. Co. 83 (U. S.) 90. See, also. Central Trust Mich. 63, 47 N. W. 131; McWhorter Co. v Moran, 56 Minn. 188, 57 N. V. Pensacola, 24 Pla. 417, 5 So. 129, W. 471, 29 L. R. A. 212; Mounds- 2 L. R. A. 504, 12 Am. St. 220. See, ville v. Ohio River R. Co. 37 W. Va. also. Converse v. Hood, 149 Mass. 92, 16 S. B. 514, 20 L. R, A. 161, and 471, 21 N. E. 878, 4 L. R. A. 521; note. Woodruff V. Duhuque, &c. R. Co. 30 "*Hood v. North Eastern Co. L. Fed. 91; note in 97 Am. St. 43. R. 8 Eq. 666. See, also. Railroad '^° Mozley v. Alston, 1 Phill. 790. Comrs. v. Portland, &c. R. Co. 63 Me. 269, 18 Am. R. 208. 947 EULE IN THE UNITED STATES — ILLUSTRATIVE CASES. [§ 636 to stop all trains at a certain station,''" to build a side-track,^^° and to so run its trains as to furnish convenient facilities for passengers and shippers of goods, "^^ all this upon the ground that these were common- law duties of the railroad company as a common carrier. It is doubt- ful if the courts of this country would go so far in this direction as some of the English eourts,^^* but mandatory injunctions have been awarded in proper cases.^^" § 636, Bnle in the United States — Illustrative cases. — All the au- thorities agree, that where a specific duty is prescribed by statute and the railroad company not only threatens to perpetrate wrongs for which it may be enjoined, but also at the same time neglects such duty, it may be conipelled to perform its duty by mandatory injunc- tion. Acting under the authority of particular statutes, courts of equity have by injunction compelled the defendant railroad company to deliver cattle at the plaintiff's stoek-yard,''^" to deliver carloads of grain consigned to him upon his private side-track without extra charge,^^^ to carry for plaintiff on equal terms with others, ''^^ to restore a stream of water to its natural channel,^^^ and to remove a wall which it had unlawfully erected.^^* A railroad company may also be compelled to receive and handle freight delivered to it by a connect- ing carrier as required by the interstate commerce act,^^^ and such 2« Earl of Lindsey v. Great North- "" McCoy v. Cincinnati, &c. Rail- em R. Co. 10 Hare 664. road, 22 Am. Law Reg. (N. S.) 725. ™ Greene v. West C. Co. L. R. 13 ''^ Vincent v. Chicago, &c. R. Co. Eq. 44. 49 III. 33. ''"T Great Northern R. Co. v. Man- "^ Harris, &c. R. Co., In re, 3 C. B. Chester R. Co. 5 CeG. & S. 138. N. S. 693. But see Express Cases, "' The weight of authority in 117 U. S. 1, 6 Sup. Ct. 542, 628. America is against extending the ^® Corning v. Troy, &c. Factory, powers of a court of equity to en- 40 N. Y. 191. force many duties which are not im- ^'^ Great North, &c. R. Co. v. Clar- posed hy the charter or by statute ence R. Co. 1 CoUyer 507. or by necessary implication there- ^"^ Toledo, &c. R. Co. v. Pennsyl- from upon a railroad company, vania Co. 54 Fed. 730, 746, 53 Am. Northern Pac. R. Co. v. Washington, & Eng. R. Cas. 293. See, also, Inter- 142 U. S. 492, 12 Sup. Ct. 283. But state, &c. Com. v. Lehigh Valley R. see, as ts enforcement of public Co. 49 Fed. 177; Chicago, &c. Co. duties, Rogers, &c. Co. v. Erie, &c. v. Burlington, &c. Co. 34 Fed. 481; Co. 20 N. J. Eg. 379; American, &c. Chicago, &c. R. Co. v. New York, Co. V. Consolidation Co. 46 Md. 15. &c. Co. 24 Fed. 516. But see At- ™ See authorities last cited in last chison, &c. R. Co. v. Denver, &c. preceding note; also post, §§ 636, R. Co. 110 U. S. 667, 4 Sup. Ct. 185. 1106, and see §§ 1092 n, 1564. §■ 637] ACTIONS BY AND AGAINST CORPOEATIONS. 948 an injunction will bind the agents and employes of the company, and takes effect as to them as soon as they are notified thereof with- out the necessity of making them parties.''^" A railroad company may also seek relief by a mandatory injunction, and where persons were engaged in laying a railroad track upon the line of plaintiff's road so as to obstruct and prevent the operation thereof, an injunction was awarded not only forbidding the further obstruction of plaintiff's track, but also commanding the removal of the track, already laid."^ So, in many other cases parties have been compelled not only to cease unlawful acts, but also to undo what they had already wrongfully done, or to restore the plaintiff to his original situation or condition.'^^ Mandatory injunctions, as we have already seen,^^° have likewise been issued against "strikers." An injunction which is preventive in form is frequently mandatory in effect and it is common practice to so draw the order and thus to compel an act to be done by enjoining the defendant from refusing to do it.^'° § 637. Mandamus — Generally. — A writ of mandamus to compel a railroad corporation to do a particular act in constructing its road or buildings or in running its trains can be issued when there is a specific legal duty on its part to do that act, and clear proof of a failure to perform that duty by the corporation;^"^ but not '''* Toledo, &c. R. Co. v. Pennsyl- the practice is said to have origi- vania Co. 53 Am. & Bng. R. Cas. 293. nated) ; Rogers Locomotive, &c. =" Henderson v. Ogden City R. Co. Works v. Erie R. Co. 20 N. J. Eq. 7 Utah 199, 26 Pac. 286, 46 Am. & 379; 2 Beach Mod. Eq. § 753. Bng. R. Cas. 95. «" State v. Minneapolis, &c. R. Co. ™ Chamberlain, Ex parte, 55 Fed. 39 Minn. 219, 39 N. W. 153; Osh- 704; Tucker v. Howard, 128 Mass. kosh v. Milwaukee, &c. R. Co. 74 361; Jamestown v. Chicago, &c. R. Wis. 534, 43 N. W. 489, 17 Am. St. Co. 69 Wis. 648, 34 N. W. 728; To- 175; State v. Chicago, &c. R. Co. ledo, &c. R. Co. V. Pennsylvania Co. 29 Neb. 412, 54 N. W. 469; Cummins 54 Fed. 730; White V. Tidewater, &c. v. Evansville, &c. R. Co. 115 Ind. Co. 50 N. J. Eq. 1, 25 Atl. 199; Atchi- 417, 18 N. B. 6; Chicago, &c. R. Co. son, &c. R. Co. V. Long, 46 Kan. 701, v. Suffern, 129 111. 274, 21 N. E. 824; 27 Pac. 182, 26 Am. St. 167; Chatta- State v. New Orleans, &c. R. Co. 42 nooga, &c. R. Co. v. Felton, 69 Fed. La. Ann. 138, 7 So. 226, 43 Am. & 273. Eng. R. Cas. 258. It is irregular to '"Ante, § 633. So, in California proceed by rule to compel a legal R. Co. V. Rutherford, 62 Fed. 796. organization to perform a duty, how- =*> See Delaware, &c. R. Co. v. Cen- ever clearly imposed upon it. Such tral, &c. Co., 43 N. J. Bq. 71; Lane a proceeding ought to be by man- V. Newdigate, 10 Ves. 192 (in which damus. Oliver v. Board of Luquida- 949 MANDAMUS — GENEKALLT. [§ 637 otherwiee.''^^ Mandamus is an extraordinary remedy and is resorted to, as a general rule, only where there is no ordinary remedy which will af- ford adequate relief. It has therefore been held that laws extending its operation should be strictly construed/** although the general rule is that remedial statutes should receive a liberal construction so as to "ad- vance the remedy."^** Mandamus is frequently resorted to as against corporations, and is a peculiarly apt remedy in case of railroad com- panies on account of their public or quasi public character. Indeed, it is a general rule that when a corporation devotes its property to a pub- lie use, and for that reason obtains unusual rights and powers, it, in ef- fect, grants to the public an interest in that use and must submit, so far at least, to the control of the public for the common good.^*° tion, 40 La. Ann. ?.21, 40 So. 166. Where a clear legal right to a writ of mandamus is shown the court has no discretion to refuse the writ. Illi- nois Central R. Co. v. People, 143 III. 434, 33 N. B. 173, 19 L. R. A. 119. =^ Northern Pac. R. Co. v. Wash- ington Territory, 142 U. S. 492, 12 Sup. Ct. 283; Crane v. Chicago, &c. R. Co. 74 Iowa 330, 37 N. W. 397, 7 Am. St. 479; State v. Pensacola, &c. R. Co. 27 Fla. 403, 9 So. 89. In absence of a written assignment mandamus cannot he employed to 482, 31 So. 103, 20 L. R. A. 419, 34 Am. St. 30. =»* State v. New Orleans, &c. R. Co. 42 La. Ann. 138, 7 So. 226. =»Tousey v. Bell, 23 Ind. 423; Smith v. Wilcox, 24 N. Y. 353, 82 Am. Dec. 302 ; Haydon's Case, 3 Rep. (Coke) 7; Broom Leg. Max. 59; Sutherland Stat. Constr. § 207. For this reason we incline to the opin- ion that where there is a clear legal right and no means of^enforcing It except hy mandamus, a statute pro- viding for that remedy should be compel a corporation to transfer liberally construed. shares of stock to a person to whom they have been delivered by the former owner. Burnsville Turnp. Co. V. State, 119 Ind. 382, 20 N. E. 421, 3 L. R. A. 265. The right of a writ of mandamus to compel a corpora- tion to allow stockholders to inspect its books is in the discretion of the court. Lyon v. American Screw Co. =« Chicago, &c. R. Co. v. Iowa, 94 U. S. 155; Peik v. Chicago, &c. R. Co. 94 U. S. 164; Munn v. Illinois, 94 IT. S. 113; Pensacola Tel. Co. v. Western Union Tel. Co. 96 U. S. 1; Hockett V. State, 105 Ind. 250, 5 N. E. 178, 55 Am. R. 201; Chesapeake, &c. Co. V. Baltimore, &c. Co. 66 Md. 399, 7 Atl. 809, 59 Am. R. 167; Nash 16 R. I. 472, 17 Atl. 61. Two things v. Page, 80 Ky. 539, 44 Am. R. 490; must concur, a specific legal right, and the absence of an effectual legal remedy, to warrant the issuance of People V. Budd, 117 N. Y. 1, 22 N. E. 670, 68i2, 5 L. R. A. 559, 15 Am. St. 460; Chicago, &c. R. Co. v. Peo- a mandamus on the relation of any pie, 56 111. 365, 8 Am. R. 690; People private person. State v. Patterson, &c. R. Co. 43 N. J. L. 505. Mandamus will not lie to enforce the perform- ance of private contracts. Florida Cent, &c. R. Co. v. State, 31 Fla. V. Rome, &c. R. Co. 103 N. Y. 95, 8 N. E. 369; Merrill Mandamus, §§ 15, 25, 27a. See post, §§ 699, 1036, 1564, 1690; also ante, §§ 457, 458, 678. 638J ACTION'S BY AND AGAINST COEPOEATIONS. 950 § 638. mandamus to compel completion and operation of road. — The writ of mandainiis has been awarded to compel a company to operate its road as one continuous line,''''' to compel the completion of the road which the corporation was chartered to build/'^ to prevent the abandonment of a part of its road after its completion/'^ to com- pel the company to run daily trains/'" to stop all regular trains at county towns as required by statute/*" to run passenger trains to the terminus of the road/*^ to compel the erection of a bridge/*^ and the ™ Union Pac. R. Co. v. Hall, 91 U. S. 343. ''"Farmers' Loan, &o. Co. v. Hen- ning, 17 Am. L. Reg. (N. S.) 266; People V. Rome, &c. R. Co. 103 N. Y. 95, 8 N. E. 369. ™ Where a railroad company has abandoned a portion of Its line which it is under a duty to main- tain, mandamus will lie to compel the maintenance and operation of such portion of its road. Chicago, &c. R. Co. T. Crane, 113 U. S. 424, 5 Sup. Ct. 578; Talcott v. Pine Grove, 1 Flipp. (U. S.) 145. But where a railroad company, by consolidation with another company, became the owner of two lines of road between certain points, it was held that it could not be compelled by manda- mus to maintain and operate both lines if it appears that all public needs are served by the operation of a single line. People v. Rome, &c. R. Co. 103 N. Y. 95, 8 N. E. 369. See, also, Chicago, &c. R. Co. v. State (Neb.), 103 N. W. 1087. Where the company, owning a short line of railroad, is wholly insolvent, has neither rolling stock nor funds with which to operate its road, the use of which has been abandoned for sev- eral months, and cannot be resumed, except at a great loss, the company will not be compelled by mandamus to, replace or repair its track, a part of which has been torn up, as such an order would be of no public bene- fit. State V. Dodge City, &e. R. Co.' 53 Kan. 329, 38 Pac. 755, 24 L. R. A. 564. ™New Brunswick, &c. R. Co., In re, 17 New Brunswick (1 P. & B.) 667. I ™ Illinois Central R. Co. v. People,' 143 111. 434, 33 N. E. 173, 19 t. R. A.| 119. But this statute was held in-; valid as an interference with the interstate commerce and the United^ States mail in Illinois Cent. R. Co.' V. Illinois, 163 U. S. 142, 16 Sup. Ct.l 1096. Compare, however. Lake Shore, &c. R. Co. v. Ohio, 173 U. S. 285* 19 Sup. Ct. 465. I "1 Union Pac. R. Co. v. Hall, 91 U. S. 343; State v. Hartford, &c. R. Co., 29 Conn. 538. See, also, Litchfield, &c. R. Co. V. People, 222 111. 242, 78 N. E. 589. But where the state charters a parallel line for some dis- tance from one terminus for the carriage of passengers exclusively, and such company absorbs the busi- ness along that part of the route so that the receipts from passenger trafl5c over that part of the road will not pay expenses of operation, the railroad company is under no obli- gation to run passenger trains there- on. Commonwealth v. Pitchburg R. Co. 12 Gray (Mass.) 180. ^People V. Boston, &c. R. Co. 70 N. Y. 569; State v. Savannah, &c. Co. 26 Ga. 665; State v. Wilmington B. Co. 3 Harr. (Del.) 312; New Or- leans, &c. R. Co. V. Mississippi, 112 951 MANDAMUS TO COMPEL COMPLETION' AND OPERATION. [§ 638 building of fences and cattle-guards where required by law,^*° and to compel the construction of the road across streams so as not to inter- fere with navigation.''** It has also been granted to compel a railroad ■ company to finish its track to the terminus specified in the charter and run cars thereon,^*^ notwithstanding it had agreed with another common carrier not to do so/*" to compel a street railway company to operate its road in accordance with the provisions of the ordinance under which it was constructed/*^ to compel a railroad company to deliver grain to all elevators alike on its road where it was in the habit of delivering grain to some of them and there was no reason why it should not treat all alike,^*' and, in general, to compel the company to operate its road and exercise its franchises.^*® U. S. 12, 5 Sup. Ct. 19. Mandamus will not lie to compel a railroad company to locate its station at a particular point within the limits of a town. Florida Central, &c. R. Co. V. State, 31 Fla. 482, 13 So. 103, 20 L. R. A. 419, 34 Am. St. 30. =^ People V. Rochester, &c. R. Co. 76 N. Y. 294. "^ State V. Northeastern R. Co. 9 Rich. E. (S. C.) 247, 67 Am. Dec. 551. ^«Pepole V. Albany, &c. R. Co. 24 N. Y. 261, 82 Am. Dec. 295. ™ State V. Hartford, &c. R. Co. 29 Conn. 538. ^"Potwin Place v. Topeka R. Co. 51 Kan. 609, 33 Pac. 309, 37 Am. St. 312, and note. ^ People v. Chicago, &c. R. Co. 55 111. 95, 8 Am. R. 631. =*» See People v. Albany, &c. R. Co. 24 N. Y. 261, 82 Am. Dec. 295; King V. Severn, &c. Railway Co. 2 Barn. & Aid. 646. Under the New Hamp- shire statute prohibiting the oper- ation of a railroad by a rival and competing company, and providing that any citizen may apply for an injunction to prevent it, a citizen, as such, cannot maintain a suit for a writ of mandamus to compel one of two rival and competing com- panies to operate its own road. State V. Manchester, &c. R. Qo. 62 N. H. 29. The supreme court of a state has no jurisdiction to compel an interstate railroad company to operate its road within the state, during a general strike, on the alle- gation that enough competent men are willing to work "for reasonable compensation." State v. Great Northern R. Co. 14 Mont. 381, 36 Pac. 458 ; People v. Colorado Central R. Co. 42 Fed. 638; State v. Re- publican Valley R. Co. 17 Neb. 647, 24 N. "W. 329, 52 Am. R. 424; State V. Paterson, &c. R. Co. 43 N. J. L. 505; People v. New York, &c. R. Co. 104 N. Y. 58, 9 N. E. 856, 58 Am. R. 484 ; Railroad Comrs. v. Portland, &c. R. Co. 63 Me. 269, 18 Am. R. 208; State v. Jacksonville, &c. R. Co. 29 Fla. 590, 10 So. 590; People V. Chicago, &c. R. Co. 130 111. 175, 22 N. E. 857. For an extreme case in which mandamus was awarded against a railroad company to com- pel it to operate its road notwith- standing a strike, see "Mandamus as a means of settling strikes," 34 Am. L. Reg. & Rev. (2 N. S., 1895) 102. §■ 639]; ACTIONS BY AND AGAINST COKPOKATIONS. 953 § 639. Haudamus to compel restoration of highway and construc- tion of crossings or viaducts.^^" — The constitution of Illinois pre- scribes that "all railroad companies shall permit connections to be made with their track, so that any * * * public warehouse, coal- bank, or coal-yard, may be reached by the cars on said railroad." Where the switch connection to which the owners of a coal mine or other specified business are entitled under this provision is improperly disconnected, they are entitled to a mandamus to compel its restora- tion.^^^ Where the statute provides that railroads may construct their roadbeds along, across, or upon streets or other highways, on condition that they restore such highways to their former state of usefulness, a railroad may be compelled by mandamus to restore a highway^^^ upon or across which it has constructed its road, if it neglects to do so within a reasonable length of time;^^^ and this is so notwithstanding the street sought to be restored lies within a city which has power to do the work and recover the expense thereof/ from the company,^^* and notwithstanding an action to compel the construction of crossings is given by statute.^"^ So where the statute imposes upon a railroad the absolute duty to construct farm crossings their construction may be compelled by mandamus, unless a valid excuse for neglecting to build them can be shown.^^° And the fact that the statute gives the occu- pant of a farm the right to recover a penalty from the company upon '=» See post, §§ 1092, 1096, 1106. a nuisance. Moundsville v. Ohio ='^ Chicago, &c. R. Co. v. Sufeern, Riv. R. Co. 37 W. Va. 92, 16 S. E. 129 111. 274, 21 N. E. 824. Mandamus 514, 54 Am. & Eng. R. Cas. 538. will issue to compel the replace- ^=' Cummins v. Evansville, &c. R. ment of a track taken up in viola- Co. 115 Ind. 417, 13 N. E. 6; In- tion of the company's charter. Rex dianapolis, &c. R. Co. v. State, 37 V. Severn, &c. R. Co. 2 B. & Aid. Ind. 489; People v. Chicago, &e. R. 646. Co. 67 111. 118; State v. Hannibal, ^"^ Jamestown v. Chicago, &c. R. &c. R. Co. 86 Mo. 13. See People v. Co. 69 Wis. 648, 34 N. W. 728. A Dutchess, &c. R. Co. 58 N. Y. 152; simple permission to the railroad People v. New York, &c. R. Co. 74 company to lay its track in the N. Y. 302. street gives it no authority to de- =**Oshkosh v. Milwaukee, &c. R. stroy the street, and the company Co. 74 Wis. 534, 34 N. W. 489, 17 may be compelled by mandamus to Am. St. 175. restore the highway to its former ^ State v. Chicago, &c. R. Co. 29 condition without regard to any Neb.. 412, 45 N. W. 469. statute expressly imposing such ""State v. Chicago, &c. R. Co. 79 duty. A failure to build and main- Wis. 259, 48 N. W. 243, 12 L. R. A. tain suitable crossings will render 180. the company liable for maintaining 953 MANDAMUS TO COMPEL CAEEIAGE OF FREIGHT. [§ 640 its failure to construct proper crossings will not deprive him of the benefit of the writ.''^'' Mandamus has been held proper to determine the mode in which a railroad company shall be required to restore a street and to compel it to perform its duty, although the city council has not yet changed the established grade of the street to conform to the lawful change which the relator claims should be adopted. ^°* The writ has also been awarded to compel a railroad company to con- struct a bridge or viaduct where its tracks cross a street.^^' § 640. Mandamus to compel carriage of freight.^'" — ^Where a rail- road company wrongfully refuses to receive and carry freight, to the injury of the public generally, a writ of mandamus may be issued at the suit of the proper public officer commanding the company to re- sume the discharge of its duties, by promptly receiving, transporting and delivering all such freight as is offered for transportation, on the usual and reasonable terms and charges."*^ The writ has been awarded to compel the company to treat all shippers alike,^"^ and to deliver grain to all elevators similarly situated upon its line.^^* But in England it has been held that it will not be granted to compel a rail- road company to extend equal facilities to all upon similar terms.^^* And where a person has an adequate remedy at law by an action for damages it would seem that he ought not to be aided by the extraordi- nary remedy of mandamus to redress his own private grievances caused by the failure of the company to carry his freight upon the same terms as those upon which it carries the freight of others.^ *^ It may =" State V. Chicago, &c. R. Co. 79 Co. v. State, 118 Ind. 194, 19 N. E. Wis. 259, 48 N. "W. 243, 12 L. R. A. 604, 10 Am. St. 114; Central tin. 180. Tel Co. V. State, 123 Ind. 113, 24 N. ^•^ State V. Minneapolis, &c. R. Co. E. 215; Price v. Riverside, &c. Co. 39 Minn. 219, 39 N. "W. 153. 56 Cal. 431. ^^ State V. St. Paul, &c. R. Co. 35 '^ Chicago, &c. R. Co. v. People, 56 Minn. 131, 28 N. W. 3, 59 Am. R. 111. 365, 8 Am. R. 690. In Mobile, 313; State v. Missouri, &c. R. Co. &c. R. Co. v. Wisdom, 5 Heisk. 33 Kan. 176, 5 Pac. 772. (Tenn.) 125, the company was com- ""' See post, § 1564. pelled by mandamus to accept tax =" People v. New York, &c. R. Co. receipts, under a statute, in pay- 28 Hun (N. Y.) 543. See, also, Lara- ment of fare and freight charges, bee Flour Mills Co. v. Missouri Pac. =** Robins, Ex parte, 3 Jur. 103. R. Co. (Kans.) 88 Pac. 72. ^'^ People v. New York, &c. R. Co. "== State v. Delaware, &c. R. Co. 48 22 Hun (N. Y.) 533. See, also. Crane N. J. L. 55, 57 Am. R. 543. See, also, v. Chicago, &c. R. Co. 74 Iowa 330, State V. Fremont, &c. R. Co. 22 Neb. 37 N. W. 397, 7 Am. St. 479. But 313, 35 N. W. 118; Central U. Tel. compare Larabee Flour Mills Co. v. § 641] ACTIONS BY AND AGAINST CORPORATIONS. 954 be, however, where the company refuses to perform its duty as a common carrier and continually discriminates against him unjustly and oppressively, that an action for damages will not afford him ade- quate relief, and, in such a case, he might, in some jurisdictions, ap- ply for a writ of mandamus. The entire matter is now very largely regulated by congressional and state legislation, § 641. Mandamus to compel the company to maintain stations and furnish, increased facilities. — The question as to whether mandamus will issue to compel the re-establishment of an abandoned station,, or the erection and maintenance of new stations at points where they are demanded for the convenience of the public has been much discussed. That such a writ may be issued if a valid statute imposes the duty of maintaining a station at that point admits of no question,^°° and the icourts have gone far in construing statutes to raise such an obligation. In a Maine case, the company's charter provided "that said corpora- ij^QQ * * * gjiaii |jg bound at all times to have said road in good repair, and a sufficient number of engines, carriages and vehicles for the transportation of persons and articles, and be obliged to re- ceive at all proper times and places, and convey the same." The supreme cOurt held that a mandamus should issue for the establish- ment of a station at a point designated by the railroad commissioners as a proper and necessary place for the receipt and discharge of pas- sengers and freight.^"^ The doctrine has been advanced that the common law under the principle that it is the duty of a railway company to furnish reasonably sufficient and equal facilities to the public, whose servant it is, authorizes courts, by mandamus, to compel the erection and maintenance of new stations in proper cases.^"' Missouri Pac. R. Co. (Kans.) 88 Pac. of a railway station established for 72. twelve years. So in State v. New ^"Commonwealth v. Eastern R. Haven, &c. R. Co. 41 Conn. 134, the Co. 103 Mass. 254, 4 Am. R. 555; company was compelled by manda- People V. Louisville, &c. R. Co. 120 mus to resume an abandoned sta 111. 48, 10 N. B. 657; Northern Pac. tion. R. Co. v. Washington Ter., 142 U. '" Railroad Commissioners v. Port- S. 492, 12 Sup. Ct. 283; Concord, &c. land, &c. R. Co. 63 Me. 269, 18 Am R. Co. V. Boston, &c. R. Co. 67 N. R. 208. H. 464, 41 Atl. 263; State v. New =«» People t. Chicago, &c. R. Co. Haven, &c. R. Co. 37 Conn. 153; 130 III. 175; State v. Republican State V. New Haven, &c. R. Co. 43 Valley R. Co. 17 Neb. 647, 24 N. W Conn. 351. In the two latter cases 329, 52 Am. R. 424. In McCoy v. the statute forbade the abandonment Cincinnati, &c. R. Co. 13 Fed. 3, 955 MANDAMUS TO COMPEL PEEFOEMANCE OF DUTIES. [§ 641 In a case before the supreme court of Washington Territory it ap- peared that the defendant railroad company refused to stop its trains at Yakima City at any time or for any purpose, although the place contained at the time of the trial a resident population of one hundred and fifty persons, and maintained a flouring mill, two hotels, twenty- seven dwelling houses, and both public and private schools, and had been, until injured by unjust discrimination after the advent of the railroad, three times as large, and transacting a business of more than $300,000 per year. The only facilities provided for the receipt and discharge of. either passengers or freight were at the town of North Yakima, four miles distant, to and from which point all traffic had to pass by private conveyance. The court granted a writ of mandamus to compel the railway company to construct a depot and give other railroad facilities at the town.^°® But upon appeal to the Supreme Court of the United States this decision was reversed. Justices Brewer, Field and Harlan dissenting,^^" and the court held that mandamus the United States Circuit Court in Ohio issued an order to compel the defendant to receive and deliver stock at the plaintiff's stockyardi although, the defendant had a con- tract with the proprietor of an ad- joining stockyard for- the use of his yard for all business transacted at that point. In giving his decision'. Judge Baxter remarked that by ac- cepting its charter, a railroad under- takes to erect depots, and designates stopping places wherever the public necessities require them. See, also. Commonwealth v. Eastern R. Co. 103 Mass. 254, 4 Am. R. 555. ™ Northern Pao. R. Co. v. Terri- tory, 3 Wash. Ter. 303, 13 Pac. 604, 29 Am. & Bug. R. Cas. 82. The court says: "In the absence of legislation providing other means for regulat- ing and controlling the matter, we have no doubt of the power of a court of general jurisdiction, in a proper case, to compel a railroad to extend to the public proper facili- ties for the transaction of business." ""Northern Pacific R. Co. v. Washington Ter., 142 U. S. 492, 12 Sup. Ct. 283. See, also. People v. New York, &c. R. Co. 104 N. Y. 58, 9 N. E. 856, 58 Am. R. 484. In his dissenting opinion in the former case. Justice Brewer says: "A rail- road corporation has a public duty to perform as well as a private in- terest to subserve, and I never be- fore believed that the courts would permit it to abandon the one to pro- mote the other. Nowhere in its charter is in terms expressed the duty of carrying passengers and freight. Are the courts Impotent to compel the performance of this duty? Is the duty of carrying pas- sengers and freight any more of a •public duty than that of placing its depots and stopping its trains at those places which will best accom- modate the public? If the state of Indiana incorporates a railroad to build a road from New Albany through Indianapolis to South Bend, and that road is built, can It be that the courts may compel the road to receive passengers and transport §■ 641] ACTIONS BY AND AGAINST COEPOEATIONS. 956 to compel a railroad company to do a particular act in constructing its road or buildings, or in running its trains, will lie only where there is a specific duty on its part to do that act, and clear proof of a breach of that duty; and that no common law duty exists on the part of a railroad to stop its trains at any particular point.^'^ Under the Illinois statute it has been held that a railroad company may be compelled by mandamus to stop all regular trains at certain stations to dis- charge and receive passengers and freight.''^'' But, in the absence of any statutory provision upon the subject, it has been held that a rail- road company will not be compelled by mandamus to furnish in- creased passenger facilities by running any particular number of trains, especially if the amount of travel will not support an additional train.^'^ So, it has been held that a railroad company may discontinue a station, in the exercise of its discretion, where the station is not needed, and that mandamus will not lie to compel its continuance.^''* freight, but in the absence of a spe- cific direction from the legislature are powerless to compel the road to stop its trains and build a depot at Indianapolis? I do not so belittle the power or duty of the courts." ='1 Northern Pac. R. Co. v. Wash- ington Ter., 142 U. S. 492, 12 Sup. Ct. 283. To the same effect see Peo- ple V. Chicago, &c. R. Co. 35 Am. & Eng. R. Cas. 462, reversed, 130 111. 175, 22 N. E. 857; People v. New York, &c. R. Co. 104 N. Y. 58, 66, 9 N. E. 856, 58 Am. R. 484; Mobile, &c. R. Co. V. People, 132 111. 559, 24 N. B. 463; Chicago, &c. R. Co. v. People, 152 111. 230, 38 N. B. 562, 26 L. R. A. 224; Page v. Louisville, &c. R. Co. 129 Ala. 232, 29 So. 676; Bon- ham V. Columbia, &Cj R. Co. 26 S. Car. 353; St. Louis, &c. R. Co. v. State, 61 Ark. 9, 51 S. W. 570. In the absence of a law or a rule of the railroad commission prescrib- ing the type to be used in printing schedules of rates to be posted by railroad companies in their stations, the supreme court cannot by man- damus direct In what size type they shall be printed. State v. Pensacola, &e. R. Co. 27 Fla. 403, 9 So. 89. Man- damus will lie to compel a railway company to pay into the county court the amount of damages as- sessed by reason of the location and operation of its railway across the petitioner's premises, on a showing that the right of way has been law- fully condemned, the damages duly awarded, and no appeal taken there- from. State V. Grand Island, &c. R. Co. 27 Neb. 694, 43 N. W. 419. '"Illinois, &c. R. Co. v. People, 143 III. 434, 33 N. B. 173, 19 L. R. A. 119. See, also. New Haven, &c. R. Co. V. State, 44 Conn. 376, 384. "=Ohio, &c. R. Co. V. People, 129 111. 200, 11 N. B. 347; People v. Long Island R. Co. 31 Hun (N. Y.) 125; Commonwealth v. Pitchburg R. Co. 12 Gray (Mass.) 180. See, also. Peo- ple V. Rome, ,&c. R. Co. 103 N. Y. 95, 8 N. B. 369; People v. New York, &c. R. Co. 104 N. Y. 58, 9 N. B. 856, 58 Am. R. 484. "•Chicago, &o. R. Co. v. State (Neb.), 103 N. W. 1087. 957 WHEN MANDAMUS WILL NOT LIB. [§ 643 §642. When mandamus will not lie. — Mandamus will not issue to compel the performance of acts which are not clearly within the legal duties of those against whom the writ is directed, and it must appear in the application for a writ of mandamus that the defendant is under legal obligation to perform such acts, and that the petitioner has a legal right to deinand their performance.^''® And even where the duty seems clear the court will not issue a mandamus when, if issued, it would prove unavailing,*'" as in a case of the performance of duties involving the exercise of a large measure of good faith and discre- tion on the part of the corporation and its agents. For this reason courts of equity hesitate to undertake to compel a railroad corporation to construct or to complete its road, since the proper construction of a railroad would necessarily involve the exercise of much technical skill and judgment, and depend largely upon the good faith of the parties directing the work.*'' So, where the company is utterly una- ble, by reason of insolvency or the like, to perform its duties to the public, the courts will not, as a rule, attempt to compel it to do so by mandamus, as this would be "a vain and fruitless thing."*'* Some courts, however, have issued the writ notwithstanding the return of the company that it had no funds and no means of obtaining any.*" "« People V. Colorado Cent. R. Co. 20 N. J. Ch. 82; South Wales R. 42 Fed. 638. In this case the peti- Co. v. Wythes, 5 De G., M. & G. 880; tioner appeared "on behalf of the Ranger v. Great Western R. Co. 1 people of the state of Colorado," hut Bng. R. & Canal Cas. 1, 51 ; Wheat- failed to show that he was one of ley v. Westminster, &c. Coal Co. L. them. See, also. People v. St. Louis R. 9 Bq. 538. Elec, &c. R. Co. 122 111. App. 422. '" State v. Dodge City, &c. R. Co. ""High Mandamus, § 14; Merrill 53 Kan. 329, 36 Pac. 755, 24 L. R. A. Mandamus, § 75. The court will 564, and note; Ohio, &c. R. Co. v. deny an application for writ of man- People, 120 111. 200, 11 N. E. 347; damus to compel the operation of a Queen v. Ambergate, &c. R. Co. 1 road to a point beyond its jurisdic- El. & Bl. 372; Bristol, &c. R. Co., In tion. People v. Colorado Central R. re, L. R. 3 Q. B. D. 10; Queen v. Go. 42 Fed. 638. London, &c. R. Co. 16 Ad. & E. (N. '"Ohio, &c. R. Co. V. People, 120 S.) 864. 111. 200, 11 N. E. 347; Morawetz ™ Savannah, &c. Co. v. Shuman, Priv. Corp. (2d ed.), § 1136, citing 91 Ga. 400, 17 S. E. 937, 44 Am. St. Ross V. Union Pac. R. Co. 1 Woolw. 43; Silverthorne v. Warren R. Co. 26; Fallon v. Railroad Co. 1 Dill. 33 N. J. L. 173; People v. Dutchess, (U. S.) 121; Danforth v. Phila- &c. R. Co. 58 N. Y. 152; Queen v. delphia, &c. R. Co. 30 N. J. Eq. 12, Birmingham, &c. R. Co. 2 Ad. & E. and cases in reporter's note ; Heath- (N. S.) 47; Queen v. Trustees, &c. cote V. North Staffordshire R. Co. 1 Ad. & E. (N. S.) 860. See, also, § 643] ACTIONS BY AND AGAINST COEPOKATIONS. 958 There is" some reason for the latter practice, especially when the com- pany, by its own fault, has placed itself in such a position, for cir- cumstances may change, and, in any event, it may be well to thus compel the company to make a bona fide effort to perform its duties and comply with the order. If it is then found to be impossible the court can see that no injustice is done to the company and will refuse to punish it for contempt. Mandamus will not lie, ordinarily, at least, to enforce private contracts with a railroad company,^'" nor, as a gen- eral rule, in any case where there is an adequate remedy at law.^'^ It will not lie to prevent the exercise of a lawful discretion with which the company is vested,"*^ nor to compel a judge to decide in a par- ticular way an application by the receivers of a railroad company for authority to enter into an agreement for the partial readjustment of its affairs.^*^ A railroad company may be estopped by its acts to claim the benefit of a writ of mandamus. The fact that a railroad company agreed to the entry of a judicial order as to a crossing by it over the track of another company and has acted under it is a sufiicient reason for denying a writ of mandamus to set aside and vacate the order.^** § 643. Who may be relator. — There is considerable conflict among the authorities as to whether a private party may be a relator in a proceeding for a mandamus to enforce a public right. The attorney- general, or other public ofiicer, may doubtless apply for the writ in all such eases,^*" but not, ordinarily, unless he seeks to protect some public right or to secure some public interest."" Some of the courts Fort Dodge v. Minneapolis, &c. R. 484; Florida, &c. R. Co. v. State, 31 Co. 87 Iowa 389, 54 N. W. 243, 55 Fla. 482, 13 So. 103, 20 L. R. A. 419, Am. & Eng. R. Cas. 58 (holding lack 34 Am. St. 30; State v. Canal, &c. of funds no reason for refusing to R. Co. 23 La. Ann. 333; Chicago, &c. compel a receiver to perform a legal R. Co. v. State (Neb.), 103 N. W. duty, such as constructing a cross- 1087. iiig)- =»=Rice, In re, 155 U. S. 396, 15 ^° State V. New Orleans, &c. R. Co. Sup. Ct. 149. 37 La. Ann. 589; Florida Cent. R. =«*Fort Street Union Depot Co. v. Co. V. State, 31 Fla. 482, 13 So. 103, State R., &c. Co. 81 Mich. 248, 45 20 L. R. A. 419, 34 Am. St. 30; State N. W. 973. V. Paterson, &c. R. Co. 43 N. J. L. =»» Merrill Mandamus, § 229. 505. ==° Attorney-General v. Albion, &c. =»' State V. Mobile, &c. R. Co. 59 Inst., 52 Wis. 469; People v. Rome, Ala- 321. &c. R. Co. 103 N. Y. 95, 45 N. W. ^' People V. New York, &c. R. Co. 973. 104 N. Y. 58, 9 N. E. 856, 58 Am. R. 959 QUO W.4J1EANT0. [§ 644 also hold that a private party cannot be a relator unless he has some private interest to be protected or some particular right to be enforced independent of that which he has merely as one of the general pub- lic.^" But the weight of authority is to the effect that a private citi- zen may, as one of the general public, be relator and apply for a man- damus to enforce a public right or duty, due to the public at large and not merely to the government, without showing any special and pe- culiar interest.^'* He must, however, in such a ease, show that he is one of the general public to whom the duty is due or whose rights are injuriously aflEected.^'" §'644. Quo warranto. — We have elsewhere considered the subject of quo warranto as a means of forfeiting the charter of a corporation and as a remedy for abuse of powers as well as the usurpation of franchises. ''°° In that connection we also considered, to some extent, the general nature of the proceeding, the jurisdiction of the courts and the proper parties to the proceeding. Little, therefore, remains to be said, as the practice is so far regulated by different statutory pro- visions in the various states that few general rules can be laid down. At common law the writ of quo warranto was a writ of right, but in modern practice it has been, almost everywhere, superseded by an information in the nature of a quo warranto, which is a civil pro- ceeding and is governed by the rules of civil practice^*^ rather than =" Mitchell V. Boardman, 79 Me. 269; State v. Hannibal, &c. R. Co. 469; Bobbett v. State, 10 Kan. 9; 86 Mo. 13; State v. Weld, 39 Minn. Smith V. Saginaw, 81 Mich. 123; 426, 40 N. W. 561; Chicago, &c. R. HefEner v. Com., 28 Pa. St. 108; Co. v. Suffern, 129 111. 274; Merrill Merrill Mandamus, § 229. Mandamus, § 23. See Crane v. Chi- =»» Union Pac. R. Co. v. Hall, 91 cage, &c. R. Co. 74 Iowa 330, 37 IT. S. 343; Attorney-General v. Bos- N. W. 397, 7 Am. St. 479, and note, ton, 123 Mass. 460, 469; State v. See, also, Loraine v. Pittsburg, &c. Board, &c. 92 Ind. 133; Glencoe v. Co. 205 Pa. St. 132, 54 Atl. 580, 61 People, 78 111. 382; State v. Gracey, L. R. A. 502, and authorities cited 11 Nev. 223; Chumasero v. Potts, 2 as to the right of one having a spe- Mont. 242; State v. Francis, 95 Mo. cial interest. 44, 8 S. W. 5; State v. Brown, 38 ^"People v. Colorado, &c. R. Co. Ohio St. 344; State v. Van Duyn, 24 42 Fed. 638. Neb. 586, 39 N. W. 612; State v. "»° See ante, §§ 53, 54, 55. Ware, 13 Ore. 380, 10 Pac. 885; ^'People v. Cook, 8 N. Y. 67, 59 State V. Dayton, &c, R. Co. 36 Ohio Am. Dec. 451; State v. Kupferle, 44 St. 434; Savannah, &c. Co. v. Shu- Mo. 154, 100 Am. Dec. 565; Attorney- man, 91 Ga. 400, 17 S. E. 937, 44 General v. Sullivan, 163 Mass. 446, Am. St. 43; Wise v. Bigger, 79 Va. 40 N. E. 843, 28 L. R. A. 455; At- §' 644] ACTIONS BT AND AGAINST COKPORATIONS. 960 those relating to criminal prosecutions, although it is, in a sense, an extraordinary remedy and is usually regulated very largely by statute. The proceeding will not lie to forfeit the charter of a corporation in a foreign court,^°^ but, although actions to recover possession of real estate must be brought in the county in which it is located, quo war- ranto proceedings for usurping the franchise of being a corporation and owning and using land in one county for railroad purposes, need not necessarily be instituted in such county.^"* Such proceedings have been held proper both to determine the rights of individuals to corporate franchises and to determine whether franchises properly granted have been misused and forfeited,^°* to try the right of a for- eign corporation to do business in the state,^°^ and to determine the right of a company duly incorporated to exercise a particular fran- chise.^^" So, under a statute providing that quo warranto proceed- ings may be instituted against a corporation "when it claims a fran- chise privilege or right in contravention of law, such, proceedings will lie against a railroad company to contest its claim to exercise a right or privilege in state canal lands.^'^ Other decisions showing when quo warranto will or will not lie are reviewed elsewhere.^'* And in a recent case it is held that no state has any right to forfeit the fran- chise of a railroad company for making unlawful charges upon traffic within the provisions of the interstate commerce law, and that quo warranto will not lie to prevent a railroad company from making un- lawful charges for services where the matter is covered by a statute which provides another and exclusive remedy.^"" As we have seen chison, &c. R. Co. v. People, 5 Col. See, also. State v. Cincinnati, &c. 60; Ames v. Kansas, 111 U. S. 449, R. Co. 47 Ohio St. 130, 23 N. E. 4 Sup. Ct. 437. Contra, Donnelly v. 928, 7 L. R. A. 319. People, 11 111. 552, 52 Am. Dec. 459; =»' State v. Fidelity, &c. Co. 39 Territory v. Lockwood, 3 Wall. (U. Minn. 538, 41 N. W. 108; State v. S.) 236. Western, &c. Society, 47 Ohio St. ''"^Ante, § 55. 167, 24 N. B. 392, 8 L. R. A. 129. >»' Smith v. State, 140 Ind. 343, 39 =»» People v. Utica Ins. Co. 15 N. E. 1060. See Eel River R. Co. v. Johns. (N. Y.) 353, 8 Am. Dec. 243; State, 143 Ind. 231, 42 N. E. 617; State v. Citizens', &c. Asso., 6 Mo. Eel River R. Co. v. State, 155 Ind. App. 163. 433, 57 N. E. 388. =»' State v. Pittsburgh, &o. R. Co. '"• People v. Utica • Ins. Co. 15 53 Ohio St. 189, 41 N. E. 205. Johns. (N. Y.) 353, 8 Am. Dec. 243; =™ See ante, §§ 48-51. Petty v. Tooker, 21 N. Y. 267; State ^» State v. Atchison, &c. R. Co. 176 V. Milwaukee, &c. R. Co. 45 Wis. Mo. 687, 75 S. W. 776, 63 L. R. A. 579; State v. Barron, 57 N. H. 498. 761. 961 QUO WAKRANTO. [§ 644 the proceedings are usually instituted on behalf of the state by the at- torney-general, or, in some jurisdictions, by the prosecuting attorney, hut in most jurisdictions, private persons having an interest in the matter, may file the information, with leave of the court.^°° In some jurisdictions the defendant must either disclaim or justify, and it is held that a plea of not guilty or non usurpavit is not good,^"^ but in others he may set forth as many defenses as he may have.^"^ The entire matter is largely regulated by statute. If the information is insufficient a demurrer would seem to be proper.^"' "»19 Am. & Eng. Bncy. Law 675, ■676; 7 Lawson Rights, Rem. & Pr., §§ 40, 42, 43. And it is held that the attorney-general cannot maintain a quo warranto proceeding to vindi- cate or redress merely private rights or grievances. State v. Atchison, &c. R. Co. 176 Mo. 687, 75 S. W. 776, 63 L. R. A. 761. "^ Illinois, &c. R. Co. v. People, 84 111. 426; Distilling, &c. Co. v. Peo- ple, 156 111. 448, 41 N. E. 188, 47 L. R. A. 200; Attorney-General v. Foote, 11 Wis. 14, 78 Am. Dec. 689; Eix. Railboads — 61 State V. Utter, 14 N. J. L. 84; State V. Barron, 57 N. H. 498; Buckman V. State, 34 Fla. 48, 15 So. 697, 24 L. R. A. 806. ™ State V. Brown, 34 Miss. 688; People V. Stratton, 28 Cal. 382; State V. McDaniel, 22 Ohio St. 354; Peo- ple V. Plymouth, &c. Co. 31 Mich. 178; Rex v. Autridge, 8 T. R. 467. ™ State V. Boal, 46 Mo. 528; Com- monwealth V. Commercial Bank, 28 Pa. St. 383; People v. Wgodbury, 14 Cal. 43; Territory v. Lockwood, 3 Wall. (U. S.) 236. CHAPTEE XXVI. KBMOVAL OF CAUSES. Sec. Sec. 645. When removal is authorized 652. Removal where federal ques- — Statutes now in force. tion is involved. 646. What are suits of a civil na- 653. Time and manner of making . ture under the removal acts. application for removal. 647. Parties. 654. Effect of application on juris-. 648. Rights of removal as affected diction of state and federal by amount in controversy. court. 649. Diverse citizenship as a 655. Remanding and dismissing ground for removal. cause. 650. Separable controversy. 655a. Remanding — Amendment — 650a. Action against company and Waiver. employe. 656. Pleading and practice in fed- 651. Prejudice or local influence as eral court after removal. a ground for removal. 656a. Recent cases — Miscellaneous. § 645. When removal is authorized — Statutes now in force. — The act of congress of March 3, 1887, as corrected by the act of August 13, 1888,^ defines the jurisdiction of the circuit courts of the United States, requiring the amount or value of the matter in dispute to exceed two thousand dollars, and provides for the removal from any state court to the circuit court of the United States for the proper district of "any suit of a civil nature, at law or in equity, arising under the constitution or laws of the United States, or treaties- made, or which shall be made, under their authority, of which the circuit courts of the United States are given original jurisdiction" by the first section of such act; that any other suit of a civil nature, of which the circuit courts are so given jurisdiction, may be removed from any state court to the proper circuit court by the defendant or defendants therein, being non-residents of that state; that when in any suit of any of the classes specified there shall be a controversy which is wholly between citizens of different states, and which can be fiiUy determined as between them, then either one or more of the defendants actually interested in such controversy may remove the ^ 25 U. S. St. at L. 433. 962 963 SUITS OP A CIVIL NATURE UNDER THE REMOVAL ACTS. [§ 646 suit ; that suits may be removed, under specified circumstances, on ac- count of prejudice or local influence, and that suits between citizens of the same state may also be removed, under certain circumstances, where the title to land is concerned and they claim under grants from different states. This act tends to restrict^ rather than to extend the right of removal, as given by previous acts, and repeals several of the older acts, although it leaves some of them still in force. ^ The only provisions of former acts still in force which seem to be applicable in any case in which a railroad company is interested are those found in sections 641 and 642 of the Eevised Statutes of the United States relating to suits or criminal prosecutions "against any person who is denied or cannot enforce in the judicial tribunals of the state, or in the part of the state where such suit or prosecution is pending, any right secured to him by any law providing for the equal civil rights of citizens of the United States or of all persons within the jurisdiction of the United States." This law is intended to carry out the provisions of the Fourteenth Amendment to the United States Constitution,* and is directed against state action denying civil rights.^ §' 646. What are suits of a civil nature under the removal acts. — As most of the provisions for the removal of causes authorize the removal only where the suit is of a civil nature, it is important to determine what is meant by the term "suit of a civil nature." It has been held that an action to recover a penalty for the violation of a state statute, although the statute expressly provides that the penalty shall be recovered in a civil action, is essentially criminal in its nature 'Hanrick v. Hanrlck, 153 U. S. Chicago, &c. R. Co. 33 Fed. 114; 192, 197, 14 Sup. Ct. 835; Smith v. Whelan v. New York, &c. R. Co. 35 Lyon, 133 U. S. 315, 10 Sup. Ct. Fed. 849; Minnick v. Union Ins. Co. 303; Pennsylvania Co., In re, 137 40 Fed. 369. But see Hills v. Rlch- TJ, S. 451, 454, 11 Sup. Ct. 141. mond, &c. R. Co. 33 Fed. 81; Flsk "It expressly repeals § 640 Rev. v. Henarie, 32 Fed. 417, reversed in St. U. S., and the last paragraph of 142 U. S. 459, 12 Sup. Ct. 207. § 5 of the act of March 3, 1874, and * Strauder v. West Virginia, 100 all laws or parts of laws in conflict U. S. 303; Virginia v. Rives, 100 with its provisions, hut expressly U. S. 313. provides that it shall not he deemed " Alahama, Ex parte, 71 Ala. 363 to repeal §§ 641, 642, 643, or 722, of Virginia v. Rives, 100 U. S. 313 title 24, Rev. St. U. S., or § 8 of the Neal v. Delaware, 103 U. S. 370 act of March 3, 1875. It has heen State v. Chue Fan, 42 Fed. 865 held that it repeals hy implication Cooper v. State, 64 Md. 40, 20 Atl. the act of March 2, 1867. Short v. 986. § 646] EEMOVAL 01' CAUSES. 964 and cannot be removed." So, it has been held that a special assessment proceeding under the Illinois law, involving the exercise of the tax- ing power, is not a "suit" within the meaning of the removal act;^ nor is a claim for a right of way pending before the board of county commissioners.' But it seems to be well settled that proceedings to determine the value of land condemned or affected by a taking under the power of eminent domain may be removed in a proper case.* So mandamus,^" habeas corpus,^^ and quo warranto^^ proceedings have been held to come within the meaning of the removal acts. Actions in ejeetment,^^ and replevin,^* and those begun by attachments^ have "Iowa v. Chicago, &c. R. Co. 37 Fed. 497; Ferguson v. Ross, 38 Fed. 161; United States v. Mexican, &c. R. Co. 40 Fed. 769; Texas v. Day, &c. Co. 41 Fed. 228. See, also, Ames v. Kansas, 111 U. S. 449, 4 Sup. Ct. 437; Boyd v. United States, 116 U. S. 616, 6 Sup. Ct. 524; Herriman v. Burlington, &c. R. Co. 57 Iowa 187, 9 N. "W. 378, and 10 N. W. 340; Wis- consin V. Pelican Insurance Co. 127 U. S. 265, 8 Sup. Ct. 1370; Southern R. Co.- V. State (Ind. App.), 74 N. E. 174. ^Chicago, In re, 64 F«d. 897. See and compare Union Pacific R. Co. v. Myers, 115 U. S. 1, 5 Slip. Ct. 1113; Upshur Co. V. Rich, 135 U. S. 467, 10 Sup. Ct. 651, and Jarnecke Ditch, In re, 69 Fed. 161. « Fuller V. Colfax, 14 Fed. 177. ' Mississippi, &c. Boom rCo. v. Pat- terson, 98 U. «. 403; Searl v. School Dist, 124 U. S. 197, 8 Sup. Ct. 460; Union Pacific R. Co. v. Myers, 115 U. S. 1, 5 Sup. Ct. 1113; Mineral Range R. Co. v. Detroit, .&c. Go. 25 Fed. 515; Kansas City, .&c. R. Co. v. Interstate Lumber Co. 37 Fed. 3; Chicago v. Hutchinson, 11 Biss. (U. S.) 484, 15 Fed. 129. See, also, Madisonville Traction Co. v. St. Bernard, &c. Co. 196 U. S. 239, 25 Sup. Ct. .251; Helena, &c. Co. v. Spratt, 146 Fed. 310; South Dakota, &c. R. Co. V. Chicago, &c. R. Co. 141 Fed. 578. As to when a separ- able controversy is presented in con- demnation proceedings, see post, § 650, note 60. " Kendall v. Unite'd States, 12 Pet. (U. S.) 524; Washington Imp. Co. V. Kansas Pac. R. Co. 5 Dill. (U. S. C. C.) 489. See, also. People v. Colo- rado Cent. R. Co. 42 Fed. 638. But compare Rosenbaum v. Bauer, 120 U. S. 450, 7 Sup. Ct. 633. " Holmes v. JannisoA, 14 Pet. (U. S.) 540; MlUlgan, Bx parte, 4 Wall. (U. S.) 2. But not, it seems, under the later acts, where the jurisdic- tion depends on the value of the matter in dispute. Kurtz v. MoflStt, 115 U. S. 487, 6 Sup. Ct. 148; Snow V. United States, 118 U. S. 346, 354. "Ames V. Kansas, 111 U. S. 449, 4 Sup. Ct. 437; Illinois v. Illinois Cent. R. Co. 33 Fed. 721. "Torrey v. Beardsly, 4 Wash. (U. S. C. C.) 242; Girard, Ex parte, 3 Wall. Jr. (U. S.) 263. "Beecher v. Gillett, 1 Dill. (U. S. C. C.) 308; Dennistoun v. Draper, 5 Blatchf. (U. S.) 336. "Sayles v. Northwestern Ins. Co. 2 Curtis (U. S.) 212; Barney v. Globe Bank, 5 Blatchf. (U. S.) 107; Keith V. Levi, 2 Fed. 743. But see Bentlif v. London, &c. Corp., ?4 Fed. 667, and authorities there cited. 96S SUITS OF A CIVIL NATURE UNDER THE REMOVAL ACTS. [§' 646 been removed under former acts ; but it has been held that a suit be- gun by foreign attachment, without personal service, cannot be re- moved under the last act.^* It is said, however, in another ease, that the court in the decision just referred to erroneously assumed that there was no distinction in this regard between cases originally brought in the circuit court and cases removed thereto, and that the circuit court had jurisdiction of the suit removed after the state court had acquired jurisdiction by foreign attachment, although there was no personal service.^' Many years ago in a case in which it was held that a proceeding for a writ of prohibition was a "suit" within the meaning of another statute. Chief Justice Marshall said: "The term is cer- tainly a very comprehensive one, and is understood to apply to any proceeding in a court of justice by which an individual pursues that remedy in a court of justice which the law affords him. The modes of proceeding may be various, but, if a right is litigated between parties in a court of justice, the proceeding by which the decision of the court is sought is a suit."^* The mere fact that a bill or petition is filed, however, without having any process issued or giving any no- tice, and without any appearance by the adverse party, does not make the proceeding a "suit" within the meaning of the removal aets.^° Neither is a mere auxiliary proceeding a "suit" within the meaning of such acts.^" But a proceeding against stockholders to obtain an execution for the amount of their unpaid stock, under the Missouri statute, after a return of nulla bona on an execution against the corporation, has been held to be a "suit" which can be removed by the stockholders on the ground of diverse citizenship, and not merely a proceeding auxiliary to the suit against the corporation.^^ "Perkins v. Hendryx, 40 Fed. 657. ™ Barrow v. Hunton, 99 U. S. 80; "Crocker Nat. Bank v. Pagen- First Nat. Bank v. TurnbuU, 16 stecher, 44 Fed. 705. See, also. Am- Wall. (U. S.) 190; Smith v. St. sinck V. Balderston, 41 Fed. 641; Louis, &c. Co. 3 Tenn. Ch. 350; Fales V. Chicago, &c. R. Co. 32 Fed. Weeks v. Billings, 55 N. H. 371; 673; American' Finance Co. v. Bost- Poole v. Thatcherdeft, 19 Fed. 49; wick, 151 Mass. 19, 23 N. E. 656. Jackson v. Gould, 74 Me. 564; Good- But 'Compare Bentlif v. London, &c. rich v. Hunton, 29 La. Ann. 372; Corp., 44 Fed. 667, and authorities Hockstadter v. Harrison, 71 Ga. "21. there cited. See, also, Lawrence v. Morgans, &c. "» Weston V. Charleston, 2 Pet. (U. R. Co. 121 U. S. 634. S.) 449, 464. =* Lackawanna, &c. Co. v. Bates, 56 " See West v. Aurora City, 6 Wall. Fed. 737, overruling Webber v. (IT. S.) 139; Iowa, &c. Co., In re, Humphreys, 5 Dill. (U. S.) 223. See, 2 MoCrary (U. S.) 178. also, Bondurant v. Watson, 103 U. 647] EEMOVAL OF CAUSES. 966 §■647. Parties. — One who is not a party to a cause anS refuses to become a party of record is not entitled to have the cause removed, although he may be interested in the controversy.^^ But it has been held, under former acts, that parties properly required to interplead, or having a statutory right to intervene, which they have attempted to exercise, may have the cause removed, in a proper case, although the state court refused to permit them to intervene.^' Substituted parties generally stand in the same position, with regard to the right of removal, as those whose place they take.^* It is well settled that the right of removal can neither be obtained nor prevented by joining merely nominal or improper parties for that purpose.'"' It is not al- ways easy to determine, however, who are merely nominal parties and who are necessary parties actually interested as such in the con- troversy.^' It has been held that the voluntary joinder of a number S. 281; Pettus v. Georgia R., &c. Co. 3 Woods (U. S.) 620; Kalamazoo, &c. Co. V. Snavely, 34 Fed. 823; Pelzer, &c. Co. v. Hamburg, &c. Ins. Co. 62 Fed. 1. "Bertha Zinc, &c. Co. v. Carico, 61 Fed. , 132; Dill Remov. Causes (5th ed.), § 101. ==Snow V. Texas, &c. R. Co. 16 Fed. 1; Hack v. Chicago, &c. R. Co. 23 Fed. 356; Healy v. Prevost, 8 The Rep. 103. See, also, Burdick v. Peter- son, 2 McCrary (U. S.) 135. Contra, "Williams v. Williams, 24 La. Ann. 55. See, also, Olds Wagon Works v. Benedict, 67 Fed. 1. '* Richmond, &c. R. Co. v. Pindley, 32 Fed. 641; Cable v. Ellis, 110 U. S. 389, 4 Sup. Ct. 85; Jefferson v. Driver, 117 V. S. 272, 6 Sup. Ct. 729; Houston, &c. R. Co. v. Shirley, 111 U. S. 358, 4 Sup. Ct. 472; Grand Trunk R. Co. v. Twitchell, 59 Fed. 727. " United States v. Douglas, 113 N. Car. 190, 18 S. E. 202; Bates v. New Orleans, &c. R. Co. 16 Fed. 294; Ax- line v: Toledo, &c. R. Co. 138 Fed. 169; Hatch v. Chicago, &c. R. Co. 6 Blatchf. (U. S.) 105; Carneal v. Banks, 10 Wheat. (U. S.) 181; Bar- ney V. Latham, 103 U. S. 205; Chat- tanooga, &c. R. Co. V. Cincinnati, &c. R. Co. 44 Fed. 456; Wortsman V. Wade, 77 Ga. 651. 4 Am. St. 102; Danvers Sav. Bank v. Thompson, 133 Mass. 182; Powers v. Chesa- peake, &c. R. Co. 65 Fed. 129. See and compare Merchants', &c. Co. v. Ins. Co. 151 U. S. 368, 14 Sup. Ct. 367; Arrowsmith v. Nashville, &c. R. Co. 57 Fed. 165; Springer v. Sheets, 115 N. Car. 370. 20 S. E. 469. ^ As to ■ who are actually inter- ested and not mere nominal parties, see Knapp v. Railroad Co. 20 Wall. (U. S.) 117; Myers v. Swann, 107 U. S. 546, 2 Sup. Ct. 685; Thayer v. Life Assn., 112 U. S. 717, 5 Sup. Ct. 355; St. Louis, &c. R. Co. v. Wilson, 114 U. S. 60, 5 Sup. Ct. 738; Miller V. Sharp, 37 Fed. 1161; Central R. Co. V. Mills, 113 U. S. 249, 5 Sup. Ct. 456; Chicago, &c. R. Co. v. Crane, 113 U. S. 424; Douglas v. Richmond, &c. R. Co. 106 N. Car. 65, 10 S. E. 1048; Fox v. Mackay, 60 Fed. 4; Wilson V. Oswego Twp., 151 U. S. 56, 14 Sup.^'ct. 259; Merchants', &c. Co. V. Insurance Co. 151 U. S, 368, 14 Sup. Ct. 367. As to who are 967 AS AFFECTED BY AMOUNT. [§ 648 of complainants to enforce a common liability of the defendants has the same effect on the right of removal on the ground of diverse citi- zenship as if they had been compelled to unite." But the court, for the purpose of determining the right of removal, will arrange the parties as plaintiffs or defendants according to their actual interest in the controversy,^* and if parties are coUusively joined for the mere purpose of effecting a removal, the petition may be refused,^* or if the cause has already been removed the court may remand it.'" So, on the other hand, it has been held that where a plaintiff makes a party a co-defendant for the purpose of preventing a removal, and, after the time for removal is past, dismisses as to such party, the cause may, nevertheless, be removed upon proper application by a party entitled to such removal.'^ § 648. Bight of removal as affected by amount in controversy. — The value of the matter in dispute must exceed two thousand dollars, exclusive of interest and costs. It is not sufficient that its value is exactly two thousand doUars.^^ Thus, where the prayer for relief in the complaint asked for "two thousand dollars .and all other proper relief," and, under the pleadings, no other proper relief could be ob- tained, it was held that the cause could not be removed. '^ The amount merely nominal parties, see Hatch ""Williams v. Nottowa, 104 U. S. V. Chicago, &c. R. Co. 6 Blatchf. (U. 209; Little v. Giles, 118 U. S. 596, S.) 105; Arapahoe Co. v. Kansas 7 Sup. Ct. 32. But see Deputron v. Pac. R. Co. 4 Dill. (U. S.) 277; Young, 134 U. S. 241, 10 Sup. Ct. Bates V. New Orleans, &c. R. Co. 539. 16 Fed. 294; Bacon v. Rives, 106 U. "Powers v. Chesapeake, &c. R. S. 99, 1 Sup. Ct. 3; Taylor Co. v. Co. 65 Fed. 129; Arrowsmith v. Baltimore, &c. R. Co. 35 Fed. 161; Nashville, &c. R. Co. 57 Fed. 165. Over V. Lake Brie, &c. R. Co. 63 But see Provident, &c. Society v. Fed. 34; Shattuck v. North British, Ford, 114 V. S. 635, 5 Sup. Ct. 1104; &c. Ins. Co. 58 Fed. 609. Vimont v. Chicago, &c. R. Co. 64 " Merchants', &c. Co. v. Insurance Iowa 513, 17 N. W. 31, 21 N. W. 9. Co. 151 U. S. 368, 14 Sup. Ct. 367; »'Tod v. Cleveland, &c. R. Co. 65 Corporation v. Winter, 1 Wheat. (U. Fed. 145; Baltimore v. Postal Tel. S.) 91. Co. 62 Fed. 500; Pittsburgh, &c. R. ^Harter v. Kernochan, 103 U. S. Co. v. Ramsey, 22 Wall. (U. S.) 322; 562; Ayres v. Chicago, 101 V. S. 184; Walker v. United, States, 4 Wall. (U, Anderson v. Bowers, 40 Fed. 708. S.) 163. See Weber v. Travelers' But see Springer v. Sheets, 115 N. Ins. Co. 45 Fed. 657. Car. 370, 20 S. B. 469. " Baltimore, &c. R. Co. v. Worman, ^ Cushman v. Amador, &c. Co. 118 12 Ind. App. 494, 40 N. B. 751. See, U. S. 58, 6 Sup. Ct. 926; Sachse v. also. Barber v. Boston, &c. R. Co. Citizens' Bank, 37 La. Ann. 364. 145 Fed. 52. But where other relief 649] EEMOVAL OF CAUSES. 968 is to be determined from the complaint, declaration or bill,'* and it seems that if the amount, as so determined, is insuificient, the filing- of a counterclaim by the defendant exceeding that amount does not entitle him to remove the suit.*^ This rule, if it can be sustained at all as a general rule, must be placed upon the ground that the de- fendant, having voluntarily submitted his claim to the state court as a plaintiff in the cross-complaint, cannot for that reason take ad- vantage of his own act and remove the suit -which could not other-wise have been removed by him. The jurisdictional amount may be made up of several distinct claims exceeding two thousand dollars in the aggregate.'" § 649. Diverse citizenship as a ground for removal, — We have al- ready called attention to the pro-visions of the removal acts in regard to removals on the ground of diverse citizenship.'^ A corporation, as we have elsewhere sho-wn,'^ is regarded as a citizen of the state in which it was incorporated, within the meaning of these acts.'® The may be obtained and the value of the matter in dispute exceeds two thousand dollars the cause may be removed although the money judg- ment demanded is less than that sum. Dickinson v. Union, &c. Co. 64 Fed. 895. "Yarde v. Baltimore, &c. R. Co. 57 Fed. 913; Gordon v. Longest, 16 Pet. (U. S.) 97; Western Un. Tel. Co. V. Levi, 47 Ind. 552. In an ac- tion in tort the amount of damages claimed by the plaintiff is the value of the matter in dispute. Gordon v. Longest, supra; Western Un. Tel. Co. v. Levi, supra; Louisville, &c. R. Co. V. Roehling, 11 111. App. 264; Chicago, &c. R. Co. v. Stone, 70 Kan. 708, 79 Pac. 655. It is also held in the case last cited that the re- moval cannot be defeated by amend- ment reducing the amount after a suiBcient petition and bond have been filed. See, also, Stephens v. St. Louis, &c. R. Co. 47 Fed. 530, 14 L. R. A. 184; Hay ward v. Nordberg Mfg. Co., 85 Fed. 4. »» Bennett v. Devine, 45 Fed. 705; La Montague v. T. W. Harvey Lum- ber Co. 44 Fed. 645; Falls Wire, &c. Co. V. Broderick, 2 McCrary (U. S.) 489. Contra, Clarkson v. Manaon, 18 Blatchf. (U. S.) 443; Carson, &c. Lumber Co. v. Holtzclaw, 39 Fed. 578. Whether the amount of a coun- terclaim may be added to plaintiff's claim so as to give the court juris- diction is said to be so doubtful un- der the authorities as to require the court to decline jurisdiction. Crane Co. V. Guanica Centrale, 132 Fed. 713. =" Marshall v. Holmes, 141 U. S. 589, 12 Sup. Ct. 62; Bernheim v. Birnbaum, 30 Fed. 885. See, also. Brown v. Trousdale, 138 U. S. 389, 11 Sup. Ct. 308. "Ante, § 645. ^ Ante, § 23. ™ "Federal Jurisdiction of Corpo- rations as Citizens," 36 Cent. L. J. 333; Marshall v. Baltimore, &c. R. Co. 16 How. (U. S.) 314; Rundle V. Delaware, &c. Canal Co. 14 How. 969 DIVERSE CITIZENSHIP AS A GROUND FOR REMOVAL. [§ 649 citizenship of the stockholders is immaterial.*" But a state itself is not a citizen of any state, and where it is the real party in interest, as in ease of a prosecution in its name on the relation of a prosecuting attorney, to recover a statutory penalty, there can be no removal on the sole ground of diverse citizenship.*^ We have also shown that no state can deprive a foreign corporation of the right of removal given by congress.*^ But a corporation may be adopted so as to, become a domestic corporation and a citizen of the state adopting it,*^ or it may be formed by concurrent legislation of two or more states or consolidated under their laws so as to become a citizen of each.** The mere fact, however, that it carries on business, or is authorized to carry on business or hold property in another state than that in which it is incorporated, does not make it a citizen of such other state.*° Neither does a state statute requiring a foreign corporation (U. S.) 80; Railway Co. v. Whitton, 13 Wall. (tJ. S.) 270; Bonaparte v. Camden, &c. R. Co. Bald. (U. S.) 205; Stanley v. Chicago, &c. R. Co. 62 Mo. 508; W. U. Tel. Co.. v. Dick- inson, 40 Ind. 444, 13 Am. R. 295; Louisville, &c. R. Co. v. Letson, 2 How. (U. S.) 497; Ohio, &c. R. Co. V. Wheeler, 1 Black (U. S.) 286; Boom Co. V. Patterson, 98 U. S. 403; Quigley v. Cent. Pacific R. Co. 11 Nev. 350, 21 Am. R. 757. The citizenship of a corporation is sufB- ciently disclosed by an allegation that it is a corporation duly organ- ized under the laws of New York. Dodge v. Tulleys, 144 U. S. 451, 12 Sup. Ct. 728. See, also, Robertson V. Scottish, &c. Ins. Co. 68 Fed. 173. "Baltimore, &c. R. Co. v. Cary, 28 Ohio St. 208; Quigley y. Central R. Co. 11 Nev. 350, 21 Am. R. 757; Pomeroy v. New York, &c. R. Co. 4 Blatch. (U. S.) 120; Hatch v. Chi- cago, &c. R. Co. 6 Blatch. (TJ. S.) 105; Minnett v. Milwaukee, &c. R. Co. 3 Dill. (U. S.) 460. "Southern R. Co. v. State, 165 Ind. 613, 75 N. E. 272. "Ante, § 23; "Federal Jurisdic- tion of Corporation as Citizens," 36 Cent. L. J. 333; Southern Pae. Co. V. Denton, 146 U. S. 202, 13 Sup. Ct, 44. "Ante, § 23. We do not mean, however, that the mere adoption or naturalization of a corporation of another state will necessarily de- prive it of Its right to sue or be sued in the federal courts as a citi- zen of another state. "Ante, §§ 26, 28. See Colglazier V. Louisville, &c. R. Co. 22 Fed. 568; Wasley v. Chicago, &c. R. Co. 147 Fed. 608 (and cannot remove an action brought in either on the ground of diverse citizenship) ; Up- hofC V. Chicago, &c. R. Co. 5 Fed. 545, and compare Nashua, &c. R. Co. V. Boston, &c. R. Co. 136 U. S. 356, 10 Sup. Ct. 1004, with Pacific R. Co. V. Missouri Pac. R. Co. 23 Fed. 565, 20 Am. & Eng. R. Cas. 590. See, also, Fitzgerald v. Missouri Pac. R. Co. 45 Fed. 812; Paul v. Baltimore, &c. R. Co. 44 Fed. 513; Oregon Short Line, &c. R. Co. v. Skottowe, 162 U. S. 490, 16 Sup. Ct. 869; Walters v. Chicago, &c. R. Co. 186 U. S. 479, 22 Sup. Ct. 941. « Martin v. Baltimore, &c. R. Co, 151 U. S. 673, 14 Sup. Ct. 633; Guinn § 649] EEMOVAL or CAUSES. 970 to have an agent in the state, upon whom process can be served, make it a citizen of that state.*" And it is stated as a general proposition that, for purposes of the jurisdiction of federal courts a corporation remains a citizen of the state by which it was created, although it is afterwards also made a corporation of another state.*^ As the juris- V. Iowa Cent. R. Co. 14 Fed. 323; Holden v. Putnam, &c. Ins. Co. 46 N. Y. 1, 7 Am. R. 287; Baltimore, &c. R. Co. V. Kountz, 104 U. S. 5; Conn V. Chicago, &o. R. Co. 48 Fed. 177; Pennsylvania Co. v. St. Louis, &c. R. Co. 118 U. S. 290, 6 Sup. Ct. 1094; Allegheny Co. v. Cleveland, &c. R. Co. 51 Pa. St. 228; Baltimore, &c. R. Co. V. Cary, 28 Ohio St. 208; Baltimore, &c. R. Co. v. Wightman, 29 Gratt (Va.) 431. " Chicago, &c. R. Co. v. Minnesota, &c. R. Co. 29 Fed. 337; Amsden v. Norwich, &c. Ins. Co. 44 Fed. 515; Fales V. Chicago, &c. R. Co. 32 Fed. 673; Martin v. Baltimore, &c. R. Co. 151 U. S. 673, 14 Sup. Ct. 533; West- ern Un. Tel. Co. v. Dickinson, 40 Ind. 444, 13 Am. R. 295; Morton v. Mutual, &c. Ins. Co. 105 Mass. 141, 7 Am. R. 505. But see Scott v. Texas, &c. Co. 41 Fed. 225. "Louisville, &c. R. Co. v. Louis- ville Trust Co. 174 U. S. 552, 18 Sup. Ct. 817; St. Louis, &c. R. Cp. V. James, 161 U. S. 545, 16 Sup. Ct. 621. See, also, Hollingsworth v. Southern R. Co. 86 Fed. 351. Upon this general subject Judge Baldwin, in his American Railroad Law, 483, 484, says: "A corporation formed by the incorporation of the same persons under the same corporate name by several states may sue and be sued in the courts of each as a juridical person belonging to it. It cannot, when described as a citi- zen of each state, sue or be sued by a citizen of either state in the Cir- cuit Court of the United States. A citizen of a state from which it has not received incorporation may sue ' it in that court as a citizen of 'either of those from which it has received incorporation. St. Louis, &c. R. Co. V. James, 161 U. S. 545, 562, 16 Sup. Ct. 621; St. Joseph, &c. R. Co. v. Steele, 167 U. S. 659, 17 Sup. Ct. 925; Nashua, &c. R. Corp. v. Boston, &c. R. Corp. 136 U. S. 356, 10 Sup. Ct. 1004. In each of the latter states, so far as a right to remove a cause commenced in a state court into the Circuit Court of the United States is concerned, as well as in the cir- cuit court of any district, it stands as a fellow citizen with a citizen of the state in which it was first in- corporated; the legal fiction that its shareholders are and remain all citi- zens of that state, and so that it is the same thing as an association of such individual citizens, being in- disputable. Southern R. Co. v. Al- lison, 190 U. S. 326, 332, 336, 338, 23 Sup. Ct. 713; Hollingsworth v. Southern R. Co. 86 Fed. 353. It would seem from the more recent decisions of the Supreme Court of the United States not only that no citizen of the state in which such a company was originally incorpo- rated can sue it in the circuit court held within a state from which it subsequently received incorporation, but that it could not be sued in a circuit court held in the latter state by a citizen of that state who al- leges in his writ that it is a citizen of the state which originally incor- porated it. As to him, it is a citi- zen of his own state." See the dis- cussion of this subject in Goodwin 271 DIVEESE CITIZENSHIP AS A GROUND FOE EEMOVAL, [§ 649 dietional clause of the removal act refers to citizens and not merely to residents of different states, the petition for removal on the ground of diverse citizenship should show that the controversy is between ■citizens of different states, and not merely that the defendant is a non-resident or a resident of a different state from the plaintiff.*' It lias been strongly urged that, within the meaning of the last removal act, a corporation can only remove a cause to the federal court where it is a resident as weU as a citizen of another state.*' But it is now well settled by judicial decision that in order to be a "non-resident of the state". in which suit is brought within the meaning of this act, the defendant need only be a corporation created by the laws of an- other state."" Although there is considerable conflict among the de- cisions of the different circuit courts of the United States, as well as among the decisions of the various state courts, it now seems to be well settled by the decisions of the Supreme Court of the United States, as well as by the weight of authority generally, that the requisite diversity of citizenship must exist not only at the time the petition for removal is filed, but also at the time the suit is com- menced."^ But it has been held in a recent case, contrary to the rule which prevails where the removal is sought upon the ground of a federal question or where the question is as to a separable controversy, V. New York, &c. R. Co. 124 Fed. Co. 43 Fed. 97; Martin v. Baltimore, 358. It is said by Judge Baldwin to &c. R. Co. 151 U. S. 673, 676, 14 Sup. be doubtful whether the main Ct. 533; Robertson v. Scottish, &c. ground on which this decision was Ins. Co. 68 Fed. 173. The receiver placed was well taken, and there of a railroad company, being a clti- seems to be reason for his criticism, zen of another state, may remove an « Pennsylvania Co. v. Bender, 148 action brought against him in his U. S. 255, 13 Sup. Ct. 591; Chicago, official capacity for death by wrong- &c. R. Co. V. Ohle, 117 U. S. 123, 6 ful act, though the railroad corn- Sup. Ct. 632; Mansfield, &c. R. Co. pany is a citizen of the state in V. Swan, 111 U. S. 379, 4 Sup. Ct. which the action is brought. Bris- 510; Brown v. Keene, 8 Pet. (U. S.) enden v. Chamberlain, 53 Fed. 307. 112; Neel v. Pennsylvania Co. 157 "La Conflance, &c. v. Hall, 137 V. S. 153, 15 Sup. Ct. 589; Kansas V. S. 61, 11 Sup. Ct. 5; Crehore v. City So. R. Co. v. Prunty, 133 Fed. Railroad Co. 131 U. S. 240, 9 Sup. 13, 66 C. C. A. 163; Mexican Cfint. Ct. 692; Stevens v. Nichols, 130 U. R. Co. V. Duthie, 189 U. S. 16, 23 S. 230; 9 Sup. Ct. 518; Indianapolis, Sup. Ct. 610. &c. R. Co. V. Risley, 50 Ind. 60; " Residence of corporations under Blackwell v. Lynchburg, &c. R. Co. the removal act, by Charles R. 107 N. Car. 217, 12 S. E. 133. See, Pence, 35 Cent. Law J. 285. also. Laird v. Connecticut, &c. R. "Fales V. Chicago, &c. Co. 32 Fed. Co. 55 N. H. 375, 20 Am. R.'215. €73; Henning v. Western U. Tel. §' 650] REMOVAL OF CAUSES. 973 that the diverse citizenship may be shown in the petition for removal and that it need not appear in the complaint.^^ So, it is said in dis- tinguishitig the question of diverse citizenship from the ordinary ease of a federal question that "it is obvious that in the instance of diverse citizenship a different question is presented. Plaintiff may run his own risk in resj)ect of the cause of action on which he proceeds, but he cannot cut off defendant's constitutional right as a citizen of a different state than the plaintiff to choose a, federal forum, by omit- ting to aver or mistakenly or falsely stating the citizenship of the parties. And this toust be so also as to federal railroad corporations."^* § 650. Separable controversy. — ^The latest act upon the subject of the removal of causes restricts the right of removal where there is a. separable controversy, which was formerly given to one or more of the plaintiffs or defendants, to "one or more of the defendants ac- tually interested in such controversy;" but the decisions as to what is a separable controversy apply equally well to both acts. This sep- arable controversy must be wholly between eitizetis of different states- and must also be such as can be fully determined as between them f^ but it need not be the principal controversy in the case, and the number of controversies is immaterial.''" In an action in tort against a railroad company and one of its employes, where each was charged with a different negligent act causing the injury to the plaintiff, it has been held that a separable controversy was presented and that the suit might be removed."^ But it has been held, on the other hand, "^ Ysleta V. Canda, 67 Fed. 6. The 158, 2 Sup. Ct. 385; Capital City- rule seems to be that the matter is Bank v. Hodgin, 22 Fed. 209; The to be determined from the face of Jarnecke Ditch, In re, 69 Fed. 1G1» the record or state of the plead- and numerous authorities there ings and record, including the peti- cited; National Docks, &c. R. Co. v. tion for removal at the time of the Pennsylvania R. Co. 52 N. J. Bq. application. Helena, &c. Co. v. 58, 28 Atl. 71; Torrence v. Shedd, Spratt, 146 Fed. 310; Madisonville 144 U. S. 527, 530, 12 Sup. Ct. 726. Traction Co. v. St. Bernard, &c. Co. ""Farmers' Loan, &c. Co. v. Chi- 196 U. S. 239, 25 Sup. Ct. 251; Ala- cago, &c. R. Co. 9 Biss. (U. S.) 133; bama So. R. v. Thompson, 200 U. S. Snow v. Smith, 4 Hughes (U. S.> 206, 26 Sup. Ct. 161. 204. See, also, for cases in which it == Texas, &c. R. Co. v. Cody, 166 was held that there was a separable IT. S. 606, 17 Sup. Ct. 703, 705. See, controversy, Taylor Co. v. Balti- however, Oregon Short Line, &c. R. more, &c. R. Co. 35 Fed. 161; Fos- Co. V. Skottowe, 162 U. S. 490, 16 ter v. Chesapeake, &c. R. Co. 47 Sup. Ct. 869. Fed. 369. «Corbin v. Van Brunt, 105 U. S. ""Fergason v. Chicago, &c. R. Co. 576; Shainwald v. Lewis, 108 U. S. 63 Fed. 177; Beuttel v. Chicago, &c. 973 SEPAKABLE CONTROVEKSY. [§ 650 that there is no separable controversy where the only question is as to the priority of different liens on the same property,^^ even though each defendant makes a separate defense/* or where land is sought to be condemned as against both the lessor and lessee/" or where a railroad company in one proceeding files a petition for condemnation against numerous property owners/" or where two corporations are jointly charged with trespassing on the plaintiff's land, even though one of the defendants claims that the other did not have a corporate existence and that it alone committed the alleged trespass/^ or where a sub-contractor sues both a railroad company and the principal con- tractor under a statute giving contractors and material men a lien on the railroad."^ The question whether there is a separable contro- versy authorizing a removal is to be determined by the state of the pleadings or record at the time of the application, and not from the R. Co. 26 Fed. 50. But see next fol- lowing section. " Blssell v.. Canada, &c. R. Co. 39 Fed. 225. "'Fidelity Ins. Co. v. Huntington, 117 U. S. 280, 6 Sup. Ct. 733; Young V. Parker, 132 U. S. 267, 10 Sup. Ct. 75. ™ Bellaire v. Baltimore, &c. R. Co. 146 U. S. 117, 13 Sup. Ct. 16; Kohl V. United States, 91 U. S. 367. °° Perkins t. Lake Superior, &c. R. Co. 140 Fed. 906. In the case cited the company, under the Wis- consin statute, filed a petition in a court of the state against numerous property owners, upon which, ac- cording to the statute, there should be a hearing as to the petitioner's right to condemn, and, if such right is sustained, for the appointment of a commission, which, on request of the company or the landowner, shall appraise any piece of the property described, from which appraisal an appeal may be taken to the court, and tried by a jury as in ordinary law actions. The court held that there was a single controversy pre- sented as to the right to condemn, to be determined between the peti- tioner, on one side, and all of the parties joined as defendants, on the other; and that the mere fact that a defendant was the owner of part of the lands sought to be taken in severalty did not create a separable controversy between him and the petitioner, nor entitle him to re- move the proceeding into a federal court on the ground of diversity of .citizenship. See, also, Jarnecke Ditch, In re, 69 Fed. 161; Le Mars V. Iowa Falls, &c. R. Co. 48 Fed. 661. But compare Pacific R. Re- moval Cases, 115 U. S. 1, 5 Sup. Ct. 1113; Chicago y. Hutchinson, 11 Biss. (U. S.) 484, 15 Fed. 129; Helena, &c. Co. v. Spratt, 146 Fed. 310. "Louisville, &c. R. Co. v. Wange- lin, 132 U. S. 599, 10 Sup. Ct. 203. «^Ames V. Chicago, &c. R. Co. 39 Fed. 881. See, generally, Mer- chants', &c. Co. V. Insurance Co. 151 U. S. 368, 14 Sup. Ct. 367; St. Louis, &c. R. Co. V. Wilson, 114 V. S. 60, 5 Sup. Ct. 738; Thurber v. Miller, 67 Fed. 371; Halre v. Rome R. Co. 57 Fed. 321; Sweeney v. Grand Island, &c. R. Co. .61 Fed. 3; Fox v. Macfcay, 60 Fed. 4. § 650a] EEMOVAL OF CAUSES. 974 allegations of the petition for removal or the subsequent proceedings."' Indeed, it is held that it must be determined from the declaration or pleadings of the plaintiff, and that a defendant cannot, by answer, raise a separable controversy.'* The rule is thus stated in a recent case."" "As this court has repeatedly aflSrmed, riot only in cases of joint contracts, but in actions for torts, which might have been brought against all or against any one of the defendants, separate an- swers by the several defendants sued on joint causes of action may present different questions for determination, but they do not neces- sarily divide the suit into separate controversies. A defendant has no right to say that an action shall be several which a plaintiff elects to be joint. A separate defense may defeat a joint recovery, but it cannot deprive a plaintiff of his right to prosecute his own suit to final determination in his own way. The cause of action is the sub- ject-matter of the controversy, and that is, for all the purposes of the suit, whatever the plaintiff declares it to be in his pleadings.""" The fact that one of two joint defendants fails to answer or suffers a default does not make the controversy a separable one between the plaintiff and the other defendant." § 650a. Action against company and employe. — The question has arisen in a number of cases as to whether against a company and one or more of its employes, or against a lessor and lessee company, jointly can be removed as presenting a separable controversy especially where •'Barney v. Latham, 103 U. S. Sup. Ct. 1034, 1161 ; Sloane v. Ander- 205; Graves v. Corbin, 132 43 Fed. 177. ™ Martin v. Baltimore, &c. R. Co. 151 U. S. 673, 14 Sup. Ct. 533. "" Merchants', &c. Co. v. Insurance Co. 151 U. S. 368. 14 Sup. Ct. 367; § 654] REMOVAL OP CAUSES. 983 that objection to the jurisdiction of a United States circuit court over a suit, otherwise removable, because the application for removal was not made in time, is waived where it is not made until the case is taken to the supreme court on writ of error.^"' The application for removal upon the ground of prejudice or local influence may be made at any time before the trial. It is held, however, that it cannot be made after one trial has been had and a reversal obtained, and it is intimated that the right of rfemoval must be exercised before or at the term at which the cause "could be first tried, and before the trial thereof," as under the act of 1875.^** Provision is also made in the removal act for the filing of a bond in certain cases and a copy of the record.^''^ It has been held that the petition for removal forms part of the record, and if the record, including the petition, shows that the case is one of federal jurisdiction it is sufficient.^"* But it is said that an additional petition presented to the federal court with the removal papers, alleging facts not presented to the state court, will not confer jurisdiction on the federal court,^"^ although a peti- tion may be amended in the latter court so as to more fully state the facts which appear in the record or upon which the statements in the original petition were based.^"* §654. Effect of application on jarisdiction of state and federal court. — ^When a proper petition and bond have been filed in the state court, it is the duty of that court to accept the same, and all further Rand v. Walker, 117 U. S. 340, 6 Fed. 161; Waite v. Phoenix Ins. Co. Sup. Ct. 769. 62 Fed. 769; Austin v. Gagan, 39 ™ Martin v. Baltimore, &c. R. Co. Fed. 626; Foster Fed. Pr. § 385. 151 XT. S. 673, 14 Sup. Ct. 533. See, See, also, as to bond and approval, also. Tod v. Cleveland, &c. R. Co. 65 Groton, &c. Co. v. American, &c. Co. Fed. 145. 137 Fed. 284. ^" Fisk V. Henarie, 142 V. S. 459; ^«> Supreme Lodge v. Wilson, 66 12 Sup. Ct. 207. See, also. Lookout Fed. 785. See, also. Security Co. v. Mountain R. Co. v. Houston, 32 Fed. Pratt, 65 Conn. 161, 32 Atl. 396; Cre- 711; Davis v. Chicago, &c. R. Co. 46 hore v. Ohio, &c. R. Co. 131 U. S. Fed. 307. But compare Huskins v. 240, 9 Sup. Ct. 692. Cincinnati, &c. R. Co. 37 Fed. 504; ^^ Waite v. Phoenix Ins. Co. 62 Brodhead v. Shoemaker, 44 Fed. Fed. 769. 518; Stixv. Keith, 90 Ala. 121, 7 So. ^""Powers v. Chesapeake, &c. R. 423. Co. 65 Fed. 129; Carson v. Dunham, '^ 1 Suppl. U. S. Rev. St. 613. See 121 U. S. 421, 7 Sup. Ct. 1030. See, Hayes v. Todd, 34 Fla. 233, 15 So. also, Hardwick v. Kean, 95 Ky. 563^ 752; Lucker v. Phoenix, &c. Co. 66 26 S. W. 589. 983 EFFECT OF APPLICATION ON JUKISDIOTION. ■[§ 654 proceedings therein are coram non judice.^"* It has been held that the filing of a petition for removal, without objecting to the jurisdiction of the state court, constitutes a general appearance and operates as a waiver of defects in the summons or service thereof,^^" but we think the better rule is that a special appearance for the purpose of ob- taining a removal does not operate as a general appearance and waiver of such defects.^^^ The state courts have generally claimed and been conceded the right to examine the petition and record and determine -whether the statutory requirements have been complied with;^^^ but ihe federal courts are the final judges of their own jurisdiction, and -the decision of a state court is not conclusive as to such jurisdiction.^^* 1™ Gordon v. Longest, 16 Pet. (U. S.) 97; National Steamship Co. v. Tugman, 106 U. S. 118, 1 Sup. Ct. 58; Hatch v. Chicago, &c. R. Co. 6 Blatchf! (U. S. C. C.) 105; Stevens T. Phoenix Ins. Co. 41 N. Y. 149; Southern Pac. R. Co. v. Harrison, 73 Tex. 103, 11 S. W. 168; New Or- leans, &c. R. Co. T. Mississippi, 102 TJ. S. 135; Parker's Admr. v. Clark- son, 39 "W. Va. 184, 19 S. E. 431; Northern Pac. R. Co. v. McMullen, «6 "Wis. 501, 56 N. W. 629. Partici- pating in proceeding in the state court which persists in detaining jurisdiction after removal, is not necessarily a waiver of the removal. Home, &c. Ins. Co. v. Dunn, 19 Wall. (U. S.) 214; McMullen v. Northern Pac. R. Co. 57 Fed. 16; Northern Pac. R. Co. v. McMullen, 86 Wis. 501, 56 N. W. 629; Waite v. Phoenix Ins. Co. 62 Fed. 769; Stanley v. Chicago, &c. R. Co. 62 Mo. 508; Little Rock, &c. R. Co. V. Iredell, 50 Ark. 388, 8 S. W. 21. "° Wabash Western R. Co. v. Brow, '65 Fed. 941 (reversed, however, in 164 U. S. 271, 17 Sup. Ct. 126); O'Donnell v. Atchison, &c. R. Co. 49 Fed. 689; Farmer v. National, &c. Assn. 138 N. Y. 265, 33 N. B. 1075. "'2 Elliott Gen. Pr. § 474; Garner v. Second Nat. Bank, 66 Fed. 369; ■Goldey v. Morning News, 156 U. S. . 518, 15 Sup. Ct. 559; Ahlhauser v. Butler, 50 Fed. 705; Perkins v. Hen- dryx, 40 Fed. 657; Davis v. Cleve- land, &c. R. Co. 146 Fed. 403, hold- ing that the removal does not pre- clude the defendant from challeng- ing in the federal court the jurisdic- tion of the state court over the per- son nor from claiming exemption from being sued in a state other than that of its residence. See, also, Wabash, &c. R. Co. v. Brow, 164 U. S. 271, 17 Sup. Ct. 126; Murray v. Wilcox, 122 Iowa 188, 97 N. W. 1087. 64 L. R. A. 534, 101 Am. St. 263. ™ Baltimore, &c. R. Co. v. New Albany, &e. R. Co. 53 Ind. 597; Cars- well V. Schley, ■59 Ga. 17; Burch v. Davenport, &c. R. Co. 46 Iowa 449, 26 Am. R. 150; Larson v. Cox, 39 Kans. 631, 18 Pac. 892; Broadway Nat. Bank v. Adams, 130 Mass. 431; Burlington, &c. R. Co. v. Dunn, 122 U. S. 513, 7 Sup. Ct. 1262; Beadle- ston V. Harpending, 32 Fed. 644; Roberts v. Chicago, &c. R. Co. 45 Fed. 433. "'Wilson V. Western Union Tel. Co. 34 Fed. 561; Baltimore, &c. R. Co. V. Koontz, 104 U. S. 5 ; Marshall V. Holmes, 141 U. S. 589, 12 Sup. Ct. 62; Barrow v. Hunton, 99 U. S. 80; Home, &c. Ins. Co. v. DunrL, 19 Wall. (U. S.) 214; Knahtla v. Oregon, &c. R. Co. 21 Oreg. 136, 27 Pac. 91. 654] EEMOVAL OP CAUSES. 984 The jurisdiction of the federal court attaches where the suit is re- movable, as soon as the statutory requirements are complied with, whether the state court makes an order for the removal or not.^^* An order for the removal of a suit, where it may be remanded, merely suspends the jurisdiction of the state court, and, if the federal court remands the case, that jurisdiction will be resumed.^^' The general subject of this section was under consideration by the Supreme Court of the United States in a recent case, and certain propositions were said to be well settled. We quote from the decision the statement of the propositions and the authorities cited in the note below.^^* "* wills T. Baltimore, &c. R. Co. 65 Fed. 532; Shepherd v. Bradstreet Co. 65 Fed. 142; Hayes v. Todd, 34 Fla. 233, 15 So. 752; Kern v. Hulde- koper, 103 U. S. 485; Flsk v. Union Pac. R. Co. 6 Blatchf. (U. S. C. C.) 362; Chattanooga, &c. R. Co. v. Cin- cinnati, &c. R. Co. 44 Fed. 456; St. Anthony, &c. Co. v. King, &c. Co. 23 Minn. 186, 23 Am. R. 682; Mc- Neal, •&c. Co. v. Howland, &c. Co. 99 N. Car. 202, 5 S. E. 745, 6 Am., St. 513; Mutual L. Ins. Co. v. Langley, 145 Fed. 415. ™ Young v. Parker, 132 U. S. 267, 10 Sup. Ct. 75; Southern Pac. R. Co. V. Superior Court, 63 Gal. 607. ^" The case to which we refer is Madisonville Traction Co. v. St. Ber- nard, &c. Co. 196 U. S. 239, 25 Sup. Ct. 251, 253, where the court says that the following propositions are well settled: "1. If the case be a removable one; that is, if the suit, in its nature, be one of which the circuit court could rightfully take juris- diction, then, upon the filing of a petition for removal, in due time, with a suflScient bond, the case is, in law, removed, and the state court in which it is pend- ing will lose jurisdiction to proceed further, and all subsequent proceed- ings in that court will be void. New . Orleans, M. & F. R. Co. v. Missis- sippi, 102 U. S. 135, 141, 26 L. ed. 96, 98; Baltimore, &c. R. Co. v. Koontz, 104 U. S. 5, 14. 26 L. Ed. 643, 645; National S. S. Co. v. Tug- man, 106 U. S. 118, 122, 1 Sup. Ct. 58, 27 L. Ed. 87, 89; St. Paul, &c. R. Co. V. McLean, 108 U. S. 212, 216, 2 Sup. Ct. 498, 27 L. Ed. 703, 704; Cre- hore V. Ohio, &c. R. Co. 131 U. S. 240, 243,. 9 Sup. Ct. 692, 797, 33 L> Ed. 354, 357; Marshall v. Holmes,, 141 U. S. 589, 595, 12 Sup. Ct. 62, 35 L. Ed. 870, 872. 2. After the pres- entation of a suflScient petition and bond to the state court in a remov- able case, it is competent for the circuit court, by a proceeding an- cillary in its nature — without vio- lating § 720 of the Revised Statutes. (U. S. Comp. Stat. 1901, p. 581) forbidding a court of the United States from enjoining proceedings, in a state court — to restrain the party against whom a cause has been legally removed from taking further steps in the state court. French v. Hay, 22 Wall. (U. S.) 252,22 L. ed. 857; Dletzsch v. Huide- koper, 103 U. S. 494, 496, 497, 26 L.. Ed. 497, 498; Moran v. Sturgess, 154 U. S. 256, 270, 14 Sup. Ct. 1019, 38 L. ed. 981, 985. See, also, Sargent V. Helton, 115 U. S. 352, 6 Sup. Ct. 78, 29 L. Ed. 413; Harkrader v. Wad- ley, 172 U. S. 165, 19 Sup. Ct. 119, 43 L. Ed. 405; Gates v. Bucki, 4 C. 0. 985 EEMANDING AND PISMISSUSTG CAUSE. [§■ 655. § 655. Bemanding and dismissing cause.' — The last removal act specifically provides for remanding suits removed on the ground of prejudice or local influence as to defendants not affected thereby,, where such suits can be fully and justly determined as to them in the state eourt.^^'' It is also provided generally in that portion of section 5, of the act of March 3, 1875, which still remains in force,, that, "if in any suit commenced in a circuit court, or removed from a state court to a circuit court of the United States, it shall appear to the satisfaction of said circuit court, at any time after such suit has been brought or removed thereto, that such suit does not really and substantially involve a dispute or controversy properly within the jurisdiction .of said circuit court, or that the parties to said suit have been improperly or coUusively made or joined, either as plaintiffs or' defendants, for the purpose of creating a case cognizable or remov- able under this act, the said circuit court shall proceed no further therein, but shall dismiss the suit or remand it to the court from, which it was removed as justice may require, and shall make such, order as to costs as shall be just."^^* Objections appearing upon the' face of the record should be taken advantage of by motion to re- A. 116, nv. S. App. 69, 53 Fed. 969; Texas, &c. R. Co. v. Kuteman, 4 C. C. A. 503, 13 U. S. App. 99, 54 Fed. 551; WWtelaw, Re, 71 Fed. 733, 738; Iron Mountain R. Co. v. Memphis, 37 C. C. A. 410, 96 Fed. 131; James v. Central Trust Co. 39 C. C. A. 126, 98 Fed. 489. 3. It is well settled that If, upon the face of the record, including the petition for removal, a suit does not appear to be a re- movable one, then the state court is not bound to surrender its jurisdic- tion, and may proceed as if no appli- cation for removal had been made. Stone V. South Carolina, 117 U. S. 430, 432, 6 Sup. Ct. 799, 29 L. Ed. 962, 963; Carson v. Hyatt, 118 U. S. 279. 281, 6 Sup. Ct. 1050, 30 L. Ed. 167, 168; Burlington, &c. R. Co. v. Dunn, 122 U. S. 513, 515, 7 Sup. Ct. 1262, 30 L. Ed. 1159, 1160." "' 1 U. S. Supp. Rev. St. 612. "'18 U. S. Stat, at L. 470; 1 Supp. U. S. Rev. St. 83. See, also, Ayres V. Wiswall, 112 U. S. 187, 5 Sup. Ct. 90; Williams v. Nottawa, 104 XT. S. 209; Graves v. Corbin, 132 U. S. 571,, 10 Sup. Ct. 196; Shepherd v. Brad- street, 65 Fed. 142; Hamblin v. Chi- cago, &c. R. Co. 43 Fed. 401; Texas,. &c. Co. V. Seeligson, 122 U. S. '519,. 7 Sup. Ct. 1261; Pennsylvania R.. Co. V. Allegheny, &c. R. Co. 25 Fed. 113. The court may also remand the suit for failure to file a tran- script of the record in time, but this, seems to be largely discretionary with the court. St. Paul, &c. R. Co. v. McLean, 108 U. S. 212, 2 Sup. Ct. 498; Lucker v. Phoenix, &c. Co. 66, Fed. 161; Removal Cases, 100 U. S. 457; Jackson v. Mutual L. Ins. Co. 3 Woods (U. S.) 413. See, gener- ally, as to when the case should be remanded, Dlshon v. Cincinnati, &c. R. Co. 133 Fed. 471; Mystic Milling: Co. V. Chicago, &c. R. Co. 132 Fed.. 289. § 655] REMOVAL OF CAUSES. 986 mand/^* and a party by going to trial without objection, or even by undue delay, may waive his right to have the cause remanded on account of mere irregularities, such as the failure to file the petition for removal in time, or the like.^^" But it is said that when the rec- ord on its face shows that the court has jurisdiction, the want of jurisdiction should be shown by plea in abatement.^"^ The court, of its own motion, should remand the cause where it appears that it has no jurisdiction because tiie case is not one of federal cognizance, and this objection, unlike that based upon a mere irregularity, is not, therefore, waived by the failure to make it in the first instance.^^'' It has been held that a case which has been properly removed cannot be remanded by consent.^^* The state court cannot review the action of the federal court in remanding the suit,^^* and no appeal or writ of error lies from the order of the circuit court remanding the suit.^"" "»Hoyt V. Wright, 4 Fed. 168; Martin v. Baltimore, &c. R. Co. 151 U. S. 673, 14 Sup. Ct. 533; Tod v. Cleveland, &c. R. Co. 65 Fed. 145; Newman v. Schwerin, 61 Fed. 865. ™ French v. Hay, 22 Wall. (U. S.) 238; Ayres v. Watson, 113 U. S. 594, 5 Sup. Ct. 641; Carrington v. Flor- ida, &c. R. Co. 9 Blatchf. (U. S.) 467; Baltimore, &c. R. Co. v. Ford, 35 Fed. 170; Wyly v. Richmond, &c. R. Co. 63 Fed. 487; Martin v. Balti- more, &c. R. Co. 151 U. S. 673, 14 Sup. Ct 533. "» Hoyt v. Wright, 1 McCraiT^ (U. S.) 130; ClarkhufE v. Wisconsin, &c. R. Co. 26 Fed. 465 ; Rumsey v. Call, 28 Fed. 769. See, also, Coal Co. v. Blatchf ord, 11 Wall. (U. S.) 172. The burden of proof is upon the petitioner, and if It does not clearly appear that the federal court has jurisdiction, the cause should be re- manded. Carson v. Durham, 121 U. S. 421, 7 Sup. Ct. 1030; Fitzgerald V. Missouri Pac. R. Co. 45 Fed. 812; Wolff V. Archibald, 14 Fed. 369. "« Cameron v. Hodges, 127 U. S. 322, 8 Sup. Ct. 1154, 1156; Brlce v. Sommers, 8 Chicago Leg. News 290; Mansfield, &c. R. Co. v. Swan, 111 U. S. 379, 4 Sup. Ct. 510; Ferguson V. Ross, 38 Fed. 161; Jackson v. Al- len, 132 U. S. 27, 10 Sup. Ct. 9; Frlsbie v. Chesapeake, &c. R. Co. 57 Fed. 1; Bronson v. St. Croix Lum- ber Co. 35 Fed. 634. See, also. Crane Co. V. Guanica Centrale, ' 132 Fed. 713. The supreme court, on re- versal of a suit because the circuit court did not have jurisdiction on removal, will direct the circuit court to remand it to the state court, without allowing any amendment of the petition for removal in the cir- cuit court. Crehore v. Ohio, &c. R. Co. 131 U. S. 240, 9 Sup. Ct. 692; Hancock v. Holbrook, 112 U. S. 229, 5 Sup. Ct. 115; Jackson v. Allen, 132 U. S. 27, 10 Sup. Ct. 9. "'Lawton v. Blitch, 30 Fed. 641. But see Wadlelgh v. Standard, &c. Ins. Co. 76 Wis. 439, 45 N. W. 109. "* Tilley v. Cobb, 56 Minn. 295, 57 N. W. 799; Fitzgerald v. Fitzgerald, &c. Co. 44 Neb. 463, 62 N. W. 899. "> Morey v. Lockhart, 123 V. S. 56, 8 Sup. Ct. 65; Burlington, &c. R. Co. V. Dunn, 122 U. S. 513, 7 Sup. Ct. 1262; May v. State Nat. Bank, 59 Ark. 614, 28 S. W. 431; Chicago, &c. R. Co. V. Gray. 131 U. S. 396, 9 Sup. 987 EEMANDING AMENDMENT — WAIVEE. [§ 655a § 655a, EemandiHg — ^Amendment — ^Waiver. — Where a cause has been removed from a state court to a federal court on the ground of diverse citizenship and a motion to remand is made on the ground that the plaintiff sues as an assignee of a chose in action and that the petition for removal does not show the citizenship of the assignor, the court may permit such petition to be amended so as to show, in accordance with the fact, that the citizenship of the assignors was such as to give jurisdiction.^^^ Defects in the petition for removal in matter of form may sometimes be waived by appearing and making an issue without objecting on that ground. Thus, it is held in a re- cent case that merely formal defects, such as that the petition is signed by attorneys of another state and not by attorneys admitted to prac- tice in the court in which it is filed, are waived by appearing in the federal court and moving to remand on another ground, namely, that the alleged cause for removal does not exist.^^^ So it has been held that distinct and unambiguous allegations in the petition for re- moval, not denied in any pleading of the plaintiff or put in issue by him, nor contradicted by the record, are to be taken as true on a motion to remand, or other proceeding challenging the jurisdiction of the federal court.^^' Where, after removal, a rule was granted in the federal court against the plaintiff to show cause why the case should not proceed, it was held that, although his counsel had been negligent, the federal court was not authorized to enter a non-suit and dismissal and judgment and execution for costs, but could only dismiss the proceedings and remand to the state court.^^* As a general rule, where the jurisdiction of the federal court is doubtful, and that of the state court is unquestionable, the federal court will remand the case.^'" Mandamus, rather than prohibition, is the proper remedy where the Ct. 793; Blrdseye v. SchaefCer, 140 Fed. 452 (reversed on other grounds U. S. 117, 11 Sup. Ct. 885; Rich- in 201 U. S. 1, 26 Sup. Ct. 387). See, mend, &c. R. Co. v. Thouron, 134 U. also, Dlshon v. Cincinnati, &c. R. S. 45, 10 Sup. Ct. 517. Co. 133 Fed. 471, 66 C. C. A. 345. "° Muller V. Chicago, &c. R. Co. "• Dawson v. Kinney, 144 Fed. 710. 149 Fed. 939. ™Nash v. McNamara, 145 Fed. i»Tomson v. Iowa, &c. Ass'n 541; Ernst v. American, &o. Co. (Neb.), 110 N. W. 997. See, also, 114 Fed. 981; Fitzgerald v. Missouri Gerling v. Baltimore, &c. R. Co. 151 Pac. R. Co. 45 Fed. 812, 820; Kes- U. S. 673, 14 Sup. Ct. 533; Ayres singer v. VanNatta, 27 Fed. 890; V. Watson, 113 U. S. 594, 5 Sup. Ct. Groel v. United Elec. Co. 132 Fed. 641; Bryant Bros. Co. v. Robinson, 253, 265; Dodd v. Louisville, &c. 149 Fed. 321. ' Co. 130 Fed. 186, 198. "'Commonwealth v. Powers. 139 § 656] REMOVAL OF CAUSES. 988 federal circuit court refuses to remand to the state court a case over which such federal court has no jurisdiction.^^^ § 656. Pleading and practice in federal court after remoyaL^^It is not necessary to file new pleadings in the circuit court after re- moval, if the pleadings filed in the state court are in proper condi- tion for the trial of the issue between the parties.^^^ The general rule is that no repleader is necessary if the action is, in its nature, a common-law action;"^ but if legal and equitable causes of- action or defenses are united under the state practice a suit may be recast or separated into an action at law and a suit in equity,^'* and a re- pleader is usually necessary.^' ^ The rules of practice in the federal court govern the case, in general, after its removal ;^^° but the federal circuit courts, on the law side, are bound to follow the state practice "as near as may be" in most respects, and it has been held that where a receiver, appointed by a federal court, on being sued in a state court as authorized by the recent Act of Congress, removes the suit to the federal court, the plaintiff is entitled to a trial by jury if he would have been entitled to such a trial in the state court.^^^ So, as a general rule, the federal circuit court will fojlow the rulings of the state court made in the case before its removal.^'* Where service of summons has been set aside in the federal court after removal, on '" Ex parte Wisner, 203 U. S. 449, Paine, 119 U. S. 561, 7 Sup. Ct. 323. 27 Sup. Ct. 150. See, also, Utah, &c. Co. v. De Lamar, ^' 20 Am. & Eng. Bncy. Law 1021; 145 Fed. 505. Grldley v. Westbrook, 23 How. (U. "»Hurt v. Hollingsworth, 100 U. S.) 218, 3 Cent. L. J. 13; Detroit v. S. 100; Whittenton, &c. Co. v. Mem- Detroit City R. Co. 55 Fed. 569. phis, &c. R. Co. 19 Fed. 273; La '== Thompson v. Railroad Compa- Mothe, &c. Co. v. National Tube nies, 6 Wall. (U. S.) 134; Dart V. Works, 15 Blatchf. (U. S.) 432. McKinney, 9 Blatchf. (U. S. C. C.) ""Henning v. Western Un. Tel. 359; Bills v. New Orleans, &c. R. Co. Co. 40 Fed. 658. 13 Blatchf. (U. S.) 227; Partridge v. ^"'Vany v. Receiver of Toledo, &c. Phoenix, &c. Ins. Co. 15 Wall. (U. R. Co. 67 Fed. 379. See, also. North S.) 573; West v. Smith, 101 U. S. Alabama, &c. Co. v. Orman, 55 Fed. 263. But court may permit amend- 18. ed pleading to be filed. United "'Bryant v. Thompson, 27 Fed. States, &c. Co. v. Board, 145 Fed. 881; Davis v. St. Louis, &c. R. Co. 144. 25 Fed. 786; Duncan v. Gegan, 101 "•Fisk V. Union Pac. R. Co. 8 U. S. 810. But see Spring Co. v. Blatchf. (U. S. C. C.) 299; Perkins Knowlton, 103 U. S. 49. 'See, gener- v. Hendryx, 23 Fed. 418; Lacroix v. ally, Moon Remov. of Causes, Ch. Lyons, 27 Fed. 403; Foster Fed. Pr. XV; 1 Desty's Fed. Proc. 562, § 111. § 391. See Northern Pac. R.*Co. v. 989 EECENT CASES — MISCELLANEOUS. [§' 656a motion of the defendant, the court may permit the plaintifE to file an amended petition and order summons to issue thereon in a proper case.^'* And where a cause is removed in which the state court was ■competent to grant either legal or equitable relief the plaintifE may .•elect to proceed in the federal court either at law oi' in equity, but if he elects to proceed in equity and no case for equitable relief is made the federal coiirt cannot fetain and try the case as an action .at law."" § 656a. Kecent eases — ^Miscellaneous. — ^As already stated, the gen- eral rule is that a case not dependng on diversity of citizenship cannot he removed as arising under the constitution or laws of the United States unless the same appears from plaintiff's statement of his cause ■of action ; and where the petition alleged a cause of action both under a federal statute and under a state law it was held for the court to €ral rule is that a case not depending on diversity of citizenship cannot ■determine under which the action was maintainable, if at all, on peti- tion to remove to the federal court.^*^ A proceeding in garnishment after judgment, under the Washington statute has been held to be a civil ^suit in which an issue of fact is, or may be, joined between "the plaintifE and garnishee, and is removable by a non-resident gar- nishee, where the jurisdictional requisites appear, although the par- ties to the judgment are citizens of the same state.^*^ But where- an action is brought in a state court and neither party is a citizen or resident of the state, so that it could not have been instituted origi- nally in the federal court, such action is not removable.^*' In a recent ^"United States Fidelity, &c. Co. action would be one arising under T. Board, 145 Fed. 144. Denial by a law of the United States, and inferior state court of motion to va- therefore of federal cognizance, ■cate service of summons is not res Citing Starin v. New York, 115 U. judicata on questions of validity of S. 248, 6 Sup. Ct. 28; Carson v. the service when raised in federal Dunham, 121 U. S. 421, 7 Sup. Ct. court after removal. Remington v. 1030. See, also, that right must Central Pac. R. Co. 198 U. S. 95, 25 appear from plaintiff's own state- Sup. Ct. 577. ment in his bill or declaration. ""Union Stock Yards Co. v. Nash- Cella v. Brown, 144 Fed. 742; Mitch- Tille Packing Co. 140 Fed. 701, 72 ell, &c. Co. v. Worthington, 140 Fed. C. C. A. 195. See, also, Thompson 947. T. Railroad Co. 6 "Wall (U. S.) 134. ^^^ Baker v. Dunwamish Mill Co. 1" Hall V. Chicago, &c. R. Co. 149 149 Fed. 612. Fed. 564, also holding that if one ™ Yellow Aster Min., &c. Co. v. construction of the federal statute Crane Co. 150 Fed. 580; "Wisner, Ex would defeat a recovery and another i)arte (U. S.) 27 Sup. Ct. 150. sustain it, under that statute, the § 656a] KEMOVAL OF CAUSES. 990 case it is held that even if an allegation in the complaint of a switch- man against a railroad company, that the "ears in use on defendant's said railway, and particularly the ears on which plaintiff was injured, were not properly equipped with automatic couplers, as required by law," necessarily implied a reliance on the Act of Congress, requiring, automatic couplers, still a removable case is not made out, sections 1 and 2 of the act of March 2, 1893, in regard to safety appliances showing it applies only to carriers engaged in interstate commerce^ and neither the complaint in the case, nor the petition for removal showing that defendant was so engaged, nor that the cars in question were being used in such commerce.^** In several other Texas cases it has been held that joint petitions of defendants would not justify a removal under the facts shown.^*^ But it is held in a i;ecent South Carolina case that both defendants must join in a petition to remove an action against them for a joint tort on the ground that they are non-residents, and that a petition by one of them, on the ground of non-residence, alleging that the other defendant is a sham defendant, joined to prevent removal, is insufBcient.^*' A lessee under a long term lease of a railroad, assuming all the lessor's obligations, has been held the real party to a suit to compel. a grant of switch con- nection in accordance with a stipulation in the grant of the right of way, and entitled to intervene and remove the cause to the federal court on the ground that the lessee is a citizen of another state.^*^ ^"International, &c. R. Co. v. El- right of removal where employer der (Tex. Civ. App.), 99 S. W. 856. and employe are joined, Louisville, "= Texas, &c. R. Co. v. Huber &c. R. Co. v. Vincent, 116 Tenn. (Tex.), 92 S. W. 832; Eastin v. 317, 95 S. W. 179; Lanning v. Chi- Knox, &c. R. Co. (Tex.), 92 S. W. cago, &c. R. Co. 196 Mo. 647, 94 838. S. W. 491; Southern R. Co. v; Griz- ^"Baber v. Southern R. Co. (S. zle, 124 Ga. 735, 53 S. E. 244; At- Car.), 56 S. E. 540. See, also, Black- lantic Coast Line R. Co. v. Bailey, burn V. Blackburn, 142 Fed. 901. But 151 Fed. 891; Chicago, &c R. Co. "see Bastln v. Knox, &c. R. Co. v. Stepp, 151 Fed. 908. For an (Tex.), 92 S. "W. 838; Iowa, &c. action by an employe against lessor Co. V. Bliss, 144 Fed. 446; Slaughter and lessee held removable, see Cur- V. Nashville, &c. R. Co. (Ky.), 91 S. tis v. Cleveland, &c. R. Co. 140 W. 744. In the Kentucky case just Fed. 777. See, generally, Chicago, cited the action was against a rail- &c. R. Co. v. Martin, 178 U. S. 245, road company and its trainmaster, 20 Sup. Ct. 1055; Cochran v. Mont- but a good cause of action was not gomery County, 199 U. S. 260, 26 stated as against the trainmaster. Sup. Ct. 58. See, also, as to whether there is a "'Chase v. Beech Creek R. Co. separable controversy and as to the 144 Fed. 571. But see as to parties. 991 KECENT CASES — MISCELLANEOUS. [§ 656a An alien non-resident cannot sueeessMly daim the privilege of re- moving an action commenced against him in a state court.^** The amount in controversy must be sufficient or there can be no removal.^*' The petition ior removal must be filed in due time ;^°" but it is held that the right of removal arises at any time, during the progress of a case, when, by a change in the pleadings or proceedings, the cause is first rendered removable.^^^ Questions as to the necessity for filing bond in the state court and a copy of the record in the federal court, and as to the transfer of jurisdiction, and the like, have already been considered, but additional recent decisions upon these questions are cited below.^^'' Several very recent cases upon the general subject also deserve further consideration. In one of them it is held that issues of fact raised by a petition for removal, affecting the question of removability, are cognizable solely by the circuit court to which the cause is sought to be removed; that the refusal of a state court to grant the removal does not affect the jurisdiction of the federal court which attaches as matter of law on the filing of a sufficient peti- tion and bond when the cause is removable, and that where such re- moval has been effected under the law by the filing of a sufficient brought in by cross-complaint and succeeding to rights of plaintiff, Nash V. McNamara, 145 Fed. 541. "» O'Conor v. State, 202 U. S. 501, 26 Sup. Ct. 726. "•Nashville, &c. R. Co. v. Hill (Ala.), 40 So. 612; Barber v. Bos- ton, &c. R. Co., 145 Fed. 52; Bara- taria Canning Co. v. Louisville, &c. R. Co., 143 Fed. 113. But, as al- ready shown, this is usually to be determined from the complaint, declaration, or bill. Ante, § 648. See, also, Roessler-Hasslacher, &c. Co. v. Doyle, 142 Fed. 118; City of Mem- phis V. Postal Tel., &c. Co. 145 Fed. 602; South Dakota, &c. R. Co. v. Chicago, &c. R. Co. 141 Fed. 578, 73 C. C. A. 176; Southern Cash, &c. Co. V. National, &c. Co. 143 Fed. 659. As to evidence held suflScient to show that employe was made de- fendant for sole purpose of pre- venting removal, and right to in- quire into same, see Wecker v. Na- tional Enameling, &c. Co. 204 U. S. 176, 27 Sup. Ct. 184. ""Bryson v. Southern R. Co. (N. Car.), 54 S. E. 434. See, also, ante, § 653. But see as to effect of stip- ulation granting time, Russel v. Harriman Land Co. 145 Fed. 745, and see Sanderlin v. People's. Bank, 140 Fed. 191. ^Barber v. Boston, &c. R. Co. 145 Fed. 52. See, also, Robert v. Pineland Club, 139 Fed. 1001; Pow- ers V. Chesapeake, &c. Ry. Co. 169 U. S. 92, 18 Sup. Ct. 264. "'"Mays V. Newlin, 142 Fed. 574; Mutual Life Ins. Co. v. Langley, 145 Fed. 415; Preston v. McNeil Lumber Co. 143 Fed. 555; Wood- ward Lumber Co. v. Vizard, 144 Fed. 982; Cincinnati, &c. R. Co. v. Curd (Ky.), 89 S. W. 140; Johnson V. Computing Scale Co. 139 Fed. 380; Lebensberger v. Scofleld, 139 Fed. 380; Atlantic Coast Line R. Co. V. Bailey, 151 Fed. 891. § 656a.] KEMOTAL OF CAUSES. 993 petition and bond, the federal court has power, on a bill in equity, to enjoin the plaintiff from further proceedings in the cause ia the fitate court.^°* In another it is likewise held that where the cause is properly removed from the state court into the federal court and the plaintiff undertakes to ignore the removal, and proceed with the prosecution of the case in the state- court, the federal court, having obtained jurisdiction, may by injunction restrain the plaintiff from such threatened action.^"* In another it is held that the removal by one of two defendants of a cause which was not removable because of the absence of a separable controversy does not give the federal court jurisdiction, otherwise than to remand, and that it should be re- manded at ally stage, either at the instance of a party or on the court's own motion, whenever such fact appears.^^^ As a general rule the federal courts in a case removed from a state court will not sit in review of any act done by that court prior to the removal,^^' but in a. recent case it is held that where the state court acted without juris- diction a different rule applies, and that a motion to quash the serv- ice on a defendant who has not entered a general appearance, which involves the question of jurisdiction over the defendant, although overruled by the state court, may be renewed after removal.^^^ It ""Atlantic Coast Line R. Co. v. court will not sit in review of any Bailey, 151 Fed. 891. act done by that court prior to the ^ Chicago, &c. R. Co. v. Stepp, 151 removal, and comity dictates that Fed. 908, citing Madisonville Trac- what was done by a court of co- tion Co. V. St. Bernard Mining Co. ordinate jurisdiction before the case 196 U. S. 239, 245, 25 Sup. Ct. 251; was removed is entitled to great Mutual Life Ins. Co, v. Langley, 145 respect, and the decrees of such Fed. 415. court are ordinarily regarded as cor- ^== International, &c. R. Co. v. rect adjudications of the questions Hoyle, 149 Fed. 180. The state involved. Where, however, the state court, it is held, after remand can- court acted without jurisdiction, a not question the correctness of the different rule unquestionably ap- order but must proceed to exercise plies (Loomis v. Carrington [C. C] jurisdiction. Feeney v. Wabash R. 18 Fed. 97), and the inaptitude of Co. (Mo. App.), 99 S. W. 477. the doctrine of res adjUdicata is ™See Bragdon v. Perkins, &c. plainly apparent in a case such as Co. 82 Fed. 338; Mutual Reserve this, where the defendant, a citizen Ass'n V. Phelps, 190 U. S. 147, 23 of another state having withdrawn Sup. Ct. 707. Its business and property from this ^"'Lathrop, &c. Co. v. Interior state, has the absolute right to re- Const., &c. Co. 150 Fed. 666, where the move an action brought against it court said: "Beyond doubt, it is a to the federal court. Such a right general rule that the federal courts unless waived by general appear- in a case removed from the state ance, or otherwise forfeited, is 993 EECBNT CASES — MISCELLANEOUS. [§ 656a has also been held that a cause, properly removable, on being removed' will not be remanded because of irregularities in the removal proceed- ings, or because it was removed under the wrong statute, and that an equity suit, after such removal, must proceed according to the equity rules and practice of the federal court.^^* It is held in a recent case that where a cause is removed, notwithstanding the refusal of the state court to grant the application for removal, and the party resist- ing it appears and submits himself to the jurisdiction of the federal court and takes a non-suit and consents that a judgment be entered against him, although he had asked that the cause be remanded, he cannot thereafter prosecute the same suit in the state court, but, if entitled to proceed in the state court at all, he must institute a new suit.^^°- As a general rule, however, after the transfer to a federal court, the plaintiff may dismiss and bring a new action in the state court, and it has been held that it is immaterial that the action was not dismissed in the federal court until after the new action had been commenced in the state court, provided there was such a dismissal before the trial of the second action.^"" founded upon the defendant's alien- age or citizenship of another state and was granted hy an act of Con- gress. Under such circumstances no state is permitted hy its action to abridge or nullify a right grant- ed pursuant to constitutional law. Ell. Railroads — 63 Tortat V. Harden Min. & Mfg. Co. (C. C), 111 Fed. 426." "' Bryant Bros. v. Robinson, 149 Fed. 321. "» Texas, &c. R. Co. v. Huber (Tex. Civ. App.), 95 S. W. 568. "»S. F. Dana & Co. v. Blackburn (Ky.), 90 S. W. 237. END OF VOLUME I.