(Jom^U Ham Btl^anl ICtbratg KFl414.F6°r"""""'™"VUbrary 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/cu31924019236904 CYCLOPEDIA OF THE LAW OF PRIVATE CORPORATIONS By WILLIAM MEADE FLETCHER Author of "Corporation Forms," "Illinois Corporations," "Equity- Pleading and Practice," etc. VOLUME I CHICAGO CALLAGHAN AND COMPANY 1917 -^ 1 Copyright 1917 | By CALLAGHAN & COMPANY PREFACE But little explanation is required in connection with the presenta- tion of this great treatise on the Law of Private Corporations to the profession. The tremendous development in this branch of the law during the past ten years, as illustrated by the great increase in decisions and in legislative regulations, demands a complete, ex- haustive and scientific exposition. This in brief has been the aim of the publishers, and neither time nor expense has been spared in its attainment. Every branch of the Law of Private Corporations has been covered thoroughly and well. Many phases of the subject have never before received text treatment. The exhaustiveness of the treatment will be apparent. It has not been sought merely to collect a vast number of citations, many of which might have little or no bearing upon the subject, nor to exhaust the authorities upon elementary principles. The work is intended for the use of the practitioner interested in corporation law, not for the law student. So exhaustive is the treatment that the discussion of any one of several of the more important branches of the subject is sufficiently complete to make a textbook by itself. Among them are the fol- lowing : Objects for Which Corporations May Torts, Be Created, Monopolies, Promoters, Actions hy and Against, De Facto Corporations, Governmental Control and Regulation, Corporations by Estoppel, Taxation, Underwriting, Stock and Stockholders, By-Laws, Insolvency, Subscriptions to Stock, Dissolution a«d Winding Up, Corporate Powers, Reorganization, Bonds and Mortgagee, Receivers, Officers and Directors, Foreign Corporations. The subject has received scientific treatment at the hands of the greatest collection of specialists ever assembled on any legal work. iji Peefaoe Mr. "William Meade Fletcher needs no introduction to the profession. His works on Corporation Forms, Illinois Corporations, and Equity Practice, have already established his reputation. He has been ably assisted by Mr. James C. Cahill, Chief of the Publishers' Editorial Staff; Mr. Basil Jones, also of the Publishers' Editorial Staff, who has had charge of the revision of the work; Mr. Clark A. Nichols, Associate Editor of McQuillin's Municipal Corporations, and author of Nichols' New York Pleading, Practice and Forms; Mr. Hascal R. Brill, Jr. ; Prof. I. Maurice Wormser of New York, author of the new edition of Clark on Corporations; Mr. Frank C. McKinney of New York; Hon. Thomas H. Calvert of Raleigh, North Carolina, author of the new edition of Daniel, on Negotiable Instruments; Mr. Greorge F. Longsdorf, author of Ohio Notes, Minnesota Notes and the Cyclopedic Law Dictionary ; and Messrs. Frederick M. Hinch, Lewis W. Morrison and William "W. Culver of the Publishers' Editorial Staff. Parallel references to the National Reporter System, Lawyers' Reports Annotated, American Reports, American Decisions, Ameri- can State Reports, and Annotated Cases have been incorporated in all cases, and wherever possible references to the ofScial reports have also been given. With every confidence in its merit, the publishers take pleasure in presenting Fletcher's Cyclopedia of the Law of Private Corporations to the legal profession. CALLAGHAN AND COMPANY. Chicago, October, 1917. IT TABLE OF CONTENTS VOLUME I CHAPTER 1 • . > ■ -. — - k History and General Considerations ' , ' * i. history Pag« § 1. Origin of the corporate concept . .' "" 2 S 2. Primitive and ancient forma 4 § 3. Modern development T II. DEPINITIONS and ATTRIBUTES § 4. Leading definitions ; 9 § 5. Attributes — In general 12 § 6. — ' Continuing succession , . . , 12 § 7. — Artificial personality 13 I 8. — Name 13 S 9. — Seal 14 § 10. By-laws 14 § 11. — Power to hold realty 14 § 12. — Transfer of membership 15 § 13. — Individual liability for indebtedness 15 III. THE CORPORATE TKANCHISE § 14. Primary 16 § 15. Secondary 17 IV. DISTINGUISHED FROM OTHER FORMS OF ASSOCIATED BUSINESS § 16. Partnerships 18 1 17. Joint stock associations 27 § 18. Societies, fraternities and clubs 39 § 19. Basic distinguishing features — Domestic associations 41 § 20. — Associations under foreign laws : 41 § 21. Advantages of incorporation 42 V. CORPORATE ENTITY IN DEALING WITH THIRD PERSONS § 22. In general 1 .."... . 43 § 23. Contractual powers and obligations — In general. . .■. , 49- V Table of Contents Page { 24. — Agency 49 S 25. — Acquisition and transfer of property — Title to property 50 § 26. — Transfers and conveyances 50 $ 27. — Eeal and chattel mortgages 51_ § 28. — Property restrictions 51 I 29. — Bights of action as to property 51 § 30. — Execution and attachment 52 § 31. Torts 52 § 32. Crimes : . 52 f 33. Actions — General considerations , 52 § 34. — Members as parties 53 § 35. — Rights of set-ofE by members 53 I 36. — Judgments 54 S 37. — Notice to members 54 § 38. — Admissions of members 54 { 39. — Besidence and citizenship for jurisdictional purposes 54 i 40. Statute of frauds 55 { 41. Taxation 55 I 42. Disregard of corporate entity — General statement 55 { 43. — Acts of members 58 § 44. — Fraudulent acts 61 I 45. — Agency for parent corporation 63 § 46. — Evasion of statutory obligation 64 S 47. — Equitable mortgages 65 §48. — Members as ' ' interested ' ' in corporate property 65 VI. THE JURISTIC PEESON AND ITS INTERNAL RELATIONS § 49. In general 66 § 50. Contracts 67 § 51. Transfers and conveyances 67 ! 52. Actions 68 VII. CONSIDERED AS A PERSON, RESIDENT OR CITIZEN § 53. In general 68 i 54. Person 68 § 55. Eesident or inhabitant 73 S 56. Citizen 74 CHAPTER 2 Classification op Corporations 57. Aggregate and sole corporations — ^In general 79 58. — Distinctions 80 59. — Nature of corporations in Eome and England 81 60. — Corporations aggregate and sole in the United States 81 61. — Particular public officers as sole corporations 83 vi Table of Contents Pagb § 62. — Private business corporations 84 § 63. Ecclesiastical and lay corporations 84 § 64. Eleemosynary and civil corporations 86 § 65. Public and private corporations — In general 88 § 66. — Importance of division 89 § 67. — Public corporations proper 90 S 68. — Private corporations 95 § 69. -~ Public character of particular classes of corporations — In general ... 95 § 70. — Cities, villages, etc 96 § 71. — Levee, drainage, reclamation and irrigation districts 97 § 72. — Educational and charitable institutions 98 § 73. Quasi public corporations 101 § 74. The United States, the states and territories as corporations 110 § 75. Stock and nonstock corporations 112 § 76. Quasi corporations — In general 112 § 77. — Counties 113 I 78. — Towns 115 § 79. — School districts 116 § 80. — Eoad districts 117 § 81. — Public officers or public boards 117 § 82. — Joint stock companies 119 § 83. Domestic and foreign corporations 119 § 84. Statutory classification of corporations — In general 119 § 85. — Tests for ascertaining class of corporation 120 § 86. — "Trading" corporations 121 § 87. — " Mercantile " or " commercial ' ' corporations 124 § 88. — " Manufacturing ' ' corporations 125 § 89. — " Transportation ' ' and ' ' railroad ' ' corporations 130 § 90. — Corporations for ' ' industrial pursuits " 131 § 91. — " Business ' ' corporations 131 § 92. — Corporations for ' ' pecuniary profit " 132 § 93. — " Moneyed ' ' corporations , 133 § 94. — ' ' Banking ' ' corporations — Trust companies 134 § 95. — ^ "Beneficial" corporations 135 § 96. — " Insurance ' ' corporations 135 § 97. — Building and loan associations 136 § 98. — " Literary ' ' corporations 137 § 99. — " Scientific ' ' corporations 138 § 100. — " Charitable ' ' and ' ' benevolent ' ' corporations 139 § 101. — ' ' Religious ' ' corporations 141 §102. — Corporations for "work of internal improvement," "public im- provement" or "public utility" 142 CHAPTER 3 Who May Be Incoepoeated S 103. In general 146 § 104. Residence and citizenship 149 vii Table of Contents Paqb i 105. Infants 151 i 106. Married women 152 i 107. Corporations as corporators 154 i 108. Corporators not having substantial interest in the corporation 157 1 109. Number of incorporators 158 i 110. Effect upon, corporate existence of lack of qualification of incorpo- rators 160 j 111. Necessity of articles showing qualifications — Presumptions 161 CHAPTER 4 Objects for Which Corporations May Be Created i 112. In general 163 1 113. Purposes of corporations created Tinder authority of congress 171 i 114. Unlawful or injurious purposes 176 \ 115. Attempt to incorporate under inapplicable statute 189 i 116. General words in statutes defining objects 193 I 117. Number of purposes for which corporations may be formed 198 j 118. How character of a corporation is determined 207 \ 119. Statement of objects in incorporation paper 212 1 120. Corporations for manufacturing or mechanical purposes 217 i 121. Corporations for trade and commerce 229 j 122. Corporations for industrial pursuits 233 i 123. Corporations for agricultural purposes 235 i 124. Corporations for benevolent, charitable, literary or educational pur- poses 235 i 125. Corporations for scientific purposes 241 i 126. Corporations for purposes of pecuniary profit 242 i 127. Corporations for owning or dealing in real estate 243 i 128. Corporations for work of "internal improvement," "public improve- ment" or "public utility" 246 ( 129. Corporations for purpose of acquiring and holding stock in other cor- porations 249 i 130. Corporations for the practice of law or -medicine 253 i 131. Miscellaneous illustrations of authorized purposes 256 CHAPTER 5 Promoters ( 132. Who are promoters 264 ) 133. Rights and liabilities of promoters inter ae 268 i 134. Relation of promoters to corporation and stockholders 271 ! 135. Secret profits — In general 277 ! 136. — Gist of wrong 280 i 137. — Sale by promoter to corporation 282 viii Table of Contents Paob i 138. Qualification of general rules as to sales 289 J 139. — Joint and several liability. 292 \ 140. — Actions against promoters — Nature and form of remedy 292 i 141. Defenses 295 i 142. Parties 297 i 143. Limitations and laches 299 ( 144. — • — 'Pleading 299 ! 145. Burden of proof. ; '. 300 j 146. Character and measure of relief 300 J 147. — Commission from third person. 302 i 148. — Liability of persons conspiring with promoters, i 303 i 149. —Enforcement of claim. 305 i 150. Liability of corporation on promoters' contracts — In general 306 [151. — Liability imposed by statute : '. 310 i 152. — ^Adoption or ratification of contracts , 310 1 153. — '■ Power to adopt or ratify ultra vires contracts 318 i 154. — Mode of adoption or ratification in general 320 i 155. — ^iPersons who may adopt or ratify 320 i 156. — Implied adoption or ratification 321 i 157. Enforcement of promoters' contracts by eorporiltion , 328 1 158. Personal liability of promoters on contracts executed by them — In gen- eral 329 i 159. — Effect of adoption or ratification of contracts by corporation 331 i 160. Eight of action of promoters on contracts executed by them 333 i 161. Notice to or knowledge by promoters ". . 334 i 162. Admissions and declarations of promoters 335 I 163. Demand upon promoter 335 i 164. Liability of corporation for services and expenses of promoters 335 i 165. Liability of promoters on failure to create corporation 339 i 166. Subscriptions to stock procured by promoters' fraud 340 CHAPTER 6 Power to Create Corporations } 167. Power as attribute of sovereign 343 ! 168. Power of state legislature — In general 347 i 169. — Limitations in the •United States Constitution 347 i 170. — Limitations in the state constitutions generally 348 (171. — Form of incorporating acts 348 ( 172. — • Enactment of incorporating acts 353 1 173. — Exclusive franchises and privileges ' 354 J 174. — Creation by two or more states concurrently 356 ( 175. Power of congress — In general 357 i 176. — In the territories and District of Columbia 360 i 177. Powers of the territorial legislatures 361 1 178. Delegation of power to incorporate 361 1 179. Purchase of property and franchises of corporation 364 ix Table oi Contents CHAPTER 7 Cbeation Under General Laws i. matters to be consideked betoke incokporating Page S 180. In general 369 II. STATUTORY REQUIREMENTS IN GENERAL § 181. Preliminary considerations 370 § 182. Conditions precedent — In general; 373 { 183. — Creation as distinguished from organization 377 i 184. — Corporate existence as distinguished from power to commence busi- ness 377 1 185. — Subscription to stock and payment therefor 379 1 186. Conditions subsequent 380 § 187. Directory provisions 382 f 188. Substantial compliance 384 i 189. Surplusage 385 § 190. Waiver and cure of defects 386 § 191. What law governs . '. 390 III, INCORPORATION PAPERS S 192. In general f 390 § 193. Contents — In general 393 § 194. — Name of proposed corporation 394 1 195. — Purpose of creation and nature of business 394 § 196. — Place of business 397 i 197. — 'Amount of capital stock 399 § 198. — Limitations on amount of indebtedness 399 § 199. — Duration of corporate existence 400 § 200. — Name, residence and eligibility of incorporators 400 I 201. — Statements as to membership 401 I 202. — Statements as to officers and agents 401 § 203. — Subscriptions to stock and payment therefor 403 § 204. — Manner of carrying on business 405 § 205. — Description of seal , 405 § 206. — Route and termini of railroad company 405 § 207. — Additional provisions not required by statute 406 § 208. Signatures : . .•. 411 § 209. Seals 412 § 210. Acknowledgment and verification 413 § 211. Publication 416 § 212. Powers and duties of officer or court 418 § 213. Issuance of certificate by officer or court 422 § 214. Revocation of certificate 424 § 215. Piling and recording — General rules 424 § 216. —With county officer 430 { 217. — With state officer 433 § 218. — Subsequent papers 434. X Tab£e or Contents Page § 219. — What constitutes filing 434 § 220. — Distinction between filing and refeording 435 § 221. — Eecording copy or original 436 § 222. — "Duplicate" as distinguished from "copy" 436 § 223. — Time and sufficiency of record •. 437 § 224. — Filing as relating back 437 IV. FEES § 225. Necessity for payment and amount 437 V. CHARTER § 226. What constitutes 440 § 227. Acceptance 441 CHAPTER 8 Creation Undek Special Acts § 228. Constitutional provisions agafnst special acts . 442 § 229. Exceptions 444 § 230. General rules of construction .^ 447 § 231. Corporations within prohibition , -449 § 232. What is special act 450 § 233. What constitutes creation of corporation — In general 456 § 234. — Amendment of charter 460 § 235. — Eatification of charter or cure of defects 462 § 236. What constitutes granting or conferring of corporate powers or privi- leges — In general 462 § 237. — Amendment of charter 464 § 238. Retroactive operation of prohibition 466 § 239. Acceptance of charter — ^Necessity 466 § 240. — Conditions precedent 467 § 241 — Conditional or partial acceptance w 468 I 242. T — Persons accepting 468 § 243. — Time 469 § 244- 7— Place 470 § 245. — Formal acceptance 470 § 246. — ' Presumption of acceptance 471 § 247. — Question for jury 473 § 248. — Effect 473 § 249. — Proof of nonacceptance 474 CHAPTER 9 Organization § 250. Terminology 475 § 251. Elements 479 xi Table of Contents Page § 252. Necessity of organization 483 § 253. Time for organization — In the absence of statute 491 § 254. — ■ Under constitutional and statutory provisions 493 § 255. Time for election of directors and officers 498 § 256. Place of organization 499 § 257. Procedure generally to effect organization 504 ^ 258. Commissioners — Qualifications 509 § 259. — Powers 509 § 260. — Duties 511 § 261. — • Termination or revocation of autliority 512 § 262. Notice of first meeting — Provision for 513 § 263. — ■ Purpose of provision for notice 513 § 264. — By wliom given 514 I 265. — Time for giving 515 § 266. — • Form and contents 515 5 267. — Service 516 § 268. — Effect of noncompliance with provisions as to notice 516 § 269. Postponement of meeting 520 § 270. Conduct of meeting and persons who may participate 520 I 271. Report of commissioners, corporators or officers 521 I 272. Certificate of organization; issuing and recording 524 CHAPTER 10 De Facto Corporations I. GENERAL CONSIDERATIONS ) 273. Definition and nature 530 II. DOCTRINE IN RELATION TO COLLATERAL ATTACK j 274. Statement of the rule 531 S 275. Statutory provisions 542 i 276. Basis of and reasons for the rule 545 i 277. Limitations of and exceptions to rule 547 III. REQUISITES OF CORPORATIONS DE TACTO j 278. General statement 551 i 279. Lawful authority for existence of corporation — In general 557 i 280. — Organization under unconstitutional statute 564 \ 281. — Corporations prohibited by statute or contrary to public policy 508 t 282. — Organization under inapplicable statute 571 t 283. — Unauthorized consolidation 572 ) 284. — Corporations organized in one state to do business in or to evade laws of another 574 ) 285. — Expiration or forfeiture of charter 576 i 286. — Effect of ouster by state 579 i 287. Effect of fraud— Special charters , 579 xii Table of Contents Paob § 288. — Organization under general laws , 580 § 289. Bona fide attempt to incorporate 589 § 290. Compliance with provisions of statute or charter — In general 592 § 291. — View that substantial compliance necessary 593 § 292. — View that colorable. compliance sufficient 595 § 293. — Provisions as to persons who may incorporate 599 § 294. — Execution of articles or certificate 600 § 295. — Contents of articles or certificate and affidavits. 602 § 296. — Corporate name 604 § 297. — Provisions as to capital stock 605 § 298. — Piling or recording articles or certificate 608 § 299. — Payment of fees and deposit of securities 616 § 300. — ^Issuance of certificatci or authorization by public officer 616 § 301. — Provisions as to organization 617 § 302. — Consolidation, reorganization and amendment 620 § 303. Assumption or user of corporate powers 621 IV. RIGHTS AND LIABILITIES OF DE FACTO COBPOEATIONS AND THEIR MEMBERS § 304. In general 626 § 305. Contracts with de facto corporations 628 § 306. Ownership of property and conveyances of same 634 § 307. Mortgages 635 § 308. Devises or bequests to corporation 636 § 309. Eight to exercise special franchises 637 § 310. Eight to exercise power of eminent domain 639 § 311. Eight to exercise taxing power 645 § 312. Actions by and against — In general 647 § 313. — Actions by and against state 650 § 314. Torts by and against — Torts by 651 § 315. — Torts against 651 § 316. Criminal proceedings — Criminal responsibility 652 § 317. — Crimes against de facto corporations 653 § 318. Eights and liabilities of members and officers — In general 655 § 319. — Controversies between members or members and officers 656 § 320. — Liability on subscriptions to capital stock 656 § 321. — Statutory liability for corporate debts 657 CHAPTER 11 CORPOBATIONS BY EsTOPPEIj I. GENERAL CONSIDERATIONS I 322. Nature of corporations by estoppel 660 II. ESSENTIAL REQUISITES OF ESTOPPEL § 323. Necessity for recognition or holding out of pretended corporation. . . . 661 § 324. Necessity for equitable grounds of estoppel and effect of fraud 662 § 325. Good faith, knowledge, notice and reliance 6^4 xiii Table of Contents Page \ 326. Necessity for de facto corporate existence 668 5 327. Necessity for lawful authority 671 \ 328. Corporations prohibited by statute or public policy 677 i 329. Organization outside of the state 679 i 330. EfEect of dissolution of corporation — ^Dissolution before acts consti- tuting estoppel 679 i 331. — Dissolution after acts constituting estoppel 681 III. ACTS CONSTITUTING ESTOPPEL AND PERSONS ESTOPPED 5 332. General nature of acts constituting estoppel — General considerations as to recognition 683 i 333. — General considerations as to holding out 687 i 334. Estoppel of persons contracting or dealing with corporation — ^In gen- eral 689 i 335. — Statutory provisions 696 i 336. — Contracting in name implying corporate existence 699 i 337. — Conveyances, mortgages and leases 703 i 338. — Bonds 708 I 339. — Further illustrations ,709 \ 340. — Right to sue members or ofScers as individuals 710 \ 341. — Estoppel in cases other than actions on contract 715 \ 342. — Limitations upon and exceptions to the rule 718 \ 343. Estoppel of pretended corporation — In general 719 \ 344. — Statutory provisions 722 ] 345. — Use of name importing corporate existence 723 5 346. — Applications of the rule 725 5 347. — Estoppel in actions other than on contract 727 I 348. Estoppel of promoters, members and officers of pretended corporation — Estoppel of promoters and members 728 I 349. — Estoppel of officers 730 § 350. — Estoppel of members and officers as between themselves or as against the corporation 732 I 351. Estoppel of sureties or guarantors for corporation 737 i 352. Estoppel arising from actions by or against pretended corporation — Estoppel of persons suing or sued by corporation 737 g 353. — Actions and proceedings by the state 745 § 354. — Estoppel of corporation 747 § 355. Estoppel by judgment 750 g 356. Estoppel as affected by privity of contract or estate — Estoppel result- ing from privity 755 g 357. -~ Estoppel in favor of persons in privity with corporation or its mem- bers 757 CHAPTER 12 Incorporation of Partnerships, Associations and Tenants in Common g 358. General considerations 759 I 359. Agreement of members to incorporate 760 xiv Table of Contents Page 1 360. Statutory provisions and compliance therewith 762 § 361. Name of corporation 764 § 362. Effect of formation of corporation on existence of partnership or asso- ciation 765 § 363. Notice of change from partnership to corporation 767 § 364. Conveyance of firm or association property to corporation — In general. 769 § 365. — Transfer of title by charter or articles of incorporation 772 § 366. — Effect of charter restrictions on power 774 § 367. — Title acquired by corporation 774 § 368. — Equitable title 775 § 369. — Conveyance to corporation not organized 776 § 370. — • Incorporation of association after devise or bequest to it 776 § 371. — Statute of frauds 779 § 372. — Estoppel and ratification 779 § 373. — Eraud and fraudulent conveyances 780 § 374. Eights of corporation as to contracts of and debts due to partnership or association 786 § 375. Liability of corporation on debts or contracts of partnership or asso- ciation — In general 789 § 376. — Express assumption of debts 790 § 377. — Assumption either express or implied 794 § 378. — ■ Presumption where others become stockholders 795 § 379. — Presumption from receipt of assets of partnership 796 § 380. — Eunning accounts; mechanic's lien 799 § 381. — Statute of frauds 800 § 382. — Effect of assumption of debts by corporation 801 § 383. — Priorities of creditors 802 § 384. Liability of partners or members on contracts and for debts 803 § 385. Eights of partners or members of association inter se and against the corporation 806 § 386. Incorporation of tenants in common 812 CHAPTER 13 Citizenship, Domicile, Residence and Habitancy § 387. In general 815 § 388. Clause of Fourteenth Amendment of Federal Constitution defining citizenship 823 §389. Equal privileges and immunities clause of Federal Constitution 824 § 390. For purposes of federal jurisdiction — Diversity of citizenship 826 § 391. — ' Suits for infringement of patents, and for wrongful use of trade- marks 840 § 392. — Court of claims 843 § 393. For purpose of holding corporate meetings and transacting corporate business .' 843 § 394. Within acknowledging and recording statutes 845 § 395. For purposes of taxation 845 § 396. For purposes of venue — Suits in federal courts 851 XV Table of Contents PiGE i 397. — Suits in state courts 855 i 398. Within statutes of limitations , 859 \ 399. For purposes of attachment and garnishment 862 \ 400. Statute relating to judgment on filing affidavit of claim 865 j 401. Corporations created by congress — In general 865 i 402. — National banks 867 } 403. ' ' Principal place of business ' ' and ' ' residence ' ' within bankruptcy acts 870 CHAPTER 14 CoEPORATE Existence I. NECESSITY rOR EXISTENCE i 404. Existence essential to corporate acts 877 II. COMMENCEMENT, DURATION AND EXTENSION OF EXISTENCE i 405. Commencement of existence — Acceptance of charter 879 i 406. — Performance of conditions precedent 881 ( 407. Duration and termination of existence 882 i 408. Extension and revival of charters — Definitions and distinctions 883 i 409. — The power and its exercise in general 884 i 410. — Right as against nonoonsenting stockholders 887 ( 411. — Extension by special act 888 i 412. — Extension under general laws 890 i 413. — Effect of extension 894 i 414. — Revival of charters 896 S 415. — Acceptance of extension or revival 898 III. PROOF or EXISTENCE i 416. Necessity to prove incorporation. 898 i 417. What must be proved — In general 900 i 418. — De jure corporate existence 901 i 419. — De facto corporate existence 901 i 420. — Estoppel to deny corporate existence 901 i 421. Burden of proof 902 i 422. Presumptions and prima facie proof — ^In general 904 i 423. — Use of name importing a corporation 906 i 424. — ' Presumption of continued existence 909 j 425. Parol evidence of incorporation; reputation — In general 910 i 426. — In criminal actions 912 I 427. — Direct testimony that a company is a corporation 915 \ 428. Proof and judicial notice of special charters and general laws — Public acts 916 i 429. — Private and foreign acts 920 i 430. Acceptance of charter 924 xvi Table of Contents Page § 431. Organization of corporation and performance of conditions precedent — Corporate books and records 925 § 432. — 'Articles, certificates, letters patent, etc 926 § 433. — National banks 929 § 434. — Confirmatory act 929 § 435. — Affidavits; parol evidence 929 § 436. — Presumptions 930 §437. — Foreign corporations 934 § 438. — Conclusiveness of certificates, etc 940 § 439. Proof of user 942 § 440. Statutory provisions 943 CHAPTER 15 Underwriting Agreements § 441. Introductory statement 949 § 442. Definition 950 § 443. Distinctions — ^In general 950 § 444. — Subscription agreements f 951 § 445. Form of agreement 952 § 446. Eelation of underwriter to corporation 954 § 447. Corporations as underwriters or guarantors 955 § 448. Acceptance of agreement — Necessity of acceptance ; notice 955 § 449. — What constitutes acceptance 956 § 450. — Time of acceptance 957 § 451. — Estoppel to deny acceptance 957 § 452. Consideration for underwriting — Payment in general ; nature ; right to pay commission 958 § 453. — Construction of particular words as to consideration 960 § 454. — Actions for consideration , 961 §455. Conditions in agreements — As to place of business of corporation.... 961 § 456. — As to other subscriptions 961 5 457. — Parol evidence 962 § 458. Application for shares of stock — Necessity of formal application 962 S 459. — Application by agent 963 \ 460. —Extent of agent's authority. . 963 \ 461. — Calling upon underwriter to perform contract 964 \ 462. Extent of obligation to take stock 964 \ 463. Breach of contract — Election of remedies 965 i 464. — Parties 965 i 465. — Breach of covenants 965 ( 466. — ■ Delivery of stock 966 i 467. — Insolvency as defense 966 i 468. — Measure of damages 967 i 469. — Effect of indemnity agreement 967 i 470. Specific performance 967 i 471. Discharge or release of underwriter — Lapse of time 967 i 472. Alterations or variations of underwriting agreements 968 xvii Table of Contents Page S 473. Fraud in procuring underwriting — In general 369 ! 474. — Remedies 970 J 475. Underwriter 's liabilities to third persons 970 ] 476. Eights of underwriters to interest on bonds 971 J 477. Pledges of underwriting agreements 971 1 478. Assignment of underwriting agreements — Assignability and nego- tiability 971 i 479. — Eights of assignee 972 CHAPTER 16 By-Laws I. DEFINITION AND DISTINCTIONS § 480. Definition 975 § 481. Distinguished from resolutions iJ77 § 482. Distinguished from laws of municipal corporations 978 §483. Distinguished from rules and regulations operating upon third persons. 978 II. ADOPTION AND PBOOP § 484. Adoption — ^Power in general 979 § 485. — Necessity 982 I 486. — By whom power exercised 982 § 487. — Mode 986 § 488. Proof 989 III. VALIDITY § 489. Consonance with law 990 § 490. Consonance with public policy and public welfare 995 § 491. Ousting courts ' jurisdiction 996 § 492. Impairment of obligation of contracts and destruction or impairment of vested rights 1005 § 493. Eestraint of trade 1007 § 494. Consonance with charter and with nature, purposes and objects of cor- poration 1008 § 495. Eeasonableness 1013 § 496. Uniformity of operation 1015 § 497. Effect of partial invalidity 1016 § 498. Eight to enforce invalid by-law as contract 1016 IV. CONSTEUCTION § 499. General rules as to construction 1017 V. NOTICE g 500. Presumption of knowledge 102? xviii Table of Contents vi. operation and effect Pagb §501. On stockholders or members 1025 § 502. On third persons 1033 VII. WAIVER § 503. Power of corporation, members and officers as to waiver of by-laws ; proof of waiver 1036 VIII. AMENDMENT AND SUBSEQUENT ADOPTION § 504. Power in general 1040 § 505. Eeservation of power 1047 i 506. Who may amend 1065 § 507. Mode 1067 IX. REPEAL \ 508. Power in general 1071 \ 509. Who may repeal 1071 ! 510. Mode 1072 X. REGULATION OF PARTICULAR, MATTERS \ 511. Acquisition of and expulsion from membership; fines 1073 5 512. Stock; issue; payment; assessments; rights and liabilities of stock- holders in general 1075 i 513. Transfer of stock — Restrictions on alienation 1079 i 514. — Protective regulations 1085 ! 515. — Creating or reserving lien on stock . .1091 ! 516. Corporate meetings 1100 ) 517. Right to vote and manner of voting at corporate meetings 1101 i 518. Directors and officers 1105 t 519. Inspection of books and papers 1114 SIX PRIVATE CORPORATIONS VOLUME I CHAPTER 1 History and General Considerations i. histoet § 1. Origin of the corporate concept. § 2. Primitive and ancient forms. § 3. Modern development. II. DEriNITIONS AND ATTEIBUTES § 4. Leading definitions. § 5. Attributes — In general. § 6. — Continuing succession. § 7. — Artificial personality. § 8. — Name. § 9. —Seal. §10. —By-laws. § 11. — Power to hold realty. § 12. — Transfer of membership. § 13. — Individual liability for indebtedness. III. THE CORPORATE FRANCHISE § 14. Primary. § 15. Secondary. IV. DISTINGUISHED PROM OTHER TORMS OP ASSOCIATED BUSINESS § 16. Partnerships. § 17. Joint stock associations. § 18. Societies, fraternities and clubs. § 19. Basic distinguishing features — Domestic associations. § 20. — Associations under foreign laws. § 21. Advantages of incorporation. V. CORPORATE ENTITY IN DEALING WITH THIRD PERSONS § 22. In general. § 23. Contractual powers and obligations — In general. § 24. — Agency. 1 I Priv. Corp. — 1 § 1] Pbivate Cobpoeations [Ch. 1 § 25. — Acquisition and transfer of property — Title to property. § 26. — Transfers and conveyances. § 27. — Eeal and chattel mortgages. § 28. — Property restrictions. § 29. — Eights of action as to property. § 30. — Execution and attachment. §31. Torts. §32. Crimes. § 33. Actions — General considerations. § 34. — Members as parties. § 35. — Eights of set-off by members. § 36. — Judgments. § 37. — Notice to members. § 38. — Admissions of members. § 39. — Eesidence and citizenship for jurisdictional purposes. § 40, Statute of frauds. §41. Taxation. § 42. Disregard of corporate entity — General statement. § 43. — Acts of members. § 44. — Fraudulent acts. § 45. — Agency for parent corporation. § 46. — Evasion of statutory obligation. § 47. — Equitable mortgages. § 48. — Members as ' ' interested ' ' in corporate property. VI. THE JURISTIC PERSON AND ITS INTERNAL RELATIONS § 49. In general. § 50. Contracts. § 51. Transfers and conveyances. § 52. Actions. VII. CONSIBERED AS A PERSON, RESIDENT OR CITIZEN § 53. In general. § 54. Person. § 55. Besident or inhabitant. §56. Citizen. I. HISTORY § 1. Origin of the corporate concept. There is authority for the statement that the concept of collective entity antedates that of the individual; that "groups of men united by the reality or fiction of blood relationship ' ' into families, elans or tribes were recognized units of primitive society even before the individual was so regarded.^ Upon this assumed ethnological predicate has been erected the theory that the basic principle of corporate organization, the embodi- ment of which is now described as a fictitious, intangible person, 1 Maine, Ancient Law (4th Ed.), 183. Ch. 1] HiSTOBY AND GeNEBAL CoNSIDEBATIONS [§ 1 created by law and existing only in contemplation thereof, is in reality but a manifestation of the gregarious instinct in man, existing inchoate from earliest times and before law itself became an effective social force. The law, it is argued, has done no more than to recognize the existence of this phase of human activity, guide its development and define its functions and relations. In short, instead of the role of creator, assumed by the law for its own convenience, the relation would be more aptly described by assigning to the law the part of one, who, having discovered a foundling upon his doorstep, clothes and feeds it and thereafter treats it as his own.^ Furthermore, as a corollary to this proposition, it is declared that the corporate idea is the product of no one people and no one country, but, on the contrary, developed more or less independently, in varying forms, among the several ethnological units.' Other students, committed to the imitative theory of jural develop- ment, disregard these faint foreshadowings of the modern corporation and trace its genesis to the Greece of Solon (638-559 B. C), citing the Commentaries of Gaius on Eoman law and passages from the Pandects of Justinian as authority for the assertion that laws fathered by the great Hellenic jurist permitted the formation of private corporations for certain purposes, upon condition that they did not operate in violation of other laws of the state.* Blackstone, on the other hand, ascribes the birth of the corporation to the political necessities of Numa Pompilius (715-672 B. C), who, upon his accession to power in Rome, desiring to end the disrupting influence of the private war being waged between the Sabine and the Roman factions, "thought it a prudent and politic measure to sub- divide these two into many smaller ones, by instituting separate societies of every manual trade and profession. ' ' ^ 8 Common Law Conception of a Eeferenee may also be made, for side Corporation, 42 Am. L. Eeg. 529-30; lights upon this point, to the intro- The Genesis of the Corporation, 19 duetory chapters of Taylor's The Harv. L. Eev. 350 et seq. Science of Jurisprudence, and to the 3 Pollock and Maitland, Hist, of translations of the valuable studies of Eng. Laws (2nd Ed.), I, 486: "Every several French, German and Italian system of law that has attained a authors compiled by Koeourek and certain degree of maturity seems com- Wigmore in the Evolution of Law pelled by the ever-increasing com- series of selected readings under the plexity of human affairs to create volume heading, "Primitive and An- persons who are not men, or rather cient Legal Institutions." (for this may be a truer statement), 4AylifEe, Treatise on Civil Law, 197= to recognize that such persons have 6 1 Bl. Com. 468-9. come or are coming into existence. ' ' § 2] Pbivate Corporations [Ch, 1 § 2. Primitive and ancient forms. Be this as it may, it is neverthe- less generally agreed that under the auspices of Roman jurisprudence there was evolved the prototype of the modern corporation ; that the collegium or universitas of the Civil Law were clothed with practically the same elementary attributes that to-day distinguish the corporation from other associations of individuals. Subsequent jurists have developed refinements of classification and have applied the principles borrowed from Roman jurisprudence to fields perhaps not then con- templated, but the essential characteristics of a corporation are still enumerated substantially as in the days of the Caesars.^ "Roman law," says Sohm, "contrived to accomplish a leritable masterpiece of juristic ingenuity in discovering the notion of a col- lective person ; in clearly grasping and distinguishing from its mem- bers the collective whole as the ideal unity of the members bound together by the corporate constitution; in raising this whole to the rank of a person (a juristic person, namely) and securing it a place in private law as an independent subject of proprietary capacity, standing on the same footing as other private persons. ' ' ' This development, however, was gradual, and for a long period in the face of more or lesS' pronounced governmental hostility. From the time of the Twelve Tables until the days of the emperors, cor- porate activity was closely hedged about by restrictions, and decrees denouncing as illicit those corporations that had started upon their careers without authority, or had transgressed in any way, were of frequent occurrence.^ According to Savigny, the earliest Roman corporations were those devised for the government of towns, villages and colonies. "But once established definitely for dependent towns," he observes, "the institution of the legal person was extended little by little to cases 6 Ene. Brit. "Corporation." demia induced Pliny to recommend "> Institutes of Roman Law, 105-6. to the Emperor Trajan the institution 8 Taylor, Civil Law, 567-70. Kent for that city of a fire company of 150 (2 Com. 217), in diaeussing this at- men (collegium fabrorum), with an titude of the early Komans, points assurance that none but those of that out, oi the authority of Suetonius, business should be admitted into it, that the Emperor Augustus, discover- and that the privileges granted them ing that certain licensed associations should not be extended to any other had become hotbeds of disorder and purpose. But the Emperor refused to rivalry, decreed the dissolution of grant it, and observed that whatever all save the ancient and legal cor- name he gave them and for whatever pOrations. In the same connection he purpose they might be instituted, they refers to the narrative of the younger would not fail to be mischievous." Pliny: "A destructive fire in Nico- Ch. 1] HiSTOHY AND GeNEKAL CONSIDERATIONS [§ 2 for whieh one would hardly have thought of introducing it. Thus, it was applied to the old brotherhoods of priests and artisajis, then, by- way of abstraction, to the state, which, under the name of fiscus, was treated as a person and placed within the jurisdiction of the court. Finally, to subjects of a purely ideal nature, such as gods and temples. ' ' ' Corporations were classified under the Eoman law as civitates, or municipal corporations, collegia of priests and other religious groups, seribffi and similar organizations of public officials, and finally trade societies, exemplified by the fabri, pictores and navicularii. This last group, however, included many societates not incorporated, and dis- tinguishable from the true corporations by tests similar to those now employed to mark the boundary between partnerships and corpora- tions. Indeed, this distinction was well established in Roman law, which recognized as essential corporate attributes, in addition to the complete separation of the rights of the collegium as a body from those of its members as individuals, the corporate right to acquire, hold and transfer property, to enact by-laws, not in conflict with the general law, for its own government, to sue and be sued by its agent (syndieus) and to so effect changes in its membership that its life and identity would be perpetual, subject only to the revocation of its license by the state, or its dissolution by voluntary act.^* The conclusion of Blackstone as to the source of the corporate idea having been quite generally accepted, law writers have likewise fol- lowed him in tracing the earliest forms of English corporations to the Civil Law, crediting the church with being the medium of transfer across the black gap of the Middle Ages.^^ This assumption, however, is not wholly satisfactory, ignoring as it does, the historical fact that the Civil Law was unknown in England prior to the Norman conquest, having been first introduced by the Norman Abbott Theobald, afterwards Archbishop of Canterbury ,^2 and the equally well authenticated assertion that corporations existed in England long before Roman textbooks were known in that country. ^^ It would perhaps be more satisfactory to accept the conclusion Hi the writer last cited, that the English corporation, in its origin, was a product of local evolution, while admitting freely that its subsequent development was unquestionably influenced by the introduction of the Civil Law. 9 System des Heutigen Eomisehen llEnc. Brit. "Corporation." Bechts, II, § 86 et seq. 12 28 N. J. L. J. 101. 10 Enc. Brit. ' ' Corporation. " 13 19 Harv. L. Eev. 353-4. 5 § 2] Pbivate Cokpobations [Ch. 1 In any event there grew up in the England of pre-Conquest days several classes of organizations embodying many of the elements of corporations. The first of these, according to Kyd, were those peculiar to the church, and grew out of the necessity of providing means for holding property.^* It was out of this situation that there developed the corporation sole, an offset of the corporate concept and subsequently applied, by analogy, to municipal affairs and to the state.^^ Contemporaneously with these ecclesiastical corporations, if not antedating them, as some authorities say, there existed in England certain forms of temporal corporations known first as peace guilds, the members of which were pledged to stand together for mutual protection.^® These, it seems, were of two classes, one including neighborhood groups, the other embracing those exercising similar occupations. Both of these, in time, developed into an approximation of the mod- ern municipal corporation, each exercising minute supervision over those under its jurisdiction, the one dealing with all persons living within a certain territory, and the other with all of those of like occupation residing within a certain district. It thus came to pass that as late as the time of Henry VI the terms guildated and incor- porated were practically synonymous.^'' The trade guilds, like those conceived in the development of the idea of purely neighborhood solidarity, made by-laws governing their respective trades, which ruled not only recognized members but all of like occupation as well, so long as they did not conflict with public policy or general law.^' It was not, however, until the middle of the 17th century that there came into existence the great trading corporations of England, which of all ancient forms come nearest to approximating the com- mercial giants of modern times. Familiar examples of these were the East Indian Company, chartered by Elizabeth, and the corpora- tions which undertook the colonization and exploitation of the New World, notable among which was the Hudson Bay Company, the activities of which continued down to the middle of the last century.^* 14 1 Kyd on Corporations, 95. 18 Butchers ' Company v. Morey, 1 IBl Bl. Com. 468; 1 Kyd on Cor- H. BI. 370; Kirk v. Nowill, 1 T. E. porations, 28; Pollock and Maitland, 118. Hist, of Eng. Law (2nd Ed.), I, 488, 19 1867, according to Winsor, Criti- note 1. cal and Narrative Hist, of America, 16 Bretano, Hist, of Guilds. A^II, 60. 17 Madox, Firma Burgi, 29. Ch. 1] History and Genebal Considebations [§ 3 And even these, up to the beginning of the 18th century, were, far from being regarded merely as organizations designed for the more convenient prosecution of business. They were, rather, looked upon as public agencies, to which had been confided the duty of regulat- ing foreign trade, just as the domestic trades were subjected to the government of the guilds.^" § 3. Modem development. Leaving to the students of comparative law the task of tracing the subsequent development of the corporate idea in England and upon the Continent, there remains for consid- eration the growth of corporations in America, as a prelude to the discussion of the body of law governing them in this country. In passing, it is interesting to note the reminder of Judge Baldwin: "The law of corporations was the law of their being for the four original New England colonies. * * * It governed all the rela- tions of life * * * whether the government to which they were subject was set up under a charter from the crown or those who held a royal patent, or * * * -v^as a theocratic republic, owing its authority to the consent of the inhabitants. The one rested on the law of private corporations de jure ; the other on that of public cor- porations de facto. * * * Por all the charter governments the 17th century * * * -was one long school of study for their lead- ers into the rights of private corporations as founders of colonies, and then into those of the colonies as they grew into public corpora- tions * * * and received as such, new authority from the crown. " And it was largely out of the divergent interpretations of these foundation corporate charters, he points out, that there arose the issues that ultimately resulted in the Declaration and the Revolu- tion.2i In order clearly to understand the successive stages of develop- ment of corporations in America, it is necessary to bear in mind that the corporate idea came to this continent stamped with the salient features of the English corporation of that time. These were, first, that a corporation could be created only by the will of Parliament or of the Crown; second, that this creative act was symbolized by the granting of a charter of powers, and third, that at least in so far as the trading corporations were concerned, these charter rights and powers were exclusive and monopolistic in a high degree.^'^ 20 The Law of Corporations. This 21 Two Centuries ' Growth of Ameri- work, the first in England devoted can Law, 261-5. exclusively to corporations, was pub- 22 2 Harv. L. Rev. Ill ; 42 Am. L. lished anonymously in 1702. Eeg. 541. 7 § 3] Peivatb Cobpoeations [Ch. 1 In these circumstances, there is little reason to wonder that there existed in colonial America and afterwards a distrust of all cor- porations and hostility towards all moves looking towards making their establishment possible in this country. Without multiplying instances of this attitude it is sufficient for present purposes to note the views of the delegates who framed the Federal Constitution's and of the states which ratified it with misgivings."* During the colonial period of American history there were but six purely native-bom business corporations.'* To this list were added but twenty during the thirteen-year period preceding the adoption of the Federal Constitution, of which one was created by the Confederacy itself, entitled, "The President, Directors and Company of the Bank of North America."'® The cloud of disfavor under which corporations labored in America was not dissipated until near the end of the 18th century, and during the last eleven years of that period the total number of charters granted did not exceed two hundred, most of the business of that period being transacted by unincorporated joint stock companies more in the nature of limited partnerships." Chief among the causes for the changed popular attitude towards business corpora- tions that marked the opening of the 19th century was the elimina- tion of their inherent monopolistic character. This was accomplished primarily by an extension to this class of corporations of the prin- ciple of free incorporation under general laws. The way for this 23 Madison's Journal (Scott's Ed.), for Trade and Commerce, in Connect- 549-50, 725-6. icut, 1732; (4) The Union Wharf 24 "In ratifying the Constitution, Company in New Haven, 1760; (5) four states (Massachusetts, New The Philadelphia Contributionship Hampshire, North Carolina and Ehode for the Insuring of Houses from Loss Island), recommended that it be by Fire, 1768; (6) The Proprietors amended by a provision that Congress of Boston Pier, or the Long Wharf in should erect no company (or no com- the Town of Boston in New England, pany of merchants) 'with exclusive 1772. advantages of trade, ' and New York 26 Originally organized as a volun- asked for a further prohibition of all tary association of capitalists for the grants of monopolies." Baldwin, purpose of restoring the failing credit American Business Corporations be- of the Confederacy, but subsequently fore 1789, 8 Am. Hist. Rev. 464. granted a charter by congress and 26 8 Am. Hist. Eev. 450. They later by each of the states, by virtue were: (1) The New York Company of which it enjoyed a monopoly of the "for Settleing a Fishery in these banking business for several years, it parts," 1675; (2) The Free Society still operates, under the ancillary ohar- of Traders in Pennsylvania, 1682; ter granted by Pennsylvania in 1787. (3) The New London Society United 27 8 Am. Hist. Rev. 459. Ch. 1] HisTOEY AND Geneeal Consideeations [§ 4 innovation was paved by North Carolina, which in 1795 enacted a law of this nature, although limited, at this time, to canal com- panies.^' The new idea did not become well established, however, until after the Supreme Court had given sanction to the doctrine that a cor- poration, instead of having the right to do all things that a natural person could do, unless prohibited therefrom by its charter, had such powers only as were expressly granted to it by its enabling act.^® With this obstacle removed, and with a vast territory open for commercial development, business corporations from this point mul- tiplied rapidly in number and importance. The detailed discussion of the lines of their growth, and the evolution of the present day legislative and judicial attitude towards them, will be presented in succeeding chapters. n. DEFINITIONS AND ATTRIBUTES § 4. Leading definitions^ Lord Coke stated : "Persons capable of purchasing are of two sorts, persons natural, created of God, and persons created by the policy of man, as persons incorporated into a body politic. " ^^ He also stated that the reason for calling the body a corporation is "because the persons composing it are made into one body."'^ An early English writer on the law of corporations, Kyd, said that "a corporation * * * is a collection of many individuals, united into one body, under a special denomination, having perpetual succession under an artificial form, and vested, by the policy of the law, with the capacity of acting, in several respects, as an individual, particularly of taking and granting property, of contracting obliga- tions, and of suing and being sued, of enjoying privileges and immunities in common, and of exercising a variety of political rights, more or less extensive, according to the design of its institution, or the powers conferred upon it, either at the time of its creation, or at any subsequent period of its existence. " ^^ It will be noted that Kyd lays stress on the fact that a corporation essentially is a col- lection of indwidiMls. The famous definition of a corporation given by Chief Justice 28 Baldwin, Mod. Pol. Inst. 148, 174, 30 1 Inst. 202, 250. 193-4; Laws of North Carolina (1821), 31 lo Co. Eep. 50. I, 769. 32 1 Kyd on Corporations, 13. 29 Head v. Providence Ins. Co., 2 Cranoh (U. S.) 127, 2 L. Ed. 229. 9 § 4] Peivate Cobpoeations [Ch. 1 Marshall emphasizes rather the notion of the legal entity of the cor- poration. "A corporation," he said, "is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as inci- dental to its very existence. These are such as are supposed best calculated to effect the object for which it was created. Among the most important are immortality, and, if the expression may be allowed, individuality ; properties by which a perpetual succession of many persons are considered as the same, and may act as a single individual. They enable a corporation to manage its own affairs, and to hold property without the perplexing intricacies, the hazardous and endless necessity, of perpetual conveyances for the purpose of transmitting it from hand to hand. It is chiefly for the purpose of clothing bodies of men, in succession, with these qualities and ca- pacities, that corporations were invented, and are in use. By these means, a perpetual succession of individuals are capable of acting for the promotion of the particular object, like one immortal being. ' ' ^^ Chancellor Kent in his Commentaries indicates that a franchise from the state is an important element of a corporation. He said "A corporation is a franchise possessed by one or more individuals, who subsist, as a body politic, under a special denomination, and are vested, by the policy of the law, with the capacity of perpetual suc- cession, and of acting in several respects, however numerous the asso- ciation may be, as a single individual. ' ' ^* Blackstone laid stress upon the legal immortality of human beings once they were united into a corporation, saying: "The privileges and immunities, the estates and possessions, of the corporation, when once vested in them, will be forever vested, without any new con- veyance to new succession, for all the individual members that have existed from the foundation to the present time, or shall ever here- after exist, are but one person in law — a person that never dies; in like manner as the River Thames is still the same river though the parts which compose it are changing every instant. ' ' ^^ Chief Justice Baldwin of Connecticut has defined a corporation as "an association of persons to whom the sovereign has offered a franchise to become an artificial, juridical person, with a name of its own, under which they can act and contract, and sue and be sued, 83 Dartmouth College v. Woodward, ford v. Livingston, 2 Den. (N. Y.) i Wheat. (U. S.) 518, 636, 4 L. Ed. 629. 380, per Hand, Senator. 34 2 Kent 'a Com. 267. See also Gif- 36 1 Bl. Com. 467-8. 10 Ch.l] HiSTOKT AJSTD GeNEEAL CONSIDERATIONS [§4 and who have * * * accepted the offer and effected an organiza- tion in substantial conformity with its terms. "^^ It has been said that "A corporation IS a mere concep- tion of the legislative mind. It exists only on paper through the command of the Legislature that its mental conception shall be clothed with power. "^'' This statement is misleading. A corpora- tion is not a mere mental conception. It is as much of a reality as any other collective unit. Any collective unit is not only a reality but a very substantial reality. The only "mental conception" in- volved in the idea of a corporation is found in the fact that the law, for purposes of its own, indulges in a benevolent fiction and endows the corporation with personality. A corporation, in truth and in fact, is assuredly not a person. The law, however, conceives of it as a person and treats it as a person for most purposes. Other defini- tions are collected in the notes.** 36 Maekay v. New York, N. H. & H. Eiver E. Co., 82 Conn. 73, 81, 24 L. B. A. (N. S.) 768, 72 Atl. 583. 37 People V. Knapp, 206 N. Y. 373, Ann. Cas. 1914 B 243, 99 N. E. 841, per Vann, J. 38 "A corporation is a body, created by law, composed of individuals united under a common name, the members of which succeed each other, so that the body continues the same, notwith- standing the change of the individuals who compose it, and is, for certain pur- poses, considered as a natural person. ' ' Angell & Ames, Corp. § 1. "A corporation is an artificial per- son, created by law, having a conti- nuity of existence, either definite or indefinite, and capacity to do au- thorized acts, and capable, however numerous the persons that compose it may be, of acting a^ a single indi- vidual." Dwight, Persons & Pers. Prop. 350. "A corporation aggregate is an ar- tificial body of men, composed of di- vers individuals, the ligaments of which body are the franchises and liberties bestowed upon it, which bind and unite all into one, and in which consists the whole frame and essence of the corporation. ' ' Nelson, C. J., in Thomas v. Dakin, 22 Wend. (N. Y.) 9. "An artificial being, created by law, and composed of individuals * * « with the capacity of perpetual succes- sion, and of acting, within the scope of its charter, as a natural person." Fietsam v. Hay, 122 111. 293, 13 N. E. 501. "A corporation aggregate * * • is an artificial intellectual being, the mere creature of the law, composed generally of natural persons in their natural capacity; but may also be com- posed of persons in their political capacity of members of other corpora- tions. " Eegents of University of Maryland v. Williams, 9 Gill & J. (Md.) 365, 393, 31 Am. Dec. 72. In his concurring opinion in North- ern Securities Co. v. United States, 193 U. S. 197, 362, 48 L. Ed. 679, Mr. Justice Brewer, referring to a corpora- tion said: "It is an artificial person, created and existing only for the con- venient transaction of business." "A corporation is a body of per- sons upon whom the state has con- ferred such voluntarily accepted but compulsorily maintained relations to one another and to all others that as an 11 § 5] Pbivate Coepoeations [Ch. 1 § 5. Attributes — In general. Blackstone, in his Commentaries, enumerates tbe attributes of a corporation in substance as follows: (1) the capacity of perpetual succession; (2) the power to sue or be sued in the corporate name; (3) to acquire or transfer property and do other acts in its corporate name; (4) to purchase and hold real estate; (5) to have a common seal; (6) to make by-laws for the internal government of the corporate body.^^ It is doubtful whether even in Blackstone 's day all of these attributes were essential to corporate existence ; however, this may be, it is well settled to-day that some of the faculties above described are not at all essential to the modem private corporation for pecuniary profit. It is true that these faculties are ordinarily incident to corporate existence, but some of them are not in the least essential. In a leading New York case, Chief Justice Nelson said, "that the essence of a corporation consists in a capacity (1) to have perpetual succession under a special name, and in an artificial form; (2) to take and grant property, contract obligations, sue and be sued, by its corporate name as an individual; and (3) to receive and enjoy in common grants of privi- leges and immunities. ' ' *" §6. — Continuing succession. As has been seen, Blackstone re- garded the capacity of perpetual succession as an essential attribute of a corporation, and the same view has been taken by other authori- ties.*^' In this connection it may be well to observe that the term "perpetual succession" is not generally construed to imply corporate immortality, but rather a continuity of existence, irrespective of that of its component members, limited in duration to the period stated in its charter or the act authorizing the granting thereof.*^ autonomous, self-sufficient and self -re- Mich. 214, 12 Am. Eep. 243; Merrick v. newing body they may determine and Van Santvoord, 34 N. Y. 208; People v. enforce their common will, and in the Assessors of Watertown, 1 Hill (N. Y.) pursuit of their private interest may 616, 620; Gibbs' Estate, 157 Pa. St. 59, exercise more efficiently social fune- 22 L. K. A. 276, 27 Atl. 383; State v. tions both specially conducive to pub- Milwaukee, L. S. & W. Ey. Co., 45 Wis. lie welfare and most appropriately 579. exercised by associated persons. " 39 1 Bl. Com. 475. Davis, Corp. 1, 34. 40 Thomas v. Dakin, 22 Wend. (N. See also Hollins v. Brierfield Coal & Y.) 9; and see Andrews Bros. Co. v. Iron Co., 150 U. S. 371, 382, 37 L. Ed. Youngstown Coke Co., 86 Fed. 585. 1113; Allen v. Curtis, 26 Conn. 456; 41 Andrews Bros. Co. v. Youngstown Board Com'rs Tippecanoe Co. v. La- Coke Co., 86 Fed. 585; Nelson, G. J., fayette, M. & B. E. Co., 50 Ind. 85, in Thomas v. Dakin, 22 Wend. (N. 108; McKim v. Odom, 3 Bland (Md.) Y.) 9. 407, 418; Thompson v. Waters, 25 42 People v. Wayman, 256 111. 151, 12 Ch. 1] HiSTOBY AND GbMEBAL CONSIDERATIONS [§ 8 The capacity of eontinuing succession, as will be seen in discussing the difference between the partnership and the corporation as types of business organization, furnishes to a corporation the faculty of existing for a period of time despite the withdrawal or the demise of the individual associates. The death or withdrawal of a stock- holder does not affect corporate existence or identity in any respect. The artificial person, the corporation, continues to exist as the same corporation, "in like manner as the River Thames is still the same river though the parts which compose it are changing every in- stant. "« § 7. — Artificial personality. A corporation is not in fact and in reality a person, but the law treats it as though it were a person by process of fiction. It is regarded as an artificial person distinct and separate from its individual stockholders. It has a real existence with rights and liabilities as a separate legal entity. It is a live thing with a separate existence which cannot be swept aside as a technicality.** So far, however, as its personality is eoneerhed, the corporation has no physical existence but exists only in contempla- tion of law. This attribute is universally regarded as the most dis- tinctive corporate faculty and as distinguishing a corporation, above all other features, from unincorporated organizations.*^ It was re- cently held in England that a corporation chartered in the United Kingdom is English, and is entitled to sue as such in the English courts, even though practically all of its shares of stock were held by alien enemies, namely, subjects of the German Empire residing in Germany.*^ § 8. — Name, In Rolle 's Abridgment, citing the Sutton Hospital case, it is laid down that the name of incorporation is as a proper name or a name of baptism, and that a name is, therefore, essential to a corporation.*'' Blackstone says that "when a corporation is 99 N. E. 941; State v. Scott County 47Eolle'a Abridgment, "Corpora-. Macadamized Eoad Co., 207 Mo. 54, 13 tion, ' ' 512. See also Smith v. Tallas- Ann. Gas. 656, 105 S. W. 752. see Branch of Central Plank-Eoad Co., 43 1 Bl. Com. 468. 30 Ala. 650; Glass v. Tipton, T. & B. 44 Continental Tyre & Rubber Co., Turnpike Co., 32 Ind. 376; Bridgeford Ltd. V. Daimler Co., Ltd., [1915] IK. & Co. v. Hall, 18 La. Ann. 211; Con- B. 893. servators of River Tone v. Ash, 10 45 Thomas v. Dakin, 22 Wend. (N. Barn. & C. 349. It is essential that a T.) 9. corporation should have a name. Senn 46 Continental Tyre & Rubber Co., v. Levy, 111 Ky. 318, 63 S. "W. 776. Ltd. V. Daimler Co., Ltd., [1915] 1 K. B. 898. 13 § 8] Peivatb Corpobations [Ch. 1 erected a name must be given to it and by that name alone it must sue and be sued and do all legal acts; though a very minute varia- tion therein is not material. Such name is the very being of its constitution * * * without which it could not perform its cor- porate functions."*' A corporation may, however, use more than one name, and may conduct a portion of its business in its artificial name and the remainder in the name of its president without ceasing to be a corporation.*^ § 9. — Seal. At common law a corporation has an implied power to use a seal.*" This is not an essential corporate attribute. It is settled law to-day that a corporation may make contracts without the use of a seal, and the doctrine that no corporate act can be binding without bearing the corporate seal, has long ceased to be maintained.*^ Corporations to-day, accordingly, are held on implied contracts in precisely the same manner as individuals.*^ § 10. — By-laws. The implied power to make by-laws is incident to every corporation mnless prohibited by its charter, but it is not at all essential to corporate life.** But if the charter provides suffi- ciently for internal regulation and government of the corporate body, it is clear that by-laws would be superfluous.** § 11. — Power to hold realty, Blaekstone regarded the power to purchase and hold lands as an inseparable incident of corporate ex- istence.** It is true that this power is ordinarily implied, even though not granted in terms in the corporate charter, but it is not by any means a vital corporate attribute unless the sole purpose of creation of the corporation necessitates its acquisition of real estate.*® 48 1 Bl. Com. 474, 475. 52 Lawford v. Billerieay Kural Dist. 49 Liverpool Ins. Co. v. Massachu- Council, [1903] 1 K. B. 772. See Chap, setts, 10 Wall. (U. S.) 566, 19 L. Ed. 22, infra. 1029, aff'g 100 Mass. 531; Bdgeworth M Leggett v. New Jersey Manufao- V. Wood, 58 N. J. L. 463, 33 Atl. 940; . . ! %, , . „ ^ ^/ ^ ^ .„ „, ' _ , . „„ ™- , ,,T tr V /> turing & Banking Co., 1 N. J. Eq. 541, Thomas V. Dakin, 22 Wend. (N. Y.) 9. „„ . -r^ „„„%,, ^,. „ . ,. ' x J ^i-xe <. 23 Am. Dec. 728; Thomas v. Dakin, 22 A corporation may act under diicerent _ ' ' names at different times. Wilhite v. ^^''^- ^^- ^'^ ^' ^""^^ ^- ^t^ps, Ho- Convent of Good Shepherd, 117 Ky. ^^"^^'^ ^^^p. 210b, 211a. See also Chap. 251, 78 S. W. 138. ^^' ^"^'■*- BO 1 Bl. Com. 475. ** Thomas v. Dakin, 22 Wend. (N. 51 Thomas v. Dakin, 22 Wend. (N. Y.) 9. Y.) 9; Leinkauf v. Caiman, 110 N. Y. 551 Bl. Com. 475. 50, 17 N. E. 389. 56 Thomas v. Dakin, 22 Wend. (N. 14 Ch. 1] History and Genebal Considekations [§ 13 Thus, a body might be expressly prohibited by its charter or by statute from acquiring real estate, yet it might be none the less a corporate entity. What is ordinarily incident to corporate existence must not be confounded with what is really vital, and the power to acquire and hold real estate is not at all essential. § 12. — Transfer of membership. A corollary of the capacity of continuing succession is the incident in modern business corporations of the transfer of membership. "While some courts have gone far in the direction of upholding restraints on the freedom of alienation of shares of stock,^'' yet the general rule permits a shareholder freely to transfer his stock to another, thereby working a novation, the transferee becoming a stockholder in place of the transferor. This is not a positive distinguishing feature of corporate existence. "For instance, it does not enter into the constitution of our chartered col- leges, academies, hospitals, and other corporate institutions founded by public endowment, or private beneficence. It does not enter into the charters of incorporated scientific and literary societies. It does not even form a feature in our corporate societies for mutual benefit or charity, in the funds of which the members have a bene- ficial interest. ' ' ^* § 13. — Individual liability for indebtedness. Many jurisdictions, notably New York, regard the exemption of members from personal liability for the debts of the association as a criterion of corporate existence.^® It is true that one of the main reasons for the popu- larity of corporations is that the stockholders therein are not per- sonally liable for the debts of the corporation. The corporation and it alone is liable. A stockholder stands to lose what he has dedicated to the corporate enterprise and nothing more. This is not, however, an essential attribute. In many jurisdictions, statutes have been enacted making stockholders personally liable to a greater or less extent, and such legislation does not make the association any the less a corporation.^" "Amongst us, as in England, bodies politic or corporate may exist where the ultimate personal liability is still Y.) 9. See, in this connection, Chap. ner v. Beers, 23 Wend. (N. T.) 103. 29, infra. B9 Hibbs v. Brown, 190 N. Y. 167, 82 67 Barrett v. King, 181 Mass. 476, 63 N. E. 1108; People v. Coleman, 133 N. N. E. 934; Borland's Trustee v. Steel Y. 279, 16 L. R. A. 183, 31 N. E. 96. Bros. & Co., Ltd., [1901] 1 Ch. Div. 60 Liverpool Ins. Co. v. Massachu- 279. See Chap. 16, infra. setts, 10 Wall. (U. S.) 566, 19 L. Ed. 68 Per Verplanck, Senator, in War- 15 § 13] Private Cokpoeations [Ch. 1 retained. The personal liability is indeed suspended in such cases, and for a time merged in that of the artificial corporate person ; but there may be an ulterior recourse to the corporators when the former fails. ' ' ®^ Besides, individuals may contract, in the absence of statute, to make payment only from a certain specific fund.*'' in. THE COEPOEATE FEANCHISE § 14. Primary. A corporation cannot be created by mere agree- ment of the associates, but it is necessary to obtain sovereign sanction, for corporations to-day can be created only by or under legis- lative authority. The privilege which the legislature confers upon human beings enabling them to act as a legal unit is the corporate franchise.®' To be a corporation is, therefore, in a certain sense a franchise, and for this reason some authors define a corporation itself as a "franchise." Chancellor Kent says: "A corporation is a franchise possessed by one or more individuals, who subsist, as a body politic, under a special denomination, and are vested, by the policy of the law, with the capacity of perpetual succession, and of acting in several respects, however numerous the association may be, as a single individual."®* The Supreme Judicial Court of New Hampshire has similarly said: "A corporation is itself a franchise belonging to the members of the corporation."®* These and similar statements are not correct. A corporation itself is not a franchise, although it exists in consequence of a franchise conferred by the state upon the incorporators. The primary franchise of a corporation is nothing 1029, aff 'g 100 Mass. 531; Roberts v. Railway & Power Co., 65 N. J. Eq. 347, Anderson, 226 Fed. 7. See chapter on 103 Am. St. Eep. 786, 54 Atl. 413; Stock and Stockholders, infra. Southern Gum Co. v. Laylin, 66 Ohio 61 Per Verplanck, Senator, in War- St. 578, 64 N. E. 564. ' ' The grant ner v. Beers, 23 Wend. (N. Y.) 103; of its corporate existence is a grant of People V. Coleman, 133 N. Y. 279, 16 special powers and privileges to its in- L. E. A. 183, 31 N. E. 96. corporators to pursue the objects of its 62 Warner v. Beers, 23 Wend. (N. creation and transact its corporate Y.) 103. business the same as an individual 63 State V. Business Men 's Club, 178 transacts his privc-te business. ' ' A. Mo. App. 548, 163 S. W. 901. See also Booth & Co. v. Weigand, 28 Utah 372, Bank of California v. San Francisco, 79 Pac. 570. 142 Cal. 276, 64 L. E. A. 918, 100 Am. 64 2 Kent's Com. 267. See also 1 Bl. St. Eep. 130, 75 Pac. 832; American Com. 123; Gifford v. Livingston, 2 Den. Smelting & Eefiniug Co. v. People, 34 (N. Y.) 380, per Hand, Senator. Colo. 240, 82 Pac. 531; Cedar Eapids 6B Pierce v. Emery, 32 N. H. 484, per Water Co. v. Cedar Eapids, 118 Iowa Perley, C. J. 234, 91 N. W. 1081; Coler v. Tacoma 16 ^ , Ch. 1] History AND Gehteeal CoNSiDEKATioNS [§15 more than the right or privilege of being a corporation which the state confers upon the applicants for this faculty. This "primary franchise, ' ' or the right to be and act as a juristic body, vests in the individuals who compose the corporation and not in the corporation itself.®® It follows that a corporation, in the absence of statutory authority, has no right to sell or transfer its primary franchise, which is not in its own nature transmissible.®'' Although the importance of the corporate franchise has been minimized by some recent writers,®^ the fact remains that it is a valuable privilege, and the mere ciroumstance that modern legislation makes it comparatively easy to obtain a corporate franchise, does not do away with its in- herent worth.®' § 15. Secondary. The right to exist as a corporation or the "pri- mary franchise" must be carefully distinguished from the powers and privileges vested in, and to be exercised by, the corporate body as such.'® These latter are generally called "secondary franchises" and they are the property of the corporation itself, as distinguished from the primary franchise, which is the property of the cor- porators.''^ An example of secondary franchises is the power of eminent domain generally conferred by the state upon a public service corporation. 68 Fietsam v. Hay, 122 111. 293, 3 Am. 70 United States. Memphis & L. E. St. Eep. 492, 13 N. E. 501. See also R. Co. v. Railroad Comr's, 112 tJ. S. Mercantile Bank v. Tennessee, 161 U. 609, 28 L. Ed. 837. S. 161, 40 L. Ed. 656; Memphis & L. California. San Joaquin & K. E. R. R. Co. V. Railroad Com'rs, 112 U. S. Canal & Irrigation Co. v. Merced 609, 28 L. Ed. 837; State v. Georgia County, 2 Cal. App. 593, 84 Pao. 285. Medical Society, 38 Ga. 608, 95 Am. Nebraska. Western U. Tel. Co. v. Dee. 408. City of Omaha, 73 Neb. 527, 103 N. 67 Memphis & L. R. R. Co. v. Rail- W. 84. road Com'rs, 112 TJ. S. 609, 28 L. Ed. Utah. Cooper v. Utah Light & 837. The primary franchise is insepa- Railroad Co., 35 Utah 570, 136 Am. rable from the corporate body. San St. Eep. 1075, 102 Pae. 202. Joaquin & K. R. Canal & Irrigation Co. Wisconsin. State v. Milwaukee, B. V. Merced County, 2 Cal. App. 593, 84 & L. G. R. Co., 116 Wis. 142, 92 N. W. Pac. 285. 546. fiSMorawetz, Priv. Corp. (2nd Ed.), A " 'franchise,' i. e., the right to §§ 922-923. See also State v. Western exist and perform certain things, is Irrigating Canal Co., 40 Kan. 96, 10 a thing distinct from the property Am. St. Rep. 166, 19 Pac. 349, per Hor- rights which the corporation when ton, C. J. created may acquire from individ- 69 Home Ins. Co. v. New Tork, 134 uals." Thompson v. Schenectady Ey. U. S. 594, 599, 33 L. Ed. 1025, per Mr. Co., 124 Eed. 274. Justice Field. 71 See cases cited in preceding note^ 17 I Priv. Corp.— 2 § 16] Peivate Coepokations [Ch. 1 IV. DISTINGUISHED PROM OTHER FORMS OP ASSOCIATED BUSINESS § 16. Partnerships. At common law the distinction between the corporation and the partnership as a type of business organization was very marked. In point of fact, one of the reasons for the rapid development in the use of corporations was the inadequacy of the partnership to serve many of the needs of business and commerce. In the absence of statutory modification or of special agreement between the associates, the following are the chief respects in which the partnership differs from the corporation. A partnership may be created by mere agreement between the partners. The approval of the state is not necessary. On the other hand, in order to form a corporation something more is needed than the mere agreement of the incorporators. It is necessary to obtain special authority from the state in order to incorporate. "Without the consent and sanction of the sovereign state so obtained, the in- corporators cannot be trea,ted by the law as a legal person.''^ The Supreme Court, of Illinois has aptly said: "A corporation cannot be constituted by agreement of parties. It can only be created by or under legislative enactment. ' ' '^ However, the fact that legis- lative authorization has been obtained for the creation of an associa- tion does not necessarily indicate that the association is a corporation, since joint stock companies and similar unincorporated associations are frequently authorized by state authority.''* Thus, the Joint Stock Association Law of New York authorizes the creation of associatjona possessing many of the capacities and attributes of corporations ; yet in th-e eye of the law, these bodies have a distinct identity of their own. Partners may dissolve their partnership at any time that they see fit. A corporation, however, cannot be dissolved by the mere agree- especially Cooper V. Utah Light & Rail- authority, usually, if not necessarily, road Co., 35 Utah 570, 136 Am. St. Rep. emanating from the legislature, and 1075, 102 Pac. 202. conferring extraordinary privileges." 72 Boca Mill Co. V. Curry, 154 Cal. Per Oowen, J., in Thomas v. Dakin, 22 326, 97 Pac. 1117; Stowe v. Plagg, 72 "Wend. (N. Y.) 9. 111. 397. 73 Stowe v. Tlagg, 72 111. 397. "Both partnerships and private cor- 71 See People v. Coleman, 133 N. T. porations are conventional so far as 279, 16 L. R. A. 183, 31 K. E. 96; War- the members are concerned. The dif- ner v. Beers, 23 Wend. (N." Y.) 103. ference consists in this, the former is Another example is the Pennsylvania authorized by the general law among Limited Partnership Ass'n (Purdon's natural persons, exercising their ordi- Joint Stock Company), formed under nary powers; the latter by a special the Act of May 29, 1885, P. L. 29. 18 Ch. 1] History and G-enekal Considekations [§ 16 ment of the stockholders; something more is necessary, namely, the approval and consent of the sovereign state. Just as the consent of the state is necessary in order to endow the associates with the breath of corporate life, so the consent of the state must be manifested as to corporate death.''^ One of the chief characteristics of the partnership is the delectus personcB.'^^ In other words, the personal equation is all-essential in the case of a partnership ; thus, if a partner dies, the partnership auto- matically ceases. The same result follows if a partner sells or other- wise transfers his interest in the partnership. This conclusion follows even though the other partners consent to the transfer, since in legal theory, a new partnership is thereby formed and the old part- nership is dissolved. In the case of the corporation- the precise opposite is true. The death of a stockholder does not affect the existence of the corpora- tion in any respect. No matter how important a stockholder may be, no matter how many shares of stock he may own, the corporate life continues unimpaired despite the death of the stockholder, "in like manner as the Eiver Thames is still the same river though the parts which compose it are changing every instant." Likewise a share- holder's sale or other transfer of his stock is immaterial so far as the continued existence of the corporation is concerned. Its corporate life not only continues (but it is the identical corporation. Though a great judge has cast some doubt upon the proposition,''''' it would seem that the element of delectus persona is entirely foreign to the sound juridi- cal conception of a corporation. This corporate characteristic of continuity of life to which reference has just been made, is not, however, an infallible earmark of a cor- poration. Partners may agree when they form their partnership that the partnership life shall continue in spite of the death of a partner or the transfer of his interest in the firm. Thus, it is frequently stipulated in articles of copartnership, that the heir or personal representative of a partner shall become a member of the copartner- ship in the event of death. In such cases a partnership would seem to possess the attribute of continuity of life.''* 75 Boston Glass Manufactory v. 63 N. B. 934, per Holmes, C. J. Com- Langdon, 24 Pick. (Mass.) 49, 35 Am. pare In re Klaus, 67 Wis. 401, 29 N. W. Dec. 292; Wilde v. Jenkins, 4 Paige 582. (N. Y.) 481. Contra, Merchants' & 78 Kingman v. Spurr, 7 Pick. (Mass.) Planters ' Line v. Waganer, 71 Ala. 581. 235; Hoadley v. Essex, 105 Mass. 519; 76 Burdick, Partnership, pp. 8, 9. Warner v. Beers, 23 Wend. (N. T.) 77Bar):ett v. King, 181 Mass. 476, 103; Tenney, Ballister & Co. v. New 19 § 16] Pbivate Coepobations [Ch. 1 A collective or common name is an invariable attribute of a cor- poration but this does not serve necessarily to distinguish a corpora- tion from a partnership, since a partnership may use a trade name and act and contract thereunder v?ithout becoming a corporation^* In such eases, however, the acts or contracts are still those of the individual members of the copartnership. The mere use of a com- mon name does not convert the partnership associates into a legal entity or artificial person. If a partnership wishes to make a conveyance or to enter into a contract under seal, each partner must employ his individual seal. The reason for this is that the contract or conveyance is not so much that of the firm as it is that of the individual partners. On the other hand, if a corporation desires to act under seal, the corporate seal is annexed to the instrument.*" This is because the contract or con- veyance is that of the corporation, and not in any sense the contract or conveyance of the individual members. A partnership may do anything by agreement among the partners which is not unlawful, and may engage in any enterprise in which a single person might engage. A corporation, on the other hand, may not lawfully exercise any powers except those powers conferred upon it by the instrument of its creation and such implied powers as are reasonably incidental to, and consequential upon, the exercise of the powers expressly conferred.*^ Any act which is unauthorized by its corporate charter, either expressly or by necessary implication, is ultra vires. A corporation cannot increase its powers without the consent of the state, whereas a partnership may do so by simple agreement of the copartners. When a partnership makes a contract, the contract is that of the individual members of the copartnership. The rights thereunder belong to them as individuals, and the obligations thereunder are likewise theirs individually.*^ But, whenever a corporation makes a contract, it is the contract of the legal entity, of the artificial per- son sanctioned by the corporate charter, and not in any sense the contract of the individual shareholders.** Similarly a corporation's England Protective Union, 37 Vt. 64; [1907] A. C. 415. See article by I. ■Wrexham v. Hudleston, 1 Swanst. 514. Maurice Wormser, 25 Yale L. J., pp. 79 Warner v. Beers, 23 Wend. (N. 177-8. T.) 103; Eex v. Webb, 14 East 406. 82 James Parsons, Prin. of Partner- 801 Bl. Com. 475; Quackenboss v. ship (1st Ed.), §§95-96. Globe & Rutgers Fire Ins. Co., 177 N. 83 Bank of Augusta v. Earle, 13 Pet. Y. 71, 69 N. E. 223. (U. S.) 519, 587, 10 L. Ed. 274; Sellers 81 Attorney-General v. Mersey By. v. Greer, 172 111. 549, 40 L. R. A. 589, Co., L. E. [1907] 1 Ch. Div. 81, 50 N. E. 246. 20 Ch. 1] History and General Considerations [§ 16 promissory note is the obligation of the corporation, and of it alone, and is not a debt of the stockholders, whereas a partnership's note binds the partners jointly as individuals.** When partners acquire property the title belongs to them as tenants in common. If a partner dies, his share in the partnership real estate descends to his heirs, his share in the partnership personal property goes to his administrator or executor. Transfers of partnership property are made by the partners as individuals.*^ On the other hand, when a corporation acquires property the title vests in the corporate entity. It is the sole property of the collective whole.'® The stockholders are not the owners as joint tenants, tenants in com- mon, or in any other respect.*' The corporate title is not affected in any respect by the death of a stockholder or the transfer of his shares of stock. Conveyances of corporate property are made by the cor- poration as such, and not by the individual stockholders.** It has been held that even the sole owner of the stock of a corporation haa no authority, as such, to convey the real estate of the corporation, The corporation, and no one else, may transfer the property.*^ While the corporation exists, the stockholders are mere stockholders and. nothing else. They are not the corporation, in the eye of the law, They are merged, in legal contemplation, in the corporate identity. In the case of a partnership the rule at common law is that it must; sue and be sued in the name of all of the members composing the partnership, however numerous -they may be.^" Suit cannot be brought by or against the partnership in a trade name. On the other hand, the corporation sues and is sued in its corporate name. Suit cannot be brought by or against the stockholders individually upon a corporate undertaking or obligation.'^ This again, however, is not a necessary criterion or &berty restrictions. A careful distinction must be drawn between a transfer to individuals and a transfer to a cor- poration where a property covenant or restriction is concerned. Where a restriction forbids the transfer of real estate to "a person or persons of African descent" or "colored persons," the restric- tion is not violated by a transfer of the real estate to a corporation composed exclusively of negroes as stockholders.^® The corporation is an artificial person altogether distinct and separate from its oflfi- cers, directors, and stockholders and hence no violation of the restric- tion was shown. § 29, — Rights of action as to property. The corporation and it alone may sue to recover property of the corporation or to recover damages for injuries done to it.^" The members cannot sue in their A transfer of stock in a real estate Eep. 904, 24 So. 351; Swift v. Smith, corporation is not a transfer of real es- 65 Md. 428, 57 Am. Eep. 336, 5 Atl. tate. Albany Mill Co. v. HufE Bros., 534; Bundy v. Ophir Iron Co., 38 Ohio 24 Ky. L. Bep. 2037, 72 S. W. 820. St. 300. IB Palmer v. Ring, 113 N. Y. App. 19 People 's Pleasure Park Co. v. Eoh- Div. 643, 99 N. T. Supp. 290. leder, 109 Va. 439, 63 S. E. 981, 61 S. 16 Parker v. Bethel Hotel Co., 96 E. 794. See article "The Personality Tenn. 252, 31 L. K. A. 706, 34 S. "W. 209 ; of Associations, ' ' 29 Harv. L. Eev. 404. Wheelock v. Moulton, 15 Vt. 519. But 20 Georgia. McAfee v. Zettler, 103 see Manhattan Brass Co. v. Webster 6a. 579, 30 S. E. 268; Bethune v. Wells, Glass & Queensware Co., 37 Mo. App. 94 Ga. 486, 21 S. E. 230. 145. Indiana. Tomlinson v. Bricklayers' 17 Bundy v. Ophir Iron Co., 38 Ohio Union No. 1, 87 Ind. 308. St. 300. Massachusetts. Bartlett v. Brickett, 18 First Nat. Bank of Gadsden v. 14 Allen 62; Smith v. Hurd, 12 Mete. Winchester, 119 Ala. 168, 72 Am. St. 371, 46 Am. Dec. 690. § 29] Pbivate Coepoeations [Ch. 1 individual names. Not even the sole owner of all the capital stock of a corporation may sue to recover property unlawfully taken from it." §30. — Execution and attachment. The creditors of a stock- holder of a corporation cannot attach property belonging to the corporation.^^ § 31. Torts. The stockholders of a corporation, unless they per- sonally participate therein, are not liable individually for torts com- mitted by the corporation. The corporation, and it alone, is legally liable. Similarly, where a tort is committed against a corporation, the corporation alone has a right of action and not the individual stockholders of the corporation.^^ These rules apply even though one person owns the entire capital stock of a corporation.^* § 32. Grimes. The same rules are applicable to crimes which, we have just seen, are applicable to corporate torts. Stockholders are not personally liable for crimes committed by the corporation unless it can be proven that they personally participated.*^ § 33. Actions — General considerations. In the ease of an associa- tion which is unincorporated, whether a joint stock company or a partnership, the common-law rule is that it must sue or be sued in the name of all of the individual members, however numerous they may be. On the other hand, a corporation sues and is sued as a legal body in the name of the corporation. Suit must be brought by or against the legal entity and not by or against the individual stock- holders. The latter cannot sue either at law or in equity on rights New York. Bennett v. American Art Massachusetts. Smith v. Hurd, 12 Union, 5 Sandf. 614. Mete. 371, 46 Am. Dec. 690. Wisconsin. Button v. Hoffman, 61 Michigan. Talbot v. Scripps, 31 Wis. 20, 50 Am. Eep. 131, 20 N. W. 667. Mich. 268. 21 Button V. Hoffman, 61 Wis. 20, 50 A corporation cannot waive a claim Am. Eep. 131, 20 N. W. 667. for damages for torts against its stock- 22 Williamson v. Smoot, 7 Mart. holders. Orient Ins. Co. of Hartford v. (La.) 31, 12 Am. Dec. 494. Northern Pac. E. Co., 31 Mont. 502, 23 Connecticut. Allen v. Curtis, 26 78 Pac. 1036. Conn. 456. 24 Werner v. Hearst, 177 N. Y. 63, Georgia. McAfee v. Zettler, 103 Ga. 69 N. E. 221. 579, 30 S. E. 268 ; Bethune v. Wells, 94 26 Union Pac. Coal Co. v. United Ga. 486, 21 S. E. 230. States, 173 Fed. 737. Compare Polwell Indiana. Tomlinson v. Bricklayers' v. Miller, 145 Fed. 495, 10 L. R. A. (N. Union, 87 Ind. 308. 8.) 332, 7 Ann. Cas. 455. 52 Ckl] History and General, Considekations [§35 of action belonging to the corporation.^^ Even though an individ- ual owns all of the corporate stock, it is not necessary that he be joined as a party plaintiff or defendant.^''' Suit brought against the stockholders of the corporation in no vsray affects the corpora- tion.^* §34. — ^Members as parties. Actions, as has been seen, are brought by or against the corporation as a legal entity, and the stockholders are in no legal sense parties thereto. This distinction has been carried so far that it has even been held that a stockholder in a corporation is not disqualified to serve as judge in a litigation involving the corporation,^' but such decisions are of questionable soundness and there are others to the contrary.^' § 35. — Rights of set-off by members. In a suit against a corpora- tion by a creditor of the corporation, demands due by the plaintiff to the stockholders as individuals cannot be interposed as equitable set-offs against the plaintiff's demand, even though the plaintiff is insolvent and even though the stockholders interposing the set-off 26 Connecticut. Allen v. Curtis, 26 Conn. 456. Georgia. McAfee v. Zettler, 103 Ga. 579, 30 S. E. 268; Bethune v. Wells, 94 Ga. 486, 21 S. E. 230. Indiana. Tomlinson v. Bricklayers' Union, 87 Ind. 308. Massachusetts. Bartlett v. Brickett, 14 Allen 62; Smith v. Hurd, 12 Mete. 371, 46 Am. Dec. 690. Michigan. Talbot v. Seripps, 31 Mich. 268. New York. Bennett v. American Art Union, 5 Sandf. 614. Wisconsin. Button v. Hoffman, 61 Wis. 20, 50 Am. Eep. 131, 20 N. W. 667. A suit must be brought by the cor- poration in its own name. New Orleans Terminal Co. v. Teller, 113 La. 733, 2 Ann. Cas. 127, 37 So. 624. A suit must be brought against the corporation in its own name. Posner V. Southern Exhaust & Blow Pipe Co., 109 La. 658, 33 So. 641. 27 Pox V. Bobbins (Tex. Civ. App.), 62 S. W. 815. 28 Lillard v. Porter, 2 Head (Tenn.) 177. 29 Merchants ' Bank v. Cook, 4 Pick. (Mass.) 405; Stuart v. Mechanics' & Farmers ' Bank, 19 Johns. (N. Y.) 496; Searsburgh Turnpike Co. v. Cutler, 6 Vt. 315. It has been held that a stockholder or officer of a corporation may testify in a litigation to which his corporation is a party with regard to transactions with a deceased individual. Bank of Southwestern Georgia v. McGarrah, 120 Ga. 944, 48 S. B. 393; WoM Shirt Co. V. Frankenthal, 96 Mo. App. 307, 70 S. W. 378. 30 State V. Young, 31 Pla. 594, 19 L. E, A. 636, 34 Am. St. Eep. 41, 12 So. 673; Inhabitants of Northampton v. Smith, 11 Mete. (Mass.) 390; Wash- ington Ins. Co. V. Price, Hopk. Ch. (N. y.) 1; Gregory v. Cleveland, C. & C, K. Co., 4 Ohio St. 675. 53 § 35] Private Cokpobations [Ch. 1 own all the stock in the corporation.'^ The reason for this rule is that the corporation is a legal entity distinct from the stockholders. A claim against the corporation is quite different from a claim against the stockholders and vice versa. § 36. — Judgments. A judgment against a corporation does not affect the property of the stockholders, although it is res adjudicata in an action to enforce against them a statutory personal liability for corporate debts.^* § 37. — Notice to membeirs. Since the stockholders of a corpora- tion are not its agents simply because of their status as stockholders, notice to them is not notice to the corporation.^' In order to bind the corporation it must be shown that notice was given to its duly authorized officer or agent. § 38. — Admissions of members. Declarations against interest or admissions made by stockholders of a corporation, as such, are incom- petent evidence against the corporation.'* The stockholders are not parties upon the record. The record speaks only of the artificial entity created by the act of incorpora- tion.'* § 39. — Residence and citizenship for jurisdictional purposes. The residence, domicile or citizenship of the individual stockholders is immaterial as regards the jurisdiction of a suit brought by or against a corporation. The controlling factor is the residence and citizenship of the legal entity. Generally speaking, the cases hold that SI Gallagher v. Germania Brewing writ of error dismissed 13 Pet. (TT. S.) Co., 53 Minn. 214, 54 N. W. 1115. 157, 10 L. Ed. 105. 32 Hale V. Harden, 95 Fed. 747; Mu- Incidentally, according to Judge El- tnal Fire Ins. Co. v. Phoenix Furniture liott, ' ' The distinction between the Co., 108 Mich. 170, 34 L. E. A. 694, 62 rights of a corporation and the rights Am. St. Eep. 693, 66 N. W. 1095. of its members is well illustrated by 33 Mercantile Nat. Bank of Cleve- the rule of the Roman law that a slave land V. Parsons, 54 Minn. 56, 40 Am. could not be tortured for the purpose St. Eep. 299, 55 N. W. 825. of extorting information to be used 84 Dean v. Eoss, 105 Gal. 227, 38 Pac. against his master. But the slave of 912; Fairfield County Turnpike Co. v. a corporation could by torture be eom- Thorp, 13 Conn. 173 ; Hartford Bank v. pelled to give information against the Hart, 3 Day (Conn.) 491, 3 Am. Deo. members of the corporation." Elliott 274; New Bbenezer Ass'n v. Gress Corp. (4th Ed.) 11. Lumber Co., 89 Ga. 125, 14 S. E. 892; 36 Fairfield County Turnpike Co. v. Polleys v. Ocean Ins. Co., 14 Me. 141; Thorp, 13 Conn. 173. 54 Ch. 1] History and Geneeal. Considebations [§ 42 a corporation is to be treated for jurisdictional purposes as a resident of that place where its principal ofSce or place of business is situated, and a citizen of that state under whose laws it is organized.'^ § 40. Statute of frauds. The oral promise of a stockholder to pay the debt of his corporation is within the statute of frauds.^'' It is a promise to pay the debt "of another," since a corporation is, in the eye of the law, a different person from any of its members and hence it is in every sense a promise to pay another's debts. §41. Taxation. Property of the corporation cannot be taxed against the individual shareholders, nor can a tax on the value of the shares of stock in the corporation be levied on the corporation.'* Thus, where part of an estate consisted iri shares of stock in a cor- poration whose only tangible property had already been assessed and the taxes thereon duly paid, it was held that the state could nevertheless tax the shares of stock in the corporation also.'' The shares of stock are the property of the individual shareholders whereas the property of the corporation is held by it as a legal entity. This well illustrates that the corporation is a person distinct from its stockholders. The corporation is a person in law. Its stock- holders are distinct and different persons.** § 42. Disregard of corporate entity — General statement. While it has been seen that a corporation is a legal entity and an artificial person quite separate and distinct from the individual stockholders, yet it must not be overlooked that fundamentally a corporation must, after all, be considered as a collection of human beings. Kyd, an early English writer, treats a corporation, as we have seen, as "a 36 Doctor V. Harrington, 196 IT. S. 40 Shelby County v. Union & Plant- 579, 49 L. Ed. 606. ers' Bank, 161 U. S. 149, 40 L. Ed. 650; STMeDavid v. McLean, 202 111. 354, Bank of Commerce v. Tennessee, 161 66 N, E. 1075, modifying 104 111. App. IJ. S. 134, 40 L. Ed. 645; Van Allen v. 627; Home Nat. Bank of Chicago v. The Assessors, 3 Wall. (U. S.) 573, 18 Waterman's Estate, 134 111. 461, 29 N. L. Ed. 229; People v. Coleman, 126 N. E. 503, aff 'g 30 111. App. 535; Brown v. Y. 433, 12 L. E. A. 762, 27 N. E. 818. Reinberger, 177 111. App. 297. Compare Mayor & City Council v. Bir- 38 Greenleaf v. Board Eeview Mor- mingham & O. E. E. Co., 6 Gill (Md.) gan Co., 184 111. 226, 75 Am. St. Eep. 288, 48 Am. Dec. 531; Singer Mfg. Co. 168, 56 N. E. 295; Porter v. Eockford, v. Heppenheimer, 58 N. J. L. 633, 32 E. I. & St. L. E. Co., 76 111. 561. L. E. A. 643, 34 Atl. 1061. 39 Cook V. City of Burlington, 59 Iowa 251, 44 Am. Eep. 679, 13 N. W. 113. 55 §42] Pbivate Coepobations [Ch.l collection of many individuals united into one body, ' ' etc.** A num- ber of writers have taken the same point of view.*^ Thus an emi- nent authority says: "While a corporation may, from one point of view, be considered as an entity without regard to the corporators who compose it, the fact remains self-evident that a corporation is not in reality a person or a thing distinct from its constituent parts. The word 'corporation' is but a collective name for the corporators or members who compose an incorporated association; and where it is said that a corporation is itself a person, or being, or creature, this must be understood in a figurative sense only."*^ Some judges have so held.** Practically all authorities agree that in certain 41 1 Kyd on Corporations, 13. The corporate fiction will be disre- garded whenever it is urged for an object not within its policy. United States. Bank of United States V. Deveaux, 5 Cranch 61, 3 L. Ed. 38; Marshall v. Baltimore & O. R. Co., 16 How. 314, 14 L. Ed. 953; Gay V. Hudson Eiver Elec. Power Co., 187 Ted. 12; In re Rieger, Kapner & Alt- mark, 157 Fed. 609; Andrews Bros. Co. V. Youngstown Coke Co., 86 Fed. 585. Alabama. First Nat. Bank of Gads- den V. Winchester, 119 Ala. 168, 72 Am. St. Rep. 904, 24 So. 351. Connecticut. Woodbridge v. Pratt & Whitney Co., 69 Conn. 304, 37 Atl. 688. Delaware. Martin v. D. B. Martin Co. (Del. Ch.), 88 Atl. 612. Illinois. Donovan v. Purtell, 216 111. 629, 1 L. R. A. (N. S.) 176, 75 N. E. 334, aff'g 119 111. App. 116. New York. People v. North River Sugar Refining Co., 121 N. Y. 582, 9 L. R. A. 33, 18 Am. St. Rep. 843, 24 N. E. 834; Garrigues v. International Agr. Corporation, 159 N. Y. App. Div. 877, 144 N. Y. Supp. 982. Ohio. First Nat. Bank of Chicago v. Trebein Co., 59 Ohio St. 316, 52 N. E. 834; State v. Standard Oil Co., 49 Ohio St. 137, 15 L. R. A. 145, 34 Am. St. Rep. 541, 30 N. E. 279. The corporate fiction is not viewed with favor in New Hampshire. Bow- ditch V. Jackson Co., 76 N. H. 351, Ann. Cas. 1913 A 366, 82 Atl. 1014. "While it is true that in general a corporation is a distinct entity from its stockholders, nevertheless, where an individual owns practically all of its stock and controls all of the opera- tions of the corporation, they are, in proper cases, regarded by the courts as one and the same. ' ' Per Ross, C. J., in Smith v. Moore, 199 Fed. 689. 42 Taylor, Corp. § 51 ; Morawetz, Priv. Corp. §§ 1, 227, also preface; Pomeroy, "Legal Idea of a Corpora- tion," 19 Am. L. Rev. 114 et seq. 43 Morawetz, Priv. Corp. § 1. In another place Mr. Morawetz says* "The statement that a corporation is an artificial person, or entity, apart from its members, is merely a descrip- tion, in figurative language, of a cor- poration viewed as a collective body: a corporation is really an association of persons, and no judicial dictum or leg- islative enactment can alter this fact. ' ' 1 Morawetz, Priv. Corp. § 227. 44 "Private corporations are but as- sociations of individuals united for some common purpose and permitted by the law to use a common name, and to change its members without a disso- lution of the association." Per Mr. Justice Field in Baltimore & P. E. Co. V. Fifth Baptist Church, 108 U. S. 317, S30, 27 L. Ed. 739. Mr. Justice Story said: "An ag- 56 Ch. 1] History and Genbbal Consideeations [§42 cases and at certain times a corporation is to be regarded as a legal entity and personality. There is also substantial agreement that at certain times the fiction of corporate entity is inapplicable. Some- times a corporation is looked upon as a unit, at other times as a collec- tion of persons. The doctrine of separate existence may be carried too far, and it is properly disregarded in cases of fraud, circum- vention of contract or statute, public wrong, monopoly, and like instances. "If any general rule can be laid down, in the present state of authority, it is that a corporation will be looked upon as a legal entity as a general rule, and uiitil sufficient reason to the con- trary appears ; but, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. ' ' *^ It has been aptly said: "This distinction between a corporation as being an impalpable entity, and a corporation as being the living persons of whom it consists, is for many purposes a substantial distinction, necessarily involved in the creation and use of corpora- tions, but for some purposes it is not only a fiction, but a useless and unreasonable fiction; and it is a settled principle that in certain cases, where the fiction can serve no purpose but to accomplish injus- tice, and to screen the corporation from the just consequences of its wrongs, the court will not permit this legal fiction to prevail against real substance."*^ gregate corporation at eommon law aff'g 196 Fed. 593, 181 Fed. 545. See is a eolleetion of individuals united also opinion of Bowling, J., in Gar- into one collective body, under a spe- rigues v. International Agr. Corpora- oial name, and possessing certain im- tion, 159 N. Y. App. Div. 877, 880, 144 munities, privileges, and capacities in N. T. Supp. 982; dissenting opinion of its collective character which do not Seabury, J., in Brock v. Poor, 216 belong to the natural persons compos- N. Y. 387, 111 N. E. 229. ing it. ' ' Dartmouth College v. Wood- 46 Starr Burying Ground Ass 'n v. ward, 4 Wheat. (U. S.) 518, 4 L. Ed. North Lane Cemetery Ass'n, 77 Conn. 629. 83, 58 Atl. 467. See also Shaw, Ch. J., in Overseer v.- In San Diego Gas Co. v. Frame, 137 Sears, 22 Pick (Mass.) 122; Lumpkin, Cal. 441, 70 Pac. 295, the court quoted J., in Hightower v. Thornton, 8 Ga. Morawetz, Priv, Corp. § 1, as follows: 486, 52 Am. Dee. 412, "The existence of a corporation inde- 4B United States v. Milwaukee Ee- pendently of its shareholders is a fic- frigerator Transit Co., 142 Fed. 247, tion. Its rights and duties are in 255, per Sanborn, J. The United States reality the rights and duties of per- Supreme Court adopts the same view. sons who compose it, and not of an Linn & Lane Timber Co. v. United imaginary being." And see Armour States, 236 U. S. 574, 59 L. Ed. 725, v. E. Bement's Sons, 123 Fed. 56. 57 § 43] Private Cobpokations [Ch. 1 § 43. — Acts of memibers. Ordinarily the acts of the stockholders are regarded, as has been seen, not as corporate acts but as merely their own personal acts. This is because of the rule that a corpora- tion will be regarded as a legal entity distinct from its members. However, there are times when the corporate fiction will be disre- garded.*' There are many cases in the books where the acts of the stockholders of a corporation have been regarded as corporate acts and the corporation has been held to be bound by them. Thus in the famous case of State v. Standard Oil Co.,*' practically all of the stockholders comprising a corporation entered into an illegal and monopolistic trust agreement in their individual capacities in order to conceal the real nature and object of their action. The property and business of their corporation were affected in the same manner and to the same extent as if there had been a formal resolution of the corporate board of directors. The state of Ohio, in order to pre- vent the gross abuse of corporate power, brought a proceeding of quo warranto. The corporation urged that it, the legal entity as such, could not be affected by any acts or agreements except such as were executed in formal manner on its behalf by its corporate directors or duly authorized agents. The court disregarded this argument, and held in substance that the actions of the stockholders were in legal effect the acts of the corporation, and rendered a judg- ment of ouster.*® Under circumstances like these it would have 47 Distilling & Cattle-Feeding Co. curate knowledge on the subject. It V. People, 156 111. 448, 47 Am. St. Sep. has been introduced for the conven- 200, 41 N. E. 188; Ford V. Chicago Milk ience of the company in making Shippers' Ass'n, 155 111. 166, 27 L. R. contracts, in acquiring property for A. 298, 39 N. E. 651, rev'g 46 111. App. corporate purposes, and in suing and 576; People v. North River Sugar Re- being sued, and to preserve the limited fining Co., 121 N. T. 582, 9 L. R. A. 33, liability of the stockholders, by distin- 18 Am. St. Rep. 843, 24 N. E. 834; State guishing between the corporate debts V. Standard Oil Co., 49 Ohio St. 137, 15 and property of the company, and of L. R. A. 145, 34 Am. St. Rep. 541, 30 the stockholders in their capacity as N. E. 279. individuals. All fictions of law have 48 49 Ohio St. 137, 15 L. R. A. 145, been introduced for the purpose of con- 34 Am. St. Rep. 541, 30 N. B. 279. venienee, and to subserve the ends of 49 In this case, Judge Minshall said : justice. It is in this sense that the "The general proposition that a cor- maxim, in fictione juris subsistit aequi- poratiou is to be regarded as a legal tas, is used, and the doctrine of fictions entity, existing separate and apart applied. But when they are urged to from the natural persons composing it, an intent and purpose not within the is not disputed; but that the statement reason and policy of the fiction they is a mere fiction, existing only in idea, have always been disregarded by the is well understood, and not contro- courts. * * * 'It is a certain rule verted by any one who pretends to ac- that a fiction of law shall never be con- 58 Ch.l] HiSTOKY AND GeNEEAL (^ONSIDEEATIONS [§43 been abhorrent to the genius and spirit of the common law to per- mit the concept of corporate entity to stand in the way of justice and public policy; In another leading case, People v. North River Sugar Refining Co.,^" proceedings in quo warranto were brought against the cor- poration by the state of New Tork to deprive it of its corporate franchise, because of alleged abuse of its powers by becoming a party to an illegal agreement. The , corporation insisted that it, as a legal entity, had never entered into the contract, but the evidence disclosed that the contract had been signed by every stockholder in the cor- poration. It was argued on behalf of the corporation that the agree- ment and combination were merely the dealings and acts of the stockholders, and were not the result of any corporate action, and that therefore the legal entity, the corporation as such, was free from guilt and was not chargeable with any wrongdoing. The court rendered a judgment of dissolution and held that inder the circum- stances of the case the acts of the stockholders were to be regarded as the acts of the corporation itself. The court pointed out the ridiculousness of the corporation's argument that "while all that tradicted so as to defeat the end for which it was invented, but for every other purpose it may be contradicted. ' * * * 'They were invented for the advancement of justice, and will be applied for no other purpose.' And it is in this sense that they have been constantly understood and applied in this state. * * * No reason is per- ceived why the principles applicable to fictions in general, should not apply to the fiction that a corporation is a per- sonal entity, separate from the natural persons who compose it, and for whose benefit it has been invented. * * * The idea that a corporation may be a separate entity, in the sense that it can act independently of the natural persons composing it, or abstain from acting, where it is their will that it shall, has no foundation in reason or authority, is contrary to the fact, and, to base an argument upon it, where the question is, as to whether a certain act was the act of the corporation, or of its stockholders, cannot be decisive of the question, and is therefore illogi- cal; for it may as likely lead to a false, as to a true result. Now, so long as a proper use is made of the fiction, that a corporation is an entity apart from its shareholders, it is harmless, and, because convenient, should not be called in question; but where it is urged to an end subversive of its pol- icy, or such is the issue, the fiction must be ignored, and the question de- termined, whether the act in question, though done by shareholders, that is to say, by the persons united in one body, was done simply as individuals, and with respect to their individual inter- ests as shareholders, or was done os- tensibly as such, but, as a matter of fact, to control the corporation and affect the transaction of its business, in the same manner as if the act had been clothed with all the formalities of a corporate act." State v. Stand- ard Oil Go., 49 Ohio St. 137, 15 L. E. A. 145, 34 Am. St. Eep. 541, 30 N. E. 279. BO 121 N. T. 582, 9 L. E. A. 33, 18 Am. St. Eep. 843, 24 N. E. 834. 59 43] Peivao^e Coepoeations [Ck.l was human and could act had sinned, yet the impalpable entity had not acted at all and must go free."*^ The result arrived at in this decision would appear to be sound. The stockholders, the acting and living men and women, had been guilty of misconduct. It would be nothing short of absurd to say that although they were guilty, the corporate robe that enveloped them was spotless and they mui?t, a fortiori, be left to wear it free and undisturbed. To hold other- Bl Judge Fineh, in this case, said in part: "And yet it is argued that the corporation, the legal entity, has done nothing; that Searles was guilty, but the corporate robe that enveloped him was innocent, and so he must be left to wear it undisturbed; that while all that was human and could act had sinned, yet the impalpable entity had not acted at all and' must go free. I believe that the history of what oc- curred, as I have already described it, furnishes a sufiScient answer, assuming that stockholders and trustees acting together can do a corporate act at all. There was corporate action in making the combination agreement which bound the defendant. The revocation of an executed authority left the con- tract standing. The corporation thus helped to make the trust and became an element of it. If there was any- thing imperfect in its action, the new stockholder and his associates waived the imperfection by acting upon the agreement of the corporation, and so confirming it in all particulars. ' ' But the assumption underlying the view, I have expressed ia itself con- tested, and a proposition asserted which denies the possibility of any corporate action, except by the trus- tees or directors acting formally as such; a proposition which, if sound, dominates the whole field of contro- versy, and, establishing that there has been no corporate action at all, effec- tually shuts out every question of ille- gality or public injury. I cannot admit that proposition. I think there may be actual corporate conduct which is not formal corporate action; and where that conduct is directed or pro- duced by the whole body, both of offi- cers and stockholders, by every living instrumentality which can possess and wield the corporate fra,nchise, that con- duct is of a corporate character, and if illegal and injurious may deserve and receive the penalty of dissolution. There always is, and there always must be, corporate conduct without formal corporate action where the thing chal- lenged is an omission to act at all. A corporation organized in the public interest, with a view to the public wel- fare, and in the expectation of benefit to the community, which is the mo- tive of the state's grant, may accept the franchise and hold it in sullen si- lence, doing nothing, resolving nothing, furnishing no formal corporate action upon which the state can put its finger and say, this the corporation has done by the agency through which it is au- thorized to act. That is corporate con- duct which the state may question and punish without searching for a formal corporate act. The directors of a cor- poration, its authorized and active agency, may see the stockholders per- verting its normal purposes by handing it over, bound and helpless, to an ir- responsible and foreign authority, and omit all action which they ought to take, offer no resistance, make no pro- test, but silently acquiesce as directors in the wrong which as stockholders they have themselves helped to com- mit. That again is corporate conduct, though there be an utter absence of directors' resolutions. • * • The 60 Cli.l] HisTOKY AND General, Considerations [§44 wise would be to ignore the real and substantial parties in interest, blinding the eyes not only to the facts but to the justice of the situ- ation, and, admitting the sins of the body, to insist that the sinner remains pure. 62 § 44. — Fraudulent acts. The doctrine of corporate entity is not permitted to stand in the way of defeating fraud. It follows that it is idle to promote a corporation for the purpose of endeavoring to accomplish fraud or other illegal acts under the cloak of the cor- porate fiction. "Where this is attempted, courts of law, equity, or bankruptcy, do not hesitate to tear aside the veil of corporate entity and to look beyond it and through it at the actual and substantial beneficiaries. A notable instance is found in cases where it is sought to delay, hinder and defraud creditors by means of "dummy" incor- porations. The courts have uniformly held that there is no magic in incorporation and refuse to apply the doctrine of corporate entity to enable such schemes to be successful.*^ abstract idea of a corporation, the legal entity, the impalpable and in- tangible creation of human thought is itself a fiction, and has been appro- priately described as a figure of speech. It serves very well to designate in our minds the collective action and agency of many individuals as permitted by the law; and the substantial inquiry always is what in a given case has been that collective action and agency. As between the corporation and those with whom it deals, the manner of its exercise usually is material, but aa between it and the state, the substan- tial inquiry is only what that collective action and agency has done, what it has, in fact, accomplished, what is seen to be its effective work, what has been its conduct. It ought not to be otherwise. The state gave the fran- chise, the charter, not to the impal- pable, intangible and almost nebulous fiction of our thought, but to the cor- porators, the individuals, the acting and living men, to be used by them, to redound to their benefit, to strengthen their hands and add energy to their capital. If it is taken away, it is taken from them as individuals and corporators, and the legal fiction dis- appears. The benefit is theirs, the pun- ishment is theirs, and both must attend and depend upon their conduct; and when they all act, collectively, as an aggregate body, without the least exception, and so acting, reach results and accomplish purposes clearly cor- porate in their character, and affect- ing the vitality, the independence, the utility, of the corporation itself, we cannot hesitate to conclude that there has been corporate conduct which the state may review, and not be defeated by the assumed innocence of a conven- ient fiction." 82 See article by I. Maurice Worm- ser, 12 Columbia L. Eev. at pp. 509-513. Corporations, in modern law, are treated as similarly as possible to natural persons. Meily Co.- v. London & L. Fire Ins. Co., 142 Fed. 873; Kess- ler & Co. V. Ensley Co., 129 Fed. 397; Baines v. Coos Bay Nav. Co., 45 Ore. 307, 77 Pao. 400. 63 TTnited States. In re Eieger, Kap- ner & Altmark^ 157 Fed. 609; Hibernia 61 §44] Private Coepoeations [Ch. 1 Where a corporation is organized as a device in order to evade an outstanding legal or equitable obligation, the courts, even with- out reference to actual fraud, refuse to apply the doctrine of cor- porate entity.^* In a California case,*^ a lessee corporation with latent to evade the payment of royalties under a lease, conveyed title to a second corporation. Thereafter the second corporation conveyed to a third, with the same end in view. It appeared that all of the three corporations had been formed by the same per- sons, had their offices together in the same room and had practically the same officers. The court did not find that there was any actual fraud. "Without regard to this, however, it was held that the trans- fers were constructively fraudulent as against the lessor and that all three corporations were jointly liable for the payment of the roy- alties. In a recent English case, a German vessel owned by a Ger- man corporation, while sailing from Hamburg to London, was sold by telegraph on August 1, to an English corporation, controlled by the German corporation. On August 4, war was declared between Germany and England. Next day, the vessel arrived in England and was seized as a prize. The English corporation claimed that the transfer to it made the seizure illegal. The Prize Court held Ins. Co. V. St. Louis & N. O. Transp. Co., 13 Fed. 516. niiuois. Donovan v. Purtell, 216 111. 629, 1 L. E. A. (N. S.) 176, 75 N. E. 334, aff'g 119 111. App. 116. Indiana. Dorsey Maeh. Co. v. Mc- Caffrey, 139 Ind. 545, 47 Am. St. Eep. 290, 38 N. E. 208. Iowa. Des Moines Gas Co. v. West, 50 Iowa 16. Kansas. Kellogg v. Douglas Co. Bank, 58 Kan. 43, 62 Am. St. Eep. 596, 48 Pac. 587. Michigan. Chicago & G. T. Ey.. Co. V. Miller, 91 Mich. 166, 51 N. W. 981. New Jersey. Terhune v. Hacken- sack Sav. Bank, 45 N. J. Eq. 344, 19 Atl. 377. New York. Booth v. Bunce, 33 N. T. 139, 88 Am. Dec. 372. OMo. Andres v. Morgan, 62 Ohio St. 236, 78 Am. St. Eep. 712, 56 N. E. 875; First Nat. Bank of Chicago v. Tre- bein Co., 59 Ohio St. 316, 52 N. E. 834. Oregon. Bennett v. Minott, 28 Ore. 339, 44 Pac. 288, 39 Pac. 997. Pennsylvania. Montgomery Web Co. V. Dienelt, 133 Pa. St. 585, 19 Am. St. Eep. 663, 19 Atl. 428. Tennessee. Vance v. McNabb Coal & Coke Co., 92 Tenn. 47, 20 S. W. 424. Compare Irvine v. New York Edison Co., 207 N. Y. 425, Ann. Cas. 1914 C 441, 101 N. E. 358. Where stockholders are identical and the facts demand it, two corporations have been deemed identical. Bloch Queensware Co. v. Metzger, 70 Ark. 232, 65 S. W. 929. But see, contra, Brighton Packing Co. v. Butchers' Slaughtering & Melting Ass'n, 211 Mass. 398, 97 N. E. 780. 64 Higgins v. California Petroleum & Asphalt Co., 147 Cal. 363, 81 Pac. 1070; Donovan v. Purtell, 216 111. 629, 1 L. R. A. (N. S.) 176n, 75 N. E. 334, aff'g 119 111. App. 116; Brundred v. Eice, 49 Ohio St. 640, 34 Am. St. Eep. 589, 32 N. E. 169. 65 Higgins V. California Petroleum & Asphalt Co., 147 Cal. 363, 81 Pac. 1070. 62 Ch. 1] HlSTOBY AND GeNEEAL CONSIDERATIONS [§ 45 tli3 seizure proper and that the claim was invalid.*^ It would clearly seem that in such ease the transfer was within the purview of the rule which holds a transfer not valid when made in contem- plation of war and to avoid seizure as a prize.''' In such circum- stances, the application of the doctrine of distinct corporate entity, is uncalled for. § 45. — Agency for parent corporation. The legal fiction of dis- tinct corporate existence may also be disregarded in a case where a corporation is so organized and controlled, and its affairs are so conducted, as to make it merely an instrumentality, conduit or adjunct of another corporation.*' It is not enough, however, that shareholders in the corporation are identical.'® Nor is it enough that one corporation owns shares in the other and that they have inter- related dealings. In order to warrant treating them as one, it must further appear that they are the business conduits and the alter ego of one another. Where it appeared that a railroad corporation caused a telegraph company to be incorporated, became the sole owner of all of its stock, elected its own officers and employees as officers thereof, and held out the telegraph company as authorized to contract for the railway telegraph system, it was held that the railway company was in substance the owner of the telegraph com- pany, that the telegraph company was a mere department or a bureau B6 The Tommi, 59 Sol. J. 26. corporate entity, to the end that rights 57 See The Ann Green, 1 Gall. (XT. S.) of third parties shall be protected. ' ' 274. Per Ellis, J. 58 Hunter v. Baker Motor Vehicle 59 United States. Eiehmond & I. Co., 225 Fed. 1006; Gay v. Hudson Const. Co. v. Richmond, N. I. & B. K. Eiver Elee. Power Co., 187 Fed. 12; Co., 68 Fed. 105, 108, 34 L. R. A. 625. Westinghouse Elee. & Mfg. Co. v. AUis- Arkansas. Lange v. Burke, 69 Ark. Chalmers Co., 176 Fed. 362; In re Mun- 85, 88, 61 S. "W. 165. cie Pulp Co., 139 Fed. 546; O'Brien v. Georgia. Wayeross Airline R. Co. v. Champlain Const. Co., 107 Fed. 338; Offerman & W. R. Co., 109 Ga. 827, 35 Kelly V. Ning Yung Benev. Ass'n, 2 S. B. 275. Cal. App. 460, 84 Pac. 321 ; Spokane Louisiana. Goodwin v. Bodcaw Lum- Merchants ' Ass 'n v. Clere Clothing ber Co., 109 La. 1050, 34 So. 74. Co., 84 Wash. 616, 147 Pac. 414. New York. New York Air Brake Co. In the last cited case, one company v. International Steam Pump Co., 64 was the mere agent or instrumentality N. Y. Misc. 347, 120 N. Y. Supp. 683. through which the parent company did Soutli Carolina. Ex parte Fisher, 20 business. The parent company owned S. C. 179. practically the entire capital stock. Texas. White v. Pecos Land & The court said: " Courts no longer hes- Water Co., 18 Tex. Civ. App. 634, 45 itate to look through forms to sub- S. W. 207. stance, to ignore a mere colorable 63 y § 45] Pbivate Cokpobations [Ch. 1 of the railroad, and that they were in legal contemplation identi- eal.*" In> another case, under much similar facts, a different result was reached on the grounds, first, that separate corporate organi- zations were kept up, second, that each corporation had its oAvn assets and creditors, and conducted business in its own name, and third, that separate books of account were kept.®^ The dividing line is very shadowy and is pricked out by the gradual approach and contact of decisions on the opposite sides.** §46. — Evasion of statutory obligation. Where the corporate form of organization is adopted in an endeavor to evade a statute or to, modify its intent, courts will disregard the corporate concept and. look at the substance and reality of the matter.*' The ' ' Commodities Clause ' ' of the Hepburn Act provides in sub- stance that it is unlawful for a railroad company to transport in interstate commerce, any articles manufactured, produced or mined by it, or which it owns in whole or in part, or in which it has any interest direct or indirect. In a proceeding brought by the United States against a railroad company, the government alleged that it owned stock in a coal company whose coal it was carrying. The court held that this was not a violation of the statute.®* In an amended complaint, the government then alleged, in addition, that the railroad company was using the coal company merely as a depart- ment of its business, and as a sham and device in order to evade the "Commodities Clause." The Supreme Court of the United States 60 Interstate Tel. Co. v. Baltimore & 63 United States v. Lehigh Valley R. O. Tel. Co., 51 Fed. 49, aff'd 54 Fed. Co., 220 V. S. 257, 55 L. Ed. 458; 50. And see dissenting opinion of Northern Securities Co. v. United Seabjiry, J., in Brock V. Poor, 216 N. Y. States, 193 U. S. 197, 48 L. Ed. 679; 387, 111 N. E. 229; Garrigues Co. v. United States v. Milwaukee Eefrigera- InternatiOnal Agr. Corporation, 159 tor Transit Co., 142 Fed. 247; Stock- N. Y. App. Div. 877, 880, 144 N. Y. ton v. Central R. Co. of New Jersey, Supp. 982. 50 N. J. Eq. 52, 17 L. K. A. 97, 24 Atl. 61 In re Watertown Paper Co., 169 964; Brundred v. Bice, 49 Ohio St. 640, Fed. 252. See aUo Pittsburgh & Buf- 34 Am. St. Bep. 589, 32 N. E. 169. falo Co. V. Duncan, 232 Fed. 584; Compare Stone v. Cleveland, C, C. & Gramophone & Typewriter Co., Ltd. v. St. L. B. Co., 202 N. Y. 352, 35 L. E. Stanley, [1908] 2 K. B. 89, afC'g [1906] A. (N. S.) 770, 95 N. E. 816. 2 K. B. 856. 64 United States v. Delaware & Hud- 62 Compare In re Watertown Paper son Co., 213 V. S. 366, 413, 53 L. Ed, Co., 169 Fed. 252, and In re Muncie 836. Pulp Co., 139 Fed. 546, 64 Ch. 1] History and General Considerations [§48 held thereupon that an injunction should issue, declaring in effect that no such evasion could succeed.®^ A corporation will not be regarded as a distinct entity ivhere the form is used to justify statute violation thereby defeating public convenience. Such a flimsy device may be stripped off^ and is pow- erless to thwart the purpote of the law.*® § 47. — Equitable mortga,ges. As has been seen, a mortgage exe- cuted by all of the stockholders of a corporation in their own names as individuals is not regarded as a good mortgage at law. The rule is otherwise in equity. Chancery, recognizing the fact that the sub- stantial ownership is in the stockholders, will enforce the document as an equitable mortgage of the ' corporation not only iagainst them, but also as against subsequent incumbrancers with notice.*'' §48. — Members as "interested" in corporate property. While the legal title to corporate property, as has been seen, is in the legal entity and not in the stockholders, yet the stockholders are undoubt- edly interested in the property of the corporation. Accordingly, it is held that stockholders in a corporation have an insurable inter- est in the corporate property, since they would be pectiniarily hurt if the corporate property were destroyed.*' In such cases the fic- tion of corporate entity is not disregarded, since the courts do not say that the stockholders are insuring their own property, but merely hold that stockholders have an "insurable interest" which is not at all the equivalent of legal or equitable title.** Under a statute 65 United States v. Lehigh Valley E. 68 Warren v. Davenport Fire Ins. Co., Co., 220 U. S. 257, 55 L. Ed. 458. SI Iowa 464y 7 Am. Eep. 160; Riggs v. 66 Stockton V. Central R. Co., 50 N. Commereial Mut. Ins. Co., 135 N. Y. J. Eq. 52, 17 L. R. A. 97, 24 Atl. 964. 7, 10 L. R. A. 684, 21 Am. St. Rep. 716, Where a corporation is formed for 25 N. E. 1058. the purpose of invoking the jurisdie- 69 Warren v. Davenport Fire Ins. Co., tion of the federal courts, its corporate 31 Iowa 464, 7 Am. Eep. 160. Speak- existence will be disregarded, since it ing untechnieally, it has been said that is a mere shift to evade the law. Mil- ownership of stock creates a relation ler & Lux v. East Side Canal & Irriga- between the stockholder and the cor- tion Co., 211 U. S. 293, 53 L. Ed. 189, poration similar to that between a part- and cases cited therein. nership and a partner. Barrett v. 67 First Nat. Bank of Gadsden v. King, 181 Mass. 476, 63 N. E. 934. See Winchester, 119 Ala. 168, 72 Am. St. also opinion of Holmes, J., in Mer- Rep. 904, 24 So. 351; Swift v. Smith, chants' Nat. Bank v^ Whehrmann, 202 65 Md. 428, 57 Am. Eep. 336, 5 Atl. U. S. 295, 50 L. Ed. 1036; Bauern- 534; Bundy V. Ophir Iron Co., 38 Ohio sehmidt v. Bauernschmidt, 101 Md. St. 300. 148, 60 Atl. 437. 65 I Priv. Corp. — 5 §48] Pbivate Cobpobations [Ch. 1 imposing a penalty on "every person in any manner interested in the use of" a distillery, stockholders are liable since they have a "direct pecuniary interest in the business."'"' While a stockholder in a private corporation is not in any proper sense the legal or equita- ble owner of the property of the corporation as such, he has, how- ever, a direct interest in the property.''^ VI. THE JURISTIC PERSON AND ITS INTERNAL RELATIONS §49. In general. When the courts have under consideration the internal relations of a corporation, growing out of discordant views as to the reciprocal rights and obligations of the stockholders and the corporation, of necessity the fiction of corporate unity is neces- sarily abandoned to a considerable degree, and the corporation is considered rather as an association of individuals for certain pur- poses. Thus, in actions brought to enforce the liability of a sub- scriber upon a subscription to the capital stock of a corporation, not only courts of equity, but courts of law as well, are necessarily war- ranted on many occasions in taking cognizance of the human fac- tors -composing the corporate whole. ''^ Again, in working out the rights of individual members, it stands to reason that courts, whether of law or of equity, must view the corporation as an association of individuals. This is emphasized in stockholders' suits for corpor- ate mismanagement. Where the corporation refuses to bring suit in its own name, the objecting stockholders may bring an action in equity to obtain relief, and equity will set its machinery in motion, and will do justice between the parties.''^ And a stockholder may sue in equity for an injunction to prevent officers or directors from interfering with his rights as a stockholder.''* Conversely, where the body of individual stockholders is so circumstanced that no equita- ble relief should be afforded them, relief is likewise denied to the corporate entity.''* When the corporation comes into equity the sub- 70 United States v. Wolters, 46 Fed. 7, 51 L. E. A. (N. S.) 112, Ann. Cas. 509. 1914 A 777, 99 N. E. 138; Fobs. v. Har- 71 Eichter v. Henningsan, 110 Cal. bottle, 2 Hare 461; Mozley v. Alston, 530, 42 Pac. 1077. 1 Phil. 790. 72 See 1 Morawetz, Priv. Corp. 74 Board Com 'rs Tippecanoe Co. v. § 231; 12 Columbia L. Eev. at p. 513. Lafayette, M. & B. E. Co., 50 Ind. 85; 73 Hawes v. Oakland, 104 IT. S. 450, Tomkiiison v. Southeastern Ey. Co., 35 26 L. Ed. 827; Dodge v. Woolsey, 18 Ch. Div. 675. How. (TT. S.) 331, 15 L. Ed. 401; Allen 7B Home Fire Ins. Co. v. Barber, 67 V, Curtis, 26 Conn. 456; Continental Neb. 644, 60 L. E. A. 927, 108 Am. St. Securities Co. v. Belmont, 206 N. T. Eep. 716, 93 N. W. 1024. See article 66 Ch.l] History and General Considerations [§51 stance of the matter is looked at, "and if the beneficiaries of the judgment sought have no standing in equity to recover, we ought not to become befogged by the fiction of corporate individuality, and apply the principles of equity to reach an inequitable result." ■" § 50. Contracts. The law^ is well settled that an individual cannot enter into a contract with himself.''"' A corporation has the same freedom of contracting with its stockholders that it has of contract- ing with any other person, since, as has been seen, a corporation is a separate and distinct legal entity from any or all of its stock- holders.''* § 51. Transfers and conveyances. It is equally well settled that since an individual cannot act as both grantor and grantee, he can- not transfer property to himself.''® A stockholder, however, may transfer real estate to his corporation, or the corporation to him, since they are distinct entities in the eye of the law.*" A transfer by the members of a partnership to a corporation organized by themselves for the purpose of taking over the partnership property by I. Maurice Wormser, 12 Columbia L. Eev. 496, 513-514. 76 Home Fire Ins. Co. v. Barber, 67 Neb. 644, 669, 60 L. E. A. 927, 108 Am. St. Eep. 716, 93 N. W. 1024. See also Arkansas River Land, Town & Canal Co. v. Farmers' Loan & Trust Co., 13 Colo. 587, 22 Pae. 954; Chicago Union Traction Co. v. Chicago, 199 111. 579, 65 N. E. 470; Sheldon Hat Blocking Co. v. Eickemeyer Hat Block- ing Mach. Co., 90 N. T. 607, 613; An- dres V. Morgan, 62 Ohio St. 236, 78 Am. St. Eep. 712, 56 K. E. 875. 7T Eastman v. Wright, 6 Pick. (Mass.) 316; Faulkner v. Lowe, 2 Exeh. 595. 78 Alabama. Pope v. Brandon, 2 Stew. 401, 20 Am. Dec. 49. Iowa. Bobzin v. Gould Balance Valve Co., 140 Iowa 744, 118 N. W. 40; Kennedy v. Monarch Mfg. Co., 123 Iowa 344, 98 N. W. 796. Kentucky. Bramblet v. Common- wealth Land & Lumber Co., 26 Ky. L. Eep. 1176, 83 S. W. 599; Lexington Life, rire & Marine Ins. Co. v. Page, 17 B. Mon. 412, 439, 66 Am. Dec. 165. Louisiana. Goodwin v. Bodeaw Lumber Co., 109 La. 1050, 34 So. 74. Massachusetts. Old Colony Boot & Shoe Co. V. Parker-Sampson-Adams Co., 183 Mass. 557, 67 N. E. 870. Pennsylvania. Gordon v. Preston, 1 Watts 385, 26 Am. Dec. 75. Vermont. Eogers v. Danby Univer- salist Society, 19 Vt. 187; Saviryer v. Methodist Episcopal Society, 18 Vt. 405. England. Poster v. Commissioners of Inland Eevenue, [1894] 1 Q. B. Div. 516. 79 Cameron v. Steves, 9 New Bruns. 141. 80 Pope V. Brandon, 2 Stew. (Ala.) 401, 20 Am. Dec. 49; Gordon v. Preston, 1 Watts (Pa.) 385, 26 Am. Dec. 75; Foster v. Commissioners of Inland Eev- enue, [1894] 1 Q. B. Div. 516. A corporate officer may act as a no- tary public in the acknowledgment of a mortgage made to his corporation. Keene Guar. Sav. Bank v. Lawrence, 32 Wash. 572, 73 Pac. 680. 67 § 52] Pbivate Coepoeations [Ch. 1 is regarded as a conveyance, and is subject to a stamp tax imposed by statute on transfers and conveyances of property.*^ § &2, Actions. It is, of course, true that an individual cannot sue himself. Stockholders of a corporation may, however, sue the cor- poration, or be sued by it, since the corporation and its stockholders are not in any legal sense the same.*^ VII. CONSIDERED AS A PERSON, RESIDENT OR CITIZEN § 53. In general. A corporation is regarded as a "person," "resi- dent," "inhabitant," or "citizen" within the purview of those terms as Used in constitutional or statutory provisions, whenever this becomes necessary in order to give full effect to the purpose or spirit of the constitution or statute. The tendency is to regard cor- porations, as far as their inherent nature will permit, as standii^g on the saine footing as ordinary individuals. Consequently, whether ebrporations are included within a statute depends largely upon its object. § 54. Person. A corporation is an artificial person created by law for certain specific purposes, the extent of whose existence, powers and liberties is fixed by its charter.*' "While it is an artificial per- son, impalpable and intangible,** yet it is ordinarily treated as a person in the eye of the law. The general rule is that the construc- tion of the word "person" in a statute or a constitutional provi- 81 John roster & Sons v. Commis- Louisiana. New Orleans Terminal sioners of Inland Bevenue, [1894] 1 Co. v. Teller, 113 La. 733, 2 Ann. Cas. q. B. Div. 516. 127, 37 So. 624. 82 Culbertson v. Wabash Nav. Co., Massachusetts. Old Colony Boot & 4 McLean 544, Fed. Cas. No. 3,464; Shoe Co. v. Parker-Sampson-Adams Co., Waring v. Catawba Co., 2 Bay (S. C.) 183 Mass. 557, 67 N. E. 870. 109; Sogers v. Danby TTniversalist So- New York. Anglo- American Provi- ciety, 19 Vt. 187; Sawyer v. Methodist eion Co. v. Davis Provision Co., 169 Episcopal Society, 18 Vt. 405; Geer v. N. T. 506, 62 N. E. 587; H. B. Schar- Tenth School Dist., 6 Vt. 76. mann & Sons v. DePalo, 66 N. T. App. 83 Venable Bros. v. Southern Grranite Div. 29, 72 N. T. Supp. 1008. Co., 135 Ga. 508, 32 L. E. A. (N. S.) West Virginia. State v. Dry Fork R. 446, 69 8. E. 822. Co., 50 W. Va. 235, 40 S. E. 447. That the law regards a corporation 84 1 Bl. Com. 123 ; Dartmouth College as a "person," see: v. Woodward, 4 Wheat. (TJ. S.) 518, United States. Northern Securities 4 L. Ed. 629. Co. V. United States, 193 TJ. S. 197, 331, 48 L. Ed. 679; In re Haas Co., 131 Fed. 232. 68 Ch.l] History and Genebal Considebations [§54 sion may embrace a corporation whenever this is necessary in order to give effect to the reason and spirit thereof.'* Corporations are not embraced within the term "person," however, if they are not within the purpose and spirit of the statute.'^ While such a pro- vision is not necessary, yet, in many states, statutes have been enacted to the effect that the word "person" may extend to bodies corpo- rate and even to joint stock associations unless a contrary intention clearly appears.*'' A corporation has been held in Nebraska to be a "person" within the meaning of a statute giving any person the right to file a mechanic's lien.'* But, on the other hand, the Indiana court has held that it is not a "person" under a statute giving a mechanie's 85 United States. Thornton v. Bank of Washington, 3 Pet. 36, 42, 7 L. Ed. 594. Alabama. Planters' & Merchants' Bank v. Andrews, 8 Port. 404. California. People v. City of River- side, 66 Cal. 288, 5 Pac. 350; Douglass V. Pacific Mail Steamship Co., 4 Cal. 304. Connecticut. Emerson v. Goodwin, 9 Conn. 422. Iowa. Stewart v. Waterloo Turn Verein, 71 Iowa 226, 60 Am. Eep. 786, 32 N. W. 275. Massachusetts. C. H. Batehelder & Co. V. Batehelder, 220 Mass. 42, 107 N. E. 455, interpreting Mass. E. L. c. 72, sec. 5; Bicker v. American Loan & Trust Co., 140 Mass. 346, 5 N. E. 284. Michigan. Turnbull v. Prentiss Lumber Co., 55 Mich. 387, 21 N. W. 375. Mississippi. Commercial Bank "V. Nolan, 7 How. 508, 523. Nebraska. Chapman v. Brewer, 43 Neb. 890, 47 Am. St. Eep. 779, 62 N. W. 320. New York. People v. Barker, 140 N. Y. 437, 23 L. E. A. 785, 35 N. E. 657; Oleott V. Tioga E. Co., 20 N. Y. 210, 75 Am. Dee. 393 ; People v. TJtiea Ins. Co., 15 Johns. 353, 8 Am. Dee. 243. Virginia. Miller v. Com., 27 Gratt. 110; Western U. TeL Co. v. Eichmond, 26 Gratt. 1. Wisconsin. Fisher v. Horicon Iron & Manufacturing Co., 10 Wis. 351. England. Union Steamship Co. v. Melbourne Harbor Trust Com'rs, 9 App. Cas. 365. 86 Illinois. Betts v. Menard, 1 111. 395. Louisiana. Factors & Traders' Ins. Co. V. New Harbor Protection Co., 37 La. Ann. 233; JefEries v. Belleville Iron Works Co., 15 La. Ann. 19. Maryland. City of Baltimore v. Boot, 8 Md. 95, 63 Am. Dec. 692. New York. McQueen v. Middletown Mfg. Co., 16 Johns. 5. Pennsylvania. School Directors v. Carlisle Bank, 8 Watts 289. England. Pharmaceutical Society v. London & Provincial Supply Ass'n, 5 App. Cas. 857; Ingate v. La Commis- sione Del Lloyd Austriaco, Prima Sezione, 4 C. B. (N. S.) 704. 87 North Missouri E. Co. v. Akers, 4 Kan. 453, 96 Am. Dec. 183. See also N. Y. Stat. Construction L. § 5. The Massachusetts statute, E. I^ c. 8, §-5, provides that the word "per- son" may extend to corporations "un- less a contrary intention clearly ap- pears.". . 88 Chapman v. Brewer, 43 Neb. 890, 47 Am. St. Eep. 779^ 62 N. W. .320. See also Wetzel & T. Ey. Co. v. Tennis Bros. Co., 145 Fed. 458, 7 Ann. Gas.. 426; London v. Coleman, 59 6a. 65? 69 §54] Peivate Cobpoeations [Ch.l lien to "all persons performing labor. "^^ A corporation has been held to be included by the word "person" in statutes concerning attachment,'" taxation,*^ usury,'^ insolvency and bankruptcy ,»3 limitations,^* notice prior to bringing suit,*^ right to appeal,®* allow- ing action of trespass,''' prohibiting the banking business,®' confer- ring a cause of action for wrongful death," allowing suit against usurpation of a public office or franchise,^ allowing a petition to quiet title,^ and offering public lands for appropriation "by all persons" who enter upon them.' The word "person" has also been deemed to apply to a corporation as used in statutes providing for suit because of the wrongful exercise of a franchise by a "person," * punishing "any person" employing a minor child,® and providing 89 Ward V. Yarnelle, 173 Ind. 535, 91 N. E. 7. 90 Alabama. Planters' & Mer- chants' Bank of Mobile v. Andrews, 8 Port. 404. Connecticut. Bray v. Town of WallingfoTd, 20 Conn. 416; Knox v. Protection Ins. Co., 9 Conn. 430, 25 Am. Dec. 33. Illinois. Mineral Point B. Co. v. Keep, 22 111. 9, 74 Am. Dec. 124. New Hampshire. Libbey v. Hodg- don, 9 N. H. 394. Virginia. Bank of United States v. Merchants' Bank of Baltimore, 1 Kob. 573. Contra, McQueen v. Middletown Mfg. Co., 16 Johns. (N. Y.) 5. Contra, also, as to a municipal corpora- tion. City of Baltimore v. Boot, 8 Md. 95, 63 Am. Dec. 692. 91 Louisville & N. B. Co. v. Com., 1 Bush (Ky.) 250; People V. Commission- ers of Taxes, 23 N. Y. 242. Contra, Fox's Appeal, 112 Pa. St. 337, 351, 4 Atl. 149; School Directors V. Carlisle Bank, 8 Watts (Pa.) 289. 92 Thornton v. Bank of Washing- ton, 3 Pet. (tr. S.) 36, 42, 7 L. Ed. 594; Commercial Bank of Manchester v. No- lan, 7 How. (Miss.) 508, 523; Grand Gulf Bank v. Arcler, 8 Smedes & M. (Miss.) 151, 174. 93 Earth v. Baohus, 140 N. Y. 230, 23 L. B. A. 47, 37 Am. St. Bep. 545, 35 N. E. 425. 94Blossburg & C. B. Co. v. Tioga B. Co., 5 Blatchf. 387, Fed. Cas. No. 1,563; North Missouri B. Co. v. Akers, 4 Kan. 453, 96 Am. Dee. 183; People V. Eector, etc., of Trinity Church, 22 N, Y. 44, 57; Olcott v. Tioga B. Co., 20 N. Y. 210, 75 Am. Dec. 893. Compare Connecticut Mut. Life Ins. Co. v. Duer- son's Ex'r, 28 Gratt. (Va.) 630. 9B Boyd V. Croydon E. Co., 4 Bing. N. Cas. 669. 96 People V. May, 27 Barb. (N. Y.) 238. 97Bartee v. Houston & T. Cent. B. Co., 36 Tex. 648. 98 People V. trtica Ins. Co., 15 Johns. (N. Y.) 358,. 8 Am. Dec. 243. 99 Southwestern B. Co. v. Paulk, 24 Ga. 356. 1 People V. City of Eiverside, 66 Cal. 288, 5 Pae. 350. 2 Proprietors of Jeffries Neck Pas- ture V. Inhabitants of Ipswich, 153 Mass. 42, 26 N. E. 239. 3 State V. Nashville tTniversity, 4 Humph. (Tenn.) 157. 4 State V. Seattle Gas & Electric Co., 28 Wash. 488, 70 Pac. 114, 68 Pac. 946; State V. Milwaukee, B. & L. G. E. Co., 116 Wis. 142, 92 N. W. 546. 6 Overland Cotton Mill Co. v. People, 32 Colo. 863, 105 Am. St. Bep. 74, Vo 70 Ch.l] HiSTOBY AND GENERAL CONSIDERATIONS [§54 for a civil action against any person unlawfully holding a franchise.^ "Where the word "person" is used in a definition of libel, corpora- tions are included.' A corporation is not a "person" within the mortmain laws,' or within a statute imposing a penalty and allowing it to be sued for "by the person or persons" informing,^ or imposing a penalty upon any person acting as a druggist without being qualified and regis- tered as provided by law.^" A corporation is not a "person" so that it may be licensed to practice medicine,^^ or law.^'^ In the earlier eases and before corporations had become important in the industrial and commercial world, it was held that as penal statutes should be strictly construed, they did not apply to corpora- tions unless corporations were included in express terms or by clear implication.^^ Thus, it was held in an early Massachusetts ease that Pac. 924. In this case, the court said: "In the earlier cases, and before cor- porations had hecome such important factors in industrial affairs, it was held that, as statutes imposing a penalty were to be strictly construed, they did not apply to corporations, unless they included them in express terms or by clear implication. This view is no longer entertained by the modern de- cisions, either in England or this coun- try, for various reasons, among which may be noticed that it ignored the principle that statutes are to be ap- plied to corporations, when they can be, the same as to natural persons; that, so far as their nature will permit, they are amenable to the laws of the land, the same as individuals; and that to exempt them from the operation of a statute would result in conferring upon them rights which natural per- sons were not permitted to enjoy. 10 Cyc. 1208. Prima facie, the word 'person,' in a penal statute which is intended to inhibit an act, means 'per- son in law' (that is, an artificial as well as a natural person), and there- fore includes eoirporations, if they are within the spirit and purpose of the statute. Pharmaceutical Society v. London & P. Supply Ass 'n, 5 App. Cas. 857; 7 Enc. of Law (2d Ed.) 841; 1 Clark & Marshall's Private Corp. §252; Bishop's Stat. Crimes (3d Ed.) §212; Stewart v. Waterloo Turn Ve- rein, 71 Iowa 226, 60 Am. Eep. 786, 32 N. W. 275. Whether corporations are included within the statute depends largely upon its object. Pharmaceuti- cal Society v. London & P. Supply Ass 'n. 6 State V. Des Moines City E. Co., 135 Iowa 694, 109 N. W. 867. 7 State V. Williams, 74 Kan. 180, 85 Pae. 938. And see People v. Paler- mo Land & Water Co., 4 Cal. App. 717, 89 Pac. 723, 725. 8 Walker v. Bichardson, 2 Mees. & W. 882. 9 Guardians of Poor of St. Leonard 's V. Franklin, 3 C. P. Div. 377. 10 Pharmaceutical Society v. London & Provincial Supply Ass'n, 5 App. Cas. 857. 11 State Electro-Medical Institute v. State, 74 Neb. 40, 12 Ann. Cas. 673, 103 N. W. 1078. See also State Electro- Medical Institute v. Platner, 74 Neb. 23, 121 Am. St. Rep. 706, 103 N. W. 1079. 12 In re Co-operative Law Co., 198 N. Y. 479, 32 L. E. A. (N. S.) 55, 139 Am. St. Eep. 839, 19 Ann. Cas. 879. 92 N. E. 15. 13 Androscoggin Water Power Co. v. 71 § 54] Private Cobpoeations [Ch, 1 a corporation was not liable under a statute penalizing an "owner, agent, or superintendent of any manufacturing establishment," for employing minor children for more than a certain number of hours per day.^* And it was held in Maine, that where a statute penalized "any person" who converted logs of another to his own use, a cor- poration was not within the purview of the law.^^ This view is no longer entertained by the modern decisions which tend to apply penal statutes to corporations the same as to natural persons so far as possible.^® Prima facie, the word "person" in a penal statute which is enacted to forbid the doing of an act means "person in law," and, . therefore, includes corporations if they are within the purpose and spirit of the statute.^'' Corporations are included in a congressional act elonferring a cause of action upon "any person within the jurisdiction of the United States" for the deprivation, under color of any law, of rights, privileges or immunities secured by the Federal Constitution.^' They are also included within a statute punishing any person destroy- ing a vessel with intent fraudulently to obtain the insurance thereon.^' A corporation is a "person" within the meaning of the Fourteenth Amendment of the Federal Constitution, and it follows that it can- not be deprived of life, liberty or property without due process of law and that it is entitled to the equal protection of the law in like manner as other persons in the same situation.*" A corporation is, Bethel Steam Mill Co., 64 Me. 441; 17 Overland Cotton Mill Co. v. Peo- Benson v. Monson & Brimfield Mfg. pie, 32 Colo. 263, 105 Am. St. Eep. 74, Co., 9 Mete. (Mass.) 562; Pharmaceuti- 75 Pac. 924; Proprietors of Jeffries cal Society v. London & Provincial Neck Pasture v. Inhabitants of Supply Ass 'n, 5 App. Cas. 857. Ipswich, 153 Mass. 42, 26 N. E. 239.- 14 Benson v. Monson & Brimfleld 18 Act Cong. April 20, 1871; North- Mfg. Co., 9 Mete. (Mass.) 562. western Fertilizing Co. v. Hyde Park, 18 Androscoggin Water" Power Co. 3 Biss. 480, Fed. Cas. No. 10,336. V. Bethel Steam Mill Co., 64 Me. 441. 19 Act Cong. March 26, 1804; United But there were provisions in the stat- States v. Amedy, 11 Wheat. (U. S.) ute which could not reasonably apply 392, 412, 6 L. Ed. 638. to a corporation. 20 Southern R. Co. v. Greene, 216 18 Overland Cotton Mill Co. v. Peo- XT. S. 400, 54 L. Ed. 536, 17 Ann. Cas. pie, 32 Colo. 263, 105 Am. St. Eep.. 74, 1247; Gulf, C. & S. F. R. Co. v. Ellis, 75 Pac. 924. 165 U. S. 150, 154, 41 L. Ed. 666; Cov- Where a statute punishes the ob- ington & Lexington Turnpike Road Co. taining of property by false pretenses v. Sandford, 164 IT. S. 578, 41 L. Ed. from "any person," the word "per- 560; Minneapolis & St. L. E. Co. v. son" includes corporations. Norris v. Beckwith, 129 IT. S. 26, 32 L. Ed. 585; State, 25 Ohio St. 217, 18 Am. Rep. Missouri Pac. E. Co. v. Mackey, 127 291. U. S. 205, 32 L. Ed. 107; Pembina 72 Ch. 1] HiSTOEY AND GiENEEAL CONSIDERATIONS [§ 55 however, not a "person" within the Fifth Amendment of the Fed- eral Constitution.*^ A corporation comes within the protection of the Fourth Amendment of the Federal Constitution insuring "the right of the people to be secure in their persons ' ' against unlaw- ful seizures or searches.** A corporation is a "living person" under a statute allowing a party to a lawsuit to be examined in his own behalf when the adverse person in interest is living.*' Even a municipal corporation is within this statute.** "When the words "private person" are employed in a statute they include private corporations but not municipal corporations.*^ A corporation may be deemed "a responsible and respectable person" within the meaning of those words as used in an indenture of lease, provided it is shown that the corporation is solvent and on a going basis.*® A corporation has been deemed a "merchant" where this term was used in a statute taxing merchants in certain cases.*'' The term "whoever" applies to corporations and it was so held where a penalty was imposed for the sale of adulterated milk.** § 55. Resident or inhabitant. A corporation may be a "resident," "inhabitant" or "occupier." Thus, a college corporation seized of lands in fee is the "inhabitant" and "occupier" of such lands, within the meaning of a taxing statute.*® The status of corporations as residents within the meaning of con- Consol. Silver Mining & Milling Co. v. Co., 22 N. T. 352; Johnson v. Mcintosh, Pennsylvania, 125 V. S. 181, 31 L. Ed. 31 Barb. (N. Y.) 267 ; Field v. New 650; Santa Clara County v. Southern York Cent. E. Co., 29 Barb. (N. Y.) Pac. E. Co., 118 TJ. S. 394, 30 L. Ed. 176. 118; Railroad Tax Cases, 13 Fed. 722; 24 Wallace v. City of New York, 2 McGuire v. Chicago, B. & Q. E. Co., 130 Hilt. (N. Y.) 440. Iowa 340, 8 L. E. A. (N. S.) 376, 108 N. 86 Coats v. People, 22 N. Y. 245. W. 902; Hammond Beef & Provision 26 Wilmott v. London Eoad Car Co., Co. v. Best, 91 Me. 431, 42 L. E. A. 528, [1910] 2 Ch. Div. 525. 40 Atl. 338; Harbison v. Knoxville 27 American Book Co. v. Shelton, Iron Co., 103 Tenn. 421, 56 L. E. A. 117 Tenn. 745, 100 S. W. 725; American 316, 76 Am. St. Eep. 628, 53 S. "W. 955; Steel & Wire Co. v. Speed, 110 Tenn. Railroad Co. v. Harris, 97 Tenn. 684, 524, 100 Am. St. Eep., 814, 75 S. W. 705, 43 S. W. 115; Dugger v. Meehan- 1037. ics' & Traders' Ins. Co., 95 Tenn. 245, 28 Com. v. Graustein & Co., 209 Mass. 250, 28 L. E. A. 796, 32 S. W. 5. 38, 95 N. E. 97. And see Com. v. New 21 In re Bornn Hat Co., 184 Fed. 506. York Cent. & H. Eiver R. Co., 206 22 Hale V. Henkel, 201 V. S. 43, 74- Mass. 417, 19 Ann. Cas. 529, 92 N. E. 75, 50 L. Ed. 652. 766. 23 La Farge v. Exchange Fire Ins. 29 Rex v. Gardner, 1 Cowp. 79. 73 §55] Peivate Cobpokations [Ch.l stitutional and statutory provisions governing jurisdiction is discussed subsequently.*" It is sufficient to state generally here that for juris- dictional purposes corporations are deemed "residents" or "inhabi- tants" of particular places.*^ A corporation, however, is not deemed a ' ' resident ' ' if the terms or spirit of the statute employing the term render it inapplicable to corporations.*^ § 56. Citizen. The Supreme Court of the United States adopted the language of the year books and agreed with Coke that "a cor- poration aggregate of many is invisible, immortal and rests only in intendment and consideration of the law. " ** If a corporation is merely a legal entity, if it is clothed only with invisibility and intan- gibility, it cannot, strictly speaking, be a subject or a citizen. The Constitution of the United States in article III, sec. 2, limits, inter alia, the jurisdiction of the federal courts "to controversies between citizens of different states." For the purposes of this provision of the Federal Constitution and of the acts of congress carrying it into effect, corporations are treated, in effect, as citizens.** This was necessary in order to preserve the jurisdiction of the federal courts over corporations.*^ One theory of federal jurisdiction regards a 30 See Chap. 13, infra. 31 United States. United States v. Northern Pac. E. Co., 134 Fed. 715; McKane v. Burke, 132 Fed. 688; Olson V. Buffalo Hump Min. Co., 130 Fed. 1017; Weller v. Pennsylvania R. Co., 113 Fed. 502. Idaho. Boyer v. Northern Pac. R. Co., 8 Idaho 74, 70 L. E. A. 691, 66 Pac. 826. Kansas. H. Parker Grain Co. v. Chicago, B. I. & P. Ey. Co., 70 Kan. 168, 78 Pac. 406. Missouri. Sidway v. Missouri Land & Live Stock Co., 187 Mo. 649, 86 S. W. 150; Meyer v. Phoenix Ins. Co., 184 Mo. 481, 83 S. W. 479. New York. India Rubber Co. v. Katz, 65 N. Y. App. Div. 349, 72 N. Y. Supp. 658; Goldzier v. Central R. Co. of New Jersey, 43 N. Y. Misc. 667, 88 N. Y. Supp. 214. Washington. Hastings v. Anacortes Packing Co., 29 Wash. 224, 69 Pac. 776. 32 People V. Schoonmaker, 63 Barb. (N. Y.) 44. 33 10 Co. Rep. 32b; Co. Litt. 250a. See Dartmouth College v. Woodward, 4 Wheat. (U. S.) 518, 4 L. Ed. 629; Bank of United States v. Deveaux, 5 Cranch (U. S.) 61, 3 L. Ed. 38. 31 See Chap. 13, infra, and Doc- tor v. Harrington, 196 U. S. 579, 49 L. Ed. 606; Continental Nat. Bank of Memphis v. Buford, 191 U. S. 119, 48 L. Ed. 119; Barnes v. West- ern Union Tel. Co., 120 Fed. 550; Jameson v. Simonds Saw Co., 2 Cal. App. 582, 84 Pae. 289; North American Ins. Co. v. Yates, 214 111. 272, 73 N. E. 423, aff'g 116 111. App. 217; Sun Printing & Publishing Ass'n v. Ed- wards, 194 U. S. 377, 48 L. Ed. 1027; Continental Wall-Paper Co. v. Lewis Voight & Sons Co., 106 Fed. 550. S&e article by I. Maurice Wormser, 12 Columbia L. Rev. at pp. 497-98. SB Bank of United States v. Deveaux, 5 Cranch (U. S.) 61, 3 L. Ed. 38. See 74 Ch.l] History and General Considerations [§56 corporation "to all intents and purposes as a person, although an artificial person, capable of being treated as a citizen of that state, as much as a natural person."'® Another theory of federal juris- diction treats a corporation as an association of persons— citizens — and by a process of arbitrary legal fiction conclusively presumes that these persons are all citizens of the state under whose laws the cor- poration in question was organized.''' Chap. 13, infra, in which these are discussed at length. 36 Wayne, J., in Louisville, C. & C. R. Co. V. Letson, 2 How. (TJ. S.) 497, 11 L. Ed. 353. In this case it was said: "But there is a broader ground upon which we desire to be understood, up- on which we altogether rest our pres- ent judgment, although it might be maintained upon the narrower ground already suggested. It is, that a cor- poration created by and doing busi- ness in a particular State, is to be deemed to all intents and purposes as a person, although an artificial person, an inhabitant of the same State, for purposes of its incorporation, capable of being treated as a citizen of that State, as much as a natural person. Like a citizen it makes contracts, and though in regard to what it may do in some particulars it differs from a natural person, and in this especially, the manner in which it can sue and be sued, it is substantially, within the meaning of the law, a citizeii of the State which created it, and where its business is done, for all purposes of suing and being sued." See, on thi^ question, Chap.' 13, infra. 37 See Chap. 13, infra, and Doe- tor V. Harrington, 196 IT. S. 579, 49 L. Ed. 606; Shaw v. Quincy Min. Co., 145 IT. S. 444, 36 L. Ed. 768; Barron v. Burnside, 121 V. S. 186, 30 L. Ed. 915; MuUer v. Dows, 94 U. S. 444, 24 L. Ed. 207; Baltimore & Ohio E. Co. V. Harris, 12 Wall. (V. S.) 65, 20 L. Ed. 354; Marshall v. Baltimore & Ohio R. Co., 16 How. (TJ. S.) 324, 14 L. Ed. 958. In Doctor v. Harrington, supra, Mr. Justice McKenna said: "The reason of the presumption (we will so denom- inate it) was to establish the citizen- ship of the legal entity for the purpose of jurisdiction in the federal courts. Before its adoption difBculties had been encountered on account of the conditions under which jurisdiction was given to those courts. A corpora- tion is constituted, it is true, of all its stockholders; but it has a legal ex- istence separate from them, — rights and obligations separate from them; and may have obligations to them. It can sue and be sued. At first this could be done in the circuit court of the United States only when the cor- poration was composed of citizens of the state which created it. Bank of United States v. Deveaux, 5 Cranch (U. S.) 61, 3 L. Ed. 38; Hope Ins. Co. V. Boardman, 5 Cranch (U. S.) 57, 3 L. Ed. 36. But the limitation came to be seen as almost a denial of juris- diction to or against corporations in the federal courts, and in Louisville, C. & C. R. Co. V. Letson, 2 How. (U. S.) 497, 11 L. Ed. 353, prjor cases were reviewed, and this doctrine laid down: 'That a corporation created by and doing business in a particular state is to be deemed, to all intents and purposes, as a person, although an artificial person, * * * capable of being treated as a citizen of that state, as much as a natural person.' And 'when the corporation exercises its powers in the state which chartered it, that is its residence, and such an averment is sufficient to give the cir- 75 §56] Pbivate Corpoeations [Ch.l A corporation is not regarded as a citizen, however, within the purview of article IV, sec. 2 of the Constitution of the United States, reserving to the citizens of each state all of the privileges and immunities of citizens in the several states.^' "A corporation could not claim the benefit of those provisions of the Federal Constitution which confer upon the citizens of each state a general citizenship, and secure to them in other states all the privileges and immunities to which the citizens would there be entitled, under the constitution and laws of the state, under like circumstances. ' ' *' Likewise, a cor- poration is not regarded as a citizen within the Fourteenth Amend- ment to the Federal Constitution.*" cuit courts jurisdiction.' The pre- sumption that the citizenship of the corporators should be that of the domicile of the corporation was not then formulated. That came after- wards, and overcame the difH.culty and objection that the legal creation, the corporation, could not be a citizen within the meaning of the Constitution. Marshall v. Baltimore & O. E. Co., 16 How. (IT. S.) 314, 14 L. Ed. 953. This, then, was its purpose, and to stretch beyond this is to stretch it to wrong. ' ' 38 See § 389, infra, and the follow- ing authorities: United States. New York Life Ins. Co. V. Deer Lodge Co., 231 IT. S. 495, 58 L. Ed. 332; Pembina Consol. Silver Mining & Milling Co. v. Penn- sylvania, 125 U. S. 181, 31 L. Ed. 650; Western Turf Ass'n v. Greenberg, 204 TJ. S. 359, 51 L. Ed. 520; Ducat v. City of Chicago, 10 "Wall. (TJ. S.) 410, 19 L. Ed. 972, aff'g 48 Dl. 172, 95 Am. Dec. 529; Paul v. Virginia, 8 Wall. (CJ. S.) 168, 19 L. Ed. 357; Kirven v. Virginia-Carolina Chemical Co., 145 Fed. 288, 7 Ann. Cas. 219. IlUuois. In re Speed's Estate, 216 111. 23, 108 Am. St. Eep.' 189, 74 N. E. 809, afE'd 203 IT. S. 553, 51 L. Ed. 314. Massachusetts. Attorney General v. Electric Storage Battery Co., 188 Mass. 239, 3 Ann. Cas. 631, 74 N. E. 467. Minnesota. Tolerton & Stetson Co. v. Barck, 84 Minn. 497, 88 N. W. 19. 76 New Jersey. Tatem v. Wright, 23 N. J. L. 429, 441. New York. Anglo-American Provi- sion Co. V. Davis Provision Co., 169 N. Y. 506, 88 Am. St. Rep. 608, 62 N. E. 587; In re American Security & Trust Co., 45 N. Y. Misc. 529, 92 N. Y. Supp. 974. Vermont. Hawley v. Hurd, 72 Vt. 122, 52 L. R. A. 195, 82 Am. St. Eep. 922, 47 Atl. 401. Wisconsin. Chicago Title & Trust Co. v. Bashford, 120 Wis. 281, 97 N. W. 940. 39 Anglo-American Provision Co. v. Davis Provision Co., 169 N. Y. 506, 88 Am. St. Eep. 608, 62 N. E. 587. 40 See § 388, infra, and the following authorities : United States. Western Turf Ass'n V. Greenberg, 204 U. S. 359, 51 L. Ed. 520; Kirven v. Virginia-Carolina Chemical Co., 145 Fed. 288, 7 Ann. Cas. 219. Georgia. .S)tna Insurance Co. v. Brigham, 120 Ga. 925, 48 S. E. 348. lUinols. In re Speed's Estate, 216 111. 23, 108 Am. St. Eep. 189, 74 N. E. 809, afE'd 203 IT. 8. 553, 51 L. Ed. 314. Vermont. Hawley v. Hurd, 72 Vt. 122, 52 L. E. A. 195, 82 Am. St. Eep. 922, 47 Atl. 401. Wisconsin. Chicago Title & Trust Co. V. Bashford, 120 Wis. 281, 97 N. W. 940. In Western Turf Ass 'n v. Greenberg, Ch. 1] ^ History and Gteneeal Consideeations [§56 A corporation is regarded as a British subject although some, or even all, of its stockholders are foreigners." Accordingly, a cor- poration chartered by Great Britain is entitled to register its ves- sels under a statute permitting the registry of vessels owned wholly by a British subject, though many of the stockholders are for- eigners.*^ Likewise, a British corporation is entitled to sue in the courts of Great Britain, though practically all of its shareholders are alien enemies who would not be entitled to sue in the English courts.** Mr. Justice Harlan said: "The liber- Mines, [1902] A. C. 484; Queen v« ty guaranteed by the 14th Amend- Arnaud, 16 L. J. Q. B. (N. S.) 50, 9 nient against deprivation without due Q. B. (A. & E.) 806. process "of law is the liberty of natural, 42 Queen v. Arnaud, 16 L. J. Q. B. not artificial, persons." (N. S.) 50, 9 Q. B. (A. & E.) 806. 41 Continental Tyre & Rubber Co., 43 Continental Tyre & Rubber Co., Ltd. V. Daimler Co., Ltd., [1915] K. B. Ltd. v. Daimler Co., Ltd., [1915] 1 893; Janson v. Dreifontein Consol. K. B. 893. 77 CHAPTER 2 Classification op Corporations § 57. Aggregate and sole corporations — ^In general. § 58. — Distinctions. § 59. — Nature of corporations in Rome and England. ^ 60. — Corporations aggregate and sole in the United States. § 61. — Particular public officers as sole corporations. § 62. — Private business corporations. § 63. Ecclesiastical and lay corporations. § 64. Eleemosynary and civil corporations. § 65. Public and private corporations — In general. § 66. -7- Importance of division. § 67. — Public corporations proper. § 68. — Private corporations. § 69. — Public character of particular classes of corporations — ^In generaL § 70. — Cities, villages, etc. § 71. — Levee, drainage, reclamation and irrigation districts. § 72. — Educational and charitable institutions. § 73. Quasi public corporations. § 74. The United States, the states and territories as corporations. § 75. Stock and nonstock corporations. § 76. Quasi corporations — In general. § 77. — Counties. § 78. —Towns. § 79. — School districts. § 80. — Eoad districts. § 81. — Public officers or public boards. § 82. — Joint stock companies. § 83. Domestic and foreign corporations. § 84. Statutory classification of corporations — ^In general. § 85. — Tests for ascertaining class of corporation. § 86. — "Trading" corporations. § 87. — "Mercantile" or "commercial" corporations. § 88. — " Manufacturing ' ' corporations. § 89. — "Transportation" and "railroad" corporations. § 90. — Corporations for "industrial pursuits." § 91. — "Business" corporations. § 92. — Corporations for "pecuniary profit." § 93. — "Moneyed" corporations. § 94. — "Banking" corporations — Trust companies. I 95. — "Beneficial" corporations. § 96. — "Insurance" corporations. § 97. — Building and loan associations. J 98. — "Literary" corporations. 78 Ch.2] Classification of Corpokations [§57 § 99. — " Seientifio ' ' corporations. § 100. — ' ' Charitable ' ' and ' ' benevolent ' ' corporations. §101. — ;" Religious" corporations. § 102. — Corporations for ' ' work of internal improvement, ' ' ment " or " public utility. ' ' 'public improve- §57. Aggregate and sole corporations — In general. "The first division of corporations," says Blackstone, "is into aggregate and sole, ' ' ^ and a similar classification was recognized by Chancellor Kent.2 An aggregate corporation is a corporation consisting of more than one member, and has been defined as "an artificial body of men, com- posed of divers individuals, the ligaments of which body are the franchises and liberties bestowed upon it, which bind and unite all into one, and in which consists the whole frame and essence of the corporation. ' ' ^ A sole corporation consists of* one person or member only, and his successors. It "consists of a single individual having an artificial or legal personality distinguished from his natural character. ' ' * 1 1 Bl. Com. 469. 2 2 Kent Com. 273. 3 Overseers of Poor of Boston v. Sears, 39 Mass. (22 Pick.) 122; Thomas V. Dakin, 22 Wend. (N. Y.) 9. "Corporations aggregate consist of many persons united together into one society, and are kept up by a perpet- ual succession of members, so as to continue forever: of which kind are the mayor and commonalty of a city, the head and fellows of a college, the dean and chapter of a cathedral church." 1 Bl. Com. 469. "The corporations generally in use with us are aggregate, or the union of two or more individuals in one body politic, with a capacity of succession and perpetuity. ' ' 2 Kent Com. 274. So where a statute was passed pro- viding that overseers of the poor be incorporated, and that they and their successors have perpetual succession that property given to the poor be vest- ed in the overseers and their successors in their corporate capacity, for the use- of the poor; that they have a com- mon seal, make by-laws, and choose officers, etc., a corporation aggregate was created. Overseers of Poor of Bos- ton V. Sears, 39 Mass. (22 Pick.) 122. 4 Eoman Catholic Archbishop of San Francisco v. Shipman, 79 Cal. 288, 21 Pac. 830; Santillan v. Moses, 1 Cal 92; McCloskey v. Doherty, 97 Ky. 300 30 S. W. 649; Overseers of Poor of Bos ton V. Sears, 39 Mass. (22 Pick.) 122 Weston V. Hunt, 2 Mass. 500. "A corporation sole consists of a single person, who is made a body cor- porate and politic, in order to give him some legal capacities and advantages, and especially that of perpetuity, which, as a natural person, he cannot have. A bishop, dean, parson, and vicar are given in the English books as instances of sole corporations; and they and their successors in perpetuity take the corporate property and priv- ileges; and the word 'successors' is generally as necessary for the suc- cession of property in a corporation sole, as the Vv'ord 'heirs' is to create an estate of inheritance in a private individual. ' ' 2 Kent Com. 273. To the same effect see 1 Bl. Cam. 469. 79 57] Private Corporatiohts [Ch.2 This division of corporations into sole and aggregate is, in this country at least, principally of historical interest, as nearly all cor- porations are aggregate.^ Corporations whether sole or aggregate can he created by or under legislative authority only.* §58. — Distinctions. "There are," says Chancellor Kent, "very few points of corporation law applicable to a corporation sole. * * * The corporations generally in use with us are aggregate, or the union of two or more individuals in one body politic, with a capacity of succession and perpetuity. ' ' ' « Thomas v. Dakin, 22 Wend. (N. Y.) 9. 6 See § 168, infra. 7 2 Kent Com. 273, 274. At common law, corporations aggre- gate could take in succession both real and personal property, but corpora- tions sole could not take goods and chattels for the benefit of themselves and their successors. The reason giv- en was that such movable property was liable to be lost or embezzled, and this would give rise to a multitude of disputes between the successor and the executor, which the law was care- ful to avoid. 1 Bl. Com. 477. "An aggregate corporation may have and use a common seal, by which the will of the body is expressed, and its acts executed; they are to take and grant by their appropriate cor- porate name; may take and hold real and ipersonal property ; may make by- laws for the regulation of all mat- ters within the scope of their author- ity, not contrary to the law of the land, or repugnant to the provisions of the charter or act of incorporation; they must perform all corporate acts, by deed under their common seal, by vote, or by agency of officers or agents duly authorized for the purpose; they must appear by attorney and cannot appear in person; the will of the ma- jority, orderly taken, at a meeting duly vcalled and held, is the will of the body and must govern, unless other- wise provided by charter or by-law; they must regularly keep a record, journal or other written account of their votes and proceedings, which is the proper evidence of their acts, ahd may elect and qualify a clerk or secretary for that purpose; they may elect a president or head, a treasurer, managers, directors, and other suit- able officers, with such powers, as the terms import, and such as may be specially conferred upon them, by vote, or deed, to manage their affairs; they may elect members to fill vacancies, when it is not otherwise provided by the charter. Indeed this last qualifica- tion must be added, in regard to al- most all these enumerated powers, and it may be remarked generally, that when these are denominated incidents to an aggregate corporation, it is to be understood that they are the most common and usual characteristics of such a corporation, and that they exist by implication, in eases where it is not otherwise provided in the charter; but that its constitution and organi- zation, the mode in which individuals may become and cease to be members, and also its action in all respects, the manner, times, places and occasions, on which meetings may be held, the members or particular individuals who must be present and vote to constitute a valid act, the officers who may or must be chosen, the property they may hold, the powers they may exer- 80 Ch.2] Classification of Corporations [§60 §59. — Nature of corporations in Rome and Engfland. Among the Romans, all corporations were aggregate, and Blackstone says that with regard to sole corporations, consisting of one person only, the Roman lawyers had no notion of them; "their maxim being that 'ires faciunt cMegium,.' * * * Though they, held that if a cor- poration, originally consisting of three persons, be reduced to one, 'si universitas ad unwm redit ' * * *, it may still subsist as a corpora- tion, 'et stet nomen universitatis/ "* A corporation sole was the creation of English law for the purpose of some of the English institutions. Thus, at common law, the king was regarded as a corporation sole with the capacity of succession, in order to prevent a possible interregnum and to preserve the possession of the crown.8 Sole corporations were also mostly employed to hold in succession the rights and property of the ecclesiastical establish- ments ^^ and the English books give as instances of sole corporations, bishops, deans, parsons, and vicars.^^ § 60. — Corporations aggregate and sole in the United States. As has been stated above, sole corporations are not common in the United cise, the duration of their existence, may all be modified and regulated ad libitum, by the power which con- stitutes the corporation. * * * In all these respects, the distinction between an aggregate and sole cor- poration, growing out of their different modes of constitution and forms of action, is striking and obvious. A bishop or parson acting in a corporate capacity and holding property to him and his successor in right of his of&ce, has no need of a corporate name, he requires no peculiar seal, he per- forms all legal acts under his own seal, in his own name and name of office; his own will alone regulates his acts and he has no oeeasion for a secre- tary, for he need not keep a record of his acts; no need of a treasurer, for he has no personal property except the rents and proceeds of the corporate estate, and these he takes to his own use when received. By-laws are un- necessary, for he regulates his own action, by his own will and judgment, like any other individual acting in his I Priv. Corp.— 6 own right." Overseers of Poor of Bos- ton V. Sears, 39 Mass. (22 Pick.) 122. See also Archbishop of San Francisco V. Shipman, 79 Cal. 288, 21 Pac. 830. 8 1 Bl. Com. 469. 9 Co. Litt. 43; 1 Bl. Com. 469. 10 Thomas v. Dakin, 22 Wend. (N. Y.) 9. 11 2 Kent Com. 273; 1 Bl. Com. 469. See Ford v. Harrington, L. B. 5 C. P.- 282. It is said by Blackstone: "At the original endowment of parish churches, the freehold of the church, the church- yard, the parsonage house, the glebe, and the tithes of the parish, were vest- ed in the then parson by the bounty of the donor, as a temporal recompense to him for his spiritual care of the in- habitants, and with intent that the same emoluments should ever after- wards continue as a recompense for the same care. But how was this to be effected? The freehold was vested in the parson; and, if we suppose it vested in his natural capacity, on his death it might descend to his heir, 81 §60] Private Coepobations [Ch.2 States.^^ In fact, it has been held, in one state at least, that such corporations are not recognized and do not exist therein.^^ But in other states, in the early decisions, corporations sble have been recog- nized. Thus it has been held that the ministei^ of a town or parish who is seized of any lands in the right of the town or parish, which is the case of all parsonage lands or lands granted for the use of the ministry, or of the minister for the time being, is for that purpose a sole corporation and holds the same to himself and his successors.^* A priest of a Catholic mission has also been held to be, with respect and would be liable to his debts and incumbrances: or at best, the heir might be compellable, at some trouble and expense, to convey these rights to the succeeding incumbent. The law therefore has wisely ordained, that the parson, quatenus (as) parson, shall never die, any more than the king; by making him and his successors a corporation. By which means all the original rights of the parsonage are preserved entire to the successor; for the present incumbent, and his prede- cessor who lived seven centuries ago, are in law one and the same person; and what was given to the one was given to the other also." 1 Bl. Com. 470. IZ Thomas v. Dakin, 22 V^Tend. (N. Y.) 9. "We are not aware, that there is any instance of a sole corporation, in this Commonwealth, except that of a person, who may be seised of parson- age lands, to hold to him and his suc- cessors, in the same office, in right of his parish. There are some instances in which certain public officers are empowered by statute to maintain ac- tions, as successors, such as judges of probate, county and town treasurers; but it is only where expressly provided by statute." Overseers of Poor of Boston v. Sears, 39 Mass. 122. 13 In one Kentucky case it was said: "There is no such being in this state as a sole corporation, and certainly none such allowed to be created by the statute," referring to a statute allowing "any number of persons" to associate "together" and form a cor- poration. Louisville Banking Co. v. Eisenman, 94 Ky. 83, 19 L. R. A. 684, 42 Am. St. Rep. 335, 21 S. W. 531, 1049. But see McCloskey v. Doherty, 97 Ky. 300, 30 S. W. 649. 14 Inhabitants of First Parish in Brunswick v. Dunning, 7 Mass. 445. In another Massachusetts case, the minister of a parish, who was seized of parsonage lands in right of his par- ish was held to be a corporation sole, in accordance with the English law, so that he could sue as such to recover possession of the same. Weston v. Hunt, 2 Mass. 500. "By the provincial statute of 28 G. 2, c. 9, the ministers of the several Protestant churches were made sole corporations, capable of taking in suc- cession any parsonage lands, granted to the minister and his successors, or to the use of the ministry. And no alienation made by any minister of any parsonage lands, holden by suc- cession, shall be valid any longer than he shall continue minister; unless, be- ing minister of some particular town, district, or precinct, such alienation be made with the consent of such town, district, or precinct; or, being a min- ister of some Episcopal church, the alienation be made with the consent of the vestry." Weston v. Hunt, 2 Mass. 500. And see Terrett v. Taylor, 9 Cranch (TJ. S.) 43, 3 L. Ed. 650; Town of Pawlet v. Clark, 9 Graneh (U. S.) 292, 322, 3 L. Ed. 735. 82 Ch.2] Classification of Corporations [§'61 to the lands of the mission, in a position analogous to that of a cor- poration sole in England, and in that character could maintain an action to recover possession of the lands. ^^ In other cases Catholic bishops or archbishops have been held sole corporations with respect to lands held in such character.^^ § 61. — Particular public oifBcers as sole corparations. It has been held that particular public officers who are clothed with certain powers with respect of their office, and who are vested with the capacity of succession, are corporations sole, or quasi corporations sole. Thus, a town supervisor has been held a quasi corporation sole.^'' And when a statute directs bonds to be made payable to the governor op some other functionary having legal succession, the office is the payee and the successor may maintain an action on such bond. It follows that such officer is made by statute and for public benefit, quoad hoc, a corporation sole.'* 15 Santillan v. Moses, 1 Cal. 92. 16 Eoman Catholic Archbishop of San Francisco v. Shipman, 79 Cal. 288, 21 Pac. 830; MeCloskey v. Doherty, 97 Ky. 300, 37 S. W. 649. In Illinois, the Catholic bishop of Chicago was created a corporation sole by statute. See Chiniquy v. Catholic Bishop of Chicago, 41 111. 148. ITJansen v. Ostrander, 1 Cow. (N. y.) 670. 18 Polk V. Plummer, 21 Tenn. 500, 87 Am. Dec. 566. See afeo Kinney v. Etheridge, 25 N. C. 360. In a Tennessee ease it was said: "The governor of this state is the executive of it; it is one of his duties, 'among many others, to see that the laws of the state are executed and obeyed; this is a great and funda- mental duty, without the proper ob- servance of which society might and would necessarily be greatly distracted, and the proper security of life, liberty, and property seriously endangered for" the purpose of enforcing the execution of the laws, and the protection of the state from rebellion and invasion; he is the commander of the forces of the state; to hold that there can be an interregnum in this office would be to hold to the temporary anarchy of the state; and in order to hold that there 13 no such interregnum we must hold that the governor, as such, never dies; to do this he must be a corporation sole, with succession in offtce. Such we think he is, constituted so by the organization of our state government, and not by any particular statute or statutes; and therefore when bonds are directed to be made payable to him in his official capacity, they are payable to him in his capacity as a corpora- tion sole quoad that particular trans- action." Governor v. Allen, 27 Tenn. 176, in which a number of the earlier decisions are reviewed. But the mere fact that a court di- rects a bond to be made payable to a particular officer does not make him a corporation sole, so that his suc- cessor can sue on the bond. In the absence of a statute, he himself indi- vidually, or, if he be dead, his per- sonal representative, must sue thereon. Kinney v. Etheridge, 25 N. C. 360. And see McDowell v. Hemphill, 60 N. C. 96. 83 § 62] Private Cokpobations [Cb. 2 § 62. — Private business corporations. In most states the general laws authorizing the formation of corporations expressly require that there shall be a certain number of corporators, or at least more than one,^^ and there are very few instances of corporations sole created for business purposes. But in the absence of constitutional restrictions there is nothing to prevent the legislature from creating such a corporation. A person cannot be regarded as a corporation sole except by virtue of an act of the legislature conferring corporate powers. The fact that all the shares of stock of a corporation become vested by transfers in a single individual does not make it a corpora^ tion sole. The corporation still retains its original character, since the several shares may be redistributed by the holder .2" A legislative grant of corporate powers to one person and his suc- cessors and associates was held merely to permit him to take associ- ates, and not to render it necessary for him to do so before the act could take effect. In other words, the act conferred upon him alone the right to exercise all the corporate powers, and made his acts, when acting upon the subject-matter of the corporation and within its sphere of action and grant of power, the acts of the corporation.''^ §63. Ecclesiastical and lay corporations. Another division of corporations, by the English law, is into ecclesiastical and lay,*^ and Blackstone says that "ecclesiastical corporations are where members that compose it are entirely spiritual persons ; such as bishops ; certain deans, and prebendaries ; all archdeacons, parsons, and vicars ; which are sole corporations ; deans and chapters" and, at one time, prior and convent, abbot and monks and the like, which were corporations aggregate. These were erected for the furtherance of religion, and for perpetuating the rights of the church.^' Chancellor Kent says that "with us they are called religious cor- porations," and states that this is the description given them by the statutes of various states providing generally for the incorporation" of religious societies for the purpose of managing with more facility and advantage, the temporalities belonging to the church or congre- gation.2* Strictly speaking, there are no ' ' ecclesiastical corporations ' ' 19 See § 109, infra. 21 Penobscot Boom Corporation v. 20 Newton Mfg. Co. v. White, 42 Ga. Lamson, 16 Me. 224, 33 Am. Dec. 656; 148, 159; Louisville Banking Co. v. -Day v. Stetson, 8 Greenl. (Me.) 365. Eisenman, 94 Ky. 83, 19 L. R. A. 684, 22 2 Kent Com. 274. 42 Am. St. Rep. 335, 21 S.- W. 581, 23 1 Bl. Com. 470. See Robertson v. 1049; Russell v. McLellan, 14 Pick. Bullions, 9 Barb. (N. Y.) 64; Ford v. (Mass.) 63, 69; Baldwin v. Canfield, Harrington, L. E. 5 C. P. 282. 26 Minn. 43, 1 N. W. 261, 276. 24 2 Kent Com- 374. 84 Ch.2] Classification of Cobpobations [§63 in the United States, in the proper sense of the term, there being no established church. It is true that provision is made in all the states for the formation of religious corporations, but they are regarded as mere civil corporations and differ from ordinary, business corporations in their purpose chiefly.''* A distinctive feature of ecclesiastical corporations as known to the English law is that they are subject to the jurisdiction of the ecclesi- astical courts or the visitatorial power of the ordinary.^^ It is not the profession of piety by the individuals that renders the corporation of which they are the members ecclesiastical. The corporation must be spiritual in a legal and not in a popular sense. Lay corporations may be for the advancement of religion and the members may all be clergymen even, but that does not make the corporation ecclesias- tical.^'' According to the line of demarcation drawn) by Blackstone, all corporations other than ecclesiastical are called "lay corporations." They are created for a variety of temporal or secular purposes, and are according to their object either eleemosynary or civil.** 2B Calkins v. Cheney, 92 111. 463; Robertson v. Bullions, 11 N. Y. 243. See § 101, infra. In the latter case, the court, per Hand, J.,, said, "I doubt whether, in a technical sense, there are any eccle- siastical corporations in this state, par- ticularly under the third geetion of this act. As an ecclesiastical body, they have no legal existence; they have no ecclesiastical power. They are not controlled by and can not con- trol the church, or any church judi- catory, or interfere in spiritual con- cerns. Their object and purpose is to manage the temporalities ,of the so- ciety. ' ' Eobertson v. Bullions, 9 Barb. (N. Y.) 64. 261 Bl. Com. 471; Robertson v. Bul- lions, 9 Barb. (N. Y.) 64. Civil corporations are subject to no visitation, except in England by the king, who exercises this power in the king's bench, which is his representa^, tive, by mandamus, or quo warranto; and here this power, in a degree, be- longs to the government, and was ex- ercised in our supreme court; which is the representative, in our judicial system, of the king's bench; and in the same manner, if such power did formerly exist here at all, as the king 's bench superintends the civil corpora- tions of the kingdom. Bobertson v. Bullions, 9 Barb; (N. Y.) 64. In a general way our courts have no ecclesiastical jurisdiction. The rule is stated in an Indiana case as follows: "While the courts of this state have no ecclesiastical jurisdiction whatever, yet they are charged with the duty and clothed with the jurisdiction of protecting property rights of religious societies, corporations, and churches, as well as that of individuals, and thereby of necessity they may be com- pelled to decide questions of ecclesias- tical law when that law becomes a fact upon which property rights de- pend." Smith V. Pedigo, 145 Ind. 361, 19 L. E. A. 433, 44 N. E. 363, 33 N. E. 777. 27 Eobertson v. Bullions, 9 Barb. (N. Y.) 64. 281 Bl. Com. 470. See Dartmouth College V. Woodward, 4 Wheat. (U. S.) 518, 4 L. Ed. 630; 2 Kent Com. 274. 85 §64] Pbivate Coepobations [Ch.2 §64. Eleemosynary and civil corporations. Eleemosynary cor^ porations, sometimes called "charitable corporations" are such as are created, not for private gain nor profit, but for charitable purposes, — ■ for the administration of charitable trusts. They are distinguished from "civil" corporations. Included in the class of eleemosynary corporations are corporations created for the purpose of maintaining hospitals and homes for the sick, insane and poor, and for the purpose of maintaining endowed libraries or colleges.*' A society which is incorporated for the administration of a public charity, and which is endowed by private benefactions from such per- sons as bestow them, is a private eleemosynary corporation though it 29 United States. Society for Propa- gation of Gospel V. New Haven, 8 Wheat. 464, 5 L. Ed. 662; Dartmouth College V. Woodward, 4 Wheat. 518, 4 L. Ed. 630. Comiecticut. Hearns v. Waterbury Hospital, 66 Conn. 98, 31 L. B. A. 224, 33 Atl. 595; Bishops' Fund v. Eagle Bank, 7 Conn. 476; American Asylum V. Phoenix Bank, 4 Conn. 172, 10 Am. Dee. 112. Illinois. See Board of Education v. Bakewell, 122 III. 339, 10 N. E. 378; Board of Education, State of Illinois V. Greenebaum & Sons, 39 111. 609. Massaclmsetts. McDonald v. Massa- chusetts General Hospital, 120 Mass. 432, 21 Am. Eep. 529; Nelson v. Gush- ing, 56 Mass. (2 Cush.) 519. Missouri. State v. Adams, 44 Mo. 570. New York. See Robertson v. Bul- lions, 9 Barb. 64; People v. Fitch, 16 N. Y. Misc. 464, 39 N. Y. Supp. 926. England. Durant v. Kennett, L. E. 5 C. P. 262. "The true test of an institution ia its origin and objects. If it is found- ed on donations, and has for its pur- pose the accomplishment of a charity, by the distribution of alms, it most un- questionably is eleemosynary. ' ' Ameri- can Asylum v. Phoenix Bank, 4 Conn. 172, 10 Am. Deo. 112. See also Santa Clara Female Academy v. Sullivan, 116 111. 375, 56 Am. Eep. 776. Eleemosynary corporations ' ' are such as are constituted for the per- petual distribution of the free alms, or bounty, of the founder of them to such persons as he has directed. Of this kind are all hospitals for the maintenance of the poor, sick, and impotent: and all colleges both in our universities and out of them; which colleges are founded for two purposes: 1. For the promotion of piety and learning by proper regulations and or- dinances. 2. For imparting assistance to the members of those bodies, in or- der to enable them to prosecute their devotion and studies with greater ease and assiduity. And all these eleemosy- nary corporations are, strictly speak- ing, lay and not ecclesiastical, even though composed of ecclesiastical per- sons, and although they in some things partake of the nature, privileges, and restrictions of ecclesiastical bodies." 1 Bl. Com. 471. "An eleemosynary corporation is a private charity, constituted for the per- petual distribution of the alms and bounty of the founder. In this class are ranked hospitals for the relief of poor, sick, and impotent persons, and colleges and academies established for the promotion of learning and piety, and endowed with property, by public and private donations." 2 Kent Com. 274. 86 Ch.2] Classification of CoRPoisATioNS [§64 is created by a charter from the crown.^" Likewise, a hospital incor- porated by special act of the legislature, but which has no capital stock and which is not organized for the benefit of its members, is clearly a ' ' charitable corporation. ' ' '^ The establishment of an institution for the dissemination of learn- ing has always been considered a charity. The true test of such an institution is its origin and objects. If it is founded on donations, and has for its purpose the accomplishment of a charity by the dis- tribution of alms, it most unquestionably is eleemosynary .^^ Thus it has been held that a corporation having for its sole object the education and instruction of the deaf and dumb, supporting and instructing indigent persons of that class gratuitously, and receiving a pecuniary compensation from pupils able to pay it, deriving its means of support from the donations of individuals and the public, and applying its funds exclusively to the general object of the insti- tution, was a charitable or eleemosynary corporation.^' And a uni- 80 Society for Propagation of Gos- pel V. New Haven, 8 "Wheat. (TJ. S.) 464, 5 L. Ed. 662. 31 Hearns v. Waterbury Hospital, 66 Conn. 98, 31 L. B. A. 224, 33 Atl. 595. 38 American Asylum v. Phoenix Bank, 4 Conn. 172, 10 Am. Dec. 112. Thus trustees of a school created un- der provisions of a will, and confirmed by an act of incorporation held an eleemosynary corporation for the pur- pose of education. Nelson v. Gushing, 56 Mass. 519. 33 American Asylum v. Phoenix Bank, 4 Conn. 172, 10 Am. Dec. 112. In this case the court said, "The American Asylum may, with the strict- est propriety, be defined an incorpo- rated school for charitable purposes. It is a school, which is a generic term, denoting an institution for instruction or education; and, from the nature of its object, is a private incorporation. Its objects and operations are all of a private character; and the donations of states to aid in effectuating them, do not, in the minutest degree, change its nature. The institution is exclu- aively 'for charitable purposes;' its sole object being to pour instruction into the minds of the deaf and dumb; to elevate them from the lowest deg- radation of intellect to the dignity of intelligent, and fit them to become •moral and religious, beings; to open their blind eyes, and unstop their deaf ears; and to accomplish this, through the means of funds, derived from the gratuities of the benevolent. A pur- pose so honourable and noble, and free from the dross of self interest, brings the American Asylum peculiarly with- in the spirit, as it is obviously within the letter, of the law, which authorises a compulsory subscription of the stock of the Phoenix bank. The Asylum, in no sense of the expression, is a money- making institution. All its funds are necessarily applicable to the charitable object of educating the deaf and dumb; and this is done gratuitously, except so far as the power of doing is enlarged, by the sums paid for instruc- tion, by the rich and able. By this operation, the funds of the institution are not absorbed, but augmented; the charitable object of the Asylum is not diminished, but promoted; and the na- ture of it is not changed, but pur- sued. The funds of the institution 87 § 641, Peivate Coepoeations [Ch. 2 verslty founded for the purpose of the gratuitous distribution of knowledge of the art of teaching and conducting common schools, and erected at the expense of individuals, must also be regarded as an eleemosynary corporation.^* A cemetery corporation '* and a Young Men's Christian Association,^^ have been held not to be charitable corporations;*'' A corporation does not become invested with the char- acter of an eleemosynary corporation merely by performing an act of charity, but if it undertakes an act of charity without the purposes of its incorporation it assumes the same duties, neither more nor less, that an individual assumes who undertakes a similar act of charity." Corporations other than ecclesiastical -and eleemosynary, whether public or private, are called civil corporations, and a corporation organized, not for the purpose of a public charity, but for the benefit, pecuniary or otherwise, of its members, is not in any sense an eleemosy- nary or charitable corporation but is a private civil corporation, and subject to the same principles and rules of law as other private civil corporations. It has been so held, for example, in the case of an asso- ciation whose articles described. its business to be "such as was usually transacted by savings institutions," and whose by-laws provided for receiving deposits, and for paying interest thereon at such rates as to indicate that its purpose was the pecuniary profit of its stockholders." §65. Public and private corporations — In general. Another division of corporations is into public and private,*" the distinction are not applicable to any but eleemosy- tery Ass'n, 146 Mass. 163, 15 N. E. nary purposes, nor have they been 505. otherwise applied. If they had, it 36 Chapin v. Holyoke Y. M. C. A., would have constituted a breach of 165 Mass. 280, 42 N. E. 1130. trust, for which there is a most ob- 87 For other cases, see State v. Me- vious remedy. And as the trustees Grath, 95 Mo. 193; In re St. Louis In- are alone authorized to act for the stitute of Christian Science, 27 Mo. promotion of the benevolent object of App. 633; West's Appeal, 64 Pa. St. the institution; so the donors are, in 186; People v. Gunn, 96 N. T. 317; no event, entitled to any profit, which People v. Nelson, 46 N. Y. 477, 60 might arise, from the enlargement of Barb. (N. Y.) 159, 3 Lans. (N. Y.) 394. its funds. Be they greater or less, 88 Union Pae. Ey. Co. v. Artist, 60 they are consecrated to charity; and Fed. 365, holding also that a corpora- this decisively marks the eleemosynary tion in administering a trust fund dis- character of the institution." Ameri- tinct from its corporate funds, held can Asylum v. Phoenix Bank, 4 Conn, by it on a specific trust, stands in the 172, 10 Am. Dee. 112. same position as an individual who ad- 84 Board of Education v. Bakewell, ministers a trust fund for a similar 122 111. 339, 10 N. E. 378; Board of purpose. Education, State of Illinois v. Greene- 89 Sheren v. Mendenhall, 23 Minn, baum & Sons, 39 HI. 609. 92. 86 Donnelly v. Boston Catholic Ceme- 40 Hammond v. Clark, 136 6a. 313, 88 Ch.2] Classification of Cobpobatioks [§66 having reference to their powers and the purposes of their ereation." This division was recognized by Chancellor Kent, who mentions the fact that corporations, both private and public or municipal, were well known to the Roman law, and they existed from the earliest period of the Roman Republic.** Modern statutes recognize this division of corporations as private and public. § 66. — Importance of division. The division of corporations into public and private is of considerable importance in view of the differ- ence in the rules of law which apply. A private corporation involves the idea of consent of the individuals who compose it, and after incor- poration cannot be changed or dissolved without their consent, unless the power to do so is reserved at the time of creation, or unless it has forfeited the right to do business or exist by virtue of the abuse or non- user of its powers. On the other hand, a public corporation, being an 38 L. E. A. (N. S.) 77, 71 S. E. 479; Ehodes V. Love, 153 N. C. 468, 69 S. B. 436; Lyon v. Board Com'ra Granville Co., 120 N. C. 237, 26 S. B. 929. Civil corporations are established for a variety of purposes and they are either public or private. 2 Kent Com. 274. 41 Inhabitants of Tarmouth v. In- habitants of North Yarmouth, 34 Me. 411, 56 Am. Dec. 666. 42 2 Kent Com. 268. "It would appear, from a passage in the Pandects, that the provisions on this subject were copied from the laws of Solon, who permitted private companies to institute themselves at pleasure, provided they did nothing contrary to the public law. But the Eomans were not so indulgent as the Greeks. They were very jealous of such combinations of individuals, and they restrained those that were not specially authorized; and every corporation was illicit that was not ordained by a de- cree of the senate or of the emperor. Collegia licita, in the Eoman law, were, like our incorporated companies, so- cieties of men united for some useful business or purpose with power to act like a single individual; and if they abused their right, or assembled for any other purpose than that expressed in their charter, they were deemed illidta, and many laws, from the time of the Twelve Tables down to the times of the emperors, were passed against all illicit or unauthorized companies. In the age of Augustus, as we are in- formed by Suetonius, certain corpora- tions had become nurseries of faction and disorder; and that emperor inter- posed, as Julius Csesar had done before him, and dissolved all but the ancient and legal corporations — cuneta collegia, prater antiquitus constituta distraxit. We find, also, in the younger Pliny, a singular instance of extreme jeal- ousy indulged by the Eoman govern- ment of these corporations. A destruc- tive fire in Nicomedia induced Pliny to recommend to the Emperor Trajan the institution, for that city, of a fire company of one hundred and fifty men (colltigium fabrorwm), with an assur- ance that none but those of that busi- ness should be admitted into it, and that the privileges granted them shoutd not be extended to any other purpose. But the emperor refused to 89 § 66] Peivate Cohpokations [Ch. 2 instrument or means of government, is subject to creation or dissolu- tion at the will of the legislative body or lawmaking power, and in total disregard of the wishes of the members who compose it. In the same manner its charter is subject to change or amendment.** The right to establish, alter or abolish such corporations seems to be a principle evidently inherent in the very nature of the institutions themselves ; since all mere municipal regulations must, from the nature of things, be subject to the absolute control of the government. These institutions being, in their nature, the auxiliaries of the government in the great business of municipal rule, cannot have the least pretension to sustain their privileges or th«ir existence upon anything like a contract between them and the government, because there can be no reciprocity of stipulation, and because their objects and duties are incompatible with everything of the nature of such a compact.** The difference in the application of rules of law is further mani- fested by the fact that the property of a public corporation is not usually taxable, while that of a private corporation is; though the mere fact that the property of a corporation is exempt from taxation does not necessarily determine that the corporation is either public or quasi public in character.** § 67. — Public corporations proper. While, as will be seen later, all corporations are public in the sense that they affect and are dependent upon the public to a greater or less extent,*® strictly speak- ing, a public corporation is one that is created for political purposes with political powers to be exercised for purposes connected with the public gbod in the administration of civil government. It is an instru- ment of the government subject to the control of the legislature, and its members are officers of the government appointed for the discharge grant, and observed that societies of land, and the government has the sole that sort had greatly disturbed the right, as trustee of the public interest, peace of the cities; and he observed, to inspect, regulate, control, and direct that whatever name he gave them, and the corporation, its funds and fran- for whatever purpose they might be chises. That is of the essence of a instituted, they would not fail to be public corporation." Regents of TJni- mischievous. " 2 Kent Com. 268. versity of Maryland v. "Williams, 9 43 See chapter on Amendment or Gill & J. (Md.) 365, 31 Am. Dec. 72. Repeal of Charter, infra. See also In- 44McKim v. Odom, 3 Bland (Md.) habitants of Yarmouth v. Inhabitants 407. of North Yarmouth, 34 Me. 411, 56 Am. 45 People v. Forest Home Cemetery Dec. 666. Co., 258 111. 36, Ann. Cas. 1914 B 277, "Public corporations are to be gov- 101 N. E. 219. erned according to the laws of the 46 See § 69, infra. 90 Ch.2] Classification of Cobpobations [§67 of public duties,*' and a corporation, all of the franchises of which are exercised for public purposes, is a public corporation.** To con- stitute a public corporation, it is not essential that it shall exercise all the functions of government within a prescribed district.*® In other words, a public corporation is a corporation created merely for purposes of government, as distinguished from a private corpora- foundation be private, though under the charter of the government, the corporation is private, however ex- tensive the uses may be to which it is 47 Regents of University of Mary- land V. Williams, 9 Gill & J. (Md.) 365, 31 Am. Dec. 72, quoted with ap- proval in Downing v. Indiana State Board of Agriculture, 129 Ind. 443, 12 L. E. A. (N. S.) 664, 28 N. B. 123, 614; State v. Carr, 111 Ind. 335, 12 N. B. 318. See also Board of Directors for Leveeing Wabash Eiver v. Hous- ton, 71 111. 318; Inhabitants of Yar- mouth V. Inhabitants of North Yar- mouth, 34 Me. 411, 56 Am. Dee. 666; McKim V. Odom, 3 Bland (Md.) 407, 417. "A public corporation is one that is created for political purposes, with political powers to be exercised for purposes connected with the public good, in the administration of civil government, an instrument of the government, subject to the control of the Legislature and its members, of- ficers of the government, for the ad- ministration or discharge of public duties. ' ' Phillips v. City of Baltimore, 110 Md. 431, 25 L. E. A. (N. S.) 711, 72 Atl. 902. In the celebrated ease of Dartmouth College V. Woodward, 4 Wheat. (XI. S.) 518, 4 L. Ed. 630, Justice Story, in discussing the distinction between pub- lic and private corporations, says: "Public corporations are generally esteemed such as exist for public political purposes only, such as towns, cities, parishes, and counties; and in many respects they are so, although they involve some private interests; but strictly speaking, public corpora- tions are such only as are founded by the government for public purposes, where the whole interests belong also to the government. If, therefore, the devoted, either by the bounty of the founder or the nature and objects of the institution. For instance, a bank created by the government for its own uses, whose stock is exclusively owned by the government, is, in the strictest sense, a public corporation. So a hos- pital created and endowed by the gov- ernment for general charity. But a bank, whose stock is owned by private persons, is a private corporation, al- though it is erected by the govern- ment, and its objects and operations partake of a public nature. The same doctrine may be affirmed of insurance, canal, bridge, and turnpike companies. In all these eases, the uses may, in a certain sense, be called public, but the corporations are private; as much so, indeed, as if the franchises were vested in a single person. This reasoning applies in its full force to eleemosynary corporations. A hos- pital founded by a private benefactor is, in point of law, a private corpora- tion, although dedicated by its charter to general charity. So a college, founded and endowed in the same man- ner, although, being for the promotion of learning and piety, it may extend its charity to scholars from every class in the community, and thus acquire the character of a public institution. ' ' See also Washingtonian Home of Chicago V. City of Chicago, 157 111. 414, 29 L. E. A. 798, 41 N. E. 893. 48 Dartmouth College v. Woodward, 1 N. H. 111. 49 Dean v. Davis, 51 Cal. 406. 91 §67] Peivate Cokpokations [Ch.2 tion, which is one that is created for other purposes than those of government.*" But a corporation is not public merely because its BO United States. Vincennes TJni- veraity v. Indiana, 14 How. 268, 14 L. Ed. 416; Dartmouth College v. Wood- ward, 4 Wheat. 518, 4 L. Ed. 630; Bonaparte v. Camden & A. B. Co., Baldw. 205, Fed. Gas. No. 1,617. California. Thus, Civ. Code, § 284, provides that "corporations are either public or private. Public corporations are formed or organized for the gov- ernment of a portion of the state." Dean v. Davis, 51 Cal. 406. Georgia. Cleaveland v. Stewart, 3 Ga. 283. The Georgia code defines a public corporation as "one having for its object the administration of a por- tion of the powers of government, dele- gated to it for that purpose." Ham- mond V. Clark, 136 Ga. 313, 38 L. E. A. (N. S.) 77, 71 S. E. 479. Illinois. School Trustees v. Tatman, 13 111. 27. Iowa. Miners' Bank of Dubuque v. United States, 1 G. Greene 553, writ of error dismissed, 12 How. (TJ. 8.) 1, 13 L. Ed. 867. Kentucky. City of Louisville v. University of Louisville, 15 B. Mon. 642. Maryland. State v. Maryland In- stitute for Promotion of Mechanic Arts, 87 Md. 643, 41 Atl. 126; Univer- sity of Maryland v. Williams, 9 Gill & J. 365, 31 Am. Dec. 72. New Jersey. Tinsman v. Belvidere D. R. Co., 26 N. J. L. 148, 69 Am. Dee. 565; Ten Eyck v. Delaware & E. Canal Co., 18 N. J. L. 200, 37 Am. Dee. 233. Virginia. Maia'a Adm'r v. Eastern State Hospital, 97 Va. 507, 47 L. B. A. 577, 34 S. E. 617; Phillips v. Univer- sity of Virginia, ff7 Va. 472, 47 L. B. A. 284, 34 S. E. 66; Sayre v. North- western Turnpike Eoad, 10 Leigh 454. The classification made by Chief Justice Thompson in Foster v. Fowler, 60 Pa. St. 27, has been uniformly ap- 92 proved both by courts and textwriters: "Most people acquainted at all with corporate action, understand that cor- porations other than municipal, which are purely public, naturally divide in- to public and private corporations; that is, into those that are agencies of the public directly affecting it and those which only affect it indirectly by adding to its prosperity in devel- oping its natural resources or in im- proving its mental or moral qualities. ' ' Arrison v. Company D, North Dakota Nat. Guard, 12 N. D. 554, 98 N. W. 83. Public corporations are such as are created for political purposes. Tins- man V. Belvidere D. E. Co., 26 N. J. L. 148, 69 Am. Deo. 565. They "are the auxiliaries of the government in the important business of municipal rule." Dean v. Davis, 51 Cal. 406. And are but parts of the machinery employed in carrying on the affairs of the state, subject to be changed, modi- fied or destroyed, as the exigencies of the public may demand. The state may exercise a general superintendence and control over them and their rights and effects, so that their property is not divested from the uses and objects for which it was given or purchased. School Trustees v. Tatman, 13 111. 27. It was held in a Kentucky case that a corporation is not a public corpora- tion (in regard to which the state may legislate at pleasure) unless it be in- vested with political power; or be cre- ated to be employed and partake in the administration of the government; or to control funds belonging to the state; or to conduct business in which the state alone is interested, or unless it be the mere instrument of the state, created for government purposes. City of Louisville v. University of Louis- ville, 15 B. Mon. (Ky.) 642, per Mar shall, C. J., referring to and following Ch.2] Classification of Oobpoeations [§67 object is of a public character and will result in benefit to the public.^' Another element necessary to make a corporation public is that the whole interests must belong to the government.** Where the control of the state appears in' the charter itself, as if the trustees or directors consist of public ofScials, or the corporation is created to carry out some functions of government, this may itself indicate conclusively its public character.** And "if the property the Dartmouth College case. See also Board of Directors for Leveeing Wa- bash Eiver v. Houston, 71 111. 318. 61 Tinsman v. Belvidere D. R. Co., 26 N. J. L. 148, 69 Am. Dee. 565. The fact of the public having an interest in the works or the property or the object of a corporation does not make it a public corporation. Ten Eyck V. Delaware & E. Canal Co., 18 N. J. L. 200, 37 Am. Dec. 233. 62 Dartmouth College v. Woodward, 4 Wheat. (U. S.) 669, 4 L. Ed. 667. And see Downing v. Indiana State Board of Agriculture, 129 Ind. 443, 12 L. E. A. 664, 28 N. E. 28, 614; Ten Eyck v. Delaware & E. Canal Co., 18 N. J. L. 200, 37 Am. Dec. 233; Lewis v. Whittle, 77 Va. 415. Public corporations are not limited to those created for municipal purposes only but, strictly speaking, public cor- porations are all such as are founded for public purposes, where the whole interests belong to the government. University of Nebraska v. McConnell, 5 Neb. 423. In Eundle v. Delaware & E. Canal, 1 Wall. Jr. 275, Fed. Cas. No. 12,139, the court said, "In the popular mean- ing of the term nearly every corpora- tion is public inasmuch as they are all created for the public benefit. Yet if the whole interest does not belong to the government, or if the corporation is not created for the administration of political or municipal power, it is a private corporation." 63 University of Illinois v. Bruner, 175 111. 307, 51 N. E. 687; Spalding v. People, 172 111. 40, 49 N. E. 993; Wash- ingtonian Home of Chicago v. City of Chicago, 157 111. 414, 29 L. R. A. 798, 41 N. E. 893; Wagner v. City of Rock Island, 146 111. 139, 21 L. E. A. 519, 34. N. E. 545; Springer v. Walters, 139 111. 419, 28 N. E. 761; Board Directors for Leveeing Wabash River v. Hous- ton, 71 111. 318; Gage v. Graham, 57 111. 144; Hessler v. Drainage Com'rs, 53 111. 105; Harward v. St. Clair & Monroe Levee & Drainage Co., 51 111. 130; Coles v. Madison County, 1 111. 154, 160, 12 Am. Dec. 161. "Where a corporation is composed exclusively of officers of the govern- ment having no personal interest in it or with its concerns, and only acting as the organs of the state in effleeting a great public improvement, it is a public corporation." Dean v. Davis, 51 Cal. 406. In Dartmouth College v. Woodward, 4 Wheat. (U. S.) 518, 4 L. Ed. 629, it is held that public corporations are such only as are founded by the gov- ernment for public purposes, where the whole interests belong to the gov- ernment. In this case it is held that no authority exists in a government to regulate, control, or change a corpora- tion created by it, except when the corporation is, in the strict sense, a public one, and its franchises the ex- clusive property of the government it- self. In such a case the officers of the corporation would be public officers. The corporation in this case was cre- ated by a charter, in which the trus- tees were mentioned by the name of "The Trustees of Dartmouth College," granting to them and their successors 93 §67] Peivate Cobpokations [Ch.2 possessed by a corporation is altogether the property of the state ; if the corporators have paid nothing amounting to a valuable considera- tion for the act of incorporation ; in fine, if there is no contract upon valuable consideration between the state and the corporators, it is a public corporation. ' ' ^* The courts have, with practical unanimity, held that if the whole interest does not belong to the public, or if the corporation is not created for the administration of political or munici- pal powers, it is a private corporation.** The fact that some of the stock in a corporation is held by the state does not make it a public corporation.** But it seems that it is otherwise where all the stock is owned by the state.*' If a corporation is of such a character as to be a private corpora- the usual corporate privileges and powers, and authorizing tlie trustees, who are to govern the college, to fill lip all vacancies which may be cre- ated in their own body, and it was held to be a private corporation. See Downing v. Indiana State Board of Agriculture, 129 Ind. 443, 12 L. E. A. 664, 28 N. E. 123, 614. B4 Mobile School Com'rs v. Putnam, 44 Ala. 506; University of Alabama v. Winston, 5 Stew. & P. (Ala.) 17. 6B Washingtonian Home of Chicago v. City of Chicago, 157 111. 414, 29 L. E. A. 798, 41 N. E. 898; Arrison v. Company D, North Dakota Nat. Guard, 12 N. D. 554, 1 Ann. Cas. 368, 97 N. W. 83. 66 Bank of United States v. Plant- ers' Bank, 9 Wheat. (U. S.) 904, 907, 6 L. Ed. 244; Miners' Bank of Du- buque v. United States, 1 G. Greene (Iowa) 553, 562; Bardstown & L. E. Co. v. Metcalfe, 4 Mete. (Ky.) 199, 81 Am. Dec. 541; Turnpike Co. v. Wal- lace, 8 Watts (Pa.) 816. 67 Allen V. McKean, 1 Sumn. 297, Fed. Cas. No. 229; State Bank of Illi- nois V. Brown, 1 Scam. (111.) 106; Miners' Bank of Dubuque v. United States, 1 G. Greene (Iowa) 553. Con- tra, Bank of Alabama v. Gibson's Adm'rs, 6 Aia. 814; Bank of South Carolina v. Gibbs, 3 McCord (S. C.) 377. 94 v. United States, 234 Fed. 842, was a writ of error to reverse a judgment finding defendant guilty of a conspiracy to defraud the United States in violation of section 37 of the Penal Code. The conspiracy alleged consisted in an agreement between three persons to share in the profits to be made by the sales of a certain brand of tobacco by defendant and one of the others to the Panama Eail- road Company of a department of which the third alleged conspirator was manager and charged with the duty of ordering and passing upon the tobacco and approving the vouchers therefor. The evidence showed that the United States had, for purposes of its own, continued the original cor- porate organization of the railroad company and was the owner of the whole capital stock of the railroad company, absolutely dominating it and being the only one profiting or losing by its operation and that the railroad company sues and is sued in its own name, just as any other corporation. The theory on which the judgment below was based was that the rail- road company was a governmental de- partment and that the department manager, though on the pay roll of and paid by the company, was in fact an ofBcer of the United States. The Circuit Court of Appeals refused, how- Ch. 2] Classification of Corpokations [§69 tion, the fact that the legislature has in its charter declared it to be a public corporation does not make it so.** § 68. — Private corporations. A private corporation involves the idea of private parties and private rights.*' Private corporations are those which are created for the immediate benefit and advantage of individuals, and their franchises may be con- sidered as privileges conferred on a number of individuals, to be exercised and enjoyed by them in the form of a corporation. These privileges may be given to the corporators for their own benefit, or for the benefit of other individuals. In either case the corporation must be viewed in relation to the franchises as a trustee, and each of those who are beneficially interested in them, as a cestui que trust. The property of this kind of corporations and the profits arising from the employment of their property and the exercise of their franchises, in fact, belong to individuals.*" § 69. — Public character of particular classes of corporations — ^In general. As the objects of corporations, to a greater or less extent, affect the whole community and derive their existence from the consent of the public, they in a measure partake of a public nature.*^ And all corporations, whether' public or private, are in contemplation of law founded upon the principle that they will promote the interest or convenience of the public to a greater or less degree.** Also, "a cor- ever, to accede to this view, but held 47 Mo. 220, aff'd 19 Wall. (TT. S.) 526, that on entering into a commercial 22 L. Ed. 160. business the TTnited States abandoned 60 Dartmouth College v. Woodward, its sovereign capacity and was to be 1 N. H. 111. See McKim v. Odom, 3 treated like any other corporation and Bland (Md.) 407. reversed the judgment, citing in sup- 61 Bhodes v. Love, 153 N. C. 468, 69 port of its view Bank of TTnited S. E. 436; Lyon v. Board Com'rs States V. Planters' Bank, 9 Wheat. Granville Co., 120 N. C. 237, 26 S. E. (U. S.) 904, 6 L. Ed. 244. 929. The fact of the capital having been 68 Ten Eyck v. Delaware & E. Canal furnished by the state in no way varies Co., 18 N. J. L. 200, 37 Am. Dec. 233; or affects the responsibilities of the Economic Power & Construction Co. corporation to its creditors, and the v. City of Buffalo, 195 N. Y. 286, 88 rights of those creditors, as against N. E. 389. a corporation with which they dealt, "All private corporations are more looking to the grants in the charter or less for public use. If they were as the security for their debts. State considered of no public utility or ad- V. State Bank, 1 S. C. 63. vantage, it is presumed they would B8 Bonaparte V. Camden & A. B. Co., never be chartered. " Whiting v. She- Baldw. 205, Fed. Cas. No. 1,617. boygan & F. R. Co., 25 Wis. 167, 3 Am. 59 Head v. University of Missouri, Bep. 30. 95 § 69] Private Coepokations [Ch.2 poration may be private and yet the charter contain provisions of a purely public character, introduced solely for the public good and as a general police regulation of the state. ' ' *' And some private cor- porations are created for* public purposes and are not for the profit of the individual members. In this class may be included foundations for public charitable purposes, such as free hospitals, free libraries and public educational institutions.^* § 70. — Cities, villages, etc. Among the corporations which are clearly public are incorporated cities, villages and towns, commonly called "municipal corporations,"®^ and municipal corporations have more, 110 Md. 431, 25 L. B. A. (N. S.) 711, 72 Atl. 902. ' ' Public corporations, commonly called municipal corporations, are not associations, but subdivisions of the state." Goodwin v. East Hartford, 70 Conn. 18. " 'Subdivisions of the state's terri- tory, such as counties, townships, school districts, and the like, which are created by the Legislature for pub- lic purposes and without regard to the wishes of the inhabitants, are to be included in the class known as "pub- lic quasi corporations." ' They are, in essence, local branches of the state government, though clothed in a cor- porate form in order that they may the better perform the duties imposed upon them." Smith v. Bobersouville Graded School, 141 N. C. 143, 8 Ann. Cas. 529, 53 S. E. 524, quoting Abbott on Municipal Corporations. In State v. Narragansett Dist., 16 E. I. 424, 3 L. E. A. 295, 16 Atl. 901, a constitutional provision, prohibiting the enactment of a bill creating any corporation other than religious, chari- ta'ble, literary, military, or for fire in- surance, unless considered by two suc- cessive legislatures, was held not to include municipal corporations; and a somewhat analogous provision in the Constitution of Illinois received the same construction in Owners of Land V. People, 113 111. 296, 314. 63 Washingtonian Home of Chicago V. City of Chicago, 157 111. 414, 29 L. B. A. 798, 41 N. B. 893. See also Cleaveland v. Stewart, 3 Ga. 283; People V. McAdams, 82 111. 356; City of Louisville v. University of Louis- • ville, 15 B. Mon. (Ky.) 642. 64 See § 72, infra. 66 United States. Dartmouth Col- lege V. Woodward, 4 Wheat. 518, 4 L. Ed. 630. Florida. -Waller v. Osban, 60 Pla. 268, 52 So. 970. Georgia. Hammond v. Clark, 136 Ga. 313, 38 L. E. A. (N. S.) 77, 71 S. E. 479. Maryland. Phillips v. City of Balti- more, 110 Md. 431, 25 L. E. A. (N. S.) 711, 72 Atl. 902. New Hampshire. Wooster v. Ply- mouth, 62 N. H. 193. Texas. Short v. Gouger (Tex. Civ. App.), 130 S. W. 267. "Public corporations are such as are created by the government for po- litical purposes, as counties, cities, towns, and villages; they are invested with subordinate legislative powers, to be exercised for local purposes con- nected with the public good; and such powers are subject to the control of the legislature of the state." 2 Kent Com. 275. See Winspear v. Holman, 37 Iowa 542. "Public corporations are synony- mous with municipal or political cor- porations." Phillips V. City of Balti- 96 Ch.2] Classification of Cokpokations [§71 been spoken of as and considered, in this connection, ' ' purely ' ' public.^^ "They are public corporations created by the legislature for political purposes, with political powers, to be exercised for purposes connected with the public good, in the administration of civil government. They are instruments of government subject at all times to the control of the legislature with respect to their duration, powers, rights and property. It is of the essence of such a corporation that the govern- ment has the sole right as trustee of the public interest, at its own good will and pleasure, to inspect, regulate, control and direct the corporation, its funds and franchises. ' ' ^"^ In this connection it should be noted that the corporate character of a municipal corporation is twofold — in the exercise of its govern- mental functions, as a subdivision of the government, and as a private corporation, enjoying powers and privileges conferred for its own benefit.®' The discussion of the rights, duties and liabilities of municipalities as affected by this dual character is not, however, one that falls prop- erly within a treatment of the law of private corporations.®' §71. — Levee, drainage, reclamation and irrigation districts. A levee district which is but an instrumentality of the state has' been Kentucky. City of Louisville v. 66 Foster v. Fowler, 60 Pa. St. 27. 67 City of Hagerstown v. Sehner, 37 Md. 180, 193, per Miller, J. See also Town of East Hartford v. Hartford Bridge Co., 10 How. (U. S.) 534, 13 L. Ed. 528; Phillips v. City of Baltimore, 110 V. S. 431, 25 L. E. A. (N. S.) 711, 72 Atl. 902. While a business corporation has a board of trustees, or directors and other ofiScera, municipal corporations have no such trustees or other officers performing corresponding functions. Uvalde Asphalt Paving Co. v. City of New York, 149 N. T. App. Div. 491, 134 N. Y. Supp. 50. 68 Alabama. Dargan v. Mobile, 31 Ala. 469, 70 Am. Deo. 505. Connecticut. See Jewett v. New Haven, 38 Conn. 368, 9 Am. Eep. 382. Illinois. Johnston v. City of Chi- cago, 258 HI. 494, 45 L. E. A. (N. S.) 1167, Ann. Cas. 1914 B 339, 101 N. E. 960; Doane v. Chicago City Ey. Co., 51 111. App. 353, aff'd 160 HI. 22. I Priv. Corp. — 7 University of Louisville, 15 B. Mon. 642. Massachusetts. Hill v. City of Bos- ton, 122 Mass. 344, 23 Am. Eep. 332. A town acts in the dual capacities of an imperiwm in imperio, exercising governmental duties, and of a private corporation enjoying powers and priv- ileges conferred for its own benefit. Moffitt V. City of Asheville, 103 N. C. 237, 14 Am. St. Eep. 810, 9 S. E. 695. The distinction between an act done by a city in a public capacity and as a part of the political subdivisions of a state, and for an act done for its pri- vate advantage, and relating to things in which the state at large has no in- terest, is clearly defined and is well recognized. LaClef v. City of Con- cordia, 41 Kan. 323, 13 Am. St. Eep. 285, 21 Pac. 272. 69 See McQuillin on Municipal Cor- porations. 97 § 71] Peivate Coepobations [Ch. 2 held to be a public corporation,''*' but it is otherwise where a corpora- tion is created to advance the private interests of the corporators, though the general public is benefited.'^ In a like manner the character of a sanitary or drainage district as a public or private corporation is dependent upon the nature and extent of the powers conferred. If the district is merely a part of the machinery for carrying on the purposes of the state and its powers are limited to those given for public or political purposes and are exercised under the control of the state, the district is a public corporation.''* But if the district's powers do not operate upon the general public and are confined in their exercise to a restricted locality, it is a private corporation,''^ even though the attainment of the purposes which it is authorized to effect will result in a public benefit.''* Such private corporations are often invested with the power of taxation.''^ Reclamation districts have been repeatedly held to be public cor- porations ''^ or of a quasi public character.'''' Irrigation districts are also held to be public corporations, though not strictly municipal in . the sense of exercising governmental functions.'" § 72. — Educational and charitable institutions. Educational in- stitutions, such as academies and universities, are public if they are exclusively owned and controlled by the state '" and in some cases 70 Dean V. Davis, 51 Cal. 406. L. E. A. 755, 27 Am. St. Eep. 106, 28 71 Board of Directors for Leveeing Pao. 272, 675; Indian Cove Irrigation Wabash Eiver v. Houston, 71 111. 318. Dist. v. Prideaux, 25 Idaho 112, Ann. 72 People V. Bowman, 247 111. 276, 93 Cas. 1916 A 1218, 136 Pao. 618; Pioneer N. E. 244. Irrigation Dist. v. Walker, 20 Idaho 73 Hessler v. Drainage Com'rs, 53 111. 605, 119 Pac. 304. 105. An irrigation company is not so 74 Harward v. St. Clair & Monroe plainly of a quasi public character as Levee & Drainage Co., 51 111. 130. a railroad company since it may be 75 Hessler v. Drainage Com'rs, 53 111. engaged in business either wholly pri- 105. vate or of a partly public character. 76 People V. Williams, 56 Cal. 647; Borden v. Trespalaeios Rice & Irriga- People v. Reclamation Dist. No. 108, tion Co., 98 Tex. 494, 107 Am. St. Rep. 53 Cal. 346; Dean v. Davis, 51 CaL 640, 86 S. W. 11. 406,409. Compare, however, Harward 79 Alabama. Mobile School Com'rs V. St. Clair & Monroe Levee & Dfain- v. Putnam, 44 Ala. 506; University of age Co., 51 HI. 130. Alabama v. Winston, 5 Stew. & P. 17. 77 Reclamation Dist. No. 542 v. Florida. State v. Knowles, 16 Pla. Turner, 104 Cal. 334, 37 Pac. 1038. 577. 78 Fallbrook Irrigation Dist. v. Brad- Georgia. Trustees of Academy of ley, 164 U. S. 112, 41 L. Ed. 369; In re Richmond Co. v. City Council of Au- Madera Irrigation Dist., 92 Cal. 296, 14 gusta, 90 Ga. 634, 20 L. R. A. 151, 17 98 Ch.2] Classification of Corporations [§72 such corporations are provided for by constitutional provisions." But the fact that a corporation is established for educational or chari- table purposes does not of itself make it a public corporation.'* Appropriations or donations by the state of money or land for the benefit of certain educational institutions, such as state universities, do not render the institutions public corporations, even though the state in making the appropriations or donations imposes conditions for the benefit of the public, or reserves some power of control over the conduct of their affairs.'^ S. E. 20; Board of Education Glynn Co. V. City of Brunswick, 72 Ga. 353; Dart V. Houston, 22 Ga. 506. Missouri. Harris v. Williams B. Compton Bond & Mortgage Co., 244 Mo. 664, 149 S. W. 603; Head v. University of Missouri, 47 Mo. 220, aff'd 19 Wall. (U. S.) 526, 22 L. Ed. 160. Nebraska. University of Nebraska V. MeConnell, 5 Neb. 423. Virginia. Phillips v. University of Virginia, 97 Va. 472, 47 L. E. A. 577, 34 S. E. 66; Lewis v. Whittle, 77 Va. 415. Wisconsin. Curtis v. Whipple, 24 Wis. 350. Trustees of schools are public cor- porations. School Trustees v. Tatman, 13 111. 27; Bush v. Shipman, 5 111. 186; Bradley v. Case, 4 111. 585. See Heller v. Stremmel, 52 Mo. 309. The University of Illinois has been held a public corporation because it was largely endowed by funds from the state, and the act of its organiza- tion places its control in the state, the governor being required to appoint its trustees subject to confirmation by the senate. Spalding v. People, 172 111. 40, 49 N. E. 993; Thomas v. Illinois Industrial University, 71 111. 310. Corporation having charge of Uni- versity of Michigan, since organiza- tion of Board of Regents under Law of 1837 is a public corporation. Uni- versity of Michigan v. Board of Edu- cation of Detroit, 4 Mich. 213. University of Louisiana is a public educational institution. Tulane Edu- cational Fund's Adm'rs v. Board of Assessors, 38 La. Ann. 292. 80 The Board of Regents of the Uni- versity of Michigan is a constitutional body and is the only corporation pro- vided for in the Constitution whose powers are defined therein. Sterling v. University of Michigan, 110 Mich. 369, 34 L. R. A. 150, 68 N. W. 253. See also Weinberg v. University of Michi- gan, 97 Mich. 246, 56 N. W. 605. 81 Dartmouth College v. Woodward, 4 Wheat. (U. S.) 518, 4 L. Ed. 629, rev 'g 1 N. H. 111. In this case Justice Story says that a "charity * • • may * * * be public, although it may be administered by private trus- tees; and, for the same reason, it may thus be public, though administered by a private corporation. The fact, then, that the charity is public, affords no proof that the corporation is also public; and, consequently, the argu- ment, so far as it is built on this foun- dation, falls to the ground. If, indeed, the argument were correct, it would follow that almost every hospital and college would be a public corporation; a doctrine utterly irreconcilable with the whole current of decisions since the time of Lord Coke." See Wash- ingtonian Home of Chicago v. City of Chicago, 157 111. 414, 29 L. R. A. 798, 41 N. E. 893; McLeod v. Central Nor- mal School Ass'n, 152 Pa. St. 575, 25 Atl. 1109; Curtis v. Whipple, 24 Wis. 350. 82 United States. Vincennes Uni- versity V. Indiana, 14 How. 268, 14 Ij- 99 §72] Private Cobpoeations [Ch.2 The same principle applies to other institutions created by private persons for general charitable purposes, such as hospitals or asylums for the insane and weak minded, schools for the blind, deaf and dumb, sick or poor, historical societies, or institutions for the care, cure and reclamation of inebriates. In a certain sense these are public institu- tions, but the fact that they are founded and endowed for the benefit of the public do not make them public corporations for, "strictly speaking, public corporations are such only as are founded by the government for public purposes, where the whole interests belong also to the government. ' ' *' Thus a hospital which acts exclusively as an Ed. 416; Allen v. MoKean, 1 Sumn. 276, Fed. Caa. No. 229. Georgia. Cleaveland v. Stewart, 3 Ga. 283. Illinois. Board of Education v. Bakewell, 122 111. 339, 10 N. E. 378; Board of Education, State of Illinois V. Greenebaum & Sons, 39 111. 609. Indiana. State v. Carr, 111 Ind. 335, 18 N. E. 318. See State v. White, 82 Ind. 278, 42 Am. Rep. 496. Kentucky. City of Louisville v. Uni- versity of Louisville, 15 B. Mon. 642. Maryland. University of Maryland v. Williams, 9 Gill. & J. 365, 31 Am. Dec, 72. ' ' An incorporated academy, founded on private funds, is, like a college, a private corporation. It is no denial of this position, that they are entitled, under certain conditions, to share in the academic fund. This bounty the academy can receive or not. It is the beneficiary of the state, but that gives the state no rights over it; it may withdraw its bounty, but it has no visitorial powers over it. This princi- ple was settled in the case of Allen v. McKean, reported in 1 Sum. C. C. E. 276. That case made the question whether Bowdoin College was or not a public incorporation; it was argued that it was, because its funds had been generally derived from the bounty of the government. Mr. Story, in a learned opinion, decided that it was a private corporation; and that it was so, notwithstanding its funds had been generally derived from the bounty of the government. ' ' Cleaveland v. Stew- art, 3 Ga. 283. Thus an institute incorporated for the promotion of the mechanic arts, holding its property in its own right, and managing its business according to its discretion, within the limitations of its charter, free from control by the state, has been held a mere private corporation, notwithstanding an act of the legislature renewing its charter granted it an annual appropriation. State V. Maryland Institute for Pro- motion of Mechanic Arts, 87 Md. 643, 41 Atl. 126. 83 Society for Propagation of Gospel V. New Haven, 8 Wheat. (U. S.) 464, 5 L. Ed. 662; Dartmouth College v. Woodward, 4 Wheat. (U. S.) 518, 4 L. Ed. 630; Harris v. Williams E. Compton Bond & Mortgage Co., 244 Mo. 664, 149 S. W.-603. See also Allen V. McKean, 1 Sumn. 297, Fed. Cas. No. 229; State v. Adams, 44 Mo. 570. A non-stock institution which may, under certain conditions be used by the city or county for the commitment of females convicted of crimes or mis- denleanors and which is made subject to the visitation and inspection of state, city and county officers and from which no one derives any pecuniary profit, has been held to be so far a pub- lic corporation as to permit of its re- ceiving appropriations of public funds. 100 Ch. 2] Classification of Coeporations agency of the state and is under the exclusive control and ownership of the state is a public corporation.** But hospitals founded and endowed by private enterprise and liberality are private corpora- tions.'^ § 73. Quasi public corporations. There is another group com- posed of corporations which, when tested by the definitions hereto- fore given, fall within the class of private corporations, but which, nevertheless, by reason of the nature and extent of their operation and effect upon the welfare of the public at large, have been styled quasi public corporations.'^ Comprised in this group, in fact, form- ing its principal components, are those corporations which under more recent terminology are called public service corporations or public utilities.*'' Quasi public corporations have been defined as private corporations which have accepted from the state the grant of a franchise or contract involving the performance of public duties." A quasi public or public service corporation has been defined also as one private in its ownership but having an appropriate franchise from the state to provide for a necessity or convenience of the general public inca- pable of being furnished through the ordinary channels of private City of Indianapolis v. Indianapolis vided for its management. Washing- Home for Friendless Women, 50 Ind. tonian Home of Chicago v. City of 215. Chicago, 157 111. 414, 29 L. E. A. 798. Indiana Historical Society, created ^^ N- ^- ^^3. by special act, is a private corpora- 86 In MeCarter v. Firemen 's Ins. Co,, tion. Bullock v. Billheimer, 175 Ind. 74 N. J. Eq. 372, 29 L. E. A. (N. S.) 428 94 N. ^. 763. 11^4, 135 Am. St. Eep. 708, 18 Ann. 84Maia's Adm'r v. Eastern State ^^^- ^O**' ^^ ^^^- ^O- Garrison, J., Hospital, 97 Va. 507, 47 L. E. A. 577, ^^J^ *^^* .'^^^ expression 'corporation affected with a public interest ' is to be preferred to the term 'quasi public 283 34 S. E. 617. 85 See Cleaveland v. Stewart, 3 Ga. Corporation' as tending, in some meas- ure at least, to characterize the class of In a leading ease on this subject it corporations indicated, whereas the was held that an institution whose ob- term ' quasi public ' is characterized ject was the care, cure and reclamation only by its unmeaning vagueness. ' ' of inebriates, was a private corpora- 87 See chapter on Public Utility tion, and thus could not receive dona- Eegulationa, infra, tions from the city of Chicago after 88 City of Danville v. Danville Water the adoption of the Constitution of Co., 180 111. 235, 54 N. E. 224; People 1870, because under its charter the in- v. Suburban E. Co., 178 111. 594, 49 L. E. stitution might have required payment A. 650, 53 N. E. 349 ; Eogers Park from its patients (though it had never Water Co. v. Fergus, 178 111. 571, 53 done so), and no state control was pro- N. E. 363. 101 §73] Pbivate Cobpoeations [Ch. 2 competitive business and dependent for its exercise upon eminent domain or some agency of government." To bring a corporation into the quasi public class it is not neces- sary that its charter should have originally contained a grant of powers of a nature such as to impose this character upon the cor- poration, but the nature of the business conducted may become there- after so affected with a public interest that the corporation thus becomes quasi public."* While quasi public corporations are frequently given the power of eminent domain, the delegation of this power does not of itself make the recipient a public corporation, as, where the public interest is involved, the state may delegate the power to private corporations.'^ 89 Attorney General v. Haverhill Gas Light Co., 215 Mass. 394, Ann. Cas. 1914 C 1266, 101 N. E. 1061. 90 Munn V. Illinois, 94 TT. S. 113, 24 L. Ed. 77; Inter-Ocean Pub. Co. v. As- sociated Press, 184 111. 438, 48 L. R. A. 568, 75 Am. St. Eep. 184, 56 N. B. 822; New York & Chicago Grain & Stock Exchange v. Board of Trade of City of Chicago, 127 111. 153, 2 L. E. A. 411, 11 Am. St. Eep. 107, 19 N. E. 855; Chicago Open Board of Trade v. French, 61 111. App. 349. "Eailways, ferries, inns, ware- houses, or what not have in their day had this same origin and history. When the first waterman held out to his neighbors a means of ferriage other than in their separate boats, and when the first teamster undertook to carry families and their produce to the mar- ket town, the foundation of the mod- ern law of common carriage was laid, and, as success attended these under- takings by their successful appeal to the public, a public interest in them arose which in time was recognized and acted upon by Legislatures and by courts alike, the power of eminent domain and other privileges being granted in order that such public in- terest might be the better served; the duty of serving all alike, and of re- fraining from excessive charges by combination or otherwise, being im- posed that such public interest might be the better safeguarded. * * * This is the principle that was recognized and applied in Munn v. Illinois (94 U. S. 113), and if it be sound as applied to individuals, it must a fortiori be ^ound as regards corporations. To the eye of the law and in the interest of the public it is one and the same thing whether a corporation be created to subserve a public interest, or whether such corporation achieve success of such a nature that the duty of regard- ing the interests of the public is thrust upon it. Aptly the words of the great dramatist may be paraphrased, viz., that some corporations are born to serve the public, some achieve that end, and some have it thrust upon them; and (as in the state of man) the last two conditions are so correlated that, when the interest of the public has been woven into a business as a sine qua non of its success, the success thus achieved thrusts upon such business a co-ordinate duty that clothes it, to that extent, with a public interest." Mc- Carter v. Firemen's Ins. Co., 74 N. J. Eq. 372, 29 L. R. A. (N. S.) 1194, 135 Am. St. Rep. 708, 18 Ann. Cas. 1048, 73 Atl. 80. 91 United States. Thomson v. Union Pac. R. Co., 9 Wall. 579, 19 L. Ed. 792; Rundle v. Delaware & R. Canal Co., 1 Wall. Jr. 275, Fed. Cas. No. 12,139. 102 Ch. 2] Classification op Cobporations [§73 Such corporations, particularly drainage districts and the like, are also often intrusted with the power of taxation, being empowered to levy special assessments to defray the cost of the improvement contem- plated. As agencies of the government they are public corporations, but frequently the company is merely a quasi public corporation with delegated powers. Corporations of this kind are not public in such a sense as to render their property exempt from taxation. ^'^ A prominent type of quasi public corporations are those engaged in the common carriage of passengers and goods.^' But a corporate California. Miners' Diteh Co. v. Zellerbach, 37 Cal. 543, 99 Am. Dee. 300. Illinois. Board of Directors for Leveeing Wabash River v. Houston, 71 111. 318. Maryland. Brady v. State, 26 Md. 290. New Jersey. Tinsman v. Belvidere D. E. Co., 26 N. J. L. 148, 69 Am. Dee. 565; Ten Eyek v. Delaware & E. Canal Co., 18 N. J. L. 200, 37 Am. Dec. 233. New York. Economic Power & Construction Co. v. City of Buffalo, 195 N. Y. 286, 88 N. E. 389. 92 See cases cited, notes infra, this section. See Com. v. Lowell Gas Light Co., 12 Allen (Mass.) 75. 93 United States. United States v. Trans-Missouri Freight Ass'n, 166 TJ. S. 290, 291, 41 L. Ed. 1007; Thomson v. Union Pae. Ey. Co., 9 Wall. 579, 19 L. Ed. 792; Chicago, M. & St. P. Ey. Co. V. Wabash, St. L. & P. Ey. Co., 61 Fed. 993 ; Bonaparte v. Camden & A. E. Co., Baldw. 205, Fed. Cas. No. 1,617. California. Southern California B. Co. v. Workman, 146 Cal. 80, 2 Ann. Cas. 583, 82 Pac. 79, 79 Pac. 586. Colorado. Pueblo & A. V. E. Co. v. Taylor, 6 Colo. 1, 45 Am. Eep. 512. Illinois. St. Louis, J. & 0. E. Co. v. Mathers, 71 111. 592, 22 Am. Rep. 122; Doane v. Chicago City E. Co., 51 111. App. 353, aff'd 160 111. 22. Indiana. Tippecanoe Co. v. Lafay- ette, M. & B. E. Co., 50 Ind. 85; Evans- ville Suburban & N. E. Co. v. Evans- ville & E. Elee. R. Co., 50 Ind. App. 502, 98 N. E. 649; Lake Shore & M. S. E. Co. V. Chicago, L. S. & S. B. E. Co., 48 Ind. App. 584, 95 N. E. 596, 92 N. B. 989. Kansas. Atchison, T. & S. F. E. Co. V. Spaulding, 69 Kan. 4S1, 66 L. E. A. 587, 105 Am. St. Eep. 175, 2 Ann. Cas. 546, 77 Pac. 106; St. Joseph & D. C. E. Co. V. Eyan, 11 Kan. 602, 15 Am. Eep. 357. Kentucky. Louisville & N. E. Co. v. Central Stock Yards Co., 133 Ky. 148, 97 S. W. 778. Maine. Eailroad Com 'rs v. Portland & O. Cent. E. Co., 63 Me. 269, 18 Am. Eep. 208. Maryland. McKim v. Odom, 3 Bland 407, 418. Massachusetts. Evans v. Boston Heating Co., 157 Mass. 37, 31 N. E. 698. Missouri. Paeifie E. E. Co. v. See- ley, 45 Mo. 212, 100 Am. Dee. 369. New Jersey. Messenger v. Pennsyl- vania R. Co., 37 N. J. L. 531, 18 Am. Rep. 754. See Tinsman v. Belvidere D. E. Co., 26 N. J. L. 148, 69 Am. Dec. 565. North Carolina. Phelps v. Windsor Steamboat Co., 131 N. C. 12, 42 S. E. 335. Oklahoma. McGufflu v. Coyle & Guss, 16 Okla. 648, 6 L. E. A. (N. S.) 524, 86 Pae. 962; Piper v. Choctaw Northern Townsite & Improvement Co., 16 Okla. 436, 85 Pac. 965; Enid Eight 103 §73] Pkivate Coepoeations [Ch.2 lessor of a steamboat which has received no special privileges or of Way & Townsite Co. v. Lile, 15 Okla. 328, 82 Pac. 810. Oregon. Holliday v. Patterson, 5 Ore. 177. Pennsylvama. Pierce v. Com., 104 Pa. St. 150; Foster v. Fowler, 60 Pa. St. 27. South Carolina. Mays v. Seaboard Air Line Ey., 75 S. C. 455, 56 S. E. 30. Washington. Kakeldy v. Columbia & P. S. B. Co., 37 Wash. 675, 80 Pac. 205. Wisconsin. Whiting v. Sheboygan & P. E. Co., 25 Wis. 167, 3 Am. Eep. 30. "Eailroad companies are incorpo- rated by authority of law not for the promotion of mere private ends, but in view of the -public good they sub- serve. It is the circumstance of pub- lic use which justifies the exercise on their behalf of the right of eminent do- main in the taking of private property for the purpose of their construction. They have come to be almost a public necessity, the general welfare being largely dependent upon these modes of inter-communication, and the manner of carrying on their operations." Marsh v. Fairbury, P. & N. W. Ey. Co., 64 111. 414, 16 Am. Eep. 564. "A railway company is a private corporation, yet it is designed to pro- mote the general public good as well as advance private speculation. * * » The interest, therefore, which the pub- lic may have in a corporation, unless it has all the interest, does not neces- sarily make it a public incorporation. ' ' Board of Directors for Leveeing Wa- bash Eiver v. Houston, 71 111. 318. Eailroads, whether built, owned and conducted by the state or private cor- porations, and whether exacting tolls, or free, are public highways. Eailroad Com'rs V. Portland & O. C. E. Co., 63 Me. 269, 18 Am. Eep. 208. A street railway company is a public corporation since it receives its privi- leges from the public, depends upon the public for its income, and invites the public to ride upon its cars. Cameron v. Lewiston, B. & B. St. E. Co., 103 Me. 482, 18 L. E. A. (N. S.) 497, 125 Am. St. Eep. 315, 70 Atl. 534. "Eailroad companies are private corporations, but not in the strict sense of the ordinary business corporation, because they are charged with duties of a public nature which distinguish them from the purely and strictly pri- vate corporation; but in many respects they are private corporations in all that the term implies. They cannot be treated as public corporations, such as cities, counties, townships, and other like governmental subdivisions. Their foundation is private. They are or- ganized for gain, and their strictly private rights are as much beyond leg- islative control as are the rights of the purely private corporation." Man- nington v. Hocking Valley Ey. Co., 183 Fed. 133. On the other hand, it has been said to be " a misnomer to attach even the name ' quasi public corporation ' to a railroad company, for it has none of the features of such corporations, if we except its qualified right of eminent domain, and this it has because of the right reserved to the public to .use its way for travel and transportation. Its officers are not public officers, and its business transactions are as private as those of a banking house. Its road may be called a quasi public highway, but the company itself is a private corporation and nothing more." Pierce V. Com., 104 Pa. St. 150. Where a railroad company seeks an easement to pass over land, it does not seek a right of passage to the public, for, while the public may ride in the railroad cars, the company is not the public, but a private, corporation. 104 Ch.2] Classification of Corpoeations [§73 benefits of great value from the state is not a quasi public corpora- tion.8* The rule that the fact that the public is interested in the objects of a corporation does not determine its character as a public or private corporation applies to canal companies,*^ and they are usu- ally private corporations.^® The fact that the state is a shareholder in the capital stock of such a company does not impart to the company any of the sovereignty of the state.®'' In general turnpike companies are private corporations,®* although the use in a certain sense may be called public,^ and these corpora- tions are created and exist for a work essentially of a public char- acter.^ "Where a road is built by the state exclusively, and the corporation is created for the purpose of maintaining and managing Presbyterian Society v. Auburn & B. E. Co., 3 Hill (N. y.) 567. 94 Phelps V. Windsor Steamboat Co., 131 N. C. 12, 42 S. E. 335. 95 A canal company is a private com- pany, yet the public have an interest in the use of their works, subject to such tolls and restrictions as the char- ter has imposed. Ten Eyck v. Dela- ware & E. Canal Co., 18 N. J. L. 200, 37 Am. Dec. 233. 96 Bundle v. Delaware & B. Canal Co., 1 Wall. Jr. 275, Fed. Cas. No. 12,139; Hooker v. New Haven & North- ampton Co., 15 Conn. 312; Ten Eyck v. Delaware & E. Canal Co., 18 N. J. L. 200, 37 Am. Dee. 233; Economic Power & Construction Co. v. City of Buffalo, 195 N. Y. 286, 88 N. E. 389. See Uni- versity of Maryland v. Williams, 9 Gill & J. (Md.) 365, 31 Am. Dec. 72; Arrison v. Company D, North Dakota Nat. Guard, 12 N. D. 554, 1 Ann. Cas. 368, 97 N. W. 83; Foster v. Fowler, 60 Pa. St. 27. The Chesapeake and Ohio Canal Com- pany, a corporation created for the promotion of public interests, is a pri- vate corporation. Brady v. State, 26 Md. 290. 97 Brady v. State, 26 Md. 290; Tins- man V. Belvidere D. E. Co., 26 N. J. L. 148, 69 Am. Dec. 565. "If the legislature should incorpo- rate a number of individuals, for the purpose of making a canal, and should reserve all the profits arising from it to the state, though all the funds might be given to the corporation by indi- viduals, it would in fact be a public corporation. So if the state should purchase all the shares in one of our banking. companies, it would immedi- ately become a public corporation. Be- cause in both cases all the property and franchises of the corporations would in fact be public property." Dartmouth College v. Woodward, 1 N. H. 111. 98Tinsman v. Belvidere D. E. Co., 26 N. J. L. 148, 69 Am. Dee. 565; Eco- nomic Power & Construction Co. v. City of Buffalo, 195 N. T. 286, 88 N. E. 389. 1 Tinsman v. Belvidere D. E. Co., 26 N. J. L. 148, 69 Am. Dee. 565; Ten Eyck V. Delaware & E. Canal Co., 18 N. J. L. 200, 37 Am. Dee. 233; Eco- nomic Power & Construction Co. v. City of Buffalo, 195 N. Y. 286, 88 N. E. 389; Foster v. Fowler, 60 Pa. St. 27. See Huntington Turnpike Co. v. Wallace, 8 Watts (Pa.) 316. 2 Tinsman v. Belvidere D. E. Co., 26 N. J. L. 148, 69 Am. Dec. 565. 105 §73] Private Coepokations [Ch.2 it, and is composed of public officers only, a turnpike corporation is a public corporation,' but it is otherwise if the state merely holds some of the stock in a turnpike corporation* A beink is usually a private corporation, although it is designed for the public benefit,* and its objects, uses and operations partake of a public nature.^ The mere fact that a bank is used by the state as a depository for public funds, or because the state owns part of the capital stock, does not render it a public corporation,'' although it seems otherwise if the bank is exclusively owned and controlled by the state.' 3 Sayre v. Northwestern Turnpike Boad, 10 Leigh (Va.) 454. 4 Huntington Turnpike Co. v. Wal- lace, 8 Watts (Pa.) 316. BPiqua Branch State Bank of Ohio V. Knoop, 57 U. S. 369, 14 L. Ed. 977; Ten Eyek v. Delaware & R. Canal Co., 18 N. J. L. 200, 37 Am. Dee. 233. 6 State V. New Orleans Gas Light & Banking Co., 2 Bob. (La.) 529. Where the stock of a bank is owned by individuals, it is a private cor- poration in which the public has no in- terest or control except to exercise a supervisory power and to annul its charter when the franchises granted are misused or abused. Miners' Bank of Dubuque v. United States, 1 G. Greene (Iowa) 553, writ of error dis- missed, 12 How. (U. S.) 1, 13 L. Ed. 867. Incorporation gives to many insti- tutions such as banks a certain public character; the public are interested in them, and they subserve valuable pub- lic purposes; but they are not legally public incorporations. Cleaveland v. Stewart, 3 Ga. 283. "Banks of deposit and discount, as well as those that issue circulation, and also savings banks, are quasi public in- stitutions." Campbell v. Watson, 62 N. J. Eq. 396, 50 Atl. 120. 7Piqua Branch Ohio State Bank v. Knoop, 16 How. (U. S.) 369, 14 L. Ed. 977; Bank of United States v. Plant- ers' Bank, 9 Wheat. (U. S.) 904, 907, 6 L. Ed. 244; Miners ' Bank of Dubuque V. United States, 1 G. Greene (Iowa) 553, writ of error dismissed, 12 How. (U. S.) 1, 13 L. Ed. 867. See Bank of Alabama v. Gibson's Adm'rs, 6 Ala. 814. So when a state invests its funds, either alone or with others, in a bank- ing or other company, it does not carry into it any of the elements of its sov- ereign powers, but occupies the bare position of any other stockholder. Bank of Commonwealth of Kentucky V. Wister, 2 Pet. (U. S.) 318, 7 L. Ed. 437; Bank of United States v. Plant- ers' Bank of Georgia, 9 Wheat. (U. S.) 904, 907, 6 L. Ed. 244. And see State v. State Bank, 1 S. C. 63. 8 State Bank of Illinois v. Brown, 2 HI. 106; Miners' Bank of Dubuque v. United States, 1 G. Greene (Iowa) 553, writ of error dismissed, 12 How. (U. S.) 1, 13 L. Ed. 867. Mr. Justice Story, in his learned and able remarks in the Dartmouth Cc^llege case (Dartmouth College v. Woodward, 4 Wheat. (U. S.) 518, 4 L. Ed. 629), says: "A bank created by the govern- ment for its own uses, whose ptock is exclusively owned by the government, is, in the strictest sense, a public cor- poration. But a bank, whose stock is owned by private persons, is a private corporation, although it is erected by the government, and its objects and operations partake of a public nature. The same doctrine, ' ' he says, ' ' may be 106 Ch.2] Classification of Cokpobations [§73 A corporation organized to do a general storage and elevator business, and authorized to issue warehouse receipts, advance money thereon, and to hold and convey real and personal property neces- sary for its purposes, is not a public corporation.^ Corporations which furnish telegraph or telephone service to the public also fall within the category of quasi public corporations.^" The class of quasi public corporations also includes companies engaged in supplying water,^^ heat,^^ gas ^^ and light. ^* A fire affirmed of insurance, canal, 'bridge and turnpike companies." There can be no doubt that these definitions are sound, and are sustained by the settled principles of law. See Piqua Branch State Bank of Ohio v. Knoop, 57 XJ. S. 369, 14 L. Ed. 977; Tinsman v. Belvi- dere D. R. Co., 26 N. J. L. 148, 69 Am. Dec. 565. Contra, Bank of South Caro- lina V. Gibbs, 3 McCord (S. C.) 377. And see State v. State Bank, 1 S. C. 63. 9 Girard Point Storage Co. v. South- wark Foundry Co., 105 Pa. St. 248. 10 See chapter on Public Utility Regulations, infra. See also Cumber- land Telephone & Telegraph Co. V City of Evansville, 127 Fed. 187; Swayze v. City of Monroe, 116 La. 643, 40 So. 926. 11 United States. Quinby v. Con- sumers ' Gas Trust Co., 140 Fed. 362; Wiemer v. Louisville Water Co., 130 Fed. 251; New Albany Waterworks v. Louisville Banking Co., 122 Fed. 776. California. Miners ' Ditch Co. v. Zel- lerbach, 37 Cal. 543, 99 Am. Dee. 300. Florida. City of Tampa v. Tampa Water Works Co., 45 Fla. 600, 34 So. 631. Maine. Bobbins v. Bangor B. & Blee. Co., 100 Me. 496, 1 L. E. A. (N. S.) 963, 62 Atl. 136. New York. Economic Power & Con- struction Co. V. City of Buffalo, 195 N. Y. 286, 88 N. E. 389. Pennsylvania. Foster v. Fowler, 60 Pa. St. 27. A corporation which is organized un- der statutes providing for the incor- poration of waterworks companies, and which furnishes water to a village for a consideration, is not in any sense an agent or instrument of the municipal corporation. People v. Forrest, 97 N. Y. 97. 12 State V. Marion Light & Heating Co., 174 Ind. 622, 92 N. E. 731; Evans v. Boston Heating Co., 157 Mass. 37, 31 N. E. 698. 13 United States. Quinby v. Com- Bumers' Gas Trust Co., 140 Fed. 362. Connecticut. MeCune v. Norwich City Gas Co., 30 Conn. 521, 79 Am. Dec. 278. Louisiana. State v. New Orleans Gas Light & Banking Co., 2 Rob. 529. Massachusetts. Attorney General v. Haverhill Gas Light Co., 215 Mass. 394, Ann. Cas. 1914 C 1266, 101 N. E. 1061; Weld V. Board of Gas & Electric Light Com'rs, 197 Mass. 556, 84 N. E. 101; Opinion of Justices, 150 Mass. 592, 8 L. B. A. 487, 24 N. E. 1084; Com. v. Lowell Gas Light Co., 12 Allen 75. New York. New York Cent. & H. Biver B. Co. v. Metropolitan Gas Light Co., 63 N. Y. 326. 14 Weld V. Board of Gas & Electric Light Com'rs, 197 Mass. 556, 84 N. E. 101. A gas light company is not a quasi public corporation like railroad and other like corporations so as to be ex- empt from taxation, there being no public duty imposed upon them, and they not being chargeable with any public trust. Com. v. Lowell Gas Light Co., 12 Allen (Mass.) 75. 107 §73] PeIVATB CORPOEATIONS [Ch. 2 engine company has been held to be a public or quasi municipal corporation.^* So a corporation organized for the protection of the property of fellow citizens from fire is not for the private gain and profit of its members but for the public benefit,^® and a fire engine company, the charter of which made all persons not minors, who should hold freehold titles to buildings within certain limits, mem- bers of the company, and gave it the power of levying taxes within such limits, has been held to be a quasi municipal corporation.^'' In a Massachusetts case, a corporation was created by a statute which limited its membership to officers and agents of fire insurance companies in the city of Boston. Power was given the corporation to maintain a corps of men and suitable apparatus for discovering and preventing fires and saving life and property, and its employees were given the right to enter buildings and assist at fires, and certain rights in the streets, subordinate to those of the fire department. The expenses of the corporation were paid by assessments on all fire insurance agencies or organizations doing business in Boston, each of which was required, subject to a penalty for failure to do so, to make a report of the aggregate amount of premiums received by it. The corporation had no capital stock and had no income except from the assessments. No distinction was made at fires in protecting insured property and property not insured. It was held that the corporation was not a charitable corporation, but a private civil corporation.^* Incorporated school districts are also held to be quasi public corporations.^® The extent of the capacity of such districts as corporations is A private manufaeturing corporation pal corporation. Cole v. Fire-Engine which furnishes gas to individuals and Co., 12 E. I. 202. for the lighting of public streets, on 16 Fire Ins. Patrol v. Boyd, 120 Pa. such terms as are agreed upon, is not St. 624, 1 L. E. A. 417, 15 Atl. 553; from that fact a public corporation. Bethlehem v. Perseverance Fire Co., 81 New York Cent. & H. Eiver E. Co. v. Pa. St. 445. Metropolitan Gas Light Co., 63 N. Y. 17 Cole v. Fire-Engine Co., 12 E. I. 326. 202. 15 Where a close corporation was 18 Newcomb v. Boston Protective created, resembling the old English Department, 151 Mass. 215, 6 L. E. A. borough corporation rather than an 778, 24 N. E. 39. ordinary municipal corporation, and 19 Arkansas. A. H. Andrews Co. v. its object was to purchase and sup- Delight Special School Dist., 95 Ark. port a fire engine, for protection 26, 128 8. W. 361; First Nat. Bank of against fire, it being authorized to as- Waldron v. Whisenhunt, 94 Ark. 583, sess and levy taxes on certain inhabit- 127 S. W. 968. ants, it was a public or quasi munici- California. Los Angeles City School 108 Ch. 2] Classification of Coepoeatioks [§73 considered in the discussion of quasi corporations in a subsequent section.'^" Boom companies engaged in the business of driving logs for the public generally are held to be quasi public corporations,^^ and a like rule applies to corporations organized for the purpose of con- ducting race tracks,^^ or agricultural corporations.^* So, too, an agricultural college created by the state and subject to its control, the officers being simply public agents to manage public pi'operty, is a public corporation.** But, on the other hand, the view has been taken that state agricultural societies, or boards of agriculture, created for the purpose of promoting agriculture, hold- ing fairs, etc., are private corporations, and this is true though the state makes appropriations of money for their benefit.** A company organized to purchase and hold lands and to sell lots for cemetery purposes has also been held to be a public corporation.*® Dist. V. Longden, 148 Cal. 380, 83 Pac. 250. Missouri. State v. Gordon, 231 Mo. 547, 133 S. W. 44. North Carolina. Smith v. Koberson- ville Graded School, 141 N. C. 143, 8 Ann. Cas. 529, 53 S. E. 524. Oklahoma. School Dist. No. 71 Ok- lahoma County V. Overholser, 17 Okla. 147, 87 Pac. 665. 20 See § 76, infra. 21 Osborne v. Knife Falls Boom Cor- poration, 32 Minn. 412, 50 Am. Eep. 590, 21 N. W. 704; West Branch Boom Co. V. Pennsylvania Joint Lumber & Land Co., 121 Pa. St. 143, 6 Am. St. Eep. 766, 15 Atl. 509. 22 Corrigan v. Coney Island Jockey Club, 2 N. Y. Misc. 512, 22 N. Y. Supp. 394. Such a corporation exercising no franchises which clothe it with any public duty may choose its own cus- tomers and may do or refuse to do any particular business offered it. 23 Kent County Agr. Society v. Houseman, 81 Mich. 609, 46 N. W. 15. See also Stewart v. Hardin County Agr. Society, 60 Ohio Dec. 751, 7 Am. L. Eec. 668. ZC- State V. Knowles, 16 Fla. 577. 25 Downing v. Indiana State Board of Agriculture, 129 Ind. 443, 12 L. E. A. (N. S.) 664, 28 N. E. 123, 614; Is- mon V. Loder, 135 Mich. 345, 97 N. W. 769; Dunn v. Brown County Agr. So- ciety, 46 Ohio St. 93, 1 L. E. A. 754, 15 Am. St. Eep. 556, 18 N. E. 496. 26 Davis V. Coventry, 65 Kan. 557, 70 Pac. 583. In this case the court said, "Is this corporation public or for profit? Many reasons may be found in the law for concluding that it is public and "none supporting the con- trary idea. For instance, the property so platted and held is exempt from tax- ation. It has not been the policy of the state, even if it were constitu- tional, to exempt private property from taxation. No reason can be sug- gested why a private cemetery corpora- tion, operated for profit, should receive any more grace at the hands of the legislature than a private corporation organized for any other purpose. An- other instance indicating that it is a public corporation is the limitation placed upon the corporation in its dis- position of the property. It can sell 'by lot or lots,' and for the purpose of 'sepulture' only, and the plat, when recorded in the oflSce of the register of deeds, ' shall not be afterwards changed 109 §74] Pbivate Coepokations [Ch.2 § 74. The United States, the states and territories as corporations. The word "corporation" in its most extensive signification applies to a nation or state, and thus used, the United States, and the several states, or commonwealths, composing the Union, may be termed "cor- porations. ' ' *'' Accordingly, there are many decisions holding that the United States is a corporation or a body corporate, and it may, like other corporations, enter into contracts, take, hold and convey prop- erty and sue or be sued, if it consents.** In. a like manner, the various or altered. ' Similar limitations are not found in the law governing other pri- vate corporations. Private corpora- tions are left to manage their property with as much independence and free- dom as natural persons." 27 State V. Atkins, 35 Ga. 315. " 'The same relation exists in all corporate property, whether it belongs to a county, a town, a city, a college, an academy, a church or a bank.' Grotius, speaking of the state, substan- tially furnishes Blackstone 's definition of a corporation. I quote from Book II, ch. 9, §3. 'Isoerates, and after him the Emperor Julian, said that states were immortal; that is, they might possibly prove so; because the people is one of those kind of bodies {popvlus est ex eo corporum genere), that consist indeed of separate and distinct members, but are, however, united in name (unique nomini sub- jectum est) , as having one constitution only, according to Plutarch; one spirit (spwitum unum), as Paulus speaks. Now this spirit or constitution in the people, is a full and complete associa- tion for political life (est mice civilis eonsooiatio plena atque perfeeta). And the first and immediate effect of it is the sovereign power, the bond that holds the state together, the breath of life which so many thousands breathe, as Seneca expresses it. For these arti- ficial bodies are like the natural. The natural body continues to be still the Bame, though its particles are perpet- ually upon an insensible flux and change, whilst the same form remains. as Alphenus, from the philosophers, argues.' " Thomas v. Dakin, 22 Wend. (N. Y.) 9. The extensive meaning of the term "corporation" is evidenced by the meaning given to that word in the con- struction of statutes. In one case a federal internal revenue act, providing for the payment of duty by "every person, firm, company, or corporation, owning or possessing, or having the care, or management of any railroad, canal, steamboat, ship," etc., "en- gaged, or employed in the business of transporting passengers, or property for hire," was construed. The court held that the term "corporation" as used in this act was to be understood in its general, obvious and natural meaning, and therefore it did not in- clude the term "state." State v. Atkins, 35 Ga. 315. 28 United States v. Bradley, 10 Pet. (IT. S.) 343, 9 L. Ed. 448; Dugan v. United States, 3 Wheat. (U. S.) 172, 4 L. Ed. 362; Eespublica v. Sweers, 1 Dall. (Pa.) 41, 1 L. Ed. 29; United States V. Maurice, 2 Brock. 96, 109 Fed. Gas. No. 15,747; Dixon v. United States, 1 Brock. 177, Fed. Gas. No. 3,934; Dickson v. United States, 125 Mass. 311, 28 Am. Eep. 230. "The. power to take property by the right of eminent domain for the public use has been declared by the Supreme Court to exist in the United States not by virtue of any express grant in the Constitution, but as an inherent attri- bute of sovereignty." Kohl v. United States, 91 U. S. 367, 23 L. Ed. 449. 110 Ch.2] Classification of Coepobations [§74 states have been held to be corporations,*' and the same rule applies to territories.^" At the common law, the king was regarded as a corporation sole, Chief Justice Marshall said, "The United States is a government, and, consequently, a body politic and corpo- rate, capable of attaining the objects for which it was created, by the means which are necessary for their attain- ment. This great corporation was or- dained and established by the Ameri- can people, and endowed by them with great powers for important purposes. Its powers are unquestionably limited; but while within those limits, it is a perfect government as any other, hav- ing all the faculties and properties be- longing to a government, with a per- fect right to use tl em freely, in order to accomplish the objects of its institu- tions. It will certainly require no argument to prove that one of the means by which some of these objects are to be accomplished, is contract; the government, therefore, is capable of contracting, and its contracts may be made in the name of the United States." United States v. Maurice, 2 Brock. 96, 109, Fed. Cas. No. 15,747. Mr. Justice Story, delivering the judgment of the Supreme Court upon the question "whether the United States have, in their political capacity, a right to enter into a contract or to take a bond in cases not previously provided for by some law," said, "Upon full consideration of this sub- ject, we are of opinion that the United States have such a capacity to enter into contracts. It is in our opinion an incident to the general right of sov- ereignty; and the United States being a body politic, may, within the sphere of the constitutional powers confided to it, and through the instrumentality of the proper department to which those powers are confided, enter into eon- tracts not prohibited by law, and ap- propriate to the just exercise of those powers. * * * To adopt a different principle would be to deny the ordi- nary rights of sovereignty, not merely to the general government, but even to the state governments within the proper sphere of their own powers, un- less brought into operation by express legislation. A doctrine, to such an ex- tent, is not known to this court as ever having been sanctioned by any judicial tribunal." United States v. Tingey, 5 Pet. (U. S.) 114, 128, 8 L. Ed. 66. 29 Illinois. People v. City of St. Louis, 10 111. 351, 48 Am. Dec. 339. Massachusetts. Dickson v. United States, 125 Mass. 311, 28 Am. Eep. 230. Michigan. Michigan State Bank v. Hastings, 1 Dougl. 225, 41 Am. Dec. 549. New York. State of Indiana v. Wo- ram, 6 Hill 33, 40 Am. Dec. 378. Texas. Conley v. Daughters of Be- public, 106 Tex. 80, 156 S. W. 197, 937; Dikes V. Miller, 25 Tex. 281, 78 Am. Dec. 571. Wisconsin. Whiting v. Sheboygan & F. B. Co., 25 Wis. 167, 3 Am. Bep. 30. In Cotton V. United States, 11 How. (U. S.) 229, 231, 13 L. Ed. 675, Mr. Justice Grier said, "Every sovereign state is of necessity a body politic, or artificial person, and as such capable of making contracts and holding prop- erty, both real and personal." A state, said the New York court, "is a legal being, capable of transact- ing some kinds of business like a nat- ural person, and such a being is a corporation." State of Indiana v. Woram, 6 Hill (N. Y.) 33, 40 Am. Dec. 378. 30 Territory v. Hildebrand, 2 Mont. 426. Ill §75] Private Coepoeations [Ch.2 this being for the purposes of succession, and to preserve the property of the crown.*' § 75. Stock and nonstock corporations. A stock corporation or joint stock corporation is a corporation having a capital stock divided into shares, and which is authorized by law to distribute to the holders thereof dividends or shares of the surplus profits of the corporation. The capital of a nonstock corporation is not so divided. The ordinary, modern business corporations such as trading, banking and railroad companies are stock corporations, while religious corporations, mutual insurance companies and the like are nonstock corporations.*^ § 76. Quasi corporations — In general. A further line of cleavage in the law of corporations is that drawn between corporations which are fully endowed with corporate powers and those which have only a limited corporate capacity. Those composing the latter class are known as "quasi corporations." The characteristics of quasi corporations partake rather of those of public or quasi public corporations than of those of private corpora- tions. "They possess," it has been said, "some corporate functions 31 1 Bl. Com. 470. See also § 57, supra. 32 A joint stock corporation is one organized under a general statute authorizing such corporations, and is distinct from corporations created by special resolutions or acts of the gener- al assembly. Barber v. ■ Morgan, 89 Conn. 583, Ann. Cas. 1916 E 102, 94 Atl. 984. Under N. Y. Gen. Corp. Law (Gen. L., e. 35; L. 1892, c. 687) § 3, subd. 2, as amended by L. 1895, e. 672, a stock corporation is a corporation having a capital stock divided into shares and which is authorized by law to distrib- ute to the holders thereof dividends or shares of the surplus profits of the corporation, and a corporation is not a stock corporation because of having issued "certificates of stock" which are in fact merely certificates of mem- bership. Leighton v. Leighton Lea Ass'n, 146 N. Y. App. Div. 255, 130 N. Y, Supp. 935. A corporation organized under N. Y. Law 1851, e. 122, is not a stock cor- poration but a membership corporation. Leighton v. Leighton Lea Ass'n, 146 K Y. App. Div. 255, 130 N. Y. Supp. 935. There are three kinds of insurance companies^stock, mutual and mixed. A "stock company" is one where the stockholders contribute all the capital, pay all the losses, and take all the profits. A "mutual company" is one wherein the members constitute both the insurer and the insured, where the members all contribute, by a system of assessments, to the creation of a fund from which all losses and liabilities are paid, and wherein the profits are di- vided among themselves in proportion to their interests. A "mixed com- pany" is such as the term implies. It embodies the characteristics of both the others. State v. Willett, 171 Ind. 296, 23 L. R. A. (N. S.) 197, 87 N. E. 68. 112 Ch. 2] Classification of Corpoeations 77 and attributes, but they are primarily political subdivisions, — agencies in the administration of civil government, — and their corporate func- tions are granted to enable them more readily to perform their public duties. ' ' ^^ On the other hand, they are distinguished from municipal corporations proper, in that the creation of the latter is the voluntary act of the members, whereas the formation of quasi corporations is, as a rule, not the voluntary act of the persons on v^hom they operate.^* § 77. — Counties. Counties are involuntary corporations, organized as political subdivisions of the state for governmental purposes.^^ "While, to a certain extent, they are invested with corporate powers, bridges, etc." Attorney General v. Lowrey, 131 Mich. 639, 92 N. W. 289, quoted in Ex parte Corliss, 16 N. D. 470, 114 N. W. 962. 34 Barnes v. District of Columbia, 1 Otto (U. S.) 540, 23 L. Ed. 440; Han- son V. City of Cresco, 132 Iowa 533, 109 N. W. 1109; Kiddle v. Merrimac Eiver Locks & Canals, 7 Mass. 169, 5 Am. Dec. 35; White v. City Council of Char- leston, 2 Hill (S. C.) 571. 35 Askew V. Hale County, 54 Ala. 639, 25 Am. Kep. 730; Board Com'rs Jasper Co. v. Allman, 142 Ind. 573, 39 L. R. A. 58, 42 N. E. 206; State v. Denny, 118 Ind. 449, 4 L. R. A. 65, 21 N. E. 274. Counties are a political division of the state government, organized as part and parcel of its machinery, like townships, school districts and kindred subdivisions. They do not derive any of the corporate powers they possess by a special charter. Their functions are wholly of a public nature, and their creation a matter of public conven- ience and governmental, necessity, and in order that they may the better sub- serve the public interest, certain cor- porate powers are conferred on them. "Whether they will assume their corpo- rate powers and perform the duties and obligations imposed, are questions over which they have no choice, but their assumption is wholly involuntary. Granger v. Pulaski County, 26 Ark. 37. When a county is established, it is 33 Freeland v. Stillman, 49 Kan. 197, 30 Pac. 235. As further illustrating this principle, see: United States. School Dist. No. 56 v. St. Joseph Fire & Marine Ins. Co., 103 U. S. 707, 26 L. Ed. 601. AIa,bania. Mobile School Com'rs v. Putnam, 44 Ala. 506. Illinois. Hedges v. Madison County, 6 111. 567. Maine. Adams v. Wiscasset Bank, 1 Greenl. 361, 10 Am. Dec. 88. Maryland. County Com'rs Talbot Co. V. County Com'rs Queen Anne's Co., 50 Md. 245. Massachusetts. Fourth School Dist. in Rumford v. Wood, 13 Mass. 193; Mower v. Inhabitants of Leicester, 9 Mass. 247, 6 Am. Deo. 63. New York. Lorillard v. Town of Monroe, 11 N. Y. 392, 62 Am. Dec. 120; Jansen v. Ostrander, 1 Cow. 670; Town of North Hempstead v. Town of Hemp- stead, 2 Wend. 109. "They consist of counties, town- ships, school districts, highway dis- tricts, etc. They are governmental agencies, and it is, to say the least, doubtful if they are in any respect anything else, or have any rights that can be called private. They perform many functions, but these are for and about the business and policies of the state, which has imposed upon them the responsibility and expense of main- taining highways, schools, drains, 113 I Priv. Corp.— 8 77] PBIVATE COBPOBATIONS [Ch.2 sucli as holding property and making contracts for county purposes, because of their imperfect powers they are not corporations ia the proper sense, but are properly designated as quasi corporations.'* done at the mere will of the legislature, because, in its opinion, the public good will be thereby promoted. There is no contract, for no consideration moves from anyone, and without a considera- tion, there cannot be a. contract. The discharge of certain duties by the per- sons who are appointed justices of the peace, or sheriff, clerk, or constable, can, in no sense of the word, be looked upon as a consideration for establish- ing the county. In legal parlance, the "consideration is past" — the thing is done, before their appointment. Some act for the honor of the station; others for the fees end perquisites of office, but their so doing does not form a con- sideration for the erection of the county, and is a mere incident to their relation as citizens of the county. Mills V. Williams, 33 N. C. 558. Prior to 1868, counties were only political divisions of the state and were not municipal corporations. Witt- kowsky V. Board Com'rs Jackson County, 150 N. C. 90, 63 S. E. 275. 36 TTnited States. Barnes v. District of Columbia, 1 Otto 540, 23 L. Ed. 440. Alabama. Slaughter v. Mobile County, 73 Ala. 134; Askew v. Hale County, 54 Ala. 639, 25 Am. Rep. 730. ^ Arkansas. Granger v. Pulaski County, 26 Ark. 37. California. Sherbourne v. Tuba County, 21 Cal. 113, 81 Am. Dec. 151. Illinois. Scates v. King, 110 111. 456; HoUenbeck v. Winnebago Co., 95 HI. 148, 35 Am. Eep. 151; Hedges v. Madison County, 6 HI. 567. Kentucky. Lawrence County ▼. Chattaroi E. Co., 81 Ky. 225, 5 Ky. L. Eep. 36. Maine. Adams v. Wiscasset Bank, 1 Greenl. 361, 10 Am. Dee. 88. Massacbnsetts. Inhabitants of Hamp- shire Co. V. Inhabitants of Pranklin Co., 16 Mass. 76, 87; Eiddle v. Merri- mac Biver Locks & Canals, 7 Mass. 169, 5 Am. Dec. 35. Minnesota. State v. Gunn, 92 Minn. 436, 100 N. W. 97. Missouri Cassidy v. City of St. Joseph, 247 Mo. 197, 152 S. W. 306. New York. Hughes v. Monroe County, 147 N. Y. 49, 39 L. E. A. 33, 41 N. B. 407; Kennedy v. Queens County, 47 N. T. App. Div. 250, 62 N. y. Supp. 276. Ohio. Dunn v. Brown Co. Agr. So- ciety, 46 Ohio St. 93, 1 L. E. A. 754, 15 Am. St. Eep. 556, 18 N. E. 496. Oklahoma. James v. Wellston Tp., 18 Okla. 56, 13 L. E. A. (N. S.) 1219, 11 Ann. Cas. 938, 90 Pac. 100. South Carolina. White v. City Coun- cil of Charleston, 2 Hill 571. Tennessee. Burnett v. Maloney, 97 Tenn. 697, 34 L. E. A. 541, 37 S. W. 689. Wyoming. Powder Eiver Cattle Co. V. Johnson County Com 'rs, 3 Wyo. 597, 29 Pa«. 361, aff'd 3 Wyo. 777, 31 Pac. 268, 3 Wyo. 597, 31 Pac. 278. England. Eussell v. The Men of De- von, 2 T. E. 667. "Counties owe their creation to the statutes, and the statutes confer on them all the powers which they possess, prescribe all the duties they owe, and impress all the liabilities to which they are subject. Considered with respect to their powers, duties, and liabilities, they stand low down in the scale or grade of corporate existence. For this reason they are ranked among what are styled 'quasi corporations.' This designation is employed to distinguish them from private corporations ag- gregate, and from municipal corpora- tions proper, such as cities acting un- der general or special charters, more amply endowed with corporate life and 114 Cli.2] Classification of Cokpoeations [§78 § 78. — Towns. For the same reason, towns are generally considered quasi corporations. Limited powers are conferred upon them, such as the power to make certain contracts, and to sue and be sued.'' functions, conferred in general at the request of the inhabitants of the mu- nicipality for their peculiar and spe cial advantage and convenience.' Soper V. Henry County, 26 Iowa 264, quoted in Burnett \ . Maloney, 97 Tenn 697, 34 L. E. A. 541, 37 S. W. 689. See, in this connection, McQuillin on Mu' nicipal Corporations, § 111. 37 United States. Madden v. Lancas- ter County, 65 Fed. 188; Aetna Life Ins. Co. V. Pleasant Tp., 53 Fed. 214. Illinois. Johnston v. City of Chi- cago, 258 m. 494, 45 L. R. A. (N. S.) 1167, Ann. Cas. 1914 B 339, 101 N. E. 960 ; HoUenbeck v. Winnebago Co., 95 111. 148, 35 Am. Eep. 151; Bush v. Shipman, 5 111. 186. Iowa. Hanson v. City of Cresco, 132 Iowa 533, 109 N. W. 1109. Maine. Adams v. Wiscasset Bank, 1 Greenl. 361, 10 Am. Dee. 88. Massachusetts. Hill v. City of Bos- ton, 122 Mass. 344, 23 Am. Eep. 332; Mower v. Inhabitants of Leicester, 9 Mass. 247, 6 Am. Dec. 63; Inhabitants of Springfield v. Connecticut Eiver E. Co., 4 Cush. 63; Damon v. Inhabitants of Granby, 2 Pick. 345. Michigan. Highway Com 'rs v. Mar- tin, 4 Mich. 557, 69 Am. Dee. 333. Missouri. Cassidy v. City of St. Joseph, 247 Mo. 197, 152 S. W. 306. Nebraska. Wilson v. Ulysses Tp., 72 Neb. 807, 9 Ann. Cas. 1153, 101 N. W. 986. New Hampshire. Hooksett v. Amos- keag Mfg. Co., 44 N. H. 105; Troy v. Cheshire E. Co., 23 N. H. 83, 55 Am. Dec. 177. New York. Lorillard v. Town of Monroe, 11 N. T. 392, 62 Am. Dec. 120; Tovim of North Hempstead v. Town of Hempstead, 2 Wend. 109. North Carolina. Wittkowsky v. Board Com 'rs Jackson County, 150 N. C. 90, 63 S. E. 275. They are "mere organizations for public purposes, liable to have their public powers, rights and duties modi- fied or abolished at any moment by the Legislature. They are incorporated for public, and not private objects. They are allowed to hold privileges or prop- erty only for public purposes. The members are not shareholders, nor joint partners in any corporate estate which they can sell or devise to each other, or which can be attached and levied on for their debts; hence, generally the relations between them and the Legis- lature are in the nature of legislation rather than compact, and therefore to be considered as not violated by sub- sequent legislative changes. ' ' City of Hagerstovm v. Sehner, 37 Md. 180. At an early day in Massachusetts in Eiddle v. Merrimac Eiver Locks & Ca- nals, 7 Mass. 169, 5 Am. Dec. 35, Par- sons, C. J., in delivering the opinion of the court, said: "We distinguish between proper aggregate corporations and the inhabitants of any district who are by statute invested with par- ticular powers without their consent. These are in the books sometimes called quasi corporations. Of this descrip- tion are counties and hundreds in Eng- land, and counties, towns, etc., in this state. Although quasi corporations are liable to information or indictment for a neglect of public duty imposed upon them by law, yet it is settled * * * that no private action can be maintained against them for a breach of their corporate duty, unless such ac- tion be given by statute." Towns as well as counties, territorial parishes and school districts, by virtue of their existence as quasi corpora- 115 §79] Pbivate Cokpoeations [Ch.2 In some states, however, the statutes render towns full corporations, like incorporated cities and villages.^* § 79. — School districts. It has been seen in a preceding section that school districts are not to be regarded as private corporations, but so far partake of the character of public corporations that they are deemed to belong to the class of quasi public corporations.^' As to the extent to which they are to be considered as endowed with cor- porate capacity, they have been held to be public corporations, or quasi corporations created by statute for the purpose of executing the general laws and policy of the state, which require the education of all its youth.*" Such school corporations are involuntary corporations, tions, are capable of holding property immunities, and are subject to its lia- and making contracts. Hill v. City of Boston, 122 Mass. 344, 23 Am. Eep. 332. While townships and other taxing districts are sometimes referred to as quasi municipal corporations, they are but territorial sections cf counties, upon which for appropriate purposes, power is conferred to perform func- tions of government of local applica- tion and interest. Wittkowsky v. Board Com'rs Jackson County, 150 N. C. 90, 63 S. E. 275. 38 East Hartford v. Hartford Bridge Co., 10 How. (U. S.) 534, 13 L. Ed. 528. _ And see City of Hagerstown v. Sehner, 37 Md. 180. Cities and towns are territorial sub- divisions of the state created as public corporations for convenience in the ad- ministration of government. They ex- ercise only the powers which have been conferred by express enactment of the legislature or by necessary implication from undoubted prerogatives vested in them. They have a twofold character, the one governmental and the other private. In the one they execute the functions and possess the attributes of sovereignty which have been delegated by the legislative department of gov- ernment; in the other they are clothed with the capacities of a private cor- poration, and may claim its rights and bilities. Higginson v. Treasurer & School House Com'rs of Boston, 212 Mass. 583, 42 L. E. A. (N. S.) 215, 99 N. E. 523. 39 See § 73, supra. 40 United States. School Dist. No. 56 V. St. Joseph Fire & Marine Ins. Co., 103 IT. S. 707, 26 L. Ed. 601. Connecticut. McLoud v. Selby, 10 Conn. 390, 27 Am. Dec. 689. Illinois. School Trustees v. Tatman, 13 III. 27. Iowa. Lane v. Dist. Tp. of Wood- bury, 58 Iowa 462, 12 N. W. 478. Under Laws 1862, c. 172, § 5, school district townships were by positive declaration of the statute made corporations, and as such they have power to hold prop- erty, become parties to suits and con- tracts, and do other corporate acts. Winspear v. Holman, 37 Iowa 542. Massachusetts. Fourth School Dist. in Eumford v. Wood, 13 Mass. 193; Gaskill V. Dudley, 6 Mete. 546, 39 Am. Dee. 750. Ohio. State v. Powers, 38 Ohio St. 54. Oregon. Board of Directors v. Peter- son, 64 Ore. 46, 129 Pac. 123, 128 Pac. 837. Wisconsin. Montpelier Sav. Bank & Trust Co. V. School Dist. No. 5, 115 Wis. 622, 92 N. W. 439. "They may be considered » * » 116 Ch.2] Classification of Corporations [§81 organized not for the purpose of profit or gain but solely for the public benefit, and have only such limited powers as are deemed necessary for that purpose.*^ § 80. — Road districts. Road districts, created in some states for the improvement of highways, are usually classified as public, or quasi corporations, being similar to school districts.** § 81. — Public officers or public boards. There are some public officers, or public boards that are given corporate capacity for certain particular specified ends, and thus are quasi corporations. They are authorized to sue and be sued as artificial persons, and are given the power to make contracts in reference to public affairs.** And among as quasi corporations, with limited powers, coextensive with the duties imposed upon them by statute or usage; but restrained from a general use of the authority which belongs to these metaphysical persons by the common law. The same may be said of all the numerous corporations which have been, from time to time, created by various acts of the legislature; all of them enjoying the power which is expressly bestowed upon them; and perhaps, in all instances where the act is silent, possessing, by necessary im- plication, the authority which is requisite to execute the purposes of their creation." Parker, C. J., in Fourth School Dist. in Eumford v. Woods, 13 Mass. 193. School districts are corporations of a lower grade and of less power than cities, have less the characteristics of private corporations and resemble more mere agents of the state. School Dist. City of Erie v. Fuess, 98 Pa. St. 600, 42 Am. Rep. 627. They are quasi corporations for cer- tain purposes, such as the building and repair of school houses. Andrews v. Estes, 11 Me. 267, 26 Am. Dec. 521. An incorporated township, for com- mon school purposes, is a public cor- poration, or rather a qu&si corporation. Bush V. Shipman, 5 111. 186. On the other hand it has been held that a school town or township is a purely public corporation, and the trus- tees thereof public agents. School Town of Montioello v. Kendall, 72 Ind. 91, 87 Am. Eep. 138. «Freel v. School City of Craw- fordsville, 142 Ind. 27, 37 L. R. A. 301, 41 N. B. 312. 42 Board of Directors v. Peterson, 64 Ore. 46, 128 Pac. 837, 129 Pac. 123. Special road districts are created un- der and by authority of Chapter 102, R. S. 1909. They are authorized to is- sue bonds, and have authority to levy taxes for the purpose of paying the principle and interest of bonds so is- sued by them. That authority is un- limited by the statute empowering the districts to issue the bonds except as therein stated. Harris v. William R. Oompton Bond & Mortgage Co., 24 1 Mo. 664, 149 S. W. 603. But in Custer County Bank v. Cus- ter County, 18 S. D. 274, 100 N. W. 424, it was held that a road district is not a corporation or a quasi corpo- ration. 43 United States. Levy Court of Washington v. Woodward, 2 Wall. 501, 17 L. Ed. 851. Illinois. Johnston v. City of Chica- go, 258 111. 494, 45 L. E. A. (N. S.) 1167, Ann. Cas. 1914 B 339, 101 N. E. 117 181] Pbivate Coepobations [Cli.2 such quasi corporations with the power to sue and be sued may be mentioned boards of county commissioners,** county levy courts,** school trustees,*® boards of education,*'' overseers or trustees of the poor,*' town supervisors,*^ and the like.*" Also the governor of a state has been held to be a quasi corporate sole, with respect to his office, so that when, under a statute, bonds are made payable to him, he or his successor may sue thereon in his official capacity.*^ ferred on it, is a quasi corporation. Finch V. Board of Education, 30 Ohio St. 37, 27 Am. Eep. 414. In Kinnare v. City of Chicago, 171 111. 332, it was held that the board of education of the city of Chicago was a quasi corporation created by general law to aid in the administra- tion of the city government, these duties being purely of a governmental character, being thrust upon it with- out its consent by the legislature, and that therefore the board of education was not liable for the negligence of its employees. It is also intimated in the same decision that if these same duties were thrust upon the municipality it- self it would not be liable. See John- ston V. City of Chicago, 258 111. 494, 45 L. E. A. (N. S.) 1167, Ann. Cas. 1914 B 339, 101 N. E. 960. 48 Governor v. Gridley, Walk. (Miss.) 328. Trustees or overseers of the poor have been held quasi corporations, with the capacity to sue coextensive with their public duties. Eouse v. Moore, 18 Johns. (N. Y.) 407. 49JanBen v. Ostrander, 1 Cow. (N. Y.) 670. 60 In addition, Chancellor Kent men- tions loan oflScers and commissioners of loan, commissioners of common schools and commissioners of highways as in- stances of quasi corporations for the purpose of holding and transmitting of the public property, with corporate at- tributes sub modo. 2 Kent Com. 278. 51 Governor v. Allen & McMurdie, 8 Humph. (27 Tenn.) 176; Polk v. Plum- 960; School Trustees v. Tatman, 13 111. 27. Mississippi. Governor v. Gridley, Walk. 328. New York. Jansen v. Ostrander, 1 Cow. 670; Eouse v. Moore, 18 Johns. 407. North Carolina. Justices of Cumber- land V. Armstrong, 14 N. C. 284. Ohio. Finch v. Board of Education, 30 Ohio St. 37, 29 Am. Eep. 414. Bhode Island. See Cole v. Fire-En- gine Co., 12 E. I. 202. Tennessee. Polk v. Plummer, 2 Humph. (21 Tenn.) 500, 37 Am. Deo. 566. See also 2 Kent Com. 278. 44 Perry v. Kinnear, 42 111. 160; County Com'rs Talbot County v. County Com'rs Queen Anne's County, 50 Md. 245. 46 The levy court of a county, charged with the duty of laying out and repairing roads, building bridges, and keeping them in repair, providing poorhouses, etc., and laying and col- lecting taxes for such purposes and for the payment of other county ex- penses, is a quasi corporation, and, as such, has the capacity to sue an? be sued. Levy Court of Washington v. Woodward, 2 Wall. (IT. S.) 501, 17 L. Ed. 851. 48 School Trustees v. Tatman, 13 HI. 27; Bush v. Shipman, 5 111. 186. See People V. Board of Education, Paris Union School Dist., 255 111. 568, 99 N. E. 659. 47 A board of education, having only S very limited number of powers con- 118 Ch. 2] Classification of Cokpoeations [§84 In one ease a board of health has been held not to be a corporation in any sense,'^ and in another case a board of trade, tiiough incor- porated under a legislative act, has been held to be merely a voluntary organization.*' §82. — Joint stock companies. Associations known as "joint stock companies," though unincorporated, have many features in common with corporations and for this reason have sometimes been called quasi corporations.'* § 83. Domestic and foreign corporations. A corporation is deemed to be a citizen of the state or country which creates it, and with respect to that state or country is a "domestic corporation." A for- eign corporation is one that owes its existence to the laws of another state or country. This distinction is not based upon any difference in the nature of corporations, but upon the status alone. A detailed discussion of the citizenship, residence and domicile of corporations and of the law relating to foreign corporations is given elsewhere in this work.*' §84. Statutory classification of corporations — ^In general. The general classifications of corporations noted in the preceding sections are frequently further subdivided by statutory provisions. These provisions generally classify corporations according to their nature or object, as "business" corporations, "transportation" corporations, "manufacturing," "trading" and "mercantile" corporations, "moneyed" corporations, "banking" corporations, "religious," "charitable" or "benevolent" corporations, corporations for "inter- nal improvements" or "public utility," corporations for "industrial pursuits," etc. The statutory classifications thus adopted frequently affect the application of other acts to corporations, such as the acts relating to exemptions, taxation, bankruptcy and insolvency, and the like. The frequency with which the construction of such terms and the deter- mer, 2 Humph. (21 Tenn.) 500, 37 Am. such mode as it may deem most ad- Dee. 566. visable and proper, and when it has 52 Gardner v. Board of Health City adopted by-laws and a forum for their of New York, 10 N. Y. 409. enforcement, the courts will not inter- 63 The Board of Trade of Chicago, fere to control their action. People v. though incorporated under an act of Board of Trade of Chicago, 80 111. 134. the general assembly, is merely a vol- M See § 17, supra, untary organization, which is fully em- 66 See Chap. 13, infra and chapter powered by its charter to govern in on Foreign Corporations, infra. 119 § 84] Pbivate Coepobations [Ch. 2 mination of whether they apply to particular corporations are involved in various decisions, rendering desirable a brief consideration of them. § 85. — Tests for ascertaining class of corporation. The particu- lar classification within which a corporation falls depends upon the purposes for which it is formed and the powers conferred upon it.^^ The pui^oses for which it is organized are primarily to be sought and found in its charter or certificate of incorporation.*'' Thus in order to determine if a "manufacturing," "trading" or "benevolent" corporation is organized, it is necessary to ascertain the meaning of the particular descriptive term, and then determine whether the pur- poses of the corporation, as shown by its charter, bring it within such terms.** If the powers of a corporation set forth in its articles of association or certificate of incorporation are such as to bring it within the class of corporations covered by a particular statute, it is within such class, although the articles or certificate may recite that it was organized under a statute authorizing the formation of a different class of cor- porations.*® The character of the corporation cannot be changed or modified by B6 Bardstown & L. E. Co. v. Metcalf, States Leather Co., 75 N. J. Eq. 229, 19 61 Ky. 199, 81 Am. Dee. 541; State v. Ann. Cas. 1262, 72 Atl. 126. McGrath, 95 Mo. 193, 8 S. W. 425. utah. GitzhofEen v. Sisters of Holy B7 Louisiana. State v. New Orleans Cross Hospital Ass 'n, 32 Utah 46, 8 Water Supply Co., Ill La. 1049, 36 So. L. R. A. (N. S.) 1161, 88 Pac. 691. ^^'- 58 Nicholson's Succession, 37 La. Maine. Penobscot Boom Corpora- Ann. 346; State v. Minnesota Thresher tion V. Lamson, 16 Me. 224, 33 Am. Mtg. Co., 40 Minn. 213, 3 L. E. A. 510, Dec. 656. 41 N. W. 1020; In re St. Louis Insti- MicMgau. Detroit Driving Club v. tute of Christian Science, 27 Mo. App. Fitzgerald, 109 Mich. 670, 67 N. W. 633. 899. 59 State v. Minnesota Thresher Mfg. Minnesota. Minneapolis & St. P. S. Co., 40 Minn. 213, 3 L. E. A. 510, 41 E. Co. V. Manitou Forest Syndicate, N. W. 1020. 101 Minn. 132, 112 N. W. 13; Interna- in McComb v. Belknap, 30 Abb. N. tional Boom Co. v. Eainy Lake Eiver o. (N. Y.) 119, 24 N. Y. Supp. 935, it Boom Corporation, 97 Minn. 513, 107 ^vas held that the fact that a eertifi- N.W. 735; Craig V.Benedictine Sisters cate of incorporation recited that it Hospital Ass'n, 88 Minn. 535, 93 N. W. ^as under the manufacturing eorpora- 669; State v. Minnesota Thresher Mfg. tions act, when the corporation was of Co., 40 Minn. 213, 3 L. E. A. 510, 41 a character not authorized by that act, N. W. 1020. di^ not bring it within the provisions New Jersey. Colgate v. United of the act. 120 Ch.2] Classification of Cobporations [§86 parol evidence ^^ nor by the declarations or acts of the ofScers or agents of the corporation.®^ §86. — "Tradinif" corporations. Where the statute establishes as a separate class corporations engaged in "trading" or "trade and commerce," those words must be interpreted in the sense in which they are commonly used and received.®'' Corporations engaged in "trading" or "trade and commerce" include all the corporations engaged in a business which properly falls within the definition of 60 GitzhofPen v. Sisters of Holy Cross Hospital Asa 'n, 32 Utah 46, 8 L. K. A. (N. S.) 1161, 88 Pac. 691. 61 State V. New Orleans Water Sup- ply Co., Ill La. 1049, 36 So. 117. 62 ' ' The word ' trade, ' in its broadest significance, includes not only the business of exchanging commodities by barter, but the business of buying and selling for money, or commerce and traffic generally." May v. Sloan, 101 TJ. S. 231, 25 L. Ed. 797, quoted in Pocono Spring Water Ice Co. v. Amer- ican Ice Co., 214 Pa. 640, 64 Atl. 398. In re New York & W. Water Co., 98 Fed. 711, aff 'd sub nom. In re Morris, 102 Fed. 1004. With reference to the definition of "trader" and "trad- ing," the court said: "In Bouv. Law Diet, a trader is defined as 'one who makes it his business to buy merchan- dise or goods and chattels and to sell the same for the purpose of making a profit.' Black, Law Diet., says: 'One whose business is to buy and sell mer- chandise or any class of goods deriving a profit from his dealings; ' and. the weight of authority seems to be, that the proper description of the business of a trader includej both buying and selling, either goods or merchandise, or other goods ordinarily the subject of traffic. * * * Selling merely the natural products of one 's own land, it has been held, d'oes not constitute trading, or a mercantile pursuit, even though some yearly purchases may be made by the seller in order to keep up his regular supply. * * " These terms' are restricted also to deal- ings in merchandise, goods or chattels, the ordinary subjects of commerce; so that a railroad contractor, or a specu- lator in stocks, whether on his own account, or as broker, is not deemed a trader or merchant. * * * It has also been held that incidental pur- chases or sales by a person not other- wise a trader, will not make him such." Any person who buys and sells goods, or any other property which is the sub- ject of trade and commerce, as a busi- ness, for the purpose of making a profit, is a trader. In re Cowles, Fed. Cas. No. 3,297. See Gallagher v. De Lancy Stables Co., 158 Fed. 381. "The character of a trader embraces a wide field of operation. It is of no consequence in what one may trade, the only question is, does he buy and sell articles which are subject to trade and commerce?" In re Kenyon, 1 Utah 47. In determining whether one is a trader, the amount of the trading and the amount of the profit is immaterial. If there is a buying and selling for. a profit, it is sufficient. See Newland v. Bell, Holt, N. P. 221; Ex parte Moule, 14 Ves. 602; Holroyd v. Gwynne, 2 Taunt. 176. 121 86] Pbivate Cobpoeations [Ch.2 trading,*' and any corporation engaged in such a business is a trading corporation, or corporation engaged in trade.** Corporations for "trade and commerce" have been held to inchide mining companies which are engaged in both buying and selling cer- tain articles,*^ and a corporation for the purpose of "buying, owning, improving, selling, and leasing of lands, tenements, and hereditaments, real, personal, and mixed estates and property, including the construc- tion and leasing of a building, ' ' ®* but not one dealing in improved and unimproved real estate.*'' The term applies also to a corporation for the "purchase of swamp and overflowed lands and adjacent high lands, * * * the construction of dykes, levees, canals, reservoirs, £ind other works, ' ' and it was held to be within a statute authorizing corporations for manufacturing, or mining, or for "engaging in any other species of trade, business, or commerce.""** Ice companies, gas companies and water companies, intended to supply a city and its inhabitants respectively with ice, gas and water, have been held within a statute providing for the formation of cor- porations "for the purpose of engaging in any species of trade or commerce,"*® and a water company which, in addition to owning a source of supply and furnishing water therefrom to its customers, also 63 In re San Gabriel Sanatorium Co., 95 Fed. 271. 64 In re San Gabriel Sanatorium Co., 95 Fed. 271. 66 Thus a mining company buys coal ov ore from other companies or persons, and sells it :again, it is to that extent a trading corporation, although not ex- clusively engaged in trade. Turner v. Hardeastle, 11 C. B. (N. S.) 683. On the other hand, it would seem that pursuant to the definition there must be both a buying and selling to constitute one a "trader," and that a corporation which owns a mine, or a source of water supply, etc., and merely sells the product therefrom, is not en- gaged in trade and commerce. In re New York & Westchester Water Co., 98 Fed. 711, aff'd sub nom., In re Mor- ris, 102 Fed. 1004, on the opinion of the court below. 66 Finne'gan v. Noerenberg, 52 Minn. 239, 18 L. E. A. 778, 38 Am. St. Sep. 552, 53 N. W. 1150. 67 In re Kingston Eealty Co., 163 Fed. 445. 68 People V. Hager, 52 Cal. 171, 184, writ of error dismissed, 154 IT. S. 639, 24 L. Ed. 1044. 69 People V. Blake, 19 Cal. 579. The decision in this case was that a water- works corporation, organized for the purpose of supplying the city of San Francisco and its inhabitants with water, was within a statute providing for corporation^ "for the purpose of engaging in any species of trade or commerce." The court said: "It was to deal in water as a matter of business — to. furnish the article to consumers upon considerations to be received— that the company was formed. Water, when collected in reservoirs or pipes, and thus separated from the original source of supply, is personal property, and is as much the subject of sale — an article of commerce — as ordinary goods and merchandise. Engaging in the business of furnishing it to the inhabit- 122 Ch.2] Classification of Coepoeations [§86 purchases water from another company or person at a certain price per gallon, and furnishes it to customers, or a gas company purchasing and selling gas, is engaged in trade to the extent of such purchase and sale.'" While, on the one hand, a corporation buying and selling electric power has been held to be a trading corporation,''^ on the other, an electric company transmitting and selling electricity and electrical supplies to various patrons and consumers, but which does not gen- erate its own electricity, has been held not to be engaged in trading or mercantile pursuits within the meaning of the bankruptcy actJ* Nor is a building and loan association engaged in trading.''^ A corporation engaged in buying and selling stocks, bonds and securities is not a trading corporation.''* But the contrary has been ants of a city for equivalent consid- erations to be received is engaging in a species of trade or commerce within the meaning of the act." The dictum also includes ice companies and gas companies. It is said, however, that they are not "in the technical accep- tation of the terms, ' trading ' or ' com- mercial ' corporations. ' ' A company incorporated for the pur- pose of erecting a dam and for the cutting, storing and selling of ice is a trading corporation. Pocono Spring Water Ice Co. v. American Ice Co., 214 Pa. 640, 64 Atl. 398. A corporation chartered for the pur- pose of carrying on a wholesale and retail ice business, and which in fact sold not only ice of its own harvesting, but also large quantities which it pur- chased from third parties, is engaged chiefly in trading and mercantile pur- suits, within the meaning of Bank- ruptcy Act, July 1, 1898, e. 541, § 4b, 30 Stat. 546. First Nat. Bank of Wilkes Barre v. Wyoming Valley lee Co., 136 Fed. 466. 70 It was held by Judge Brown, in the district court for the southern dis- trict of New York, that a water com- pany was not engaged principally in trade, within the meaning of the bank- ruptcy law, although the evidence showed that it had purchased 500,000 gallons per day of its supply from the city of New York at an agreed price of ten cents per 1,000 gallons; and his decision was afirmed by the circuit court of appeals. In re New York & Westchester Water Co., 98 Fed. 711, aff'd sub nom., In re Morris, 102 Fed. 1004. The fact that water was pur- chased as above stated appears in the record of the ease, although not in the report or opinion. It may be noted that one who buys and sells goods, or any property which is the subject of trade and com- merce, is a trader; that water and gas, when confined in pipes, are " personal goods," within the definition of lar- ceny (Com. V. Shaw, 4 Allen (Mass.) 308, 81 Am. Dee. 706; State v. Well- man, 34 Minn. 221; Hutchinson v. Com., 82 Pa. St. 472; Ferens v. O'Brien, 11 Q. B. Div. 21, 15 Cox, Cr. Cas. 332) ; and the subject of trade and commerce. People V. Blake, 19 Cal. 579; Dudley v. Jamaica Pond Aqueduct Corp., 100 Mass. 184. 71 C. B. Nash Co. v. City of Council Bluffs, 184 Fed. 986. 72 In re Hudson Eiver Elec. Power Co., 173 Fed. 934. 73 In re New York Building-Iioan Banking Co., 127 Fed. 471. 74 In re Surety Guaranty & Trust Co., 121 Fed. 73. Contra, In re Pitts- 123 § 86] Private Cobpoeations [Ch. 2 held to be true of a corporation selling grain, merchandise and the like and buying and selling, on its own aecoiint, stocks and bonds.''* Carrying on the business of an insurance agency is not trading ; ''^ nor is the soliciting and placing of newspaper advertising ; ''"' nor the business of renting films for moving pictures.''* A hotel company is not engaged principally in "trading" though it incidentally operates a bar, cigar and news stand and is also engaged in outside trading, where the amount of business done is not large,''^ and a corporation engaged in the business of conducting a restaurant and cafe has also been held not so engaged.*" But a cor- poration which conducts a private hospital for the cure of consump- tives, and which charges for treatment, board, etc., and sells cigars and other articles to its customers, is principally engaged in trading, within the meaning of the bankruptcy act.*^ Where a corporation is chartered "for the purpose of transacting the business of a common carrier of property and persons," and the evidence shows that it is to some extent engaged in trading, and in the letting of horses and wagons, it is not a trading corporation within the bankruptcy act, even if it is assumed that such letting constitutes trading. In such case the evidence does not show that the principal business of the corporation is trading.*^ §87. — "Mercantile" or "commercial" corporations. In speak- ing of "mercantile" or "commercial" corporations, a term is used which is practically synonymous with "trading." The words imply the buying and selling of articles of merchandise as an employment and for profit.** Accordingly the cases in the previous section as to "trading" corporations may be considered in determining what con- burg Stock Exchange, 26 Pittsb. Leg. United States Hotel Co., 134 Fed. 225, J. N. S. (Pa.) 308. 68 L. B. A. 588. 76 In re H. B. Leighton & Co., 147 *" I" re Excelsior Cafe Co., 175 Fed. Fed. 311. ZQi; In re Wentworth Lunch Co., 159 76 In re Moore & Muir Co., 173 Fed. ^'«^- "^5 ^ ^^ Chesapeake Oyster & 732 ' Fish Co., 112 Fed. 960. _' „ , „ ,, ^ . 81 In re San Gabriel Sanatorium Co., 77 In re Snyder & Johnson Co., 133 „, ■c„j o^-i mT,- ^■ j- •' ' 95 Fed. 271. This ruling was disap- ® ■ ■ proved, however, in In re White Star 78 In re Imperial Film Exchange, Laundry Co., 117 Fed. 570; In re 198 Fed. 80. Surety Guaranty & Trust Co., 121 Fed. 79 Toxaway Hotel Co. v. Smathers, 73. 216 r. S. 439, 54 L. Ed. 558. See also 82 Philpot v. O 'Brion, 126 Fed. 167. First Nat. Bank of Tombstone v. Abi- 83 Graham v. Hendricks, 22 La. Ann, lene Hotel Co., 46 Tex. Civ. App. 595, 523. And see In re New York & 103 S. W. 1120. Westchester Water Co., 102 Fed. 1004, A contrary view was taken in In re 98 Fed. 711; In re Cameron Town Mut. 124 Ch. 2] Classification of Coepoeations [§88 stitutes "mercantile corporations." In addition it may be mentioned that a mutual insurance company is not engaged in mercantile pur- suits within the meaning of the bankruptcy law.'* It has also been held that the te«'m ' ' mercantile partnership ' ' — and the same would be true of "mercantile corporation" — does not prop- erly include an association which mines and sells ore and coal from its own lands, or which sinks oil or gas wells and sells their products.'* §88. — "Manufacturing" corporations. "The process of manu- facture is supposed to produce some new article by the application of skill and labor to raw material,"" and the verb "manufacture" has been defined as "the operation of making goads or wares of any kind ; the production of articles for use from raw or prepared mate- rials by giving to these materials new forms, qualities, properties, or combinations, whether by hand labor or by machinery. ' ' *'' Accord- ingly the expression "manufacturing corporations," or corporations for "manufacturing purposes" clearly includes a corporation engaged in the business of making and selling lumber, flour or meal ; " a corporation for manufacturing all kinds of lumber, and the sale of Fire, Lightning & Windstorm Ins. Co., of 1867. In re Independent Ins. Co., 1 96 Fed. 756. ' ' The word ' mercantile, ' in its ordi- nary acceptation, pertains to the busi- ness of merchants, and has ' to do with trade or the buying and selling of com- modities. ' A merchant is one who traflics, or who buys and sells goods or commodities. He would be a merchant if his business consisted in buying without selling, and he might be a mer- chant by simply selling. The term ' mercantile pursuit ' necessarily carries with it the idea of traflie, — the buying of something from another, or the sell- ing of something to another, — and is allied to trade." Phillips, J., In re Cameron Town Mut. Fire, Lightning & Windstorm Ins. Co., 96 Fed. 756. See also In re New York & W. Water Co., 98 Fed. 711. 84 In re Cameron Town Mut. Fire, Lightning & Windstorm Ins. Co., 96 Fed. 756. But an insurance company was held to be a " business or commercial ' ' cor- poration, within the Bankruptcy Act Holmes 103, Fed. Cas. No. 7,017. 85 Com. V. Natural Gas Co., 32 Pittsb. Leg. J. (Pa.) 310. 86 People V. Roberts, 145 N. Y. 375, 377, 40 N. E. 7. 87 Century Diet. & Cyc, "Manu- facture. ' ' Worcester defines ' ' manufacture ' ' as follows: "(1) The process of mak- ing anything by art, or of reducing materials into form fit for use by hand or by machinery; as 'an establishment for the manufacture of cloth.' (2) Anything made or manufactured by hand or manual dexterity, or by ma- chinery." See Attorney General v. Lorman., 59 Mich. 157, 60 Am. Rep. 287, 28 N. W. 311. 88 Cross V. Pinekneyville Mill Co., 17 HI. 54. It was held in Carlin v. Western .Assur. Co. of Toronto, Canada, 57 Md. 515, 40 Am. Rep. 440, that a flouring mill was within the term "manufac- ture": "Its meaning has expanded as workmanship and art have advanced. 125 188] PbIVATB CoEPOEATIOJSrS [Cli.2 the same, and the purchasing and selling of mills, lands, standing timber, logs and lumber for the purpose of such business ; *^ a cor- poration organized to "plant, harvest, store, purchase, manufacture, market, sell and deal in chicory;" ^^ and a corporation for the purpose of making illuminating gas or electricity, and furnishing the same to consumers for lighting, heating or power,*^ unless there is something to show that the legislature did not intend to include them. The term has been held to include also a corporation for the pur- pose of "refining and preparing for use oil, coal and other miner- als ;"^^ a corporation for the manufacture and sale of mineral and other waters; ^* a corporation organized for the purpose of catching, preserving and marketing fish ; ^* and corporations for the purpose of making and selling artificial ice.'* so that now nearly all artificial prod- ucts of human industry, nearly all such materials as have acquired changed conditions, or new and specific combi- nations, whether from the direct ac- tion of the human hand, from chemical processes devised and directed by hu- man skill, or by the employment of machinery, which, after all, is but a higher form of the simple implements with which the human hand fashioned its creations in ruder ages, are now commonly designated as 'manufac- tured.' We think, therefore, that plaintiff 's fiourmill was clearly a ' man- ufacturing' establishment." 89 Wagner v. Corcoran, 2 Pa. Dist. R. 440. 90 Bolton V. Nebraska Chicory Co., 69 Neb. 681, 96 N. W. 148. 91 Alabama. Beggs v. Edison Elec- tric Illuminating Co., 96 Ala. 295, 38 Am. St". Rep. 94, 11 So. 381. Colorado. Lamborn v. Bell, 18 Colo. 346, 20 L. E. A. 241, 32 Pac. 989. Massachusetts. Dudley v. Jamaica Pond Aqueduct Corporation, 100 Mass. 183, 184. New York. Nassau Gas Light Co. v. City of Brooklyn, 89 N. Y. 409, 25 Hun 567. Pennsylvania. Com. v. Allegheny Gas Co., 1 Dauph. Co. Rep. 93. See also Com. v. Northern Elec. Light & Power Co., 145 Pa. St. 105, 117, 14 L. R. A. 107, 22 Atl. 839. ' "Manufacturing corporations" do not include corporations engaged in liberating natural gas or oil from the earth and transporting it to consum- ers. Com. V. Northern Elec. Light & Power Co., 145 Pa. St. 105, 117, 14 L. E. A. 107, 22 Atl. 839. 92 Hawes V. Anglo-Saxon Petroleum Co., 101 Mass. 385. 93 Carlsbad Water Co. v. New, 33 Colo. 389, 81 Pac. 34. 94 In re Alaska American Fish Co., 162 Fed. 498. 95 See Com. v. Northern Elec. Light & Power Co., 145 Pa. St. 105, 117, 14 L. R. A. 107, 22 Atl. 839. In Michigan it has been held that a corporation for the purpose of collect- ing natural ice, and selling the same after reducing it by manual labor or machinery to a form adapted to sale and use, is a manufacturing corpora- tion. Attorney General v. Lorman, 59 Mich. 157, 60 Am. Rep. 287, 26 N. W. 311. The contrary, however, was held in New York, on the ground that this is merely the selling of a natural prod- uct. People V. Knickerbocker lee Co., 99 N. Y. 181, 1 N. E. 669. And see the dictum in Com. v. Northern Elec. Light & Power Co., 145 Pa. St. 105, 117, 14 L. R. A. 107, 22 Atl. 839. 126 Ch. 2] Classification of Cobpokations [§ 88 Grinding bone dust of commerce has been held "manufacturing," within the meaning of the revenue laws of the United States ; ^* timber split into staves, or into long pieces designed for shovel handles, was ' ' manufactured, ' ' and not covered by a reciprocity treaty .^'^ It has also been held that "manufacturing" corporations include a corporation "to conduct and prosecute the business of book printing and job printing, engraving, electrotyping, and lithographing," cap- ital of which is invested in that business, and which manufactures only on orders.®* The same was held true of a corporation for the purpose of carrying on the business of "publishing books, and of printing and book binding," ^® but the term "manufacturing corporations" does not include corporations for the purpose of publishing a daily newspaper, although they also carry on a general jobbing, printing and publishing business.^ Aqueduct or other corporations engaged in taking water from a natural source and distributing it through ditches or pipes are not "manufacturing" corporations,^ and the same rule applies to corpora- tions engaged in mining and selling coal or ores ; ' corporations for purchasing sheep and lambs, slaughtering them, pulling the wool from the hides, converting the offal into fertilizer, reducing the carcasses to a temperature which will retard decomposition, and shipping them to places of delivery ; * or a corporation engaged in the sale of spices, 96 Schrief er v. Wood, 5 Blatchf . 215, company. People v. Eoberts, 19 N. Y. Fed. Cas. No. 12,481. App. Div. 632, 155 N. Y. 1, 46 N. Y. 97 United States v. Hathaway, 4 Supp. 1099. Compare In re Kenyon, "Wall. (tr. S.) 404, 408, 18 L. Ed. 395. 1 Utah 47. 98 Evening Journal Ass 'n v. State 2 Dudley v. Jamaica Pond Aqueduct Board of Assessors, 47 N. J. L. 36, 54 Corporation, 100 Mass. 183. Am. Eep. 114. See In re Kenyon, 1 3 Byera v. Franklin Coal Co., 106 Utah 47. Mass. 131. See also People v. Horn 99 Com. V. J. B. Lippincott Co., 156 Silver Min. Co., 105 N. Y. 76, 11 N. E. Pa. St. 513, 27 Atl. 10; Com. v. Wm. 155. Mann Co., 150 Pa. St. 64, 24 Atl. 601. 4 People v. Roberts, 155 N. Y. 408, 1 Evening Journal Ass'n v. State 41 L. E. A. 228, 50 N. E. 53, rev'g 20 Board of Assessors, 47 N. J. L. 36, 54 N. Y. App. Div. 521, 47 N. Y. Supp. Am. Eep. 114. 123. A corporation which publishes a It was held, however, in Engle v. newspaper, but which does not own or Sohn & Co., 41 Ohio St. 691, 52 Am. operate any plant for printing it, and Eep. 103, that a pork packer — a person takes no part in printing it further engaged in the business of purchasing than to have a foreman who watches and slaughtering hogs, curing the meat, the work as it progresses in the hands packing the same, and selling it — ^was of a contractor, by whom the type is a manufacturer. Compare Jackson v. set and the paper printed at a price State, 15 Ohio 652. agreed upon, is not a manufacturing 127 §88] Peivate Cokpoeations [Ch. 2 baking powder, coffee and tea, not manufactured by it, but purchased by it in bulk although it puts up the spices and baking powder in packages for sale, mixes different kinds of tea together, puts them in packages, and sells them as "combination tea," and purchases coffee raw and roasts and grinds it.* Nor is a corporation engaged in re- pairing automobiles, where the work consists principally of adjusting various parts of automobiles bought from other persons to existing automobiles, engaged in manufacturing;* nor can a corporation for the purpose of constructing and providing docks for building, raising and repairing vessels and steamers be held to be a "manufacturing" corporation.' In a Pennsylvania case a statute of the state exempted from taxation corporations organized exclusively for manufacturing purposes, and the question was whether a corporation engaged in the manufacture of wood, iron and steel bridges was within the terms of the statute. And it was held that it was. Doubt was expressed as to whether the word "manufacturing" could be properly applied to the putting of bridges in place, but it was held that the preparation of the parts for putting them together from material either raw or unfinished was "clearly manufacturing, within any accepted definition of the word. ' ' * "Where the certificate of incorporation of a company states that it is organized "to lease, produce and exploit plays and other theatrical and dramatic products, to produce and sell theatrical costumes and properties," and it appears that such corporation has only produced one play since its organization, it is not eng'aged principally either in manufacturing, trading or mercantile pursuit within the bankruptcy act.® And a like rule has been applied to a corporation organized to operate a cold storage plant, where refrigeration is accomplished by means of brine in' pipes made by mixing calcium chloride in water by ordinary workmen, the cooling rooms being rented.^** A particular statute may use the term "manufacturing," in refer- B People V. Eoberts, 145 N. T. 375, large steel vessels and in repairing 377, 40 N. E. 7. others, is a corporation engaged prin- 6 Gate V. Connell, 173 Fed. 445. cipally in manufacturing and mercan- 7 People V. New York Floating Dry tile pursuits, within the bankruptcy Dock Co., 63 How. Pr. (N. Y.) 451, act. Columbia Iron Works v. National 92 N. T. 487. Lead Co., 127 Fed. 99, 64 L. R. A. 645. But a corporation chartered to con- 8 Com. v. Keystone Bridge Co., 156 struct and repair vessels, carry on a Pa. St. 500, 27 Atl. 1. general shipbuilding and ship repairing 9 In re J. J. Reisler Amusement Oo., business, construct and operate a ma- 171 Fed. 283. rine dry dock, etc., and whose main 10 In re Philadelphia Freezing Co., business consists in the building of 174 Fed. 702. 128 Ch.2] Classification of Corpoeations [§88 ence to corporations, in a different sense from that given by lexicog- raphers, and of course the intention of the legislature must govern. Thus, in Pennsylvania it was held that a corporation organized for the purpose of supplying light, heat and power by means of electricity was not a "manufacturing corporation," within the meaning of a statute of that state exempting such corporations from taxation, al- though it was conceded that its operations might be within the defini- tion of "majiufacture" given by lexicographers.^^ If the business of a corporation is not manufacturing, the fact that it does a trifling or insignificant amount of manufacturing will not make it a manufacturing corporation, within the meaning of a statute. In a Minnesota case it was held on this ground that the stockholders of a corporation were not exempt from liability fc^r its debts under a statute or constitutional provision exempting the stockholders of manufacturing corporations, where it was evident, not only from its articles of association, but also from the business actually transacted, that its primary object was to carry on a business wholly foreign to manufacturing, — the buying, selling, shipping and storing of grain, building materials, cattle, etc., — although an insignificant part of its business was the manufacturing of flour and f eed.^^ 11 Com. V. Northern Elee. Light & Power Co., 145 Pa. St. 105, 14 L. E. A. 107, 22 Atl. 839. See also Com. v. Edi- son Elee. Light & Power Co., 170 Pa. St. 231, 32 Atl. 419 ; Com. v. Keystone Elee. Light, Heat & Power Co., 4 Lack. Leg. N. (Pa.) 353, 2 Dauph. Co. Eep. 1. 12 Mohr V. Minnesota Elevator Co., 40 Minn. 343, 41 N. W. 1074. A corporation organized not only for the purpose of mining, hut also for the business of "buying and selling and dealing in mineral lands, ' ' is not with- in the Minnesota constitutional pro- vision relating to corporations organ- ized for manufacturing or mechanical business. Holland v. Duluth Iron Min- ing & Development Co., 65 Minn. 324, 60 Am. St. Eep. 480, 68 N. W. 50. See Anderson v. Anderson Iron Co., 65 Minn. 281, 68 N. W. 49; St. Paul Bar- rel Co. v. Minneapolis Distilling Co., 62 Minn. 448, 64 N. W. 1143. A corporation whose articles of incor- poration state that "its business shall be the manufacturing of clothing of every description, and the sale of cloth- ing so manufactured, and the transac- tion of all other business necessary and incidental to such manufacture and sale of clothing, " is a manufactur- ing corporation exclusively. Nicollet Nat. Bank v. Frisk-Turner Co., 71 Minn. 413, 70 Am. St. Eep. 334, 74 N. W. 160. "It is immaterial that the corpora- tion was organized under the statute providing for organizing manufactur- ing corporations or what the actual intention of the incorporators was, or that the corporation in fact carried on only a manufacturing business, but its articles of incorporation are the sole criterion as to such intention and the purposes for which the corporation was organized; and, unless it fairly appears therefrom that it was organized for the exclusive purpose of engaging in manufacturing and such incidental business as may be reasonably neces- 129 I Priv. Corp.— 9 § 89] Peivate Corporations [Ch. 2 §89. — "Transportation" and "railroad" corporations. A "transportation" corporation, as the term is generally understood, is a corporation engaged in the carriage or transportation of passengers, or of goods belonging to others, for hire or reward, as in the case of a railroad company, steamboat company, express company, and the like. To render a corporation a "transportation" company, however, it need not necessarily carry the goods, as in the case of a railroad or express company. It is sufficient if it transports or removes them by other means. It has been held, therefore, that a corporation engaged in the removal of petroleum from place to place, for hire, by means of pipes, is a transportation company, within the meaning of a statute taxing such corporations.^^ The same is true of a corporation engaged in transporting natural gas in pipes.'* And it has been held that a water company furnishing water to consumers through pipes, from its own source of supply, was a "transportation" company.'^ But this construction seems of doubtful authority. The term, as commonly used, is confined to corporations engaged in the business of transport- ing either passengers, of goods belonging to others, or both, and does not include corporations which merely transport their own goods to purchasers. According to the decision referred to, the term "trans- portation company" would include a trading corporation transporting its goods to purchasers in wagons. In an Ohio case (in the circuit court) it has been held that a corporation organized for the purpose of constructing waterworks, and supplying a city and its inhabitants with water from a source of supply owned by it, is not a transporta- tion company, within the meaning of a statute giving to corporations organized for the purpose of transporting petroleum, water, etc., the power of eminent domain.'* If a corporation is engaged in carrying freight, has the equipment and operates as a railroad, it may be so designa,ted, and it is immaterial sary for effectuating the purpose of 1* Carothers v. Philadelphia Co., 118 its organization, its stockholders are Pa. St. 468, 474, 12 Atl. 314. not within the exception to the general 15 In re New York & Westchester rule of constitutional liability of stock- Water Co., 102 Ped. 1004, 98 Fed. 711. holders for the debts of their corpora- 16 "It is well known that the object tion. ' ' Merchants ' Nat. Bank of St. of transportation companies is to carry Paul V. Minnesota Thresher Mfg. Co., or convey property from one place to 90 Minn. 144, 95 N. W. 767: another, for hire, by means of convey- 13 Columbia Conduit Co. v. Com., 90 anoes, " etc. State v. Salem Water Co., Pa. St. 307. See also West Virginia 5 Ohio Cir. Ct. 58. Transp. Co. v. Volcanic Oil & Coal Co., 5 W. Va. 382. 130 Ch. 2] Classification of Coepoeations [§ 91 that it is not a common carrier.^'' Also interurban railroads, from the nature of their business and manner of operation, are to be considered rather as "railroads" than street railroads. Thus it was held in an Ohio case (in the circuit court) that they were within a statute as to railroads and subject to municipal ordinances as to the lighting of street crossings.^* §90. — Corporations for "industrial pursuits." The expression ' ' industrial pursuit ' ' is broader than ' ' trading " or " manufacturing. ' ' It includes both, and something more. It has been held that a statute authorizing corporations for "industrial pursuits" authorizes a cor- poration for carrying on the express business,^* and a corporation for carrying on a mercantile business for the sale of goods, mining sup- plies, etc.^" §91. — "Business" corporations. A corporation organized for the purpose of conducting financial dealings, buying and selling, traffic in general and mercantile transactions is a business corporation.*^ Usually the term applies to any banking, manufacturing and trading corporation, and insurance companies, whether fire, life or marine, have been held to be business corporations.'^* Also a railroad corpora- tion has been held to be a business corporation within the meaning of the Bankruptcy Act of 1867.** And a corporation formed to "engage in the business of manufacturing, distilling, buying, selling, importing, exporting, exchanging and otherwise acquiring, owning, holding, deal- ing in, or disposing of wines, spirits, liquors, ales, beers at wholesale or retail or otherwise, " is a business corporation.** Also an association engaged in selling burial lots and maintaining a cemetery is conduct- ing a business.** A corporation organized to conduct a small loan 17 Mound City Transfer Ey. Co. v. 103, Fed. Cas. No. 7,017; In re Hercules Wabash E. Co., 154 Mo. App. 156, 133 Mut. Life Assur. Society, 6 Ben. 35, S. W. 611. 5 Am. Law T. Eep. 400, Fed. Cas. No. 18 Village of Ottawa v. Ohio Blec. 6,402. Ey. Co., 13 Ohio Cir. Ct. (N. S.) 561. 23 Winter v. Iowa, M. & N. P. E. Co., 19 Wells, Fargo & Co. v. Northern 2 Dill. 487, Fed. Cas. No. 17,890; Adams Pac. Ey. Co., 23 Fed. 469. v. Boston, Hartford & Erie E. Co., 20 Bashf ord-Burmister Co. v. Agua Holmes 30, Fed. Cas. No. 47. Fria Copper Co. (Ariz.), 35 Pae. 983. 24Greenough v. Board of Police See also Carver Mercantile Co. v. Com 'rs Town of Tiverton, 30 E. I. 212, Hulme, 7 Mont. 566, 19 Pae. 213. 136 Am. St. Eep. 953, 74 Atl. 785. 21 Greenough v. Board of Police 25 Bast Hill Cemetery Co. of Eush- Com'rs Town of Tiverton, 30 E. I. 212, ville v. Thompson, 53 Ind. App. 417, 97 74 Atl. 785.' N- B. 1036. 22 In re Independent Ins. Co., Holmes 131 § 91] Pbivate Cobpobations [Ch.. 2 business, in such a manner as to reduce to a low degree the possibilities of harsh treatment of poor persons, has been held to be a "business corporation." The fact that the statute providing for such company contains provisions requiring some of its officers to be appointed by public officers and that the business be under public supervision with a view to absolutely fair treatment of the customers and with dis- crimination under proper circumstances in favor of small loans to the indigent, does not change the concern into a charitable corporation.'^' Nor does the fact that an educational institution may acquire and convey property necessary to the accomplishment of its object and may charge tuition for instruction, render it a "business" or "trad- ing" corporation for the pecuniary profit of its members.^'' Where a foreign company, which is a literary or charitable institu- tion, brings suit against the guarantors of a lease of a hotel, it is not a "business" corporation from the mere fact that it has caused the hotel property to be repaired, or because it had a representative in the liquor licenses which were issued for the hotel.*' § 92. — Corporations for "pecuniaxy profit." Under the statutes of some states, separate provisions are made for the incorporation of corporations for "pecuniary profit" as distinguished from corpora- tions "not for pecuniary profit."*' "Within the meaning of such a provision, a corporation "for pecuniary profit" has been defined to be a corporation organized for the pecuniary profit of its stockholders or members.^" Included in this class are banking, manufacturing and trading corporations, water and gas companies, and the like which are expected to pay dividends. It also comprises railroad companies. And it has been held that a corporation for heating and to operate street railways could not be organized under the statutes which pro vide for corporations not for pecuniary profit.'^ 86Apsey V. Chattel Loan Co., 216 profit." State v. Standard Life Ass 'n, Mass. 364, 103 N. B. 899. 38 Ohio St. 281. 27 McLeod V. Lincoln Medical Col- 30 Santa Clara Female Academy v. lege of Cotner University, 69 Neb. 550, Sullivan, 116 111. 375, 387, 56 Am. Bep. 98 N. "W. 672, 96 N. W. 265. 776, 6 N. E. 183. See also People v. 28 Tulane University of Louisiana v. Mezger, 98 N. Y. App. Div. 237, 90 O'Connor, 192 Mass. 428, 78 N. B. 494. N. Y. Supp. 488; City of San Antonio 89 See J. & A. 111. Stat. c. 32; Iowa v. Salvation Army (Tex.), 127 S. "W. Code § 3270. 860. The Ohio statutes provide for cor- 81 People v. Boss, 188 111. 268, 59 N. porations "for profit" and "not for B. 432. 132 Ch. 2] Classification of Coepoeations [§93 A mutual insurance company is not a benevolent association, but a corporation for pecuniary profit.'^ As instances of corporations not for pecuniary profit may be men- tioned incorporated hospitals, asylums and other eleemosynary corpora- tions and incorporated religious societies or congregations.^^ And an incorporated academy, or other corporation for educational purposes, which declares no dividends, and pays no money to its members, but is conducted solely for educational and charitable purposes, is not a corporation for pecuniary profit, although it may charge fees for tuition.^* A state agricultural society organized for the purpose of promoting the public interest in the business of agriculture, and which has no stockholders, cannot be classified as a corporation for pecuniary profits.^^ Nor is an association organized for "improving the breed of horses by promoting the interests of the American trotting turf" and providing no capital stock, but imposing membership fees and anmiial dues, organized for pecuniary profit.'* An incorporated board of trade is not a corporation for pecuniary gain, for the "organization is not maintained for the transaction of business or for pecuniary gain, but simply to promulgate and enforce amongst its members correct and high moral principles in the transaction of business. It is not engaged in business, but only prescribes rules for the transaction of bus- §93. — "Moneyed" corporations. The term "moneyed" is ap- plied to certain corporations in some states. In New York, ' 'moneyed ' ' corporations are defined by statute to be corporations formed under or subject to the banking or insurance law, and they include every cor- poration having banking powers, or having the power to make loans upon pledges or deposits, or authorized by law to make contracts of insurance. 32 Iowa Mut. Tornado Ins. Ass'n v. 776, 6 N. E. 183. See also McLeod v. Gilbertson, 129 Iowa 658, 106 N. W. Lincoln Medical College of Cotner Uni- 153. versity, 69 Neb. 550, 96 N. W. 265,, 33 See Santa Clara Female Academy rev'd on '..rehearing, 98 N. W. 673^ V Sullivan, 116 111. 375, 56 Am. Eep. People v." Mezger, 98 N. Y. Ap'p: 776, 6 N. E. 183; People v. Board of Div. 237, 90 N. Y. Supp. 488. , Trade of Chicago, 80 111. 134; In re 35 Hern v. Iowa State Agr. Society, Ihmes' Estate, 154 Iowa 20, 134 N. W. 91 Iowa 97, 24 L. E. A. 655, 58 N. W. 429; McDonald v. Massachusetts Gen- 1092. eral Hospital, 120 Mass. 432, 21 Am. 36 American Matinee Ass 'n v. Seere- Eep. 529; City of San Antonio v. Salva- tary of State, 140 Mich. 579, 104 N. W. tion Army (Tex.), 127 S. W. 860. 141. 34 Santa Clara Female Academy v. 37 People v. Board of Trade of Chi- Sullivan, 116 111. 375, 387, 56 Am. Eep. cago, 80 111. 134, 136. 133 § 94] Pbivate Coepobations [Ch. 2 § 94. — "Banking" corporations — Trust companies. In the broad sense, a banking corporation is one engaged in the business of banking, which includes the business of receiving deposits of money, lending money, dealing in commercial paper, paying checks, and generally, although not necessarily, issuing notes to circulate as money .^^ In a commercial sense banks are of three kinds, namely, banks of deposit, banks of discount and banks of circulation.'® It has been held that an incorporated savings association, authorized by its charter to receive deposits, discount notes, and invest the funds in its hands in public securities, and to declare credits or dividends, must be regarded as having banking powers although it has no stockholders.*® In some states the business of banking is restricted to corporations.*^ Such corporations are distinguishable from trust companies in that the deposits of the latter are strictly loans or trust funds, and not sub- ject to cheek, that they cannot issue their notes for circulation, that they do not buy and sell exchange in the ordinary course of their busi- ness, and that they are authorized to engage in real estate transactions, trusteeships, and other business not included within the powers of banking corporations.*^ The fact that a trust company exercises some of the functions of a bank with or without authority does not make it a banking corporation.*' Where a trust company has no banking 38 MacLaren v. State, 141 Wis. 577, N. W. 664. See also First State Bank 135 Am. St. Eep. 55, 18 Ann. Cas. 826, of Holstein, Nebraska v. Shallenberger, 124 N. W. 667. See Bank for Savings 172 Fed. 999. V. The Collector, 3 "Wall. (TJ. S.) 495, 42 Mercantile Nat. Bank v. City of 18 L. Ed. 207; Reed v. People, 125 HI. New York, 121 TJ. S. 138, 80 L. Ed. 592, 1 L. E. A. 324, 18 N. E. 295; Peo- 895; Selden v. Equitable Trust Co., 94 pie V. Doty, 80 N. T. 225; Pratt v. u. S. 419, 24 L. Ed. 249; Wells, Pargo Short, 79 N. Y. 437, 35 Am. Eep. 531; & Co. v. Northern Pac. E. Co., 23 Fed. First Nat. Bank of Lyons v. Ocean Nat. 459 ; state v. Eeid, 125 Mo. 43, 28 S. W. Bank, 60 N. Y. 278, 19 Am. Eep. 181; 172. See also State v. Louisiana Sav. People V. Manhattan County, 9 Wend. Co., 12 La. Ann. 568; Pratt v. Short, 79 (N. Y.) 351, 383. N. Y. 437, 35 Am. Eep. 631. 39 Reed v. People, 125 111. 592, 1 L. 43 State v. Eeid, 125 Mo. 43, 28 S. W. E. A. 324, 18 N. E. 295; MacLaren v. 172. In this case it was held that a State, 141 Wis. 577, 135 Am. St. Eep. trust company, although it exercised 55, 18 Ann. Cas. 826, 124 N. W. 667. gome of the functions of a bank— re- 40Eeed v. People, 125 111. 592, 1 L. ceiving deposits subject to check — in E. A. 324, 18 N. E. 295. contravention of its charter, was not 41 MacLaren v. State, 141 Wis. 577, within a statute imposing a penalty 135 Am. St. Eep. 55, 18 Ann. Cas. 826, upon the ofScers of banking institu- 124 N. W. 667; Weed v. Bergh, 141 tions for receiving deposits after the Wis. 569, 25 L. E. A. (N. S.) 1217, 124 company's insolvency. 134 Ch. 2] CLASStFICATION OF CORPORATIONS [§96 powers, a statute as to the liability of stockholders of banks does not apply." §95. — "Beneficial" corporations. "Beneficial" associations or corporations are associations organized for the purpose of the mutual benefit or protection of their members.*^ They include, for instance, a society formed for the purpose of rendering assistance to members or their families in case of sickness, and to insure the payment of a cer- tain sum to the widow or dependents of a member on his death.*® §96. — "Insurance" corporations. An insurance company or corporation is a corporation organized for the purpose of making eon- tracts of insurance against loss of property by fire, hail, perils of the sea, or other causes, or against personal injury, or upon life, etc. But corporations commonly known »s "beneficial associations," and in- tended merely for the mutual benefit or protection of their members, are not insurance companies.*'' Such corporations are more in the nature of charitable organizations.** Where the purpose of a corporation is the mutual insurance of its members, and no moral or social qualifications are required for mem- bership, but only that the applicant shall be in sound health and of age, it is an insurance company, and it can make no difference that the amount payable by it on the death of a member is not fixed, but depends upon the number of members at that time, and is collected by 44 De Haven v. Pratt, 223 Pa. 633, 47 Society of St. Stephen the Martyr 72 Atl. 1068. V. SikoTski, 141 111. App. 1. 45 Brenizer v. Supreme Council Eoyal , Com. v. Provident Bicycle Ass 'n, 178 Arcanum, 141 N. C. 409, 6 L. B. A. Pa. St. 636, 36 L. E. A. 589, 36 Atl. 197; (N. S.) 235, 53 S. E. 835; State v. Mu- Com. v. Equitable Ben. Ass'n, 137 Pa. tual Protection Ass 'n of Ohio, 26 Ohio St. 412, 419, 18 Atl. 1112. See State St. 19; Com. v. Provident Bicyftle Council of Catholic Knights of Illinois Ass'n, 178 Pa. St. 636, 36 Atl. 197; v. Board Eeview Eflangham County, Com. V. Equitable Beneficial Ass'n, 137 198 111. 441, 64 N. E. 1104; Knights of Pa. St. 412, 419, 18 Atl. 1112. And see Modern Maccabees v. Commissioner of § 96, infra. Insurance, 155 Mich. 693, 118 K. "W. 46 State V. Mutual Protection Ass 'n 585; Missey v. Supreme Lodge, of Ohio, 26 Ohio St. 19. See also Com- Knights & Ladies of Honor, 147 Mo. m'ercial League Ass'n v. People, 90 App. 137, 126 S. W. 559; Brenizer v. 111. 166; State v. Iowa Mut. Aid Ass'n, Supreme Council Eoyal Arcanum, 141 59 Iowa 125; Supreme Council of Or- N. C. 409, 6 L. E. A. (N. S.) 235, 53 der of Chosen Eriends v. Eairman, 62 S. E. 835. How. Pr. (N. T.) 386; Com. V. National 48 Evans v. Modern Woodmen of Mut. Aid Ass 'n, 94 Pa. St. 481. And America, 147 Mo. App. 155, 129 S. W. see § 96, infra. 485. 135 § 96] Private Cokpobations [Ch. 2 assessment upon them.*' On the other band, a society formed for the purpose of rendering assistance to members or their families in case of sickness, and to insure the payment of a certain sum to the widow or dependents of a member on his death, is not an insurance company." The same is true of a corporation for the purpose of mutual protection of its members against loss by reason of injury to or loss of bicycles ; *^ and of a corporation for the purpose of paying a sum of money to a member on his marriage, or to his ivife, out of a fund to be raised by the payment by members of initiation fees, annual dues, and assess- ments.^^ Insurance companies are usually held not to be " trading ' ' or "mercantile" corporations and are not within the bankruptcy act.*^ § 97. — Building and loan associations. An incorporated building and loan association is a corporation for the purpose of raising, by periodical subscriptions of members, a stock or fund to assist members by advances or loans, generally on mortgage security, in building or purchasing homes. Such corporations are different from corpora- tions formed for pecuniary profit.** They have been spoken of as "a peculiar kind of corporation. They are usually aggregations of people who deal exclusively among themselves in accumulating a kind of savings fund for investment in homes. They are not commercial bodies in the large or popular sense of the term. They are, rather, limited, co-operative, home building co-partnerships. " *® In several states the term is defined by statute to include all corporations doing a savings and loan or investment business on the building society plan, viz., loaning its funds to its members or shareholders, and whether 49Coin. V. Wetherbee, 105 Mass. 149; 52 State v. Towle, 80 Me. 287, 14 State V. Merchants' Exchange Mut. Atl. 195. Benev. Society, 72 Mo. 146; State v. 53 in re Moore & Muir Co., 173 Fed. Brawner, 15 Mo. App. 597. 732. BO Commercial League Ass 'n v. Peo- 61 They are ranked, however, as pie, 90 ni. 166; State v. Iowa Mut. Aid moneyed corporations under the law Ass'n, 59 Iowa 125, 12 N. "W. 782; Su- of New York. In re New York Build- preme Council of Order of Chosen ing-Loan Banking Co., 127 Ted. 471. Friends v. Fairman, 62 How. Pr. (N. Homestead loan associations differ y.) 386; State v. Mutual Protection essentially in character from corpora- Ass 'n of Ohio, 26 Ohio St. 19; Com. v. tions formed for pecuniary profit un- National Mut. Aid Ass'n, 94 Pa. St. der the General Incorporation Act of 481. See also Brenizer v. Supreme Illinois. People v. Butler St. Foundry Council Royal Arcanum, 141 N. C. 409, & Iron Co., 201 111. 236, 66 N. E. 349. 6 L. R. A. (N. S.) 235, 53 S. E. 835. B8 Com. v. Home & Savings Fund Co. Bl Com. V. Provident Bicycle Ass'n, Bldg. Ass'n, 127 Ky. 537, 106 S. W. 221. 178 Pa.- St. 636, 36 L. E. A. 589, 36 Atl. 197. 136 Ch. 2] Classification op Cobpoeations [§98 issuing certificates of stock which mature at a time fixed in advance or not. The scheme adopted by one of these corporations need not conform to any other plan already in use, but if such concern has for its objects the same purposes as ordinary "building and loan associations" it must be designated as belonging to that class of corporations, and to be subject to the laws governing such corporations.*'' The term does not generally include corporations unless their pur- pose is to accumulate funds and lend the same to members to assist them in purchasing or building homes, to be held by them in sever- alty.*' It does not include a corporation for "the accumulation of a fund by the saving of its members to build or purchase for themselves, respectively, dwelling houses or real estate or to enter into business ; " *^ or a corporation for the purpose of purchasing and improving real estate and advancing money on mortgages, etc. ; *" or a corporation for the purpose of buying land with the funds contributed by its members, and then dividing it among them ; ®^ or a corporation merely for the purpose of loaning money.®^ Building and loan associations cannot be classified as corporations engaged in "trading and mercantile pursuits" and have been held not within the bankruptcy act.*' But if the capital stock of such a corpora- tion is divided into shares, it must be classified as a "stock" cor- poration. Accordingly shareholders have been held liable under statutes imposing liability on stockholders.** §98. — "Literary" corporations. The term "literary" means of or pertaining to letters or learning, and a corporation organized for the purpose of promoting literature and learning is a literary corpora- 57 See State v. Standard Eeal Estate 60 Williar v. Baltimore Butchers ' Loan Co., 80 Kan. 694, 103 Pac. 1006. Loan & Annuity Ass 'n, 45 Md. 546. 68 Williar v. Baltimore Butchers' 61 Grimes v. Harrison, 26 Beav. 435. Loan & Annuity Ass'n, 45 Md. 546; 62Kupfert v. Guttenberg Bldg. Jarrett's Ex'r v. Cope, 68 Pa. St. 67; Ass'n, 30 Pa. St. 465, 470. See Bhodes Kupfert V. Guttenberg Bldg. Ass'n, 30 v. Missouri Savings & Loan Co., 173 Pa. St. 465, 470; Grimes v. Harrison, 111. 621, 42 L. E. A. 93, 50 N. E. 998; As- 26 Beav. 435. sets Eealization Co. v. Heiden, 117 111. A building and loan association may App. 458, aff 'd 215 111. 9, 74 N. E. 56. have banking powers, so as to be sub- 63 In re New York Building Loan jeet to the law governing banking cor- Banking Co., 127 Fed. 471; Kurtz v. porations. See Henderson Loan & Eeal Bubeck, 39 Pa. Super. Ct. 370. Estate Ass'n v. People, 163 111. 196, 45 64 See Leighton v. Leighton Lea N. E. 141. Ass'n, 62 N. Y. Misc. 73, 114 N. Y. 59 Jarrett's Ex'r v. Cope, 68 Pa. St. Supp. 918. 67. 137 § 98] Phivate Cokpokations [Ch. 2 tion. Any institute or association organized and incorporated for the purpose of conducting a school or seminary of learning, and having that character, is a "literary" corporation or association, within the meaning of a statute.^* On the other hand, a corporation not organized for the promotion of literature or learning cannot be classed as a liter- ary association.®® A corporation for the purpose of disseminating theosophical ideas, and procuring converts thereto, is not a "literary" corporation.®'' §99. — "Scientific" corpora,tioiis. The term "science," it has been said, in its broadest sense, is "knowledge," or "the knowledge of many, methodically digested and arranged, so as to be attainable by one;" a "body of principles and deductions to explain the nature of some matter;" and is not synonymous with, nor does it include, "art." 68 The term "scientific" has been held to include a school,®® but not a university fraternity.'"* And a rifle club is not a corporation for "scientific purposes;" for rifle shooting, although it may be an art, is not a science.''^ A corporation having for its object the dissemination of theosophical ideas, and procuring converts thereto, is not a "scien- tiflc" institution.''^ In a Michigan case it was said: "A 'scientific institution,' under the language of all civilized countries, means an institution for the advancement or promotion of knowledge, which is the English rendering of 'science;' " and it was held that an educa- tional corporation was a "scientific institution," within the meaning of a statute exempting the property of such institutions from taxa- tion.''^ 65 ChamTDerlain v. Chamberlain, 3 16 L. E. A. 97, 43 N. W. 593; Jackson Lans. (N. Y.) 348. See also Lawrence v. "Waldron, 13 "Wend. (N. Y.) 178, University v. Outagamie County, 150 205. Wis. 244, 136 N. W. 619. Compare, 69 Lawrence University v. Outaga- however, Reg. v. Pocock, 8 Q. B. 729. mie County, 150 Wis. 244, 136 N. W. 66 See Reg. v. Jones, 8 Q. B. 725. 619. A fraternity at a university does not 70 Inhabitants of Orono v. Kappa fall within such a class. Inhabitants Sigma Society, 108 Me. 320, 80 Atl. 831. of Orono v. Kappa Sigma Society, 108 71 Vredenburg v. Behan, 33 La. Ann. Me. 320. 627. 67 New England Theosophical Corpo- 72 New England Theosophical Corpo- ration V. Board of Assessors, 172 Mass. ration v. Board of Assessors, 172 Mass. 60, 42 L. E. A. 281, 51 N. E. 456. 60, 42 L. E. A. 281, 51 N. E. 456. 68 Vredenburg v. Behan, 33 La. Ann. 73 Detroit Home & Day School v. 627. And see Detroit Home & Day City of Detroit, 76 Mich. 521, 6 L. E. School V. City of Detroit, 76 Mich. 521, A. 97, 43 N. W. 593. 138 Ch.2] Classification of Cokporations [§100 §100. — "Charitable" and "benevolent" cairporations. A char- itable corporation is ' ' one whose principal aim is to give of its material substance or time to benefit those who are in need of such assistance, or will be benefited by such gift or expenditure in some other way than simply by an improvement of morals or bringing them under the influence of the gospel, ' ' '* Corporations organized for "charitable or benevolent" purposes, within the meaning of a statute, include all corporations organized, not for private gain or profit, but for the administration of charitable trusts, such as hospitals and asylums for the sick, insane and poor, and colleges or schools for the promotion of piety or learning.''' A Young 74 In re MeCormick's Estate, 71 N. Y. Misc. 95, 127 N. Y. Supp. 493. 7B Connecticut. Hearns v. Water- bury Hospital, 66 Conn. 98, 31 L. B. A. 224, 33 Atl. 595; American Asylum V. Phoenix Bank, 4 Conn. 172, 10 Am. Dee. 112. Illinois. Fordham v. Thompson, 144 111. App. 342. Massachusetts. McDonald v. Massa chusetts General Hospital,- 120 Mass, 432, 21 Am. Bep. 529. Missouri. State v. Adams, 44 Mo. 570. New Jersey. Paterson Eescue Mis sion V. High, 64 N. J. L. 116, 44 Atl 974. ' ' There is a great ai£Eerence between the powers of the trustees of an eleemosynary corporation, with visi- torial powers, like a college or a hospi- tal, and those of a private moneyed corporation, like a bank or railroad. The latter are composed of sharehold- ers, each of whom is a member of the company, who make the by-laws and all lawful regulations, elect directors for a limited period, and themselves compose the corporation. Amend- ments to the charter, not in violation of its objects, may be accepted by the shareholders, but the trustees have no general powers, are simply their agents, and are under their control. The law of visitation, as applied to eharities, has no application to them. But in eleemosynary corporations there are no stockholders; and regulations that in ordinary corporations are made by them and disputes that are sub- mitted to the courts, are made and de- cided by those intrusted with the visi- torial power. The visitor is the judge or arbiter to decide all disputed ques- tions not involving the integrity of the management of the fund or the ob- servance of the statutes of the founder, and he alone can make regulations and by-laws that shall bind the officers. There being no constituent members, he, in a sense, is the corporation and controls its operations, subject only to the expressed will of the founder. By the common law, the founder and his heirs are the visitors. Cujus est dare, ejus est disponere. But the foundation may provide for other visitors; and, in England, that oflice is generally withheld from the trustees who hold the fund, in order that they may be also visited. But in this country the visitorial power over schools and col- leges, together with all other powers and rights belonging to them, are usually vested in boards of curators, or trustees, established by the charter creating the corporation, who must be governed by provisions of the char- ter, as embodying the statutes of the founder. The power of these boards ia great, but by no means absolute. They are the creatures of the charter. 139 100] Peivatb Corpokations [Ch.2 Men's Christian Association belongs to this class of corporations.''^ Such corporations do not, however, include corporations organized, not for the administration of a charity, but for the gain or benefit, pecu- niary or otherwise, of its members.'" Thus they do not include a sav- ings institution, the leading purpose of which is the pecuniary profit of its stockholders or members ; ''* nor a corporation for the promotion of Christian Science, the earnings of which are placed exclusively within the discretion of its directors, and the residuary fund of which is used in compensating its directors for their services ; ''^ nor a corporation having for its primary object the dissemination of theosophical ideas, and procuring converts thereto ; '" nor an organization incorporated "for the purpose and object of promoting evangelical religion by means of the Bible, the printing press, colportage, Sunday schools, and other appropriate ways. ' ' *^ Nor do they include a corporation with a large capital stock, organized for the purpose of enabling mem- bers to accumulate, by small monthly contributions, a fund out of which they can secure homes ; *^ nor a corporation for the purpose of providing a "relief fund," and to "aid persons of moderate pecuniary resources in obtaining from a reputable insurance company insurance 23 Minn. 92. Compare Fire Insurance or, rather, of the will of the founder, as embodied in it, and must walk in the path marked out by it. ' ' State v. Adams, 44 Mo. 570. A corporation, the object of which is to provide a general hospital for sick and insane persons, having no capital stock nor provision for making dividends or profits, deriving its funds mainly from public and private char- ity, and holding them in trust for the object of sustaining the hospital, con- ducting its affairs for the purpose of administering to the comfort of the sick, without expectation or right on the part of those immediately inter- ested in the corporation to receive com- pensation for their own benefit, is a public charitable institution. McDon- ald V. Massachusetts General Hospital, 120 Mass. 432, 21 Am. Rep. 529. 76 Little v. City of Newburyport, 210 Mass. 414, Ann. Cas. 1912 D 425, 96 N. E. 1032. 'TNewcomb v. Boston Protective Department, 151 Mass. 215, 6 L. B. A. 778, 24 N. E. 39; Sheren v. Mendenhall, Patrol V. Boyd, 120 Pa. St. 624, 1 L. E. A. 417, 6 Am. St. Rep. 745, 15 Atl. 553. See § 64, supra, where a number of cases are collected. In West's Appeal, 64 Pa. St. 186, it was held that a corporation whose char- ter authorized it "to have, purchase, receive," etc., "stock, goods," etc., "by gift, grant, demise, bargain and sale, devise, bequest, testament, leg- acy, loan," etc., was a business corpo- ration, and not a charitable corpora- tion, within the meaning of a statute limiting the amount of property of charitable corporations. 78 Sheren v. Mendenhall, 23 Minn. 92. 79 In re St. Louis Institute of Chris- tian Science, 27 Mo. App. 633. 80 New England Theosophical Cor- poration v. Board of Assessors, 172 Mass. 60, 42 L. R. A. 281, 51 N. E. 456. 81 In re McCormick 'a Estate, 71 N. Y. Misc. 95, 127 N. Y. Supp. 493. 82 State V. McGrath, 95 Mo. 193, 8 S. W. 425. 140 Ch. 2] Classification of Coepoeations [§101 on their lives, and in maintaining the necessary payments on the same ; and to secure to families of persons so insured an immediate advance of funds in case of death ;" ^ nor a medical college.^* Building and loan associations,'* being corporations for private gain, are not "benevolent" associations, within the meaning of a statute, unless the statute expressly includes them.*® An association for the purpose of endowing the wife of each member with a sum of money equal to as many dollars as there are members, to be raised by assess- ment upon the members, is not a benevolent society, for there is no intent to bestow any benefit or help without an equivalent.*'' §101, — "Religious" corporations. Any corporation the charter powers of which are to be used in aid of the propagation and practice of a religious belief is a "religious" corporation,'* but the fact that a corporation is under the control of members of a particular church does not make it a religious corporation. '^ Nor does the fact that a board of trustees of a corporation college is to be ele«ted by an associa- tion of churches, constitute it a sectarian or religious corporation.'" Corporations organized under acts authorizing the incorporation of religious societies or congregations are not to be classified as ecclesias- tical corporations,'^ but are civil corporations and subject to the same principles of law, and the same control by the civil courts, as any other civil corporation.'^ Where a corporation is organized under a statute providing for the incorporation of charitable and scientific societies, it is not a religious corporation so as to be able to consolidate with other religious corpora- 83 People V. Nelson, 46 N. T. 477, 60 tian Science, 27 Mo. App. 633. See Barb. (N. Y.) 159, 3 Lans. (N. Y.) 394. Cook County v. Chicago Industrial 84 People V. Gunn, 96 N. Y. 317. School, 125 HI. 540, 1 L. R. A. 437, 85 § 97, supra. 8 Am. St. Eep. 386, 18 N. E. 183. 86 State V. McGrath, 95 Mo. 193, 8 89 Baltzell v. Church Home & Infir- S. W. 425. mary of Baltimore City, 110 Md. 244, A building association is not a be- 73 Atl. 151. nevolent institution, though so declared 90 Tash v. Ludden, 88 Neb. 292, 129 by the -legislature, where the leading N. W. 417. purpose of such corporation is to bet- 91 See § 63, supra, ter the pecuniary condition of its mem- 92 Calkins v. Cheney, 92 111. 463; bers or shareholders alone. State v. Robertson v. Bullions, 11 N. Y. 243. McGrath, 95 Mo. 193, 8 S. W. 425. See also MacKenzie v. Trustees of 87 State V. Critchett, 37 Minn. 13, Presbytery of Jersey City, 67 N. J. Eq. 32 N. W. 787. And see Foster v. Moul- 652, 3 L. R. A. (N. S.) 227, 61 Atl. ton, 35 Minn. 458, 29 N. W. 155. 1027. 88 In re St. Louis Institute of Chris- 141 § 102] Pkivate Coepokations [Ch. 2 tions under a statute providing for the consolidation of such religious organizations.'* §102. — Corporations for "work of internal improvement," "public improvement" or "public utility." The words "work of internal improvement" in a statute authorizing the formation of a corporation for the purpose of constructing a work of internal im- provement, and other statutes referring to corporations by such a description, as statutes giving the power of eminent domain, mean corporations for the purpose of constructing works of a quasi public character, as railroads, turnpikes, canals and the like. "It has been decided time and time again," said the West Virginia court, "and is therefore settled by the best authority, that the construction of rail- roads, turnpikes, canals, ferries, telegraphs, wharves, basins, etc., creating the necessary facilities for intercommunication, constitutes what is generally known by the name of internal improvements, and , gives occasion for the exercise of the right of eminent domain. ' ' '* The same is true of the words "public improvement," and the words "work of public utility," in a statute referring to corporations for such purposes.'^ In Illinois, the act creating the public utilities com- mission, defining its powers and giving its general supervision of pub- lic utilities, provides that the term "public utility" includes every corporation, company, or association, joint stock company or associa- tion, firm, partnership, or individual, that may own, control, operate, or manage directly or indirectly for public use any plant, equipment, or property used or to be used for or in connection with the trans- mission of telephone messages between points within this state. The jurisdiction of the commission is by the terms of the act confined to control and supervision of owners and operators of property devoted to a public use in which the public has an interest. The owner of such property must submit to be controlled by the public to the extent of 93 Selkir v. Klein, 50 N. Y. Misc. 194, , As to canals, see Tide Water Canal 100 N. Y. Supp. 449. Co. v. Archer, 9 Gill & J. (Md.) 479; In 94 "West Virginia Transp. Co. v. Vol- re Townsend, 39 N. Y. 171. eanic Oil & Coal Co., 5 W. Va. 382, 387. As to turnpike companies, see Kem- As to railroad companies, see Stock- per's Lessee v. Cincinnati, C. & W. ton & Visalia E. Co. v. City of Stock- Turnpike Co., 11 Ohio 392. ton, 41 Cal.. 147; Swan v. Williams, 2 95 Light & Heat Co. v. Elk County, Mich. 427; Tinsman v. Belvidere Dela- 191 Pa. St. 465; 43 Atl. 323, and other ware E. Co., 26 N. J. L. 148, 69 Am. oases cited in the notes following. Dee. 565; Buffalo & New York City E. Co. V. Brainard, 9 N. Y. 100. 142 Ck2] Classification of Coepoeations [§ 102 its interest as long as such public use is maintained.®^ Aside from the statutory definition the term "public utility" implies a public use, carrying vsdth it the duty to serve the public and treat all persons alike, without discrimination, and it precludes the idea of service which is private in its nature, whether for the benefit and advantage of a few or of many .8'' The words "public use" mean of or belonging to the people at large, open to all the people to the extent that its capacity may admit of the public use." While the use must concern the public as distinguished from an individual or any particular number of indi- viduals, the use and enjoyment of the utility need not extend to the whole public or any political subdivision. It may be confined to a particular district and still be public.®^ The fact that a corporation is organized for private gain does not prevent it from being a corpora- tion for a work of public utility or public improvement,^ but a private business does not become affected with a public interest merely from its extent.* Whether or not a work is a work of public .utility neees- 96 State Public Utilities Commission V. Bethany Mut. Tel. Ass'n, 270 111. 183, 110 N. E. 334. 97 State Public Utilities Commission^ V. Bethany Mut. Tel. Ass'n, 270 111. 183, 110 N. E. 334. 98 State Public Utilities Commission V. Bethany Mut. Tel. Ass'n, 270 111. 183, 110 N. B. 334; State Public Utili- ties Commission v. Monarch Eefrig- erating Co., 267 111. 528, 108 N. E. 716. To constitute a public use all per- sons must have an equal right to the use, and it must be in common, upon the same terms, however few the num- ber who avail themselves of it. It is not essential to a public use that its benefits should be received by the whole public, or even a large part of it, but they must not be confined to specified, privileged persons. State Public Utilities Commission v. Beth- any Mut. Tel. Ass'n, 270 HI. 183, 110 N. E, 334; People v. Eicketts, 248 HI. 428, 94 N. E. 71. 99 State Public TTtilities Commission V. Bethany Mut. Tel. Ass'n, 270 111. 183, 110 N. E. 334; State Public Utili- ties Commission v. Noble Mut. Tel. Co., 268 111. 411, Ann. Cas. 1916 D 897, 109 N. E. 298. 1 See the cases cited in the notes following. 2 The doctrine on this subject is stated in Ladd v. Southern Cotton Press & Manufacturing Co., 53 Tex. 172, as follows: "We know of no au- thority, and none has been shown us, for saying that a business strictly jwris privati -will become juris publioi, merely by reason of its extent. If the magnitude of a particular business is such, and the persons affected by it are so numerous, that the interests of so- ciety demand that the rules and princi- ples applicable to public employment should be applied to it, this would have to be done by the Legislature (if not restrained from doing so by the Constitution), before a demand for such use could be enforced by the courts. ' ' In Munn v. Illinois, 94 U. S. 113, 24 L. Ed. 77, the question raised and de- cided in that ease was as to the con- stitutionality of the act of that legis- lature of this state, declaring certain grain elevators to be public ware- houses, and prescribing rules for their management, and fixing maximum charges for the storage and handling of grain. There the legislative depart- 143 102] Private Coepobations [Ch.2 sarily depends to a large extent upon the conditions in the particular locality. "What would be a work of public utility in one state or in one part of a state might not be so in another.^ The following corporations have expressly or in eifect been held to fall within these descriptions : A corporation created for the purpose of constructing and maintaining a pipe line in an oil district for the conveyance or transportation of petroleum for the public generally ; * a corporation for constructing and maintaining jpipes for the convey- ance of natural gas to consumers ; * a gaslight or water company organized for the purpose of constructing and maintaining works, and supplying a city and its inhabitants with gas or water ; ^ a corporation for establishing and maintaining a wharf boat and steam elevator for a general storage and forwarding business;' a corporation for im:- proving the navigation or the water power, or protection or develop- ment of fisheries, in the rivers, streams and other waters of the state ; ' a corporation, in a state in which mining is an important in- dustry, for the purpose of developing and improving such industry ; ^ a corporation for constructing irrigating canals, ditches, etc. ; ^" and a ment had interposed and declared the public use, and the court, in holding the act constitutional, held merely that the legislative power had been prop- erly exercised. The discussion of the evidence showing that the business car- ried on in said grain elevators was of such character that it had in fact become impressed with a public use, was only for the purpose of showing that a condition of things existed which justified the legislature in pass- ing the statute then under considera- tion. See American Live Stock Com- mission Co. V. Chicago Live Stock Ex- change, 143 HI. 210, 18 L. B. A. 190, 36 Am. St. E(ip. 385, 32 N. E. 274. 3 In this connection, see Butte, A. & P. By. Co. V. Montana U. B. Co., 16 Mont. 504, 31 L. E. A. 298, 50 Am. St. Bep. 508, 41 Pao. 232; Paxton & Hershey Irrigating Canal & Land Co. V. Farmers ' & Merchants ' Irrigation & Land Co., 45 Neb. 884, 29 L. B. A. 853, 50 Am. St. Bep. 585, 64 N. "W. 343; Day- ton Gold & Silver Min. Co. v. Seawell, 11 Nev. 394; Scudder v. Trenton Dela ware Falls Co., 1 N. J. Eq. 694, 23 Am. Dec. 756. 4 West Virginia Transp. Co. v. Vol- canic Oil & Coal Co., 5 W. Va. 382. 5 Bloomfield & Bochester Natural Gas Light Co. v. Eichardson, 63 Barb. (N. Y.) 437; Bidgway Light & Heat Co. V. Elk County, 191 Pa. St. 465, 43 Atl. 323; St. Mary's Gas Co. v. Elk County, 191 Pa. St. 458, 43 Atl. 321. 6 City of Wilmington v. Addicks. 8 Del. Ch. 310, 43 Atl. 297. 7 Glen v. Breard, 25 La. Ann. 875. SCottrill v. Myrick, 12 Me. 222, Hazen v. Essex Co., 12 Cush. (Mass.) 475, 477; Great Falls Mfg. Co. v. Fer- nald, 47 N. H. 444; Scudder v. Trenton Delaware Falls Co., 1 N. J. Eq. 694, 23 Am. Dee. 756. 9 See Butte, A. & P. By. Co. v. Mon- tana TJ. By. Co., 16 Mont. 504, 31 L. B. A. 298, 50 Am. St. Rep. 508, 41 Pao. 232; Dayton Gold & Silver Min. Co. v. Seawell, 11 Nev. 394. lOOury V. Goodwin (Ariz.), 26 Pac. 376; Paxton & Hershey Irrigating Canal & Land Co. v. Farmers' & Mer- 144 Ch. 2] Classification of Coepoeations [§102 telephone company.^^ Also, a board of trade may conduct its business in such a manner that it becomes impressed with a public interest. ^^ The questions regarding public utilities and the regulations thereof are considered at length in a subsequent chapter.^* chants ' Irrigation & Land Co., 45 Neb. 884, 50 Am. St. Eep. 585, 64 N. W. 343. 11 State Public Utilities Commission V. Noble Mut. Tel. Co., 268 111. 411, Ann. Cas. 1916 D 897, 109 N. E. 298. In Buncombe Metallic Tel. Co. v. McGinnis, 268 111. 504, 109 N. E. 257, the corporation had a control station connecting with various county lines and with the local village system and long-distance lines, and the object stated in the application for incorpora- tion was for "telephone purposes to legally establish our right on public and private property with poles, wires and necessary equipment," which de- noted an unlimited and public use. 12 In Stock Exchange v. Board of Trade, 127 111. 153, the board of trade had for a series of years voluntarily engaged in the business of compiling market quotations, showing the fluctu- ations of the prices of commodities bought and sold on the board, and of furnishing the same, for a considera- tion, by telegraph, to all members of the public who desired to obtain them. By this means, the business of buying and selling agricultural products throughout the entire countiry had been brought under the control of the mar- ket prices fixed and determined on said board. It was held that these quo- tations were property, and that the board, by its own act, had so far im- pressed upon them a public interest, that it should be required, so long as it compiled and furnished them to any- one, to furnish them to all without dis- crimination. This conclusion was reached upon the theory that the board had, for a series of years, voluntarily and intentionally, devoted its property to a use in which the public had an in- terest, and had, in effect, granted to the public an interest in that use, and that it must therefore, so far as it dealt in that species of property at all, sub- mit to be controlled by the public for the common good, to the extent of the interest it had thus created. See also American Live Stock Commission Co. v. Chicago Live Stock Exchange, 143 111. 210, 18 L. R. A. 190, 36 Am. St. Eep. 385, 32 N. E. 274. 13 See chapter on Public Utility Regulations, infra. I Priv. Corp.— 10 145 CHAPTBE 3 Who May Be Incorporated § 103. In general. § 104. Eesidence and citizenship. § 105. Infants. § 106. Married women. § 107. Corporations as corporators. § 108. Corporators not having substantial interest in the corporation. § 109. Number of incorporators. § 110. Effect upon corporate existence of lack of qualification of incorporators. § 111. Necessity of articles showing qualifications — Presumptions. § 103. In general. Corporations can be formed by those persons only who are within the terms of the statute creating or authorizing the creation of the corporation.^ A charter granted or offered by the legislature must be accepted, if at all, according to its terms, and it can be accepted by those persons only to whom it is granted.^ When a statute, therefore, authorizes certain persons to organize themselves into a corporation, other persons cannot take their place.' In all the states, the statutes authorizing the formation of corpora- tions prescribe the number of persons who may become incorporated, and in some of the states, the qualifications of the incorporators are 1 Eex V. Amery, 2 T. E. 515; 1 T. R. 3 Eex v. Amery, 2 T. E. 515; 1 T. E. 589. 589. For the right of copartnerships to be Where a statute declared that cer- incorporators, see Ogdensburg, E. & C. tain persons, their associates and suc- E. Co. V. Frost, 21 Barb. (N. Y.) 541; cessors were made a. corporation by Eehbein v. Eahr, 109 "Wis. 136, 85 N. the name "Athol Eeservoir Com- ^f} 3i5_ pany, " with certain powers, and one It is held in Pennsylvania that a P"^""^ "^^^^ in the act, apparently corporation formed under the Act of ^"^°"* objection by the others, to- April 29, 1874, to carry out the terms f^^'f' with seven persons not named ' .,, . ^ . ,., in the act, duly met, accepted the act and provisions of a will, la not invalid , . . . ■, ^ -, ■, ■, "^ .' , , of incorporation, adopted by-laws, because no women are included among itja: jj. j. , ^-^ " elected ofiacers, and transacted other the incorporators, when there is m such fc^gj^ess, it was held that the persons will no requirement to that effect. In taking part in the proceedings became re Garrett-Williamson Lodge, 239 Pa. ^ corporation under the name of 474, 86 Atl. 1072. "Athol Eeservoir Company." McGin- 2 Eex V. Amery, 2 T. E. 515; 1 T. R. ty v. Athol Eeservoir Co., 155 Mass. 589. 183, 29 N. E. 510. 146 Cli.3] Who May Be Incobpokated [§103 prescribed, but in most of the states the right to form a corporation is given to a certain number of "persons" or "individuals," and the statute is silent in reference to what shall be their qualifications.* The act of forming a corporation, as between the parties to the undertaking, is in its nature contractual.^ Consequently, under statutes providing that a corporation may be created upon the appli- cation of not less than a fixed number of "persons," it is clearly implied that these persons are to be sui juris, and competent to enter into a valid undertaking in law.^ Legal infirmity in incorporators is 4 While it is not within the purpose or scope of this treatise to give the statutory law of each state in respect to the number and qualifications of in- corporations, a few references given below to the statutes of certain states are merely for the purpose of illus- tration. Thus in New Jersey, ' ' three or more persons may become a corporation" for any lawful purpose or purposes what- soever, except certain purposes speci- fied in the act. Each incorporator must be a subscriber for the capital stock of the proposed corporation, but there are no statutory requirements as to the residence or citizenship of the incorporators. N. J. Comp. St. Tit. Corp. § 6. In Delaware and Maine, the incor- porators may be any number of per- sons, not less than three, and each in- corporator must be a subscriber to the capital stock of the proposed corpora- tion; but there are no requirements as to the citizenship or residence of the incorporators. Del. Eev. Code, Tit. 9, § 1; Maine Eev. St. 1904, c. 47, §§ 6, 7. In New York, "three or more per- sons may become a stock corporation for any lawful business purpose or purposes other than a moneyed corpora- tion, or a corporation provided for by the banking, the insurance, the rail- road, and the transportation corpora- tion laws. ' ' Each incorporator must be a subscriber for at least one share of the capital stock of the proposed corporation. Business Corporation Law, N. Y. § 2. The incorporators must be "natural persons, who must be of full age, and at least two-thirds of them must be citizens of the United States and one of them a resident of this state." N. Y. Gen. Corp. L. § 4. Under the provisions of Act No. 78 of the Acts of Louisiana, 1904, any three or more persons may form a cor- poration to carry on any business specified in the charter that it would be lawful for an individual to carry on except the insurance or banking busi- ness, or any business which would en- title the corporation to exercise the power of eminent domain, if there have been subscriptions for stock in the corporation to an aggregate amount of three thousand dollars. Leader Eealty Co. V. Lakeview Land Co., 127 La. 1059, 54 So. 350. In Virginia, the number of incor- porators may be any number not less than three; but there are no require- ments of residence or citizenship, and incorporators need not be subscribers to the capital stock. Va. Corp. Act of 1903, c. 1, §§ 1, 2. 6 Good Land Co. v. Cole, 131 Wis. 467; 120 Am. St. Eep. 1056, 11 Ann. Cas. 806, 110 N. W. 895. 6 Witters v. Sowles, 38 Fed. 700; Liberty Tp. Draining Ass 'n v. Watkins, 72 Ind. 459; In re Globe Mut. Ben. Ass'n, 63 Hun (N. Y.) 263, 17 N. Y. Supp. 852. aff 'd 135 N. Y. 280, 17 L. B. 147 §1031 Pbivate Cobpobations [Ch.3 as fatal to an attempted corporate organization as legal infirmity of purpose.' The persons who become incorporated upon the formation of the corporation are called "corporators" or "incorporators." These terms are used interchangeably.* In otl er words an incorpora- tor is one of the persons to whom the charter is granted in case of a corporation created by special act of the legislature, or one of the persons who execute the articles of association or certificate of incor- poration in case of a corporation formed under a general statute pro- viding for the formation of corporations.* Corporators are mere instruments of the law for purposes of preliminary organization. The moment that is accomplished, the amount required as capital paid in, the necessary certificate signed, and the charter granted, they are functi officio}'^ They exist before stockholders, and do not exist with them, for it is said that "when stockholders come in, corporators cease to be. ' ' ^^ Incorporators are distinguishable from shareholders of the corporation. They may be subscribers to the capital stock of the corporation, but unless the statute under which the corporation is formed requires the incorporators to be subscribers to shares of the capital stock of the corporation, it is not essential that the incorpora- tors ever become shareholders in the corporation.^^ A. 547, 32 N. E. 122; In re Agudas Noshim Charter, 23 Pa. Dist. 633. 7 American Ball Bearing Co. v. Adamg, 222 Fed. 967. 8 Dickey, C. J., in a dissenting opin- ion in Gulliver v. Eoelle, 100 111. 141, 164, said: "The word corporators is, however, often used, and not im- properly, in a more limited sense, mean- ing only those persons who are the original organizers or the promoters of a new corporation." 9 Chase v. Lord, 77 N. T. 1. See also In re Lady Bryan Min. Co., 1 Sawy. (U. S.) 349, Fed. Cas. No. 7,978; In re Atlantic Mut. Life Ins. Co., 9 Ben. (U. S.) 270, Fed. Cas. No. 628; Gulliver v. Eoelle, 100 111. 141. lODensmore Oil Co. v. Densmore, 64 Pa. St. 43. See also Chase v. Lord, 77 N. T. 1. 11 Chase v. Lord, 77 N. Y. 1. Under a statute providing that the trustees and incorporators of any com- pany organized thereunder should be jointly and severally liable until the whole amount of the capital raised should have been paid in, and a cer- tificate thereof recorded, it was sought in Chase v. Lord, 77 N. Y. 1, to charge a stockholder of a corporation formed under such act with a debt of the cor- poration, incurred when the whole of that part of the capital required to be paid in, in cash, or "raised" had not been paid. The Court of Appeals of New York held that the word "cor- porators" did not signify "stock- holders, ' ' and said : "The corporators are the associates who are the getters up of the company, and whose func- tions cease with its organization. * * * Corporators exist before stock- holders, and do not exist with them. When stockholders come in, corpora- tors cease to be." See, however, Gul- liver V. Eoelle, 100 111. 141; Shufeldt V. Carver, 8 HI. App. 545. 12 Chase v. Lord, 77 N. Y. 1. See § 108, infra. 148 Ch-'S] Who May Be Incokpokated [§104 § 104. Residence and citizenship. In many states the general laws authorizing the formation of corporations expressly provide that a certain number at least of the corporators shall be citizens or residents of the state, and this provision is mandatory. ^^ In the absence of an express requirement to this effect none of the incorporfl,tors need be either citizens or residents of the state under whose laws the forma- tion of the corporation is sought.^* Under a statute providing that "the charter of an intended corpora- tion must be subscribed by five or more persons, three of whom, at least, must be citizens of the commonwealth," two of the original corporators may be persons who are neither citizens of the state nor residents within its jurisdiction.^^ Where residence only is required, 13 People V. McDonough, 28 N. T. Misc. 652, 60 N. Y. Supp. 45; Com. V. Detwiller, 131 Pa. St. 614, 7 L. E. A. 357, 18 Atl. 990; The Butch- ers' Beneficial Ass'n, 35 Pa. St. 151; In re Italian Mut. Ben. Ass 'n, 4 Pa. Dist. 357, 15 Pa. Co. Ct. Eep. 644; In re Chi- nese Club, 1 Pa. Dist. 84; In re Enter- prise Mut. Ben. Ass'n, 10 Phila. (Pa.) 380; American Salt Co. v. Heiden- heimer, 80 Tex. 344, 26 Am. St. Eep. 743, 15 S. "W. 1038. See al^o In re Wendover Athletic Ass'n, 70 N. T. Misc. 273, 128 N. Y, Supp. 561; Halbert v. San Saba Springs Land & Live-Stock Ass'n (Tex. Civ. App.), 34 S. W. 636. 14 United States. Moxie Nerve Food Co. V. Baumbaeh, 32 Fed. 205. Colorado. Humphreys v. Mooney, 5 Colo. 282. Missouri. Boatmen 's Bank v. Gilles- pie, 209 Mo. 217, 108 S. W. 74. New Jersey. Central E. Co. v. Penn- sylvania E. Co., 31 N. J. Eq. 475. New York. Lancaster v. Amsterdam Imp. Co., 140 N. Y. 576, 24 L. E. A. 322, 35 N. E. 964; Demarest v. Flack, 128 N. Y. 205, 13 L. E. A. 854; 28 N. E. 645; Cammeyer v. United German Lutheran Churches, 2 Sandf. Ch. (N. Y.) 186. Pennsylvania. Com. v. Detwiller, 131 Pa. St. 614, 7 L. E. A. 357, 18 Atl. 990; In re Charter of Evangelical Lutheran St. Paul School Ass'n of Tamaqua, 1 Leg. Eec. 133. Washington. Hastings v. Anaeortes Packing Co., 29 Wash. 224, 69 Pac. 776. "Where citizens of one state desire to do business under a charter obtained in another state whose corporation laws seem to them more favorable than the laws of the state in which they reside, they have the right to do so upon compliance with the laws of such other state." Boatmen's Bank v. Gil- lespie, 209 Mo. 217, 108 S. W. 74. IB Com. V. Detwiller, 131 Pa. St. 614, 7 L. E. A. 357, 18 Atl. 990. In Pennsylvania, under a statute authorizing the courts of that state to incorporate associations for the pro- motion of agriculture, "when any num- ber of persons, citizens of this com- monwealth, are associated, or men to associate," it was said: "It may be conceded that a petition for incorpora- tion, purporting to be signed by citi- zens of New Jersey, or of any other state except Pennsylvania, would have been refused by the court. The ad- vantages of corporate powers provided for by the general laws * * « were reserved, in the first instance, for citi- zens of the state. ' ' Com. v. Detwiller, 131 Pa. St. 614, 7 L. E. A. 357, 18 Atl. 990. 149 104] Pkivate Cobpobations [Ch.3 citizenship is not necessary.^® Consequently, aliens, other than enemy aliens, may become incorporators; the corporation is not alien, even if all the corporators are aliens.^'' It would seem that an alien enemy cannot become an incorporator of a domestic corporation, for subjects of one country cannot lawfully contract with subjects of another country with which the former country is at war, and, as heretofore stated, corporators must have the capacity to contract.^^ 16 Humphreys v. Mooney, 5 Colo. 282. See Moxie Nerve Food Co. v. Baum- bach, 32 Fed. 205. 17 Cammeyer v. United German Lutheran Churches, 2 Sandf. Ch. (N. Y.) 186; Com. v. O'Donnell, Brightly (Pa.) Ill; Hastings v. Anacortes Packing Co., 29 Wash. 224, 69 Pac. 776; Continental Tyre & Eubber Co., Ltd. V. Daimler Co., Ltd., [1915] 1 K. B. 893. Unless it is required by the statute authorizing the formation of corpora- tions, it is not necessary that corpora- tors shall be citizens of the United States. Hastings v. Anacortes Pack- ing Co., 29 Wash. 224, 69 Pac. 776. Under a Pennsylvania statute au- thorizing the formation of a social club, and requiring that three at least of the incorporators must be citizens of the state, it was held that it was "fairly to be implied that all, or a majority at least, be citizens of the United States," and where applica- tion was made for a charter for a so- cial club and the articles of associa- tion were signed by three citizens of the state and twelve Chinamen, the court refused to grant the charter. In re Chinese Club, 1 Pa. Dist. 84. See also In re Lodge Duch Nove Doby, No. 165, 8 Pa. Dist. 215. In re Italian Mut. Ben. Ass'n, 4 Pa. Dist. 357, 15 Pa. Co. Ct. 644, the court refused to grant a charter to a mutual benefit association composed of a large number of persons, where the names of almost all of such persons indicated that they were foreigners, and it ap- peared that only a small number were citizens or had declared their intention of becoming citizens of the United States. The court said: "We believe that the legislature intended that the special privileges asked for should be conferred upon the consideration or full citizenship. When foreigners be- come bona fide citizens of the United Slates, they are entitled to all the rights, privileges, and benefits, under the government and laws, that accrue to our own citizens, including, where asked, that of aggregate corporate power. They also become liable to the performance of certain duties, amongst which is that of being required to contribute to the na- tional defense in time of war, and to obey and support the laws in time of peace. Until they have assumed these obligations, it is unwise, if not dangerous, to confer upon them, as ex- clusive national organizations repre- senting their' native countries, extraor- dinary privileges." See also In re Eussian-American Guards Charter, 3 Pa. Dist. 673; In re Lodge Duch Nove Doby, No. 165, 3 Pa. Dist. 215; In re Chinese Club, 1 Pa. Dist. 84. 18 See The William Bagaley, 5 Wall. (U. S.) 377, 18 L. Ed. 583; White v. Burnley, 20 How. (U. S.) 235, 15 L. Ed. 886; Williams v. Mobile Sav. Bank, 2 Woods (U. S.) 501, Fed Cas. No. 17,729; Planters' Bank v. St. John, 1 Woods (U. S.) 585, Fed. Cas. No. 11,208; Mutual Benefit Life Ins. Co. V. Hillyard, 37 N. J. L. 444, 18 Am. Eep. 741 ; Small 's Adm 'r v. Lumpkin 's Ex'x, 28 Gratt. (Va.) 832; Booker v. Kir kpa trick, 26 Gratt. (Va.) 145. 150 Ch. 3] Who May Be Incoepobated [§ 105 Under a statute authorizing the formation of corporations and providing that at least two of the subscribers to the charter of the intended corporation must be citizens of the state, but which does not prescribe the officer by whom nor the means by which the fact of citizenship is to be determined, nor require that the citizenship of the subscribers to the charter shall appear upon the face of that instru- ment, it is held that where a charter alleging that two of the incor- porators were residents of the state, but not alleging that either of them was a iitizen thereof, was filed in the oiifice of the secretary of state, and a certificate that it had been so filed was given by him as required by law, and it afterwards appeared that none of the persons who signed the charter were citizens of the state, the corporation was a corporation de facto, and persons becoming stockholders after the organization had been effected could not be held liable as partners for its debts to third persons dealing with it as a corporation.^^ § 105. Infants. Inasmuch as corporators must have the capacity to contract, it necessarily follows that unless expressly permitted by the statute, an infant cannot become one of the corporators in forming a corporation, for at common law he is incapable of making a binding contract.^" 19 American Salt Co. v. Heidenheim- er, 80 Tex. 344, 26 Am. St. Eep. 743, 15 S. "W. 1038. The court said: "It would seem, however, that it is the duty of the secretary of state to in- quire into the question, and that, if he finds no two of the subscribers are citizens of the state, he should decline to file the charter. It would also seem that if he decides wrongfully, and de- clines to file a legal charter, he ma,y be compelled to do so by a writ of mandamus." As to whether the corporation papers must show residence, and the duty of the secretary of state to satisfy him- self as to the compliance with the requirement, see § 111, infra. As to whether after attempted incorporation tlje point can be collaterally raised, see § 274, infra. 20 In re Globe Mut. Ben. Ass'n, 63 Hun (N. Y.) 268, 17 N. Y. Supp. 852, aff'd 135 N. Y. 280, 17 L. E. A. 547, 32 N. E. 122; Hamilton & Flamborough Road Co. V. Townsend, 13 Ont. App. 534, 16 Am. & Eng. Corp. Gas. 645. In England, it has been held that the incorporation is not rendered invalid at least where the question is raised on collateral attac.k, by the fact that one of the subscribers was an infant. In re Laxon & Co., [1892] 3 Ch. 555; In re Nassau Phosphate Co., 2 Ch. Div. 610. In Illinois, under a statute which authorized the incorporation of mutual benefit associations and required that the certificate of association should state, among other things, "the limits as to the age of the applicants," but was silent as to whether minors could become members of the association, it was held that where the certificate of association provided that "no person shall become a member who is under ten or over seventy years of age," and there was no statute which either 151 105] Private Cobpokations [Ch.3 Infants need not be expressly excluded by the statute providing for the formation of corporations, for it will be presumed that the legis- lature, in authorizing persons to form a corporation, contemplated only such persons as are sui juris.*^ § 106. Married women. By the rules of the common law a mar- ried woman has, in general, no power to bind herself by contract, and consequently a married woman cannot become one of the corporators in the formation of a corporation.^^ In most of the states, however, there are statutes removing a mar- ried woman's common-law disabilities to contract, and where such statutes obtain, it is held that a married woman, of lawful age, may be an incorporator, unless she is expressly excluded by the statute providing for the formation of the corporation.^' expressly or impliedly permitted or forbade their admission to member- ship, it was not unlawful for the as- sociation to admit infants to mem- bership, as the fact that an infant member might avoid his contracts did not constitute an objection to his ad- mission to the association, in which the payment of assessment dues was purely voluntary and not compulsory on any member; and that the fact that the infants were incapacitated to act as trustees or to perform the duties of members did not constitute a legal bar to their admission to membership. Chicago Mut. Life Indemnity Ass 'n v. Hunt, 127 111. 257, '2 L. K. A. 549, 20 N. E. 55. See, however, In re Globe Mut. Ben. Ass'n, 63 Hun (N. Y.) 263, 17 N. Y. Supp. 852, afC'd 135 N. Y. 280, 17 L. E. A. 547, 32 N. E. 122. 21 In re Globe Mut. Ben. Ass'n, 63 Hun (N. Y.) 263, 17 N. Y. Supp. 852, aff'd 135 N. Y. 280, 17 L. E. A. 547; 32 N. E. 122; Hamilton & Plamborough Eoad Co. v. Townsend, 13 Ont. App. 534, 16 Am. & Eng. Corp. Cas. 645. "It has frequently been held that, where a statute authorizes persons to form a corporation, * * * it is im- plied that they shall be of full age." In re Globe Mut. Ben. Ass'n, 135 N. Y. 280, 17 L. E. A. 547, 32 N. E. 122, aff'g 63 Hun (N. Y.) 263, 17 N. Y. Supp. 852, citing Hamilton & Flam- borough Eoad Co. V. Townsend, 13 Ont. App. 534, 16 Am. & Eng. Corp. Cas. 645. For right of infant to acquire and hold stock in a corporation and his liability a.rising therefrom, see chap- ter on Stock and Stockholders, infra. 22 Bundy v. Cocke, 128 U. S. 185, 32 L, Ed. 397; Opinion of Attorney Gen- eral of Pennsylvania, 5 Pa. Dist. 742, 18 Pa. Co. Ct. 492; In re Application for Charter, 27 Wkly. Notes Cas. (Pa.) 399; Opinion of Attorney Gen- eral of Texas, 9 Ey. & Corp. L. J. 196. See also Hamilton & Flamborough Eoad Co. V. Townsend, 13 Ont. App. 534, 16 Am. & Eng. Corp. Cas. 645. 23 Opinion of Attorney General of Pennsylvania, 5 Pa. Dist. 742, 18 Pa. Co. Ct. 492; Good Land Co. v. Cole, 131 Wis. 467, 120 Am. St. Eep. 1056, 11 Ann. Cas. 806, 110 N. W. 895. In the opinion of the Attorney Gen- eral of Pennsylvania reported in 5 Pa. Dist. 742, 18 Pa. Co. Ct. 492, the quali- fication of a married woman to become a corporator of a proposed corporation under the Pennsylvania statute was presented, and the conclusion reached that the married woman's act of that state, removing the common-law dis- 152 Ch.3] Who May Be Inoobpoeated [§106 Thus under a statute providing that three or more adult persons, residents of the state, may form a corporation in the manner and for the purposes provided for in the statute, it was held that the fact that two of the three adult persons who attempted to incorporate under the statute were at the time husband and wife did not affect the legal existence of the corporation, where by the statutes of such state a married woman had the right to acquire, own and transfer property and to conduct her separate business as if she were unmarried.** The disability of married women to become incorporators is essentially found in their disability to enter into binding contracts, and a re- moval of that disability qualifies them to act.*^ Accordingly, where enabling acts have conferred on married women the right to acquire, own and transfer property and to conduct their separate business as if unmarried, such a statutory provision empowers them to make contracts respecting the purchase and ownership of stock in a cor- poration,** and, as a further consequence of such removal of their dis- abilities by reason of coverture, en- abled her to become a corporator of a corporation, upon the ground that such a right grew out of the contractual capacity bestowed upon her by such enabling laws. 24 Good Land Co. v. Cole, 131 Wis. 467, 120 Am. St. Eep. 1056, 11 Ann. Gas. 806, 110 N. W. 895, distinguishing Fuller & Fuller Co. v. McHenry, 83 Wis. 573, 18 L. E. A. 512, 53 N. W. 896, where it was held that a husband and wife could not form a partnership because the legislature did not intend that such relations as flow from a co- partnership in trade should exist be- tween them. 25 In re Agudas Noshim Charter, 23 Pa. Dist. 633; Good Land Co. v. Cole, 131 Wis. 467, 120 Am. St. Rep. 1056, 11 Ann. Cas. 806, 110 N. W. 895. In Good Land Co. v. Cole, 131 Wis. 467, 120 Am. St. Eep. 1056, 11 Ann. Cas. 806, 110 N. W. 895, the court said: ' ' The act of forming a corporation as provided by this statute, as between the parties to the undertaking, is in its nature contractual. In this view, it seems a natural consequence that any three adult persons having the power to contract may form a corpora- tion upon compliance with and in the manner prescribed by the statute. Ap- pellant suggests that a married wom- an's common-law disabilities to con- tract persist as to the exercise of this right. The acts involved in forming a corporation and in becoming a stock- holder in it are alike in their character * * * and, if she is empowered to make contracts respecting the pur- chase and ownership of stock in a cor- poration, it seems but a logical infer- ence that she may be a corporator of a proposed corporation. The right to acquire, own and transfer property and to conduct her separate business as if she were unmarried involve the exercise of privileges in their nature, like those involved in acquiring the right to exercise the corporate powers and privileges bestowed by the stat- ute." 26 United States. Bundy v. Cocke, 128 U. S. 185, 32 L. Ed. 397; Witters v. Sowles, 38 Fed. 700. North Carolina. Meares v. Duncan, 123 N. C. 203, 31 S. E. 476. Pennsylvania. Dilzer v. Beethoven Bldg. Ass'n, 103 Pa. St. 86; In re Agudas Noshim Charter, 23 Pa. Dist. 633; First Independent Ladies' Aid 153 §107] Pbivate Cobpobations [Ch.3 abilities at common law, to become incorporators of corporations.^' § 107. Corporations as corporators. A corporation aggregate ' ' is an artificial intellectual being, the mere creature of the law, composed generally of natural persons in their natural capacity ; but may also be composed of persons in their political capacity of members of other corporations. ' ' ** Statutes providing for the formation of corporations are not to be construed as authorizing other corporations to become corporators, unless such an intention on the part of the legislature is clear.^' Society of Bloomfield, 1 Pa. Dist. 754. Wisconsin. Good Land Co. v. Cole, 131 Wis. 467, 120 Am. St. Eep. 1056, 11 Ann. Cas. 806, 110 N. W. 895. England. In re Leeds Banking Co., L. E. 3 Eq. 781; Eeuss v. Bos, L. E. 5 H. L. 176; In re London, B. & M. Bank, 18 Ch. Div. 581; In re General Co. for Promotion of Land Credit, 5 Ch. App. 363; Eeg. v. Carnatic Ey. Co., L. E. 8 Q. B. 299. Canada. Hamilton & Flamborough Eoad Co. V. Townsend, 13 Ont. App. 534, 16 Am. & Eng. Corp. Cas. 645. See chapter on Stock and Stockhold- ers, infra, as to the competency of a married woman to become a share- holder in a corporation. In Bundy v. Cocke, 128 U. S. 185, 32 L. Ed. 397, the competency of a married woman to become a sharehold- er in a corporation was involved, and it was held that the statute of Arkan- sas removing the common-law disabili- ties of a married woman as to con- tracts respecting her separate property and business enabled her to assume such obligations. See also Witters v. Sowles, 38 Fed. 700; Good Land Co. v. Cole, 131 Wis. 467, 120 Am. St. Eep. 1056, 11 Ann. Cas. 806, 110 N. W. 895. Z7 In re Agudas Noshim Charter, 23 Pa. Dist. 633; In re First Independent Ladies' Aid Soc. of Bloomfield, 1 Pa. Dist. 754; In re Opinion of Attorney General of Pennsylvania, 5 Pa. Dist. 742, 18 Pa. Co. Ct. 492; Good Land Co. V. Cole, 131 Wis. 467, 120 Am. St. Eep. 1056, 11 Ann. Cas. 806, 110 N. W. 895. 28 University of Maryland v. Wil- liams, 9 Gill & J. (Md.) 365, 395, 31 Am. Dec. 72; 1 Kyd on Corporations, 32. See §4, supra. In other words, a corporation need not be composed entirely of natural persons, or entirely of other corpora- tions. There are a number of ex- amples of corporations in England whose members were other corpora- tions. The most notable are the great universities of Oxford and Cambridge, which are corporations composed of • various colleges which are distinct and separate corporations. See University of Maryland v. Williams, 9 Gill & J. (Md.) 365, 395, 31 Am. Dec. 72. 29 United States. American Ball Bearing Co. v. Adams, 222 Fed. 967. Louisiana. Factors' & Traders' Ins. Co. V. New Harbor Protection Co., 37 La. Ann. 233. New Jersey. Central E. Co. v. Penn- sylvania R. Co., 31 N. J. Eq. 475. Tennessee. State v. Vanderbilt Uni- versity, 129 Tenu. 279, 164 S. W. 1151. Washington. Denny Hotel Co. of Seattle v. Schram, 6 Wash. 134, 36 Am. St. Eep. 130, 32 Pac. 1002. A statute providing that "any num- ber of persons, not less than five, a majority of whom are citizens of this state, desiring to become incorporated, shall subscribe and acknowledge ar- ticles of incorporation," is held to be obviously a grant of authority to natural persons to organize so as to become invested with corporate fran- 154 Cli.3] Who May Be Incokpobated [§107 In the absence of express statutory authority, a corporation cannot become a subscriber to the capital stock of a proposed corporation.^" "In the absence of express statutory authority" a corporation "can not become an incorporator by subscribing for shares of a new cor- poration, and it can not do this indirectly through persons acting as its agents or tools." *^ chises, and not a grant to corporations to 80 organize. American Ball Bearing Co. V. Adams, 222 Fed. 967. Under a statute providing that "two or more persons" might form a corporation in a certain prescribed manner, it was held that the term per- son does not include a private corpora- tion. The court said: "It is true that section 1709, 2 Hill's Code, pro- vides that the term 'person' may be construed to include the United States, this state, or any state or ter- ritory, or any public or private cor- poration, as well as an individual. But it does not follow, by any means, that the term person is always to be con- strued as a private corporation, any more than it is always to be construed as the United States. Mor. Priv. Corp. S433, says: 'A corporation cannot, in the absence of express statutory au- thority, become an incorporator by subscribing for shares in a new cor- poration, nor can it do this indirectly by persons acting as its agents or tools; ' citing Central E. Co. v. Penn- sylvania R. Co., 31 N. J. Eq. 475. The author, continuing, says: 'The right of forming a corporation is conferred by the incorporation laws only upon persons acting individually, and not upon associations.' This, it seems to us, for manifest and manifold reasons, is in accordance with public policy; and we therefore decide that, under the existing laws of this state, one corporation cannot subscribe to the capital stock of another corpora- tion." Denny Hotel Co. of Seattle v. Schram, 6 Wash. 134, 36 Am. St. Rep. 130, 32 Pao. 1002. The case of University of Maryland v. Williams, 9 Gill & J. (Md.) 365, 31 Am. Dec. 72, has been cited in support of the proposition that other corpora- tions may be incorporators, as the opinion seems to read to that effect: "So in the cases of the universities of Oxford and Cambridge, of which the many colleges (distinct and separate corporations) within those corpora- tions, form component parts of those larger corporations." But this case either on its facts or in its dicta is not authority for the proposition that cor- porations may act as incorporators un- less the law expressly allows it and if there is no private act of the legis- lature incorporating them. Clearly other corporations are not within the meaning of the word "persons," "in- corporators, ' ' commissioners. and the like, as used in modern statutes within the meaning of this chapter and it has been many times so decided. 30 Denny Hotel Co. of Seattle v. Schram, 6 Wash. 134, 36 Am. St. Rep. 130, 32 Pac. 1002. In Nebraska Shirt Co. v. Horton (Neb.), 93 N. W. 225, Pound, C, said: "Corporations have quite enough power without allowing them to in- corporate themselves in new compa- nies. Unless authorized by statute, a corporation has no power to subscribe to the capital stock of another corpora- tion, and such a subscription is not binding. ' ' 31 Martin v. Ohio Stove Co., 78 111. App. 105, citing People v. Chicago Gas Trust Co., 130 111. 268, 8 L. R. A. 497, 17 Am. St. Rep. 319, 22 N. E. 798. In Converse v. Emerson, Talcott & 155 §107] Pkivate Cokpobations [Ch.3 The power of one corporation to own stock in another corporation is entirely different from its power to create or itself become one of the incorporators of another corporation.^^ Referring only to the latter power, it seems clear that where a statute provides that a certain number of "persons" may by articles of association form a corpora- tion, such a statute refers only to natural persons, and not to cor- porations.^' Co., 242 nl. 619, 90 N. E. 269, aff 'g 148 m. App. 604, it was held that a corpo- ration organized under the laws of Il- linois had no power to become one of the organizers of a corporation or- ganized under the laws of Minnesota, and become an original subaeriber for its capital stock, and consequently was not liable, at the suit of the receiver of the Minnesota corporation, for an unpaid balance on such stock. The court said: "A corporation is but the creature of the statute, and it can ex- ercise no greater powers than those which are expressly conferred upon it by its charter or which must be neces- sarily implied from its charter. The charter of the appellee company em- powered it only to engage in the busi- ness of manufacturing and selling cer- tain articles. It had no authority, either express or implied, to partici- pate in the organization of other cor- porations, either for speculative or for manufacturing purposes. • » • The appellee became one of the or- ganizers of the thresher company for the purposes for which that company was incorporated and was one of the original subscribers for its stock. Its act in so doing was ultra vires ite char- ter and void, and this suit cannot be maintained thereon." See also Con- verse V. Gardner Governor Co., 174 Fed. 30; First Nat. Bank v. Converse, 200 U. S. 425, 50 L. Ed. 537. 32 American Ball Bearing Co. v. Adams, 222 Fed. 967. Clarke, D. J., said: "No valid distinction can be drawn between the familiar ease in which an attempted corporation is held invalid and void, where there is no law providing for such a corporation as is proposed, and the case where there is no law permitting such pro- moters as attempt to organize a cor- poration to do so. * * * Legal in- firmity in parties is as fatal as legal infirmity of purpose. Neither can it be soundly said that by the granting of authority to Ohio corporations, within prescribed limits, to lawfully become stockholders in other lawfully organized corporations, there is implied a further grant of power to such Ohio corporations to themselves organize corporations in which they shall own aU the stock. The power to own stock in a lawfully organized corporation is too greatly different from the power to create a corporation, and to control it, for the latter to be raised by im- plication from" the former; this with- out regard to the opportunities for mis- chief which would be afforded to cor- porations to divert the corporation capital from the purposes to which it has been devoted, if such an implied power were held to exist. In grants by the public, the general rule of con- struction is that nothing passes by implication merely. ' ' See Chap. 30, infra, for power of a corporation to take and hold stock in another corporation. 33 United States. American Ball Bearing Co. v. Adams, 222 Fed. 967. Louisiana. Factors '& Traders ' Ins. Co. V. New Harbor Protection Co., 37 La. Ann. 233. New Jersey. Central B. Co., v. Penn sylvania B. Co., 31 N. J. Eq. 475. 156 Ch.3] Who May Be Incoepoeated [§108 A corporation, however, may be expressly authorized by its charter to acquire and hold shares in another corporation, and it may then do so by subscribing for stock in the organization of another corporation, and thus become a corporator, if the statute providing for the forma- tion of the proposed corporation authorizes other corporations to become corporators.^* § 108. Corporators not having substantial interest in the corpora- tion. In some states, the general laws authorizing the formation of corporations expressly provide that the corporators shall be sub- scribers for a certain number of shares of stock in the corporation, but unless it is expressly so required by the statute, the incorporators need not be subscribers for stock in the proposed corporation.*^ Under some statutes, however, it is required that the incorporators shall be Tennessee. State v. Vanderbilt tTni- versity, 129 Tenn. 279, 164 S. W. 1151. Vermont. State v. Rutland Railway, Light & Power Co., 85 Vt. 91, Ann. Gas. 1914 A 1305, 81 Atl. 252. Washington. Denny Hotel Co. of Seattle v. Sehram, 6 Wash. 134, 36 Am. St. Rep. 130, 32 Pac. 1002. 34 Iowa Lumber Go. v. Foster, 49 Iowa 25, 31 Am. Rep. 140; In re Asiatic Banking Corporation, L. R. 4 Ch. App. 252. See also Rogers v. NashviUe, G. & St. L. Ry. Co., 91 Fed. 299; Calumet Paper Co. v. Stotts Inv. Co., 96 Iowa 147, 59 Am. St. Rep. 362, 64 N. W. 782. See Chap. 30, infra. "A corporation cannot in its own name subscribe for stock, or be a cor- porator under the general railroad law; nor can it do so by a simulated com- pliance with the provisions of the law through its agents as pretended cor- porators and subscribers of stock." Central R. Co. v. Pennsylvania R. Co., 31 N. J. Eq. 475. A foreign raUroad corporation may hold stock in a domestic railroad com- pany when the latter 's charter pro- vides that "any state or any citizen, corporation, or company of this or any other state or country" may subscribe for and hold stock therein, and where the former's charter gives it power to acquire and hold stock therein. Rog- ers V. Nashville, C. & St. L. Ry. Co., 91 Fed. 299. Where a part of the capital stock of a corporation was subscribed for by corporations, that fact is of no avail to defeat an action against an individual subscriber to recover his unpaid sub- scription to the capital stock. United States Vinegar Co. v. Foehrenbach, 148 N. T. 58, 42 N. E. 403. 35 Densmore Oil Co. v. Densmore, 64 Pa. St. 43; Bristol Bank & Trust Co. V. Jonesboro Banking Trust Co., 101 Tenn. 545, 48 S. W. 228; Rehbein v. Rahr, 109 Wis. 136, 85 N. W. 315. See Badger Paper Co. v. Rose, 95 Wis. 145, 37 L. R. A. 162, 70 N. W. 302; In re British Provident L. & G. Ass 'n, 5 Ch. Div. 306. See also American Ball Bearing Go. v. Adams, 222 Fed. 967. "Generally, corporate existence is created by the execution and filing of an instrument by men who may never hold stock, and the relationship of stockholder is created either by the purchase of stock or the subscription therefor accepted by the corporation. ' ' Rehbein v. Rahr, 109 Wis. 136, 85 N. W. 315, citing Badger Paper Co. v. Rose, 95 Wis. 145, 37 L. B. A. 162, 70 N. W. 302. 157 §108] Private Coeporations [Ch.3 persons having an actual and real interest in the assets and in the welfare of the corporation.^^ Where the incorporation statute does not so require, the fact that the original incorporators are not sub- stantially interested in the corporation is no ground for setting aside a charter of incorporation which is otherwise valid.*'' § 109. Number of incorporators. No particular number of incor- porators is necessary in the formation of a corporation, unless a cer- tain number is expressly or impliedly required by the incorporation statute. In the absence of constitutional prohibitions, there is nothing to prevent a state from creating or authorizing the formation of a corporation composed of a single person only.*' Though the state may create a corporation consisting of a single member only, it is not considered consistent with public policy to do so in the case of a private corporation; and for this reason, the statutes authorizing the formation of corporations almost invariably require a certa,in number of corporators. When this is the ease, the provision is mandatory, and a corporation cannot be legally formed by less than the prescribed number, for, as we have seen, a charter S6 American Ball Bearing Co. v. Adams, 022 Fed. 967; Eehbeia V. Eahr, 109 Wis. 136, 85 N. W. 315. A statute providing that any num- ber of persons, not leas than five, a majority of whom are citizens of this state, desiring to become incorporated, shall subscribe and acknowledge arti- cles of incorporation and be subscrib- ers to the capital stock of the corpora- tion, contemplates that the action pre- scribed shall be taken by five natural persons having an actual and real in- terest, at least to the extent of one share of the capital stock, in the assets and in the welfare of the corporation. American Ball Bearing Co. v. Adams, 222 Fed. 967, citing Hoopes v. Basic Co., 69 N. J. Eq. 679, 61 Atl. 979. 37 State V. Miner, 233 Mo. 312, 135 S. W. 483. In State v. Miner, 233 Mo. 312, 135 S. W. 483, the defendant was prose- cuted under the bucket shop laws as a principal and not as an agent, and it was sought to be shown on the part of the state that the corporation which he pretended to represent was a mere sham. The court said: "The three original incorporators, it appears, were not the substantial owners. This fact is not enough to invalidate the cor- poration. They were merely the em- ployees about the building wherein was located the office of the lawyer who prepared the articles of asso- ciation. ' ' 38 Penobscot Boom Corporation v. Lamson, 16 Me. 224, 33 Am. Dec. 656; Com. V. O'Donnell, Brightly (Pa.) 111. See the incorporation statutes of the respective states. In Penobscot Boom Corporation v. Lamson, 16 Me. 224, 33 Am. Dec. 656, it was held that a grant of corporate powers to one person, and his asso- ciates and successors, did not require of such person that he should take as- sociates before the act could take ef- fect, or corporate powers be exercised, but that it virtually conferred upon him alone the right to exercise all the corporate powers thereby granted. The grant being to one person, with- 158 Ch.3] Who May Be Incokpokated [§109 cannot be accepted by a part only of the persons to whom it is granted or offered.'* Where a statute provided that "any number of persons" might ' ' associate themselves together and become incorporated for the trans- action of £(ny lawful business, ' ' it was held that it did not mean that out restriction, said the court, "the inference necessarily is, that it was the intention of the legislature to permit that one person or his successor to ex- ercise all the corporate powers, and to make his acts, when acting upon the subject-matter of the corporation and within its sphere of action and grant of power, the acts of the corporation. ' ' And see Hughes v. Parker, 20 N. H. 58; Workingmen's Building & Loan Ass 'u V. Coleman, 89 Pa. St. 428. Where a person takes the entire capital stock of a corporation, but al- lots four shares to four employees, the corporation is validly formed if the re- quirements of the statute are substan- tially complied with. Pott v. Schmuck- er, 84 Md. 535, 35 L. R. A. 392, 57 Am. St. Eep. 415, 36 Atl. 592. 39 Arkansas. Town of Searcy v. Yarnell, 47 Ark. 269, 1 S. W. 319. California. People v. Montecito Water Co., 97 Cal. 276, 33 Am. St. Rep. 172, 32 Pae. 236. Massachusetts. Montgomery v. Porbes, 148 Mass. 249, 19 N. E. 342. Miimesota. State v. Critchett, 37 Minn. 13. Pennsylvania. Rhoads v. Hoerners- town Bldg. & Sav. Ass'n, 82 Pa. St. 180; In re Helping-Hand Marriage Ass'n, 15 Phila. 644. England. Broderip v. Salomon, [1895] 2 Ch. Div. 323; Rex v. Amery, 2 T. B. 515, 1 T. R. 589. Canada. Hamilton & Flamborough Road Co. v. Townsend, 13 Ont. App. 534, 16 Am. & Eng. Corp. Cas. 645. See §§ 227, 239, infra. When a charter is granted or offered to a certain number of persons, it can- not be accepted by a less number. Montgomery v. Forbes, 148 Mass. 249, 19 N. E. 342; Broderip v. Salomon, [1895] 2 Ch. Div. 323; Rex v. Amery, 2 T. R. 515, 1 T. R. 589. Where a statute authorizing the for- mation of a corporation provides that the articles of incorporation must be ' ' subscribed by five or more persons, ' ' and acknowledged by each, it is held that articles of incorporation sub- scribed and acknowledged by less than five incorporators are fatally defective. People V. Golden Gate Lodge No. 6, 128 Cal. 257, 60 Pac. 865; People v. Montecito Water Co., 97 Cal. 276, 33 Am. St. Rep. 172, 32 Pac. 236. See, however, Dannebroge Gold Quartz Min. Co. V. Aliment, 26 Cal. 286. See also Dancy v. Clark, 24 App. Cas. (D. C.) 487. See, however, Johnson v. Okerstrom, 70 Minn. 303, 73 N. W. 147, where it was held that under the facts of the case a de facto corporation existed, al- though the articles of incorporation were signed by a less number than re- quired by the statute under which the corporation was organized. When an act requires a certain num- ber of persons to organize as a corpo- ration, but there is no provision requir- ing the presence of any particular number at the first meeting for the pur- pose of organizing, it is sufficient if the required number sign the applica- tion or articles for the organization of the corporation, although all are not present at the first meeting. Packard V. Old Colony R. Co., 168 Mass. 92, 46 N. E. 433. 159 § 109] Private Coepoeations [Ch. 3 a person could form a corporation consisting of himself only, but that he must have at least one associate.*" "Where a statute prescribes the number of persons necessary to form a corporation, the validity of the corporate organization is not affected by the fact that one of the number necessarily required is the wife of another incorporator, if she is competent to act as or be an incorporator by the laws of the state under which the corporation is formed.*^ Though the statute providing for the formation of cor- porations requires that there shall be a certain number of incorporators, in practice this provision is frequently evaded by the person or persons really interested in the formation of the corporation associating with himself or themselves persons who have no interest, present or con- templated, in the proposed corporation, and the validity of a corpora- tion so formed has been frequently upheld against collateral attack.*^ § 110. Effect upon corporate existence of lack of qualification of incorporators. There is a difference of opinion as to the effect upon corporate existence of the disqualification or lack of qualification of the incorporators and whether the question of the lack of capacity or of qualification can be collaterally raised. According to some of the authorities the lack of the requisite qualifications provided for by the incorporating statute cannot be collaterally raised, and the corpora- tion has a de facto existence.*^ There is, however, some authority in 40 Louisville Banking Co. v. Eisen- England. Salomon v. Salomon & man, 94 Ky. 83, 19 L. E. A. 684, 42 Am. Co., [1897] A. C. 22; Broderip v. Salo- St. Eep. 335, 21 S. W. 531, 1049. And mon, [1895] 2 Ch. Div. 323; In re Brit- see to the same effect Swift v. Smith, ish Provident L. & G. Ass 'n, 5 Ch. Div. 65 Md. 428, 57 Am. Eep. 336. 306. 41 Good Land Co. v. Cole, 131 . Wis. See, however, American Ball Bear- 467, 120 Am. St. Eep. 1056, 11 Ann. ing Co. v. Adams, 222 Fed. 967. Cas. 806, 110 N. W. 895. 43 Continental Trust Co. v. Toledo, 42 See in this connection: St. L. & K. C. E. Co., 82 Fed. 642; Hum- Kentucky. Louisville Banking Co. phreys v. Mooney, 5 Colo. 282; Ameri- V. Eisenman, 94 Ky. 83, 19 L. E. A. can Salt Co. v. Heidenheimer, 80 Tex. 684, 42 Am. St. Eep. 335, 21 S. W. 531, ' 344, 26 Am. St. Eep. 743, 15 S. W. 1038. 1049. In Continental Trust Co. v. Toledo, Missouri. State v. Miner, 233 Mo. St. L. & K. C. E. Co., 82 Fed. 642, Taft, 312, 135 S. W. 483. Circuit Judge, said: "It may be safely Tennessee. Bristol Bank & Trust stated aa the rule that when persons Co. V. Jonesboro Banking Trust Co., assume to act as a body, and are per- 101 Tenn. 545, 48 S. "W:. 228. mitted by acquiescence of the public Wisconsin. Eehfeein v. Eahr, 109 and the state to act, as if they were Wis. 136, 85 N, W. 315, citing Badger legally a particular kind of corpora- Paper Co. V. Eose, 95 Wis. 145, 37 L. E. tion, for the organization, existence, A. 162, 70 N. W. 302. and continuance of which there is ex- 160 Ch.3] Who May Be Incoepoeated [§ 111 support of the view that this question of their qualifications may be thus raised.** § 111. Necessity of articles showing qualifications — Presumptions, The incorporation papers need »ot affirmatively show that the incor- porators are qualified, unless the statute under which it is sought to form the corporation so requires.*^ A requirement in the statute au- press recognition by general law, such body of persons is a corporation de facto, although the particular personp thus exercising the franchise of being a corporation may have been ineligible and incapacitated by the law to do 30." This is on the same principle on which it is held that a person may be a de facto officer, although ineligible. See Norton v. Shelby County, 118 TJ. S. i25, 30 L. Ed. 178, cited with approval in Continental Trust Co. v. Toledo, St. L. & K. C. E. Co., supra; State v. Car- roll, 38 Conn. 449, 9 Am. Eep. 409; Blackburn v. State, 3 Head (Tenn.) 690. Under a statute requiring two of the incorporators to be citizens of the state, but not requiring that the citi- zenship should appear on the face of the charter, it was held that where ar- ticles of association and incorporation, alleging that two of the incorporators were residents of the state, were reg- ularly filed, and a certificate was is- sued by the secretary of state, and it afterwards appeared that there were not two citizens of the state among the incorporators, there was a de facto corporation, and subsequent stockhold- ers could not be held liable as partners. The court, however, declined to pass upon the liability of the incorporators, saying: "It is well settled that per- sons who deal with such a corporation de facto, and who become indebted to it, are estopped from denying its exist- ence as a legal corporation; and there is authority for holding that its credi- tors are also estopped from claiming against the stockholders as partners. * * * "Whether that rule ought to be applied in a case, in which the corpo- rators have knowingly and intention- ally violated the law in procuring a charter under a general law we need not decide. But we are clea,rly of the opinion that it is not a proper rule to be applied in a case like the present, in which it appears that stockholders who are sought to be held liable as partners bought their stock after the organization had been effected, and un- der the belief that a legal corporation existed." American Salt Co. v. Heid- enheimer, 80 Tex. 344, 26 Am. St. Eep. 743, 15 S. W. 1038. Where part of the capital stock of a corporation was subscribed for by cor- porations, that fact is of no avail to defeat an action against an individual subscriber to recover his unpaid sub- scription to the capital stock. United States Vinegar Co. v. Foehreubach, 148 N. Y. 58, 42 N. E. 403. 44 American Ball Bearing Co. v. Adams,, 222 Fed. 967; Central E. Co. V. Pennsylvania E. Co., 31 N. J. Eq. 475. This, however, was a bill in equity brought by a public service corporation for the direct purpose of inquiring into the legality 'of the or- ganization of another railroad com- pany. 45 Baltzell V. Church Home & Infirm- ary of Baltimore City, 110 Md. 244, 73 Atl. 151; Boatmen's Bank v. Gil- lespie, 209 Mo. 217, 108 S. "W. 74; American Salt Co. v. Heidenheimer, 80 Tex. 344, 26 Am. St. Eep. 743, 15 S. W. 1038; Halbert v. San Saba Springs Land & Live-Stock Ass'n (Tex. Civ. App.), 34 S. W. 636. Where a statute requires articles of I Priv. Corp.— 11 161 §111] Pbivate Cobpobations [Ch.3 thorizing the formation of corporations that the incorporators must be residents or have other qualifications does not in itself mean that such qualifications shall be set forth in the charter.*® In most juris- dictions, however, the incorporation acts provide that the articles of association shall state the names and residences of the incorporators.*' Even though the statute does not require that the qualifications of the incorporators be affirmatively set forth in the incorporation papers, the secretary of state or other officer authorized to pass upon the sufficiency of the incorporation papers and issue the charter has gen- erally the right to inquire into the qualifications of the incorporators.** But such officer is not obliged to make inquiry outside of the articles of incorporation, although privileged to make such inquiry.** incorporation to be signed by the pres- ident and directors, the fact that the president and directors signed them is a compliance with the statute, notwith- standing the fact that they did not affix their official titles to their sig- natures. St. Louis & S. F. R. Co. v. Southwestern Telephone & Telegraph Co., 121 Fed. 276. See, however. In re Wendover Athletic Ass'n, 70 N. Y. Misc. 273, 128 N. Y. Supp. 561. 46 Baltzell V. Church Home & Infirm- ary of Baltimore City, 110 Md. 244, 73 Atl. 151; American Salt Co. v. Heiden- heimer, 80 Tex. 344, 26 Am. St. Rep. 743, 15 S. W. 1038; Halbert v. San Saba Springs Land & Live-Stock Ass'n (Tex. Civ. App.), 34 S. "W. 636. 47 See the incorporation statutes of the various states. Under a statute requiring the appli- cation for the charter of a corporation proposed to be organized thereunder to set forth "the names and residences of the incorporators, ' ' the court, in re- jecting the application as insufficient, said: "It does not appear that of the five persons who have subscribed, three are citizens of this commonwealth. The act of assembly * * * ia im- perative and the fact should appear by petition for the intended charter or by an affidavit added to it. How in the instance before us can we know that the persons subscribing are not citizens of another state or foreigners?" Ap- plication of Enterprise Mut. Ben. Ass'n, 10 Phila. (Pa.) 380. See also In re Wendover Athletic Ass'n, 70 N. Y. Misc. 273, 128 N. Y. Supp. 561; Appeal of Chiropractors' Ass'n of Pennsylvania, 243 Pa. 547, 90 Atl. 335; Com. V. Detwiller, 131 Pa. St. 614, 7 L. R. A. 357; 18 Atl. 990; Charter of St. Ladislaus Roman Catholic Sick & Benefit Ass 'n of Johnstown, 19 Pa. Co. Ct. 25. 48 American Salt Co. v. Heiden- heimer, 80 Tex. 344, 26 Am. St. Rep. 743, 15 S. "W. 1038. See § 212, infra. 49 Boatmen's Bank v. trillespie, 209 Mo. 217, 108 S. "W. 74. R«« § 212, infra. 162 CHAPTER 4 Objects foe Which Corporations May Be Created g 112. In general. § 113. Purposes of corporations created under authority of congress. § 114. Unlawful or injurious purposes. § 115. Attempt to incorporate under inapplicable statute. g 116. General words in statutes defining objects. § 117. Number of purposes for which corporations may be formed. § 118. How character of a corporation is determined. § 119. Statement of objects in incorporation paper. i 120. Corporations for manufacturing or mechanical purposes. § 121. Corporations for trade and commerce. § 122. Corporations for industrial pursuits. § 123. Corporations for agricultural purposes. § 124. Corporations for benevolent, charitable, literary or educational purposes. § 125. Corporations for scientific purposes. § 126. Corporations for purposes of pecuniary profit. 1 127. Corporations for owning or dealing in real estate. § 128. Corporations for work of "internal improvement," "public improvement " or "public utility." § 129. Corporations for purpose of acquiring and holding stock in other corporar tions. i 130. Corporations for the practice of law or medicine. { 131. Miscellaneous illustrations of authorized purposes. § 112. In general. As will be seen elsewhere, the legislature of a state has the inherent power to create a corporation for any purpose whatsoever, provided it violates no provision of the state or Federal Constitution.* It may not only create corporations, but, subject to 1 See § 168, infra. See also the f ol- Missouri. State v. Corkins, 123 Mo. lowing eases: 56, 27 S. W. 363. Alabama. Cahill v. Citizens' Mut. Nebiaska. York Park Bldg. Ass'n Bldg. Ass'n, 61 Ala. 232; Paschall v. v. Barnes, 39 Neb. 834, 58 N. W. 440. Whitsett, 11 Ala. 472. > New York. Bank of Chenango v. Calif omia. Market St. Ey. Co. v. Brown, 26 N. Y. 467; United States Hellman, 109 Cal. 571, 42 Pae. 225. Trust Co. v. Brady, 20 Barb. 119. Indiana. City of Aurora v. West, 9 Ohio. Atkinson v. Marietta & C. R. Ind. 74. Co., 15 Ohio St. 21. Maine. Penobscot Boom Corporation Tennessee. Bell v. Bank of Nash- V. Lamson, 16 Me. 221, 33 Am. Dee. ville, Peek, 269. 656. Minnesota. Brown v. Corbin, 40 Minn. 508, 42 N. W. 481. 163 112] Private Cokpobations [Ch.4 such restrietions, it may confer upon them, whether they are public or private, any powers it may see iit.^ Such laws, however, are not generally so broad as to authorize incor- poration for any purpose for which persons may wish to incorporate ; but they allow incorporation for specified purposes only, and no cor- poration can be formed under them for any other purpose.* 2 See New Orleans Gas Co. v. Loui- siana Light Co., 115 U. S. 650, 29 L. Ed. 516; In re Knorr's Appeal, 89 Pa. St. 93; In re Philadelphia & T. R. Co., 6 Whart. (Pa.) 25, 36 Am. Dee. 202; Halbert v. San Saba Springs Land & Live Stock Ass'n (Tex. Civ. App.), 34 S. W. 636, 89 Tex. 230, 49 L. K. A. 193, 34 S. W. 639. "A charter of incorporation may be granted to an association of persons to conduct any business that an individ- ual may lawfully conduct under the laws of the state." Hanger v. Com., 107 Va. 872, 14 L. E. A. (N. S.) 683 60 S. E. 67; Ward Lumber Co. v. Hen derson-White Mfg. Co., 107 Va. 626, 17 L. E. A. (N. S.) 324, 59 S. E. 476. "The legislature may authorize the creation of corporations for many purposes not contemplated by the com- m_on-law. * * * The measure of the legislative power iii this regard is limited only by circumstantial provi- sions." Killingsworth v. Portland Trust Co., 18 Ore. 351, 7 L. E. A'. 638, ' 17 Am; St. Eep. 737, 23 Pae. 66. '■ "The objects for which a corpora- tion is created are universally such as the government wishes to promote." Dartmouth College v. Woodward, 4 Wheat. (TJ. S.) 518, 637, 4 L. Ed. 629. In New Jersey corporations may be organized to engage in almost every conceivable manufacture or trade. Trenton Potteries Co. v. Oliphant, 58 isr. J. Eq. 50, 46 L. E. A. 255, 78 Am. St. Kep. 612, 43 Atl. 723. 3 See § 115, infra. See also the fol- lowing cases: United States. American Ball Bear- ing Co. V. AdA^aa, 222 Fed. 967. California. Kaiser Land & Fruit Co. V. Curry, 155 Cal. 638, 103 Pac. 341. Michigan. Attorney General v. Lor- man, 59 Mich. 157, 60 Am. Eep. 287, 26 N. W. 311; Detroit Schuetzen Bund v. Detroit Agitations Verein, 44 Mich. 313, 38 Am. Eep. 270, 6 N. W. 675. See also lale Eoyale Land Corporation v. Secretary of State, 76 Mich. 162, 43 N. W. 14. Minnesota. Finnegan v. Noerenberg, 52 Minn. 239, 38 Am. St. Eep. 552, 53 N. W. 1150. Missouri. See Atchison v. Crawford County Farmers' Mut. Fire Ins. Co., 192 Mo. App. 362, 180 S. W. 438. New York. People v. Gunn, 96 N. Y. 317; Ancient City Sportsman's Club v. Miller, 7 Lans. 412. Ohio. Meader Furniture Co. v. Eow- land, 6 Ohio Dec. 595. Oklahoma. See Myatt v. Ponca City Land & Improvement Co., 14 Okla. 189, 68 L. E. A. 810, 78 Pac. 185. Pennsylvania. In re Homestead Bldg. Co., 10 Phila. 106. See also In re Board of Eeal Estate Brokers, 21 Pa. Dist. 59; In re W. B. Urling Co., 13 Pa. Dist. 534. Texas. See Staacke v. Eoutledge, — Tex. Civ. App. — , 175 S. W. 444; Hal- bert V. San Saba Springs Land & Live Stock Ass'n (Tex. Civ. App.), 34 S. W. 636, 89 Tex. 230, 49 L. E. A. 193, 34 S. W. 639. Wisconsin. State v. International Inv. Co., 88 Wis. 512, 43 Am. St. Eep. 920, 60 N. W. 796. No charter can be granted to a pro- posed corporation where there is ij statute permitting incorporation for the purposes proposed. In re Pennayl. 164 Ch.4] Objects fok Which Created [§112 The right of individuals to orgaiiize themselves into a corporation. vania State Sportsmen's Ass'n, 1 Pa. Dist. 763; West Mauayunk Ga^ Light Co. V. New Gas Light Co., 21 Pa. Co. Ct. 369; In re Eiohmond Retail Coal Co. of Philadelphia, 9 Pa. Co. Ct. 172. In Pennsylvania, statutes have been enacted authorizing the court of com- mon pleas to grant charters under prescribed conditions. Under such statutes it is held that the court has such authority only as has been con- ferred upon it by the legislature and that the court can confer corporate powers for no other purposes than those mentioned in the statute. See In re Medical College of Philadel- phia, . 3 Whart. 445; In re Italian Mut. Beneficial Ass'n, 4 Pa. Dist. 357; In re Russian- American Guards Charter, 3 Pa. Dist. 673; In re Lodge Duch Nove Doby, No. 165, 3 Pa. Dist. 215; Lehigh Valley Coal Co. v. United States Pipe Line Co., 3 Pa. Dist. 70; In re . Pennsylvania State Sportsmen 's' Ass 'n, 1 Pa. Dist. 763 ; In re Chinese Club, 1 Pa^ Dist. 84; In re Stevedores ' Beneficial Ass 'n, 14 Phila. 130; In re American Electro- pathie Inst., 14 Phila. 128; In re Homestead Bldg. Co., 10 Phila. 106; In re Accountants ' Ass 'n of Pittsburg, 18 Pa. Co. Ct. 159; In re Bohemian Slavonian Ben. Society, 12 Pa. Co. Ct. 552; In re Central Democratic Ass'n of Philadelphia, 8 Pa. Co. Ct. 392; In re North Fifth St. Mut. Land Ass'n, 8 Pa. Co. Ct. 17; In re Sole- bury Mut. Protective Ass'n, 3 Pa. Co. Ct. 637, 3 Del. Co. 139; In re Land Co., 1 Del. Co. 431; In re Union League of Delaware, 1 Del. Co. 21; In re Char- ter, 5 L. T. N. S. 7; In re Phila- delphia Artisans ' Institute, 3 Leg. Gaz. 12, 1 Leg. Gaz. 104; Cora. v. Conover, 30 Leg. Int. 200; In re Cressone Sav. Fund Bldg. Ass'n, 1 Leg. Rec. 177. The chancery court cannot create a corporation for any purpose not au- thorized by a general law. Ex parte Chadwell, 3 Baxt. (Tenn.) 98. A corporation cannot be organized for carrying on a mercantile business, or buying and selling and dealing in commodities as a merchant, where there is no statute authorizing persons to incorporate for such purpose^. Com. V. J. B. Lippincott Co., 156 Pa. St. 513, 27 Atl. lb; Com. V. Thackara Mfg. Co., 156 Pa. St. 510, 27 Atl. 13. A charter which purports to create a corporation to carry on a business for which a corporation cannot be legally created will not be permitted to be filed. Miller v. Tod, 95 Tex. 404, 67 S. W. 483; Staacke v. Routledge, — Tex. Civ. App. — , 175 S, W. 444. ■ Where the articles of association of a proposed corporation set forth two purposes, one of which is authorized and the other not, the secretary of state cannot be compelled by man- damus to file such articles of associa- tion. Miller v. Tod, 95 Tex. 404, 67 S. W. 483. See also State v. Nichols, 40 Waah. 437, 82 Pac. 741; State v. Niehoita, 38 Wash. 309, 80 Pac. 462. See §§ 114, 115, 117-119, infra. "The articles for incorporation, un- der the general law, are required to be passed upon by the attorney general before they can be filed and the in- corporation be accomplished, but the law does not confide to the attorney general or to the incorporators the power to determine for what purposes incorporation may be had, or what' powers the corporation may acquire by the act of incorporation. That is determined by the law which permits the incorpbration. " Gulf, C. & S. F. R. Co. V. Morris, 67 Tex. 692, 4 S..W. 156. Powers obtained by corporations or- ganized under general laws are neces- sarily restricted to those mentioned in the act providing for the incorpora- 165 §112] Pkivate Cokpoeations [Ch.4 is not an original, but a derivative and expressly conferred right. Legislative authority is essential to its exercise, and the body having the authority to bestow such a right or privilege has necessarily the power and authority to select the object and purposes for which it can and shall be granted, and to attach such conditions and limita- tions as it may think proper to the exercise of the right.* Therefore a corporation claiming the right to exist for a certain purpose must show that it was organized under a statute authorizing the creation of a corporation for that particular purpose,* and if there is no such statute the articles of incorporation are void and the corporation is without legal existence.'' tion. In re Medical College of Phila- delphia, 3 Whart. (Pa.) 444. A corporation can only be formed in the manner provided by law, and has only such powers as the law specifi- cally confers upon it. Denny Hotel Co. V. Schram, 6 Wash. 134, 36 Am. St. Rep. 130, 32 Pae. 1002. 5 State V. Debenture Guarantee & I;oan Co., 51 La. Ann. 1874, 26 So. 600. See also New Orleans Debenture Ee- demption Co. v. Louisiana, 180 XT. S. 320, 45 L. Ed. 550. See § 168, infra. See also Chap. 6, infra, in which the nature and extent of the power to cre- ate corporations are discussed at length. 6 Lincoln Park Chapter No. 177, R. A. M. V. Swatek, 105 111. App. 604, aff'd 204 111. 228, 68 N. E. 429; Clark V. American Cannel Coal Co., 165 Ind. 213, 112 Am. St. Rep. 217, aff'g 35 Ind. App. 65, 73 N. E. 727; Williams V. Citizens' Enterprise Co., 25 Ind. App. 351, 57 N. E. 581; Indiana Bond Co. V. Ogle, 22 Ind. App. 593, 72 Am. St. Rep. 326, 54 N. E. 407; State v. International Inv. Co., 88 Wis. 512, 43 Am. St. Rep. 920, 60 N. W. 796. The object and purpose for which the corporation is formed ' ' must come strictly within the plain intent, terms and meaning of the law." Vreden- burg V. Beham, 33 La. Ann. 627. 7 United States. Davis v. Stevens, 104 Fed. 235. Illinois. Gillette v. Aurora Rys. Co., 228 111. 261, 81 N. B. 1005; American Loan & Trust Co. v. Minnesota & N. W. E. Co., 157 111. 641, 42 N. E. 153. Indiana. Williams v. Citizens' En- terprise Co., 25 Ind. App. 351, 57 N. E. 581. Louisiana. Vredenburg v. Behan, 33 La. Ann. 627. Minnesota. State v. Critchett, 37 Minn. 13, 32 N. W. 787. New York. Ancient City Sports- man's Club v. Miller, 7 Lans. 412. Tennessee. Doty v. American Tele- phone & Telegraph Co., 123 Tenn. 329, Ann. Caa. 1912 C 167, 130 S. W. 1053. Texas. Empire Mills v. Alston Gro- cery Co., 4 Wilson Civ. Cas. Ct. App. § 221, 12 L. R. A. 366, 15 S. W. 200, 505. Wisconsin. State v. International Inv. Co., 88 Wis. 512, 43 Am. St. Rep. 920, 60 N. W. 796. See § 279, infra. ' ' The limitation of the doctrine that the validity of corporate existence can- not be litigated collaterally is that, where there is no law under which a corporation might exist, then the valid- ity of corporate existence may be at- tacked collaterally." Davis v. Ste- vens, 104 Fed. 235. See also Gillette V. Aurora Rys. Co., 228 111, 261, 81 N. 166 Ch.4] Objects fob Which Cbeated [§112 The question whether a corporation was organized for a proper purpose must be determined under the law as it existed at the time of the attempted incorporation,* and a subsequent amendment of the law cannot be considered where there has beefi no attempt to incorporate under it.^ "Where it is sought to form a corporation for a purpose not permit- ted by the statute under which the corporation is attempted to be formed, there is no corporation de facto, and no estoppel to attack the legal existence of the corporation arises.^" Where there is no statute E. 1005; American Loan & Trust Co. V. Minnesota & N. W. E. Co., 157 111. 641, 42 N. E. 153. -gee § 277, infra. Under statutes authorizing the for- mation of corporations for the purpose of engaging in mercantile pursuits and also authorizing the formation of cor- porations for carrying on works of public improvement which shall enjoy the privilege of appropriating private property for their use, but are for- bidden to engarge in mercantile pur- suits, a corporation cannot be formed for the purpose of the construction and operation of a navigation canal — a work of public improvement — and also for the purpose of carrying on a mer- cantile business. In view of the statu- tory prohibition, it is not possible to form a corporation for both of these incompatible purposes, and articles of incorporation, which attempt to do so are fatally defective, and fail to cre- ate a corporation. Bayou Cook Navi- gation & Fisheries Co. v. Doullut, 111 La. 517, 35 So. 729. 8 Indiana Bond Co. v. Ogle, 22 Ind. App. 593, 72 Am. St. Rep. 326, 54 N. E. 407; Staacke v. Eoutledge, — Tex. Civ. App. — , 175 S. W. 444; Halbert v. San Saba Springs Land & Live Stock Ass 'n (Tex. Civ. App.), 34 S. W. 636, 89 Tex. 230, 49 L. E. A. 193, 34 S. W. 639. 9 Indiana Bond Co. v. Ogle, 22 Ind. App. 593, 72 Am. St. Eep. 326, 54 N. E. 407; Staacke v. Eoutledge, — Tex. Civ. App. — , 175 S. W. 444. See §279, infra. 10 People V. Cowan, 247 111. 357, 93 N. E. 349; People v. Shedd, 241 111. 155, 89 N. E. 332, afE'd 217 U. S. 597, 54 L. Ed. 896 (mem. dec); Imperial Bldg. Co. V. Chicago Open Board of Trade, 238 111. 100, 87 N. E. 167, aff'g 136 111. App. 606, distinguishing Pat- terson V. Northern Trust Co., 230 111. 334, 82 N. E. 837, aff'g 132 111. App. 208, 231 111. 22, 121 Am. St. Eep. 299, 82 N. E. 840, and citing with approval Walker v. Taylor, 252 111. 424, 96 N. E. 1055; Snyder v. Studebaker, 19 Ind. 462, 81 Am. Dec. 415. See also Clark V. American Cannel Coal Co., 35 Ind. App. 65, 73 N. E. 727; Indiana Bond Co. V. Ogle, 22 Ind. App. 593, 72 Am. St. Eep. 326, 54 N. E. 407; Vreden- burg V. Beham, 33 La. Ann. 627. See § 277, infra. " Where there is no statute authoriz- ing the formation of a corporation to engage in a particular business, per- sons attempting to form a corporation for the purpose of engaging in such business do not constitute a de facto corporation, and in a suit by such pre- tended corporation upon a contract executed by it, the other party to the contract is not estopped to deny the corporate existence at the date of the contract. Indiana Bond Co. v. Ogle, 22 Ind. App. 593, 72 Am. St. Eep. 326, 54 N. E. 407. "A corporation de facto cannot ex- ist in any case where there is no law authorizing a de jure corporation." Doty v. Patterson, 155 Ind. 60, 56 N. 167 § 112] Peivate Coepobations [Ch.4 authorizing the organization of a corporation for the purposes named in the articles of association of a corporation attempted to be framed, the articles of association are void, and no corporation is formed.^^ E. 668; Clark v. American Cannel Co., 35 Ind. App. 65, 73 N. E. 727; In- diana Bond Go. V. Ogle, 22 Ind. App. 593, 72 Am. St. Rep. 326, 54 N. E. 407. See §§ 279-281, infra. 11 Clark V. American Cannel Coal Co., 35 Ind. App. 65, 73 N. E. 727; Williams v. Citizens' Enterprise Co., 25 Ind. App. 351, 57 N. E. 581. In Marion Bond Co. v. Mexican Cof- fee & Eubber Co., 160 Ind. 558, 65 N. E, 748, it was contended that a corpora- tion plaintiff had no right to maintain a suit in its corporate capacity for the reason that its articles of association designated more than one of the pur- poses specified in the statute and other purposes not authorized at all, and therefore the articles of association were void, and the association never had any corporate existence. It was held, however, that the corporation had a de facto existence, and the power to sue and enter into certain contracts, and the legality of its organization was not open to collateral attack in an ac- tion brought by it to enforce the col- lection of street improvement bonds held by it. Dowling, J., said: "What the effect of the supposed irregularity in the organization of the appellant might be in a direct proceeding by the state in the nature of quo warranto we need not say. The statute under which the appellant was incorporated did not make the irregularity complained of a ground of forfeiture of the corporate franchises. It does not appear that the appellant has attempted to exercise more than one of the particular fran- chises mentioned in its written arti- cles. * * * In proceedings by the state in the nature of quo warranto, where a corporation assumes to exer- cise a particular franchise, which it has no power, under its charter, to use, the judgment may be, and generally is, that it be ousted of the particular fran- chise, without affecting the right of the corporation to retain and enjoy its proper franchises. * * * But where the corporation has been guilty of acts which, by statute, are made a cause of forfeiture, the rule is different. * * * The cases of West v. Ditching Co., 32 Ind. 138, and O'Eeiley v. Draining Company, 32 Ind. 169, were under the drainage acts, which differed mate- rially from the statute relating to the organization of voluntary associations, and the reasons there given for a strict construction of the requirement con- cerning the statement of the objects of the association do not apply here. Williams v. Citizens ' Enterprise Co., 25 Ind. App. 351, 57 N. E. 581, was an action for the collection of a subscrip- tion to the capital stock of a proposed corporation, and in such eases it has been held that a different rule pre- vails, and that a perfect organization de jure must be shown. In view of the proceedings taken by the members to incorporate the * * * Company under the voluntary association act, we think it clear that a corporation de facto was created, which had the pow- er to sue, and to enter into certain contracts. Being such corporation de facto, the legality of its organization was not open to collateral attack in an action brought by it to enforce the collection of street improvement bonds held by said association." See Consumers' Gas Trust Co. v. Quinby, 137 Fed. 882, where Marion Bond Co. V. Mexican Coffee & Rubber Co., 160 Ind. 558, 65 N. E. 748, and the other Indiana cases cited therein were con- sidered. 168 Ch.4] Objects fob Which Cheated [§ 112 Generally, where one of several purposes named is within the purview of the statute, the fact that the articles of incorporation mention other unauthorized purposes will not vitiate the incorporation.^^ In such case the unauthorized provisions will simply be inoperative,^* and may be disregarded as surplusage,^* and acts done in pursuance thereof will be void.^* "Where the purposes of a corporation are partly within 12 Indiana. Williams v. Citizens ' Enterprise Co., 25 Ind. App. 351, 57 N. E. 581; Shick v. Citizens' Enter- prise Co., 15 Ind. App. 329, 57 Am. St. Eep. 230, 44 N. E. 48. Michigan. See Isle Boyale Land Corporation v. Secretary of State, 76 Mich. 162, 43 N. "W. 14. New York. Eastern Plank Eoad Co. V. Vaughan, 14 N. Y. 546, aff'g 20 Barb. 155. Pennsylvania. In re New Gas Light Co., 7 Pa. Dist. 151. See also Albright V. Lafayette Bldg. & Sav. Ass'n, 102 Pa. St. 411; Becket v. Uniontown Building & Loan Ass 'n, 88 Pa. St. 211. Tennessee. Tennessee Automatic Lighting Co. v. Massey (Tenn.), 56 S. W. 35. It is at least a de facto corporation under such circumstances, if not one dfi jure. Marion Bond Co. v. Mexican Coffee & Eubber Co., 160 Ind. 558, 65 N. E. 748. See also State v. Minne- sota Thresher Mfg. Co., 40 Minn. 213, 3 L. E. A. 510, 41 N. W. 1020; Shoun v. Armstrong (Tenn.), 59 S. W. 790. 13 Shoun V. Armstrong (Tenn.), 59 S. W. 790; Tennessee Automatic Light- ing Co. V. Massey (Tenn.), 56 S. W. 35; Heck v. McEwen, 12 Lea (Tenn.) 97. See also Oregon Ey. & Nav. Co. v. Oregonian Ey. Co., 130 TJ. S. 1, 32 L. Ed. 837; Grangers' Life & Health Ins. Co. V. Kamper, 73 Ala. 325; Fritze v. Equitable Building & Loan Society, 186 111. 183, 57 N. E. 873; People v. Chicago Gas Trust Co., 130 111. 268, 8 L. E. A. 497, 17 Am. St. Eep. 319, 22 N. E. 798. 14 Marion Bond Co. v. Mexican Cof- fee & Eubber Co., 160 Ind. 558, 65 N. E. 748; "Williams v. Citizens' Enter- prise Co., 25 Ind. App. 351, 57 N. E. 581; In re New Gas Light Co., 7 Pa. Dist. 151. See also Grangers' Life & Health Ins. Co. v. Kamper, 73 Ala. 325, holding that statements in the declara- tion required to be filed by the incor- porators in addition to those provided for by the statute are mere surplusage. Where the charter of a corporation organized under a general statute authorizing incorporation for manu- facturing purposes, stated that the corporation was organized for the purpose of carrying on the business of publishing books, of dealing in books, maps, and periodicals, stationery, and other like articles, and of printing and bookbinding, it was held that as the statute did not authorize the incorporation of merchants and dealers, the apparent power of deal- ing in books, maps and periodicals, stationery and other like articles was void, and might, therefore, be treated as eliminated, and that having been done, the corporation would be considered as organized for exclusively manufacturing purposes. Com. v. J. B. Lippincott Co., 156 Pa. St. 513, 27 Atl. 10. See also Com. v. Thackara Mfg. Co., 156 Pa. St. 510, 27 Atl. 13; Com. V. Wm. Mann Co., 150 Pa. St. 64, 24 Atl! 601. IBlUinois. See People v. Chicago Gas Trust Co., 130 111. 268, 8 L. E. A. 497, 17 Am. St. Eep. 319, 22 N. E. 798. Indiana. Marion Bond Co. v. Mexi- can Coffee & Eubber Co., 160 Ind. 558, 65 N. E. 748. New York. See Eastern Plank Eoad 169 §112] Peivate Coepoeations [Ch.4 and partly without the law, it may have a de facto or de jure existence, as the case may be, and it will simply be incapable of exercising the unauthorized powers. ' ' ^® But there is authority to the effect that if the primary purpose is without statutory authority the- whole scheme must fail though its incidental or secondary objects are within the terms of the statute.^'' In some jurisdictions it is held that if some of the proposed purposes are unauthorized, the secretary of state may refuse to permit the charter or articles "of incorporation to be filed." Statutes providing the purposes for which corporations may be formed will be liberally construed to sustain the legality of corpora- tions organized in good faith and for legitimate purposes,^' and espe- cially is this true in cases where the corporation or incorporators seek to escape liability for corporate obligations on the ground that the purpose for which it was formed was not within the statute.*" A cor- Co. V. Vaughan, 14 N. T. 546, aff'g 20 Barb. 155. Pennsylvania. See Albright v. La- fayette Bldg. & Sav. Ass'n, 102 Pa. St. 411; Becket v. TJniontown Building & Loan Ass 'n, 88 Pa. St. 211. Tennessee. See Heck v. McEwen, 12 Lea 97. 16 In re Trenton St. K. Co. (N. J. Ch.), 47 Atl. 819, citing Heck v. Mc- Ewen, 12 Lea (Tenn.) 97. 17 State V. International Inv. Co., 88 "Wis. 512, 43 Am. St. Eep. 920, 60 N. "W. 796. A corporation ' ' to encourage frugal- ity and economy in its members; to create, husband, and distribute funds from monthly instalments, dues, or in- vestments from its members; to pur- chase, take, hold, sell, convey, lease, rent, and mortgage real estate and per- sonal property; to loan surplus accu- mulations;, and to carry on and conduct a general investment business," can- not be upheld under a statute author- izing the formation of corporations for dealing in real and personal property, or for loaning money on securities or otherwise. State v. International Inv. Co., 88 Wis. 512, 43 Am. St. Rep. 920, 60 N. W. 796. 18 People V. Nelson, 46 N. Y. 477, 60 Barb. 159, 3 Lans. 394; Miller v. Tod, 95 Tex. 404, 67 S. W. 483; Gulf, C. & S. P. Ey. Co. V. Morris, 67 Tex. 692, 4 S. W. 156; Staacke v. Eoutledge, — Tex. Civ. App. — , 175 S. W. 444; City of San Antonio v. Salvation Army (Tex. Civ. App.), 127 S. W. 860; State V. Nichols, 40 "Wash. 437, 82 Pae. 741; State V. Nichols, 38 "Wash. 309, 80 Pac. 462. See § 212, infra. It is held in Illinois that the action of the oflScer in granting the charter is largely ministerial and not con- clusive upon the courts and whether a purpose stated in the charter is authorized by a law is subject to the judicial determination. People V. Chicago Gas Trust Co., 130 111. 268, 8 L. E. A. 497, 17 Am. St. Eep. 319, 22 N. E. 798. But see Isle Eoyale Land Corporation v. Secretary of State, 76 Mich. 162, 43 N. "W. 14. And see § 212, infra. 19 "Watton V. Cruce, 44 Okla. 186, 143 Pac. 1152. See § 422, infra. 20 ' ' The rule of restricting language, as applied to the exercise of corporate powers, is generally found in those cases where the corporation is seeking 170 Ch. 4] Objects foe Which Created [§ 113 poration having the charter power to enter into contracts for a cer- tain purpose cannot avoid liability to the other contracting party by asserting that it entered into the contracts for another and unauthor- ized purpose, unless it proves — and the burden is on it to prove — that the other party to the contract had knowledge of such f act.*^ "Where there is no law for the formation of a corporation for the purposes for which it is sought to be incorporated, no lapse of time and no acquiescence or waiver can bar a prosecution for the ouster of those claiming to exercise the franchise.*^ §113. Purposes of corporations created ' under authority of con- gress. As will be seen elsewhere, congress has no inherent power to create corporations, for its powers of legislation are such only as are conferred upon it by the Constitution of the United States.^* The Federal Constitution, in addition to conferring upon congress various specific powers, provides that it shall have the power "to make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitu- tion in the government of the United States or in any department or officer thereof. ' ' ** Under this constitutional provision, congress has the power to create a corporation whenever the purpose of the cor- poration is necessary or proper to carry into execution any power which is conferred by the Constitution upon the government of the United States, or upon any department or officer thereof, but congress has no power to create a corporation for any other purpose when it is acting as the legislature of the United States.^* Under the last quoted constitutional provision and other provisions of the Constitu- tion providing that congress shall have the power "to establish post offices and post-roads," and "to regulate commerce with foreign to enlarge or extend those powers," v. Central Pae. R. Co., 127 U. S. 1, 32 and is not so frequently applied where L. Ed. 150; Union Pac. By. Co. v. the corporation or incorporators are Myers, 115 TJ. S. 1, 29 L. Ed. 319 ; In re seeking to evade liability for corpo- Legal Tender Cases, 110 V. S. 421, 28 rate obligations. Gaff v. Flesher, 33 L. Ed. 204; Farmers' & Mechanics' Ohio St. 107. Nat. Bank v. Bearing, 91 TJ. S. 29, 23 21 Colorado Springs Co. v. American L. Ed. 196; Weston v. City Council of Pub. Co., 97 Fed. 843. Charleston, 2 Pet. (TJ. S.) 449, 7 L. Ed. 22 People V. Shedd, 241 111. 155, 89 481; Brown v. Maryland, 12 Wheat. N. E. 332, afl'd 217 U. S. 597, 54 L. Ed. (U. S.) 419, 6 L. Ed. 678; Osborn v. 896 (mem. dec). Bank of United States, 9 Wheat. (U. 23 See §§175 and 176, infra. 8.) 738, 6 L. Ed. 204; M'Culloch v. 24 U. S. Const, art. I, § 8. Maryland, 4 Wheat. (U. S.) 316, 4 L. 25 Luxton V. North Eiver Bridge Co., Ed. 579. See § 175, infra. 153 U. S. 525, 38 L. Ed. 808; California 171 §113] Pbivate Coepokations [Ch.4 nations and among tke several states," it may create a corporation to construct and maintain a railroad, for the purpose of facilitating interstate commerce, or for the purpose of a post-road,*^ or a tele- graph line.^'' Under the provision of the Constitution, that congress shall have the power "to regulate commerce with foreign nations, and among the several states," congress has the power to create a corporation for the purpose of constructing and maintaining. a bridge across a river forming the boundary between two states,^* and national highways from one state into another.^' The power of congress to create or authorize the formation of national banks is based upon the fact that such institutions are "nec- essary and proper for carrying on the fiscal operations of the govern- ment, "^o 26 Indiana v. TJnited States, 148 TJ. S. 148, 37 L. Ed. 401; California v. Central Pae. Ey. Co., 127 XJ. S. 1, 32 L. Ed. 150; Union Pac. Ey. Co. v. Myera, 115 U. S. 1, 29 L. Ed. 319; Union Pac. Ey. Co. v. Hall, 91 U. S. 343, 23 L. Ed. 428; Thomson v. Union Pae. Ey. Co., 9 Wall. (U. S.) 579, 19 L. Ed. 792; Union Pac. Ey. Co. v. Lincoln County, 1 Dill. (U. S.) 314, Eed. Cas. No. 14,378, aff'd 18 "Wall. (U. S.) 5, 21 L. Ed. 787. See § 175, infra. 27 Western U. Tel. Co. v. Union Pae. Ey. Co., 3 Fed. 721. See also Western U. Tel. Co. v. Seay, 132 U. S. 472, 33 L. Ed. 409; Leloup v. Mobile, 127 U. S. 640, 32 L. Ed. 311, rev 'g 76 Ala. 401 ; Eatterman v. West- ern U. Tel. Co., 127 U. S. 411, 32 L. Ed. 229; Western U. Tel. Co. v. Attor- ney-General of Massachusetts, 125 U. S. 530, 31 L. Ed. 790; Western U. Tel. Co. V. Pendleton, 122 U. S. 347, 30 L. Ed. 1187; Western U. Tel. Co. v. Texas, 105 U. S. 460, 26 L. Ed. 1067; Pensa- cola Tel. Co. V. Western U. Tel. Co., 96 U. S. 1, 24 L. Ed. 708, afE'g 2 Woods (U. S.) 643; Western U. Tel. Co. v. City of New York, 38 Fed. 552, 3 L. E. A. 449; Western U. Tel. Co. v. Atlantic & Pacific States Tel. Co., 5 Nev. 102. 28 Luxton V. North Eiver Bridge Co., 153 U. S. 525, 38 L. Ed. 808; California V. Central Pac. E. Co., 127 U. S. 1, 32 L. Ed. 150. 29 In considering the federal legisla- tion concerning the Pacific railroads Mr. Justice Bradley said: "It cannot at the present day be doubted that congress, under the power to regulate commerce among the several states as well as to provide for postal accommo- dations and military exigencies, had authority to pass these laws. The power to construct or to authorize in- dividuals or corporations to construct national highways and bridges from state to state ia essential to the com- plete control and regulation of inter- state commerce. ' ' California v. Cen- tral' Pac. E. Co., 127 U. S. 1, 39, 32 L. Ed. 150. 30 California Nat. Bank v. Kennedy, 167 U. S. 362, 42 L. Ed. 198; Pacific Nat. Bank v. Mixter, 124 U. S. 721, 31 L. Ed; 567; Juillard v. Green- man, 110 U. S. 421, 28 L. Ed. 204; Casey v. Galli, 94 U. S. 673, 24 L. Ed. 168; Farmers' & Mechanics ' Nat. Bank v. Bearing, 91 U. S. 29, 23 L. Ed. 196; Van' Allen v. The Assessors, 3 Wall. (U. S.) 573, 18 L. Ed. 229; Osborn v. Bank of United States, 9 Wheat. (U. S.) 738, 6 L. Ed. 204; M'Culloch v. Maryland, 4 Wheat. (U. S.) 316, 4 L. Ed. 579; Larabee v. Dolley, 175 Fed. 365; State v. Curtis, 35 Conn. 374, 95 172 Ch.4] Objects foe Which Ceeated [§113 The Federal Constitution also gives congress general and exclusive jurisdiction over the territories of the United States, and it has the power to create a corporation for any purpose therein, subject only to such restrictions as are to be found in the Federal Constitution.*^ Congress may not only itself create corporations in the territories of the United States, but it may also authorize the legislature of a territory to do so. Such power, subject to the restrictions in the Federal Constitution, and any restrictions in acts of congress, would be included in a general grant of power to legislate.'^ But the power has been expressly granted by an act of congress providing that the legislatures "shall not grant private charters or special privileges; but they may, by general incorporation acts, permit persons to asso- ciate themselves together as bodies corporate for mining, manufac- turing, and other industrial pursuits, or the construction or operation of railroads, wagon roads, irrigating , ditches, and the colo- nization and improvement of lands in connection therewith, or for colleges, seminaries, churches, libraries, or any other benevolent, chari- table, or scientific associations. ' ' '* After the passage of this statute Am. Dec. 263; Hansford v. National Bank of Tifton, 10 Ga. App. 270, 73 S. E. 405. See § 175, infra. 31 See § 176, infra. 32 Rogers V. Burlington, 3 Wall. (U. S.) 654, 18 L. Ed. 79; Church of Jesus Christ V. United States, 136 U. S. 3, 34 L. Ed. 478, aff'g 5 Utah 361, 15 Pae. 473; Wells, Fargo & Co. v. North- ern Pae. By. Co., 23 Fed. 469; Colo- rado Springs Co. v. American Pub. Co., 97 Fed. 843; Cowell v. Colorado Springs Co., 3 Colo. 82, afe'd 100 U. S. 55, 25 L. Ed. 547; Vance v. Farmers' & Mechanics' Bank, 1 Blackf. (Ind.) 80; Bank of Vincennes v. State, 1 Blackf. (Ind.) 267; Eiddick v. Amelin, 1 Mo. 5; Douglas v. Bank of Missouri, 1 Mo. 24; Williams v. Bank of Michi- gan, 7 Wend. (N. Y.) 539. See § 176, infra. 33 U. S. Eev. St. §1889; 7 Fed. St. Ann., p. 262. See Church of Jesus Christ V. United States, 136 U. S. 3, 34 L. Ed. 478, aff'g 5 Utah 361, 15 Pae. 473; Vincennes University v. In- diana, 14 How. (U. 8.) 268, 14 L. Ed. 416; Colorado Springs Co. v. American Pub. Co., 97 Fed. 843; Wells, Fargo & Co. V. Northern Pae. By. Co., 23 Fed. 469; Bashford-Burmister Co. v. Agua Fria Copper Co., 4 Ariz. 203, 35 Pae. 983. It will be noted that this act, like the constitutions of most of the states, expressly prohibits the creation of cor- porations by special act, and requires their formation under general laws. See § 228, infra. A doubt having arisen whether some of the then territories of the United States, including the territory of Colo- rado, which had passed laws authoriz- ing the formation of corporations to engage in various kinds of business other than mining, manufacturing, and similar industrial pursuits, had not by so doing exceeded the authority con- ferred upon them by congress by U. S. Eev. St. § 1889, 7 Fed. St. Ann., p. 262, allowing the territories to cre- ate, by general laws, corporations for mining, manufacturing, or other industrial pursuits, congress by an act passed on June 10, 1872 (17 Stat. 390), in broad terms ratified and confirmed all territorial laws thereto- 173 §113] Pbivate Cobpoeations [Ch.4 the territorial legislatures of the respective territories enacted gen- fore enacted which authorized the for- mation of corporations for colonization purposes and the improvement of lands in connection therewith, or which au- thorized the formation of corporations for any rightful purpose connected with the Constitution of the United States. It was held in Colorado Springs Co. v. American Pub. Co., 97 Fed. 843, that, in view of such act of congress, a Colorado statute adopted and in full force prior to June 10, 1870, and authorizing the formation of cor- porations "for the purpose of carry- ing on any kind of manufacturing, mining, mechanical or chemical busi- ness, construct wagon loads, railroads, telegraph lines, dig ditches, build flumes, run tunnels, or carry on any branch of business designed to aid in the industrial or productive interests of the country," or "for the purpose of aiding, encouraging and inducing immigration to this territory," and providing that such corporations when organized according to the provisions of the act "may purchase, acquire, hold, possess, sell, convey, and dis- pose of lands, town lots and other prop- erty, whether real, personal or mixed, ' ' could not be successfully challenged on the ground that those acts were in ex- cess of the power conferred on the ter- ritorial government by congress. The Organic Act for the territory of Alaska provides that the territorial legislature might, by general act, per- mit persons to associate themselves to- gether as bodies corporate for certain specified purposes, but only permits organization of corporations whose chief business shall be in the territory of Alaska. See Compiled Laws of the Territory of Alaska, 1913, § 416. By the Uniform Business Corpora- tion Act of Alaska, Laws 1913, c. 58, § 1, it is provided that three or more natural persons of full age, two- thirds of whom are bona fide residents of the territory of Alaska may form a corporation for any lawful business, purpose or purposes, whose chief busi- ness shall be in Alaska, except for the purpose of banking, insurance, broker- age, or loan, trust and guaranty associations. Section 33 of such act provides: "The words 'any lawful business, purpose or purposes ' shall be held and construed to include all the purposes enumerated in § 9 of the Act of Congress, entitled 'An act to create a legislative assembly in the territory of Alaska, to confer legislative powers therein, ' approved August 12, 1912, ex- cept, however, as otherwise provided in this act, and provided further, the au- thority to form corporations under this act, shall not extend to and include such corporations as may be formed under the provisions of the act of the legislature of the territory of Alaska, entitled 'An act to provide for the incorporation of colleges, seminaries, churches, libraries, or any other be- nevolent, fraternal, social, religious, educational, charitable, or scientific as- sociation, whose chief business shall be in the territory of Alaska,' approved April 21, 1913." The Organic Act for the territory of Hawaii provides that the territorial legislature may by general act permit persons to associate themselves to- gether as bodies corporate, for manufacturing, agricultural and other industrial pursuits. Organic Act, ter- ritory of Hawaii, approved April 30, 1900, 31 U. S. Stat, at L., c. 339, § 55. Rev. Laws of Hawaii, 1905, § 2535, au- thorize the formation of corporations for the purpose of carrying on any business or undertaking, either mer- cantile, agricultural or manufacturing, or buying, selling, leasing or otherwise dealing in real estate and buildings and other structures, whether used or 174 Ch.4] Objects foe Which Created [§113 eral incorporation acts providing for the formation of corporations for the purposes authorized by such act of congress.^* As has been stated elsewhere, since the Constitution of the United States gives congress general exclusive jurisdiction over the District of Columbia, it has the power to create a corporation for any purpose therein whatsoever, provided it violates no provision of the Federal Constitution.** intended to be used as shops, stores, warehouses, offices, boarding and lodg- ing houses, hotels, or otherwise, for which individuals may lawfully asso- ciate themselves (excepting banking and professional business). See United States V. Haleakala Eanch Co., 3 Hawaii Fed. Eep. 299. The act providing for the formation of corporations in the Philippine Is- lands was enacted by the Philippine Commission, by authority of the United States, March 1, 1906, in effect from April 1, 1906, being Act No. 1459. Under such act corporations may be created for any lawful purpose. See Philippine Corporation Act, 1906, § 6. The Corporation Act of 1911 of Porto Eico, § 2, provides that the object or objects of corporations or- ganized under such act may be: 1. The establishment of mercantile or indus- trial enterprises, which shall be ope- rated and developed under all forms and within all licit combinations which human intelligence and activity may suggest or permit, without any other limitation than those imposed by the statutes of the United States and the laws of Porto Eico. 2. The establish- ment of building enterprises for the construction of public and private buildings. Section 6 of such act, as amended by Laws Porto Eieo, 1912, Act No. 41, provides that three or more persons of full legal capacity may or- ganize a corporation for any lawful purpose or purposes. 34 See Vincennes University v. Indi- ana, 14 How. (U. S.) 268, 14 L. Ed. 416; Central Trust Co. v. Warren, 121 Fed. 323; Colorado Springs Co. v. American Pub. Co., 97 Fed. 843; Bash- ford-Burmister Co. v. Agua Fria Copper Co., 4 Ariz. 203, 35 Pac. 983; Carver Mercantile Co. v. Hulme, 7 Mont. 566, 19 Pac. 213. See also Wells, Fargo & Co. v. Northern Pac. Ey. Co., 23 Fed. 469. See § 177, infra. 36 See § 177, infra. United States. See Stoutenburgh v. Hennick, 129 U. S. 141, 32 L. Ed. 637; Close v. Glenwood Cemetery, 107 U. 8. 466, 27 L. Ed. 408; Huntington v. Na- tional Sav. Bank of District of Colum- bia, 96 U. S. 388, 24 L. Ed. 777. Indiana. See Daly v. National Life Ins. Co. of United States, 64 Ind. 1. Mississippi. See Williams v. Cres- well, 51 Miss. 817. North Carolina.' See Layden v. En- dowment Eank K. P. of the World, 128 N. C. 456, 39 S. E. 47. Tennessee. See Hadley v. Freed- man 's Savings & Trust Co., 2 Tenu. Ch. 122. Section 605 of the Code of Laws for the District of Columbia passed by congress, and approved March 3, 1901, provides that any three or more per- sons may form a corporation for the purpose of carrying on any enterprise or business which may be lawfully conducted by an individual, excepting banks of circulation or discount, rail- roads, and such other enterprise or business as may be otherwise specially provided for in such code. Such sec- tion, however, contains the following proviso: "That nothing herein shall be held to authorize the organization of corporations to buy, sell, or deal in 175 §114] Private Coepoeations [Ch.4 § 114. Unlawful or injurious purposes. In most of the states, perhaps in all, statutes expressly require that the purpose for which corporations are formed shall be lawful, or that they shall not be "inconsistent with the constitution and laws of the state." Indeed, this would be implied in the absence of any express provision, and it may therefore be laid down as the rule in all the states, that a corporation cannot be organized for a purpose which renders it contrary to the common or statute law of the state, or contrary to public policy.'* The words "any lawful purpose" commonly found in the statutes impose a limitation upon the powers of the corpora- real estate, except corporations to transact the business ordinarily car- ried on by real estate agents or brokers." 36 United States. See United States V. American Tobacco Co., 221 V. S. 106, 55 L. Ed. 663; Standard Oil Co. v. United States, 221 U. S. 1, 55 L. Ed. 619, 34 L. E. A. (N. S.) 834, Ann. Gas. 1912 D 734; Oregon Ey. & Nav. Co. v. Oregonian E. Co., 130 U. S. 1, 32 L. Ed. 837; United States v. Northern Securi- ties Co., 120 Fed. 721, afC'd 193 U. S. 197, 48 L. Ed. 679. Alabama. "State v. Citizens' Light & Power Co., 172 Ala. 232, 55.So. 193. Illinois. Dunbar v. American Tele- phone & Telegraph Co., 224 111. 9, 115 Am. St. Eep. 132, 8 Ann. Cas. 57, 79 N. E. 423; Harding v. American Glu- cose Co., 182 111. 551, 64 L. R. A. 738, 74 Am. St. Eep. 189, 55 N. E. 577, writ of error dismissed 187 U. S. 651, 47 L. Ed. 349; Bishop v. American Pre- servers' Co., 157 111. 284, 48 Am. St. Eep. 317, 41 N. B. 765, rev'g 51 111. App. 417; Distilling & Cattle Feeding Co. V. People, 156 111. 448, 47 Am. St. Eep. 200, 41 N. E. 188; People v. Chi- cago Gas Trust Co., 130 111. 268, 8 L. E. A. 497, 17 Am. St. Eep. 319, 22 N. E. 798; Lincoln Park Chapter No. 177, Eoyal Arch Masons v. Swateck, 105 111. App. 604, aff'd 204 111. 228, 68 N. E. 429; Martin v. Ohio Stove Co., 78 111. App. 105. Louisiana. State v. Michel, 113 La. 4, 36 So. 869; State v. New Orleans Debenture Eedemption Co., 51 La. Ann. 1827, 26 So. 586, affirmed on fed- eral questions in New Orleans De- benture Eedemption, Co. v. Louisiana, 180 U. S. 320, 45 L. Ed. 550. Maine. Franklin Co. v. Lewiston Inst, for Savings, 68 Me. 43, 28 Am. Eep. 9. Michigan. Eichardson v. Buhl, 77 Mich. 632, 6 L. E. A. 457, 43 N. W. 1102; Detroit Sehuetzen Bund v. De- troit Agitations Verein, 44 Mich. 313, 38 Am. Eep. 270, 6 N. "W. 675. Nebraska. State v. Nebraska Dis- tilling Co., 29 Neb. 700, 46 N. W. 155. New Jersey. Dittman v. Distilling Co. of America, 64 N. J. Eq. 537, 54 Atl. 570; Ellerman v. Chicago Junction Eys. & Union Stock Yards Co., 49 N. J. Eq. 217. New York. See People v. North Eiver Sugar Eefining Co., 121 N. Y. 582, 9 L. E. A. 33, 18 Am. St. Eep. 843, 24 N. E. 834; In re Agudath Hakehi- loth, 18 Misc. 717, 42 N. Y. Supp. 985; Claneey v. Onandaga Fine Salt Mfg. Co., 62 Barb. 395. Ohio. First Nat. Bank of Chicago V. Trebein Co., 59 Ohio St. 316, 52 N. E. 834; State v. Standard Oil Co., 49 Ohio St. 137, 15 L. E. A. 145, 34 Am. St. Eep. 541. Oklahoma. Myatt v. Ponca City Land & Improvement Co., 14 Okla. 189, 68 L. E. A. 810, 78 Pac. 185. Pennsylvania. In re First Church of Christ, Scientist, 205 Pa. 543, 63 L. E. A. 411, 97 Am. St. Eep. 753, 55 Atl. 176 Ch.4] Objects for , Which Cheated [§114 tion enumerated in its articles of incorporation, however broad such powers may be, and in effect prohibit their exercise in such a way as to violate the statutes of the United States or -of any state, in which 536; In re Duquesne College, 2 Pa. Dist. 555, 12 Pa. Co. Ct. 491; In re Helping Hand Marriage Ass'n, 15 Pliila. 644; In re Mutual Aid Ass'n, 15 Phila. 625; In re Mulholland Ben. So- ciety, 10 Phila. 19. South CaroUna. Chicora Exporting & Importing Co. of South Carolina v. Crews, 6 S. C. 243. Tennessee. McGrew v. City Pro- duce Exchange, 85 Tenn. 572, 4 Am. St. Eep. 771, 4 S. "W. 38. Texas. Taylor Feed Pen Co. v. Tay- lor Nat. Bank, — Tex. Civ. App. — , 177 S. W. 176; Empire Mills v. Alston Grocery Co., 4 Wilson Civ. Cas. Ct. App. § 221, 12 L. E. A. 366, 15 S. W. 200, 505. Utall. American Fork City v. Char- lier, 43 Utah 231, 134 Pac. 739. Wisconsin. State v. International Inv. Co., 88 Wis. 512, 43 Am. St. Eep. 920, 60 N. W. 796. Where the statute authorizing the formation of corporations provides that they. may be formed for the trans- action of any lawful business, a char- ter of incorporation may be granted to an association of persons to conduct any business that an individual may lawfully conduct under the laws of the state, but a corporation cannot be formed to conduct a business which an individual may not lawfully conduct under existing laws. Hanger v. Com., 107 Va. 872, 14 L. E. A. (N. S.) 683, 60 S. E. 677. In Pennsylvania it is expressly provided by statute that the pur- pose for which a corporation is formed shall not be unlawful or injuri- ous to the community, and under this statute it has been held that an appli- cation for a charter of incorporation should be denied, if the purpose of the proposed corporation is uncertain or doubtful, or if it may be perverted to improper or unworthy purposes, in- jurious to morals or to the public wel- fare. In re First Church of Christ, Scientist, 205 Pa. 543, 63 L. E. A. 411, 97 Am. St. Eep. 753, 55 Atl. 536; In re Junior Order United American Me- chanics, 10 Pa. Dist. 5; In re Deutsch- Americanisher Volksfest-Verein, 9 Pa. Dist. 753, rev'd 200 Pa. 143, 49 Atl. 949; In re Master Granite Blue Stone Cutters' Ass'n, 9 Pa. Dist. 357; In re Lodge Duch Nove Doby, 3 Pa. Dist. 215; Lehigh Valley Coal Co. v. United States Pipe Line Co., 3 Pa. Dist. 70 ; In re Duquesne College, 2 Pa. Dist. 555, 12 Pa. Co. Ct. 491; Wagner v. Cocoran, 2 Pa. Dist. 440; In re Germania San- gerbund, 2 Pa. Dist. 73, 12 Pa. Co. Ct. 89; In re Chinese Club, 1 Pa. Dist. 84; In re American Electropathie Insti- tute, 14 Phila. (Pa.) 128; In re Enter- prise Mut. Beneficial Ass'n, 10 Phila. (Pa.) 380; In re Burger's Military Band Ass'n, 19 Pa. Co. Ct. 651; In re Keystone Laundry Co., 18 Pa. Co. Ct. 444; In re Eussian-Amerioau-Guards Charter, 13 Pa. Co. Ct. 148; In re Nether Providence Ass'n, 12 Pa. Co. Ct. 666; In re Bohemian-Slavo- nian Ben. Society, 12 Pa. Co. Gt. 552; In re Ton-a-lu-ka-Club, 12 Pa. Co. Ct. 26; In re Seneca Bridge Co., 11 Pa. Co. Ct. 337; In re Jaokso- nian Club, 11 Pa. Co. Ct. 19; In re New- ton Hamilton Oil & Gas Co., 10 Pa. Co. Ct. 452; In re Eiohmond Eetail Coal Co. of Philadelphia, 9 Pa. Co. Ct. 172; In re Mechanical Business Cases, 9 Pa. Co. Ct. 1; In re Central Demo- cratic Ass 'n of Philadelphia, 8 Pa. Co. Ct. 392; In re Solebury Mut. Protective Society, 3 Pa. Co. Ct. 637; In re Monroe Eepublican Club, 28 Pittsb. Leg. J. N. S. (Pa.) 52. I Priv. Corp.— 12 177 §114] Private Coepokations [Ch.4 the corporation may do business.''' Nor is the term "unlawful," in this connection "used exclusively in the sense of malum in se, or malum prohibitum. It is also used to designate powers which cor- porations are not authorized to exercise, or contracts which they are not authorized to make, or acts which they are not authorized to do; or, in other words, such acts, powers and contracts as are ultra vires."'* "A corporation cannot be said to be illegal, unless it is shown that the end it obviously has in view is illegal or the means whereby it proposes to attain that end is illegal. * # * jf either of these conditions is manifest, the corporation is illegal ; but the fact that such a corporation may be used for illegal purposes, or could be used for such, is not necessarily any proof of its illegal- ity."'^ If on its face it is organized for objects which are not necessarily of an illegal nature, it must be presumed "that they were within the legitimate class of objects for which corporations may be formed."** Whether the business which la corporation is organized to carry on is a lawful one is a question of local law, 37 TJnited States v. Northern Securi- ties Co., 120 Fed. 721, aff'd 193 U. S. 197, 48 L. Ed. 679. See also Coler v. Taeoma Bailway & Power Co., 65 N. J. Eq. 347, 103 Am. St. Rep. 786, 54 Atl. 418, and Dittman v. Distilling Co. of America, 64 N. J. Eq. 537, 54 Atl. 570. In considering the meaning of the words "for any lawful purpose," in a statute providing that any three or more persons may avail themselves of the provisions of the act and ' ' become a corporation for any lawful purpose, ' ' Thayer, J., in United States v. North- ern Securities Co., 120 Fed. 721, aff'd 193 U. S. 197, 48 L. Ed. 679, said: "This language is not merely per- functory. It means, obviously, that, whatever powers the incorporators saw fit to assume, they must hold and ex- ercise for the accomplishment of law- ful objects. The words in question operate, therefore, as a limitation upon all the powers enumerated in the arti- cles of association which were filed by the promoters of the Securities Com- pany, so that, however extensive and comprehensive these powers may seem to be, the state of New Jersey has said, 'Tou shall not exercise them so as to set at defiance any statute lawfully enacted by the Congress of the TJnited States, or any statute lawfully enacted by any state wherein you see fit to ex- ercise your powers.' " 38 People V. Chicago Gas Trust Co., 130 HI. 268, 8 L. R. A. 497, 17 Am. St. Hep. 319, 22 N. E. 798, citing Oregon Ry. & Navigation Co. v. Oregonian Ey. Co., 130 U. S. 1, 32 L. Ed. 837, and Franklin Co. v. Lewiston Inst, for Sav- ings, 68 Me. 43, 28 Am. Rep. 9. See also State v. Nebraska Distilling Co., 29 Neb. 700, 46 N. W. 155. 39 New York Motion Picture Co. v. Universal Film Mfg. Co., 77 N. Y. Misc. 581, 137 N. Y. Supp. 278. 40 United States Vinegar Co. v. Foeh- renbach, 148 N. Y. 58, 42 N. E. 403, aff'g 74 Hun (N. Y.) 435, 26 N. Y. Supp. 632. Where the purpose as expressed in the charter is lawful, it devolves on the state, in quo warranto proceedings to forfeit the charter, to show that it was procured with an unlawful intent. State V. Shippers' Compress & Ware- house Co., 95 Tex. 603, 69 S. W. 58. 178 Ch.4] Objects foe Which Cheated [§114 and the decision of a state court that it is not, rendered in quo warranto proceedings by the state to annul its charter, is not review- able by the Federal Supreme Court.** In some jurisdictions a, corporation organized for the purpose of holding stock in other cor- porations, or organized by existing corporations which are to hold its stock, is regarded as formed for an unlawful purpose.*^ It has been held in a number of cases that a corporation is con- trary to public policy, and therefore illegal, where its purpose is to unduly to prevent competition and create a monopoly.*' "Whatever tends to prevent competition between those engaged in 41 New Orleans Debenture Redemp- tion Co. V. Louisiana, 180 U. 8. 320, 45 L. Ed. 550, aff'g State v. New Or- leans Debenture Redemption Co., 51 La. Ann. 1827, 26 So. 587. 42 See §129, infra. 43 United States. De La Vergne Re- frigerating Mach. Co. V. German Sav. Inst., 175 U. S. 40, 44 L. Ed. 66; Cali- fornia Bank v. Kennedy, 167 tJ. S. 362, 42 L. Ed. 198; Burrows v. Interborough Metropolitan Co., 156 Fed. 389; Bige- low V. Calumet & Heola Mining Co., 155 Fed. 869; Anglo-American Land Mortgage & Agency Co. v. Lombard, 132 Fed. 721; Langdon v. Branch, 37 Fed. 449, 2 L. R. A. 120. Georgia. See Trust Co. of Georgia V. State, 109 Ga. 736, 48 L. R. A. 520, 35 S. E. 323. Illinois, Dunbar v. American Tele- phone & Telegraph Co., 224 111. 9, 115 Am. St. Rep. 132, 8 Ann. Cas. 57, 79 N. E. 423; Distilling & Cattle Feeding Co. V. People, 156 111. 448, 47 Am. St. Rep. 200, 41 N. E. 188; People v. Chi- cago Gas Trust Co., 130 111. 268, 8 L. R. A. 497, 17 Am. St. Rep. 319, 22 N. E. 798. See also Harding v. American Glucose Co., 182 111. 551, 64 L. R. A. 738, 74 Am. St. Rep. 189, 55 N. E. 577, writ of error dismissed 187 IT. S. 651, 47 L. Ed. 349; Bishop v. American Preservers' Co., 157 111. 284, 48 Am. St. Rep. 317, 41 N. E. 765, rev'g 51 111. App. 417; Ford v. Chicago Milk Shippers' Ass'n, 155 111. 166, 27 L. R. A. 298, 39 N. E. 651, rev'g 46 111. App. 576. Michigan. Richardson v. Buhl, 77 Mich. 632, 6 L. R. A. 457, 43 N. W. 1102. Mississippi. Southern Elee. Securi- ties Co. V. State, 91 Miss. 195, 124 Am. St. Rep. 638, 44 So. 785. Missouri. State v. Polar Wave Ice & Fuel Co., 259 Mo. 578, 169 S. W. 126; State V. Standard Oil Co., 218 Mo. 1, 116 S. W. 902; National Lead Co. v. S. E. Grote Paint Store Co., 80 Mo. App. 247. See also State v. Standard Oil Co., 194 Mo. 124, 91 S. W. 1062; Finck V. Schneider Granite Co., 187 Mo. 244, 106 Am. St. Rep. 452, 86 S. "W. 213. Montana. See MacGinness v. Boston & Montana Consol. Copper & Silver Min. Co., 29 Mont. 428, 75 Pae. 89. , Nebraska. State v. Standard Oil Co., 61 Neb. 28, 87 Am. St. Rep. 449, 84 N. W. 413; State v. Nebraska Dis- tilling Co., 29 Neb. 700, 46 N. W. 155. New Hampshire. Pearson v. Con- cord Railroad Corporation, 62 N. H. 537, 13 Am. St. Rep. 590. New Jersey. Blkins v. Camden & A. R. Co., 36 N. J. Eq. 5. New York. People v. Milk Exchange, 145 N. Y. 267, 27 L. R. A. 437, 45 Am. St. Rep. 609, 39 N. E. 1062; People V. North River Sugar Refining Co., 121 N. Y. 582, 9 L. R. A. 33, 18 Am. St. Rep. 843, 24 N. E. 834; Clancey v. Onondaga Salt Mfg. Co., 62 Barb. 395. 179 114] Pkivate Coepobations [Ch.4 a public employment or business impressed with a public cliarac- ter is opposed to public policy and, therefore, unlawful. Whatever See also New York Motion Picture Co. V. Universal Kim Mfg. Co., 77 Misc. 581, 137 N. Y. Supp. 278. Ohio. State v. Standard Oil Co., 49 Ohio St. 137, 15 L. E. A. 145, 34 Am. St. Eep. 541, 30 N. E. 279. Oklahoma. Anderson v. Shawnee Compress Co., 17 Okla. 231, 15 L. K. A. (N. S.)' 846, 87 Pac. 315. Pennsylvania. In re Richmond Re- tail Coal Co. of Philadelphia, 9 Pa. Co. Ct. 172. South Carolina. State v. Virginia- Carolina Chemical Co., 71 8. C. 544, 51 S. E. 455. England. Great Eastern Ry Co. v. Turner, L. R. 8 Ch. App. 149. See also chapter on Monopolies and Trusts, infra. In State v. Standard Oil Co., 49 Ohio St. 137, 15 L. R. A. 145, 34 Am. St. Rep. 541, 30 N. E. 279, the Supreme Court of Ohio, in holding void the charter of a corporation organized to secure a monopoly, said: "Its object was to establish a virtual monopoly of the business of prbduciiig petro- leum, and of manufacturing, refining, and dealing in it and all its products, throughout the country, and by which it might not merely control the pro- duction, but the price, at its pleasure. All such associations are contrary to the policy of our state, and void." In Richardson v. Buhl, 77 Mich. 632, 6 L. R. A. 457, 43 N. W. 1102, it was held that a corporation organized for the purpose of controlling the manu- facture and trade of friction matches, and of obtaining a monopoly in the 'business of making matches and stifling competition therein, was organized for an unlawful purpose. Sherwood, C. J., said: "Monopoly in trade or in any kind of busi- ness in this country is odious to our form of government. It is sometimes permitted to aid the government in carrying on a great public enterprise, or public work under government control, in the interest of the public. Its tendency is, how- ever, destructive of free institutions, and repugnant to the instincts of a free people, and contrary to the whole scope and spirit of the Federal Consti- tution, and is not allowed to exist un- der express provision in several of our state constitutions. Indeed, it is doubtful if free government can long exist in a country where such enor- mous amounts of money are allowed to be accumulated in the vaults of cor- porations, to be used at discretion in controlling the property and business of the country against the interest of the public and that of the people, for the personal gain and aggrandize- ment of a few individuals. It is al- ways destructive of individual rights, and of that free competition which is the life of business, and it revives and perpetuates one of the great evils v/hich it was the object of the framers ©f our form of government to eradi- cate and prevent. It is alike destruc- tive to both individual enterprise and individual prosperity, whether con- ferred upon corporations or individ- uals, and therefore public policy is, and ought to be, as well as public sen- timent, against it. All combinations among persons or corporations for the purpose of raising or controlling the prices of merchandise, or any of the necessaries of life, are monop- olies, and are intolerable, and ought to receive the condemnation of all courts. ' ' Where the purpose expressed in the charter is a lawful one, the state must show that it was procured with an in- tent to violate the antitrust law in quo warranto proceedings to forfeit 180 Ch.4] Objects foe Which Cheated [§114 tends to create a monopoly is unlawful as being contrary to public policy.** Where a corporation is organized under a general statute author- izing the 'formation of corporations, a provision in the declaration of its corporate purposes, the necessary effect of which is the creation of a monopoly is void.*® It is also well settled that a corporation tLe charter on that ground. State v. Shippers' Compress & Warehouse Co., 95 Tex. 603, 69 S. W. 58. In United States Vinegar Co. v. Schlegel, 67 Hun (N. T.) 356, 22 N. Y. Supp. 407, aff'd 143 N. T. 537, 38 N. B. 729, it was held that an unlaw- ful purpose did not appear from the charter of a corporation authorizing it to "buy, sell, deal in and handle vinegar," or its prospectus, which stated its purpose to be to buy and sell vinegar with a view to regulating the production, lessening the cost of sell- ing, equalizing the distribution of the surplus in accordance with the de- mands of the various sections of the country, and thereby limiting the cost of reaching the consumer, and bene- fiting both the producer and consum- er. And see United States Vinegar Co. v. Spamer, 67 Hun (N. Y.) 652, 22 N. Y. Supp. 410, aff'd 143 N. Y. 676, 38 N. E. 731; United States Vine- gar Co. V. Foehrenbach, 148 N. Y. 58, 42 N. E. 403, afE'g 74 Hun (N. Y.) 435, 26 N. Y. Supp. 632. For a case in which it was held that whether a corporation was or- ganized for an unlawful purpose (re- straint of competition) was a question for the jury, in an action by the people to dissolve it, see People v. Milk Ex- change, 77 fiun (N. Y.) 436, 29 N. Y. Supp. 259, aff'd 145 N. Y. 267, 27 L. R. A. 437, 45 Am. St. Eep. 609, 39 N. E. 1062, the court of appeals holding that the evidence justified a finding that it was organized for such a pur- pose. 41 People V. Chicago Gas Trust Co., 130 ni. 268, 8 L. B. A. 497, 17 Am. St. Rep. 319, 22 N. E. 798; Richardson v. Buhl, 77 Mich. 632, 6 L. R. A. 457, 43 N. W. 1102; State v. Standard Oil Co., 49 Ohio St. 137, 15 L. R. A. 145, 34 Am. St. Eep. 541, 30 N. E. 279. See also Southern Elec. Securities Co. v. State, 91 Miss. 195, 124 Am. St. Rep. 638, 44 So. 785, where it was held that the or- ganization of a corporation for the purpose of taking over several com- peting electric light corporations in a city was for the purpose of stifling competition and putting the lighting plants in the hands of an illegal monopoly. It is held in Illinois that to create one corporation for the express pur- pose of enabling it to control all the corporations engaged in a certain kind of business, and particularly a busi- ness of a public character, is not only opposed to the public policy of the state, but is in contravention of the spirit, if not the letter, of the consti- tution. People v. Chicago Gas Trust Co., 130 III. 268, 8 L. R. A. 497, 17 Am. St. Rep. 319, 22 N. E. 798. Magruder, J., said: "To create one corporation that it may destroy the energies of all other corporations of a given kind, and suck the life blood out of them, is not a 'lawful purpose.' " It was held in Sayre v. Louisville Union Ben. Ass'n, 1 Duv. (Ky.) 143, 85 Am. Dec. 613, that common carriers may form a corporation for the pur- pose of protecting themselves against undue competition. 45 People V. Chicago Gas Trust Co., 130 111. 268, 8 L. R. A. 497, 17 Am. St. Rep. 319, 22 N. B. 798. Magruder, J., said: " ' Contracts creating monopolies 181 §114] Pkivatb Coepoeations [Ch.4 cannot lawfully be organized for purposes which will violate the federal antitrust act.** A charter granted by a state cannot be used to defeat the will of the national legislature as expressed in a law relating to interstate trade and commerce over which congress has absolute control.*'' Stat- utes providing for the formation of corporations during the civil war for the purpose of aiding the rebellion have been held to be are null and void as being contrary to public policy.' (2 Addison on Cont. 743.) All grants creating monopolies are made void by the common law. (7 Bacon's Abridgment, page 22.) In The case of the Monopolies (Coke's Ke- ports, Vol. 6, part XI, page 84), it was decided as long ago as the fourth year of the reign of Queen Elizabeth, that a 'grant to the plaintiff of the sole making of cards within the realm was utterly void, and that for two reasons: 1. That it is a monopoly and against the common law. 2. That it is against divers acts of parliament, ' etc. (Bell V. Leggett, 7 N. Y. 176; Trist V. Child, 21 Wall. 441.) If contracts and grants whose tendency is to create monopolies are void at common law, then where a corporation is organized under a general statute, a provision in the declaration of its corporate pur- poses, the necessary effect of which is the creation of a monopoly, will also be void." 46 See D. E. Wilder Mfg. Co. v. Corn Products Eefining Co., 236 V. S. 165, 59 L. Ed. 520, Ann. Cas. 1916 A 118, aff'g 11 Ga. App. 588, 75 S. E. 918; United States v. Winslow, 227 V. S. 202, 57 L. Ed. 481, aff'g 195 Fed. 578; United States v. Union Pac. E. Co., 226 U. S. 61, 470, 57 L. Ed. 124, 306; Stand- ard Sanitary Mfg. Co. v. United States, 22G U. S. 20, 57 L. Ed. 107, aff 'g United States V. Standard Sanitary Mfg. Co., 191 Fed. 172; United States v. Ter- minal R. Ass'n, 224 U. S. 383, 56 L. Ed. 810; United States v. American To- bacco Co., 221 U. S. 106, 55 L. Ed. 663; Standard Oil Co. v. United States, 221 U. S. 1, 55 L. Ed. 619, 34 L. E. A. (N. S.) 834, Ann. Cas. 1912 D 734; Con- tinental Wall Paper Co. v. Louis Voight & Sons Co., 212 U. S. 227, 53 L. Ed. 486, aff'g 148 Fed. 939; North- ern Securities Co. v. United States, 193 U. S. 197, 48 L. Ed. 679, aff'g United States v. Northern Securities Co., 120 Fed. 721; United States v. United States Steel Corporation, 223 Fed. 55; United States v. United Shoe Machinery Co., 222 Fed. 349; United States V. Keystone Watch Case Co., 218 Fed. 502; United States v. Inter- national Harvester Co., 214 Fed. 987; Fleitmann v. United Gas Improvement Co., 211 Fed. 103; United States v. Great Lakes Towing Co., 208 Fed. 733, aff'd 217 Fed. 656; Buckeye Powder Co. V. E. I. Du Pont de Nemours Pow- der Co., 196 Fed. 514, aff'd 223 Fed. 881; Bigelow v. Calumet & Hecla Min. Co., 155 Fed. 869. 4V United States v. Northern Secu- rities Co., 120 Fed. 721, aff'd 193 U. S. 197, 48 L. Ed. 679, Thayer, J., saying: ' ' But aside from this view of the sub- ject, if the state of New Jersey had undertaken to invest the incorpora- tors of the Securities Company with the power to do acts in the corporate name which would operate to restrain interstate commerce, and for that rea- son could not be done by them acting as an association of individuals, then we have no doubt that such a grant would have been void under the pro- visions of the anti-trust act, or at least that the charter could not be per- mitted to stand in the way of the en- forcement of that act." 182 Ch. 4] Objects fob Which Created [§114 invalid.*' Thus a corporation created during such period by the legislature of South Carolina for the purpose of exporting produce, and importing munitions for such war at a time when a blockade of the southern ports was in effect, was held to be invalid,** and a similar conclusion was reached in respect to a corporation created by the state of North Carolina during such war, to provide charity for Confederate soldiers.*" But a corporation, though created by a Southern state during the war, will not be held invalid, if the act of incorporation had no relation to anything else than the domestic concerns of the state, and was neither in its apparent purpose, nor in its operation, hostile to the Union or in conflict with the Federal Constituti9n, but was mere ordinary legislation, which would have been valid had there been no attempted secession and war.*^ On grounds of public policy an application by a benevolent society for a charter was denied where its proposed charter provided that members who should enlist in the army or navy should forfeit their membership and all claims on the society,** and an application was also denied for a charter for a marriage association the purpose of which was to pay a member upon his marriage a specified sum raised by an assessment made upon the other members.** And a charter has been denied to a military organization which was not to be con- nected with the national guard.** A corporation cannot be organized for the purpose of conducting a business which is in the nature of a lottery,** nor for the purpose 48 North Carolina Endowment Fund that a North Carolina corporation V. Satchwell, 71 N. C. Ill; Chicora created during the war for purposes Exporting & Importing Co. of South not violative of the State or Federal Carolina v. Crews, 6 S. C. 243. Constitution was valid, notwithstand- 49 Chicora Exporting & Importing ing the charter required the board of Co. of South Carolina v. Crews, 6 S. directors to be "citizens of the Con- C. 243. See, however, Importing & Ex- federate States." porting Co. v. Locke, 50 Ala. 322. 62 In re Mulholland Ben. Society, 10 60 North Carolina Endowment Fund Phila. (Pa.) 19. V. Satchwell, 71 N. C. 111. 63 In re Helping-Hand Marriage 61 United States v. Insurance Com- Ass 'n, 15 Phila. (Pa.) 644. panies, 22 "Wall. (TJ. S.) 99, 22 L. Ed. 64 In re Company D, Irish Volun- 816. teers, 21 Pa. Dist. 913. In a note to Such a corporation is not precluded this case it is stated that a charter from suing in the federal courts, was subsequently granted to a similar United States v. Insurance Companies, company. 22 Wall. (U. S.) 99, 22 L. Ed. 816. See 66 State v. International Inv. Co., 88 Importing & Exporting Co. v. Locke, Wis. 512, 43 Am. St. Rep. 920, 60 N. 50 Ala. 322. See also Sapona Iron Co. W. 796. See State v. United States v. Holt, 64 N. C. 335, where it is held Exp. Co., 95 Minn. 442, 104 N. W. 556, 183 §114] Private Cokpoeations [Ch. 4 of speculating by gambling in grain futures.*^ A corporation can- not lawfully be formed for the purpose of selling liquor without a license,*'' nor can liquor dealers lawfully organize a corporation for the purpose of defending prosecutions for violations of the laws prohibiting and punishing thfe sale of intoxicating liquors, or other- wise opposing such laws.*^ And the charter of a pretended social club will be revoked where it is shown that the purpose of its organ- ization was to secure the privilege of selling tobacco, cigars, and soft drinks on Sunday in violation of law.** In New York approval of a certificate of incorporation was refused where it provided for the holding of the annual meeting of the cor- poration on Sunday, on the ground that the holding of such meet- ings on that day was contrary to public policy.*" A corporation is unlawful where it is formed for the purpose of placing the stock of another corporation on the market at a ffcti- tious increase in price through the medium of exchanging it for the stock of the new company, and thereby evading a constitutional pro- vision against fictitious increases of stock.*^ And the same is tme of a corporation organized for the purpose of giving a deed of trust to secure the debt of another corporation, in violation of the stat- ute.62 Under a statute authorizing the formation of corporations for the prevention and punishment of theft or wilful injuries to property, and insurance against such risks, a charter was refused to a coi'pora- tion organized for the purpose of insuring against theft, but with- out including power to prevent and punish the theft.*^ A statute permitting incorporation for any lawful business has been held not to permit incorporation for the purpose of carrying on the business of stock brokerage on the ground that it would be in 56 MeGrew v. City Produce Ex- the state, and a charter of the offend- change, 85 Tenn. 572, 4 Am. St. Eep. ing so-called social club will be an- 771, 4 S. W. 38. nulled and vacated on quo warranto 57 In re Young Men 's Eepublican proceedings by the state. Hanger v. Club of 28th Ward, 12 Pa. Dist. 584. Com., 107 Va. 872, 14 L. R. A. (N. S.) 58 Detroit Schuetzen Bund v. Detroit 683, 60 S. E. 67. Agitations Verein, 44 Mich. 313, 38 60 In re Agudath Hakehiloth, 18 N. Am. Eep. 270, 6 N. W. 675. Y. Misc. 717, 42 N. Y. Supp. 985. 59 Hanger v. Com., 107 Va. 872, 14 61 State v. Citizens ' Light & Power L. R. A. (N. S.) 683, 60 S. E. 67. Co., 1-72 Ala. 232, 55 So. 193. A statute authorizing the incorpora- 62 Taylor Feed Pen Co. v. Taylor ticn of social clubs does not authorize Nat. Bank, — Tex. Civ. App. — , 177 the incorporation of an association for S. W. 176. the fraudulent purpose of conducting 63 In re Solebury Mut. Protective a business in violation of the laws of Society, 3 Pa. Co. Ct. 637, 184 Ch.4] Objects for Which Ckeated [§114 conflict with statutes regulating and providing for the licensing of 8uch brokers.** Where the constitution and a statute prohibit the incorporation of any church or religious denomination, a charter will not be issued to a missionary society organized for the purpose of promoting religion by aiding in the support of ministers, and in the erpction of houses of worship, and by collecting and disbursing funds for these purposes."* But it has been held that such provisions are not violated or evaded by the incorporation of "The Trustees of the Presbyterian Committee of Publication," having for its object the dissemination of religious truth by means of the printing and circu- lation of books, papers and the like.®® In Pennsylvania *'' an application for a charter by a Christian Science 64 In re W. B. TJrling Co., 13 Pa. Dist. 534. 65 Powell V. Dawson, 45 W. Va. 780, 32 S. E. 214. 66 Wilson V. Perry, 29 W. Va. 169, 1 S. E. 302. A corporation formed for the pur- pose of establishing, conducting and controlling a training school for mis- sionaries and other Christian workers, under the auspices of the board of for- eign missions of a certain religious de- nomination, is a religious corporation within the meaning of a constitutional provision that no religious corporation can be established in the state, except such as may be created under a gen- eral law for the purpose only of hold- ing title to such real estate as may be used for church edifices, parsonages and cemeteries. Proctor v. Methodist Episcopal Church, South, 225 Mo. 51, 123 S. W. 862. Although the maintenance of a com- munistic, religious organization does not harmonize with American forms of thought, and although property is acquired by the corporation, the main- tenance of the organization will not be deemed violative of public policy whBre the property is properly man- aged. State V. Amana Society, 132 Iowa 304, 109 N. W. 894. 67 In re First Church of Christ, Scientist, 205 Pa. 543, 63 L. K. A. 411, 97 Am. St. Kep. 753, 55 Atl. 536, Potter, J., saying: "The common faith of mankind relies, not only upon prayer, but upon the use of means which knowledge and experience have shown to be efficient; and when the results of this knowledge and experience have been crystallized into legislative enact- ments, declarative of what the good of the community requires in the treat- ment of disease, and of the qualifica- tions of those who publicly deal with disease, anything in opposition there- to may fairly be taken as injurious to the community. Our laws recognize disease as a grim reality, to be met and grappled with as such. To se- cure the safety and protect the health of the public from the acts of in- competent persons, the law prescribes the qualifications of those who shall be allowed to attempt the cure or heal- ing of disease. * * * It is only de- signed to secure competent service for those who desire to obtain medical attendance. In certain diseases the individual affected may be the only one to suffer for lack of proper at- tention; but in other types, of a con- tagious or infectious nature, they may be such as to endanger the whole com- munity. And here it is the policy of the law to assume control, and require 185 § 114] Pbivate Coepoeations [Ch. 4 church was refused on the ground that the Christian Science method of healing which the church proposed to practice was opposed to the general policy of the law of the state relative to the existence and treat- ment of disease. An application by an institution proposing to give instruction in respect to electricity and magnetism as curative agents and to confer degrees in medicine, was refused on the ground that it was opposed to the standard requirements for the practice of medicine provided by the statutes on the subject.®* Of course, a corporation cannot be invalid, as contrary to public policy, because of its object, if the acts contemplated are authorized by the laws of the state, although they would be unlawful if not author- ized. Thus, where the laws of a state permit the consolidation of cor- porations, it is not contrary to public policj' to organize a corporation with the ulterior purpose of consolidating with another corporation, although consolidation would be illegal if not authorized.*^ Where the purposes of a corporation as declared in its certificate of incorporation do not imply an illegal object, or one necessarily inconsistent with public policy, as declared by the public law, the fact that afterwards the corporation departed from the purposes of its creation, and entered upon projects which were illegal, does not constitute a defense in an action to recover an unpaid subscription to the capital stock of the corporation.™ A corporation will not be the use of the most effective known Supp. 407, an action by a foreign cor- means to overcome and stamp out dis- poration to recover an unpaid sub- ease, which otherwise would become scription to its capital stock, it was epidemic. In such cases, failure to held to be no defense that the promot- treat, or an attempt to treat by those ers of the corporation deceived the not possessing the lawful qualifica- authorities of the state by which the tions, are equally violative of the corporation was created as to the real policy of the law." purpose in forming the corporation, 68 In re American Electropathic In- and in that way procured them to file stitute, 14 Phila. (Pa.) 128. the necessary papers and take the 68 Hill V. Nisbet, 100 Ind. 341. necessary steps to give the plaintiff a 70 United States Vinegar Co. v. corporate existence, but that the state Foehrenbach, 148 N. Y. 58, 42 N. E. by which the corporation was created 403; United States Vinegar Co. v. must be left to vindicate its own honor Schlegel, 143 N. Y. 537, 38 N. E. 729, and dignity. "If it be true that its aff'g 67 Hun (N. Y.) 356, 22 N. Y. authority has been invoked and its Supp. 407. See also United States laws abased for the purpose of creat- Vinegar Co. v. Spamer, 67 Hun (N. ing and fostering a corporation that Y.) 652, 22 N. Y. Supp. 410, aff'd 143 is detrimental to public interests, it N. Y. 676, 38 N. E. 731. has ample power at any time to pro- In United States Vinegar Co. v. ceed against it, and decree its disso- Schlegel, 143 N. Y. 537, 38 N. E. 729, lution. But so long as the plaintiff aff'g 67 Hun (N. Y.) 356, 22 N. Y. exists, and is recognized by the courts 186 Ch.4] Objects fob Which Cheated [§114 held to have been organized for an unlawful purpose merely because the business it proposes to undertake will not be financially suc- cessful, and it may be unable to repay the money invested in its bonds.'^ But the charter of a debenture company has been aainulled in Louisiana on the ground that its plan of operations was not feasible.'* and authorities of that state, it is en- titled to the same recognition here, unless it appears that it was formed for purposes' illegal here, or was doing acts prohibited by the laws of this state to its own citizens and corpora- tions. Demarest v. Flack, 128 N. Y. 205, 28 N. E. 645. A foreign cor- poration, such as the defendant claims this to be, may be driven from the state by public authority; but it does not follow that for such reason all the contracts that private individuals have made with it, or the obligations that they may have incurred to it or its creditors, are invalidated. The cer- tificate of incorporation filed by the corporators with the secretary of state of Illinois, in March, 1887, declares that the object for which the corpora- tion was formed is to buy, sell, deal in, and handle vinegar. There was certainly nothing illegal in such object, and if the corporation afterwards de- parted from the purpose of its creation, and entered upon projects which were illegal, its misconduct must be cor- rected in some other way than in a suit against the defendant to recover his subscription. That might furnish good grounds for a suit by the people to vacate the charter, but no defense whatever to a stockholder, when sued for his subscription. ' ' See also United States "Vinegar Co. v. Poehrenbach, 148 N. Y. 58, 42 N. E. 403. Nor are the certificate of incorporation and the shares of stock issued void be- cause the corporation was organized in furtherance of a scheme to defraud, where its object, "as declared by its charter, was a lawful one, and it might have been organized for and devoted to a lawful purpose." An- derson V. Chicago Trust & Savings Bank, 195 111. 341, 63 N. E. 203, afE'g 93 111. App. 347. 71 Yokes V. Eaton, 119 Ky. 913, 27 Ky. L. Eep. 358, 85 S. W. 174. In this case the foundation of the business of the corporation was a scheme which would not necessarily enable the cor- poration to repay all parties the amount such parties had invested in the bonds of the corporation. The court said, "To say that this was an unlawful business because it was bot- tomed upon a scheme which would not finance out, would not be to give the words of the statute their ordinary meaning. A majority of the schemes for which corporations are formed, it is said, do not finance out. * * * It is only charged that the defendants represented that the scheme would finance out, when they ought to have known it would not do so. This was a mere matter of opinion, on which the plaintiff could exercise his judgment as well as they. PufSng by sellers is universal, and every one buys knowing that he must exercise his own judg- ment on matters of opinion expressed by the seller." 72 State V. Debenture Guarantee & Loan Co., 51 La. Ann. 1874, 26 So. 600; State v. New Orleans Debenture Eedemption Co., 51 La. Ann. 1827, 26 So. 586, afiirmed on federal questions in New Orleans Debenture Redemp- tion Co. V. Louisiana, 180 TJ. g. 320, 45 L. Ed. 550; State v. Louisiana Debenture Co., 51 La. Ann. 1795, 26 So. 592. 187 §114] Private Cobpoeations [Ch.4 Where the purpose for which the corporation is formed is not a lawful purpose, then the attempted act of incorporating is void,'^ and no corporation will be created.'* While in contemplation of law, a corporation is a legal entity, an ideal person, separate from the real persons who compose it, this fiction, however, is limited to the uses and purposes for which it was adopted, — convenience in the transaction of business and in suing and being sued in its corporate name, and the continuance of its rights and liabilities, unaffected by changes in its corporate members. But the fiction cannot be abused, and a corporation cannot be formed for the purpose of accomplishing a fraud or other illegal act under the disguise of the fiction.'* Thus where an incorporation had been formed for the purpose of giving effect to an illegal agreement between it and a railroad company for a discrimination in freights between it and the other shippers, the fiction was disregarded, and a recovery allowed against the promoters by one who had been thus discriminated against, in like manner as if the corporation had no existence." 73 People V. Chicago Gas Trust Co., 130 111. 268, 8 L. E. A. 497, 17 Am. St. Eep. 319, 22 N. E. 798. 74 In re Agudath Hakehiloth, 18 N. Y. Mise. 717, 42 N. Y. Supp. 985; In re Duquesne College, 2 Pa. Dist. 555, 12 Pa. Co. Ct. 491. 75 First Nat. Bank of Chicago v. Trebein Co., 59 Ohio St. 316, 52 N. E. 834. See also United States v. Mil- waukee Refrigerator Transit Co., 142 Fed. 247; Donovan v. Purtell, 216 111. 629, 1 L. R. A. (N. S.) 176, 75 N. E. 334; People v. North River Sugar Re- fining Co., 121 N. Y. 582, 9 L. R. A. 33, 18 Am. St. Rep. 843, 24 N. E. 834; State V. Standard Oil Co., 49 Ohio St. 137, 15 L. R. A. 145, 34 Am. St. Rep. 541, 30 N. E. 279. See §§ 42-46, supra. In a suit brought against the in- corporators of a corporation chartered ostensibly for the purpose of buying and selling futures in grain and other commodities, it is no defense that the corporation, having been chartered for an apparently legal purpose, the in- corporators could not be held individ- ually liable for illegal acts of its managers or ofEcera, where it appears that the incorporation was but a cloak used to cover the illegal acts of gam- bling and wagering on the rise and fall of prices of the articles pretended to be bought and sold, which was con- templated in the organization of the corporation, and done as a business after such organization. McGrew v. City Produce Exchange, 85 Tenn. 572, 4 Am. St. Rep. 771, 4 S. W. 38. 76 First Nat. Bank of Chicago v. Trebein Co., 59 Ohio St. 816, 52 N. E. 834, quoted with approval in Donovan V. Purtell, 216 111. 629, 1 L. E. A. (N. S.) 176, 75 N. E. 334, aff'g 119 111. App. 116; Brundred v. Riee, 49 Ohio St. 640, 34 Am. St. Rep. 589, 32 N. E. 169. See § 46, supra. Where it is made to appear that a corporation is formed for the purpose of accomplishing a fraud or other il- legal act, the fiction will be disregarded by the courts, and the acts of the parties dealt with as though no such corporation had been formed, on the ground that fraud vitiates everything into which it enters, including the most 188 Ch. 4] Objects fob Which Created [§ 115 The organization of a corporation is not in fraud of creditors ■where there is no effort or purpose shown by the evidence to simu- late a compliance with the law or to create a fictitious or deceptive corporation for any fraudulent or dishonest purpose.''' Where a statute permits incorporation for any lawful business or purpose whatsoever, it is held that while the law gives all neces- sary powers to a corporation organized thereunder, it does not recognize, as embracing therein, power to do those things which would deprive the corporation of its ability to carry out the objects for which it was formed, or discharge any duties which it might under its charter owe to the public or which are contrary to the policy of the law.'" § 115. Attempt to incorporate under inapplicable statute. Where corporations for a particular purpose are required to incorporate under a particular act, such a corporation cannot be formed under a general statute though the latter is in itself broad enough for that purpose,'" as, for example, under a general provision authorizing incorporation for any purpose for which individuals might lawfully associate themselves.*" It seems that where the legislature has passed separate acts providing for the organization of certain classes of cor- porations (especially those owing duties end responsibilities to the public) under conditions inconsistent vnth or different from those prescribed by the general corporation act, the effect is to impliedly prohibit the organization of corporations of these classes under the lat- solemn acts of men. First Nat. Bank 400, 39 Atl. 705; Domestic Tel. Co. v. of Chicago v. Trebein Co., 59 Ohio St. City of Newark, 49 N. J. L. 344, 8 Atl. 316, 52 N. E. 834; Brundred v. Eice, 128; State v. Nichols, 40 Wash. 437, 49 Ohio St. 640, 34 Am. St. Eep. 541, 82 Pac. 741. 32 N. E. 169; State v. Standard Oil Co., Where a general act for the inoor- 49 Ohio St. 137, 15 L. B. A. 145, 30 poration of gas companies provides N. B. 279. that no rival corporation can be organ- 77 Foster v. Staar, 148 III. App. 485, ized unless by special charter, such afC'd 243 111. 163, 90 N. E. 375. provision cannot be evaded by incor- 78 Ellerman v. Chicago Junct. Eys. porating under the general act con- Co. & Union Stock Yards Co., 49 N. cerning corporations. Eichards v. J. Eq. 217, 23 Atl 287, citing Oregon City of Dover, 61 N. J. L. 400, 36 Atl. Ey. & Nav. Co. v. Oregonian E. Co., 705. 130 U. S. 1, 32 L. Ed. 837. 80 Eichards v. City of Dover, 61 N. T9 Workingmen 's Accommodation J. L. 400, 39 Atl. 705; State v. Taylor, Bank v. Converse, 29 La. Ann. 369; 55 Ohio St. 61, 44 N. E. 513; State v. Military Academy v. State Board of Pioneer Live Stock Co., 38 Ohio St. Assessors, 65 N. J. L. 516, 47 Atl. 558; 347. Eichards v. City of Dover, 61 N. J. L. 189 §115] Peivate Cobpobations [Ch.4 ter act, although there be no express prohibition in terms.^^ Of course a corporation cannot be formed to engage in a particular business under a statute which expressly excepts that business from the category of classes of business for which incorporation may be granted.** But such a provision does not imply that corporations for the excepted purposes may not be formed under other acts.*' Where the purposes of a corporation set forth in its articles of association or certificate of incorporation are such as to bring it within the class of corporations covered by a particular statute, it is within 81 See opinion of Chancellor Pitney under such statute, and the general in State v. Atlantic City & S. E. Co., 77 N. J. ti. 465, 72 Atl. Ill, in which were cited Domestic Telegraph Co. v. Newark, 49 N. J. L. 344, 8 Atl. 128; Eiohards v. Dover, 61 N. J. L. 400, 39 Atl. 705; Montclair Military Academy V. Assessors, 65 N. J. L. 516, 47 Atl. 558; Fogg v. Ocean City, 74 N. J. L. 362, 65 Atl. 886; Knickerbocker Im- portation Co. V. Board of Assessors, 74 N. J. L. 583, 9 L. R. A. (N. S.) 885, 65 Atl. 913. The court added: "So far as observed, this doctrine has not heretofore been directly in question in this court, and we do not at present propose to pass upon its soundness, or its precise limitation if sound." And see State v. Taylor, 55 Ohio St. 61, 44 N. E. 513; State v. Pioneer Live Stock Co., 38 Ohio St. 347. See also Domestic Tel. Co. v. City of Newark, 49 N. J. L. 344, 8 Atl. 128, where it was said that the passage of an act pro- viding for the organization of tele- graph and telephone companies, in modes and under conditions quite in- consistent with those prescribed by the general incorporation act, seemed to be a strong legislative declaration that such companies could not be organ- ized so as to acquire a corporate exist- ence under the latter act. Where a statute providing for the incorporation of trust companies de- clares that no corporation shall be or- ganized for the purpose of carrying on a trust company business, except incorporation act of the state author- izes the formation of corporations for manufacturing, mining, milling, wharf- ing and docking, mechanical, banking, mercantile, improvement and building purposes, or for the building and equip- ping and managing water flumes for the transportation of wood or lumber, or for the purpose of building, equip- ping and running railroads, or con- structing canals or irrigation canals, or engaging in any other species of trade or of business, it is held that a corpora- tion cannot be organized under the general incorporation . act where the powers and purposes of the proposed corporation as defined by its articles of incorporation, are substantially con- fined to a trust business, although the language used in the articles does not follow the language of and include all the items and powers named in the trust cojnpany act. State v. Nichols, 40 Wash. 437, 82 Pac. 741. 88 Dancy v. Clark, 24 App. Cas. (D. C.) 487; People v. Eose, 174 111. 310, 44 L. R. A. 124, 51 N. E. 246; Golden Rule V. People, 118 111. 492, 9 N. E. 342; Stevens v. Pratt, 101 111. 206, overruling United States Mortgage Co. v. Gross, 93 111. 483, afE'd 108 U. S. 477, 27 L. Ed. 295. See also § 112, supra. 83 Stevens v. Pratt, 101 HI. 206, over- ruling United States Mortgage Co. v. Gross, 93 111. 483, afC'd 108 U. S. 477, 27 L. Ed. 295. 190 Ch. 4] Objects for Which Cbeated [§115 such class, although the articles or certificate may recite that it was organized under a statute authorizing the formation of a different class of corporations.'* Thus, in a Minnesota case, a corporation which was formed, as stated in its articles of association, to carry on a manu- facturing or mechanical business, and also to purchase the stock and evidences of indebtedness of an insolvent corporation, was held to be a valid corporation under a statute authorizing the formation of corporations for the purpose of carrying on any lawful business, although the articles of association recited that the corporation was formed under a different statute, under which no corporation could be organized except for an exclusively manufacturing or mechanical business.** And in Louisiana it has been held that where the incorpo- ration might have been effected under either one of two acts, and all the conditions prescribed by one of them have been complied with, it will be deemed to have been effected under it, even though the inten- tion was to incorporate under the other one.** Of course this can only apply where all the mandatory provisions of the statute under which it is sought to sustain the corporation have been complied with.*'' Nor is the fact that there is a statute under which a corpora- tion might have been organized for the purposes in question material where there was no attempt to comply with its provisions or to become incorporated under it.** In determining whether a corporation was organized under a title of the statute authorizing the incorporation of railways, with the 84 Minneapolis & St. P. S. Ey. Co. v. L. E. A. 510, 41 N. W. 1020." Min- Manitou Forest Syndicate, 101 Minn. neapolis & St. P. Suburban Ey. Co. v. 132, 112 N. W 13; International Boom Manitou Forest Syndicate, 101 Minn. Co. V. Eainy Lake Eiver Boom Cor- 132, 112 N. "W. 13. See also Hemmje poration, 97 Minn. 518, 107 N. W. 735; v. Meinen, 20 N. Y. Supp. 619. State V. Minnesota Thresher Mfg. Co., 85 State v. Minnesota Thresher Mfg. 40 Minn. 213, 3 L. E. A. 510, 41 N. W. Co., 40 Minn. 213, 3 L. E. A. 510, 41 1020;.McComb v. Belknap, 30 Abb. N. N. W. 1020. Cas. (N. Y.) 119. 86Dilzell Engineering & Construc- " In International Boom Co. V. Eainy tion Co. v. Lehmann, 120 La. 273, 45 Lake Eiver Boom Corporation, 97 So. 138. Minn. 513, 107 N. W. 735, it was held 87 See §§ 290-301, infra. that a corporation cannot be made 88 Clark v. American Cannel Coal merely by being labeled as such, if its Co., 35 Ind. App. 65, 73 N. E. 727; In- declared objects show it to be some- diana Bond Co. v. Ogle, 22 Ind. App. thing else; that the real character of a 593, 72 Am. St. Eep. 326, 54 N. E. 407. corporation must be determined from See also In re Bank of Commerce, 153 those portions of its articles of associa- Ind. 460, 47 L. E. A. 489, 53 N. E. 950; tion expressing the nature and scope Snyder v. Studebaker, 19 Ind. 462, 81 of its business. State v. Minnesota Am. Dee. 415; Harriman v. Southam, Thresher Mfg. Co., 40 Minn. 213, 3 16 Ind. 190. 191 §115] Peivate Coepoeations [Ch.4 right to exercise the power of eminent domain, or was incorporated under another title of such statute authorizing the incorporation of street railways; with no right to exercise such power, it was held that the fact that the organizers denominated the proposed improvement a "street railway" was not controlling, where it conclusively appeared from the articles that it was not the purpose of the corporation to con- struct and operate street, but interurban railways from place to place.®^ It is held that where the articles of incorporation disclose 91 Minneapolis & St. P. Suburban Ey. Co. V. Manitou Forest Syndicate, 101 Minn. 132, 112 N. W. 14. Where one statute authorized the formation of corporations "for the purpose of constructing, putting in operation, equipping, and maintaining a system of waterworks and electric lighting plant and ice plant under one and the same charter," and another statute provided for the incorporation of ' ' water and electric light, heat and water power companies, ' ' and provided for a form of charter setting out in detail the purposes of the corporation, it was held that a corporation, whose charter did not purport to set out its corporate purposes as provided in the latter statute and contained no ref- erence to heating and water power, but on the contrary stated the purpose to be to maintain a system of water- works and electric lighting and ice plants, and in stating its corporate purposes sets out in substantially the words of the act the corporate pur- poses provided for by the former act, was organized as a waterworks, elec- tric lighting and ice company under the former act, and not as a water, electric light, heat and water power company under the latter act, and the fact that there was an attempt to in- sert in the charter certain powers given to water, electric light, heat and water power companies under the lat- ter act obviously could not change the result, as the test is not the powers which the applicants had assumed to take in the charter, but the corporate purpose, that is whether its corporate purposes are those provided for by the former chapter or those provided for by the latter. Etowah Light & Power Co. V. Taney, 197 Fed. 845. It is held in Illinois that a statute providing for the incorporation of companies "for purposes of construct- ing and operating any railroad in this state" does not authorize the forma- tion of a street railway corporation and a commercial corporation. Schlau- der V. Chicago & S. Traction Co., 253 111. 154, 97 N. E. 233; David Bradley Mfg. Co. v. Chicago & 8. Traction Co., 229 HI. 170, 82 N. E. 210; Gillette V. Aurora Eys. Co., 228 111. 261, 81 N. E. 1005; Chicago & S. Traction Co. v. Flaherty, 222 III. 67, 78 N. B. 29. A corporation organized under such act will be considered and treated as a commercial railroad corporation, hav- ing the right to exercise the power of eminent domain, even though its char- ter states that the object of the cor- poration is to construct and operate a street railroad, as the statute under which it is organized rather than the statements in its articles of incorpora- tion as to the objects of its organiza- tion, will control as to its charter powers. David Bradley Mfg. Co. v. Chicago & S. Traction Co., 229 111. 170, 82 N. E. 210. Where the charter of a corporation organized under such act to operate an interurban road states inadvertently that the object of the corporation is to construct and operate a street railroad, the charter may be amended, under 111. Laws 1889, 192 Ch. 4] Objects fob Which Created [§116 that it is attempted to incorporate the corporation under an inappli- cable statute, the secretary of state may refuse to file them when they are presented to him for that purpose, and mandamus will not lie to compel him to do so.^^ § 116. General words in statutes defining objects. In some states, the statutes, after authorizing corporations to be formed for certain enumerated purposes, contain the general words, "or for any other lawful business or purpose," or words to the same effect. In con- struing such statutes, some courts have applied the familiar rule of statutory construction that when specific words are followed by gen- eral words, the latter are to be construed as applying only to things of the same general kind as those specified, and have held that where a statute allows corporations to be formed for certain specified pur- poses, or for any "other" lawful business or purpose, etc., the general words refer to such purposes only as are of the same general character as those specified, and authorize the formation of corporations only for purposes of that character.'* Other courts, in view of the fact that the ejusdem generis rule of statutory construction is only an aid in ascertaining the legislative intent and must yield if a contrary intention otherwise appears', have held that general words in such statutes were not restricted by specific words preceding them, and should be given their ordinary meaning. Under this view where the statute authorizes the formation of corpo- rations for certain specified puiT)oses and for any "other lawful busi- ness," or the like, the formation of corporations under the latter provision is not limited to corporations of a character similar to those specified.®* It has been held that a statute authorizing corporations J. & A. H 2495, p. 95, by striking out 93 State v. International Inv. Co., the word ' ' street ' ' wherever it occurs 88 Wis. 512, 43 Am. St. Eep. 920, 60 therein. David Bradley Mfg. Co. v. N. W. 796. See also Wisconsin Tel. Chicago & S. Traction Co., 229 Co. v. City of Oshkosh, 62 Wis. 32, 21 HI. 170, 82 N. E. 210. See also N. W. 828; Ashbury Eailway Carriage Cairo, V. & C. R. Co. v. Wood- & Iron Co. v. Riche, L. E. 7 H. L. 653. yard, 226 111. 331, 80 N. E. 882. 94 Brown v. Corbin, 40 Minn. 508, 42 A corporation organized under such N. W. 481; State v. Minnesota Thresh- act is a commercial railroad, notwith- er Mfg. Co., 40 Minn. 213, 3 L. E. A. standing it uses electricity as a motor 510, 41 N. W. 1020; State v. Corkinsj power. Schlauder v. Chicago & S. 123 Mo. 56, 27 S. W. 363; York Traction Co., 253 111. 154, 97 N. E. 233. Park Bldg. Ass 'n v. Barnes, 39 Neb. 92 State v. Nichols, 40 Wash. 437, 82 834, 58 ISf. W. 440. See also Lind- Pao. 741. See also State v. Nichols, say & Phelps Co. v. Mullen, 176 38 Wash. 309, 80 Pac. 462. See § 212, U. S. 126, 44 L. Ed. 400; Central Trust infra. Co. v. Warren, 121 Fed. 323; Wells. 193 I Priv. Corp. — 13 §116] Peivate Cobpoeations [Ch.4 for "mining, manufacturing, and other industrial pursuits" does not mean industrial pursuits of the same kind as mining and manufactur- ing, but extends to and includes the express business.^* Under a statute which, after enumerating a large number of special purposes for which corporations may be formed, provides that they may be formed "for any other purpose intended for mutual profit or benefit not otherwise specially provided for, and not inconsistent with the constitution and laws of this state, ' ' a corporation may be formed for the purpose of "buying, selling, and dealing in real estate, live- stock, bonds, securities, and other properties of all kinds, on its own account and for commission, in the United States and elsewhere, ' ' '® Fargo & Co. v. Northern Pac. Ey. Co., 23 Fed. 469; People v. Hagar, 52 Cal. 171, writ of error dismissed 154 TJ. S. 639, 24 L. Ed. 1044; Dittman v. Dis- tilling Co. of America, 64 N. J. Eq. 537, 54 Atl. 570; National Bank of Jefferson v. Texas Inv. Co., 74 Tex. 421, 12 S. W. 101, distinguishing Texas & M. E. Canal & Navigation Co. V. Galveston County, 45 Tex. 272. In Brown v. Corbin, 40 Minn. 508, 42 N. W. 481, a statute authorizing the formation of corporations for va- rious kinds of business specifically enumerated, and then adding the gen- eral words "or other lawful business," was held to authorize the formation of corporations for carrying on any kind of lawful business, for pecuniary profit, not elsewhere specifically pro- vided for, although not of the same kind as any of those previously enu- merated. The court said: "Defend- ants invoke the rule that when par- ticular words are followed by general ones, the general words are restricted in meaning to objects of the kind particularly enumerated, and there- fore that the phrase 'or other lawful business' must be limited to a busi- ness of the same kind as those previ- ously enumerated. We think the rule invoked is not applicable, at least in the narrow and restricted sense in which defendants seek to apply it. The kinds of business specifically enumerated bear no common analogy to each other except that they are all for pecuniary profit, and of strictly private character as distinguished from those to be carried on by quasi public corporations authorized to exercise the right of eminent domain. Evidently the expression ' or other lawful busi- ness' was added as a sort of catch-all for the purpose of including any kind of business for pecuniary profit not elsewhere provided for, and which might have been omitted from the previous particular enumeration. ' ' See also Lindsay & Phelps Co. v. Mullen, 176 U. S. 126, 44 L. Ed. 400, where the Supreme Court of the United States quoted with approval the above state- ment in Brown v. Corbin, supra, and held that the words "other lawful business ' ' as found in the statute were not to be narrowly construed but were broad enough to include a corporation organized for the purpose of booming logs on the waters of streams. 95 Wells, Fargo & Co. v. Northern Pac. By. Co., 23 Fed. 469. See also Central Trust Co. v. Warren, 121 Fed. 323; Bashford-Burmister Co. v. Agua Fria Copper Co., 4 Ariz. 203, 35 Pac. 983; Carver Mercantile Co. v. Hulme, 7 Mont. 566, 19 Pac. 213. 96 National Bank of Jefferson v. Texas Inv. Co., 74 Tex. 421, 12 S. W. 101, distinguishing Texas & M. E. 194 Ch.4] Objects foe Which Ceeated [§116 and also a live-stock association for the purpose of protecting the per- sonal property of its members against theft and other depredations.^' And where a statute authorized the constitution of corporations for various enumerated purposes of public improvement and utility, ' ' and generally all works of public utility and advantage, ' ' it was held that "the enumeration was not intended to be exhaustive, but merely to indicate, by various examples, what the law maker intended to be 'works of public utility and advantage.' "*' A statute authorizing the formation of corporations for the insur- ance of houses, buildings, and all other kinds of property against loss by fire or other casualty has been held to be broad enough to authorize a corporation for insuring against loss of property by burglary." Canal & Navigation Co. v. Galveston County, 45 Tex. 272. In Texas & M. E. Canal & Naviga- tion Co. v. Galveston County, 45 Tex. 272, which was followed in Jacobs, Bernheim & Co. v. Augusta Co-opera- tive Ass 'n, 3 Wilson Civ. Caa. Ct. App. (Tex.) § 231, it was said that this "general clause is controlled by the subject to which it relates, and refers to objects of the character named in the act, ' ' but this holding is criticised and practically overruled in National Bank v. Texas Inv. Co., supra. This general provision of Texas Eev. St. 1879, art. 566, § 27, has been repealed. Staacke v. Eoutledge, — Tex. Civ. App. — , 175 S. W. 444; Empire Mills v. Al- ton Grocery Co., 4 Wilson Civ. Cas. Ct. App. (Tex.) § 221, 12 L. E. A. 366, 15 S. W. 200. 97 Guadalupe & 8. A. Eiver Stock A.ss'n V. West, 70 Tex. 391, 7 S. W. 817. 98 Glen V. Breard, 35 La. Ann. 875. 99 Bankers' Mut. Casualty Co. v. First Nat. Bank of Council Bluffs (Iowa), 108 N. W. 1046. The court said: "A casualty by which a loss of property is occasioned is not neces- sarily restricted to a conflagration by which the property is consumed, and we can see no reason why, in the ab- sence of other restrictive provisions in the statute, it may not as well in- clude lightning, tornado, flood, hail, or other force or violence by which such property is injured, destroyed, or lost without the agency or design of the owner. But counsel say that even if the word 'casualty' standing alone is broad enough to include loss by bur- glary yet under the rule of ejusdem generis its scope inust be restricted to casualties of like kind with those spe- cifically mentioned in that connection, and that under this rule the words ' other casualty ' having been preceded in the same section by reference to loss or damage by fire, they must be read as meaning other like casualty. Of the soundness of the general rule of construction here appealed to, by which when specific and general terms are both employed in the same connec- tion the general terms are held to take their meaning from the specific, there can be no doubt; but it is never used to render words meaningless or to de- feat a plainly expressed intent. See State V. Broderick, 7 Mo. App. 19. For instance, to interpret the statute as if it read 'To insure property against loss or damage by fire or other loss or damage by fire ' would be to per- petuate an absurdity. Indeed, unless we treat the general words 'or other casualty' as intended to include other risks than those already mentioned in the specific reference to 'loss or dam- 195 §116] Pbivate Coepoeations [Ch.4 A statute authorizing the formation of corporations for "mining, manufacturing, mechanical, quarrying, and other industrial pursuits, and for any other lawful business," does not restrict the formation of corporations to purposes of the same kind as those specifically named.^ A statute authorizing incorporation for the purpose of manufac- turing electricity for telephoning purposes, "etc.," has been held to age by fire,' then they mean nothing, and add nothing whatever to the idea Which would be expressed by the sen- tence with these words entirely omit- ted. * * * Such a, holding would violate the cardinal rules of construc- tion and deny to the language em- ployed the meaning and effect which it bears in common and approved ■usage. ' Other ' is also frequently used in an unrestricted sense not limited by the rule of ejusdem generis. * * * The likeness which the general ex- pression must bear to the specific words employed in order to apply the rule of ejusdem generis to the present case would seem to be likeness in the loss or damage to be insured against rather thari in the causes producing it. The specific reference to loss or damage by fire is all inclusive so far as that cause ia concerned, and loss or damage by other casualty must of necessity refer to injuries which are referable to some other cause. Brown v. Corbin (Minn.) 42 N. W. 481. Property injured by fire becomes a partial or total loss, and a casualty other than fire which pro- duces like loss or injury is, we think, a like casualty within the meaning of the statute. That the rule relied upon by appellee necessarily permits some latitude in the interpretation of stat- utes is well illustrated by reference to the first clause of the very provision we are here considering. The power there granted is 'to insure houses, buildings, and all other kinds of prop- erty,' etc. We feel very certain that couiisel would not insist that the rule of ejusdem generis operates to restrict the corporation to insurance of struc- tures similar in character to 'houses and buildings.' Indeed, if the power thus granted is not broad enough to authorize the insurance of household goods, stocks of merchandise, grain in stack, and generally whatever comes fairly within the term 'property' and is liable to 'loss or damage by fire or other casualty, ' then the statute falls far short of the commonly accepted meaning as well as the effect which has always been given it in actual prac- tice." 1 Yokes v. Eaton, 119 Ky. 913, 27 Ky. L. Eep. 358, 85 S. W. 174. Hobson, C. J., said : " It is insisted for appellant that the words ' and for any other law- ful business' must be construed as referring to such corporations as have been above named, and that the rule of noscitur a sociis should be applied. The difficulty of this is that, after nam- ing mining, manufacturing, mechani- cal, and quarrying purposes, these words are added: 'and other industrial pursuits.' If only things like those which were named were meant, this would have been covered by the words, 'and other industrial pursuits,' and the words 'and for any other lawful business' would have been unneces- sary. Taking the statute as a whole, we are satisfied that the words were used in their broad and natural sense, other- wise corporations for a great many purposes for which corporations are formed in nearly all the states could not be formed under the statute, such as title companies, mercantile compa- nies, holding companies, and the like. 196 Ch.4] Objects foe Which Created [§116 authorize the incorporation of a telephone company with power to construct and operate a telephone line.^ It has been held that the rule ejusdem generis does not apply where particular purposes are enumerated in separate and independent num- bered subdivisions, which are followed by a general provision in a co- ordinate subdivision permitting for any other purpose not otherwise specially provided for.' Nor does it apply "where the specific words exhaust the class of objects referred to, whereby the general words The statute was evidently intended to be broad in its operation from the fact that so many things are named, and the words 'and for any other lawful business' are added to make it include things other than those named." 2 Doty V. American Telephone & Telegraph Co., 123 Tenn. 329, Ann. Cas. 1912 C 167, 130 S. W. 1053. Green, J., said: "The words 'et cetera,' meaning ' and others, ' or ' and other things ' in a connection like this, are frequently construed by the courts to import other purposes of like character with those already named. We think this is the proper construction to be given to them here — that it was not the legis- lative intent to confine the powers of telephone companies to the manufac- ture of electricity, but to confer on such companies the power to do other things, of like character, incidental to the business. These words, or this abbreviation, 'etc.,' must have been used for some purpose. It should not be construed as meaningless and it is our duty to give it its usual and nat- ural significance. Giving to the ab- breviation a natural meaning, the conclusion is easy that the intention of the act was to give to telephone com- panies the right to do other things in addition to manufacturing electricity. It empowered them, not only to manu- facture electricity for telephoning purposes, but to do other things for telephoning purposes. ' ' 8 State V. Talbot, 123 Mo. 69, 27 S. W. 366; State v. Corkins, 123 Mo. 56, 27 S. W. 363. A statute providing that corpora- tions may be created for any of the following purposes, ' ' First, to carry on any kind of mining, mechanical, chemi- cal, manufacturing, smelting, print- ing, coal oil or petroleum business; second, to encourage and promote agri- culture and the improvement of stock, and for these purposes may establish fair grounds; third, to construct toll bridges; fourth, to erect hotels, halls, market houses, warehouses, exchange and other buildings, and for the pur- pose of purchasing, owning, and rent- ing buildings already erected; fifth, to build wharves, docks, grain elevators, levees, and to construct canals and em- bankments for the reclaiming of lands; sixth, to convey and transport persons and freights on land or water by any mode of conveyance whatever; sev- enth, to construct and operate horse railroads; eighth, to purchase and use fire engines, hose, hooks and ladders, and all other apparatus necessary or useful to prevent and extinguish fires; ninth, to suply any town, city, district, neighborhood or village with gas or water ; tenth, to establish steam or other ferries; eleventh, for any other purpose intended for pecuniary profit or gain not otherwise specially pro- vided for, and not inconsistent with the constitution and laws of this state," authojrizes the formation of a corporation for the purpose of issuit,^ bonds to be paid for by purchasers thereof in monthly instalments, and to be redeemed in such order and at such time as might be prescribed) and o£ 197 § 116] Private Corporations [Ch. 4 must bear a different meaning or be denied effect " ; as, for example, where the statute authorizes the formation of corporations "to sup- port and maintain bicycle clubs, and other innocent sports. ' ' In such ease the words "bicycle clubs" must be deemed to have been "used in the sense of a distinct and individual innocent sport, complete within itself and separate in its identity," and the words "and other innocent sports" must be regarded "as having reference to other particular or individual innocent sports and as intending a designation by name of the sport or sports contemplated in the charter of any corporation formed under their authority"; and therefore such a provision will not authorize the formation of a corporation to support and maintain an automobile club, the purpose and object of which is stated to be to promote innocent sport by means of automobiles.* A telephone company may be formed under a statute authorizing the formation of corporations for the purpose of " 'building and oper- ating telegraph lines, or conducting the business of telegraphing in any way ; * * * or for any lawful business or purpose whatever, except' certain classes of business specifically mentioned," although the telephone was not invented or contemplated when the statute was enacted.* In Kansas it has been held that a statute providing that corporations may be formed for ' ' the manufacture and supply of gas, or the supply of light or heat to the public by any other means," is broad enough to include the supplying of natural gas, although its use may not have been within the contemplation of the legislature when the act was passed.® But in Pennsylvania a similar statute was held not to em- brace electric lighting, where that method of lighting was not known when the act was passed.' § 117. Number of purposes for which corporations may be formed. It is essential, of course, that a corporation shall be formed for some selling and disposing of such bonds in 5 Wisconsin Tel. Co. v. City of Osh- the state by which the corporation was kosh, 62 Wis. 32, 21 N. W. 828. See created. State v. Corkins, 123 Mo. 56, also Pensacola Telegraph Co. v. West- 27 S. W. 363. em TJ. Tel. Co., 96 U. S. 1, 24 L. Ed. 4 Smith V. Wortham, 106 Tex. 106, 708; Attorney-General v. Edison Tel. 157 S. W. 740. Co. of London, L. B. 6 Q. B. Div. 244. The words "and other innocent 6Compton v. People's Gas Co., 75 sports" do not involve an attempt to Kan. 572, 10 L. R. A. (N. S.) 787, 89 confer legislative authority on the see- Pac. 1039. retary of state by giving him power to 7 In re Scranton Elec. Light & Heat determine what are innocent sports. Co.'s Appeal, 122 Pa. St. 154, 1 L. E. Smith V. Wortham, 106 Tex. 106, 157 A. 285, 9 Am. St. Eep. 79, 15 Atl. 446. S. W. 740. 198 Ch.4] Objects foe Which Created [§117 purpose, and statutes authorizing the formation of corporations gen- erally provide that corporations may be organized for certain specified purposes. A question naturally arises as to whether such a statute restricts the corporations organized thereunder to one purpose or per- mits it to be formed for more than one purpose. This depends upon the verbiage of the statute and the construction to be placed thereon. A statute stating the purposes for which corporations may be formed may be so worded that corporations formed thereunder are restricted to one purpose;' or may be so worded that corporations may assume 8 United States. See Consumers ' Gas Trust Co. V. Quinby, 137 Fed. 882; Colorado Springs Co. v. American Pub. Co., 97 Fed. 843. District of Columbia. Danoy v. Clark, 24 App. Cas. 487. Georgia. Van Pelt v. Home Bldg. & Loan Ass'n, 79 Ga. 439, 4 S. E. 501; In re Deveaux, 54 Ga. 673. Indiana. Burke v. Mead, 159 Ind. 252, 64 N. B. 880; State v. Beck, 81 Ind. 500; Newton County Draining Co. V. Nof singer, 43 Ind. 566; Skelton Creek Draining Co. v. Mauck, 43 Ind. 300; Rhodes v. Piper, 40 Ind. 369; O 'Reiley v. Kankakee Valley Draining Co., 32 Ind. 169; West v. BuUskin Prairie Ditching Co., 32 Ind. 138; Wil- liams V. Citizens' Enterprise Co., 25 Ind. App. 351, 57 N. E. 581, distin- guishing Shiek V. Citizens' Enterprise Co., 15 Ind. App. 329, 57 Am. St. Eep. 230, 44 N. E. 48. See also Marion Bond Co. V. Mexican Coffee & Eubber Co., 160 Ind. 558, 65 N. E. 748. Michigan. See Isle Eoyale Land Corporation v. Secretary of State, 76 Mich. 162, 43 N. W. 14. Minnesota. See State v. Minnesota Thresher Mfg. Co., 40 Minn. 213, 3 L. E. A. 510, 41 N. W. 1020. New York. People v. Beach, 19 Hun 259. Ohio. State v. Taylor, 55 Ohio St. 61, 44 N. E. 513; State v. Pioneer Live Stock Co., 38 Ohio St. 347. Pennsylvania. In re Eoofing & Sheet Metal Contractors' Ass'n of Philadelphia, 200 Pa. Ill, 49 Atl. 894; In re W. B. XJrling Co., 13 Pa. Dist. 534; In re New Gas Light Co., 7 Pa. Dist. 151; In re Pennsylvania Bottling & Supply Co., 6 Pa. Dist. 530, 19 Pa. Co. Ct. 593; In re Application for Charter for Ins. Co., 5 Pa. Dist. 315; In re Application for Charter, 5 Pa. Dist. 243; In re MeClurg Gas Const. Co., 4 Pa. Dist. 349; In re Sowego Water & Power Co., 4 Pa. Dist. 181; In re Skandinaviska, 3 Pa. Dist. 235; In re Pennsylvania State Sportsmen's Ass'n, 1 Pa. Dist. 763; In re West Manayunk Gas Light Co. v. New Gas Light Co., 21 Pa. Co. Ct. 369; In re Charter Purposes, 17 Pa. Co. Ct. 577; In re Newton Hamilton Oil & Gas Co., 10 Pa. Co. Ct. 452; In re Washington Min. Co., 9 Pa. Co. Ct. 323; In re Rich- mond Eetail Coal Co. of Philadelphia, 9 Pa. Co. Ct. 172. Texas. Johnston v. Townsend, 103 Tex. 122, 124 S. W. 417; Eamsey v. Tod, 95 Tex. 614, 93 Am. St. Rep. 875, 69 S. W. 133; Staacke v. Routledge, — Tex. Civ. App. — , 175 S. W. 444; City of San Antonio v. Salvation Army (Tex: Civ. App.), 127 S. W. 860. See also Miller v. Tod, 95 Tex. 404, 67 S. W. 483; Halbert v. San Saba Springs Land & Live Stock Ass 'n, 89 Tex. 230, 49 L. E. A. 193, 34 S. W. 639, (Tex. Civ. App.), 34 S. W. 636; Borden v. Trespalacios Rice & Irrigation Co. (Tex. Civ. App.), 82 S. W. 461. Wisconsin. State v. International 199 §117] Private Corporations [Cli.4 diversified powers, and may have more than one corporate object, and may carry on two or more distinct and independent lines of business.' It is held that a statute authorizing the formation of corporations "for any lawful purpose excepting banking, insurance, real estate brokerage, the operation of railroads, and the business of loaning money," permits the creation of corporations having more than one object.'" If several purposes are enumerated in separate subdivisions of the statute a single corporation cannot be organized for purposes specified in more than one of such subdivisions,^^ unless the statute luv. Co., 88 Wis. 512, 43 Am. St. Eep. 920, 60 N. W. 796. England. In re Crown Bank, 44 Ch. Div. 634, 32 Am. & Eng. Corp. Cas. 574. The use of the word "purpose" in- stead of "purposes" in a provision that a corporation may be formed for any purpose for which individuals may lawfully associate themselves, implies a limitation to a single purpose. State V. Taylor, 55 Ohio St. 61. The court said : " It will be noted that the word is 'purpose' not 'purposes.' Its use implies a limitation. This limitation must have been by design. It is a most wise and reasonable one. We cannot assume that the general assembly would intentionally clothe corpora- tions with a capacity to unite all classes of business under one organiza- tion, as this would tend strongly to monopoly." See also State v. Pioneer Live Stock Co., 38 Ohio St. 347. Under a statute providing that cor- porations may be formed for the pur- pose of constructing or owning plank, macadamized, etc., roads, and a provi- sion that corporations may be organ- ized under such statute for the purpose of purchasing and using a part or sec- tion of such a road already built, & corporation cannot be formed for the purpose of purchasing, operating and extending several distinct existing roads owned by different companies. State v. Beck, 81 Ind. 500. In Consumers' Gas Trust Co. v. Quinby, 187 Fed. 882, Seaman, J., said: "The authorities in Indiana are decisive that the statute under which this organization was made limits the ■ business to be adopted thereunder to a single class of the several classifica- tions enumerated in the section, and that it was not competent to combine two or more of the purposes so classi- fied in a single incorporation, as pri- mary business. Burke v. Mead, 159 Ind. 252, 64 N. B. 880, and eases cited; Williams v. Citizens' Enterprise Co., 25 Ind. App. 351, 57 N. E. 581." Under a statute authorizing the formation of a corporation for the purpose of carrying on any lawful enterprise or business which may be lawfully conducted by an individual, it is held that a corporation can only be formed for the carrying on of one business or one enterprise. Dancy v. Clark, 24 App. Cas. (D. C.) 487. 9 State V. Minnesota Thresher Mfg. Co., 40 Minn. 213, 3 L. E. A. 510, 41 N. W. 1020; City of San Antonio v. Salvation Army (Tex. Civ. App.), 127 S. W. 860; Borden v. Trespalaeios Rice & Irrigation Co. (Tex. Civ. App.), 82 S. W. 461. See also Halbert v. San Saba Springs Land & Live Stock Ass 'n (Tex. Civ. App.), 34 S.W. 636, 89 Tex. 230, 49 L. R. A. 193, 34 S. W. 639; In re Crown Bank, 44 Ch. Div. 634. 10 In re Humphrey Advertising Co., 177 Fed. 187. 11 Dancy v. Clark, 24 App. Cas. (D. C.) 487; Johnston v. Townsend, 103 Tex. 122, 124 S. W. 417; Kamsej v. 200 Ch. 4] Objects fob Which Created [§117 expressly so provides.^* And generally if the statute enumerates sev- eral purposes connected by the disjunctive "or," a single corporation cannot be organized for more than one of the purposes so enumer- ated.^8 But there is authority to the effect that the word "or" may Tod, 95 Tex. 614, 93 Am. St. Rep. 875, 69 S. "W. 133; Staacke v. Eout- ledge, — Tex. Civ. App. — , 175 S. W. 444; City of San Antonio v. Salvation Army (Tex. Civ. App.), 127 S. W. 86Q; Borden v. Trespalacios Bioe & Irriga- tion Co. (Tex. Civ. App.), 82 S. W. 461. See also In re Hoofing &• Sheet Metal Contractors ' Ass 'n, 200 Pa. Ill, 49 Atl. 894. Under a subdivision of the purposes for which a corporation ma,y be formed, authorizing the formation of a corporation for the transaction of any manufacturing or mining business, and the purchase and sale of goods, wares and merchandise used in such business, a corporation may be formed for "a business ' ' consisting of manufacturing and mining, but not for two businesses — one of manufacturing and the other of mining. It was held that where the charter tendered stated that "the pur- pose for which this corporation is formed is the transaction of a manu- facturing and mining business and the purchase and sale of goods, wares and merchandise used for such business," the statement of the purpose was too general and indefinite, as, while it might apply to one business consisting both of manufacturing and mining, it might also be taken to authorize the transaction of two businesses, one of manufacturing and another of mining, with the further power of purchase and sale incident to each. Johnston v. Townsend, 103 Tex. 122, 124 S. W. 417. 12 Staacke v. Eoutledge, — Tex. Civ. App. —,175 S.'W. 444. 13 Williams v. Citizens ' Enterprise Co., 25 Ind. App. 351, 57 N. E. 581; In re New Gas Light Co., 7 Pa. Dist. 151; In re Application for Charter for Ins. Co., 5 Pa. Dist. 315; In re Sowego Water & Power Co., 4 Pa. Dist. 181. In Williams v. Citizens' Enterprise Co., 25 Ind. App. 351, 57 N. E. 581, the court said: "The use of the dis- junctive ' or ' makes a complete enact- ment as to each class of business named. Taking the act as the legis- lature has written it, and it must mean, 'Whenever three or more persons may desire to form a company to carry on any kind of manufacturing business, * * * they shall make, sign, and ac- knowledge * * * a certificate in writing, which shall state the corpo- rate name adopted by the company, the object of its formation,' etc.; or 'Whenever three or more persons may desire to form a company to carry on any kind of mining business, * * * they shall make, sign, and acknowledge * * * a certificate,' etc.; and so with each class named. The act expressly requires that the certificate shall state the corporate name and the 'object' of its formation. This means that the certificate shall state the particular class of business to be carried on un- der one of the designated heads; that the limitation of the business must be shown by a statement in the articles. Treating those of the objects named in the articles in question which are not within the purview of the statute as surplusage, there is left an at- tempted corporate organization for the purposes of furnishing motive power to carry on manufacturing and min- ing, to manufacture all kinds of mer- chandise, and to sink and operate gas wells. We must, then, give to the articles the construction that the corporators intended to conduct these various enterprises under one organi- 201 §117] Peivate Cobpoeations [Ch.4 be construed to mean ' ' and ' ' under such circumstances so as to permit incorporation for more than a single purpose where such was the zation. There is .no statute in this state authorizing a single corporate organization for the purpose of carry- ing on all, or any two, of these busi- nesses. The objects of neither are in- cidental or secondary to the objects of either of the others, but the objects and purposes of each are pri- mary. Each is entirely separate and distinct from the others. Either would properly be the subject of corporate organization; but the in- tention of the corporators, which must be gathered solely from the arti- cles, does not indicate which was to be the exclusive purpose. We have no authority to select either of the three, and ignore the others. The corporators must do that for themselves. It is manifest, from the reading of the stat- ute, that it was not the legislative intent to authorize a corporate organi- zation for all the purposes named in the statute, nor for any two or more of the purposes named." For further consideration of the Indiana statute, see Consumers' Gas Trust Co. v. Quinby, 137 Fed. 882, where the court • said: "The authorities in Indiana are decisive that the statute under which this organization was made limits the business to be adopted thereunder to a single class of the several classifica- tions enumerated in the section, and that it was not competent to combine two or more of the purposes so classi- fied in a single incorporation, as pri- mary business. Burke v. Mead, 159 Ind. 252, 64 N. E. 880, and cases cited; "Williams v. Citizens' Enterprise Co., 25 Ind. App. 351, 57 N. B. 581. In Burke v. Mead the question arose in a suit for specific performance of a contract whereby Mead & Co. agreed to transfer certain property to Burke and another, in consideration of a transfer of certain paid-up capital stock in a corporation called the 'Marion Electric Company.' One of the defenses was that the alleged cor- poration was not a legal organization, so that the capital stock was worth- less. The purposes of incorporation, as stated in the articles, were 'of manu- facturing, storing, selling, delivering, and distributing electricity for light, heat, and power, and for all such other chemical purposes as electricity can be applied to, and for the purpose of manufacturing and selling all kinds of electrical appliances, apparatus, and supplies.' The court upheld the con- tention that it was not competent to combine these purposes in a single in- corporation; that while the 'generat- ing of electricity is manufacturing, within our manufacturing and mining companies act,' the manufacture and sale of 'all kinds of electrical appli- ances, apparatus, anff supplies is not a business incident thereto' — citing Franklin National Bank v. Whitehead, 149 Ind. 560, 39 L. E. A. 725, 63 Am. St. Bep. 302, 49 N. E. 592, and Wil- liams V. Citizens' Enterprise Co., 25 Ind. App. 351, 57 N. E. 581. It was ruled accordingly that the articles ' disclosed a purpose to engage in lines of employment and business more di- verse than the statute authorized' and that the incorporation was invalid. In Williams v. Citizens' Enterprise Co., supra, the Chief Justice delivered the unanimous opinion of the court, denying the right of the corporation to recover upon a subscription to its capital stock for like defect in the diversity of objects stated in the arti- cles of association, under the same statute." See dissenting opinion of Grosscup, J., in Consumers' Gas Trust Co. V. Quinby, 137 Fed. 882, 900. 202 Cli.4] Objects fob Which Cheated [§117 evident intent of the legislature.^* And it has been held that the use of the word "or" does not prevent an incorporation for the purpose of carrying on a single business involving two or more elements. Thus under a subdivision of a statute authori2dng the formation of corpora- tions for "the transaction of any mining or manufacturing business," it has been held that a corporation may be formed for carrying on a single business consisting partly of mining and partly of manufactur- ing, though not for the purpose of transacting two distinct businesses, one of mining and one of manufacturing.^* Of course a corporation 14 Under N. Y. Laws, 1890, e. 566, § 6, providing that a corporation may be formed "for manufacturing and supplying gas for lighting, * * * or for manufacturing electricity for pro- ducing light, heat, or power, ' ' a single corporation may be formed for both these purposes. People v. Rice, 138 N. T. 151, 33 N. E. 846. In Indiana a single corporation may be orgEinized to construct and operate a street and interurban railroad and for the purpose of creating and distrib- uting light, heat and power. Cook Inv. Co. V. Evansville Terminal Ey., 175 Ind. 3, 93 N. E. 279. But see Bayou Cook Navigation & Fisheries Co. V. Doullut, 111 La. 517, 35 So. 729. In People v. Beach, 19 Hun (N. Y.) 259, quoted in Williams v. Citi- zens ' Enterprise Co., 25 Ind. App. 351, 57 N. E. 581, it was held that where the statute provided for the formation of corporations "for the purpose of carrying on any ijianufacturing, min- ing, mechanical, or chemical busi- ness," a single corporation could not be formed for more than one of such purposes. The Supreme Court of New York said: "The statute referred to provides for the formation of compa- nies 'for the purpose of carrying on any kind of manufacturing, mining, mechanical, or chemical business.' (Laws 1848, c. 40.) This language is in the disjunctive, thus authorizing an organization for the carrying on of business having in view either of these purposes as its auxiliary or means of producing results; nor does section 20, which provides for extending the busi- ness of a company formed or to be formed to any 'other' manufacturing, mining, mechanical, or chemical busi- ness, 'confer the right to combine any two or more of these general purposes. ' This section leaves the purpose of the organization still to be limited to one of the general classes of business designated in the act as manufac- turing, mining, mechanical, or chemi- cal." 15 Johnston v. Townsend, 103 Tex. 122, 124 S. W. 417. The court in this case lays considerable stress upon that fact that the statute uses the term ' ' a business" in the singular, and that another section requires the charter to state "the purpose" of the incor- poration. While in Ramsey v. Tod, 95 Tex. 614, 93 Am. St. Rep. 875, 69 S. W. 133, it is said "that it was the intention of the legislature to authorize a corporation to be formed for any one or more of the purposes as specified in any one of the subdivisions" of the statute, the court in Johnston v. Townsend, 103 Tex. 122, 124 S. W. 417, limits the effect of this language, and says that it merely means that only those purposes mentioned in the same subdivision can be joined in any case, and not that all those so mentioned may be united in every case, regardless of the way in 203 §117] Peivate Coepokations [Ch.4 may be formed for more than one of such purposes notwithstanding the use of the word "or" where the statute expressly so provides.^® Under a statute authorizing the formation of corporations for "the transaction of any manufacturing, mining, mechanical, chemical, or mercantile and agricultural implements and produce business, either separately or all combined," it was held that a corporation might be formed for "the manufacture of sugar, sirup, starch, grape sugar, glucose, and other products from sorghum cane, cane seed, corn, and other saccharine and amylaceous substances ; for the erection and main- tenance of factories, and the purchase and sale of real estate and plan- which they are related to or eonneeted with each other. In Borden v. Trespalaeios Eice & Ir- rigation Co. (Tex. Civ. App.), 82 S. W. 461, it was said: "Corporations cannot be formed under our statutes for two or more distinct purposes when incor- poration for such purposes is only au- thorized by separate subdivision of the general incorporation statute; but when several purposes are specified in one subdivision of the statute a cor- poration may be formed for any one or more of the purposes so specified. Eamsey v. Tod, 95 Tex. 614, 93 Am. St. Eep. 875, 69 8. W. 133." As above seen this view is limited in Johnston v. Townsend, 103 Tex. 122. See also Staacke v. Eoutledge, — Tex. Civ. App. — , 175 S. W. 444. It is held in Pennsylvania under a statute authorizing corporations to be created for a number of different pur- poses set forth in subdivisions of the statute, each of which subdivisions describes a particular class of objects, the promotion of which is the object of the provision, that each subdivision must, in order to carry out its full in- tent, necessarily be held to authorize a corporation for one or more or all of the special purposes that may come within the general scheme. Thus where one of such subdivisions piovided for the formation of corpo- rations for "the encouragement and protection of trade and commerce," it was held that a corporation to "promote the welfare and interest of persons engaged in roofing and sheet- metal working, and for the protection and encouragement of such trade and commerce, by combining the intelli- gence and influence of the members against imposition and fraud ' ' was within the scope of such subdivision. In re Eoofing & Sheet Metal Con- tractors' Ass'n, 200 Pa. Ill, 49 Atl. 894. Under a statute authorizing the for- mation of a corporation for the pur- pose of carrying on an enterprise or btasinesa which may be lawfully con- ducted by an individual and providing that any corporation so formed may extend its business to any other busi- ness or change its business to any other business authorized by the stat- ute, it is held that the change of busi- ness "might be made to a radically different class of business, as, for ex- ample, from that of mining to that of agriculture, yet the very word ' change ' implies the abandonment of the one by the adoption of the other, not the combination of both, ' ' but the extension to any other business pro- vided for must be by the taking in of something cognate to the business to engage in which the company was originally incorporated. Dancy v. Clark, 24 App. Cas. (D. C.) 487. 16 Parkinson Sugar Co. v. Bank of Ft. Scott, 60 Kan. 474, 57 Pao. 126. 204 Ch.4] Objects foe Which Ckeated [§117 tations therefor; for the purchase, location, and laying out of town sites, and the sale and conveyance of the same in town lots and sub- divisions, or otherwise; and for the transaction of manufacturing, mechanical, and mercantile business."^'' Under a statute permitting incorporation for the purpose of carry- ing on any kind of mining business, a single corporation may be formed for the purpose of mining several different kinds of ores.^* A corporation cannot be organized for two or more incompatible purposes.^' Thus where corporations organized for works of public improvement are expressly forbidden to engage in mercantile busi- ness, a single corporation cannot be formed for both of these pur- poses.*" Nor in such ease can the incorporation be upheld by treating 17 In Parkinaon Sugar Co. v. Bank jf Ft. Scott, 60 Kan. 474, 57 Pae. 126, Johnston, J., said: "From the declared purposes already quoted from the char- ter, it will be seen that the scope of the purposes and powers of the company ftaa not restricted to one line of busi- fless, or the manufacture of a single product. It was authorized not only to inanufacture sugar and syrup, but to jrect and maintain factories, purchase and sell real estate and plantations therefor, and purchase, locate, and lay out town sites, and to dispose of town (ots. While the latter provisions may be regarded as incidental to the manufacture of sugar and syrup, the Incorporators expressly added a provi- 4on authorizing 'the transaction of manufacturing, mechanical, and mer- cantile business.' Manifestly, it was Intended to enlarge the scope and ex- tent of the powers of the company by this declaration, and no reason is seen why it cannot be given effect. Nothing in the statute under which the cor- poration was formed limits it to the manufacture of a single article or product. On the other hand, our law is exceedingly liberal in allowing a combination of the lines of business which may be carried on by a single corporation. ' ' 18 People V. Beach, 19 Hun (N. Y.) 259, 57 How. Pr. (N. Y.) 337. In Louisiana a corporation created under the general laws providing for the organization of corporations for works of public improvement may be constituted for any number of the con- junctive purposes permitted to corpo- rations belonging to that class, and the same rule applies to other classes of corporations. Louisiana Navigation & Fisheries Co. v. Doullut, 114 La. 906, 38 So. 613. 19 Louisiana Navigation & Fisheries Co. V. Doullut, 114 La. 906, 38 So. 613; Bayou Cook Navigation & Fisheries Co. v. Doullut, 111 La. 517, 35 So. 729. 20 Louisiana Navigation & Fisheries Co. v. Doullut, 114 La. 906, 38 So. 613; Bayou Cook Navigation & Fisheries Co. V. Doullut, 111 La. 517, 35 So. 729. Under a statute authorizing the for- mation of corporations for the purpose of carrying on any enterprise or busi- ness which may be lawfully conducted by an individual, excepting, among other things, ' ' railroads, " it is proper for the recorder to refuse to file a cer- tificate of incorporation stating that one of the objects of the corporation is "to perform contracts for maintain- ing and operating railways," and also stating that the corporation shall not "operate any railroad, engage in the business of a railroad, or do anything in the premises prohibited to incorpo- rations of this character," as the two 205 §117] Private Cokpobations [Ch.4 the purpose of making the improvement as the main purpose and that of merchandising as subsidiary and disregarding it as surplusage, though the corporation has not in fact engaged in merchandising.*^ It has been said that where the statute authorizes the organization of a corporation for only one of the purposes specified in the statute, a corporation cannot be organized for two or more of the purposes specified, and the articles of association specifying such plurality of purposes are void.** But generally the fact that one or more of several purposes mentioned in the articles of incorporation is unauthor- clauses of the certificate of incorpora- combining these two purposes or tion are inconsistent, and there is no created none at all; and since the two distinction between a "railroad" and purposes are, under the prohibition of a ' ' railway. ' ' Dancy v. Clark, 24 App. Cas. (D. C.) 487. 21 Bayou Cook Navigation & Fish- eries Co. V. DouUut, 111 La. 517, 35 So. 729. The court said: "The ease is not one of unauthorized powers being sought to be conferred in addition to the powers that are authorized, nor of a corporation undertaking to do acts ultra vires, but it is the ease of a fa- tally defective act of incorporation. It is the case of an attempt to create in one act two distinct and different corporations incompatible with each other, or of an attempt to fuse into one two distinct and incompatible corpo- rations. If the enabling laws did not authorize the creation of a mercantile corporation, then all the words of the act relating to a mercantile corpora- tion might possibly be treated as meaningless and surplusage; but, un- fortunately for plaintiff, the enabling laws do authorize the creation of mer- cantile corporations, and those parts of the act of incorporation which seek to make plaintiff a mercantile corpo- ration are as pertinent as those which seek to make it a works of public im- provement corporation. The purpose to make plaintiff a mercantile corpo- ration stands out of the act as express- ly as the purpose to make plaintiff a works of public improvement corpora- tion; hence the act must be taken as having either created a corporation the statute, incompatible, the other alternative must be adopted that no corporation at all has been created." See § 112, supra. 22 Consumers ' Gas Trust Co. v. Quinby, 137 Fed. 882; Burke v. Mead, 159 Ind. 252, 64 N. E. 880; Williams v. Citizens' Enterprise Co., 25 Ind. App. 351, 57 N. E. 581, distinguishing Shick v. Citizens' Enterprise Co., 15 Ind. App. 329, 57 Am. St. Rep. 230, 44 N. E. 48. A corporation organized for the pur- pose of manufacturing and selling elec- tricity for light, power and heat, and also for the manufacture and sale of all kinds of electrical appliances, ap- paratus and supplies is unauthorized and is not a de jure corporation. Burke v. Mead, 159 Ind. 252, 64 N. E. 1880. In Marion Bond Co. v. Mexican Cof- fee & Eubber Co., 160 Ind. 558, 65 N. E. 748, it was held that even though the articles of association designated more than one of the purposes speci- fied in the statute and other purposes not authorized at all, the corporation had a de facto existence and the power to sue and enter into certain contracts, and the legality of its organization was not open to collateral attack in an action brought by it to enforce the col- lection of street improvement bonds held by it, The court distinguished the cases of O'Eeiley v. Kankakee 206 Ch.4] Objects fok Which Ckeated [§118 ized will not vitiate the incorporation, provided the others are within the purview of the statute."* In some jurisdictions it is held that the secretary of state or other officer in whose office the charter or articles of associatioa are required to be filed may refuse to file or accept for record an instrument open to such objection.^* The fact that successive secretaries of state have construed a statute providing for the formation of corporations to authorize an incorpo- ration for two distinct purposes is not of controlling effect upon the courts where it is plain that it was the intention of the act that a cor- poration formed under the act should only be organized for one pur- pose, 25 § 118. How character of a corporation is determined. Whether the purpose of a corporation is within the scope of the statute under which the corporation is sought to be organized, is to be determined solely from its charter. The first thing is to ascertain the purposes for which a corporation may be organized under the statute, and then determine whether the purposes of the corporation, as shown by its charter, bring it within the purposes authorized by the statute."® Valley Draining Co., 32 Ind. 169; West V. Bullskin Prairie Ditching Co., 32 Ind. 138, and Williams v. Citizens ' En- terprise Co., 25 Ind. App. 351, 57 N. E. 581. See, however. Consumers' Gas Trust Co. V. Quinby, 137 Fed. 882, where the court after citing and quot- ing from Burke v. Mead, 152 Ind. 252, 44 L. R. A. 392, 71 Am. St. Rep. 327, 64 N. E. 880, and Williams v. Citizens' Enterprise Co., 25 Ind. App. 351, 57 N. E. 581, said: "The case of Marion Bond Co., Trustee, v. Mexican Coffee & Rubber Co., 160 Ind. 558; 65 N. E. 748, cited as inconsistent with these rul- ings, impresses us as neither applica- ble, nor in any sense modifying the construction upheld in the previous cases. ' ' See also West Manayunk Gas Light Co. V. New Gas Light Co., 21 Pa. Co. Ct. 369. See § 112, supra. 23 See § 112, supra. 24 Dancy v. Clark, 24 App. Cas. (D. C.) 487. See § 112, supra. Where the incorporators seek to file in the office of the recorder of deeds a certificate of incorporation as required by the statute authorizing the forma- tion of corporations, such officer may refuse to accept the instrument for record where it contains a statement of purposes for which a corporation may not be organized under such stat- ute. Dancy v. Clark, 24 App. Cas. (D. C.) 487. 2B Ramsey v. Tod, 95 Tex. 614, 93 Am. St. Rep. 875, 69 S. W. 133. See Bankers' Mut. Casualty Co. v. First Nat. Bank (Iowa), 108 N. W. 1046; People V. Nelson, 46 N. Y. 477, 60 Barb. (N. Y.) 159, 3 Lans. (N. Y.) 394. See g 118, infra. 26 Louisiana. Bayou Cook Naviga- tion & Fisheries Co. v. Doullut, 111 La. 517, 35 So. 729; Succession of Nichol- son, 87 La. Ann. 346. IMicliigan. American Matinee Ass 'n V. Secretary of State, 140 Mich. 579, 104 N. W. 141; Detroit Driving Club v. Fitzgerald, 109 Mich. 670, 67 N. W. 207 §118] Private Coepoeations [Ch.4 Where the statute authorizing the formation of corporations requires the articles of association to state distinctly and definitely the purpose 899; Attorney General v. Lorman, 59 Mieh. 157, 60 Am. Eep. 287, 26 N. W. 311. Minnesota. International Boom Co. V. Rainy Lake Eiver Boom Corpora- tion, 97 Minn. 513, 107 N. W. 735; Senour Mfg. Co. v. Church Paint & Mfg. Co., 81 Minn. 294, 84 N. W. 109; State V. Minnesota Thresher Mfg. Co., 40 Minn. 213, 3 L. E. A. 510, 41 N. W. 1020. Missouri. In re St. Louis Institute of Christian Science, 27 Mo. App. 633. Netoaska. McLeod v. Lincoln Medi- cal College of Cotner University, 69 Neb. 550, 96 N. W. 265, 98 N. W. 672. New Jersey. Colgate v. United States Leather Co., 75 N. J. Eq. 229, 19 Ann. Cas. 1262, 72 Atl. 126. "The question whether a corpora- tion has been organized for an illegal purpose must be determined by the provisions of its charter, and not by the declarations of its officers or agents. ' ' State v. New Orleans Water Supply Co., Ill La. 1049, 36 So. 117. ' ' The purpose for which a company is organized is primarily to be sought and found in its charter or certificate of incorporation. ' ' Colgate v. United States Leather Co., 75 N. J. Eq. 229, 19 Ann. Cas. 1262, 72 Atl. 126. It is held in Illinois that in deter- mining whether the capital stock of a corporation is exempt from taxation under a statute exempting from taxa- tion the capital stock of corporations organized for purely manufacturing purposes, the purpose for which a cor- poration is organized must be ascer- tained by reference to the charter. Evanston Elec. Illuminating Co. v. Koehersperger, 175 111. 26, 51 N. E. 719; Distilling & Cattle Feeding Co. v. People, 161 111. 101, 43 N. E. 779. In determining the character of a corporation, reference must be had to that portion of its articles of associa- tion expressing the nature and scope of its business. International Boom Co. V. Eainy Lake Eiver Boom Corpo- ration, 97 Minn. 513, 107 N. "W. 735, In Senour Mfg. Co. v. Church Paint & Manufacturing Co., 81 Minn. 294, 84 N. W. 109, it was held that the fact that the promoters and organizers of the corporation intended and contem- plated that the corporation should car- ry on and conduct a nonmanuf aeturing business when completely organized, and intentionally withheld a statement of such contemplated nonmanufactur- ing business from its articles of asso- ciation, and limited the purposes of the corporation solely to manufacturing for the purpose of avoiding the per- sonal liability of stockholders, and the further fact that such nonmanufactur- ing business was, subsequent to the organization of the company, in fact engaged in, did not change the char- acter of the corporation, nor subject the stockholders to personal liability for corporate debts. The court said: "If a corporation be organized for a particular purpose, and such purpose be not truthfully stated in its articles of association, as required by statute, and a business foreign to the purpose actually stated is undertaken and car- ried on, the fraud, if it be a fraud, is against the state, and not against those who subsequently deal with it. It can lawfully engage in no business not included in the purpose of. the cor- poration as disclosed by its articles, which individuals are bound to know, and if it does so, as a matter of fact, it is an exercise of power not possessed, of which the state alone can complain. As to all others, the corporation is just what its articles make it, and nothing more." 208 Ch. 4] Objects for Which Created [§118 for which the corporation is formed, it is held that if such articles do not state a purpose for which the statute authorizes a corporation to be formed, the corporation is not legally incorporated, and its articles will afford no warrant for the exercise of corporate action.*'' If the articles of association, however, do state such a purpose, and the other requirements of the law are complied with, it is a legal corporation, and authorized to act as such.^* In either case the articles themselves are the sole criterion to ascertain the purpose for which it was formed, and the intent must be gathered alone from the written instrument, and cannot be aided or varied or contradicted by testimony or aver- ments aliunde the instrument itself.*' Where the purposes for which a corporation is formed are required to be set forth in its charter, the charter as well as the general law under which the corporation was organized determine the nature and extent of its corporate powers and privileges, and constitute the meas- ure of its authority, and it can exercise no other powers than those expressly and impliedly conferred by its charter.'" The charter of a corporation formed under a general incorporation law does not consist of the articles of incorporation alone, but of the articles, taken in connection with the law under which the organization takes place.'^ 87 Attorney-General v. Lorman, 59 Mich. 157, 60 Am. Rep. 287, 26 N. W. 311. 2* Attorney-General v. Lorman, 59 Mieh. 157, 60 Am. Eep. 287, 26 N. W. 311. 29 Attorney-General v. Lorman, 59 Mieh. 157, 60 Am. Eep. 287, 26 N. W. 311. 30 United States. Oregon Ry. & Nav. Co. V. Oregonian Ry. Co., 130 II. S. 1, 32 L. Ed. 837. Alabama. Grangers' Life & Health Ins. Co. V. Kamper, 73 Ala. 325. lUinols. Fritze v. Equitable Build- ing & Loan Society, 186 111. 183, 57 N. E. 873; City of Danville v. Danville Water Co., 178 111. 299, 69 Am. St. Eep. 304, 53 N. E. 118; People v. Chi- cago Gas Trust Co., 130 111. 268, 8 L. R. A. 497, 17 Am. St. Rep. 319, 22 N. E. 798. Iowa. Traer v. Co., 124 Iowa 107, Lucas Prospecting )9 N. W. 290. Kansas. Parkinson Sugar Co. v. Bank of Ft. Scott, 60 Kan. 474, 57 Pac. 126. 31 Bixler v. Summerfield, 195 111. 147, 62 N. E. 849; Fritze v. Equitable Build- ing & Loan Society, 186 111. 183, 57 N. E. 873, aff'g 83 111. App. 18; City of Danville v. Danville Water Co., 178 111. 299, 69 Am. St. Rep. 304, 53 N. E. 118; People v. Chicago Gas Trust Co., 130 111. 268, 8 L. R. A. 497, 17 Am. St. Eep. 319, 22 N. E. 798; Chicago Open Board of Trade v. Imperial Bldg. Co., 136 111. App. 606, afe'd Imperial Bldg. Co. V. Chicago Open Board of Trade, 238 111. 100, 87 N. E. 167; McLeod v. Lincoln Medical College of Cotner Uni- versity, 69 Neb. 550, 98 N. W. 672. The provisions of the law enter into and form part of its charter, and the charter, thus construed, contains the terms of the agreement of the associa- tion between the shareholders, and in- dicates the character and extent of the 209 I Priv. Corp. — 14 §118] Pkivate Coepokations [Ch.4 Where the statute permitting the organization of corporations requires that the certificate of incorporation shall state "the objects for which the company is formed," this statement of the objects of the company is not only a limitation of the franchises that are derived business in whicli the company shall engage. Traer v. Lucas Prospecting Co., 124 Iowa 107, 99 N. W. 290. As has been said by the Supreme Court of the United States: "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." Oregon Ey. & Nav. Co. V. Oregonian Ey. Co., 130 TJ. S. 1, 32 L. Ed. 837, quoted with approval in I'ritze V. Equitable Building & Loan Society, 186 TO. 183, 57 N. E. 873, aff'g 83 111. App. 18. "It is fundamental that a corpora- tion can be created and can exist by virtue of statutory authority, and by that only. If a corporation organizes under a general act, and inserts in its articles of association regulations and provisions additional to those required by the creative statute, such addi- tional regulations and provisions are void. Nor is the corporation permitted to place any restrictions upon the man- ner of exercising its corporate duties other than the statute provides. If a corporation claims the right to exist for a certain purpose, it must show that it was organized under a statute authorizing the creation of a corpo- ration for that particular purpose." Indiana Bond Co. v. Ogle, 22 Ind. App. 593, 72 Am. St. Eep. 326, 54 N. E. 407. In People v. Chicago Gas Trust Co., 130 111. 268, 8 L. R. A. 497, 17 Am. St. Eep. 319, 22 N. B. 798, the court said: "If contracts and grants, whose tend- ency is to create monopolies are void at common law, then where a corpora- tion is organized under a general stat- ute, a provision in the declaration of its corporate purposes, the necessary effect of which is the creation of a monopoly, will also be void. Speaking of the articles of association of corpo- rations formed under general laws, the Supreme Court of the United States says: 'We have to consider, when such articles become the subject of con- struction, that they are in a sense ex parte; their formation and execution — what shall be put into them as well as what shall be left out — do not take place under the supervision of any of- ficial authority whatever. They are the production of private citizens, gotten up in the interest of parties who propose to become corporators, and stimulated by their zeal for the personal advantage of the parties con- cerned rather than the general good. * * * These articles, which necessa- rily assume by the sole action of the corporators enormous powers, many of which have been heretofore considered of a public character, sometimes af- fecting the interests of the public very largely and very seriously, do not commend themselves to the judicial mind as a class of instruments requir- ing or justifying any very liberal con- struction. Where the question is whether they conform to the authority given by the statute in regard to cor- porate organization, it is always to be determined upon just construction of the powers granted therein with a due regard for all the other laws of the state upon that subject. * ♦ * The manner 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 ^rtieles 210 Ch.4] Objects foe Which Created [§118 by the corporators from the state, but is likewise a limitation of the purposes to which the corporators as between themselves have agreed that the joint capital shall be devoted.^^ The purposes of a corpora- tion as set forth in the articles of association are not to be limited by the words of a single clause, but are to be ascertained by the reading of the entire declaration. All the clauses are to be considered together and in association with one another in determining what the corpora- tion may do.*^ The purpose for which a corporation Ls organized must be established by the introduction in evidence of a certified copy of its articles of incorporation.** It is held that where the language employed in a statute in respect to the purposes for which a corporation may be organized is ambiguous or lacking in clearness and definiteness of expression, the contempo- raneous construction placed thereon by the executive and administra- tive authorities of the state who are charged with the duty of enforcing it, is highly persuasive of the correctness of such interpretation. The court said : ' ' True, it is not permitted to control a clear and specific legislative enactment or to defeat a plainly expressed intent but where the language of the act is open to construction at all it is entitled to of association the authority to depart therefrom.' " In New Jersey, any two or more corporations, organized under the laws of the state for the purpose of carry- ing on any kind of business of the same or similar nature, may merge or consolidate such corporations into a single corporation, which may be either one of said merging or consoli- dating corporations or a new corpora- tion to be formed by means of such merger and consolidation. See N. J. Pub. Laws, 1893, p. 121, and N. J. Pub. Laws, 1896, p. 309, § 104. In Colgate V. United States Leather Co., 75 N. J. Eq. 229, 19 Ann. Cas. 1262, 72 Atl. 126, the respective certificates of in- corporation of two corporations were examined, and it was held that the corporations were not organized for the purpose of carrying on business of ' ' the same or a similar nature ' ' within the meaning of such acts, and that the proposed consolidation of the two com- panies was unauthorized by law and violative of the rights of nonassenting stockholders. 32 Colgate V. United States Leather Co., 75 N. J. Eq. 229, 19 Ann. Cas. 1262, 72 Atl. 126. 33 Eaton V. Woman 'a Home Mis- sionary Society, 264 HI. 88, 105 N. E. 746. 34 Central Inv. Co. v. Melick, 162 HI. App. 474. "When an application for a char- ter is made, the court acts for the com- monwealth, and should not permit the applicants, by withholding evidence of material facts, to obtain a charter for one purpose in the guise of another. The court should search for and obtain all the information necessary to a proper knowledge of the purposes of the intended corporation, in order to enable the court to determine its power and its duty in the case before it.'"' See Master's report. In re First Church of Christ, Scientist, 205 Pa. 543, 63 L. E. A. 411, 97 Am. St. Rep. 753, 55 Atl. 536. 211 § 118] Pkivate Cobpobations [Ch. 4 much weight. " ^^ In determining from the articles of incorporation the purpose for which the corporation is organized, the same rules will be applied as are applied in the construction and interpretation of other contracts or writings.^* Where the purposes of a corporation set forth in its articles of asso- ciation or certificate of incorporation are such as to bring it within the filass of corporations covered by a particular statute, it is within such class, although the articles or certificate may recite that it was organ- ized under a statute authorizing the formation of a different class of corporations.'' § 119. Statement of objects in incorporation paper. In almost all of the states the persons forming a corporation under the general laws are required to prepare and sign a memorandum or articles of associa- tion. Statutes which require such articles of association generally prescribe their necessary contents and among other things require that they shall state the purpose or objects of the proposed corporation, and a substantial compliance with this requirement is a condition preced- ent to the existence of the corporation.** "Where the statute requires that the objects of the corporation should be stated with reasonable distinctness, such a declaration thereof in 3B Bankers Mut. Casualty Co. v. tions' act, when the corporation was of First Nat. Bank of Council Bluffs a character not authorized by that act, (Iowa), 108 N. W. 1046. See also Peo- did not bring it within the provisions pie V. Nelson, 46 N. Y. 477, 60 Barb. of the act. (N. Y.) 159, 3 Lans. (N. Y.) 394; 38 See Chap. 7, infra, for requi- Eamsey v. Tod, 95 Tex. 614, 93 Am. St. sites of articles of association. See Rep. 875, 69 8. W. 133. See § 117, § 193, infra, for what constitutes supra. charter of corporation. See also in 36 Senour Mfg. Co. v. Church Paint this connection: & Manufacturing Co., 81 Minn. 294, Georgia. Van Pelt v. Home Build- 84 N. "W. 109. ing & Loan Ass 'n, 79 Ga. 439, 4 S. E. 37 State V. Minnesota Thresher Mfg. 501; In re Deveaux, 54 Ga. 673. Co., 40 Minn. 213, 3 L. E. A. 510, 41 Indiajia. Crawford v. Prairie Creek N. W. 1020. See also Minneapolis & Ditching Ass 'n, 44 Ind. 361; Rhodes v. St. P. S. E. Co. V. Manitou Forest Syn- Piper, 40 Ind. 369; Seyberger v. Calu- dicate, 101 Minn. 132, 112 N. W. 13; met Draining Co., 33 Ind. 330; O'Eeiley International Boom Co. v. Rainy Lake v. Kankakee Valley Draining Co., 32 River Boom Corporation, 97 Minn. 513, Ind. 169; "West v. BuUskin Prairie 107 N. W. 135. See § 115, supra. Ditching Co., 32 Ind. 138; Piper v. In MeComb v. Belknap, 30 Abb. N. Rhodes, 30 Ind. 309; Williams v. Citi- Cas. (N. Y.) 119, 24 N. Y. Supp. 935, zens ' Enterprise Co., 25 Ind. App. 351, it was held that the fact that a cer- 57 N. E. 581. tificate of incorporation recited that it Kansas. Whetstone v. Ottawa Uni- was under the manufacturing corpora- versity, 13 Kan. 320. 212 Ch.4] Objects fok Which Created [§ 119 the articles of association is a condition precedent to the organization, and without it no such corporation is authorized or can exist.^* The incorporation of a private corporation to manufacture lumber and all articles made of wood and, in other words, to run and own a Louisiana. Bayou Cook Navigation & Fisheries Co. v. Doullut, 111 La. 517, 35 So. 729. Maryland. Bails v. Calvert College Educational Society, 47 Md. 117; Hughes V. Antietam Mfg. Co., 34 Md. 316. Michigan. Attorney-General v. Lor- man, 59 Mich. 157, 60 Am. Eep. 287, 26 N. "W. 311. New Jersey. EUerman v. Chicago Junct. Eys. & Union Stock Yards Co., 49 N. J. Eq. 217, 23 Atl. 287. New York. Eastern Plank Eoad Co. V. Vaughan, 14 N. Y. 546; New York & L. I. R. Co. V. O'Brien, 121 App. Div. 819, 106 N. Y. Supp. 909; People V. Beach, 19 Hun 259. Pennsylvania. In re National Liter- ary Ass'n, 30 Pa. St. 150; In re Medi- cal College of Philadelphia, 3 Whart. 444; In re Xantha Beneficial Musical Ass'n, 8 Pa. Dist. 142; In re Monroe Eepublican Club, 6 Pa. Dist. 515; In re McKees Eocks Volunteer Fireman's Belief Ass'n, 6 Pa. Dist. 477; In re South Fork Social & Literary Club, 4 Pa. Dist. 457; In re Italian Mut. Bene- ficial Ass'n, 4 Pa. Dist. 357; In re Skandinaviska, 3 Pa. Dist. 235; In re Lodge Duoh Nove Doby, 3 Pa. Dist. 215; In re Pennsylvania State Sports- men's Ass'n, 1 Pa. Dist. 763, 11 Pa. Co. Ct. 576; In re LaFayette Club, 21 Pa. Co. Ct. 243; In re Ton-a-lu-ka-Club, 12 Pa. Co. Ct. 26; In re Newton Hamil- ton Oil & Gas Co., 10 Pa. Co. Ct. 452; In re Eichmond Eetail Coal Co., 9 Pa. Co. Ct. 172; In re Incorporation of In- dependent Order Silver Star, 1 Luz. Leg. Eeg. 768. Wisconsin. Milwaukee Light, Heat & Traction Co. v. Milwaukee N. B. Co., 132 Wis. 313, 112 N. W. 663. England. In re Crown Bank, 44 Ch. Div. 634; Ashbury Eailway, Carriage & Iron Co. v. Eiehe, L. E. 7 H. L. 653. See § 195, infra. 39 West V. Bullskin Prairie Ditching Co., 32 Ind. 138 ; Williams v. Citizens ' Enterprise Co., 25 Ind. App. 351, 57 N. B. 581; Bayou Cook Navigation & Fisheries Co. v. Doullut, 111 La. 517, 35 So. 729. The Supreme Court of Michigan has laid down the following rules in refer- ence to compliance with this require- ment: "The law requires the articles of association to state distinctly and definitely the purpose for which the same is formed. If it does not state a purpose for which the statute author- izes a corporation to be formed, it would not be legally incorporated, and its articles would afford no warrant for the exercise of corporate action. If it does state such a purpose, and if the other requirements of the law are com- plied with, it is a legal corporation, and authorized to act as such. In either case the articles themselves are the sole criterion to ascertain the pur- pose for which it was formed, and the intent must be gathered alone from the written instrument, and cannot be aided or varied or contradicted by testimony or averments aliunde the in- strument itself. The question, there- fore, is, is the purpose set forth in the articles such as the statute authorizes the formation of corporations to carry on? We think it is. Its expressed pur- pose is to manufacture for market Detroit river and lake ice. It was not necessary for the articles to state the means or methods of manufacture, nor are we to presume that the undertak- ing would be impossible of accomplish- 213 119] Private Cobpokations tCh. 4 sawmill, is not void because the articles of incorporation state that one of the purposes of the corporation is to buy, lease, sell, mortgage, and otherwise deal in railroads, tramways, and rights of way, on the ground that the statute authorizing the incorporation of private cor- porations prohibits the incorporation of railways thereunder ; for such a provision would not authorize the corporation to buy, sell, lease, or operate a railway.** A statement that the object of the corporation is to carry on any business which it may deem profitable is not sufficient." ment." Attorney-General v. Lorman, Kees Bock Volunteer Fireman 's Belief 59 Mich. 157, 60 Am. St. Eep. 287, 26 N. W. 311. See also Bayou Cook Navi- gation & Fisheries Co. v. Doullut, 111 La. 517, 35 So. 729 ; In re Aeeountants ' Aas'n, 18 Pa. Co. Ct. 159; In re Bieh- mond Eetail Coal Co., 9 Pa. Co. Ct. 172. Under a statute authorizing the for- mation of corporations "for building and repairing" steamboats and ves- sels, a statement in a certificate of incorporation that the purpose of the corporation is that of "building, re- pairing and maintaining steamboats and vessels" is sufficient to create a de jure corporation. Gaff v. Flesher, 33 Ohio St. 453. 40 People V. Mt. Shasta Mfg. Co., 107 Cal. 256, 40 Pac. 391. In this case the court said that it appeared that such statement referred merely to such railroads and tramv/ays as might be necessary to the company's plant. See Ellerman v. Chicago Junct. Bailways & TTnion Stock Yards Co., 49 N. J. Eq. 217, 23 Atl. 287, where the certificate of incorporation was construed. 41 In re Crown Bank, 44 Ch. Div. 634. See also in this connection: Georgia. In re Deveaux, 54 6a. 673. Missouri. Bowman Dairy Co. v. Mooney, 41 Mo. App. 665. New Jersey. Ellerman v. Chicago Junct. Bailways & Union Stock Yards Co., 49 N. J. Eq. 217, 23 Atl. 287. Ohio. State v. Central Ohio Mut. Belief Ass'n, 29 Ohio St. 379. Pennsyivania. In re National Lit- erary Ass'n, 30 Pa. St. 150; In re Mc- Ass'n, 6 Pa. Dist. 235; In re Account- ants' Ass'n of Pittsburg, 18 Pa. Co. Ct. 159; In re Journalists' Fund of Philadelphia, 8 Phila. 272. England. In re Welsbach Incan- descent Light Co., [1904] 1 Ch. 87; Ashbury Eailway, Carriage & Iron Co. v. Eiehe, L. E. 7 H. L. 653; In re Cool- gardie Gold Mines, 76 L. T. (N. S ) 229. Where the statute provides that the certificate of incorporation shall state the manner of carrying on the busi- ness of the association, a certificate of incorporation stating that ' ' the manner of carrying on the business shall be such as the association may from time to time prescribe ' ' was held not to be a sufficient compliance vidth the statute. State v. Central Ohio Mut. EeUef Ass'n, 29 Ohio St. 399. " It is not necessary that the articles of association shall designate ♦ * • all the powers which it may exercise when duly incorporated. It is suf- ficient if they designate in general terms the purposes for which the corporation is organized; and when organized, such corporation may exer- cise all the powers which are conferred upon such corporations by statute, and probably all such powers as are usually exercised by similar corporations, and which are necessary to accomplish the purposes of such corporation, not in conflict with the laws of the state." Wendell v. State, 62 Wis. 300, 22 N. W. 435. The articles of incorporation of a 214 Ch. 4] Objects fob Which Cbeated [§ 119 No other powers, privileges, or immunities than those prescribed by the legislature can be conferred upon a corporation by including them in the articles of association.** Where a statute, while permitting the organization of corporations to carry on many kinds of business, requires that the certificate of incorporation shall state the object for which the corporation is formed, this statement of the object of the corporation is not only a limitation of the franchises that are derived by the corporations from the state, but is likewise a limitation of the purposes to which the corporators as between themselves have agreed that the joint capital shall be devoted.*^ The statutory requirement that the articles of association shall state the purpose for which the corporation is formed is not only to inform the sovereign power from which the corporation derives its right to exist, but also for the purpose of formulating in a solemn and binding manner the contract of association between the incorporators.** Where, in preparing a certificate of incorporation the incorporators employ only the words used in the statute to describe the general pur- poses of such incorporation, it will be presumed that they intended to create a corporation of the same general powers granted by the statute, rather than that by such words they sought to apply special limitations upon the powers of the corporation.** The fact that the articles of association contain unauthorized pro- visions in addition to those which are authorized, does not render the organization of the corporation void, for they maj^ be rejected as sur- plusage.*® The rest of the charter is not impaired, but the unauthor- manufacturing corporation need not Co., 32 Ind. 169; West v. Bullskin state the particular kind of manu- Prairie Ditching Co., 32 Ind. 138; In facturing in which it is proposed to re Incorporation of Independent Order engage, unless it is required by the Silver Star, 1 Luz. Leg. Eeg. (Pa.) state authorizing the incorporation. 768. Hughes v. Antietam Mfg. Co., 34 Md. 45 Whetstone v. Ottawa University, 316. 13 Kan. 320. 42 People V. Bose, 188 m. 268, 59 N. 46 Alabama. Grangers' Life & E. 432; Eastern Plank Boad Co. v. Health Ins. Co. v. Kamper, 73 Ala. Vaughan, 14 N. Y. 546; In re Medical 325. College of Philadelphia, 3 Whart. District of Columbia. Daney v. (Pa.) 445. See § 195, infra. Clark, 24 App. Cas. 487. 43 Colgate v. United States Leather JUinois. People v. Chicago Gas Trust Co., 75 N. J. Eq. 229, 19 Ann. Cas. Co., 130 HI. 268, 8 L. B. A. 497, 17 Am. 1262, 72 Atl. 126. St. Bep. 319, 22 N. E. 798. 44Biley v. Callahan Min. Co., 28 Indiana^ See Marion Bond Co. v. Idaho 525, 155 Pae. 665. See also Mexican CofEee & Bubber Co., 160 Ind. O'Beiley V.Kankakee Valley Draining 558, 65 N. E. 748; Shiek v. Citizens' 215 §119] Peivate Coepokations [Ch.4 ized purpose is ineffective and confers no power upon the corporation.*'' Where the statute authorizing the formation of corporations requires the articles of association to specify the purpose for which the corpora- tion is to be created, this should be done with sufficient clearness to define with some certainty the scope of the business or undertaking prescribed, and to enable the officer granting the charter to see that the purpose specified is one provided for by the statute.** Where a statute authorizing the formation of societies, corporations and associations not for pecuniary profit, provides that any three or more persons desiring to associate themselves for any lawful purpose, other than for pecuniary profit, may make and file in the office of the secretary of state a certificate stating among other things the particu- lar businesses and objects for which the proposed corporation is to be formed, and that upon such certificate being go filed, the secretary of state shall thereupon issue a certificate of organiza- tion, it is held that the secretary of state is not required to issue such a certificate of incorporation when it clearly ap.pears frota the certificate of intention filed in his office that the cor- poration is being organized for business purposes only, and with a view to the pecuniary profit of the incorporators,*® but that while he Enterprise Co., 15 Ind. App. 329, 57 Trust Co., 130 111. 268, 8 L. E. A. 497, 17 Am. St. Eep. 319, 22 N. E. 798; Heck V. McEwen, 12 Lea (Tenn.) 97. See §§ 112, 117, supra. 48 Johnston v. Townsend, 103 Tex. 122, 124 S. "W. 417. See also In re Na- tional Literary Ass'n, 30 Pa. St. 150; In re Italian Mut. Beneficial Ass'n, 4 Pa. Dist. 357; In re Lodge Duch Nove Doby, No. 165, 3 Pa. Dist. 215; In re Biohmond Retail Coal Co. of Phila- delphia, 9 Pa. Co. Ct. 172. Where the judge granting the appli- , cation for a charter is required to cer- tify that the corporation "is lawful and not injurious to the community," the charter should contain sufficient to enable him to make such certificate, and it is not sufficient to state the purpose of the corporation in the brief language of the act authorizing the formation of the corporation. In re Lodge Duch Nove Doby, No. 165, 3 Pa. Dist. 215. 49 People V. Eose, 188 111. 268, 59 N. E. 432. See also People V, Whales, Am. St. Eep. 230, 44 N. E. 48, dis- tinguished in Williams v. Citizens' Enterprise Co., 25 Ind. App. 351, 57 N. E. 581. New York. Eastern Plank Eoad Co. V. Vaughan, 14 N. Y. 546. Tennessee. Shoun v. Armstrong (Tenn.), 59 S. W. 790; Heck v. McEwen, 12 Lea 97. "The mere fact that the articles of association mention some purposes not within the purview of the statute, does not vitiate the organization." Shick V. Citizens' Enterprise Co., 15 Ind. App. 329, 57 Am. St. Eep. 230, 44 N. E. 48, distinguished in Williams v. Citizens' Enterprise Co., 25 Ind. App. 351, 57 N. E. 581. See §§ 112, 114, 117, supra. 47 Tennessee Automatic Lighting Co. V. Massey (Tenn.), 56 S. W. 35. See also Oregon Ey. & Nav. Co. v. Oregonian Ey. Co., 130 V. S. 1, 32 L. Ed. 837; Dancy v. Clark, 24 App. Cas. (D. C.) 487; People v. Chicago Gas 216 CL4] Objects foe Which Cheated [§120 in the first instance may determine whether the corporation is being organized for pecuniary profit, or for a purpose not for pecuniary profit, the ultimate decision of the question rests with the courts.*" § 120. Corporations for manufacturing or mechanical purposes. The statutes of many of the states authorize the formation of corpora- tions for the purpose of carrying on the business of "manufacturing," OT the formation of ' ' manufacturing corporations. ' ' '^ "Manufacture" has been defined as "the operation of making goods or wares of any kind, the production of articles for use from raw or prepared material by giving to these materials new forms, qualities, properties, or combinations, whether by hand labor or machinery. ' ' ** Manufacturing corporations are defined to be such corporations as 3,re engaged in "the production of some article, thing, or object by skill or labor out of raw material, or from matter which has already been subjected to artificial forces. ' ' *^ The mere appropriation of an article which is furnished by nature, 56 N. T. Misc. 278, 106 N. Y. Supp. 434, 119 N. r. App. Div. 749, 104 N. Y. Supp. 555; Miller v. Tod, 95 Tex. 404, 67 S. W. 483. Where the articles of association of a proposed corporation show that the incorporators have failed to comply with the provisions of the statute under which the creation of such a cor- poration is organized, the secretary of state is under no duty to file the articles, and he will not be compelled to do so by mandamus. State v. Nichols, 40 Wash. 437, 82 Pac. 741. See also State v. Nichols, 38 Wash. 309, 80 Pac. 462. 60 People V. Rose, 188 111. 268, 59 N. E. 432; People v. Chicago Gas Trust Co., 130 111. 268, 8 L. B. A. 497, 17 Am. St. Rep. 319, 22 N. E. 798. See also Dancy v. Clark, 24 App. Cas. (D. C.) 487; Miller v. Tod, 95 Tex. 404, 67 S. W. 483. And see §§ 112, 114, 115, 116, supra. Under a statute requiring that the certificate of incorporation shall have the written approval of a judge of a certain court of the state and should be filed in the office of the secretary of state, it was held that the secretary of state might look into the object of a proposed corporation and refuse to file the certificate, even though it had been so approved by the judge. People v. Nelson, 3 Lans. (N. Y.) 394, rev'd 11 Abb. Pr. (N. S.) 106, aff'd 46 N. Y. 477. See also People v. Rice, 68 Hun (N. Y.) 24, 22 N. Y. Supp. 631. See §§ 112, 114, 117, supra. 51 See § 88, supra. B2 Century Diet. & Cye. "Manu- facture." See also First Nat. Bank of Richmond v. Wm. R. Trigg Co., 106 Va. 327, 56 S. E. 158. See § 88, supra. The mere appropriation of an article which is furnished by nature is not a manufacture. Com. v. Northern Elee. Light & Power Co., 145 Pa. St. 105, 14 L. R. A. 107, 22 Atl. 839. "The process of manufacture is sup- posed to produce some new article by the application of skill and labor to raw material." People v. Roberts, 145 N. Y. 375, 40 N. E. 7. 63 People V. Knickerbocker Ice Co., 99 N. Y. 181, 1 N. B.^ 669, aff'g 32 Hun (N. Y.) 475. 217 §120] Peivate Coepokations [Ch.4 or the buying and selling of an article without changing its character is not a manufacture, and a corporation engaged therein is not a manu- facturing corporation. It has been held, therefore, that a statute authorizing the formation of manufacturing corporations will author- ize a corporation for any business which properly falls within the definition of "manufacture," but will not authorize a corporation whose business consists in the mere appropriation and sale of an article furnished by nature, without changing its form, qualities, properties, or combinations by hand labor or machinery. Nor will it authorize a corporation for the mere purchase and sale of goods, without changing their form, qualities or properties, etc.** It has been held, also, expressly, or in effect by the construction of other statutes referring to "manufacturing" corporations, that a statute authorizing the formation of such corporations doea not authorize a corporation for liberating natural gas or oil from the earth, and transporting it to consumers ; ** a corporation for mining and selling coal or ore ; *® a corporation for taking water from a natural source and distributing it through ditches or pipes ; *'' a corporation 54 See § 88, supra. See also in this connection: Alabama. Beggs v. Edison Blee. Illuminating Co., 96 Ala. 295, 38 Am. St. Eep. 94, 11 So. 381. Massachusetts. Byers v. Franklin Coal Co., 106 Mass. 131; Dudley v. Jamaica Pond Aqueduct Corporation, 100 Mass. 183. New Jersey. Press Printing Co. v. Board of Assessors, 51 N. J. L. 75, 16 Atl. 173; Evening Journal Ass'n v. State Board of Assessors, 47 N. J. L. 36, 54 Am. Eep. 114. New York. People v. Roberts, 155 N. Y. 408, 41 L. E. A. 228, 50 N. E. 53, rev'g 20 App. Div. 521, 47 N. Y. Supp. 123; People v. Roberts, 145 N. Y. 375, 40 N. E. 7; People v. Horn Silver Min. Co., 105 N. Y. 76, 11 N. E. 155, afE'd Horn Silver Min. Co. v. New York, 143 U. S. 305, 36 L. Ed. 164; People v. New York Floating Dry Dock Co., 63 How. Pr. 451, aff'd 92 N. Y. 487. Pennsylvania. Com. v. Juniata Coke Co., 157 Pa. St. 507, 22 L. E. A. 232, 27 Atl. 373; Com. v. Pottsville Iron & Steel Co., 157 Pa. St. 500, 22 L. E. A. 228, 27 Atl. 371; Com. v. Northern Elec. Light & Power Co., 145 Pa. St. 105, 117, 14 L. E. A. 107, 22 Atl. 839. Virginia. First Nat. Bank of Rich- mond V. William R. Trigg Co., 106 Va. 327, 56 S. B. 158. 65 Com. V. Northern Elec. Light & Power Co., 145 Pa. St. 105, 117, 14 L. E. A. 107, 22 Atl. 839. 56 Horn Silver Min. Co. v. New York, 143 XT. S. 305, 36 L. Ed. 164, aff'g People v. Horn Silver Min. Co. 105 N. Y. 76, 11 N. E. 155; Byers v. Franklin Coal Co., 106 Mass. 181 ; Hoi land v. Duluth Iron Mining & Develop ment Co., 65 Minn. 324, 60 Am. St, Rep. 480, 68 N. W. 50; Cowling v Zenith Iron Co., 65 Minn. 263, 33 L E. A. 508, 60 Am. St. Rep. 471, 68 N. W. 48. See Com. v. Juniata Coke Co., 157 Pa. St. 507, 22 L. R. A. 232, 27 Atl. 373; Com. v. Pottsville Iron & Steel Co., 157 Pa. St. 500, 22 L. E. A. 228, 27 Atl. 371. 67 Dudley v. Jamaica Pond Aqueduct Corporation, 100 Mass. 183. Within the meaning of the federal 218 Ch.4] Objects for Which Created [§120 for publishing a daily newspaper, although it may incidentally carry on a jobbing, printing, and publishing business;^* a corporation formed for the purpose of constructing, using, and providing docks for building, raising and repairing vessels and steamers ; ^® a corporation for the purpose of constructing and repairing vessels ; *" a corporation for purchasing sheep and lambs, slaughtering them, pulling the wool from the hides, converting the offal ijito fertilizer, reducing the car- casses to a temperature that, will retard decomposition, and shipping them to places for deliveiy to consumers ; ®^ a corporation for the purchase and sale of spices, baking powder, tea, and coffee, not manu- factured by it, but purchased in bulk, although it may put up the bankruptcy act providing that eorpora- tioHs engaged principally in manu- facturing might be adjudged voluntary bankrupts, it was held that an irri- gation corporation formed to supply rice fields with water is not a manu- facturing corporation. In re Bay City Irrigation Co., 135 Fed. 850. 68 In re Capital Pub. Co., 3 Mao Arthur (D. C.) 405; Oswald v. St. Paul Globe Pub. Co., 60 Minn. 82, 61 N. W. 902; Press Printing Co. v. Board of Assessors, 51 N. J. L. 75, 16 Atl. 173; Evening Journal Ass'n v. State Board of Assessors, 47 N. J. L. 36, 54 Am. Rep. 114. See In re Kenyon, 1 Utah 47. A corporation which publishes a newspaper, but which does not own or operate any plant for printing it, and takes no part in printing it further than to have a foreman, who watches the work as it progresses in the hands of a contractor, by whom the type is set and the paper printed at a price agreed upon, is not a manufacturing corporation. People v. Eoberts, 19 N. Y. App. Div. 632, 46 N. Y. Supp. 1099, 155 N. Y. 1, 49 N. E. 248. 69 People V. New York Floating Dry Dock Co., 63 How. Pr. (N. Y.) 451, 92 N. Y. 487. 60 People V. New York Floating Dry Dock Co., 63 How. Pr. (N. Y.)_451, 92 N. Y. 487. It is held in Virginia, however, that a corporation organized for the pur- pose of constructing, building, and equipping ships, boats, and vessels em- ployed in commerce, is a manufactur- ing corporation within the meaning of a statute giving a lien to all persons furnishing to a manufacturing or min- ing company, supplies necessary to the operation of the same. First Nat. Bank of Richmond v. Wm. E. Trigg Co., 106 Va. 327, 56 S. E. 158, citing Columbia Ironworks v. National Lead Co., 127 Fed. 99, 64 L. R. A. 645; Hastings Malting Co. v. Iron Range Brewing Co., 65 Minn. 28, 33 L. R. A. 510, 67 N. W. 652; Nassau Gas Light Co. v. City of Brooklyn, 89 N. Y. 409; People V. Morgan, 48 N. Y. App. Div. 395, 63 N. Y. Supp. 76; Bngle v. Sohn, 41 Ohio St. 691, 52 Am. Rep. 103; Norris v. Com., 27 Pa. St. 496; Com. V. Keystone Bridge Co., 156 Pa. St. 500, 27 Atl. 1. See also Columbia Ironworks v. National Lead Co., 127 Fed. 99, 64 L. R. A. 645, where it was held that a corporation authorized to engage in building and repairing and which was principally engaged in building vessels used in commerce, was a manufacturing corporation. 61 People V. Roberts, 155 N. Y. 408, 50 N. E. 53, rev'g 20 N. Y. App. Div. 521, 47 N. Y. Supp. 123. It was held, however, in Engle v. Sohn & Co., 41 Ohio St. 691, 52 Am. Rep. 103, that a pork packer — a person 219 120] Private Coepokations [Ch.4 spices and baking powder in packages for sale, may mix different kinds of tea together, put them up in packages, and sell them as ' ' combina- tion tea, ' ' and may purchase the coffee raw, and roast and grind it ; ^* a corporation for the purpose of buying, selling, shipping, and storing of grain, building materials, cattle, and various other articles, although it may, as an insignificant part of its business, manufacture flour and feed; ®' nor is a corporation formed to carry on a general business of engaged in the business of purchasing and slaughtering hogs, curing the meat, packing the same, and selling it — was a manufacturer. Compare Jack- son V. State, 15 Ohio 652. 62 People V. Roberts, 145 N. T. 375, 40 N. E. 7. 63 Mohr v. Minnesota Elevator Co., 40 Minn. 343, 41 N. W. 1074. If the business of a corporation is not manufacturing, the fact that it does a trifling or insignificant amount of manufacturing will not make it a manufacturing corporation, within the meaning of a statute. In Mohr v. Minnesota Elevator Co., 40 Minn. 343, 41 N. W. 1074, it was held on this ground that the stockholders of a cor- poration were not exempt from liabil- ity for its debts under a statute or constitutional provision exempting the stockholders of manufacturing corpora- tions, where it was evident, not only from the articles of association, but also from the business actually trans- acted, that its primary object was to carry on a business wholly foreign to manufacturing, — the buying, selling, shipping and storing of grain, build- ing materials, cattle, etc., — although an insignificant part of its business was the manufacturing of flour and feed. See also Strait v. National Harrow Co., 18 N. Y. Supp. 224, where it was questioned but not decided whether a corporation could be organized under the manufacturing acts where manu- facturing was only incidental to the main purpose of the corporation. Under a statute providing that each stockholder in a corporation, except those organized for the purpose of carrying on any kind of manufactur- ing or mechanical business, shall be liable to the extent of the stock owned or held by him, it was held that a cor- poration was not within the exception where its articles of incorporation stated that ' ' the general nature of the business shall be the buying of grain, and the manufacturing and distilling of the same into liquor, and the manu- facturing, distilling, buying and sell- ing, and dealing in, liquor, and the conducting of one or more distilleries for that purpose." St. Paul Barrel Co. V. Minneapolis Distilling Co., 62 Minn. 448, 64 N. "W. 1143. A corporation organized for the pur- pose of "buying, manufacturing and dealing in milk, cream, butter, cheese, and other dairy products, and pasteur- izing and treating said milk, and pack- ing, storing, handling and selling said products, when so pasteurized and treated," was held not to be an ex- clusively manufacturing corporation within the meaning of such statute. Meen v. Pioneer Pasteurizing Co., 90 ' Minn. 501, 97 N. W. 140. A similar ruling was made where the purposes for which the corporation was incor- porated were to be the manufacture, purchase, repair, and sale of plows, cultivators, and other farming and ag- ricultural implements of all kinds. First Nat. Bank of Winona v. Winona Plow Co., 58 Minn. 167, 59 N. W. 997. See also Hastings Malting Co. v. Iron Eange Brewing Co., 65 Minn. 28, 67 N. W. 652; Anchor Inv. Co. v. Colum- bia Elee. Co., 61 Minn. 510, 63 N. W. 220 Ch.4] Objects for Which Ckeatbd [§120 distilling, redistilling and rectifying high wines, alcohol, spirits, gins and whiskies, and to deal in the same and own the property necessary for that purpose, and also to engage in feeding and dealing in cattle and other live stock ; ®* nor a telephone nor a telegraph company, though it produces electricity by artificial means, and uses it in its own business as a carrier of messages for the public.®'* On the other hand, such a statute will authorize the formation of -a corporation for the purpose of making and selling lumber, flour, and meal; ^ a corporation for making illuminating gas or electricity, and furnishing it to consumers for lighting, heating, or power ; ^^ a corpo- 1109; Oswald v. St. Paul Globe Pub. Co., 60 Minn. 82, 61 N. W. 902; Dens- more V. Shepard, 54 Minn. 54, 48 N. W. 528; Arthur v. Willuns, 44 Minn. 409, 46 N. W. 851; Mohr v. Minnesota Ele- vator Co., 40 Minn. 343, 41 N. W. 1074. It is held, however, that the creation and production of motive power for transmission and use is a manufacturing business within the meaning of such a statute. Cuyler v. City Power Co., 74 Minn. 22, 76 N. W. 948. It was held in Com. v. Northern Elec. Light & Power Co., 145 Pa. St. 105, 14 L. E. A. 107, 22 Atl. 839, and Com. V. Edison Elec. Light & Power Co., 170 Pa. St. 231, 32 Atl. 419, that a corporation which produces electricity, and sells it to customers for the gen- eration of light, heat or power, is not a manufacturing corporation within the meaning of a statute exempting the capital stock of manufacturing corporations from taxation. See, how- ever, Beggs V. Edison Elec. Light & Illuminating Co., 96 Ala. 295, 38 Am. St. Eep^ 94, 11 So. 381, and People v. Wemple, 129 N. Y. 543, 14 L. B. A. 708, 29 N. E. 808, where it was held that an electric light company is a manufacturing company. In Com. V. Keystone Elec. Light, Heat & Power Co., 193 Pa. St. 245, 44 Atl. 326, the court distinguished the cases of Com. v. Northern Elec. Light & Power Co., 145 Pa. St. 105, 14 L. E. A. 107, 22 Atl. 839, and Com. v. Edison Elec. Light Co., 170 Pa. St. 231, 32 Atl. 419, and held that an electric light, heat and power company was a manufacturing company within the meaning and intent of a statute pro- viding that whenever the property and franchise of a manufacturing company shall be sold at judicial sale, the pur- chasers may reorganize the corpora- tion. See also Southern Elec. Light & Power Co. v. City of Philadelphia, 191 Pa.. St. 170, 43 Atl. 123. In Illinois, it is held that a corpora- tion formed to furnish light, heat and power for public and private uses is not a corporation organized for purely manufacturing purposes within the meaning of a statute, exempting from taxation the capital stock of. corporations organized for purely manufacturing purposes. Evanston Elec. Illuminating Co. v. Kocher- perger, 175 111. 26. 64 Distilling & Cattle Feeding Co. v. People, 161 111. 101, 43 N. E. 779. 65 See Com. v. Northern Elec. Light & Power Co., 145 Pa. St. 105, 14 L. E. A. 107, 22 Atl. 839. 66 Cross V. Pickneyville Mill Co., 17 III. 54. 67 Beggs v. Edison Elec. Illuminat- ing Co., 96 Ala. 295, 38 Am. St. Eep. 94, 11 So. 381; Burke v. Mead, 159 Ind. 252, 64 N. E. 880; People v. Wemple, 129 N. Y. 543, 14 L. E. A. 708, 29 N. E. 808; Nassau Gas Light Co. v. City of 221 120] Private Cokpobations [Cli.4 ration "to conduct and prosecute the business of book printing and job printing, engraving, electrotyping, and lithographing," whose capital is invested in that business, and which executes only on orders ; ®* a corporation organized for the purpose of carrying on the business of publishing books, of dealing in books, maps and periodicals, stationery, and other like articles, and of printing and book bind- ing ; *9 a corporation for manufacturing all kinds of lumber, and the Brooklyn, 89 N. Y. 409; Com. v. Key- stone Elee. Light, Heat & Power Co., 193 Pa. St. 245, 44 Atl. 326, distinguish- ing Com. V. Northern Elee. Light & Power Co., 145 Pa. St. 105, 14 L. E. A. 107, 22 Atl. 839, and Com. v. Edison Eleo. Light & Power Co., 170 Pa. St. 231, 32 Atl. 419; Southern Elee. Light & Power Co. v. City of Philadelphia, 191 Pa. St. 170, 43 Atl. 123; Com. v. Allegheny Gas Co., 1 Dauph. Co. Eep. (Pa.) 93. "That the production of electricity is a species of manufacturing, and therefore within the charter power of the prosecutor, seems to be abundantly supported by judicial decision, where- in kindred questions have presented the inquiry for determination. People V. Wemple, 129 N. Y. 543, 14 L. B. A. 708, 29 N. E. 808; Frederick Co. v. Frederick City, 84 Md. 599, 36 L. R. A. 130, 36 Atl. 362. If there were an • existing doubt as to the interpretation to be given this term in its applica- tion under multiform statutes, in which it is employed in various states, the legislative direction contained in the thirty-seventh section of the charter of the society that, 'This act shall in all things be construed in the most favorable manner for said respective corporations,' would seem in this in- stance to relieve the situation of all reasonable doubt." Society for Es- tablishing Useful Manufactures v. City of Paterson, 88 N. J. L. 123, 96 Atl. 92. See Frederick Elee. Light & Power Co. V. City of Frederick, 84 Md. 599, 36 L. K. A. 130, 36 Atl. 362. 68 Press Printing Co. v. State Board of Assessors, 51 N. J. L. 75, 16 Atl. 173; Evening Journal Ass'n v. State Board of Assessors, 47 N. J. L. 36, 54 Am. Eep. 114. See In. re Kenyon, 1 Utah 47. 69 Com. V. J. B. Lippincott Co., 156 Pa. St. 513, 27 Atl. 10; Com. v. Wm. Mann Co., 150 Pa. St. 64, 24 Atl. 601. It is to be noted, however, that in reaching this conclusion, the court treated the mercantile part of the charter, embodied in the word ' ' deal- ing" as void, and consequently as if it did not exist, following Com. v. Thack- ara Mfg. Co., 156 Pa. St. 510, 27 Atl. 13, where the charter of a corporation organized under a general statute au- thorizing incorporation for manufact- uring purposes, stated that the corporation was organized for "the purpose of 'manufacturing, buying, selling, and dealing in lamps, gas, and electric fixtures and art metal work, ' ' ' and it was held that the mer- cantile clause in the charter gave it no lawful authority, and being simply void, must be treated as if it did not exist. The court said: "The defend- ant's charter contains two distinct powers, namely, to manufacture, and also to buy, sell and deal as a mer- chant. These are not incident to each other, or so necessarily connected that the grant of one carries with it a grant of the other. The power to manu- facture, of course, implies a power to sell the article thus produced; but the power both to buy and to sell — to buy goods in order to sell them afterwards, and to do this habitually and as a business, thus becoming a 222 Ch.4] Objects for Which Cheated [§120 sale of the same, and the purchasing and selling of miUs, lands, stand- ing timber, logs and lumber, for the purpose of such business ; "* a corporation for refining and preparing for use oil, coal, and other minerals ; ''^ a corporation to plant, cultivate, harvest, store, purchase, manufacture, market, sell and deal in chicory ; '* and a corporation for the manufacture of any fibrous or other substance into cordage, twine, rope, and other goods, wares and merchandise, and the sale of such products.''^ A corporation organized for the manufacture and sale of mineral and other waters, which pumps mineral water from weUs, and bottles and sells part of it in its natural state and manufactures a part of it into ginger ale, root beer and other like products has been held to be a manufacturing corporation^* A corporation, the business of which ia '1 Hawes v. Anglo-Saxon Petroleum Co., 101 Mass. 385. A corporation is engaged in manu- facturing where its business is that of heating and mixing refined asphalt, oil sand and limestone in such pro- portions as to produce a new substance for a purpose for which none of the raw materials alone would be avail- able. People V. Morgan, 61 N. Y. App. Div. 373, 70 N. Y. Supp. 516. See also People v. Knight, 99 N. Y. App. Div. 62, 90 N. Y. Supp. 537. 72 Bolton V. Nebraska Chicory Co., 69 Neb. 681, 96 N. W. 148. 73 Waterbury v. Atlas Steam Cord- age Co., 42 La. Ann. 723, 7 So. 783. A corporation whose articles of in- corporation state that its business shall be the manufacturing of clothing of ev^ry description, and the sale of clothing so manufactured, and the transaction of all other business necessary and incidental to such manu- facture and sale of clothing, is a manufacturing corporation exclu- sively. Nicollet Nat. Bank v. Frisk- Turner Co., 71 Minn. 413, 70 Am. St. Eep. 334, 74 N. W. 160. 74 Carlsbad Water Co. v. New, 38 Colo. 389, 81 Pac. 34. merchant or dealer — is not a necessary incident to the business of manufact- uring. Manufacturers constitute a separate class from merchants or deal- ers * » '^ and, although the two characters may be united in one per- son, they do not merge. » * * J'ortunately for the defendant, how- ever, the mercantile clause in its charter gives it no lawful authority, and, being simply void, must be treat- ed as if it did not exist. No act of assembly authorizes the incorporation of merchants and dealers, and there- fore the apparent grant of power to carry on the business of dealing or of buying and selling is apparent only, and not real. It needs no argument or citation of authority to support the proposition that a valid corporate pow- er thus to carry on the business can only be given by virtue of a statute. It follows of necessity that the mer- cantile words drop out of the charter, and the defendant is left with the single power to manufacture. ' ' See also Com. v. J. B. Lippineott Co., 156 Pa. St. 513, 27 Atl. 10; Com. v. West- inghouse Elec. & Mfg. Co., 151 Pa. St. 265, 24 Atl. 1107, 1111; Com. v. Wm. Mann Co., 150 Pa. St. 64, 24 Atl. 601. 70 Wagner v. Corcoran, 2 Pa. Dist. 440. 223 § 120] Peivate Corpoeations [Ch.4 to buy from others in a rough and unfinished form, all the necessary luflttber, iron, steel, and other metals and to finish, shape, frame and design and make suitable for use such material at its own shops, and sell the finished material for such use as may be intended or appro- priate,' and put together and erect such material into bridges, roofs and other structures or machinery, is held to be a manufacturing cor- poration within the meaning of a statute exempting manufacturing corporations from taxation on their capital stock.''^ A corporation for making ice by artificial means is a manufacturing corporation.'''^ There is, however, a difference of opinion in respect to whether a corporation for the purpose of collecting, storing and marketing ice formed by natural causes is a manufacturing corporation. By the weight of authority it is held that it is not a manufacturing corporation.^'' 75 Com. V. Keystone Bridge Co., 156 Pa. St. 500, 27 Atl. 1, quoted with ap- proval in First Nat. Bank of Rich- mond V. Wm. E. Trigg Co., 106 "Va. 327, 56 S. E. 158. TS' Attorney General v. Lorman, 59 Mich. 157, 60 Am. Bep. 287, 26 N. W. 311; People v. Knickerbocker Ice Co., 99 N. Y. 181, 1 N. E. 669, aff'g 32 Hun (N. T.) 475. See also Beggs V. Edison Elec. Illuminating Co., 96 Ala. 295, 38 Am. St. Eep. 94, 11 So. 381; Com. v. Northern Elec. Light & Power Co., 145 Pa. St. 105, 117, 14 L. B. A. 107, 22 Atl. 839. 77 Hittinger v. Westf ord, 135 Mass. 258; People v. Knickerbocker Ice Co., 99 N. Y. 181, 1 N. E. 669, aff'g 32 Hun (N. Y.) 475. See also dicta in Beggs V. Edison Elec. Illuminating Co., 96 Ala. 295, 38 Am. St. Bep. 94, 11 So. 381, and Com. v. Northern Elec. Light & Power Co., 145 Pa. St. 105, 14 L. K. A. 107, 22 Atl. 839, and dissenting opinion of Champlin, J., in Attorney General v. Lorman, 59 Mich. 157, 60 Am. Eep. 287, 26 N. W. 311. In People v. Knickerbocker Ice Co., 99 N. Y. 181, 1 N. E. 669, aff'g 32 Hun (N. Y.) 475, the court in hold- ing that such a corporation was not a manufacturing corporation with- in the contemplation of an act exempt- ing manufacturing corporations from taxation, said: "Its dealing is with 'ice' as an existing article, not the manufacture or production of ice by combination of materials, or the appli- cation of forces, or otherwise. It col- lects, stores, and preserves that which natural causes created, and which other natural causes would destroy and waste. It seeks only to hold these last in check. Similar operations would equally apply to water, fruit, sand, gravel, coal, and other natural produc- tions. Water might be improved by filtration; fruit by judicious pruning of the tree or vine, or protection by glass; sand and gravel by screening; cobble-stones by selection; and coal by breaking; and each by various proc- esses stored until the season of de- mand, when, having been ' collected, stored, preserved, and prepared for sale,' the natural article, and not other, would be put on the market. No doubt ice may be manufactured and frigorific effects produced by artificial, means. Corporations exist for that pur- pose, and come literally within our manufacturing laws. Their methods in no respect resemble those of the de- fendant. Its tools and implements are for convenience in handling and marketing a product, and not at all for making it. Many cases are cited by the learned counsel for the appel- 224 Ch.4] Objects fok Which Created [§120 The Supreme Court of Michigan has held, however, that a corpora- tion organized for the purpose of putting up, packing and manufac- turing for market, river and lake ice, and distributing and selling. the same was authorized by a statute authorizing the formation of corpo- rations for the purpose of carrying on any kind of mining or manu- facturing business.''* lant, but we find none so compre- hensive as to include this ease. They all, so far as they have any applica- tion, require the production of some article, thing, or object by skill or labor out of raw material, or from mat- ter which has already been subjected to artificial forces, or to which some- thing has been added to change its natural condition." See also People V. Knickerbocker Ice Co., 32 Hun (N. Y.) 475, aff'd 99 N. Y. 181, 1 N. E. 669, and opinion of Champlin, J., in Attorney General v. Lorman, 59 Mich. 157, 60 Am. Eep. 287, 26 N. W. 311, who said: "Speaking for myself, however, I must say that if this were a proceeding under sections 8646 and 8647, to test the right of the Belle Isle lee Company to carry on the business set forth in the replication, I should not consider that business a manu- facturing business within the meaning of the law, for reasons which are set forth in the opinion of Mr. Justice Danforth, in the case of People v. Knickerbocker Ice Co., 99 N. Y. 181, 1 N. E. 669, and to my mind are very satisfactory. ' ' 78 Attorney General v. Lorman, 59 Mich. 157, 60 Am. Eep. 287, 26 N. W. 311. Champlin, J., speaking for the court, said : ' ' Worcester defines ' manu- facture' as follows: '(1) The process of making anything by art, or of re- ducing materials into form fit for use by hand or by machinery; as "an es- tablishment for the manufacture of cloth." (2) Anything made or manu- factured by hand or manual dexterity, or by machinery.' The same word, as a verb, he defines (1) 'to form by manufacture, or workmanship, by the hand or by machinery; to make by art and labor.' The process described in the replication certainly does show that the ice is reduced into form fit for use both by hand and by the use of machinery, and the answer of the re- spondents shows that this is done by the outlay of capital, at least of $50,- 000, and the quantity thus manufac- tured annually is about 30,000 tons. It is very likely that the garnering and preparation of ice fit for consumers of the article falls very near the line. True, its natural condition is not changed. The article itself is a natu- ral product, as described in the repli- cation. It is ice when it is taken from the river, and it is ice when de- livered to consumers. The form alone is changed. It is reduced in size, and delivered in quantities to suit the con- venience of the patrons of the company. But it is not necessary, to constitute the commodity a manu- factured article, that a chemical change should be wrought in the thing manufactured. Iron manufac- tured from iron ore remains iron. Cotton gathered from the boll' and, by means of complicated machin- ery, manufactured, becomes the cot- ton of commerce. Lumber is manu- factured from logs or timber, simplj' by changing its form. And it has been held that grinding bones to produce the bone dust of commerce was manu- facturing, within tlie meaning of the revenue laws of the United States. Schriefer v. Wood, 5 Blatohf. 215. So it was held by the Supreme Court of the United States that timber split I Priv. Corp. — 15 225 120] Pbivatb Coepoeations [Ch.4 In determining whether a corporation purporting to be organized for manufacturing purposes is a manufacturing corporation within the purview of a statute authorizing the formation of manufacturing purposes, the question is not to be settled entirely by the construction given to the phrase "manufacturing corporation" in statutes of other states dealing with different subjects, but the intention of the legisla- ture in this particular case is to be sought for, and the policy and purpose of this particular statute to be considered.'''' in staves, or into long pieces designed for shovel handles, was 'manu- factured,' and not covered by the reciprocity treaty of 1854. U. S. v. Hathaway, 4 Wall. 404, 408. The statute, which was designed to foster and encourage manufacturers, should receive a liberal 'construction, and one in harmony with the public interests; and while it was not enacted to lend aid to trivial or unworthy objects, it should not be restricted in its opera- tion to exclude such purposes as tend to promote the public convenience or necessities. The use of ice as an article of daily use and consumption in all our larger towns has constituted the article one of prime necessity in the various uses to which it is applied, and whether manufactured chemically, or formed by natural processes and re- duced by manual labor or machinery to form it for use, the business, as tht majority of the court hold, is com- prehended in the statute authorizing tlie formation of corporations ,for manufacturing purposes. ' ' 79 Bolton V. Nebraska Chicory Co., 69 Neb. 681, 96 N. W. 148. In Bolton v. Nebraska Chicory Co., 69 Neb. 681, 96 N. W. 148, the Supreme Court of Nebraska in determining whether a corporation came within the purview of a statute authorizing the formation of manufacturing corpora- tions, said, in reference to the decisions construing the phrase ' ' manufacturing corporations ' ' in statutes of other states dealing with different subjects: "It will be ob- served that in some cases the statute exempted manufacturing corporations from taxation, in which case it was important to prevent fraud upon the revenue laws by attaching a nominal manufacturing business to a substantial industry of another sort. In other cases, manufacturing corporations were relieved from the operation of statutory provisions as to stockholders' liability. Here, again, fraud was to be guarded against, since creditors might be prejudiced greatly if one of their statutory protections could be cut off by a mere addition of some manufac- turing enterprise to an undertaking essentially of a different character. The statute here in question was obviously designed to encourage the promotion of manufacturing enter- prises of all kinds, in the widest sense, by relaxing the rules as to or- ganization. There is every reason for giving it a liberal construction, and no fraud can result from so doing. ' ' A particular statute may use the term "manufacturing" in reference to corporations, in a different sense from that given by lexicographers, and of course the intention of the legis- lature must govern. Thus, in Penn- sylvania it was held that a corporation organized for the purpose of supplying light, heat and power by means of electricity was not a "manufacturing corporation" within the meaning of a statute of that state exempting such corporations from taxation, although it was con- 226 Ch.4] Objects foe Which Ckeated [§120 Where a corporation was organized under a statute providing for the incorporation of manufacturing corporations and the purpose of its creation was to engage in manufacturing, and it is in name, in the nature of its corporate powers and characteristics, and in its actual business operations, a manufacturing corporation, and nothing else, the "mere possession of an ancillary power which it has never used or sought to use, which it had express legislative permission to hold, and which was evidently intended for use only in aid of its manufacturing enterprises, does not change the character of the corporation, or deprive it of its privileges and immunities as a manufacturing cor- poration. ' ' *<* A corporation engaged in the manufacture of coke, but which has the power to mine its own coal and in this way supply itself in part with the raw material which it uses in such manufacture, is not a corporation organized "exclusively for manufacturing purposes" within the meaning of a statute exempting such corporations from tax- ation on their capital stock.*^ ceded that its operations might be within the definition of "manufac- ture" given by lexicographers. Com. V. Northern Elec. Light & Power Co., 145 Pa. St. 105, 14 L. R. A. 107, 22 Atl. 839. See Com. v. Keystone Elec. Light, Heat & Power Co., 193 Pa. St. 245, 44 Atl. 326, distinguishing Com. V. Northern Elec. Light & Power Co., 145 Pa. St. 105, 14 L. E. A. 107, 22 Atl. 839. See also Com. v. Edison Elec. Light & Power Co., 170 Pa. St. 231, 32 Atl. 419; Com. v. Keystone Elec. Light, Heat & Power Co., 4 Lack. Legit. (Pa.) 353, 2 Dauph. Co. Eep. (Pa.) 1. 80 Com. V. PottBville Iron & Steel Co., 157 Pa. St. 500, 22 L. B. A. 228, 27 Atl. 371, distinguishing Com. v. Weatinghouae Elec. & Mfg. Co., 151 Pa. St. 265, 24 Atl. 1107, 1111. See, however, Com. v. Juniata Coke Co., 157 Pa. St. 507, 22 L. R. A. 232, 27 Atl. 373, distinguishing Com. v. Pottaville Iron & Steel Co., 157 Pa. St. 500, 22 L. E. A. 228, 27 Atl. 371. 81 Com. V. Juniata Cfoke Co., 157 Pa. St. 507, 22 L. E. A. 232, 27 Atl. 373, distinguishing Com. v. Pottsville Iron & Steel Co., 157 Pa. St. 500, 22 L. R. A. 228, 27 Atl. 371. Under the Federal Bankruptcy Act of 1898 as it existed prior to the amendatory act of 1910, it was pro- vided that any corporation engaged principally in "manufacturing, trad- ing, printing, publishing, mining or mercantile pursuits" might be ad- judged an "involuntary bankrupt." There were numerous decisions as to what constituted corporations engaged principally in manufacturing. See In re C. Moench & Sons Co., 130 Fed. 685, aff'g 123 Fed. 965; In re Marine Construction & Dry Dock Co., 130 Fed. 446; In re Niagara Contracting Co., 127 Fed. 782; In re White Moun- tain Paper Co., 127 Fed. 180, aff'g White Mountain Paper Co. v. Morse & Co., 120 Fed. 643; Columbia Iron- works V. National Lead Co., 127 Fed. 99, 64 L. E. A. 645; In re Teoopa Min- ing & Smelting Co., 110 Fed. 120. See, however, Friday v. Hall & Kaul, 216 IT. S. 449, 54 L. Ed. 562, 26 L. E. A. (N. 8.) 475, rev'g 158 Fed. 593; In re Coolidge Refrigerator & Car Co., 190 Fed. 908; Bollinger v. Central Nat. 227 §120] Pkivate Cobpoeations [Ch.4 Some of the statutes providing for incorporation authorize the forma tion of corporations for the purpose of carrying on "mechanical busi- ness "82 Under a statute exempting stockholders in corporations "organized for the purpose of carrying on any kind of manufacturing and me- chanical business" from liability on the capital stock owned by them, it is held that a "mechanical business" is one closely allied to, or incidental to, some kind of manufacturing business.*' Under a statute authorizing the formation of corporations to carry on "mechanical business," it is held that a corporation may be created to carry on the laundry business by means of machinery and mechani- cal appliances instead of by manual labor.** The manufacture of lumber, flour and meal is within the meaning Bank, 177 Fed. 609; Walker Eoofing N. W. 50; Anderson v. Anderson Iron & Heating Co. v. Merchant & Evans Co., 173 Fed. 771; Cate v. Connell, 173 Fed. 445; In re Georgia Manu- facturing & Public Service Co., 166 Fed. 964; In re Alaska American Fish Co., 162 Fed. 498; In re Kingston Eealty Co., 160 Fed. 445, rev'g 157 Fed. 299; In re Church Const. Co., 157 Fed. 298; In re Toledo Portland Cement Co., 156 Fed. 83; In re First Nat! Bank, 152 Fed. 64; In re T. E. Hill Co., 148 Fed. 832; In re New York & New Jersey Ice Lines, 147 Fed. 214; First Nat. Bank v. Wyoming lee Co., 136 Fed. 466; In re MacNichol Construction Co., 134 Fed. 979, aft'd Butt y. C. F. MacNichol Construction Co., 140 Fed. 840; In re Troy Steam Laundering Co., 132 Fed. 266; In re Lake Jackson Sugar Co., 129 Fed. 640; In re Rollins Gold & Silver Min. Co., 102 Fed. 982. See also § 121, note 88. 82 See § 88, supra. See Cross v. Pinckneyville Mill Co., 17 111. 54; People V. Beach, 19 Hun (N. Y.) 259; In re Keystone Laundry Co., 5 Pa. Dist. 735, 18 Pa. -Co. Ct. Rep. 444; In re Mechanical Business Cases, 9 Pa. COi Ct. 1. See also Holland v. Duluth Iron Mining & Development Co., 65 Minn. 324, 60 Am. St. Rep. 480, 68 Co.,. 65 Minn. 281, 33 L. R. A. 510, 68 N. W. 49; Cowling v. Zenith Iron Co., 65 Minn. 263, 60 Am. St. Rep. 471, 33 L. R. A. 508, 68 N. W. 48. 83 Cowling v. Zenith Iron Co., 65 Minn. 263, 33 L. R. A. 508, 60 Am. St. Rep. 471, 68 N. W. 48. See also In re Mechanical Business Cases, 9 Pa. Co. Ct. 1, where the term "mechanical business" was construed by the attor- ney general of Pennsylvania. The min- ing of iron ore is such a mechanical business within the meaning of such a statute. Cowling v. Zenith Iron Co., 65 Minn. 263, 33 L. R. A. 508, 60 Am. St. Rep. 471, 68 N. W. 48. But a cor- poration organized for the purpose of "mining, smelting, reducing, refining, and working iron, copper, and other minerals, working stone quarries, and marketing the material from all the same; also buying, selling, leasing, and dealing in mijieral lands for the above purposes" is not a corporation organized for "mechanical business" within the meaning of such statute. Holland v. Duluth Iron Mining & De- velopment Co., 65 Minn. 324, 60 Am. St. Rep. 480, 68 N. W. 50; Andersor, V. Anderson Iron Co., 65 Minn. 281, 33 L. R. A. 510, 68 N. W. 49. 84 In r« Keystone Laundry Co., 5 Pa. Dist. 735, 18 Pa. Co Ot, 444. 228 Ch.4] Objects for Which Created [§121 of a statute authorizing the formation of corporations for manufaetur- 'ing, agricultural, mining or mechanical purposes.** Corporations may be formed for the purpose of erecting buildings under a statute permitting their incorporation for the purpose of carrying on any lawful mechanical business.*® § 121. Corporations for trade and commerce. Many incorporation statutes provide for the formation of corporations for ' ' trade and com- merce," or "trade," or "mercantile business," or "mercantile pur- suits, ' ' and the like.*'' Under the Federal Bankruptcy Act of 1898, as it existed prior to the amendatory act of 1910, providing that any corporation engaged principally in "manufacturing, trading, printing, publishing, mining or mercantile pursuits" might be adjudged an involuntary bankrupt, there were numerous rulings as' to what constituted a corporation engaged principally in trading or mercantile pursuits.'* 85 Cross V. Pinckneyville Mill Co., 17 111. 54. 86 Finnegan v. Noerenberg, 52 Minn. 239, 18 L. R. A. 778, 38 Am. St. Eep. 552, 53 N. W. 1150. 87 See §§ 86, 87, supra. "Trading" corporations, or cor- porations "for trade or commerce" within the meaning of a statute, in- clude, unless there is something to show a contrary .intent, all corpora- tions engaged in a 'business, or au- thorized to engage in a business, which properly falls within the definition of trade and commerce. Any person who buys and sells goods, or any other property which is the subject of trade and commerce, as a business, for the purpose of making a profit is a "trader," and any corporation en- gaged in such a business is a trading corporation, or a corporation engaged in trade. In re Cowles, Fed. Cas. No. 3,297; In re San Gabriel Sanatorium Co., 95 Fed. 271. The character of a trader embraces a wide field of opera- tion. It is of no consequence in what one may trade, the only question is, does he buy and sell articles which are subject to trade and commerce. In re Kenyon, 1 Utah 47. The phrase "mercantile business," or "commer- cial business," "refers to the buying and selling of articles of merchandise as an employment. It implies opera- tions conducted with a view of real- izing the profits which come from skil- ful purchase, barter, speculation, and sale," and is therefore practically syiionymous with ' ' trading. ' ' Graham V. Hendricks, 22 La. Ann. 523. In determining whether one is a trader, the amount of the trading and the amount of the profit is immaterial. If there is a buying and selling for profit, it is sufficient. See Newland v. Bell, Holt, N. P. 221; Ex parte Moule, 14 Ves. 602; Holroyd v. Gwynne, 2 Taunt. 176; 88 See In re Imperial Film Exchange, 198 Fed. 80; In re Excelsior Cafe Co., 175 Fed. 294; In re Moore & Muir Co., 173 Fed. 732; In re Kingston Realty Co., 160 Fed. 445, rev'g 157 Fed. 299; Gallagher v. De Lancy Stables Co.,' 158 Fed. 381; In re Wentworth Lunch Co., 159 Fed. 413, afe'd tollman & Co. V. Wentworth Lunch Co., 217 V. S. 591, 54 L. Ed. 895; In re H. R. Leighton Co., 147 Fed. 3ll; Zugalla v. Inte^nfi,- 229 §121] Pbivate Cokpoeations [Ch.4 A statute authorizing corporations for "trade and commerce" authorizes corporations for the lawful buying and selling of any articles which are the subject of trade and commerce.*® Such a stat- ute has been held to authorize the formation of a corporation for buy- tional Mercantile Agency, 142 Ped. 927; First Nat. Bank v. Wyoming Valley Ice Co., 136 Fed. 466; In re Bay City Irrigation Co., 135 Fed. 850; In re United States Hotel Co., 134 Fed. 225, 68 L. E. A. 588; In re Snyder & Johnson Co., 133 Fed. 806; In re Troy Steam Laundering Co., 132 Fed. 266; In re New York Buildiug-Loan Bank- ing Co., 127 Fed. 471; In re Pacific Coast Warehouse Co., 123 Fed. 749; In re H. J. Quimby Freight & For- warding Co., 121 Fed. 139; In re Surety Guarantee & Trust Co., 121 Fed. 73; In re Parmalee Library, 120 Fed. 235; In re White Star Laundry Co., 117 Fed. 570; In re Tontine Surety Co. of New Jersey, 116 Fed. 401; In re Phila- delphia & Lewes Transp. Co., 114 Fed. 403; In re Fulton Club, 113 Fed. 997; In re Chesapeake Oyster & Fish Co., 112 Fed. 960; In re Keystone Coal Co., 109 Fed. 872; In re Morton Boarding Stables, 108 Fed. 791, disapproved in In re Chesapeake Oyster & Fish Co., 112 Fed. 960, and In re United States Hotel Co., 134 Fed. 225, 68 L. R. A. 588; In re Woodside Coal Co., 105 Fed. 56; In re Oriental Society, 104 Fed. 975; In re Chicago- Joplin Lead & Zinc Co., 104 Fed. 67; In re Bollins Gold & Silver Min. Co., 102 Fed. 982; In re Elk Park Mining & Milling Co., 101 Fed. 422; In re New York & West- chester Water Co., 98 Fed. 711, aff'd In re Morris, 102 Fed. 1004; In re San Gabriel Sanatorium Co., 95 Fed. 271; In re Minnesota & ^Arizona Const. Co., 7 Ariz. 137, 60 Pae. 881. See also § 120, 11. 81. 89 See May v. Sloan, 101 U. S. 231, 25 L. Ed. 797; In re New York & West- chester Water Co., 98 Fed. 711, aff'd on opinion of court below sub nom. In re Morris, 102 Fed. 1004; In re Cameron Town Mut. Fire, Lightning & Windstorm Ins. Co., 96 Fed. 756; In re San Gabriel Sanatorium Co., 95 Fed. 271; In re Cowles, Fed. Cas. No. 3,297; People v. Hagar, 52 Cal. 171, writ of error dismissed, 154 U. S. 639, 24 L. Ed. 1044; People v. Blake, 19 Cal. 579; Indiana Bond Co. v. Ogle, 22 Ind. App. 593, 72 Am. St. Eep. 326, 54 N. E. 407; Pocono Spring Water lee Co. V. American Ice Co., 214 Pa. 640, 64 Atl. 398; In re Pittsburgh Stock Exchange, 26 Pittsb. Leg. J. (O. S.) 308, 26 Pittsb. Leg. J. (N. S.) 308. As to what are trading or mercantile corporations, see §§ 86, 87, supra. It seems that, strictly speaking, there must be both a buying and sell- ing to constitute one a "trader," and that a corporation which owns a mine, or a source of water supply, etc., and merely sells the product therefrom, is not engaged in trade or commerce. In re New York & Westchester Water Co., 98 Fed. 711, aff'd 102 Fed. 1004, on the opinion of the court below. See also In re Kenyon, 1 Utah 47. It has been held that the term ' ' mer- cantile partnership" — and the same would be true of "mercantile corpora- tion" — does not properly include an association which mines and sells ore and coal from its own lands, or which sinks oil or gas wells and sells their products. Com. v. Natural Gas Co., 32 Pittsb. Leg. J. (Pa.) 310. If a mining company, however, buys coal or ore from other companies or per- sons, and sells it again, it is to that extent a trading corporation, although not exclusively engaged in trade. Turner y. Hardcastle, 11 C. B. (N. S.) 683. 230 Ch.4] Objects- fob Which Cheated [§121 ing and selling stocks, bonds and public securities. "> But, on the other hand, there is authority to the effect that a corporation for buy- ing and selling bonds is not authorized by a statute permitting incor- poration for the purpose of buying and selling merchandise and conducting mercantile operations.'^ A statute permitting the formation of corporations for "the encour- agement and protection of trade and commerce," permits incor- poration for the encouragement and protection of a particular trade, and under it a corporation may be formed to foster, protect and pro- mote the welfare and interest of persons engaged in roofing and sheet metal working, and for the protection and encouragement of such trade and commerce.'^ It has been held that ice companies, gas companies and water companies, intended to supply a city and its inhabitants respectively with ice, gas and water, are within a statute authorizing corpora- tions for manufacturing, etc., purposes, "or for the purpose of engaging in any species of trade or commerce. ' ' '* And corpora- 90 In re Pittsburgh Stock Exchange, 26 Pittsb. Leg. J. (N. 8.; Pa.) 308. 91 Indiana Bond Co. v. Ogle, 22 Ind. App. 593, 72 Am. St. Eep. 326, 54 N. E. 407. The court said: "The term 'merchandise' does not include bonds. A bond is nothing more than a mere evidence of value. While the terra 'merchandise' does not seem to have any fixed legal signification, yet its commonly accepted meaning is lim- ited to things that have an intrinsic value in bulk, weight, or measure, and which are bought and sold." Where a charter incorporating a steamboat company granted a right to run a steamboat "for the transporta- tion of merchandise, ' ' it was held that the term "merchandise" did not ap- ply to mere evidences of value, such as notes, bills, checks, policies of in- surance, and bills of lading, but only to articles having an intrinsic value in bulk, weight, or measure, and which are bought and sold. Citizens Bank v. Nantucket Steamboat Co., 2 Story (U. S.) 16, Fed. Cas. No. 2,730, cited with approval in Indiana Bond Co. v. Ogle, 22 Ind. App. 593, 72 Am. St. Eep. 326, 54 N. E. 407. See also May v. Sloan, 101 V. S. 231, 25 L. Ed. 797; In re Cameron Town Mut. Fire, Lightning & Windstorm Ins. Co., 96 Fed. 756; Pocono Spring Water Ice Co. v. Ameri- can Ice Co., 214 Pa. 640, 64 Atl. 398; In re Kenyon, 1 Utah 47. 92 In re Eoofing & Sheet Metal Con- tractors ' Ass'n, 200 Pa. Ill, 49 Atl. 894. 93 People v. Blake, 19 Cal. 579. The decision in this case was that a water- works corporation, organized for the purpose of supplying the city of San Francisco and its inhabitants with water, was within a statute providing for corporations "for the purpose of engaging in any species of trade or commerce. " The court said : "It was to deal in water as a matter of busi- ness — to furnish the article to con- sumers upon considerations to be re- ceived — that the company was formed. Water, when collected in reservoirs or pipes, and thus separated from the original source of supply, is personal property, and is as much the subject of sale — an article of commerce — as ordinary goods and merchandise. En- 231 §121] Pbivate Corporations [Ch.4 tions for the purpose of dealing in real estate, and for the purchase and reclaiming of swamp lands have been upheld under similar pro- visions.®* A statute authorizing corporations for the purpose "of trade, or of carrying on any lawful mechanical, manufacturing, or agricul- tural business," authorizes the formation of a corporation for the purpose of "buying, owning, improving, selling, and leasing of lands, tenements, and hereditaments, real, personal, and mixed estates and property, including the constructing and leasing of a build- ing. "^^ Under some statutes corporations cannot be formed for the pur- pose of carrying on a mercantile business,®^ but corporations for that gaging in the business of furnishing it to the inhabitants of a city for equivalent considerations to be re- ceived, is engaging in 'a species of trade or commerce' vathin the mean- ing of the act." The dictum also in- cludes ice companies and gas com- panies. It is said, however, that they are not "in the technical acceptation of the terms ' trading ' or ' commer- cial corporations.' " See In re New York & Westchester Water Co., 98 Fed. 711, aff'd 102 Fed. 1004. But the correctness of this latter view may well be doubted, when it is considered that one who buys and sells goods, or any property which is the subject of trade and commerce, is a trader; that water and gas when confined in pipes are "personal goods," within the definition of larceny (Ferens v. O'Brien, 11 Q. B. Div. 21, 15 Cox Cr. Cas. 332; Com. v. Shaw, 4 Allen (Mass.) 308, 81 Am. Dee. 706; State V. Wellman, 34 Minn. 221, 25 N. W. 395; Hutchinson v. Com., 82 Pa. St. 472), and the subject of trade and commerce. Dudley v. Jamaica Pond Aqueduct Corporation, 100 Mass. 183. A corporation formed for the pur- pose of erecting a dam in a creek and the cutting, storing and selling of ice is a trading corporation within the meaning of statute respecting corpora- tions "for mining, manufacturing or trading purposes." Pocono Spring W^ater Ice Co. v. American Ice Co., 214 Pa. 640, 64 Atl. 398. 94 People V. Hager, 52 Cal. 171, writ of error dismissed, 154 IT. S. 639, 24 L. Ed. 1044. See, however, § 127, infra. 95 Finnegan v. Noerenberg, 52 Minn. 239, 18 L. R. A. 778, 38 Am. St. Eep. 552, 53 N. W. 1150. 96 Com. V. J. B. Lippincott Co., 156 Pa. St. 513, 27 Atl. 10; Com. v. Thack- ara Mfg. Co., 156 Pa. 510, 27 Atl. 13; West Manayunk Gas Light Co. v. New Gas Light. Co., 21 Pa. Co. Ct. Eep. 369. Where the general statute under which a corporation was organized au- thorizes incorporation for manufactur- ing purposes but does not authorize the incorporation of merchants and deal- ers, it is held that where the charter of the corporation authorizes it to manufacture, and also to buy, sell and deal as a merchant or dealer, the mercantile clause of the charter is void, and the corporation will be treated as organized for manufactur- ing purposes. Com. v. J. B. Lippincott Co., 156 Pa. St. 513, 27 Atl. 10; Com. v. Thackara Mfg. Co., 156' Pa. St. 510, 27 Atl. 13; Com. v. Wm. Mann Co., 150 Pa. St. 64, 24 Atl. 601. Before its repeal corporations could be organized for that purpose under the general provision of Texas Rev. 232 Ck4] Objects foe Which Ceeated [§122 purpose have been held to be permissible under a statute permitting incorporation for the prosecution of industrial pursuits.®^ §122. Corporations for industrial pursuits. The phrase "indus- trial pursuits," as used in a statute authorizing the formation of corporations for such purpose, is broader and more comprehensive than "trading" or "manufacturing." It includes both, and some- thing more.®* Under a statute authorizing the formation of corporations for "mining, manufacturing and other industrial pursuits," it is held that the express business is an industrial pursuit,'® and so is the St., 1879, art. 566, § 27, providing that roads, irrigating ditches, and the colo corporations might be organized "for any other purpose intended for mutual profit or benefit, not otherwise espe- cially provided for," etc. Jacobs, Bernheim & Co. v. Augusta Co-opera- tive Ass 'n, 3 "Wilson Civ. Cas. Ct. App. (Tex.) § 231. The repeal of that sub- division by acts, Texas, 1885, p. 59, is a denial of the right to do so. Empire Mills v. Alston Grocery Co., 4 Wilson Civ. Cas. Ct. App. (Tex.) § 221, 12 L. B. A. 366, 15 S. W. 200, 505. 97 Agua Fria Copper Co. v. Bash- ford-Burmister Co., 4 Ariz. 203, 85 Pac. 983; Carver Mercantile Co. v. Hulme, 7 Mont. 566, 19 Pac. 213. 98 See § 90, supra. See also Wells, Fargo & Co. v. Northern Pae. Ey. Co., 23 Fed. 469. 99 Wells, Fargo & Co. v. Northern Pac. Ry. Co., 23 Fed. 469. U. S. Eev. St. §1889, 7 Fed. St. Ann., p. 262, which was applicable to all the territories of the United States provided: "The legis- lative assemblies of the several Terri- tories shall not grant private charters or special privileges, but they may, by general incorporation acts, permit persons to associate themselves to- gether as bodies corporate for mining, manufacturing, and other industrial pursuits, * * * or for the construc- tion or operation of rail-roads, wagon- nization and improvement of lands in connection therewith, or for colleges, 8eme[i]naries, churches, libraries, or any other benevolent, charitable, or scientific association." In construing such statute and considering the objec- tion that a corporation formed for the purpose of carrying on the express business was not a corporation formed for the purpose of an industrial pur- suit, Deady, J., said: "The objection hinges about these words : What is the character of 'ipining, manufacturing, and other industrial pursuits'? It is maintained that this express company is not engaged in an 'industrial pur- suit'; and that if it is engaged in an industrial pursuit in the abstract sense of the words, it is not engaged in such an industrial pursuit as mining and manufacturing; and that the words 'industrial pursuits,' being coupled with 'mining and manufacturing,' are restricted in their signification to the general scope covered by those words, ' mining and manufacturing. ' I think, myself, that this is entirely too narrow a signification to be given to those words. 'Industrial' is a very large word, and, although it is associated with the words 'mining and manufac- turing,' it would be, it seems to me, contrary to the manifest purpose of congress in this passage, to so restrain it as that the pursuit must be literally. 233 §122] Peivate Cokpoeations [Cli.4 mercantile business,^ or to own and operate a street railway.* The formation of a corporation for the purpose of owning and operating a street railway is also within the authority of a statute providing for an incorporation to carry on any "branch of business designed or almost literally, a mining one or a manufacturing one. Could not a cor- poration in Washington territory be formed under this law to engage in raising wheat ? This is neither mining nor manufacturing in any literal sense of the word; it is producing. Could not a corporation be formed under this law, or under a law passed by Wash- ington territory, to engage in navi- gating Puget sound? I do not think there is a specific provision for a navi- gation company; there are for wagon roads and railroads, but there is none for steam-boats. But I suppose it is hardly questionable that the legisla- ture might provide, by a general law, for the incorporation in Washington territory of a company to navigate Puget sound. An 'industrial pursuit,' it may be said also, in the case I put of farming, is covered by the words 'colonization, and improvement of lands in connection therewith'; but these are limited by the words 'rail- roads, wagon roads, irrigating ditches,' and it is doubtful whether the coloni- zation of lands, and the improvement of lands, standing by itself, includes farming, raising wheat, flax, hops, and corn. * * * But I think the express business is an industrial pursuit, and one which the territorial legislature could provide for the formation of corporations to engage in." Agua Fria Copper Co. v. Bashford-Burmister Co., 4 Ariz. 203, 35 Pac. 983; Carver Mercantile Co. v. Hulme, 7 Mont. 366, 19 Pac. 213. 1 In Agua Fria Copper Co. v. Bash- ford-Burmister Co., 4 Ariz. 203, 35 Pac. 983, the court said: "The term 'in- dustrial pursuit,' for which the legis- lature may authorize corporations to be formed, is a very broad expression. For instance, it was decided by Judge Deady in Wells, Fargo & Co. v. North- ern Pac. R. Co., 23 Fed. 469, that the express business was 'an industrial pursuit,' within the meaning of that term. Just why the sale of goods, mining supplies, etc., should be less 'industrial' than the express business would, in our opinion, be difficult to maintain. Besides, congress, in enact- ing section 1889, was endeavoring to prevent the granting of monopolies and special privileges, rather than spe- cifying all the purposes for which corporations might be formed. And then, too, the mercantile business is certainly industrial; it is embraced in the words ' industrial pursuits, ' accord- ing to their popular or ordinary usage. ' ' In Carver Mercantile Co. v. Hulme, 7 Mont. 566, 19 Pac. 213, it was held that the Montana law of 1872, provid- ing for the formation of corporations for carrying on any branch of business "designed to aid in the industrial or productive interests of the country, and the development thereof," was not in conflict with the section of the U. S. Eev. St. 1889, 7 Fed. St. Ann., p. 262, and that a mercantile corpora- tion might be incorporated under such a law. 2 Central Trust Co. of New York v. Warren, 121 Fed. 323. The court said: "The formation of a corporation for the purpose of owning and operating a street railway is certainly as much an industrial pursuit as an express company or a mercantile business." 234 Ch. 4] Objects fob Which Ceeated [§ 124 to aid in the industrial or productive interests of the country and the development thereof. ' ' ^ § 123. Corporations for agricultural purposes. A statute authoriz- ing the formation of corporations for agricultural purposes will authorize the formation of a corporation for the purpose of hold- ing and conducting agricultural exhibitions, fairs, cattle shows, and trials of speed of horses, and owning property and constructing a race track, buildings, and other improvements for that purpose.* And a corporation to build and maintain a flouring mill may be organized under a statute permitting the formation of corporations for "the conversion and disposal of agricultural products by means of mills, elevators, markets, and stores, or otherwise. ' ' * But it has been held that a corporation for "the purpose of growing, selling and purchasing rice and other agricultural products," cannot legally be formed under a statute authorizing the creation of corporations for the purpose of "the growing, selling and purchasing of seeds, plants, trees, etc., for agricultural and ornamental purposes."® § 124. Corporations for benevolent, charitable, literary or educa- tional purposes. In most of the states, statutes provide specifically for the formation of corporations for benevolent, charitable, literary, and educational purposes. The nature of such corporations has been heretofore considered.'' Corporations organized for "charitable or benevolent" purposes, within the meaning of a statute, include all corporations organized not for pecuniary gain or profit, but for the administration of charitable trusts, such as hospitals and asylums for the sick, insane and poor, and colleges or schools for the promotion of piety or learning.* Under a statute authorizing the incorporation of "benevolent, charitable, scientific and missionary societies," no corporation can 3 Central Trust Co. of New York V. 33 Atl. 595; American Asylum v. Warren, 121 Fed. 323. Phoenix Bank, 4 Conn. 172, 10 Am. 4Fairview Inv. Co. v. Lamberson, Dee. 112. 25 Idaho 72, 136 Pac. 606. Kentucky. Widows' & Orphans' B Ginrich v. Patrons ' Mill Co., 21 Home of Odd Fellows of Kentucky v. Kan. 61. ' Bosworth, 112 Ky. 200, 23 Ky. L. Rep. 6 Miller v. Tod, 95 Tex. 404, 67 S. W. 1505, 65 S. W. 591. 4g3_ Haine. St. Clement v. L'Institut 7 See §§ 100, 101, supra. Jacques Cartier, 95 Me. 493, 50 Atl. 8 See in this connection: 376. Connecticut. Hearns v. Waterbury Massachusetts. Franklin Square Hospital, 66 Conn. 98, 31 L. R. A. 224, House v. Boston, 188 Mass. 409, 74 N. 235 §124] Pkivate Coepokations [Ch.4 be formed unless it is for one or more of the purposes mentioned. A corporation for business purposes, having in view the pecuniaiy profit of its members, does not come within the statute, although it may incidentally contemplate the promotion of the interests of others.' And it has been held, therefore, that such a statute does not authorize E. 675; New England Theosophical Corp. V. Board of Assessors, 172 Mass. 60, 42 L. E. A. 281, 51 N. E. 456; Mc- Donald V. Massachusetts General Hos- pital, 120 Mass. 432, 21 Am. Eep. 529. Missouri. State v. Adams, 44 Mo. 570. New Jersey. Congregation of Mis- sion of St. Vincent De Paul v. Brake- ley, 67 N. J. L. 176; Paterson Rescue Mission v. High, 64 N. J. L. 116, 44 Atl. 974. New York. People v. Eeilly, 85 N. Y. App. Div. 71, 83 N. Y. Supp. 39; Smith V. Havens Eelief Fund Society, 44 N. Y. Misc. 594, 90 N. Y. Supp. 168. Rhode Island. Pepin v. Soeiete St. Jean Baptiste, 24 E. I. 550, 60 L. E. A. 626, 54 Atl. 47. See also Powers v. Massachusetts Homeopathic Hospital, 109 Fed. 294, 65 L. R. A. 372, writ of certiorari denied 183 XT. S. 695, 46 L. Ed. 394. A corporation having for its primary object the dissemination of theosophi- cal ideas and procuring converts thereto is not a benevolent, charitable, literary, or scientific corporation with- in the meaning of a statute exempting corporations organized for such pur- poses from taxation. New England Theosophical Corporation v. Board of Assessors, 172 Mass. 60, 42 L. R. A. 281, 51 N. B. 456. The court said: "The word 'benevolent' may include purposes which may be deemed char- itable by a court of equity, and it may also include ' acts dictated by kind- ness, good will, or a disposition to do good, the objects of which have no re- lation to the promotion of education, learning, or religion, the relief of the needy, the sick, or the afflicted, the support of public works, or the relief of public burdens, and cannot be deemed "charitable" in the technical or legal sense.' Chamberlain v. Stearns, 111 Mass. 267. See also Mas- sachusetts Soc. for Prevention of Cruelty to Animals v. Boston, 142 Mass. 24, 6 N. E. 840. The word ' char- itable' refers to hospitals and other charitable institutions for the relief of the poor or the sick. The reason of this exemption is that they render a service to the public, and so relieve the state or municipality from ex- pense. See Cooley, Tax'n (2d Ed.) 202." A missionary order formed to in- struct the ignorant, tend the sick and to afford protection to orphan children, has been held to be covered by a stat- ute exempting from taxation organi- zations formed to improve the mental and moral condition of men or women, or for religious and educational pur- poses. People V. Eeilly, 85 N. Y. App. Div. 71, 83 N. Y. Supp. 39. 9 People V. Nelson, 46 N. Y. 477, 60 Barb. (N. Y.) 159, 3 Lans. (N. Y.) 394. See also as to what are not benevolent or charitable associations. Iowa Mut. Tornado Ins. Ass'n v. Gilbertson, 129 Iowa 658, 106 N. W. 153; Chapin v. Holyoke Y. M. C. A., 165 Mass. 280, 42 N. E. 1130; Newcomb v. Boston Pro- tective Department, 151 Mass. 215, 24 N. E. 39; Donnelly v. Boston Catholic Cemetery Ass'n, 146 Mass. 163, 15 N. E. 505; Sheren v. Mendenhall, 23 Minn. 92; State v. McGrath, 95 Mo. 193, 8 S. W. 425; In re St. Louis Insti- tute of Christian Science, 27 Mo. App, 633; Eire Ins. Patrol v. Boyd, 120 Pa. St. 624, 1 L. E. A. 417, 6 Am. St. Eep 236 Ch.4] Objects foe Which Created [§124 a corporation for the purpose of providing a "relief fund," and to "aid persons of moderate pecuniary resources in obtaining from a reputable insurance company insurance on their lives, and in maintaining the necessary payments on the same; and to secure to families or persons so insured an immediate advance of funds in case of death," ^" or a corporation organized for the purpose of conduct- ing a medical college receiving compensation for the instruction given,^^ or a corporation for pecuniary profit. ^^ An association whose purpose is to endow the wife of each member with a sum of money equal to as many dollars as there are members, 745, 15 Atl. 553; Bethlehem v. Perse- verance Fire Co., 81 Pa. St. 445. See §§ 98-100, supra. In forming a charitable corporation, it is not necessary to specify with ex- actness who are to be the ultimate recipients of the charity. Smith v. Havens Belief Fund Society, 44 N. Y. Misc. 594, 90 N. Y. Supp. 168. "The purpose of 'forming the nu- cleus of a universal brotherhood of hu- manity' is too indefinite an expression to enable us to say, on the evidence, that the judge was wrong in holding that the pietitioner was not a benevo- lent or charitable institution." La- throp, J., in New England Theosophical Corporation v. Board of Assessors, 172 Mass. 60, 42 L. E. A. 281, 51 N. E. 456. 10 People V. Nelson, 46 N. Y. 477, 60 Barb. (N. Y.) 159, 3 Lans. (N. Y.) 394. See also Iowa Mut. Tornado Ins. Ass 'n V. Gilbertson, 129 Iowa 658, 106 N. W. 153; St. Clement v. L'Institut Jacques Cartier, 95 Me. 493, 50 Atl. 376. 11 People V. Gunn, 96 N. Y. 317, afC'g 30 Hun (N. Y.) 322; People v. Goth- ran, 27 Hun (N. Y.) 344. 12 Sheren v. Mendenhall, 23 Minn. 92; People v. Nelson, 46 N. Y. 477, 60 Barb. (N. Y.) 159, 3 Lans. (N. Y.) 394. Corporations organized, not for the administration of a charity, but for the gain or benefit, pecuniary or other- wise, of its members, do not come within the meaning of corporations or- ganized for "charitable or benevolent purposes." Newcomb v. Boston Pro- tective Department, 151 Mass. 215, 6 L. E. A. 778, 24 N. E. 39; Sheren v. Mendenhall, 23 Minn. 92. Compare Fire Ins. Patrol Co. v. Boyd, 120 Pa. St. 624, 1 L. E. A. 417, 6 Am. St. Eep. 745, 15 Atl. 553. In In re West's Appeal, 64 Pa. St. 186, it was held that a corporation whose charter authorized it "to have, purchase, receive," etc., "stock, goods," etc., "by sale, gift, grant, demise, bargain and sale, devise, be- quest, testament, legacy, loan," etc., was a business corporation, and not a charitable corporation, within the meaning of a statute limiting the amount of property of charitable cor- porations. Corporations organized for "chari- table or benevolent purposes" do not include a corporation for the promo- tion of Christian Science, the earnings of which are placed exclusively within the discretion of its directors, and the residuary fund of which is used in com- pensating its directors for their serv- ices; In re St. Louis Institute of Christian Science, 27 Mo. App. 633; nor a savings institution, the leading purpose of which is the pecuniary profit of its stockholders or members. Sher- en V. Mendenhall, 23 Minn. 92. Building and loan associations being corporations for private gain are not "benevolent" associations, unless the 237 § 124] Peivate Cobpoeations [Ch. 4 the money to be raised by assessment upon the members, is not within a statute authorizing the incorporation of benevolent societies, for there is no intention to bestow any benefit or help without what is thought to be an equivalent.^^ A statute authorizing the formation of corporations "for the estab- lishment and maintenance of any benevolent, charitable or medical institution, hospital or asylum," does not authorize the organization of a corporation "to encourage frugality and economy in its members; to create, husband, and distribute funds from monthly installments, dues, or investments from its members; to purchase, take, hold, sell, convey, lease, rent, and mortgage real estate and personal property ; to loan surplus accumulations ; and to carry on and conduct a general investment business. ' ' ^* Statutes often specifically provide for the formation of corpora- tions for the purpose of carrying out bequests for charitable pur- poses.^* A statute authorizing circuit courts of the state to grant charters "for the conduct of any enterprise or business which might be law- fully conducted by an individual or by a body politic or corporate, except to construct a turnpike to be constructed beyond the limits of the county, or a railroad or canal, or to establish a hank of circula- tion," authorizes the formation of a corporation for the purpose of establishing and maintaining in a city of the state, an institution in which indigent and infirm women may be provided with a comfortable home gratuitously, or on such charges as may be prescribed, notwith- Btatute expressly includes them. State be raised, in each case of marriage, by V. McGrath, 95 Mo. 193, 8 S. W. 425. an assessment of the members, is not See § 100, supra. a beneficial or protective association, 13 State V. Critchett, 37 Minn. 13, the amounts being payable without re- 32 N. W. 787. See also Foster v. Moul- gard to the wants or necessities of the ton, 35 Minn. 458, 29 N. W. 155. members. In re Mutual Aid Ass 'n, 15 An institution organized to receive Phila. (Pa.) 625; In re Helping-Hand payments at regular intervals from its Marriage Ass'n, 15 Phila. (Pa.) 644. members and to pay its members a 14 State v. International Inv. Co., 88 definite amount at a fixed time for a Wis. 512, 43 Am. St. Rep. 920, 60 N. specified period, if sick and unable to W. 796. Nor does such a statute in- work is not a charitable or benevolent elude a corporation with a large capi- organization. St. Clement v. L 'Insti- tal stock, organized for the purpose of tut Jacques Cartier, 95 Me. 493, 50 Atl. enabling members to accumulate by 376. small monthly contributions, a fund A marriage association, the purpose out of which to secure homes. State v. of which is to issue certificates of McGrath, 95 Mo. 193. membership in certain amounts, and • IB Grand Prairie Seminary v. Mor- to pay parties for whose benefit the gan, 171 111. 444, 49 N. E. 516, aff 'g 70 certificates are issued from a fund to 111. App. 575. 238 Ch.4] Objects fob Which Ceeated [§124 standing there is a prohibition in the state constitution against the incorporation of religious denominations.^* The term "literary" means of or pertaining to letters or learn- ing, and a corporation organized for the purpose of promoting lit- erature or learning is a literary corporation. Any institution or association organized and incorporated for the purpose of conduct- ing a school or seminary of learning, and having that character, is a "literary" corporation or association within the meaning of a statute.*' On the other hand, a corporation not organized for the promotion of literature or learning cannot be classed as a literary association.'* A corporation having for its paramount object the dissemination of theo- sophical ideas, and procuring converts thereto, is not a literary cor- poration.'® An historical society may be incorporated under a statute permitting the incorporation of literary societies.*" And a corpora- tion may be formed for the purpose of building and maintaining an opera house and lecture hall to aid "in the literary and scientific education of the people" under a statute permitting the formation of 16 Jordan's Adm'r v. Eiehmond Home for Ladies, 106 Va. 710, 56 S. B. 730. . 17 Chamberlain v. Chamberlain, 3 Lans. (N. Y.) 348, modified 43 N. Y. 424. Compare, however, Eeg v. Po- cock, 8 Q. B. 729. 18 See New England Theosophical Corporation v. Board of Assessors, 172 Mass. 60, 42 L. E. A. 281, 51 N. E. 456; Eeg. v. Jones, 8 Q. B. 725. 19 New England Theosophical Cor- poration V. Board of Assessors, 172 Mass. 60, 42 L. E. A. 281, 51 N. E. 456. The court said: "The word 'literary' has no technical legal meaning, and there is some difference of opinion as to what is meant in statutes exempting literary institutions or societies from taxation. In England it is held that a school for educating teachers, organ- ized under 6 & 7 Vict. c. 36, is not a literary society. Eeg v. Pocoek, 8 Q, B. 729. See also Common Council v, McLean, 8 Ind. 328; Philadelphia v. Overseers of Public Schools, 170 Pa. St. 257, 32 Atl. 1033; Kendriek v. Far quhar, 8 Ohio 189. In Trustees of Wes leyan Academy v. Inhabitants of Wil- braham, 99 Mass. 599, it was said by Chief Justice Chapman, in considering the exemption of the academy from taxation: 'The academy of the plain- tiffs is a literary and scientific insti- tution, duly incorporated, and the only questions that are raised in the case relate to the character of the property which the defendants have assessed.' The institution in this case was incor- porated by St. 1824, c. 80, 'for the purpose of promoting religion and morality, and for the education of youth, in such of the liberal arts and sciences, as the trustees for the time being shall direct.' In Mt. Hermon Boys' School v. Gill, 145 Mass. 139, 13 N. E. 354, it was conceded that the plaintiff was one of the institutions ex- empt from taxation by Pub. St. c. 11, 5, el. 3, and the court said that it was 'very properly conceded.' The insti- tution in this case was organized, un- der Pub. St. 0. 115, for the 'education of boys.' " 20 Carpenter v. Historical Society, 2 Dem. Surr. (N. Y.) 574. 239 § 124] Peivate Oobpobations [Ch. 4 corporations for the purpose of supporting any educational or liter- ary undertaking or for the promotion of music or other fine arts.*^ A corporation cannot be formed merely for the purpose of erect- ing a schoolhouse or academy building under a statute permitting incorporation for the establishment of high schools and academies, or to establish and maintain literary or scientific associations.^^ Under a statute permitting the organization of corporations for educational purposes, a corporation may be formed for the purpose of collecting and displaying the resources of the state at an exposition and to build and maintain a building for that purpose.^' But a corporation for the purpose of "educating the public by exhibiting artistic, mechani- cal, agricultural and horticultural products, and providing instruction in the arts ajad sciences,"" cannot be formed under a statute pro- viding for the incorporation of companies, not for profit, "for the encouragement of the arts and sciences, and of agricultural and horti- culture," and giving corporations formed under it the right of emi- nent domain.^* It is held in Texas that a corporation known as "The Daughters of The Eepublic" may be formed for patriotic purposes connected with the war for the independence of Texas under that subdivision of the general incorporation act which provides that corporations may be formed for ' ' educational purposes. ' ' ^^ A corporation organized for the purpose of giving athletic exhi- bitions for the entertainment of its members is not within a statute authorizing the formation of corporations for beneficial, educational or scientific purposes.^® A corporation for educational purposes is not authorized by a statute providing for the formation of corpora- tions for pecuniary profit, even though such corporation charges fees for tuition.^'' 21 Seymour Opera House Co. v. Wool- being chartered for religious and char- dridge (Tex. Civ. App.), 31 S. W. 234. itable purposes." City of San An- 22 Williams v. Franklin Tp. Aea- tonio v. Salvation Army (Tex. Civ. demical Ass'n, 26 Ind. 310. App.), 127 S. W. 860, where the status 23 Brown v. Cruce, 44 Okla. 192, 143 of Salvation Army was considered. Pac. 1154; Watton v. Cruce, 44 Okla. 26 State v. Business Men's Athletic 186, 143 Pac. 1152. Club, 178 Mo. App. 548, 163 S. W. 901. 24 In re Warren Academy of Sci- See, however, State v. Lesueur, 99 Mo. ences, 13 Pa. Dist. 597. 552, 7 L. E. A. 734, 13 S. W. 237. 25 Conley v. Daughters of Republic, 27 Santa Clara Female Academy v. 106 Tex. 80, 157 S. W. 937, 156 S. W. Sullivan, 116 111. 375, 56 Am. Eep. 776, 197, rev'g — Tex. Civ. App. — , 151 6 N. E. 183. See also McDonald v. S. W. 877. Massachusetts General Hospital, 120 "There is no inhibition in the stat- Mass. 432, 21 Am. Eep. 529. ntes of Texas against a corporation 240 Ch. 4] Objects fob "Which Ckeatbd [§125 Under a statute authorizing the formation of corporations for the purpose of engaging in any lawful enterprise, business, or pursuit, and also providing for the incorporation of religious, benevolent, literary, or charitable societies, or any societies having for their object the development of the physical or mental capacities of their members, and when any such society is formed, requiring it to state in its arti- cles of incorporation the "object," "business," or "pursuit" of the corporation, it was held that the words "business" and "pursuit," as used in the statute are not restricted to schemes for making money, but are used with reference to any object consistent with the inter- ests of society that may engage the attention of men and invite their co-operation.*8 A statute permitting the incorporation of societies or clubs for various purposes has been held not to permit the incorporation of a society without capital stock for the mutual benefit of its members as carpenters and joiners, and their improvement and advancement in that art and the mutual protection of the members and their interests.^^ §125. Corporations for scientific purposes. The term "science," it h'OS been said, in its broadest sense, is "knowledge" or "the knowledge of many," methodically digested and arranged, so as to be attaina'ble by one, or a "body of principles and deductions to explain the nature of some matter" ; and is not synonymous with, nor does it include "art." ^^ It has been held, therefore, that a rifle club cannot be organized under a statute authorizing corporations for "scientific" purposes; for rifle shooting, though it may be an art, 28 Maxwell v. Akin, 89 Fed. 178. A. 97, 43 N. W. 593; Jackson v. Wald- Under such a statute a corporation ron, 13 Wend. (N. T.) 178, 205. may be formed for the purpose of In Detroit Home & Day School v. guaranteeing and securing the notes, City of Detroit, 76" Mich. 521, 6 L. R. bonds and other obligations of another A. 97, 43 N. W. 593, it was held corporation organized for educational that an educational corporation was a purposes, in order to increase its credit. "scientific institution" within the Maxwell v. Akin, 89 Fed. 178. meaning of a statute exempting the 29 In re Carpenters ' & Joiners ' TJn- property of such institutions from tax- ion, 17 Abb. N. Cas. (N. T.) 109. ation. The court said: "A 'scientific 30Vredenburg v. Behan, 33 La. institution,' under the language of Ann. 627. And see New England Theo- all civilized countries, means an insti- sophical Corp. v. Board of Assessors, tution for the advancement or promo- 172 Mass. 60, 42 L. R. A. 281, 51 N. E. tion of knowledge, which is the Eng- 456; Detroit Home & Day School v. lish rendering of ' science. ' " City of Detroit, 76 Mich. 521, 6 L. E. 241 - I Priv. Corp.— 16 §125] Pbivate Coepokations [Ch.4 is not a science.'^ A corporation having for its paramount object the dissemination of theosophical ideas and procuring converts thereto, is not a "scientific" institution.^^ § 126. Corporations for purposes of pecuniary profit. A corpora- tion "for pecuniary profit" is a corporation organized for the pecuni- ary profit of its stockholders or members.^* Under a statute providing bhat certain corporations shall be chartered by the courts but that corporations for profit "shall be chartered by the governor," it is held that a corporation formed for the purpose of recovering prop- erty stolen fom the members of the corporation, and in the event of the property not being recovered to reimburse the owner by means of assessments levied upon the members of the corporation, was a cor- poration for profit, and hence could not be chartered by a court.'* A corporation created for the sole purpose of pecuniary gain may not be organized under a statute providing for the incorporation of companies for any lawful purpose other than pecuniary gain.'* Thus a corporation having for its object the construction and oper- ation of horse, dummy, electric, cable and compressed air street rail- ways, and the construction and operation of a general heating, 6 N. E. 183; McDonald v. Massachu- setts General Hospital, 120 Mass. 432, 21 Am. Rep. 529; State v. Talbot, 123 Mo. 69, 27 S. W. 366; State v. Corkins, 123 Mo. 56, 27 S. W. 363; McLeod v. Lincoln Medical College of Cotner Uni- versity, 69 Neb, 550, 96 N. W. 265, 98 N. W. 672. See § 92, supra. The title of an act entitled "An act for the incorporation of associations not for pecuniary profit," is suffi- ciently comprehensive to warrant a pro- vision in the body of the act that after it becomes a law all new corporations not organized for profit, and having no capital stock, except religious corpo- rations, shall be organized under the provisions of the act. American Mati- nee Ass'n v. Secretary of State, HO Mich. 579, 104 .N. "W. 141. 34 In re Solebury Mut. Protective Society, 3 Pa. Co. Ct. 637, 3 Del. Co. (Pa.) 139. 35 People V. Bose, 188 111. 268, 59 N. E. 432. 31 Vredenburg v. Beham, 33 La. Ann. 627. 32 New England Theosophical Corpo- ration V. Board of Assessors, 172 Mass. 60, 42 L. R. A. 281, 51 N. E. 456. The court said: "The judge was not bound to hold that this was a scientific insti- tution. While the term 'scientific' may not be limited to the physical sciences, yet there is nothing in the evidence to show that there is any study or application of science, even in the broadest sense of the word, in theosophy. But, even if there is any connection between theosophy and any kind of science, it is only incidental to the study and promulgation of a sys- tem of speculative philosophy. To make an institution scientific, it should be devoted either to the sciences gen- erally, or to some department of science as a principal object, and not merely as an unimportant incident to its important objects." 33 Santa Clara Female Academy v. Sullivan, 116 111. 375, 56 Am. Rep. 776, 242 Ch. 4] Objects fob Which Ceeated [§127 lighting, and power supply business, cannot be formed under such a statute.'^ A corporation for "educational purposes" is not a corporation for pecuniary profit merely because fees are charged for tuition." A corporation organized "for the purpose of improving the breed of horses by promoting the interests of the American trotting turf," and having no capital stock and containing no provision for the carrying on of any business, nor for the acquiring of any money or property, except the payment of membership fees and annual dues, is one not for pecuniary profit.^' A mutual insurance company can- not be organized under a statute authorizing the formation of cor- porations not for pecuniary profit.** Where a corporation was organized to deal in real estate on the co-operative plan, the court held that it must be deemed a corpora- tion for profit, although it had no capital stock and claimed to be organized not for profit but to assist its members in securing homes by means of amounts contributed by them.*" § 127. Corporations for owning or dealing in real estate. Under the general incorporation laws of some states a corporation cannot be organized for the purpose of buying and selling real estate,*^ or of 36 People V. Rose, 188 111. 268, 59 tuition for instruction does not change N. E. 432. The court said: "A corpo- its nature and make it an incorporation ration for business purposes having in for pecuniary benefit." Santa Clara view solely the pecuniary gain and Academy v. Sullivan, 116 111. 375, 56 profit of the incorporators cannot be Am. Eep. 776, 6 N. E. 183; McLeod v. organized under this statute, * * *. Lincoln Medical College of Cotner It is evident that the corporation University, 69 Neb. 550, 96 N. W. 265, sought to be organized is a corporation 98 N. W. 672. solely for business purposes and the 38 American Matinee Ass'n v. See- pecuniary profit and gain of the inoor- retary of State, 140 Mich. 579, 104 N. porators, and that it does not fall "W. 141. within the purview of the statute." 39 Iowa Mut. Tornado Ins. Ass 'n Go. 37 Santa Clara Female Academy v. v. Gilbertson, 129 Iowa 658, 106 N. W. Sullivan, 116 111. 375, 56 Am. Eep. 776, 153. 6 N. E. 183. 40 State v. Home Co-operative XJn- " While incorporated educational in- ion, 63 Ohio St. 547, 59 N. E. 220. By stitutions may be authorized to hold reason of the holding stated in the all kinds of property acquired by pur- text, the corporation was required to chase, donation, devise, or otherwise, organize under a statute framed for and to convey the same at their pleas- corporations created for the purpose ure, they may only do this for the pur- of pecuniary profit, pose of accomplishing the legitimate 41 Walker v. Taylor, 252 111. 424, 96 ends of the corporation, and the fact N. E. 1055; People v. Cowan, 247 HI. that such an institution may charge 357, 93 N. E. 349; People v. Shedd, 241 243 §127] Peivate Corporations [Ch.4 acquiring and holding real estate for purposes of investment.*^ And the purchase or acquisition of a leasehold estate is regarded as an acquisition of real estate within this rule, since a lease for a term of years is a chattel real.*^ So it has been held that a, corporation cannot be formed for the purpose of leasing a particular tract of land, erecting a building thereon for the accommodation of tenants, and to make leases, collect rents and and do all things incident to the management of the said property.** Nor is it material under such circumstances that the furnishing of power, light, water and 111., 155, 89 N. E. 332; Imperial Bldg. Co. V. Chicago Open Board of Trade, 238 111. 100, 87 N. E. 167, afE'g Chicago Open Board of Trade v. Imperial Bldg. Co., 136 111. App. 606; Bixler v. Sum- merfield, 195 111. 147, 62 N. B. 849; Carroll v. City of East St. Louis, 67 111. 568, 16 Am. Eep. 632; Myatt v. Ponca City Land & Improvement Co., 14 Okla. 189, 68 L. B. A. 810, 78 Pac. 185. See also Santa Clara Female Academy v. Sullivan, 116 111. 375, 56 Am. Eep. 776, 6 N. E. 183; Stark- weather V. American Bible Society, 72 111. 50, 22 Am. Bep. 133. Under a statute authorizing the for- mation of corporations for any lawful purpose, except real estate brokerage, and certain other purposes, it is held that acquiring and holding real estate are not purposes for which a corpora- tion may be organized, but that the organization of corporations for such purposes is forbidden by the statute. Walker v. Taylor, 252 111. 424, 96 N. E. 1055; People v. Cowan, 247 111. 357, 93 N. E. 349; People v. Shedd, 241 111. 155, 89 N. E. 332, aff'd 217 U. S. 597, 54 L. Ed. 896 (mem. dec.) ; Imperial Bldg. Co. V. Chicago Open Board of Trade, 238 111. 100, 87 N. E. 167, afE'g Chicago Open Board of Trade v. Im- perial Bldg. Co., 136 111. App. 606; Bix- ler V. Summerfield, 195 111. 147, 62 N. E. 849; National Home Building & Loan Ass'n v. Home Sav. Bank, 181 HI. 35, 64 L. R. A. 399, 72 Am. St. Eep. 245, 54 N. E. 619, rev'g 79 111. App. 303; First M. E. Church of Chicago V. Dixon, 178 111. 260, 52 N. E. 887, rev'g 77 111. App. 166; People v. Pullman's Palace Car Co., 175 111. 125, 64 L. E. A. 366, 51 N. E. 664; Carroll V. City of East St. Louis, 67 111. 568, 16 Am. Bep. 632. "The exception of real estate from the purposes for which corporations may be organized embraces all inter- ests in real estate, including lease- holds." People v. Shedd, 241 111. 155, 89 N. E. 332, aff'd 217 U. S. 597, 54 L. Ed. 896 (mem. dec). 42 People V. Shedd, 241 111. 155, 89 N. E. 332, aff'd 217 U. S. 597, 54 L. Ed. 896 (mem. dec.) ; Imperial Bldg. Co. ■«. Chicago Open Board of Trade, 238 111. 100, 87 N. E. 167, aff'g Chicago Open Board of Trade v. Imperial Bldg. Co., 136 111. App. 606. 43 People V. Cowan, 247 111. 357, 93 N. E. 349; People v. Shedd, 241 111. 155, 89 N. E. 332, aff'd 217 XT. S. 597, 54 L. Ed. 896 (mem. dec.) ; Imperial Bldg. Co. v. Chicago Open Board of Trade, 238 111. 100, 87 N. E. 167, aff'g Chicago Open Board of Trade v. Imperial Bldg. Co., 136 111. App. 606. 44 People V. Cowan, 247 111. 357, 93 N. E. 349; People v. Shedd, 241 111. 155, 89 N. E. 332, aff'd 217 II. S. 597, 54 L. Ed. 896 (mem. dec.) ; Imperial Bldg. Co. V. Chicago Open Board of Trade, 238 111. 100, 87 N. E. 167, aff'g Chicago Open Board of Trade v. Imperial Bldg. Co., 136 111. App. 606. 244 Ch. 4] Objects for Which Ceeated [§127 heat to the tenants of such building is included among the enu- merated purposes for which the corporation purports to be organ- ized, and that these are lawful corporate purposes, since the object is not to furnish power, light, water, and heat in general, but rather to furnish them to the tenants of a building which the cor- poration has no right to erect on property which it has no right to own.** Irrespective of statutory restrictions, it is regarded as a settled principle of American jurisprudence that a corporation cannot be organized for the purpose of acquiring and holding real estate, unless the statute under which it is sought to be organized expressly author- izes corporations for such purpose.*® In many states, however, a corporation may be organized for the specific purpose of purchasing, holding and selling real estate.*'' Thus it has been held that such a corporation may be organized under a statute authorizing incorpora- tion for any lawful enterprise,** and that a corporation for buying, selling and dealing in real estate may be formed under a statute authorizing corporations for mutual profit and benefit not inconsist- ent with the constitution and laws of the state,*' or for purposes of trade.®" And a corporation may be formed for the purpose of pur- chasing and reclaiming- swamp land under a statute permitting incorporation for the purpose of engaging in any species of trade, 46 People V. Shedd, 241 111. 155, 89 47 Market St. Ry. Co. v. Hellman, N. E. 332, aff'd 217 U. S. 597, 54 L. Ed. 109 Cal. 571, 42 Pac. 225. 896 (mem. dec). 48 Cahill v. Citizens' Mut. Bldg. 46 People V. Shedd, 241 111. 155, 89 Ass'n, 61 Ala. 232. N.E. 332, aff'd 217 XT. S. 597, 54 L.Ed. 49 National Bank of Jefferson y. 896 (mem. dec.). Texas Inv. Co., 74 Tex. 421, 12 S. W. For a review of the Illiuois cases in 101. reference to the acquisition and hold- 50 A statute authorizing corporations ing of real estate by corporations, see for the purpose ' ' of trade, or of carry- People V. Shedd, 241 111. 155, 89 N. E. ing on any lawful mechanical, manu- 332, aff'd 217 U. S. 597, 54 L. Ed. 896 facturing, or agriculture business," (mem. dec.), distinguishing Walker v. authorizes a corporation for the pur- Taylor, 252 111. 424, 96 N. E. 1055; pose of "buying, owning, improving. People V. Cowan, 247 111. 357, 93 N. E. selling, and leasing of lands, tene- 349; Merchants' Bldg. Improvement ments, and hereditaments, real, per- Co. V. Chicago Bxch. Bldg. Co., 210 sonal, and mixed estates and property, 111. 26, 102 Am. St. Eep. 145, 71 N. E. including the constructing and leasing 22, aff'g 106 111. App. 17; Eector v. of a building." Finnegan v. Noeren- Hartford Deposit Co., 190 111. 380, 60 berg, 52 Minn. 239, 18 L. E. A. 778, 38 N. E. 528, aff'g 92 111. App. 175; Am. St. ftep. 552, 53 N. W. 1150. Hough V. Cook Co. Land Co., 73 111. 23, 24 Am. Eep. 230. 245 §127] Pbivate Coepoeations [Ch. 4 business, or commerce.*^ But a statute authorizing a corporation "for the erection" of buildings has been held not to authorize a cor- poration to improve, extend and manage a building already erected.*** And it has also been held that a statute permitting incorporation for the improvement of real property does not authorize the organ- ization of a corporation for the purpose of dealing in real estate and carrying on any kind of real estate business.'* Under a statute authorizing the formation of corporations for pecuniary profit for "any lawful purpose except banking, insurance, real estate brokerage, the operation of railroads and the business of loaning money," a corporation may be formed "to encourage social and fraternal relations among its members, and to promote and incul- cate the principles of Masonry as sought in the different Masonic bodies, and to provide suitable and permanent accommodations for same by the erection of such a building as will provide halls, a library, reading rooms, and such other conveniences as are requisite therefor. ' ' '* Corporations are also often permitted to be formed for the purpose of holding real property in trust.'* Thus a corpora- tion may be formed for the purpose of holding property conveyed to it in trust for its stockholders under a statute permitting incor- poration for any purpose for which individuals may lawfully asso- ciate themselves.*® And holders of lands devised to them in trust for certain purposes may organize a corporation for the execution of the trust, under a statute authorizing tenants in common to incor- porate for the purpose of managing the property.*'' It has been held that a statute providing for the formation of corporations for any lawful purpose authorizes a corporation for the purchase of land and construction of houses thereon, and the allotment of the lots and houses among the stockholders in satisfaction of their stock, although the corporation may not comply with the law governing building and loan associations.*' § 128. Corporations for work of "internal improvement," "public improvement" or "public utility." Statutes generally permit the Bl People V. Hagar, 52 Cal. 171, writ 5B Baldwin v. Miller & Lux, 152 Cal. of error dismissed, 154 V. S. 639, 24 454, 92 Pac. 1030; Howard v. Hayward, li. Ed. 1044. 10 Mete. (Mass.) 408. 82 People V. Troy House Co., 44 B6 Baldwin v. Miller & Lux, 152 Cal. Barb. (N. Y.) 625. 454, 92 Pac. 1030. KSVercoutere v. Golden State Land 67 Howard v. Hayward, 10 Mete. Co., 116 Cal. 410, 48 Pac. 375. (Mass.) 408. M Lincoln Park Chapter No. 177 B. S8 York Park Bldg. Ass'n v. Barnes, A. M. V. Swatek, 105 III. App. 604, 38 Neb. 834, 58 N. W. 440. aif'd 204 111. 228, 68 N. E. 429. 246 Ch.4] Objects fob Which Cbeated [§128 formation of corporations for the purpose of carrying on works "of public improvement," or "public utility" or "internal improve- ment."*' The words "work of internal improvement" in a statute authorizing the formation of a corporation for the purpose of con- structing a work of internal improvement, and other statutes refer- ring to corporations by such a description, as statutes giving the power of eminent domain, mean corporations for the purpose of con- structing works of a quasi public character, as "railroads, turn- pikes, canals, ferries, telegraphs, wharves, and the like."®" The same is true of the words "public improvement," and the words "work of public utility," in a statute referring to corporations for such purpose.*^ Whether or not a work is a work of public utility 59 See § 102, supra. See also in this connection: Arizona. Oury v. Goodwin (Ariz.), 26 Pae. 376. California. Stockton & Yisalia B. Co. V. City of Stockton, 41 Cal. 147. Delaware. City of Wilmington v. Addicks, 8 Del. Ch. 310, 7 Del. Ch. 56, 43 Atl. 297. Louisiana. Bayon Cook Navigation & Fisheries Co. v. DouUut, 111 La. 517, 35 So. 729; Glen v. Breard, 35 La. Ann. 875. Maine. Cottrill v. Myriek, 12 Me. 222. Maryland. Tide Water Canal Co. v. Archer, 9 GiU & J. 479. Massachusetts. Hazen v. Essex Co., 12 Cush. (Mass.) 475, 477. Micliigan. Swan v. Williams, 2 Mich. 427. Montana. Butte, A. & P. By. Co. V. Montana U. By. Co., 16 Mont. 504, 31 L. B. A. 298, 50 Am. St. Eep. 508, 41 Pae. 232. Nebraska. Paxton & Hershey Irri- gating Canal & Land Co. v. Farmers' & Merchants' Irrigation & Land Co., 45 Neb. 884, 29 L. B. A. 853, 50 Am. St. Eep. 585, 64 N. W. 343. New Hampsliire. Great Falls Mfg. Co. V. Femald, 47 N. H. 444. New Jersey. Tinsman v. Belvidere D. B. Co., 26 N. J. L. 148, 69 Am. Dec. 565; Seudder v. Trenton Delaware Falls Co., 1 N. J. Eq. 694, 23 Am. Dee. 756. New York. In re Townsend, 39 N. Y. 171; Buffalo & New York City B. Co. V. Brainard, 9 N. Y. 100; Bloom- field & Bochester Nat. Gas Light Co. V. Bichardson, 63 Barb. 437. OMo. Kemper's Lessee v. Cincin- nati, C. & W. Turnpike Co., 11 Ohio 392. Pennsylvania. Bidgway Light & Heat Co. v. Elk County, 191 Pa. St. 465, 43 Atl. 323; St. Mary's Gaa Co. v. Elk County, 191 Pa. St. 458, 43 Atl. 321. West Virginia. West Virginia Transp. Co. v. Volcanic Oil & Coal Co., 5 W. Va. 382, 387. 60 West Virginia Transp. Co. v. Vol- canic Oil & Coal Co., 5 W. Va. 382. "It has been decided time and time again, and is therefore settled by the best authority, that the construction of railroads, turnpikes, canals, ferries, telegraphs, wharves, basins, etc., creat- ing the necessary facilities for inter- communication, constitutes what is generally known by the name of in- ternal improvements, and gives occa- sion for the exercise of the right of eminent domain." West Virginia Transp. Co. v. Volcanic Oil Co., 5 W. Va. 382. 61 Bidgway Light & Heat Co. v. Elk County, 191 Pa. St. 465, 43 Ad. 323; 247 § 128] Pbivate Coepoeations [Ch. 4 necessarily depends to a large extent upon the conditions in the par- ticular locality. What would be a work of public utility in one state might not be so in another.^* Under a constitutional provision permitting the incorporation under special act of corporations for the construction of a "work of internal improvement," a corpora- tion may be created by a special act for the purpose of constructing and maintaining a pipe line in an oil district for the conveyance or transportation of petroleum for the public generally.^^ A corpora- tion created for the purpose of constructing and maintaining gas and waterworks, and supplying a city and its inhabitants with water is held to be "an incorporation for public improvement" within the meaning of a constitutional provision limiting the period for the duration of corporate existence.^* A statute authorizing the formation of corporations for a "work of public utility" authorizes the formation of a corporation for the purpose of establishing and maintaining a wharf boat and steam elevator, and carrying on a general storage and forwarding busi- ness.®* A corporation formed to conduct a system of hot water heating through the streets of a city for the purpose of furnishing, selling and delivering hot water to heat dwellings, storerooms, offices and buildings in said city is "a public service corporation."*® A corporation may be organized for the purpose of acquiring and using a franchise to build a dam across a river under a statute per- mitting incorporation for any lawful business and purpose, where St.- Mary's Gas Co. v. Elk County, 191 oanio Oil & Coal Co., 5 W. Va. 382. See Pa. St. 458, 43 Atl. 321. also Bloomfield & Eochester Nat. Gas 62 Arizona. Oury v. Goodwin Light Co. v. Richardson, 63 Barb. (N. (Ariz.), 26 Pac. 376. Y.) 437; Eidgway Light & Heat Co. v. Montana. Butte, A. & P. Ey. Co. v. Elk County, 191 Pa. St. 465, 43 Atl. Montana TJ. Ey. Co., 16 Mont. 504, 31 323; St. Mary's Gas Co. v. Elk County, L. E. A. 298, 50 Am. St. Eep. 508, 41 191 Pa. St. 458. Pac. 232. 64 City of Wilmington v. Addicks, 8 Nebraska. Paxton & Hershey Irri- Del. Ch. 310, 7 Del. Ch. 56, 43 Atl. 297. gating Canal & Land Co. v. Farmers ' See also New Orleans Water Works Co. & Merchants' Irrigation & Land Co., v. Elvers, 115 TJ. S. 674, 29 L. Ed. 525; 45 Neb. 884, 29 L. E. A. 853, 50 Am. St. New Orleans Gas Light Co. v. Louisi- Eep. 585, 64 N. W. 343. ana Light & Heat Producing & Manu- Nevada. Dayton Gold & Silver Min. facturing Co., 115 IT. S. 650, 29 L. Ed. Co. V. Seawell, 11 Nev. 394. 516; State v. Milwaukee Gas Light New Jersey. Seudder v. Trenton Co., 29 Wis. 454, 9 Am. Eep. 598. Delaware Falls Co., 1 N. J. Eq. 694, 23 85 Glen v. Breard, 35 La. Ann. 875. Am. Dec. 756. 66 State v. Marion Light & Heating 63 West Virginia Transp. Co. v. Vol- Co., 174 Ind. 622, 92 N. E. 731. 248 Ch.4] Objects fob Which Cheated [§129 tiie law authorizes corporations to acquire such francuises bv pur- chase or assignment.^ § 129. Corporatioiis for purpose of acqoiring and holding' stock in otiier corporations. It has been held that a corporation may be organized for the purpose of holding stock in other corporations and controlling their operations where the statute i)ermits incor- poration for any lawful business or purpose whatroeTer, and expressly permiis corporations to own and control stock of other corpora- tions.^ 87 In re Southern Wiseonsin Power Co, 140 Wis. 245, 1-2-2 X. W. 801. 68 Bobotham t. Findential Ins. Co. of America, 6i X. J. Eq. 673, 53 AtL s42; Dittman t. TW g rilling Co. of Ameriea, 64 X. J. Eq. 537, 54 AtL 570. See also State v. AUantie City & S. E. Co., 77 X. J. L. 465, 72 AtL 111; War- ren v. Pim, 66 X. J. Eq. 353, 59 AtL 77-5, distinguished in State v. Atlantie City A- S. B. Co., 77 X. J. L. 465, 72 AtL 111; Willonghby v. Chicago Jnnet. Bailways & ITnion Stock Yards Co., 50 X. J. Eq. 656, 25 AtL 277; EUerman v. Chicago Jnnct. Bailways i Union St.jek Yards Co, 49 X. J. Eq. 217, 23 AtL 2S7. In Dittman v. DistOling Co. of America, 64 X. J. Eq. 537, 54 AtL 570, it was held that a corporation, ereateci for the purpose of holding stock and controlling the operations of other cor- porations, was organized for a ' • lawful purpose" within the meaning of the X'ew Jersey Corporation Act authoris- ing incorporation for "any lawful business or purpose whatever." Vice Chancellor Emery said: "The owner- ship of stock, and control of corpora- tion by means of such ownership, by either an indiTidnal or partnership, is in general a lawful act : and the organi- zation of a partnership for the purpose of sneh ownership and control, either alone or in connection \nth other ob- jects, is unquestionably a lawful ob- ject or purpose of association of indi- Tiduals. The only theory upon which the formation of corporations for the purpose of holding stock of other cor- porations can be held not to be a 'law- ful purpose,' within the meaning of the act, is that an authority to own the stock and control the management of other corporations must be given expressly and in terms in the section authorizing the formation of compa- nies, in order to be lawfuL TMs power to own and control stock of other cor- porations is expressly given by a sub- sequent section to all corporations, when organized, and to the same ex- tent as individuals. Such ownership of stock is therefore a lawful act This legislative declaration as to the law- fulness of the ownership of stock by corporations precludes the courts, as it seems to me, from declaring that such ownership cannot be included within the ' lawful purposes ' for which a corporation may be formed, merely for the reason that it is not expressly and specially authorized in the section of the act defining the purposes of in- corporatiou. What purposes are 'law- ful,' within the meaning of this sec- tion, must be ascertained by reference to the scope of the laws in force de- claring the lawful character of acts: and, taking the whole scope of the act, it would seem that the ownership of stock in other corporations, either alone or in connection with other ob- jects, as the purpose of the eorpora- 219 §129] Private Coepoeations [Cli.4 The view has also been taken that a corporation may be organized under a statute which authorizes the formation of corporations tion, is a purpose of incorporation au- thorized by the act." In Kobotham v. Prudential Ins. Co. of America, 64 N. J. Eq. 673, 53 Atl. 842, Vice Chancellor Stevenson in an . exhaustive opinion stated the history and development of the power of a corporation organized under the laws of New Jersey to acquire and hold shares of stock and securities of other corporations, and also set out the dif- ferent views obtaining generally in respect to this question. In consider- ing the effect of section 6 of the Cor- poration Act of New Jersey providing for incorporation for "any lawful purpose or purposes whatever," and section 51 providing that "any corpo- ration may purchase, hold, sell, assign, transfer, mortgage, pledge or other- wise dispose of the shares of the capital stock of, or any bonds, securi- ties or evidences of indebtedness created by any other corporation or corporations of this or any other state, and while owner of such stock may exercise all the rights, powers and privileges of ownership, including the right to vote thereon," the Vice Chancellor said: "As soon ^s our general corporation act was amended so as to permit the organization of corporations under it for 'any lawful business whatever' (Laws, 1865, p. 913; Eev. Corp. Act, 1875, § 10), it seems plain that corpo- rations could be created for the ex- press purpose of acquiring, holding, and dealing in stocks to the extent that such business may be lawful. To construe the word 'lawful' in such a statute as this in the sense of ' author- ized' (i. e., not ultra vires), in accord- ance with a dictum in the case of Peo- ple v. Chicago Gas Trust Co., 130 111. 268, 8 L. B. A. 497, 17 Am. St. Eep. 319, 22 N. E. 798, converts the statu- tory definition of the lawful objects of corporations into a meaningless circle. In my opinion, it is the very great en- largement of the scope of corporate ob- jects, the wide extension of the pur- poses for which they may be formed, under our general corporation act, and not the enabling act now embodied in section 51, which has extended the power of corporations created under our general act to acquire and hold stocks of other corporations. * * * That section 51 had an important effect as an enabling and declaratory statute * * * will appear, I think, from an examination of the authorities in re- lation to the common-law power of corporations to acquire shares of the capital stock of other ■ corporations. There is authority for the proposi- tion that corporations are under no disability at common law to purchase and hold the stock of other corpora- tions. In- re Earned 's Banking Co., 3 Ch. App. 105, 113; Eoyal Bank of In- dia's Case, 4 Ch. App. 252, 257; Booth V. Eobinson, 55 Md. 419; Davis v. Light Co., 77 Md. 35, 25 Atl. 982. There is also authority for the propo- sition that corporations cannot acquire and hold the stock of other corpora- tions without express authorization un- der a statute, the origin of the prohi- bition, whether in the doctrine of ultra vires, or in some positive rule of law based on public policy, being often left in uncertainty. See Noyes, Inter. Corp. Eel. §§ 264, 265; * * » 7 Am. & Eng. Ene. Law, pp. 810-816, and oases cited. There are also dicta, at least, sustaining the proposition that corporations are prohibited by a general rule of positive law, based on public policy, entirely distinct from the doctrine of ultra vires, from pur- chasing stock in other corporations. Oelbermann v. Eailroad Co., 77 Hun 332, 335, 29 N. Y. Supp. 545; Franklyn Bank of Cincinnati v. Commercial 250 Ch. 4] Objects for Which Ceeated [§129 for any purpose for which individuals may lawfully associate them- Bank of Cincinnati, 36 Ohio St. 350, upon such corporate holding of stock. 38 Am. Eep. 594; Franklyn Co. v. Lewiaton Inst, for Savings, 68 Me. 43, 56, 28 Am. Eep. 9. There is also au- thority for the proposition that a rule of law based on public policy or on the doctrine of ultra vires, or on both, pro- hibits a corporation from acquiring the stock of another corporation, where the business of one or both corpo- rations has certain characteristics, or where the purchase is made for certain purposes. Louisville & N. E. Co. V. Kentucky, 161 U. S. 677, 698, 40 L. Ed. 849; People v. Chicago Gas Trust Co., 130 111. 268, 8 L. E. A. 497, 17 Am. St. Eep. 819, 22 N. E. 798. In this state of the authorities, there was a wide and useful scope for the opera- tion of section 51, and the prior laws which it displaced, without constru- ing those laws as arbitrarily extending or endeavoring to extend the objects and powers of corporations organized under special charters, or under the general corporation act itself. The legislation of New Jersey which cul- minated in the enactment of sections 2 and 51 of the general' corporation act of 1896 certainly swept away all doubts about the capacity of corpora- tions, under any general rule of law recognized in the state, to purchase and hold shares of stock of other cor- porations, and established the rule that all corporations may freely pur- chase and hold such shares, so far as is 'necessary and convenient to the at- tainment' of their corporate objects. But corporations can be formed under the act only for ' lawful purposes, ' and, whatever may be inserted in their cer- tificates, can be allowed to accomplish only lawful purposes. The question therefore remains whether, notwith- standing the capacity of corporations generally to hold stock of other corpo- rations, there still remain prohibitions applicable to particular cases, in which the lawfulness of such holding by a natural person would be conceded." In Coler v. Tacoma Ey. & Power Co., 65 N. J. Bq. 347, 103 Am. St. Eep. 786, 54 Atl. 413, the Court of Errors and Appeals of New Jersey held that under the constitution and judicial decisions of the state of Washington, it was un- lawful for any corporation to hold stock and exercise the usual rights of stockholders in a corporation of that state, citing Denny Hotel Co. v. Schram, 6 "Wash. 134, 36 Am. St. Eep. 130, 32 Pae. 1002, and Parsons v. Tacoma Smelting & Eefining Co., 25 Wash. 492, 65 Pac. 765, and enjoined a corporation organized under the laws of New Jersey from consummating an arrangement whereby a corporation or- ganized under the laws of Washington was to issue certain shares of its stock to the New Jersey corporation in ex- change for all of its property and fran- chises, except the franchise of being a corporation. In Dittman v. Distilling Co. of America, 64 N. J. Eq. 537, 54 Atl. 570; Coler v. Tacoma Ey. & Power Co., supra, was adverted to, and dis- tinguished from the case under con- sideration. " It is held in New Jersey that the power to purchase, hold, sell, assign, transfer, mortgage, pledge or dispose of the shares of the corporate stock of any other corporation, and as the owner of such stock, to exercise any of the rights, powers and privileges of ownership, including the right to vote thereon, conferred by section 51 of the General Corporation Act (Pub. L. 1896, p. 294), is to be exercised sub- ject to the limitations imposed by sec- tion 2 of the same act (Pub. L. 1896, p. 278) ; that is to say, the power exists as a primary purpose only when the 251 §129] Pbivate Coepobations [Ch.4 selves.*' But it has been held that a corporation cannot be organized by existing corporations which are to hold all its stock, even where the law permits corporations to hold stock in other corporations,''*' much less where it does not.'^ In some jurisdictions a corpora- tion cannot lawfully be organized for the purpose of holding stock in other corporations.''^ As will be seen elsewhere, even though the statute under which the corporation is organized permits it to be formed for the purpose of holding stock in other corporations, a corporation cannot be purpose to exercise it as such is ex- the charter of a corporation organized pressed in the certificate of incorpora- tion, and otherwise it exists as an in- cidental power only so far as necessary OT convenient to the attainment of the objects that are set forth in the char- ter or certificate of incorporation. State V. Atlantic City & S. B. Co., 77 N. J. L. 465, 72 Atl. 111. By Laws of New Jersey 1913, c. 18, § 51 of the Corporation Act was amended so as to provide that no cor- poration organized under such act should, save in certain specified cases, thereafter purchase, hold, sell, assign, transfer, mortgage, pledge or dispose of the shares of the corporate stock of any other corporation, nor as owner of such stock exercise any of the rights, powers and privileges of ownership, including the right to vote thereon. 69 Market St. By. Co. v. Hellman, 109 Cal. 571, 42 Pac. 225, holding that under such a statute a corporation may be formed for the purpose of ' ' buying and selling, and dealing in all kinds of public and private stocks," with the power to purchase stock in other corporations. In Iowa it is held that a trading corporation, unless prohibited by its charter, may buy and sell the stock of another corporation. West v. Averill Grocery Co., 109 Iowa 488, 80 N. W. 555; White v. G. W. Marquardt & Sons, 105 Iowa 145, 74 N. W. 930; Iowa Lum- ber Co. V. Foster, 49 Iowa 25, 31 Am. Eep. 140. In Traer v. Lucas Prospect- ing Co., 124 Iowa 107, 9i9 N. W. 290, under the general incorporation act contained a provision that the business of the corporation should be, among other things, "to purchase, sell and deal in corporate stocks of other cor- porations, including railway stocks and bonds," and another provision authorizing the corporation to sell all of its property. It was held that the corporation having the power to sell all of its property, and the power to purchase the stock of another corpora- tion, could exchange all of its property for stock in another corporation. 70 American Ball Bearing Co. v. Adams, 222 Fed. 967. 71 Martin v. Ohio Stove Co., 78 111. App. 105. 72 People V. Chicago Gas Trust Co., 130 111. 268, 8 L. E. A. 497, 17 Am. St. Rep. 319, 22 N. E. 798; Martin v. Ohio Stove Co., 78 111. App. 105; Parsons v. Tacoma Smelting & Refining Co., 25 Wash. 492, 65 Pac. 765; Denny Hotel Co. v. Shram, 6 Wash. 134, 36 Am. St. Rep. 130, 32 Pac. 1002. See also Cali- fornia Nat. Bank v. Kennedy, 167 TJ. S. 362, 42 L. Ed. 198; First Nat. Bank of Charlotte v. National Exch. Bank of Baltimore, 92 U. S. 122, 23 L. Ed. 679; Trust Co. of Georgia v. State, 109 Ga. 736, 48 L. E. A. 520, 35 S. E. 323. See Eobotham v. Prudential Ins. Co. of America, 64 N. J. Eq. 673, 53 Atl. 842, where the power of a corporation to acquire and hold stock in other corpo- rations is reviewed and considered. See also Chap. 30, where the powers of 252 Ch.4] Objects fok Which Created [§130 formed for the purpose of creating a monopoly or for an unlawful purposed' Where the statute under which a corporation is formed does not authorize it to acquire or own stock in other corporations, the expression of such power in the articles of incorporation does not confer such power upon the corporation^* Where there is no general statute authorizing the formation of a corporation to operate a railroad, and the anti-trust act of the state prohibits corporations from purchasing or owning stock in other cor- porations, a corporation cannot be formed to acquire and hold the stock of a railroad corporation, though such railroad corporation is not in competition with it.''* § 130. Corporations for the practice of law or medicine. A statute authorizing the formation of corporations to carry on any lawful business does not include the work of the learned professions. Such an innovation with the evil results that might follow, would require the use of specific language clearly indicating the intention.'^ Such a statute does not authorize the formation of a corporation for the purpose of practicing law by means of lawyers employed by it,''' nor a corporation in respect to the acquisi- it in the gravel business. Incorporated tion, holding and ownership of stock in other corporations is fully consid- ered. 73 See § 114, supra. See also North- ern Securities Co. v. United States, 193 U. S. 197, 48 L. Ed. 679, aff'g United States Northern Securities Co., 120 Fed. 721; Burrows v. Inter- borough Metropolitan Co., 156 Fed. 389. 74 People V. Chicago Gas Trust Co., 130 111. 268, 8 L. E. A. 497, 17 Am. St. Eep. 319, 22 N. E. 798; Parsons v. Ta- coma Smelting & Refining Co., 25 Wash. 492, 65 Pae. 765. 76 Woodbury v. McClurg, 78 Miss. 831, 29 So. 514. The court said: "That the powers attempted to be lodged in the » * * Company would be il- legal, if granted, we cannot doubt. They would make it a stupendous monster, capable of swallowing into its insatiable maw all the mercantile and manufacturing institutions of the entire country, because neither one nor all would be in any competition with under chapter 25 of the Code of 1892, which precludes the chartering of rail- road corporations under it, yet, in direct conflict with § 832, it gives power to the Laurel Gravel Company to purchase and hold the capital stock of every railroad corporation of North America, because no one nor all of these transportation companies would be in competition with its gravel busi- ness. It is a principle of law that a corporation created under general laws takes its authority from such general laws, and not from the articles of as- sociation. People V. Chicago Gas Trust Co., 130 111. 268, 8 L. E. A. 497, 22 N. E. 798." See also Southern Elec. Securities Co. v. State, 91 Miss. 195, 124 Am. St. Eep. 638, 44 So. 785. 76 In re Co-operative Law Co., 198 N. T. 479, 32 L. E. A. (N. S.) 55, 139 Am. St. Eep. 839, 19 Ann. Cas. 879, 92 N. E. 15. 77 In re Co-operative Law Co., 198 N. Y. 479, 32 L. E. A. (N. S.) 55, 139 Am. St. Eep. 839, 19 Ann. Cas. 879, 253 §130] Peivate Cobpoeations [Ch.4 the formation of a corporation for the purpose of the practice of 92 N. E. 15; In re Application of Eiehmond Title & Abstr. Co., 2 Va. L. Beg. N. S. 772. Under such a statute a certificate of incorporation will not be granted to a corporation whose objects, as stated in the certificate, are "to fur- nish to ;ts subscribers legal advice and service; to operate in connection with the above a department of law and collections for the use and benefit of the subscribers of the company only, and to accomplish these objects said company proposes to employ and main- tain a staff of competent attorneys and counselors at law to give such advice; and to prosecute or defend, through such counsel, any claim or suit entrust- ed to its care by subscribers." In re Co-operative Law Co., 198 N. Y. 479, 139 Am. St. Eep. 839, 32 L. E. A. (N. S.) 55, 19 Ann. Cas. 879, 92 N. E. 15. See also In re Certain Lands for Bridge Purposes in City of New York, 144 N. Y. App. Div. 107, 128 N. Y. Supp. 999; In re Associated Lawyers' Co., 134 N. Y. App. Div. 350, 119 N. Y. Supp. 77. In holding against the contention that a corporation could be lawfully organized to practice law under a statute' providing that "three or more persons may become a stock corpora- tion for any lawful business," the Court of Appeals of New York, in In re Co-operative Law Co., 198 N. Y. 479, 32 L. E. A. (N. S.) 55, 139 Am. St. Eep. 839, 19 Ann. Cas. ^9, 92 N. E. 15, said: "This means a busi- ness lawful to all who wish to engage in it. The practice of law is not a business open to all, but a personal right, limited to a few persons of good moral character, with special qualifica- tions ascertained and certified after a long course of study, both general and professional, and a thorough examina- tion by a state board appointed for the purpose. The right to practice law is in the nature of a franchise from the state conferred only for merit. It cannot be assigned or in- herited, but must be earned by hard study and good conduct. It is attested by a certificate of the Supreme Court, and is protected by registration. No one can practice law unless he has taken an oath of office and has become an officer of the court, subject to its discipline, liable to punishment for contempt in violating his duties as such, and to suspension or removal. It is not a lawful business except for members of the bar who have com- plied with all the conditions required by statute and the rules of the courts. As these conditions cannot be per- formed by a corporation, it follows that the practice of law is not a law- ful business for a corporation to en- gage in. As it cannot practice law directly, it cannot indirectly by em- ploying competent lawyers to practice for it, as that would be an evasion which the law will not tolerate. 'Quando aliquid prohibetur ex directo, prohibetur et per obliquium.' Co. Lit. 223. The relation of attorney and client is that of master and servant in a limited and dignified sense, and it involves the highest trust and con- fidence. It cannot be delegated with- out consent, and it cannot exist be- tween an attorney employed by a cor- poration to practice law for it, and a client of the corporation, for he would be subject to the directions of the corporation, and not to the directions of the client. There would be neither contract nor privity between him and the client, and he would not owe even the duty of counsel to the actual liti- gant. The corporation would control the litigation, the money earned would belong to the corporation, and the attorney would be responsible to 254 Cli.4] Objects fob Which Cheated [§130 medicine or dentistry/^ and of course a corporation cannot be formed for such a purpose where the statute expressly prohibits corpora- tions from engaging in professional business," or from practicing law.8» the corporation only. His master would not be the client but the cor- poration, conducted it may be wholly by laymen, organized simply to make money and not to aid in the adminis- tration of justice, which is the high- est function of an attorney and coun- selor at law. The corporation might not have a lawyer among its stock- holders, directors or officers. Its mem- bers might be without character, learn- ing or standing. There would be no remedy by attachment or disbarment to protect the public from imposition or fraud, no stimulus to good conduct from the traditions of an ancient and honorable profession, and no guide ex- cept the sordid purpose to earn money for stockholders. The bar, which is an institution of the highest usefulness and standing, would be degraded if even its humblest member became sub- ject to the orders of a money-making corporation engaged not in conducting litigation for itself, but in the busi- ness of conducting litigation for others. The degradation of the bar is an injury to the state." In Snow, Church & Co. v. Hall, 19 N. Y. Misc. 655, 44 N. T. Supp. 427, it was held that a corporation formed to carry on the business of a collection agency could naintain a suit to recover for legal services rendered the defend- ant by attorneys at law in its employ. 78 In re Co-operative Law Co., 198 N. Y. 479, 32 L. E. A. (N. S.) 55, 139 Am. St. Rep. 839, 19 Ann. Cas. 879, 92 N. E. 15, aff'g 136 N. Y. App. Div. 918, 120 N. Y. Supp. 1120; People v. John H. Woodbury Dermatological In- stitute, 192 N. Y. 454, 85 N. E. 697, aff'g 124 N. Y. App. Div. 877, 109 N. Y. Supp. 578; Hannon v. Siegel- Cooper Co., 167 N. Y. 244, 52 L. R. A. 429, 60 N. E. 597. Where chiropractors have no legal status as medical . practitioners, it is not an abuse of discretion to withhold approval of an application for a charter for a ' ' Chiropractors ' Associa- tion" until the incorporators have obtained such a status. In re Chiro- practors' Ass'n of Pennsylvania, 243 Pa. 547, 90 Atl. 335. 79 In re Co-operative Law Co., 198 N. Y. 479, 32 L. R. A. (N. S.) 55, 139 Am. St. Rep. 839, 19 Ann. Cas. 879, 92 N. E. 15, aff'g 136 N. Y. App. Div. 918, 120 N. Y. Supp. 1120; State v. Laylin, 73 Ohio St. 90, 76 N. E. 567. Under such circumstances a foreign corporation formed to defend physi- cians in malpractice suits, and agree- ing to employ attorneys for that pur- pose, will not be permitted to do busi- ness in the state. State v. Laylin, 73 Ohio St. 90, 76 N. E. 567. •OIn re Co-operative Law Co., 198 N. Y. 479, 32 L. R. A. (N. S.) 55, 139 Am. St. Rep. 839, 19 Ann. Cas. 879, 92 N. E. 15, aff'g 136 -N. Y. App. Div. 918, 120 N. Y. Supp. 1120; In re Asso- ciated Lawyers' Co., 134 N. Y. App. Div. 350, 119 N. Y. Supp. 77; In re Bensel, 68 N. Y. Misc. 70, 124 N. Y. Supp. 726; State v. Laylin, 73 Ohio St. 90, 76 N. E. 567. See also In re Certain Lands for Bridge Pur- poses in City of New York, 144 N. Y. App. Div. 107, 128 N. Y. Supp. 999. This rule does not prohibit incorporation for the purpose of pro- tecting the members, who are mer- chants, by preventing and exposing fraudulent bankruptcy proceedings on the part of persons with whom they deal. In re Creditors' Audit & Ad- 255 §130] Private Ooepoeations [Ch.4 In some states licensed physicians may form a corporation and make contracts in; the corporate name with patients for the services of its members and other licensed physicians.*^ The incorporation of hospitals, infirmaries, dispensaries and the like is generally speci- fically provided for, and authority is conferred upon them to prac- tice medicine by means of physicians and surgeons employed by them.** § 131. Miscellaneous illustrations of authorized purposes. Under a statute authorizing corporations for "social, gymnastic, aesthetic, Misc. 461, justment Ass'n, 72 N. Y, 131 N. Y. Supp. 263, Under a statute making it unlaw- ful for any corporation to practice law, to render or furnish legal service or advice, to furnish attorneys or counselors for that purpose, or to ad- vertise for or solicit legal business, but providing, however, that such pro- hibition shall not apply to any corporation lawfully engaged in a business authorized by the provisions of any existing statute, nor to a cor- poration lawfully engaged in the examination and insuring of titles to real property, nor to corporations or- ganized for benevolent or charitable purposes, or for the purpose of assist- ing persons without means in the pur- suit of any civil remedy, whose ex- istence, organization or incorporation shall be approved by the appellate division of the supreme court of the department in which the principal office of said corporation shall be located, the appellate division of such court has no power to approve a corporation organized to practice law. In re Co-operative Law Co., 198 N. Y. 479, 32 L. E. A. (N. S.) 55, 139 Am. St. Sep. 839, 19 Ann. Cas. 879, 92 N. E. 15, aff'g 136 N. Y. App. Div. 918, 120 N. Y. Supp. 1120. See also In re Certain Lands for Bridge Purposes in City of New York, 144 N. Y. App. Div. 107, 128 N. Y. Supp. 999; In re Associated Lawyers' Co., 134 N. Y. App. Div. 350, 119 N. Y. Supp. 77; In re Bensel, 68 N. Y. Misc. 70. A corporation for the purpose of ex- amining titles, guarantying the cor- rectness of searches, and insuring against loss by reason of defective titles is not forbidden by such a stat- ute, as the searching of titles is open to all, and title guaranty companies may employ either lawyers or laymen to transact their business. In re Co- operative Law Co., 198 N. Y. 479, 32 L. E. A. (N. S.) 55, 139 Am. St. Eep. 839, 19 Ann. Cas. 879, 92 N. E. 15, aff'g 136 N. Y. App. Div. 918, 120 N. Y. Supp. 1120. See also In re Appli- cation of Richmond Title & Abstr. Co., 2 Va. L. Eeg. N. S. 772. 81 State Electro-Medical Institute v. State, 74 Neb. 40, 12 Ann. Cas. 673, 103 N. W. 1078; State Electro-Medical In- stitute V. Platner, 74 Neb. 23, 121 Am. St. Eep. 706, 103 N. W. 1079. But see In re Co-operative Law Co., 198 N. Y. 479, 32 L. E. A. (N. S.) 55, 139 Am. St. Eep. 839, 19 Ann. Cas. 879, 92 N. E. 15, aff'g 136 N. Y. App. Div. 918, 120 N. Y. Supp. 1120; People v. John H. Woodbury Dermatological Institute, 192 N. Y. 454, 85 N. E. 697, aff'g 124 N. Y. App. Div. 877, 109 N. Y. Supp. 578; Hannon v. Siegel-Cooper, 167 N. Y. 244, 52 L. E. A. 429, 60 N. E. 597. 82 People V. John H. Woodbury Dermatological Institute, 192 N. Y. 454, 85 N. E. 697, aff'g 124 N. Y. App. Div. 877, 109 N. Y. Supp. 578. 256 Cli.4] Objects foe Which Cbbated [§131 musical, yachting, hunting, fishing, boating, or lawful sporting' pur- poses," it has been held that a corporation could not be organized for the purpose of detecting violations of the game laws, and insti- tuting actions to recover the penalties therefor.^' A statute authorizing incorporation for the purpose of building and repairing steamboats and other water craft justifies an incor- poration for the purpose of building and repairing wharf boats,^* but not for the purpose of using and maintaining them and thereby- engaging in the business of warehousemen.** A corporation for the purpose of renting automobiles cannot be formed under provisions authorizing incorporation for the establish- ment and maintenance of stage lines, or for the transportation of goods, wares and merchandise, or any valuable thing. ** Statutes sometimes specifically authorize incorporation for the pur- pose of conducting the livery and transportation business with auto- mobiles.*'' Corporations for guarantying the bonds of an educational institu- tion,** for issuing, redeeming and selling bonds, which are to be paid Statutory prohibitions against the practice of medicine without lawful registration in the state, or in viola- tion of any of the provisions of th« statute, or against advertising by any person not a registered physician, are not intended to apply to corporatft bodies which by the express provisions of other statutes are authorized to carry on the practice of medicine upon compliance with their provisions and without registration. People v. John H. Woodbury Dermatological Insti- tute, 192 N. Y. 454, 85 N. E. 697, afC'g 124 N. Y. App. Div. 877, 109 N. Y. Supp. 578. 83 Ancient City Sportsman 'a Club v. Miller, 7 Lans. (N. Y.) 412. An association organized as shown by its certificate of incorporation for the purpose of social fellowship and companionship among its members, and to this end to furnish a place of meet- ing and food and refreshments is a social club, within the meaning of a statute authorizing the chartering of Bpqial clubs, and not a business corporation within the meaning of the statute providing authorizing the formation of corporations for the transaction of any lawful business. Hanger v. Com., 107 Va. 872, 14 L. E. A. (N. S.) 683, 60 S. E. 67. 84 A wharf boat will be deemed to be included in the term water craft, at least in a case where creditors are seek- ing to enforce stock subscriptions. Gaff V. Flesher, 33 Ohio St. 107, motion for rehearing overruled 33 Ohio St. 453. 85 Gaff V. Flesher, 33 Ohio St. 453; Ohio V. Southwestern Transportation & Wharf Boat Co., 23 Ohio St, 166. 86 Staacke v. Routledge, — Tex. Civ. App. — , 175 S. W. 444. 87 Staacke v. Routledge, — Tei. Civ. App. — , 175 S. W. 444. 88 A statute authorizing corporations for "any lawful enterprise, business pursuit, or occupation ' ' is not restrict- ed to corporations for making money, but authorizes a corporation for any object, consistent with the interests of society, that may engage the atten- tion of men and invite co-operation. It therefore authorizes a corporation 257 I Priv. Corp.— 17 §131] Pbivate Coepobations [Ch.4 for in instalments by its members,*' for the purpose of protecting the members thereof from theft and violence,'" for buying, selling and dealing in properties of all kinds,'^ for loaning money,'^ and for carrying on the business of plumbing,'^ have been held to be permissible under various statutes. for the purpose of guarantying the bonds of an educational institution, to strengthen its credit. Maxwell v. Akin, 89 Fed. 178. 89 A statute authorizing a corpora- tion for any lawful purpose intended for pecuniary profit or gain author- izes a corporation for the purpose of issuing bonds to be paid for by pur- chasers thereof in monthly instal- ments, and to be redeemed as may be prescribed, and of selling and dispos- ing of such bonds in the state. State V. Talbot, 123 Mo. 69, 27 S. W. 366. State V. Corkins, 123 Mo. 56, 27 S. W. 363. Under a statute authorizing the circuit court to grant charters to corporations for the conduct of any en- terprise or business which may be law- fully conducted by an individual, or by a body politic or corporate, except to construct a turnpike to be con- structed beyond the limits of the county, or a railroad or canal, or to establish a bank of private circulation, it was held that it did not have the power to grant a charter authorizing the beneficiaries thereunder to ob- struct the public highway, but that no such authority was found in a charter authorizing a corporation to "create, maintain, and conduct in the city of Eiohmond and county of Henrico such exhibitions and displays of the manu- factures, resources, and industrial en- terprises of the city of Richmond, or such other cities, counties, and states, as may tend to advance the welfare of such cities, counties, or states so exhibiting, by affording a temporary or permanent collection and exposition of the various industries, resources, mer- cantile and business opportunities of the localities represented, for the en- couragement of investment by home or foreign capital in existing or new enterprises; and in furtherance of the object to hold or give such free or paid performances, spectacles, entertain- ments, or parades as may to said cor- poration seem proper and advisable." City of Richmond v. Smith, 101 Va. 161, 43 S. E. 345. 90 A statute authorizing corporations for mutual profit or benefit, not in- consistent with the constitution and laws of the state, authorizes a corpora- tion for the purpose of protecting the property of its members from violence and theft, to raise money for necessary expenses by assessments, and to con- fer with the state officers, and employ counsel, police, and detectives, when necessary for the prosecution of crimi- nals. Guadalupe & San Antonio River Stock Ass'n v. West, 70 Tex. 3~91, 7 S. W. 817. 91 A statute authorizing corporations for mutual profit or benefit, not incon- sistent with the constitution and laws of the state, authorizes a corporation for the purpose of "buying, selling, and dealing in real estate, live stock, bonds, securities, and other properties of all kinds, on its own account and for commission." National Bank of Jefferson v. Texas Inv. Co., 74 Tex. 421, 12 S. W. 101. 92 Brown v. Scottish- American Mort- gage Co., 110 111. 235; Stevens v. Pratt, 101 111. 206, overruling United States Mortgage Co. v. Gross, 93 111. 483, aff 'd 108 U. 8. 477, 27 L. Ed. 295. 93 William Messer Co. v. Rothstein, 129 N. Y. App. Div. 215, 113 N. "?. Supp. 772, aff'd 198 N. Y. 532, 19 Ann. Cas. 879, 92 N. E. 1107. 258 Ch.4] Objects for Which Created [§131 A general statute may be such that a building and loan associa- tion may be organized thereunder.^* The formation of corporations to act as agent or broker in effect- ing insurance,'^ or as agent or attorney in fact in the management 94MansIiip V. New South Building & Loan Asa'n, 110 Fed. 845. Under a statute providing that "every association * * * organized for the purpose of raising money from its members or others, by means of stated installments or payments, to be held, invested or disbursed by said association, whether the money so contributed is paid in for shares in such association, or is held by the association for investment and accu- mulation for the benefit of the con- tributors, or as an advance on mer- chandise, or property of any kind, to be delivered in the future, or is held by the association to be dis- bursed among the contributors, or any of them, in accordance with any agreed plan or scheme, and whether the relation of the contributor to the association be that of member, shareholder, vendee, creditor or bene- ficiary of a trust; * * * shall be known for the purposes of this act as an installment investment company," it is held that if the organization of a corporation and its plan of doing busi- ness involve receiving from each of its members a stated sum at stated intervals until a specified amount is received from such members, and investing this money in property for the benefit of its members, it is an installment investment company with- in the meaning of such statute. State v. Northwestern Trust Co., 72 Neb. 497, 101 N. W. 14. 95 State v. Michel, 113 La. 4, 36 So. 869. Under a statute providing that it is lawful for a designated number of per- sons ' ' to form themselves into and constitute a corporation for the pur- pose of carrying on any lawful business or enterprise, not * * * in- consistent with the constitution and laws of this state, ' ' a corporation may be formed to conduct the business of acti&g as agents and brokers in effect- ing insurance of all kinds for any and all* insurance companies in the trans- action of the insurance business and in all of its branches and generally to perform all things connected with the insurance agency business. State V. Michel, 113 La. 4, 36 So. 869. Breauz, C. J., said: "In order to determine whether the act quoted grants power enough to form com- panies to carry on the business of agents, we propounded the ques- tion: Can the language of the act be so interpreted as to bring an agency within the definition of the word 'business' or 'enterprise'? In answer we must say that we think it can be brought within the terms in question. Factors may organize them- selves into companies, limited, al- though they are in most respects only a particular kind of agency; brokers, who do not engage in stockjobbing, might, if they chose, organize them- selves into companies to transact busi- ness for others — attorneys and others — whose business is that of agency. True, the statute does not in terms au- thorize corporations to be formed to act as agents of other persons or other corporations, but it permits (that which is or must be considered its equivalent under the ordinary rules of interpretation) persons to form cor- porations to carry on business. The business of agent is unquestionably lawful, as its legitimacy as an occupa- tion presents no sort of ground of ob- jection which can of itself possibly bring it under the ban of the law." 259 1131] Pbivate Coepobations [Ch.4 or control of real estate, or in its purchase or sale,^^ has been held to be permissible under statutes authorizing the formation of cor- porations for the purpose of carrying on any lawful business or enterprise. But the contrary has been held to be true of a corpora- tion formed to carry on the business of stock brokerage on the ground that it would conflict with statutes providing for the regu- lation and licensing of such brokers.''' Under a statute which, after enumerating the specific purposes for which corporations may be formed, provides generally that they may be organized for any lawful business or purpose, a corporation may be lawfully formed to build a dam across a certain river in the state under a franchise to biiild such dam granted to certain indi- viduals and assigned by them to the corporation, where the law authorizing the granting of such franchise also permits it to be so assigned, and the statute under which it is attempted to incorporate the corporation makes the acquirement and use of such a franchise a lawful business or purpose.'* A corporation for installing and operating a trackless trolley sys- 96 A corporation "to act as the gen- eral or special agent, or attorney in fact, for any public or private corpora- tion, or person, in the management and control of real estate or other property, its purchase, sale, or conveyance, etc., ' ' may be formed under a statute authorizing incorporation for any law- ful business, enterprise, pursuits or occupation. Killingsworth v.. Port- land Trust Co., 18 Ore. 351, 7 L. E. A. 638, 17 Am. St. Eep. 737, 23 Pae. 66. : There is nothing in the nature of a corporation to render it incapable of operating as attorney in fact for an- other, if the transaction is within the powers conferred upon it by its char- ter. Killingsworth v. Portland Trust Co., 18 Ore. 351, 7 L. K. A. 638, 17 Am. St. Bep. 737, 23 Pae. 66. The court said: "When a corporation is made the agent of another to sell and con- vey property, it acts through the same instrumentalities as when acting for itself; and the relation between it and its instrumentalities is as one being or artificial person in the per- formance of its engagement, and in- volves no delegation of powers. So that, when a corporation is invested with a power of attorney to sell and convey real property, the person con- ferring the power knows that the cor- poration cannot act personally in the matter, but that in performing the en- gagement it will act through its agents, who for that purpose are its faculties, and whose acts in the discharge of that duty are the acts of the corporation, and as such must be considered to be included in the artificial person, as in- strumentalities authorized by him to do the act conferred upon it by his power of attorney. In this view, the argument that the corporation cannot do such act, under the power of attor- ney, without a delegation of authority to its agents, and that the grantor of the power has given no such power of substitution, cannot be sustained." 97 In re W. B. Urling Co., 13 Pa. Dist. 534. 98 In re Southern Wisconsin Power Co., 140 Wis. 245, 265, 133 Am. St. Eep. 1075, 122 N. W. 801. 260 Ch. 4] Objects foe "Which Cbeated [§131 tem has been held not to be authorized by a statute permitting incor- poration for any lawful business. '^ A statute authorizing the formation of corporations for any law- ful purpose, except banking, insurance, real estate brokerage, the operation of railroads, and the business of loaning money, does not authorize the formation of a corporation for the purpose of guaran- tying the fidelity of persons holding public or private places of trust, and the performance by persons, firms and corporations of con- tracts, bonds, recc^nizances and undertakings of every kind, and of becoming surety on bonds required by law, and on every kind of contract, obligation and undertaking of persons, firms and corpora- tions, as such purposes constitute "guaranty insurance," and fall within the prohibition of the statute.^ A statute providing for the formation of "an ordinary business corporation" authorizes the incorporation of a corporati(m to engage in the business of manufacturing, distilling, buying, selling, import- ing, exchanging, and otherwise acquiring, holding, owning, dealing in, or disposing of wines, spirits, liquors, ales, beers at wholesale or retail, or otherwise.^ But in at least one state a corporation can- not legally be organized for the purpose of selling or disposing of intoxicating liquor at retail, though it may be for the purpose of manufacturing it or selling it at wholesale.^ And a marriage asso- 99 Where that system of transporta- undertakings of every kind — is, not tion was not known at the time of the only to enter into contracts of insur- passage of the act, and there was no ance, within the meaning of the au- provision for the regulation of such thorities cited, but within the spirit companies. In re Sayre Trackless and reason of the exception." Trolley Co., 13 Pa. Dist. 602. 2Greenough v. Board Police Com'rs 1 People V. Bose, 174 HI. 310, 44 L. Town of Tiverton, 30 B. I. 212, 136 B. A. 124, 51 N. E. 246. The court Am. St. Bep. 953, 74 Atl. 785. said: "The manifest purpose of the "The definition of the noun 'bnsi- legislature in excepting banking, in- ness,' according to Webster's Interna- surance, real estate brokerage and tionalDiet. is: ' (3) Financial dealings; other corporations from the provisions buying and selling; traffic in general; of the act authorizing incorporation of mercantile transactions. ' ' ' Greenougl^ companies for other lawful purposes, v. Board Police Com'rs Town of was, that these excepted corporations Tiverton, 30 E. I. 212, 136 Am. St. Bep. should be restrained by more strict re- 953, 74 Atl. 785. quirements, securing the safe conduct 8 American Fork (Hty v. Charlier, 43 and correct administration of their tJtah 231, 134 Pac. 739. affairs. The object stated in the peti- In In re Moose Home Ass 'n Charter, tioners' application — especially that of 235 Pa. 404, 84 Atl. 402, it was held guaranteeing the performance by where the court granting the charter persons, firms and corporations of incorporated in the decree of incor- contracts, bonds, recognizances and poration, in accordance with the ei- 261 §131] Pbivate Corporations [Ch. 4 ciation having for its object the payment of benefits to its members on marriage, has been held not to be a beneficial or protective asso- ciation* And it has been held that a statute authorizing corpora- tions for any lawful purpose authorizes a corporation for the purchase of land and construction of houses thereon, and the allotment of the lots and houses among the stockholders in satisfaction of their stock, although the corporation may not comply with the law gov- erning Wilding and loan associations.* Where by provision of statute railroad lines were authorized to commence at the limits of a town and extend therein, autho-rity was held to exist to operate a street car line wholly within the lim- its of a city.® Where throughout all the legislation in reference to the creation of a private corporation, and behind it, there has constantly rested the principle that corporations should be created for the promotion of some object of general utility, a corporation cannot be formed for the purpose of guarantying and loaning money on debentures under a statute authorizing the formation of corporations for the purpose of carrying on any lawful business or enterprise, but prohibiting the formation of any corporation to "engage in stock- jobbing busi- ness of any kind," as debentures of all kinds bear sufSeient resem- blance or analogy to stock or bonds to make dealing with them by way of purchase and sale fall under the designation of stock jobbing within the meaning of such statute.' pressed desire of the petitioners, a members. In re Mutual Aid Ass'n, provision that no intoxicating liquors 15 Phila. ('Pa.) 625. should be dispensed on the premises of 6 York Park Bldg. Ass 'n v. Barnes, the association, it was no abuse of the 39 Neb. 834, 58 N. W. 440. discretion of the court subsequently to 8 Wilmington City Ey. Co. v. Peo- refuse to eliminate such pTOvision from pie's Ry. Co. (Dei.), 47 Atl. 245. See the decree. State v. Atlantic City & 8. E. Co., 77 4 A marriage association, the purpose N. J. L. 465, 72 Atl. 111. of which is to issue certificates of 7 State v. Debenture Guarantee & membership in certain amounts, and Loan Co., 51 La. Ann. 1874, 26 So. 600, to pay parties for whose benefit the NiehoUs, C. J., said: " 'Stockjobbing' certificates are issued from a fund to is not defined by law, but the Century be raised, in each case of marriage, by Dictionary defines it as ' the business an assessment of the members, is not of dealing in stocks or shares; the pur- a beneficial or protective association, chase and sale of stocks, bonds, etc., the amounts being payable without re- as carried on by jobbers who operate gard to the wants or necessities of the on their own account.' " 262 CHAPTER 5 Promoters § 132. Who are promoters. § 133. Eights and liabilities of promoters inter se. § 134. Eelation of promoters to corporation and stockholders. § 135. Secret profits — In general. § 136. — Gist of wrong. § 137. — Sale by promoter to corporation. § 138. — Qualification of general rules as to sales. § 139. — Joint and several liability. § 140. — Actions against promoters — Nature and form of remedy. § 141. Defenses. §142. Parties. §143. Limitations and laches. § 144. Pleading. § 145. — • — Burden of proof. § 146. Character and measure of relief. § 147. — Commission from third person. § 148. — Liability of persons conspiring with promoters. § 149. — Enforcement of claim. § 150. Liability of corporation on promoters' contracts — In general. § 151. — Liability imposed by statute. § 152. — Adoption or ratification of contracts. V § 153. — Power to adopt or ratify ultra vires contracts. § 154. — Mode of adoption or ratification in general. § 155. — Persons who may adopt or ratify. § 156. — Implied adoption or ratification. § 157. Enforcement of promoters ' contracts by corporation. § 158. Personal liability of promoters on contracts executed by them — ^In general. § 159. — Effect of adoption or ratification of contracts by corporation. § 160. Right of action of promoters on contracts executed by them. § 161. Notice to or knowledge by promoters. § 162. Admissions and declarations of promoters. § 163. Demand upon promoter. i 164. Liability of corporation for services and expenses of promoters. § 165. Liability of promoters on failure to create corporation. § 166. Subscriptions to stock procured by promoters ' fraud. 263 § 132] Private Cobpoeations [Cli.5 § 132. Who are promoters. The term "promoter" is a term not of law^ nor of art,* but of business,' and must be understood by lawyers as it is by layinen.* The promotion of a joint stock corporation is the act of getting it up or organizing it, and procuring of subscriptions to its capital stock,* and any one who actively assists in doing this whether as a business,* or in a single instance is a promoter.'' 1 Connecticut. Yale Gas-Stove Co. V. Wilcox, 64 Conn. 101, 25 L. E. A. 90, 42 Am. St. Eep. 159, 29 Atl. 303. Iowa. The Telegraph v. Loetseher, 127 Iowa 101, 101 N. W. 773. Missouri. Pitts v. D. M. Steele Mercantile Co., 75 Mo. App. 221, 226. New Jersey. Bigelow v. Old Domin- ion Copper Mining & Smelting Co., 74 N. J. Eq. 457, 501, 71 Atl. 153. New York. Armstrong v. Sun Print- ing & Publishing Ass'n, 137 App. Div. 828, 122 N. Y. Supp. 531. Ohio. Second Nat. Bank v. Green- ville Screw-Point Steel Fence Post Co., 23 Ohio Cir. Ct. 274. England. Whaley Bridge Calico Printing Co. V. Green, 5 Q. B. D. 109, 111, 28 Wkly. Eep. 351 (Bowen, J.). 2 Twycross v. Grant, 2 C. P. D. 469, 503 (Bramwell, L. J.). 3 Connecticut. Yale Gas-Stove Co. V. Wilcox, 64 Conn. 101, 25 L. R. A. 90, 42 Am. St. Eep. 159, 29 Atl. 303. Iowa. The Telegraph v. Loetseher, 127 Iowa 101, 101 N. W. 773. . Missouri. Pitts v. D. M. Steele Mercantile Co., 75 Mo. App. 221, 226, New Jersey. Bigelow v. Old Do minion Copper Mining & Smelting Go. 74 N. J. Eq. 457, 501, 71 Atl. 153. New York. Armstrong v. Sun Print ing & Publishing Ass'n, 137 App, Div. 828, 122 N. Y. Supp. 531. Ohio. Second Nat. Bank v. Greea ville Screw-Point Steel Fence Post Co, 23 Ohio Cir. Ct. 274, 280. England. Whaley Bridge Calico Printing Co. v. Green, 5 Q. B. D. 109, 111, 28 Wkly. Bep. 351 (Bowen, J.). 4 Twycross v. Grant, 2 C. P. D. 469, 503 (Bramwell, L. J.). B " If the corporate organization in- tended to be formed is created accord- ing to the requirements of the statute, and the objects contemplated by it are lawful and proper, there is no prin- ciple of public policy which forbids competent parties from entering into an agreement to form it, and provide for its future management and control, if conducted according to the rules of law respecting such a subject. ' ' King V. Barnes, 109 N. Y. 658, 16 N. E. 332. See also Biehlands Oil Co. v. Morriss, 108 Va. 288, 61 S. E. 762. 6 McEee v. Quitman Oil Co., 16 Ga. App. 12, 84 S. E. 487. 7 California. California-Calaveras Min. Co. V. WaUs, 170 Cal. 285, 149 Pae. 595. Georgia. MeRee v. Quitman Oil Co., 16 Ga. App. 12, 84 S. E. 487. Illinois. Goodwin v. Wilbur, 104 HI. App. 45, 51. Maine. Mason v. Carrothers, 105 Me. 392, 74 Atl. 1030. Massachusetts. Old Dominion Cop- per Mining & Smelting Co. v. Bigelow, 188 Mass. 315, 108 Am. St. Rep. 479, 74 N. E. 653. Minnesota. Battelle v. Northwest- ern Cement & Concrete Pavement Co., 37 Minn. 89, 33 N. W. 327. Missouri. South Missouri Pine Lum- ber Co. V. Crommer, 202 Mo. 504, 101 S. W. 22; South Joplin Land Co. v. Case, 104 Mo. 572, 16 S. W. 390. New Jersey. Arnold v. Searing, 78 N. J. Eq. 146, 78 Atl. 762. 264 Ch.5] Promoters [§132 In a leading American case it is said that "the word 'promoter' has no precise and inflexible meaning in this country, ' ' * but in the same case it is also said that "in a comprehensive sense 'promoter' includes those who undertake to form a corporation and to procure for it the rights, instrumentalities and capital by which it is to carry out the Wisconsin. First Avenue Land Co. V. Hildebrand, 103 Wis. 530, 79 N. W. 753 ; Pittsburg Min. Co. v. Spooner, 74 Wis. 307, 17 Am. St. Eep. 149, 42 N. W. 259. "This word promoter had its origin in the methods by which joint stock companies were formed in England, where by law they were declared part- nerships. Subsequently, when the era of railroad building began in that country, the business of promoting the organization of such companies a.B- sumed definite form. The ordinary proceeding was this: The promoter introduces the enterprise to the notice of persons of wealth in the locality through which the line of the road is proposed to be located, informing them of its nature and prospects, furnish- ing an estimate of its probable cost. These persons are solicited to aid by their influence or subscriptions, or both. Enough persons were secured to con- stitute a provisional committee, and then this committee appoints from their number a managing committee, who issue a prospectus, announcing the nature and probable profits of the scheme, the proposed means to carry it out, the amount of capital required, the number and price of shares, and other details, to which is generally at- tached the names of the promoters, with references to the names of those persons constituting the provisional committees. If all this resulted in fair probabilities of success, application was then made to parliament for a bill of incorporation. If the scheme failed, the expenses incurred gave rise to liti- gation, and many questions as to the liability of these committees and of the promoters were determined. If the incorporation was secured by the action of parliament, then another class of questions arose as to what acts of the promoters could be ratified by, and what acts resulted to the benefit of, the incorporation, and many others growing out of the condition of affairs. That has no resemblance to our method of organizing corporations. It is true that the word has been found to have its uses in our jurisprudence, but in a much more restricted sense than that used in the English reports." St. Louis, Ft. S. & W. E. Co. v. Tiernan, 37 Kan. 606, 15 Pac. 544. One who engages with the owner of a tract of land in organizing a cor- poration to purchase the land, by pro- curing subscribers, and who frames the prospectus and becomes one of the first subscribers, is clearly a promoter of the corporation. Woodbury Heights Land Co. v. Loudenslager, 58 N. J. Eq. 556, 43 Atl. 671, 56 N. J. Eq. 411, 41 Atl. 1115, 55 N. J. Eq. 78, 88, 35 Atl. 436. 8 Old Dominion Copper Mining & Smelting Co. v. Bigelow, 203 Mass. 159, 177, 40 L. R. A. (N. S.) 314, 89 N. E. 193. See also EirsJ Avenue Laud Co. V. Hildebrand, 103 Wis. 530, 534, 79 N. W. 753. ' ' The word ' promoter ' is ambiguous, and it is necessary to ascertain in each case what the so-called promoter really did before his legal liabilities can be accurately ascertained. In every case it is better to look at the facts and ascertain and describe them as they are. ' ' Lydney & Wigpool Iron Ore Co. V. Bird, 33 Ch. Div. 85, 93 (Lindley, L. J.). See also In re Hess Mfg. Co., 21 Ont. App. 66, 67. 265 §132] Peivate Cobpoeations [Ch.5 purposes set forth in its charter, and to establish it as fully able to do its business. ' ' ' A "promoter" is defined in a leading English case as "one who undertakes to form a company with reference to a given project and to set it going, and who takes the necessary steps to accomplish that purpose, " 10 9 Old Dominion Copper Mining & Smelting Co. v. Bigelow, 203 Mass. 159, 177, 40 L. B. A. (N. S.) 314, 89 N. E. 193. In Bigelow v. Old Dominion Copper Mining & Smelting Co., 74 N. J. Eq. 457, 501, 71 Atl. 153, it is said that "a promoter is one who seeks opportuni- ties for making advantageous pur- chases and profitable investments in industrial or other enterprises, who interests men of means in such a proj- ect when found, organizes them into a corporation for the purpose of 'tak- ing over ' the project, and attends upon the newly formed company until it is fully launched in business." A definition which is found in 2 Cook on Corporations (6th Ed.), § 651 and which has been judicially recognized is as follows: "A promoter is a per- son who brings about the incorpora- tion and organization of a corporation. He brings together the persons who be- come interested in the enterprise, aids in procuring subscriptions, and sets in motion the machinery which leads to the formation of the corporation it- self." See in this connection: United States. Dickerman v. North- ern Trust Co., 176 U. S. 181, 44 L. Ed. 423; De Klotz v. Broussard, 203 Fed. 942. California. Burbank v. Dennis, 101 Cal. 90, 35 Pac. 444; Ex-Mission Land & "Water Co. v. Flash, 97 Cal. 610, 32 Pae. 600. Iowa. Hinkley v. Sac Oil & Pipe Line Co., 132 Iowa 396, 119 Am. St. Eep. 564, 107 N. W. 629; The Tele- graph V. Loetscher, 127 Iowa 383, 4 Ann. Cas. 667, 101 N. W. 773. Missouri. Brooker v. "Wm. H. Thompson Trust Co., 254 Mo. 125, 162 S. W. 187; South Missouri Pine Lum- ber Co. V. Crommer, 202 Mo. 504, 101 S. W. 22. New Jersey. See v. Heppenheimer, 69 N. J. Eq. 36, 61 Atl. 843. New York. Armstrong v. Sun Print- ing & Publishing Ass'n, 137 App. Div. 828, 122 N. T. Supp. 531; Hutch- inson v. Simpson, 92 App. Div. 382, 87 N.' Y. Supp. 369. Virginia. Eichlands Oil Co. v. Mor- riss, 108 Va. 288, 61 S. E. 762; Bosher V. Richmond & H. Land Co., 89 Va. 455, 37 Am. St. Eep. 879, 16 S. E. 360. West Virginia. Cox v. National Coal & Oil Inv. Co., 61 W. Va. 291, 56 S. E. 494. Still another definition which has been quoted by the courts is the one found in 1 Morawetz Priv. Corp. § 545 which reads as follows: "A per- son, who, by his active endeavors, assists in procuring the formation of a company and the subscription of its shares, is commonly called a promoter. The word 'promoter' has no tech- nical legal meaning, and . applies to any person who takes an active part in inducing the formation of a com- pany, whether he afterwards becomes connected with the company or not." See Ex-Mission Land & Water Co. v. Flash, 170 Cal. 285, 32 Pae. 600; Arm- strong V. Sun Printing & Publishing Ass'n, 137 N. Y. App. Div. 838, 122 N. Y. Supp. 531. 10 Twycross v. Grant, 2 C. P. D. 469, 541. Continuing Cockburn, C. J., said: "That the defendants were the pro- moters of the company from the be- 266 Ch.5] Promoters [§132 "The term 'promoter' involves the idea of exertion for the purpose of getting up and starting a company (of what is called 'floating' it) and also the idea of some duty towards the company imposed by or arising from the position which the so-called promoter assumes towards it." ^^ A person is not in the position of a promoter, however, except in so far as he is assisting in the formation of the company, is acting, or assuming to act, in its behalf, and is dealt with on the strength of his actual or assumed authority.^^ So a person does not become liable as a promoter by reason of the fact that his agent for a special purpose promotes a corporation with the idea of obtaining a personal advantage in executing his agency.^' But it would seem that a very little will make a person a promoter if it can be seen that he was really doing something in the way of speculation for his own interest and was not acting merely as the agent of another.^* ginning can admit of no doubt. They of the prospectus, or of the portion framed the scheme; they not only pro- visionally formed the company, but were, in fact, to the end its creators; they found the directors, and qualified them; they prepared the prospectus; they paid for printing and advertis- ing, and the expenses incidental to bringing the undertaking before the world. ' ' See also First Avenue Land Co. V. Hildebrand, 103 Wis. 530, 534, 79 N. W. 753. 7 & 8 Viet. c. 110, § 3 (repealed by 25 & 26 Vict. c. 89) defined a "pro- moter" as "every person acting by whatever name in the forming and es- tablishing of a company at any period prior to the company obtaining a cer- tificate of complete registration. ' ' See, as noting this definition, Dickerman v. Northern Trust Co., 176 TJ. S. 181, 44 L. Ed. 423; De Klotz v. Broussard, 203 Fed. 942; Armstrong v. Sun Printing & Publishing Ass'n, 137 N. Y. App. Div. 828, 122 N. Y. Supp. 531. See also 8 Edw. VII, c. 69, which repealed 25 & 26 Vict, c 89, supra, in section 84 of which it is said that for the purposes of tliat section which imposes liability for misrepre- sentations in the prospectus "the ex- pression 'promoter' means a promoter who was a party to the preparation thereof containing the untrue state- ment, but does not include any person by reason of his acting in a profession- al capacity for persons engaged in" pro- curing the formation of the company. ' ' 11 Lindley, J., in Emma Silver Min. Co. V. Lewis, 4 C. P. D. 407. See also Pitts V. D. M. Steele Mercantile Co., 75 Mo. App. 221, 227; Armstrong v. Sun Printing & Publishing Ass'n, 137 N. Y. App. Div. 828, 122 N. Y. Supp. 531. last. Louis, Ft. S. & W. E. Co. v. Tiernan, 37 Kan. 606, 15 Pac. 544. See also under an English statute, In re Great Western Forest of Dean Coal Consumers' Co., 31 Ch. Div. 496; In re Imperial Land Co. of Marseilles, L. R. 10 Eq. 298. Whatever a person may, at one time have been, he is not a promoter of the corporation so far as dealing with it is eoneerned, when it has been organ- ized and operated by its board of di- rectors for more than a year. Eussell V. Eock Eun Fuel Gas Co., 184 Pa. St. 102, 39 Atl. 21. 13 Godfrey v. Schne<,k, 105 Wis. 568, 81 N. W. 656. 14Lydney & Wig]-ool Iron Ore Co. V, Bird, 31 Ch. Div, 328, 339. 267 § 132] Pbivate Coepokations [Ch. 5 A person does not become liable as a promoter, however, merely by acting as the solicitor,^^ or the parliamentary agent in the organization of the corporation.^® So also it has been held that an attorney who was to receive a part of the profits of an abortive corporation as com- pensation for services rendered by him, did not on that account become liable as a partner of the promoters.^'' While a person cannot be charged with the duties and liabilities of a promoter merely because he is a subscriber to the corporate stock and one of the original incorporators of the company,^® a promoter is none the less such because he is also a subscriber to the stock of the corporation.^® The term "promoter" does not carry any implication, however, that the person which it describes becomes related to the corporation ^^ as an officer or even a stockholder.^^ In determining the question whether a person actually was a promoter, due consideration must be given to the facts of the particular case ^^ and in any event such question is one of fact for the jury.^* § 133. Rights and liabilities of promoters inter se. Although origi- nally the rule may have been that the mere fact of persons associating themselves together for the purpose of promoting a corporation created the relation of partners between them,** it has more recently been held IB In re Great Wheal Polgooth Co., tion and its stockholders, see § 134, Ltd., L. J. 53 Oh. 42, 46; In re Ken- infra. sington Station Act, L. K. 20 Eq. 197, 22 South Missouri Pine Lumber Co. 205. See, in this connection, 8 Edw. v. Crommer, 202 Mo. 504, 101 S. W. 22. Til, e. 69) cited in note 10, supra. 23 South Missouri Pine Lumber Co. 16 In re Kensington Station Act, L. v. Crommer, 202 Mo. 504, 101 S. W. E. 20 Eq. 197, 205. 22; Emma Silver Min. Co. v. Lewis, 17 Tuccillo V. Pittelli, 127 N. T. Supp. 4 C. P. T>. 396. 314. The question when a person who was 18 Benton v. Minneapolis Tailoring a promoter ceased to be such is one & Manufacturing Co., 73 Minn. 498, 76 of fact. Twyeross v. Grant, 2 C. P. N. W. 265. D. 469, 541. 19 Eichlands Oil Co. v. Morriss, 108 24 Holmes v. Higgins, 1 B. & C. 74. Va. 288, 61 S. E. 762. In this case, decided in 1822, it ap- 20 Armstrong v. Sun Printing & Pub- peared that notices were given of an lishing Ass 'n, 137 N. Y. App. Div. 828, intended application to parliament for 122 N. Y. Supp. 531. See also Ex-Mis- leave to bring in a bill for making a sion Land & Water Co. v. Plash, 97 railway; that these notices were given Cal. 610, 32 Pac. 600; Bigelow v. Old by the plaintiff who described himself Dominion Copper Mining & Smelting as agent for the intended bill; that Co., 74 N. J. Eq. 457, 501, 71 Atl. 153. subsequently a subscription was com- 21 As to the fiduciary relation sus- menced for the purpose of passing the tained by the promoter to the corpora- bill and making the railway; that 268 Ch. 5] Pkomoteks [§133 that promoters were not, for that reason alone, partners one of the other.^^ Promoters not being partners and there being no agreement to the contrary, it is well settled that a promoter, who expends money in the promotion of the corporation, or who is compelled to pay money to a third person by reason of his dealings as a promoter, may sue his copromoters for contribution.^* So also promoters may become liable under a contract of one of their number entered into with a third person at the instance of all.^'' One promoter may also be the ■ agent of the others so as to entitle the latter to an accounting for money which they furnished and which he was to expend for the common benefit.^' Thus it seems that where persons holding an option for the pur- chase of property agree with others to form a corporation for the purpose of taking over the option and such others pay over the amount of their subscriptions to the holders of the option who were also sub- among others, plaintiff and defendant other subscribers. TBe members of each subscribed to the undertaking; that still later, at a meeting of the subscribers at which the defendant acted as chairman, a solicitor was ap- pointed and directed to adopt such measures as were necessary to obtain an act of parliament of the character desired; that at the same meeting, plaintiff was appointed agent to the company of subscribers, and assistant to the solicitor; that a bill was brought into parliament, but, in having met with opposition, was ultimately with- drawn; that the money which plaintiff • sought to recover was for business done and money paid by plaintiff as agent to the subscribers to the undertaking. On making absolute a rule for setting aside an award made in favor of plaintiff by the barrister to whom the cause was referred, Ab- bott, C. J., said: "This is the case of a number of persons jointly associated together for a common purpose. The plaintiff and defendant were both members of the association. This ac- tion is brought against the defendant, who acted as chairman at the meeting; when the work done was probably ordered; and he might have pleaded that he undertook jointly with the the association were therefore part- ners. Now it is perfectly clear that one partner cannot maintain an action against his co-partners for work and labour performed, or money expended on account of the partnership. I am of opinion, therefore, that the plain- tiff cannot support this action either against the defendant, who was chair- man of the meeting, or against the body of subscribers at _ large. " See also Denton v. Macniel, L. E. 2 Eq. 352; Lucas v. Beach, 1 Man. & Gr. 417. aSBatard v. Hawes, 2 E. & B. 287, 17 Jur. 1154; Lefroy v. Gore, 7 Ir. Eq. 228; Hamilton v. Smith, 28 L. J. Ch. 404. But see Maxwell v. Mc Wil- liams, 145 ni. App. 155. SSBatard v. Hawes, 2 E. & B. 287, 17 Jur. 1154; Boulter v. Peplow, 9 C. B. 493, 14 Jur. 248; Spottiswoode 's Case, 6 De 6. Mi & G. 345; Edgar v. Knapp, 5 M. & G. 753, 7 Jur. 583; Le- froy V. Gore, 7 Ir. Eq. 228; Hamilton v. Smith, L. J. 28 Ch. 404. 27Ijams V. Andrews, 151 Eed. 725; Cook V. Sterling Elec. Co., 150 Fed. 766. 28 Bailey v. Burgess, 48 N. J. Eq. 411, 22 Atl..733. 269 § 133] Pbivate Cobpobations [Ch. 5 scribers in small amounts sufficient to dispose of the remaining stock of the corporation, and the option holders purchase the property at a secret profit to themselves and cause the property to be conveyed to the corporation, their cosubscribers may sue in equity for the propor- tion of the secret profit which the amount of their subscriptions bears to the total amount of the stock of the corporation on the theory that the holders of the option were their agents in the original purchase of the property and as such must account for the secret profit ob- tained.*® However, the mere fact that one member of a partnership • proposes to form a corporation to take over the partnership prop- erties at an agreed price does not make him the agent or trustee of his partners to the extent of rendering him liable for the compensa- tion which he receives from the corporation for his services in promot- ing it.*° And yet where a partnership is one of the parties to a pro- motion agreement by the terms of which those entering into it are not to receive any compensation for their services, services performed by one of the partners will, at least as far as the corporation is con- cerned, be regarded as having been rendered by the firm and not by him as an individual.'' In this connection one promoter cannot recover from the other promoters for his services, in the absence of an agreement to pay him therefor.** Moreover, where one of the promoters sues the corporation on an implied contract to pay him for his services, the corporation may interpose as a defense an agreement among the promoters that they were to receive no compensation for their services.*' But a promoter who holds an option on property 29 Maxwell v. McWilliams, 145 111. A promoter agreeing ' ' as agent and App. 155, distinguished in Mississippi trustee" for the proposed corporation Lumber Co. v. Joiee, 176 111. App. 110, to pay a sum of money for the use of 119. certain personal property, on a speci- >0 Carter v. Tucker, 138 Ky. 34, 127 fied date ' ' or earlier upon the organi- S. W. 498. zatiou of said corporation," the ones That a firm, rather than an Individ- with whom the agreement was made ual member thereof, may be entitled subscribing for stock in the corpora- te the promotion fees paid, see Boice tion in consideration of the agreement, V. Jones, 106 N. T. App. Div. 547, 94 was held not personally liable on the N. Y. Supp. 896; Boice v. McCormick, contract on the failure to organize the 106 N. Y. App. Div. 539, 94 N. Y. Supp. corporation, such subscribers having 892. become interested, equally with him, 31 Powell V. Georgia, F. & A. E. Co., in its promotion. Belding v. Vaughan, 121 Ga. 803, 49 S. E. 759. 108 Ark. 69, 157 S. W. 400. 32 Baily v. Burgess, 48 N. J. Eq. 411, 33 Powell v. Georgia, F. & A. B. Co., 22 Atl. 733; Holmes v. Higgins, 1 B. 121 Ga. 803, 49 S. B. 759. & C. 74; Parkin v. Fry, 2 C. & P. 311; "Wilson V. Curzon, 16 M. & W. 532, 11 Jur. 47. 270 Ch. 5 J Peomotees [§ 134 may pay his copromoters for their services in obtaining subscriptions to the stock of the corporation to which he intends to dispose of the option.^* An agreement among the promoters as to the proportions in which the stock of the corporation shall be divided among them is binding upon them,^"" although, of course, not upon the corporation as such.*^ "Where a person is induced by fraud to become a member of a syndi- cate, intended to bring about the organization of a corporation, he has three lines of relief open to him : he may retain that which he has received and bring an action at law against the guilty party to recover damages sustained as a result of his fraud; he may bring an action for rescission of the contract, in which it will be sufficient to tender back apything that he may have received under the contract, or he may bring an action based on a prior rescission, wherein having previously tendered back that which he has received, he will recover that which has been taken from him.''' § 134. Relation of promoters to corporation and stockholders. It is now settled law that persons who promote a corporation are charged with certain duties and responsibilities even before the corporation comes into existence,*' but just what the position is that the promoters 34 Eichardson v. Graham, 45 W. Va. down in the English cases, and hold, 134, 30 S. E. 92. with scarcely any variation to the doc- SB Hunter Smokeless Powder Co. v. trine, that the promoter of a company Hunter, 100 N. Y. App. Div. 191, 91 stands in the relation of a trustee to N. Y. Supp. 620. See also Hladovee it and those who become subscribers V. Paul, 222 111. 254, 78 N. E. 619, 622, to its stock, so long as he retains the afif'g 124 111. App. 589; Burden V. Bur- power of control over it. There is den, 8 N. Y. App. Div. 160, 40 N. Y. some difference of opinion, as there is Supp. 499, aff 'd 159 N. Y. 287, 54 N. E. in the English cases, in regard to the 17; Dickerson v. Appleton, 123 N. Y. time when he becomes such promoter, App. Div. 903, 108 N. Y. Supp. 293; within the meaning and operation of Cross V. Farmers' Elevator Co., 31 N. the rule. Some courts are of opinion D. 116, 153 N. W. 279. that he is chargeable with the duties 36 See § 150, infra. of a trust when he enters upon the exe- 37 Heckscher v. Edenborn, 203 N. Y. cution of the scheme which is intended 210, 96 N. E. 441. to result in the transfer of the prop- 38 Emma Silver Min. Co. v. Lewis, erty to a company to be organized and 4 C. P. D. 396, 407. See also Calif ornia- controlled by him. All, however, agree Calaveras Min. Co. v. Walls, 170 Gal. that he comes within the rule when he 285, 149 Pae. 595. And compare begins to organize the company, and Stewart v. St. Louis, Ft. S. & W. E. Co., that from that time he is bound to deal 41 Fed. 736. openly and fairly, and in such a way "In this country the courts have as that those having independent accepted the essential principle laid charge of the company, as well as those 271 §134] Peivate Coepobations [Ch.5 occupy is often almost wholly insusceptible of satisfactory definition." "There is * * * no magic in the word 'promoter' which solves the relation of one who takes upon himself the burden of forming a corporation, either to the associates who may enlist with him in the prosecution of the work, or to the corporation in which all their inter- ests will be combined upon its successful completion. This relation will depend upon the nature of the work and the contractual relations, either expressed or implied, which he assumes with respect to others interested in the common object. The corporation has no entity other than that which results from the legal union in its artificial personality, of these interests, and we must search among these interests to find its equitable status as their common repository."** Promoters are not the corporation, itself," and although they may be regarded, for certain purposes, as sustaining to the corporation a relation similar to that of an agent,*^ are subject to the disabilities of an agent,** who are induced to become subscrib- ers to its stock, may be fully advised of the relation he bears to the prop- erty which he proposes to sell, in like manner as one who assumes to act as the agent of another in the purchase of property. ' ' Yeiser v. United States Board & Paper Co.,^ 107 Fed. 340. See also Central Trust Co. v. East Ten- nessee Land Co., 116 Fed. 743. Sale of the majority stock of a cor- poration by the president, with whom it had been pooled and who had au- thority to dispose of and sell it, to a promoter whose purpose in buying it was to stop suits brought against him by the corporation, was held valid as against minority stockholders. Hallen- borg V. Cobre Grande Copper Co., 200 V. S. 239, 50 L. Ed. 458. 39 South Joplin Land Co. v. Case, 104 Mo. 572, Iff'S. W. 390. See also Calif ornia-Calaveras Min. Co. v. Walls, 170 Cal. 285, 149 Pac. 595. lOBrooker v. Wm. H. Thompson Trust Co., 254 Mo. 125, 162 S. W. 187. ' ' The word ' promoter ' is ambiguous, and it is necessary to ascertain in each case what the so-called promoter really did before his legal liabilities can be accurately ascertained. In every case it is better to look at the facts and ascertain and describe them- as they are." Lydney & Wigpool Iron Ore Co. V. Bird, 33 Ch. Div. 85, 93 (by Lindley, L. J.). 41 Battelle v. Northwestern Cement & Concrete Pavement Co., 37 Minn. 89, 33 N. "W. 327; Munson v. Syracuse, G. & G. B. Co., 8 N. Y. 58, 8 N. E. 355; Armstrong v. Sun Printing & Publish- ing Ass'n, 137 N. Y. App. Div. 828, 122 N. Y. Supp. 531. 42 The Telegraph v. Loetseher, 127 Iowa 383, 4 Ann. Cas. 667, 101 N. "W. 773; Arnold v. Searing, 78 N. J. Eq. 146, 78 Atl. 762. 43 Dickerman v. Northern Trust Co., 176 U. S. 181, 44 L. Ed. 423; De Klotz V. Broussard, 203 Fed. 942; The Tele- graph v. Loetseher, 127 Iowa 383, 4 Ann. Cas. 667, 101 N. W. 773; See v. Heppenheimer, 69 N. J. Eq. 36, 61 Atl. 843; Eiehlauds Oil Co. v. Morriss, 108 Va. 288, 61 S. E. 762; Bosher v. Rich- mond & H. Land Co., 89 Va. 455, 37 Am. St. Eep. 879, 16 S. E. 360. See also Jordan & Davis v. Annex Corpora- tion, 109 Va. 625, 17 Ann. Cas. 267, 64 S. E. 1050. 272 Ch. 5] Peomotbes [§ 134 and even have been stated to be agents of the corporation,** it would seem that, strictly speaking, they cannot be regarded as such, there being at the time no existent principal.*^ It seems, however, that a promoter does sustain a fiduciary relation or a relation of trust and confidence to the corporation.*^ 44 United States. Diekerman v. Northern Trust Co., 176 U. S. 181, 44 L. Ed. 423; De Klotz v. Broussard, 203 Fed. 942. Iowa. Caffee v. Berkley, 141 Iowa 344, 118 N. W. 267; The Telegraph v. Loetscher, 127 Iowa 383, 4 Ann. Cas. 667, 101 N. W. 773. Itlichigau. Fred Maeey Co. v. Macey, 143 Mieh. 138, 5 L. R. A. (N. S.) 1036, 106 N. W. 722. New Jersey. See v. Heppenheimer, 69 N. J. Eq. 36, 61 Atl. 843. New York. Hutchinson v. Simpson, 92 App. Div. 382, 87 N. T. Supp. 369. Virginia. Eichlands Oil Co. v. Mor- riss, 108 Va. 288, 61 S. E. 762; "Virginia Land Co. v. Haupt, 90 Va. 533, 44 Am. St. Bep. 939, 19 S. E. 168; Bosher v. Eiehmond & H. Land Co., 89 Va. 455, 37 Am. St. Rep. 879, 16 S. E. 360. 46 Arkansas. Belding v. Vaughan, 108 Ark. 69, 157 S. W. 400; Tegarden Bros. V. Big Star Zinc Co., 71 Ark. 277, 72 S. "W. 989. Georgia. Wells v. J. A. Fay & Egan Co., 143 Ga. 732, 85 S. E. 873. Kentucky. Oldham v. Mt. Sterling Improvement Co., 103 Ky. 529, 45 S. W. 779. Minnesota. Battelle v. Northwest- ern Cement & Concrete Pavement Co., 37 Minn. 89, 33 N. W. 327. Oregon. Schreyer v. Turner Flour- ing Mills Co., 29 Ore. 1, 43 Pac. 719. Texas. Commonwealth Bonding & Casualty Ins. Co. v. Thurman, — Tex. Civ. App. — , 176 S. W. 762; Jones v. Smith (Tex. Civ. App.), 87 S. W. 210. Utali. Wall V. Niagara Mining & Smelting Co., 20 Utah 474, 59 Pac. 399. England. Lydney & Wigpool Iron t I Priv. Corp.— 18 Ore Co. V. Bird, 33 Ch. Div. 85, 93 (by Lindley, L. J.). One of the foremost authorities on the law of agency, Mr. Mechem, says in his work on that subject (§1383): "The most common case of one as- suming to act in behalf of a principle not yet in existence, is that of a per- son, often called a 'promoter,' who undertakes to act in behalf of a cor- poration not yet formed. Such a per- son obviously cannot now be the agent of a corporation hereafter to be created. ' ' 46 United States. Diekerman v. Northern Trust Co., 176 U. S. 181, 44 L. Ed. 423; Dunlap v. Twin City Pow- er Co., 226 Fed. 161, 162; De Klotz V. Broussard, 203 Fed. 942. See also Walker v. Pike County Land Co., 139 Fed. 609; Central Trust Co. v. East Tennessee Land Co., 116 Fed. 743. Alabama. A. J. Cranor Co. v. Miller, 147 Ala. 268, 41 So. 678. Arizona. Hughes v. Cadena De Cobre Min. Co., 13 Ariz. 52, 108 Pae. 231. California. California Calaveras Min. Co. V. Walls, 170 Cal. 285, 149 Pac. 595; Western States Life Ins. Co. V. Lookwood, 166 Cal. 185, 135 Pae. 496; Burbank v. Dennis, 101 CaL 90, 35 Pac. 444; Ex-Mission Land & Water Co. V. Plash, 97 CaL 610, 32 Pac. 600. Connecticut. Tale Gas-Stove Co. V. Wilcox, 64 Conn. 101, 25 L. R. A. 90, 42 Am. St. Rep. 159, 29 Atl. 303. Bliuois. Mississippi LVimber Co. v. Joice, 176 111. App. 110, 120. See also Goodwin v. Wilbur, 104 111. App. 45, 52. Indiana. Cushion Heel Shoe Co. v. Hartt, 181 Ind. 167, 50 L. R. A. (N. S.) !73 §134] Pbivate Cokpokations [Ch.5 This trust relation includes also, it seems, persons holding stock in the 979, 103 N. E. 1063; Parker v. Boyle, 178 Ind. 560, 99 N. E. 986. Iowa. Caffee v. Berkley, 141 Iowa 344, 118 N. W. 267; Hinkley v. Sac Oil & Pipe Line Co., 132 Iowa 396, 119 Am. St. Eep. 564, 107 N. W. 629; The Tele- graph V. Loetseher, 127 Iowa 383, 4 Ann. Cas. 667, 101 N. W. 773. Kansas. Hayden v. Green, 66 Kan. 204, 71 Pac. 236. Maine. Mason v. Carrothera, 105 Me. 392, 74 Atl. 1030; Camden Land Co. V. Lewis, 101 Me. 78, 63 Atl. 523. Massachusetts. Keith v. Badway, 220 Mass. 532, 108 N. E. 498; Old Do- minion Mining & Smelting Co. v. Bige- low, 188 Mass. 315, 108 Am. St. Rep. 479, 74 N. E. 653. Michigan. Fred Maeey Co. v. Ma- cey, 143 Mich. 138, 5 L. R. A. (N. S.) 1036, 106 N. W. 722. See also Cuba Colony Co. v. Kirby, 149 Mich. 453, 112 N. W. 1133. Missouri. See Brooker v. W. H. Thompson Trust Co., 254 Mo. 125, 162 8. W. 187; South Joplin Land Co. v. Case, 104 Mo. 572, 16 S. W. 390. New York. Hutchinson v. Simpson, 92 App. Div. 382, 87 N. T. Supp. 369; Midwood Park Co. v. Baker, 128 N. Y. Supp. 954, aff'd 129 N. Y. Supp. 1135. Ohio. Marblehead Bank Co. v. Raridon, 4 Ohio App. 468. Oregon. Wills v. Nebalem Coal Co., 52 Ore. 70, 96 Pae. 528. See also John- son V. Sheridan Lumber Co., 51 Ore. 35, 93 Pae. 470. Virginia. Richlands Oil Co. v. Mor- risB, 108 Va. 288, 61 S. E. 762; Bosher V. Richmond & H. Land Co., 89 Va. 455, 37 Am. St. Rep. 879, 16 8. E. 360. See also Jordan &' Davis v. Annex Corpora- tion, 109 Va. 625, 17 Ann. Cas. 267, 64 S. E. 1050. Washington. See Mangold v. Adri- an Irrigation Co., 60 Wash. 286, 111 Pac. 173. Wisconsiu. First Avenue Land Co. V. Hildebrand, 103 Wis. 530, 79 N. W. 753. England. Erlanger v. New Som- brero Phosphate Co., 3 App. Cas. 1218; In re Leeds & Hanley Theatres of Va- rieties, Ltd., [1902] 2 Ch. 809, 823; Bagnall v. Carlton, 6 Ch. Div. 371, 385. "It will be observed that a pro- moter, when he shall have been found to be such as a matter of fact, is a sort of self-constituted agency for bringing a company into existence, and this fact alone would go far to- ward charging him as a fiduciary. He has in his hands the creation and mold- ing of the company; he has the power of defining how and when and in what shape and under what supervision it shall start into existence and begin to act as a trading corporation. It is he who selects the directors, to whom he gives such power as he chooses; it is he who settles the regulations of the company, regulations under which the company as soon as it comes into ex- istence may find itself bound to any- thing not in itself illegal, which the promoter may have chosen. This con- trol of the promoter over the company, so plenary and absolute, involves a correlative responsibility, and out of this responsibility arises the doctrine now well settled of the fiduciary rela- tion of the promoter toward the company he creates. This fiduciary relationship of the promoter is an ex- tension of the doctrine of agency, a sort of agency by anticipation, for the promoter is not, strictly speaking, an agent of or trustee for the company before incorporation, but it is a salu- tary and necessary fiction of equity for the protection of the company." Arnold v. Searing, 78 N. J. Eq. 146, 78 Atl. 762. "The reasons for the enforcement of that [trust] principle in such cases 274 Ch.5] Promoters [§134 corporation,*'' whether by an original subscription,** or a subsequent purchase.*' It also applies to creditors with whom the promoter as this are obvious. Without it there is nothing to hinder the concoction of schemes which the reports of decisions show are becoming quite too frequent in recent years, during which corpora- tions have so greatly multiplied, whereby one may take an option or conditional contract for the purchase of property, and then turn it over, at a profit to himself, to a corporation to be organized, and be under his own control for a sufBcient time to enable him to realize the fruits of his enter- prise. Unless the promoter of the com- pany is restrained by the obligations of a duty which prevents him from bringing the consequences which are liable to result to others who may be led into danger, he may practice such schemes with impunity." Yeiser v. United States Board & Paper Co., 107 Fed. 340, 52 L. R. A. 724. ' ' Although not an agent of the com- pany nor a trustee for it before its formation, the old familiar principles of the law of agency and of trusteeship have been extended, and very properly extended, to meet" the case of pro- moters. Lydney & Wigpool Iron Ore Co. V. Bird, 33 Ch. Div. 85, 94. 47 Alabama. A. J. Cranor Co. v. Miller, 147 Ala. 268, 41 So. 678. Arizona. Hughes v. Cadena De Cobre Min. Co., 13 Ariz. 52, 108 Pac. 231. California. Western States Life Ins. Co. V. Loekwood, 166 Cal. 185, 135 Pae. 496. Indiana. Cushion Heel Shoe Co. v. Hartt, 181 Ind. 167, 50 L. E. A. (N. S.) 979, 103 N. E. 1063. Michigan. Torrey v. Toledo Port- land Cement Co., 158 Mich. 348, 122 N. W. 614; Fred Maeey Co. v. Maeey, 143 Mich. 138, 5 L. R. A. (N. S.) 1036, 106 N. W. 722. New York. Midwood Park Co. v. Baker, 128 N. Y. Supp. 954, afE'd 129 N. Y. Supp. 1135. 48 United States. Yeiser v. United States Board & Paper Co., 107 Fed. 340, 52 L. R. A. 724. See also Dunlap V. Twin City Power Co., 226 Fed. 161, 162; Central Trust Co. v. East Tennessee Land Co., 116 Fed. 743. Arkansas. Tegarden Bros. v. Big Star ZiQC Co., 71 Ark. 277, 72 S. W. 989. California. See Califomia-Calaveras Min. Co. V. Walls, 170 Cal. 285, 149 Pac. 595; Lomita Land & Water Co. v. Robinson, 154 Cal. 36, 18 L. R. A. (N. S.) 1106, 97 Pac. 10. Iowa. Hinkley v. Sac Oil & Pipe Line Co., 132 Iowa 396, 119 Am. St. Rep. 564, 107 N. W. 629. Kansas. Hayden v. Green, 66 Kan. 204, 71 Pac. 236. Maine. Camden Land Co. v. Lewis, 101 Me. 78, 63 Atl. 523. New York. Brewster v. Hatch, 122 N. Y. 349, 19 Am. St. Rep. 498, 25 N. E. 505; Walker v. Anglo-American Mort- gage & Trust Co., 74 Hun 432, 25 N. Y. Supp. 432. Oregon. See Wills v. Nehalem Coai Co., 52 Ore. 70, 96 Pae. 528. Washington. See Mangold v. Adri- an Irrigation Co., 60 Wash. 286, 111 Pac. 173. Wisconsin. Zinc Carbonate Co. v. First Nat. Bank, 103 Wis. 125, 74 Am. St. Rep. 845, 79 N. W. 229. England. Williams v. Page, 24 Beav. 654. 49 United States. Yeiser v. United States Board & Paper Co., 107 Fed. 340, 52 L. R. A. 724. See also Central Trust Co. V. East Tennessee Land Co., 116 Fed. 743. California. See Califomia-Calaveras Min. Co. v. Walls, 170 Cal. 285, 149 Pac. 595. Indiana. See Cushion Heel Shoe Co. 275 §134] Private Cokpoeations [Ch.5 deals.^" Perfect candor,^^ good f aith,^^ in fact, the utmost good f aith,^* and the strictest honesty are required of promoters,'* and their deal- ings must be open '^ and fair.** V. Hartt, 181 Ind. 167, 50 L. E. A. (N. S.) 979, 103 N. E. 1063. Maine. Mason v. Carrothers, 105 Me. 392, 74 Atl. 1030; Camden Land Co. V. Lewis, 101 Me. 78, 63 Atl. 523. Massachusetts. Hayward v. Leeson, 176 Mass. 310, 49 L. B. A. 725, 57 N. E. 656. Oregon. See Wills v. Nehalem Coal Co., 52 Ore. 70, 96 Pao. 528. Washington. See Mangold v. Adri- an Irrigation Co., 60 Wash. 286, 111 Pae. 173. England. In re Leeds & Hanley Theatres of Varieties, Ltd., [1902] 2 Ch. 809, 823. BOTorrey v. Toledo Portland Cement Co., 158 Mieh. 348, 122 N. W. 6i4. 51Hiu]jley v. Sac Oil & Pipe Line Co., 132 Iowa 396, 119 Am. St. Bep. 564, 107 N. W. 629. 52 Tegarden Bros. v. Big Star Zinc Co., 71 Ark. 277, 72 S. W. 989; Hinkley V. Sac Oil & Pipe Line Co., 132 Iowa 396, 119 Am. St. Bep. 564, 107 N. W. 629; Hayden v. Green, 66 Kan. 204, 71 Pae. 236; Crowe v. Malba Land Co., 76 N. Y. Misc. 676, 135 N. T. Supp. 454. It is a fraud upon the corporation and its stockholders for a promoter to receive stock for property turned in to the corporation at an overvaluation, or for services for which there is no liability on the part of the corporation. Boulton Carbon Co. v. Mills, 78 Iowa 460, 52 L. B. A. 649, 43 N. W. 290; Hay- ward V. Leeson, 176 Mass. 310, 49 L. B. A. 725, 57 N. E. 656; In re Eddy- stone Marine Ins. Co., 69 L. T. B. (N. S.) 363, 68 L. T. B. (N. S.) 408. 63 United States. Dickerman v. Northern Trust Co., 176 U. S. 181, 44 L. Ed. 423; De Klotz v. Broussard, 203 Fed. 942. See also Walker v. Pike County Land Co., 139 Fed. 609. Arizona. Hughes v. Cadena De Co- bre Miu. Co., 13 Ariz. 52, 108 Pae. 231. Indiana. Parker v. Boyle, 178 Ind. 560, 99 N. E. 986. Iowa. CafEee v. Berkley, 141 Iowa 344, 118 N. W. 267. Maine. Camden Land Co. v. Lewis, 101 Me. 78, 63 Atl. 523. New York. Walker v. Anglo-Ameri- can Mortgage & Trust Co., 74 Hun 432, 25 N. Y. Supp. 432. Washington. Mangold v. Adrian Ir- rigation Co., 60 Wash. 286, 111 Pae. 173. Wisconsin. Spaulding v. North Mil- waukee Town Site Co., 106 Wis. 481, 81 N. W. 1064; First Avenue Land Co. V. Hildebrand, 103 Wis. 530, 79 N. W. 753. 54 Torrey v. Toledo Portland Cement Co., 158 Mieh. 348, 122 N. W. 614. 56 United States. Yeiser v. United States Board & Paper Co., 107 Fed. 340, 52 L. E. A. 724. See also Central Trust Co. v. East Tennessee Land Co., 116 Fed. 743. Alabama. A, J. Cranor Co. v. Miller, 147 Ala. 268, 41 So. 678. Arizona. Hughes v. Cadena De Co- bre Min. Co., 13 Ariz. 52, 108 Pae. 231. Connecticut. Yale Gas-Stove Co. v. Wilcox, 64 Conn. 101, 25 L. B. A. 90, 42 Am. St. Bep. 159, 29 Atl. 303. Michigan. Torrey v. Toledo Port- land Cement Co., 158 Mich. 348, 122 N. W. 614. Oregon. Wills v. Nehalem Coal Co., 52 Ore. 70, 96 Pae. 528. 66 United States. Yeiser v. United States Board & Paper Co., 107 Fed. 340, 52 L. B. A. 724. See also Central Trust Co. v. East Tennessee Land Co., 116 Fed. 743. Alabama. A. J. Cranor Co. v. Miller, 147 Ala. 268, 41 So. 678. 276 Ch. 5] Peomoteks [§135 The presumption, however, is that the promoter of a corporation was connected therewith for the lawful purpose of organization, not for the unlawful purpose of conspiracy to defraud.*'' § 135. Secret profits — In general. As a result of the fiduciary rela- tion or relation of trust and confidence sustained by a promoter,** he will not ordinarily be permitted to retain a secret profit made out of his transactions or dealings with, or on behalf of the corporation or the corporators.*' Ailzana, Hughes v. Cadena De Co- bre Min. Co., 13 Ariz. 52, 108 Pao. 231. Connecticut. Yale Gas-Stove Co. v. "Wileox, 64 Conn. 101, 25 L. R. A. 90, 42 Am. St. Eep. 159, 29 Atl. 803. Indiana. Cushion Heel Shoe Co. v. Hartt, 181 Ind. 167, 50 L. B. A. (N. S.) 979, 108 N. B. 1068. IMinnesota. See Battelle v. North- western Cement & Concrete Pavement Co., 37 Minn. 89, 33 N. W. 327. Oregon. Wills v. Nehalem Coal Co., 52 Ore. 70, 96 Pae. 528. 67 Benton v. Minneapolis Tailoring & Manufacturing Co., 78 Minn. 498, 76 N. W. 265. 68 See §134, supra. It is upon the trust that the pro- moters possess integrity and business sagacity and will use their knowledge and exercise their control over the en- terprise for the benefit of the corpora- tion that subscriptions to its stock are made. Hayden v. Green, 66 Kan. 204, 71 Pae. 236. "In every case the relief granted must depend on the establishment of such relations between the promoter and the birth, formation and floating of the company, as render it contrary to good faith that the promoter should derive a secret profit from the pro- motion." Whaley Bridge Calico Print- ing Co. V. Green, 5 Q. B. D. 109, 111. 59 United States. Diavis v. Las Ovas Co., 227 IT. S. 80, 57 L. Ed. 426, aff'g 35 App. Cas. (D. C.) 372; Williamson v. Krohn, 66 Fed. 655; Krohn v. William- son, 62 Fed. 869; Chandler v. Bacon, 30 Fed. 538. See also Walker v. Pike Couiity Land Co., 139 Fed. 609. Arizona. Hughes v. Cadena Ee Co- bre Min. Co., 13 Ariz. 52, 108 Pae. 231. Arkansas. Tegarden Bros. v. Big Star Zinc Co., 71 Ark. 277, 72 S. W. 989. California. Western States Life Ins. Co. v. Lockwood, 166 Cal. 185, 135 Pae. 496; Burbank v. Dennis, 101 Cal. 90, 35 Pae. 444; Ex-Mission Land & Water Co. V. Plash, 97 Cal. 610, 32 Pae. 600. Connecticut. Yale Gas-Stove Co. v. Wilcox, 64 Conn. 101, 25 L. R. A. 90, 42 Am. St. Eep. 159, 29 Atl. 303. Illinois. Mississippi Lumber Co. v. Joiee, 176 HI. App. 110, 120. Indiana. Parker v. Boyle, 178 Ind. 560, 99 N. E. 986. Massachusetts. Keith v. Eadway, 220 Mass. 582, 108 N. B. 498; Hayward V. Leeson, 176 Mass. 310, 49 L. E. A. 725, 57 N. E. 656; Emery v. Parrott, 107 Mass. 95. Michigan. Cuba Colony Co. v. Kirby, 149 Mich. 453, 112 N. W. 1133; Fred Macey Co. v. Macey, 143 Mich. 138, 5 L. E. A. (N. S.) 1036, 106 N. W. 722. Mississippi. Cook v. Southern Col- umbian Climber Co., 75 Miss. 121, 21 So. 795. Missouri. South Joplin Land Co. v. Case, 104 Mo. 5Y2, 16 S. W. 390. See also Seehorn v. Hall, 130 Mo. 257, 261, 51 Am. St. Eep. 562, 32 S. W. 643; Ex- ter V. Sawyer, 146 Mo. 302, 47 S. W. 951. New Jersey. Arnold v. Searing, 78 277. §135] Private Oobpokations [Cli.5 By a secret profit is meant such a profit as is made without dis- N. J. Eq. 146, 78 Atl. 762;,Groll v. United Elec. Co., 70 N. J. Eq. 616, 61 Atl. 1061; Loudenslager v. Woodbury Heights Land Co., 58 N. J. Eq. 556, 43 Atl. 671, 56 N. J. Eq. 411, 41 Atl. 1115; Woodbury Heights Land Co. v. Lou- denslager, 55 N. J. Eq. 78, 35 Atl. 436; Plaquemines Tropical Fruit Co. v. Buck, 52 N. J. Eq. 219, 27 Atl. 1094. New York. Brewster v. Hatch, 122 N. Y. 349, 19 Am. St. Eep. 498, 25 N. E. 505; Getty v. Devlin, 70 N. Y. 504, 54 N. Y. 403; Dillon v. Commercial Cable Co., 87 Hun 444, 34 N. Y. Supp. 370; Crowe v. Malba Land Co., 76 Misc. 676, 135 N. Y. Supp. 454; Col- ton Improvement Co. v. Biohter, 26 Misc. 26, 55 N, Y. Supp. 486. Ohio. Marblehead Bank Co. v. Earidon, 4 Ohio App. 468. Oregon. Johnson v. Sheridan Luin- ber Co., 51 Ore. 35, 93 Pac. 470. Pennsylvania. In re Rice's Appeal, 79 Pa. St. 168; Densmore Oil Co. v. Densmore, 64 P^. St. 43; Short v. Ste- venson, 63 Pa. St. 95; Simons v. Vulcan Oil & Mining Co., 61 Pa. St. 202, 100 Am. Deo. 628 ; In re McElhenny 's Ap- peal, 61 Pa. St. 188. South Dakota. Huron Printing & Bindery Co. v. Kittleson, 4 S. D. 520. Virginia. Central Land Co. v. Oben- chain, 92 Va. 130, 20 S. E. 876; Bosher V. Eichmond & H. Land Co., 89 Va. 455, 37 Am. St. Eep. 879, 16 S. E. 360. Washington. Mangold v. Adrian Ir- rigation Co., 60 Wash. 286, 111 Pac. 173. Wisconsin. First Avenue Land Co. V, Hildebrand, 103 Wis. 530, 79 N. W. 753; Limited Inv. Ass'n v. Glendale Inv. Ass'n, 99 Wis. 54, 74 N. W. 633; Hebgen v. Koeffler, 97 Wis. 313, 72 N. W. 745; Franey v. Warner, 96 Wis. 222, 71 N. W. 81; Fountain Spring Park Co. V. Eoberts, 92 Wis. 345, 53 Am. St. Eep. 917, 66 N. W. 399; Pittsburg Min. Co. V. Spooner, 74 Wis. 307, 17 Am. St. Eep. 149, 42 N. W. 259. England. Erlanger v. New Som- brero Phosphate Co., 3 App. Oas. 1218, aff'g 5 Ch. Div. 73; Emma Silver Min. Co. V. Grant, 11 Ch. Div. 918; Baguall V. Carlton, 6 Ch. Div. 371; Gover's Case, 1 Ch. Div. 182; Emma Silver Min. Co. v. Lewis, L. E. 4 C. P. 396. See also Salomon v. Salomon & Co., [1897] App. Cas. 22; Lagunas Nitrate Co. v. Lagunas Nitrate Syndicate, [1899] 2 Ch. 392; Lydney & Wigpool Iron Ore Co. V. Bird, 33 L. E. Ch. Div. 85, 94 (by Lindley, L. J.) ; In re Olympia, 67 L. J. Ch. 433, [1898] 2 Ch. 153. Canada. In re Hess Mfg. Co., 23 Can. Sup. 644; Bennett v. Havelock Elec. Light & Power Co., 21 Ont. L. Eep. 120, 18 Ann. Cas. 354. The rule that a promoter cannot make a secret profit in selling property to the corporation only applies where he acts, or assumes to act, on behalf of the corporators or the proposed corporation, or where, for some other reason, there is a fiduciary relation be- tween him and the corporation or the members of the corporation. St. Louis, Ft. S. & W. E. Co. V. Tiernan, 37 Kan. 606, 630, 15 Pac. 544; Densmore Oil Co. V. Densmore, 64 Pa. St. 43 ; Central Land Co. v. Obenchain, 92 Va. 130, 22 S. E. 876. Stockholders "have the right to rely on the good faith and fair dealing of those who have promoted the com- pany, and to assume that they have not perverted the organization by se- cret means to the accomplishment of selfish purposes and the destruction of that equality of right which, in the absence of some known modification, all the shareholders are entitled to en- joy." Yeiser v. United States Board & Paper Co., 107 Fed. 340, 52 L. R. A. 724. See also Central Trust Co. of New York v. East Tennessee Land Co., 116 Fed. 743. Where two promoters agree with certain other incorporators that they 278 Ch.5] Pbomotehs [§135 closing the same to the real parties in interest and obtaining their express or implied consent thereto.^"* And in this connection it would seem to make no difference what form the profit takes — whether that of cash, stock in the corporation, or something else.^i A secret profit made indirectly is condemned equally with such a profit made directly.** The method by which the secret profit is obtained is really not very material. It is the obtaining of such a profit, by whatever method, that the courts refuse to sanction.*' The acts of a promoter will be carefully scrutinized,** and in determining whether he is liable as for a secret profit, the court will look beyond the form to the substance of the transaction.** will pay the expenses of incorporation and will endeavor to secure the sale of the treasury stock for the benefit of the corporation, in return for certain considerations, and such promoters then sell all or a large portion of their individual holdings, a slight portion of. the proceeds thereof going into the treasury and the treasury stock remaining unsold, leaving the corpora- tion without funds wherewith to eon- duct its business, further sale of the stock of the promoters may be re- strained until the treasury stock is sold in accordance with the agreement. Brown v. Bracking, 11 Idaho 678, 83 Pac. 950. A secret agreement with the di- rectors of a corporation whereby a promoter is to receive stock without paying what other stockholders pay will not be sustained. Chandler v. Ba- con, 30 Fed. 538; Emery v. Parrott, 107 Mass. 95; Brewster v. Hatch, 122 N. Y. 349, 19 Am. St. Bep. 498, 25 N. E. 505; Emma Silver Min. Co. v. Grant, 11 Ch. Div. 918; Emma Silver Min. Co. V. Lewis, 4 C. P. Div. 396. When a fraud is practiced upon the stockholders of a corporation by the promoters, it may be waived by the stockholders, but not by the direc- tors. Knowledge of the fraud on the part of the directors is not knowledge on the part of the stockholders, and the fraud cannot be ratified or waived by the directors so as to bind the cor- poration or the stockholders. Burbank V. Dennis, 101 Cal. 90, 35 Pac. 444; Simons v. Vulcan Oil & Mining Co., 61 Pa. St. 221, 100 Am. Dee. 628. The assignee of a promoter has no greater right to the secret profit as- signed than had his assignor, Dunlap V. Twin City Power Co., 226 Fed. 161, 163. 60 Arnold v. Searing, 78 N. J. Eq. 146, 78 Atl. 762. 61 Bonds and mortgage securing them held invalid as representing a secret profit. Midwood Park Co. v. Baker, 128 N. Y. Supp. 954, aff'd 129 N. Y. Supp. 1135. 62Eiehlands Oil Co. v. Morriss, 108 Va. 288, 61 S. E. 762. 63Hinkley v. Sac Oil & Pipe Line Co., 132 Iowa 396, 119 Am. St. Bep. 564, 107 N. W. 629. A secret agreement between the di- rectors of a corporation and its pro- moters, by which the promoters are to receive a share of the profits before any dividends are paid, is invalid. Dillon V. Commercial Cable Co., 87 Hun (N. Y.) 444, 34 N. Y. Supp. 370. 64 Diokerman v. Northern Trust Co., 176 U. S. 181, 44 L. Ed. 423; De Klotz v. Broussard, 203 Fed. 942. 6B Calif ornia-Calaveras Min. Co. v. Walls, 170 Cal. 285, 149 Pae. 595. Se* 279 §136] Pbivate Cokpobations [Ch.5 § 136. -^ Gist of wrong. To render a promoter liable to accouiit for secret profits made by him, it is not necessary to show that there was a fraudulent intent on his part. It is enough that the profits were made secretly.^® best bargain for himself. Humanity is so constituted that, when these con- flicting interests arise, the temptation is usually too great to be overcome, and duty is sacrificed to interest. In order that this temptation may be avoided, or, if indulged in, must be at the peril of the trustee, it has been wisely provided that the trustee shall not be permitted to make or enforce any contract arising between himself as trustee and individually with refer- ence to any matter of the trust, nor will the court enter into any examina- tion of the honesty of the transaction. As said by the Supreme Court of New York in Munson, et al. v. S. G. & C. E. Co. et al., 103 N. T. 74, 8 N. E. 358: 'The law permits no one to act in such inconsistent relations. It does not stop to inquire whether the con- tract or transaction was fair or unfair. It stops the inquiry when the rela- tion is disclosed, and sets aside the transaction, or refuses to enforce it, at the instance of the party whom the fiduciary undertook to represent, with- out undertaking to deal with the question of abstract justice in the par- ticular case. It prevents frauds by making them, as far as may be, impos- sible, knowing that real motives often elude the most searching inquiry; and it leaves neither to judge nor jury the right to determine, upon a considera- tion of its advantages or disadvan- tages, whether a contract made under such circumstances shall stand or fall. * * * The value , of the rule of equity to which we have adverted lies to a great extent in its stubbornness and inflexibility. Its rigidity gives it one of its chief uses as a preventive or discouraging influence, because it weakens the temptation to dishonesty also Loudenslager v. Woodbury Heights Land Co., 58 N. J. Eq. 556, 43 Atl. 671; Midwood Park Co. v. Baker, 128 N. Y. Supp. 954, aff'd 129 N. Y. Supp. 1135; Wills v. Nehalem Coal Co., 52 Ore. 70, 96 Pac. 528. 66 Chandler v. Bacon, 30 Fed. 538; lioudenslager v. Woodbury Heights Land Co., 58 N. J. Eq. 556, 43 Atl. 671, 56 N. J. Eq. 411, 41 Atl. 1115; Wood- bury Heights Land Co. v. Louden- slager, 55 N. J. Eq. 78, 35 Atl. 436; Pittsburg Min. Co. v. Spooner, 74 Wis. 307, 17 Am. St. Rep. 149, 42 N. W. 259. See also Lagunas Nitrate Co. v. Lagunas Syndicate, [1899] 2 Ch. 392. Smith v. Pacific Vinegar & Pickle Works, 145 Cal. 352, 104 Am. St. Rep. 42, 78 Pac. 550, although it involved a transaction between a corporation and one of its directors who was also its president, is illustrative of the extent to which transactions between fidu- ciaries and their beneficiaries are con- demned. "These authorities lay down two propositions: First, that an ex- pressed contract cannot be entered into by a director with himself relative to the trust property; and, second, that the court will not permit any inquiry into the question of the honesty or fairness of the transaction. The philosophy of this rule is quite apparent, and its in- flexibility is the strongest safeguard which the law can offer for the pro- tection of the interests of the bene- ficiary. The great purpose of the law is to secure fidelity in the agent. When one undertakes to deal with himself in different capacities — individual and representative — there is a manifest hostility in the position he occupies. His duty calls upon him to act for the best interests of his principal. His self-interest prompts him to make the 280 Ch.5] Pbomotees [§136 While secrecy is the gist of the wrong,*'' a penalty is not visited upon concealment as such, but that the promoter, sustaining the relation that he does, will not be permitted to retain a profit inequitably obtained.** A secret profit is not consonant with the fiduciary rela- tion or the relation of trust and confidence sustained by a promoter, and it is the obligations of that relation which make it impossible for him to retain such a profit.*' A rule which emphasizes the fact that it is nondisclosure which deprives a promoter of his secret profit, is the one that the corporation, or unfair dealing on the part of trua- while the root of the evil in this ease, tees, by vitiating, without attempted is not the gist of the offense. The discrimination, all transactions in real offense is the receiving of this which they assume the dual character of principal and representative.' " 67 Arnold v. Searing, 78 N. J. Eq. 146, 78 Atl. 762. See also Lomita Land & Water Co. v. Eobinson, 154 Cal. 36, 18 L. R. A. (N. S.) 1106, 97 Pao. 10; Colton Improvement Co. v. Eichter, 26 N. Y. Misc. 26, 55 N. Y. Supp. 486. If a promoter ' ' has a secret contract for the purchase of property, the terms of which are more favorable than those disclosed by him, or an agreement that he shall have stock in the corporation without paying therefor, any advan- tage which he thereby obtains is a fraud on the other shareholders and upon the corporation, and he will not be permitted to retain it." Wills v. Nehalem Coal Co., 52 Ore. 70, 96 Pac. 528. Compare Spaulding v. North Milwaukee Town Site Co., 106 Wis. 481, 81 N. W. 1064, explained in Pietsch V. Milbrath, 123 Wis. 647, 68 L. R. A. 945, 107 Am. St. Eep. 1017, 102 N. W. 342, 101 N. W. 388. 68 Woodbury Heights Land Co. v. Loudenslager, 58 N. J. Eq. 556, 43 Atl. 671. 69 "It may be, and probably was, the fact that the defendants failed to realize that their conduct was ob- jectionable. Probably their position was well put by one of their counsel: ' They could not be expected to go in unless there was something in it for them.' The desire to make money, money while occupying a fiduciary po- sition, and the concealing of the benefit received from those whose interests they were bound to protect. It would be well for those who accept positions of public or quasi-public trust to rea- lize that they cannot, while occupying such positions, receive any personal advantage without the fullest possible disclosure to and assent of all con- cerned." Bennett v. Havelock Elec. Light & Power Co., 21 Ont. L. Rep. 120, 18 Ann. Cas. 354. (In this case the directors and shareholders who had been the promoters of the corporation purchased property from one of their number and pursuant to an agreement were each paid a certain amount by him.) See also Hughes v. Cadena De Cobre Min. Co., 13 Ariz. 52, 108 Pac. 231; Western States Life Ins. Co. v. Lockwood, 166 Cal. 185, 135 Pac. 496. Stockholders ' ' have the right to rely on the good faith and fair dealing of those who have promoted the com- pany, and to assume that they have not perverted the organization by se- cret means to the accomplishment of selfish purposes, and the destruction of that equality of right which, in the absence of some known modification, all the shareholders are entitled to en- joy. " Yeiser v. United States Board & Paper Co., 107 Fed. 340, 52 L. R. A. 724. 281 136] Pkivate Cokpokations [Ch.5 in order to hold a promoter accountable for such a profit, need not have been damaged by the transaction in which it was made,''*' except, of course, as it is damaged by the loss of the profit to its treasury. So the fact that tha property on the sale of which to the corporation the promoters made a secret profit was worth all or more than the corporation paid for it, is not a defense to the promoters' liability to the corporation for such profitJ^ § 137. — Sale by promoter to corporation. One of the commonest transactions which calls for the application of the rule that a promoter will not be permitted to retain a secret profit is a sale of property by the promoter to the corporation. So far from there being no authority for the proposition that under no circumstances will a promoter be permitted to sell his property to the corporation,''^ for whose creation he is responsible, there is abundant authority for maintaining that under certain restrictions a sale by a promoter to the corporation,''* 70 Western States Life Ins. Co. v. Lockwood, 166 Cal. 185, 135 Pao. 496. 71 United States. Yeiser v. United States Board & Paper Co., 107 Fed. 340, 52 L. R. A. 724. California. Burbank v. Dennis, 101 Cal. 90, 35 Pac. 444. Connecticut. Yale Gas-Stove Co. v. Wilcox, 64 Conn. 101, 25 L. E. A. 90, 42 Am. St. Rep. 159, 29 Atl. 303. Illinois. Mississippi Lumber Co. v. Joice, 176 111. App. 110, 119. Missouri. See Seehorn v. Hall, 130 Mo. 257, 51 Am. St. Rep. 562, 32 S. W. 643. New York. Midwood Park Co. v. Baker, 128 N. Y. Supp. 954, aff'd 129 N. Y. Supp. 1135. 72 Bonuses personally paid by a pro- moter to certain subscribers are not per se grounds for charging him with fraud in selling to the corporation property, owned by him and purchksed before the idea of a corporation was conceived. In this case, a bonus was paid to one through whom it seemed the corporation might obtain valuable patronage, and also to the one who had sold the property to the promoter at a reduced price and on that ac- count claimed the right to the bonus and without whose approval the land could not under the contract be trans- ferred. Milwaukee Cold Storage Co. V. Dexter, 99 Wis. 214, 40 L. R. A. 837, 74 N. W. 976. See also § 136, supra. 73 United States. Stewart v. St. Louis, Ft. S. & W. R. Co., 41 Fed. 736. Connecticut. Yale Gas-Stove Co. v. Wilcox, 64 Conn. 101, 25 L. R. A. 90, 42 Am. St. Rep. 159, 29 Atl. 303. Illinois. Federal Life Ins. Co. v. GrifBn, 173 111. App. 5. Indiana. Parker v. Boyle, 178 Ind. 560, 99 N. E. 986; Bruner v. Brown, 139 Ind. 600, 38 N. E. 318. Iowa. The Telegraph v. Loetscher, 127 Iowa 383, 4 Ann. Cas. 667, 101 N. W. 773. Kansas. St. Louis, Ft. S. & W. R. Co. V. Tiernan, 37 Kan. 606, 15 Pac. 544. Maryland. Tompkins v. Sperry, Jones & Co., 96 Md. 560, 54 Atl. 254. Llinnesota. Selover v. Isle Harbor Land Co., 91 Minn. 451, 98 N. W. 344. Oregon. Wills v. Kehalem Coal Co., 52 Ore. 70, 96 Pae. 528. Pennsylvania. Densmore Oil Co. v. Densmore, 64 Pa. St. 43, 49. West Virginia. Richardson v. Gra- ham, 45 W. Va. 134, 30 S. B. 92. 282 Oh. 5] Pbomoters [§137 even at a profit, will be valid.'* It would seem, however, that in order for such a sale to be valid, the corporation, at the time thereof, must have been represented by an independent and impartial board Wisconsin. Pietseh v. Milbrath, 123 Wis. 647, 68 L. E. A. 945, 107 Am. St. Eep. 1017, 102 N. W. 342, 101 N. W. 388; Spaulding v. North Milwaukee Town Site Co., 106 Wis. 481, 81 N. W. 1064; Milwaukee Cold Storage Co. v. Dexter, 99 Wis. 214, 40 L. R. A. 837, 74 N. W. 976; Pittsburg Min. Co. v. Spooner, 74 Wis. 307, 17 Am. St. Eep. 149, 42 N. W. 259. England. Erlanger v. New Som- brero Phosphate Co., 3 App. Cas. 1218. A promoter of a corporation who ac- quires the title to land, acting for the corporation in pursuance of an agree- ment with the other promoters, and who refuses to turn the land over to the corporation, may be held liable in equity as a constructive trustee. Nes- tor V. Gross, 66 Minn. 371, 69 N. W. 39. But see Old Dominion Copper Min- ing & Smelting Co. v. Bigelow, 188 Mass. 315, 108 Am. St. Eep. 479, 74 N. E. 653. A promoter may pay for stock sub- scribed for by him by giving the cor- poration credit to the amount of his subscription on the price which the corporation agreed to pay him for the option which he sold to it, and for the services of his co-promoters by allowing the corporation credit on the price of the option to the amount of their subscriptions. Eichardson v. Graham, 45 W. Va. 134, 30 S. E. 92. Where no complaint can be made of the fairness of a sale of property by a promoter to the corporation and each stockholder, director and officer of the corporation not only had knowledge of the agreement but was a party thereto, and the corporation received the benefit of the sale, and accepted and used the property in its business, it cannot deny its liability to pay therefor. Battelle v. Northwestern Cement & Concrete Pavement Co., 37 Minn. 89, 33 N. W. 327. 74 "It is common practice for per- sons who own property, or who have acquired the right to purchase prop- erty, to project and form a corporation, and induce others to become stockhold- ers for the purpose of selling the prop- erty to the corporation at a profit. There is no rule of law which prohibits such .a transaction, and there should be none, for the law encourages a free alienation and transfer of property, both real and personal; nor does the mere fact that a profit is made in such a transaction render the party receiv- ing it liable to account therefor. But the persons who thus project and form a corporation, by soliciting and procur- ing others to subscribe for and take shares of stock, for the purpose of sell- ing or turning over to the company property which they own, or have a right to acquire by executory contract, do occupy a double position. On the one hand, they represent their own interest in respect of the disposition of the property; on the other, they represent the proposed corporation. And persons who subscribe for stock have a right to do so upon the as- sumption that the promoters are using their knowledge, skill, and ability for the benefit of the company. It is there- fore clear on principle that promoters, under the circumstances just stated, do occupy a position of trust and confi- dence, and it devolves upon them to make full disclosure." South Joplin Land Co. v. Case, 104 Mo. 572, 16 S. W. 390. See also Tegarden Bros. v. Big Star Zinc Co., 71 Ark. 277, 72 S. W. 989; Calif ornia-Calaveras Min. Co. V. Walls, 170 Cal. 285, 149 Pac. 595; Wiano Land & Improvement Co. v. Webster, 75 Mo. App. 457; Arnold v. 283 §137] Private Cokpoeations [Ch.5 of directors.''^ Furthermore, the rule is that the promoters are charged, Searing, 78 N. J. Eq. 146, 78 Atl. 762. A corporation will be entitled to re- lief in equity against a promoter who obtained a portion of the stock issued by its directorate, which was composed of such promoter, his co-promoter who also obtained a portion of the stock, and certain dummies, in payment of property sold at a secret profit, by the co-promoter to the corporation, where, although all of the stock with which the corporation was organized was owned by the two promoters, the amount of the stock was increased before the co-promoter's offer was ac- cepted, and the full disclosure, re- quired under the circumstances, was not made. Old Dominion Copper Min- ing & Smelting Co. v. Bigelow, 188 Mass. 315, 108 Am. St. Eep. 479, 74 N. E. 653. See also Hutchinson v. Simpson, 92 N. Y. App. Div. 382, 87 N. Y. Supp. 369. Contra, Old Domin- ion Copper Mining & Smelting Co. v. Lewisohn, 210 U. S. 206, 52 L. Ed. 1025, afE'g 148 Fed. 1020 (distin- guished in Davis v. Las Ovas Co., 227 V. S. 80, 57 L. Ed. 426), in connection with which, see Lilylands Canal & Eeservoir Co. v. Wood, 56 Colo. 130, 136 Pae. 1026, and Continental Securi- ties Co. V. Belmont, 168 N. Y. App. Div. 483, 154 N. Y. Supp. 54. See also In re Wyoming Valley Ice Co., 153 Eed. 787, afE'd Wiegand v. Albert Lewis Lumber & Manufacturing Co., 158 Fed. 608; Barr v. New York, L. E. & W. E. Co., 125 N. Y. 263, 26 N. E. 145; Flanagan v. Lyon, 54 Misc. 372, 105 N. Y. Supp. 1049. Whether a contract by the corpo- ration to purchase property from a promoter is voidable so as to give the corporation the right to rescind or to demand damages must be determined from the conditions which obtained when it was made. Old Dominion Copper Min. Co. v. Lewisohn, 136 Fed. 915. But compare Wills v. Ne- halem Coal Co., 52 Ore. 70, 96 Pac. 528. 7B " In the whole of this proceeding up to this time the syndicate, or the house of Erlanger as representing the syndicate, were the promoters of the company, and it is now necessary that I should state to your Lordships in what position I understand the pro- moters to be placed vidth reference to the company which they proposed to form. They stand, in my opinion, un- doubtedly 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 supervision, it shall start into exist- ence 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 purchaser of the property of themselves, the pro- moters, it is, in my opinion, incumbent upon the promoters to take care that in forming the company they provide it with an executive, that is to say, with a board of directors, who shall both be aware that the property which they are asked to buy is the 'property of the promoters, and who shall be competent and impartial judges as to whether the purchase ought or ought not to be made. I do not say that the owner of property may not promote and form a joint stock company, and then sell his property to it, but I do say that if he does he is bound to take care that he sells it to the company through the medium of a board of di- rectors 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 284 Cli.5] Peomoteks [§137 not alone with the negative duty of not misrepresenting or concealing some other person. ' ' Erlanger v. New Sombrero Phosphate Co., 3 App. Cas. 1218 (Lord Cairns, L. C). See also in this connection: United States. Dickerman v. North- ern Trust Co., 176 U. S. 181, 44 L. Ed. 423; Old Dominion Copper Mining & Smelting Co. v. Lewisohn, 136 Fed. 915. Indiana. Parker v. Boyle, 178 Ind. 560, 99 N. E. 986. Iowa. The Telegraph v. Loetacher, 127 Iowa 383, 4 Ann. Cas. 667, 101 N. "W. 773. Maine. Mason v. Carrothers, 105 Me. 392, 74 Atl. 1030. Maiyland. Tompkins v. Sparry, Jones & Co., 96 Md. 560, 54 Atl. 254. Massachusetts. Old Dominion Cop- per Mining & Smelting Co. v. Bigelow, 188 Mass. 315, 108 Am. St. Eep. 479, 74 N. E. 653. Mi^ouii. Wiano Land & Improve- ment Co. V. Webster, 75 Mo. App. 457. New Jersey. Holeombe v. Trenton White City Co., 80 N. J. Eq. 122, 82 Atl. 618, aff'd 82 N. J. Eq. 364, 91 Atl. 1069; Arnold v. Searing, 78 N. J. Eq. 146, 78 Atl. 762; See v. Heppenheimer, 69 N. J. Eq. 36, 61 Atl. 843; Plaque- mines Tropical Fruit Co. v. Buck, 52 N. J. Eq. 219, 27 Atl. 1094. New York. Colton Improvement Co. V. Eichter, 26 Misc. 26, 55 N. T. Supp. 486. Pennsylvania. Simons v. Vulcan Oil & Mining Co., 61 Pa. St. 202, 100 Am. Dee. 628. Wisconsin. Pietsch v. Milbrath, 123 Wis. 647, 68 L. E. A. 945, 107 Am. St. Eep. 1017, 102 N. W. 342, 101 N. W. 388. England. In re Paper Box Co., '.7 Ch. Div. 471. Canada. Stratford Fuel, lee, Cart- age & Construction Co. v. Mooney, 21 Ont. L. Eep. 426, 444. This requirement, however, would seem not to obtain in the ease of a close corporation — at least, not in favor of creditors — when all of the shareholders had knowledge of the facts. Salomon v. A. Salomon & Co., Ltd., [1897] A. C. 22. See also Tomp- kins V. Sperry, Jones & Co., 96 Md. 560, 54 Atl. 254. And see La- gunas Nitrate Co. v. Lagunas Syndi- cate, [1899] 2 Ch. 392, 425, in which Lindley, M. E., said: "Notwithstand- ing all that has been said in Erlanger V. New Sombrero Phosphate Co. about the duties of the promoters of a com- pany to furnish it with an independent board of directors, that decision does not require or indeed justify the con- clusion that if a company is avowedly formed with a board of directors who are not independent, but who are stated to be the intended vendors, of property to the company, the company can set aside an agreement entered into by them for the purchase of such property simply because they are not an independent board. What vitiated the agreement in Erlanger's Case were the concealment of the fact that two out of the three managing directors were agents of the vendors and pro- moters, and the untrue statement that a provisional contract had been en- tered into by the directors, whilst, in fact, it had only been framed by the promoters and adopted by three direc- tors, two of whom were not known to be their agents, and the third of whom knew nothing about the matter. In the present case there is no secrecy or concealment of the true posi- tion of the first directors, and no untrue statement as to what they did for the company. In the face of the memorandum and articles of asso- ciation it is impossible to treat the nitrate company or the members there- of as ignorant of the real truth as to 285 §137] Pbivate Coepoeations [Cli.5 the facts,''* but with, the positive duty of making a full and fair dis- closure of their ownership or interest in the property/'' of the profit the position of its directors. After Salomon's Case [supra] I think it impossible to hold that it is the duty of the promoters of a company to pro- vide it with an independent board of directors, if the real truth is disclosed to those who are induced by the pro- moters to join the company. Treating promoters of companies as in a fidu- ciary relation to them, and as having a power of appointing trustees (name- ly, directors), I cannot treat compa- nies or their shareholders as so many cestuis que trust under disability, nor even as cestuis que trust for whom trustees are appointed without their consent. No one need join a company unless he likes, and if a person knows that if he becomes a member he will find as directors persons who, in his opinion, ought not to be directors, he should not join the company. If he does, he has no right to redress on the ground that improper persons were appointed trustees. 'Volenti non fit injuria' applies in such a case to the members of the company, and Salo- mon's Case shews that the company in its corporate capacity is in this re- spect in no better position. • * * The principles on which Salomon's Case was decided by the House of Lords are quite consistent with those on which Erlanger v. New Sombrero Phosphate Co. was decided." 76 "As a general proposition a pro- moter may deal at arm 's length with a corporation and may sell it property at a profit, but he cannot do this by con- cealing the truth when it is his duty to speak, nor speculate off of it by mis- representing his connection with and interest in the thing about which he is proposing to deal with the corporation, nor can he act as the agent of the cor- poration for the purpose of selling it his own property." "Wiano Land & Improvement Co. v. Webster, 75 Mo. App. 457. See also Dickerman v. Northern Trust Co., 176 U. S. 181, 44 L. Ed. 423; De Klotz v. Broussard, 203 Fed. 942; Walker v. Pike County Land Co., 139 Fed. 609; Calif ornia-Galaveras Min. Co. v. Walls, 170 Cal. 285, 149 Pac. 595; Lomita Land & Water Co. v. Robinson, 154 Cal. 36, 18 L. R. A. (N. S.) 1106, 97 Pac. 10; Burbank v. Den- nis, 101 Cal. 90, 35 Pac. 444; Ex-Mis- sion Land & Water Co. v. Flash, 97 Cal. 610, 32 Pac. 600; Wills v. Neha- lem Coal Co., 52 Ore. 70, 96 Pac. 528. In order that a corporation may re- cover from a promoter secret profits made by him, the fraud must have been perpetrated against the corpora- tion or against the subscribers to its stock as such. Where A and others, owning land which they had bought for $1,000 per acre, agreed to form a corporation and transfer the land to it at $1,500 per acre, taking stock in pay- ment, and A afterwards sold an inter- est in his land to B at $1,325 per acre, representing that it had cost him $1,300 per acre, with the understand- ing that when the land should be trans- ferred to the corporation, B, as well as the others, should be paid for his in- terest in shares at the rate of $1,500 per acre, A was not liable to the cor- poration for the profits thus made by him, his fraud being personal to B. Spaulding v. North Milwaukee Town Site Co., 106 Wis. 481, 81 N. W. 1064 77 California-Calaveras Min. Co. v, Walls, 170 Cal. 285, 149 Pac. 595 Lomita Land & Water Co. v. Bobinson 154 Cal. 36, 18 L. R. A. (N. S.) 1106, 97 Pac. 10; Wiano Land & Improve ment Co. v. Webster, 75 Mo. App. 457 Colton Improvement Co. v. Richter, 26 N. Y. Misc. 26, 55 N. T. Supp. 486 286 Ch. 5] Pbomotebs- [§137 which they will make as a result of the transaction,'" and of all material facts generally.™ This duty of disclosure is not performed by the "Wills V. Nehalem Coal Co., 52 Ore. 70, 96 Pac. 528. See also The Telegraph v. Loetscher, 127 Iowa 383, 4 Ann. Cas. 667, 101 N. W. 773; Erlanger v. New Sombrero Phosphate Co., 3 App. Cas. 1218. 78 Old Dominion Copper Mining & Smelting Co. v. Bigelow, 188 Mass. 315, 108 Am. St. Rep. 479, 74 N. E. 653; Arnold v. Searing, 78 N. J. Bq. 146, 78 Atl. 762; Colton Improvement Co. V. Richter, 26 N. Y. Mise. 26, 55 N. Y. Supp. 486. A purchaser of stock from a broker who had title thereto and who was chargeable with knowledge of an agreement whereby the promoters were to obtain a cerlfein amount of stock aa a bonus cannot maintain an action to secure the restoration to the corpo- ration for the benefit of its stockhold- ers of a sum equal to the par value of the stock distributed under such agree- ment at a time when the promoters were nominally the only stockholders, the purchaser having no greater rights in the matter than had the broker. Brooker v. Wm. H. Thompson Trust Co., 254 Mo. 125, 162 S. W. 187. 79 United States. Dickerman v. Northern Trust Co., 176 U. S. 181, 44 L. Ed. 423; De Klotz v. Broussard, 203 Fed. 942. Arizona. Hughes v. Cadena De Co- hie Min. Co., 13 Ariz. 52, 108 Pac. 231. California. Western States Life Ins. Co. v. Loekwood, 166 Cal. 185, 135 Pac. 496; Lomita Land & Water Co. v. Robinson, 154 Cal. 36, 18 L. R. A. (N. e.) 1106, 97 Pac. 10; Ex-Mission Land & Water Co. v. Plash, 97 Cal. 610, 32 Pac. 600. Indiana. Parker v. Boyle, 178 Ind. 560, 99 N. E. 986. Iowa. CafCee v. Berkley, 141 Iowa 344, 118 N. W. 267. Maine. Mason v. Carrothers, 105 Me. 392, 74 Atl. 1030; Camden Land Co. V. Lewis, 101 Me. 78, 63 Atl. 523. Massachusetts. See Old Dominion Copper Mining & Smelting Co. v. Bige- low, 188 Mass. 315, 108 Am. St. Bep. 479, 74 N. E. 653. Missouri See South Joplin Land Co. V. Case, 104 Mo. 572, 16 S. W. 390. New York. Midwood Park Co. v. Baker, 128 N. Y. Supp. 954, aff'd 129 N. Y. Supp. 1135. Virginia. See Richlands Oil Co. v. Morriss, 108 Va. 288, 61 S. E. 762. Washington. Mangold v. Adrian Ir- rigation Co., 60 Wash. 286, 111 Pac. 173. Wisconsin. First Avenue Land Co. V. Hildebrand, 103 Wis. 530, 79 N. W. 753. England. Lagunas Nitrate Co. v. Lagunas Syndicate, [1899] 2 Ch. 392. In Spaulding v. North Milwaukee Town Site Co., 106 Wis. 481, 81 N. W. 1064, the court said: "The liability of promoters of corporations is predicated on fraud, an essential element of which is deceit. Franey v. Warner, 96 Wis. 222, 71 N. W. 81; Cold Storage Co. v. Dexter, 99 Wis. 214, 74 N. W. 976, 40 L. R. A. 837. It is not enough that the corporation receives property at a higher price than it cost the promoters, or at a price above its fair market value, to give to the corporation a right to rescind or to recover back profits made. Whitehill v. Jacobs, 75 Wis. 474, 44 N. W. 630; Cold Storage Co. V. Dexter, supra. It must have been deceived and misled into paying such price. But the corporation as an entity cannot be deceived, save as some of the individuals composing it are. True, the acts and conduct which may constitute actionable fraud in pro- moters differ from that [those] which would be necessary in other relations; 287 §137] Peivate Coeporations [Cli.5 making of. a statement which does not disclose the facts but merely for they owe uberrima fides to the cor- poration they create, and will often be held bound to speak under circum- stances whioh would permit another to be silent. There must, however, be actual misleading of some of their as- sociates, either by their affirmative words or acts or by their silence, and, if the latter, under such circumstances that they may reasonably apprehend that such associates may otherwise act upon a wrong assumption or under- standing. The rule is stringent that, in dealing with a corporation which they organize, promoters must make full disclosure, and the transaction must be open and free from mislead- ing concealments; but mere silence cannot, be misleading to one otherwise fully informed." In a later ease (Pietsch V. Milbrath, 123 "Wis. 647, 68 L. E. A. 945,. 107 Am. St. Eep. 1017, 102 N. W. 342, 101 N. W. 388), the Wis- consin court, after paraphrasing the first part of the above quotation, said: "No serious fault can be found with that. Generally speaking, it is correct. It was used as regards a situation where all the stock of a corporation had been taken. Certainly the court did not intend to hold that a corpora- tion has not capacity to acquire a cause of action to recover profits made by its agents, acting in the double role of such agents and at the same time for themselves and to their own advantage, no one standing by to pro- tect it; that they can perfect the cor- porate organization, keep control thereof for their own gain while os- tensibly promoting its interests; that they can restrict subscriptions to stock tq a part taken by themselves in order that their ulterior purpose may be accomplished; that while so in control for such purpose, ostensibly acting for the corporation but really for them- selves, they may make the organization a mere secret conduit through which to convert the money paid by future subscribers to stock to their own gain and then use the corporate organiza- tion to aid in luring such subscribers into the trap, the corporation being powerless to prevent it — and yet the law furnish it no remedy for the wrong. To establish such a doctrine would be to open a most inviting ave- nue for the commission of fraud. Then the well-settled doctripe that promot- ers cannot secretly obtain profits from the corporation they cause to be or- ganized and launched into the business world without being responsible to it therefor can be easily evaded by their organizing the corporation, taking part of the stock ostensibly at the full par value thereof in cash, but really pay- ing little or nothing therefor, and then inducing others to take the balance of the stock in ignorance of the facts, paying the full par value therefor into the corporate treasury. The law does not permit any such transaction as the one above suggested to go neces- sarily unredressed. Persons who act as promoters of a corporation do not necessarily cease to be such when the corporation is organized to do busi- ness. They may retain their fiduciary relation thereto till its share capital shall have been taken and the corpora- tion provided with a board, or some reasonably efficient means of protect- ing its- interests. So long as there are prospective original subscribers £or stock and the promoters and those concerting with them remain in con- trol of the corporation, it is in a sit- uation to be deceived, within the rule of the Spaulding case. It is deceived in a legal sense when it is rendered helpless by its managers as to pro- tecting those invited to subscribe for its stock, and is then used to aid in defrauding them. It is deceived 288 Ch.5] Pkomoteks [§ 138 contains something which, if followed up by further investigation, will enable the inquirer to ascertain the facts.^° § 138. — Qualification of general rules as to sales. The rules above stated are the general ones applicable to the sale of property by promoters to the corporation for whose creation and organization! they are responsible, but in a number of instances one or more of tliese rules have been qualified and their operation materially limited. The" rules forbidding misrepresentation and requiring disclosure undoubt- edly apply where a person purchases property or procures an option to purchase the same while acting as a promoter of the corporation, and then sells it to the latter at an advance,'^ and there is authbrity thereby just as efEectually as regards necessity for, and means of, redress as in a case where promoters by control of a corporation cause it to deal with them to their special advantage over then existing and unsuspecting mem- bers thereof." 80 Mason v. Carrothers, 105 Me. 392, 74 Atl. 1030; Arnold v. Searing, 78 1^. J. Eq. 146, 78 Atl. 762; In re Olympia, [1898] 2 Ch. 153, 67 L. J. Ch. 433. If there has been concealment by the promoters, honesty of purpose on. their part, with an intention to act for the benefit of the company, will not avail them as a defense to an action for rescission. The mere fact of the disclosure of the fiduciary relation, and of the double character in which the promoters are acting, will not discharge them from the obligation of making a complete and candid disclosure of all material facts. This obligation will exist so long as they retain'^control of the affairs of the company, and, if not fulfilled, they will be treated as wrong- doers, whether there was any actual fraudulent intent or not. Lagunas Nitrate Co. v. Lagunas Syndicate, [1899] 2 Ch. 392. A recital in the prospectus of a com- pany that, if the company takes and holds certain lands, it shall pay there- for "actual cost," means that it shall pay for the lands the actual price paid to the owners thereof, excluding there- from all profits to promoters received as commissions from the owners. Cen- tral Land Co. v. Obenchain, 92 Va. 130, 22 S. E. 876. 81 California. Ex-Mission Land & Water Co. V. Flash, 97 Cal. 610, 32 Pac. 600. Iowa. See Hinkiey v. Sac Oil & Pipe Line Co., 132 Iowa 396, 119 Am. St. Eep. 564, 107 N. W. 629. Missouri. Exter v. Sawyer, 146 Mo. 362, 42 S. W. 951; South Joplin Land Co. V. Case, 104 Mo. 572, 16 S. W. 397. New Jersey. Loudenslager v. Wood- bury Heights Land Co., 58 N. J. Eq. 556, 43 Atl. 671, 56 N. J. Eq. 411, 41 Atl. 1115; Woodbury Heights Land Co. V. Loudenslager, 55 N. J. Eq. 78, 35 Atl. 436; Plaquemines Tropical Fruit Co. V. Buck, 52 N. J, Eq. 219, 27 Atl. 1094. New York. Brewster v. Hatch, 122 N. Y. 349, 19 Am. St. Eep. 49g, 25 N. E. 505. Fennsylvatila. Densmore Oil Co. v. Densmore, 64 Pa. St. 43; Simons v. Vulcan Oil & Mining Co., 61 Pa. St. 202, 100 Ain. Dec. 628. ' Virginia. Bosher v. Eichmorid' & Harrisonburg Land Co., 89 Va. 455, 37 Am. St. Eep. 879, 16 S. E. 360. Wisconsin. Pittsburg Min. Co. v. Spooner, 74 Wis. 307, 17 Am. St.- Bep. 149, 42 N. W. 259. 289 I Priv. Corp. — 19 §138] Pbivate Coepokations [Ch.5 for .the proposition that they likewise apply where a person who owns property, or holds an option to purchase it promotes a corporation for the purpose of selling the property to it.'* Somewhat to the contrary, however, are the cases which hold that a person who has acted as one of the promoters of a corporation is not denied the right to make a secret profit when he deals with it, through its duly author- ized ofiScers or agents, after its organization, and sells it property owned by him, but not purchased when acting as promoter, the reason being that he does not then occupy a fiduciary relation, but is in the same position as any other person who might sell to the corporation. Proceeding further, these same cases hold that it can make no difference that such person was the sole promoter of the corporation, or that he purchased the property for the purpose of afterwards selling it to the corporation at a profit, or that he does not, in selling it, inform the officers of the corporation of the price which he paid for it.'' A distinction between cases where the property sold to the corpora- 82 CaJlf onila. Burbank v. Dennia, 101 Cal. 90, 35 Pac. 444. Missouri. South Joplin Land Co. v. Case, 104 Mo. 572, 16 S. W. 390. New York, Getty v. Devlin, 70 N. Y. 504, 54 N. Y. 403. Pennsylvania. In re Bice's Appeal, 79 Pa. St. 168. Wisconsin. Pittsburg Min. Co. v. Spooner, 74 Wis. 307, 17 Am. St. Eep. 149, 42 N. W. 259. England. Erlanger v. New Sombrero Phosphate Co., 3 App. Cas. 1218, aff'g 5 Ch. Div. 73; Lagunas Nitrate Co. v. Lagunas Nitrate Syndicate, [1899] 2 Ch. 392. 83 Kansas. St. Louis, Ft. S. & W. B. Co. v. Tiernan, 37 Kan. 606, 15 Pac. 544. New Jersey. Plaquemines Tropical Fruit Co. V. Buck, 52 N. J. Eq. 219, 27 Atl. 1094. Pennsylvania. Densmore Oil Co. v. Densmore, 64 Pa. St. 43; Simons v. Vulcan Oil & Mining Co., 61 Pa. St. 202, 100 Am. Dee. 628; In re McEl- haney's Appeal, 61 Pa. St. 188; Lun- gren v. Pennell, 10 Wkly. Notes Caa. 297. Virginia. Central Land Co. v. Oben- chain, 92 Va. 130, 22 S. E. 876. West Virginia. See Biehardaon v. Graham, 45 W. Va. 134, 30 S. E. 92. Wisconsin. Milwaukee Cold Storage Co. v. Dexter, 99 Wis. 214, 40 L. B. A. 837, J4 N. W. 976. England. Ladywell Min. Co. v. Brookes, 34 Ch. Div. 398; Cover's Case, 1 Ch. Div. 182. Two persons who had, for a small aum, purchaaed a roadbed, the eon- atruction of which cost only $2,000, caused a railroad company to be or- ganized, and, with others, became di- rectors thereof, and while in this re- lation contracted with the directors to sell the roadbed to the company for $200,000 cash or bonds, and $3,600,000 of the capital stock. The sale was formally ratified at a meeting of the directora, and entered on the records of the company, and afterwards the stockholders unanimoualy approved the purchase. At the time of the aale there were no atockholders, and the stock thus issued was all that had been subscribed. The company had no property except its charter and the 290 Ch. 5] Promoters [§ 138 tion was owned at the time the promotion of the corporation was undertaken, and cases where it was acquired subsequently thereto has been made in a Pennsylvania decision which has been freely quoted by foreign courts. In the course of this decision it was said : *' There are two principles applicable to all partnerships or associa- tions for a common purpose of trade or business, which appear to be well settled on reason and authority. The first is that any man or number of men, who are the owners of any kind of property, real or personal, may form a partnership or association with others, and sell that property to the association at any price which may be agreed upon between them, no matter what it may have originally cost, provided there be no fraudulent misrepresentation made by the ven- dors to their associates. They are not bound to disclose the profits which they may realize by the transaction. They were in no sense agents or trustees in the original purchase, and it follows that there is no confidential relation between the parties which affects them with any trust. It is like any other case of vendor and vendee. They deal at arm's length. Their partners are in no better position than strangers. They must exercise their own judgment as to the value of what they buy. * * * The second principle is, that where persons form such an association, or begin or start the project of one, from that time they do stand in a confidential relation to each other, and to all others who may subsequently become members or subscribers, and it is not competent for any of them to purchase property for the purposes of such a company, and then sell it at an advance without a full disclosure of the facts. They must account to the company for the profit, because it legitimately is theirs." '* In keeping with what the Pennsylvania court denominated the first principle, it has been held that the fact that a promoter paid a less amount for property, owned by hinl prior to the time when he conceived the idea of bringing about the creation of a corporation, than he obtained for it on his sale of it to the corporation will not alone convict him of fraud in such sale." roadbed, and the value of the notes Co. v. Walls, 170 Cal. 285, 149 Pac. and stock issued to these parties had 595; Burbank v. Dennis, 101 Cal. 90, no market value. Under these cir- 35 Pac. 444; Exter v. Sawyer, 146 Mo. cumstances, it was held that the sale 302, 47 S. W. 951; South Joplin Land was not fraudulent. Stewart v. St. Co. v. Case, 104 Mo. 572, 16 S. W. 390; Louis, Ft. S. & W. B. Co., 41 Fed. 736. Milwaukee Cold Storage Co. v. Dexter, 84Densmore Oil Co. v. Densmore, 64 99 Wis. 214, 40 L. B. A. 837, 74 N. W. Pa. St. 43, 49, 50, quoted, either in 976. See also Bichlands Oil Co. v. whole or in part, in Tegarden Bros. Morriss, 108 Va. 288, 61 S. E. 762. V. Big Star Zinc Co., 71 Ark. 277, 72 86 Milwaukee Cold Storage Co. v. S, W. 989; Calif ornia-Calaveras Min. Dexter, 99 Wis. 214, 40 L. B. A. 837, 291 §139] PbIVATE COEPOBATIONS [Ch.5 § 139. — Joint and several liability. The rule seems to be that the liability of promoters who have obtained a secret profit is one of a joint and several character.*^* The word "promoters" as here used must, however, be given a strict construction, and its meaning cannot be extended to include one who was made a participant in the profit to reimburse him for his services more as the servant of the promoters' agent than as one engaged equally with the promoters in the bringing of the corporation into existence.^* § 140. — Actions against promoters — Nature and form of remedy. When the promoter of a corporation fraudulently makes a secret profit in transactioiis on behalf of or with the corporation, there are ordinarily several remedies against him.*'' The corporation may re- store, or offer to restore, what it has received, and sue to set the transaction aside and recover what it has parted with; " it may main- tain a suit in equity to compel an accounting for the secret profits 74 N. W. 976. See also Forest Land Co. r. Bjorkquist, 110 "Wis. 547, 86 N. W. 183. 8Ba Arnold v. Searing, 78 N. J. Eq. 146, 78 Atl. 762. See also Old Domin- ion Copper Mining & Smelting Co. v. Bigelow, 188 Mass. 315, 108 Am. St. Eep. 479, 74 N. E. 653; Bigelow v. Old Dominion Copper Mining & Smelting Co., 74 N. J. Eq. 457, 71 Atl. 153. 88 Arnold v. Searing, 78 N. J. Eq. 146, 78 Atl. 762. See also Wood- bury Heights Land Co. v. Louden- Blager, 58 N. J. Eq. 556, 43 Atl. 671, modifying 55 N. J. Eq. 78, 35 Atl. 436. 87 Zinc Carbonate Co. v. Eirst Natj Ba^k, 103 Wis. 125, 74 Am. St. Bep. 845, 79 N. W. 229; Blebgen v. Koeffler, 97 Wis. 313, 72 N. W. 745. See also Johnson v. Sheridan Lumber Co., 51 Ore. 35, 93 Pac. 470. The question? of the liability of an officer of a corporation to creditors of the latter for his conduct as a pro- moter in disposing of land to the cor- poration at an exaggerated and unreal value, and of his liability as the holder of unpaid shares, are foreign to a pro- ceeding by a creditor to set aside deeds to a certain part of the land to the officer in payment of a bona fide in- debtedness to him, and can only be raised in a proceeding in behalf of creditors generally. El Cajon Port- land Cement Co. v. Eobert F. Wentz Engineering Co., 165 Fed. 619. A compromise between a corporation and its promoters is binding. Coburn V. Cedar Valley Land & Cattle Co., 138 U. S. 196, 34 L. Ed. 876. 88Burbank v. Dennis, 101 Cal. 90, 35 Pac' 444; Ex-Mission Land & Water Co. v. Flash, 97 Cal. 610, 32 Pac. 600; Munson v. Syracuse, G. & C. E. Co., 103 N. Y. 58, 8 N. E. 355; Marble- head Bank Co. v. Baridon, 4 Ohio App. 468; Limited In v. Ass'n v. Glen- dale Inv. Ass'n, 99 Wis. 54, 74 N. W. 633; Hebgen v. Koeffler, 97 Wis. 313, 72 N. W. 745; Erlanger v. New Som- brero Phosphate Co., 3 App. Cas. 1218, aff'g 5 Ch. Div. 73; In re Cape Breton Co., 29 Ch. Div. 795; In re Ambrose I/ake Tin & Copper Min. Co., 14 Ch. Div. 390; Lindsay Petroleum Co. v. Hurd, L. E. 5 P. C. 221. See also Mangold v. Adrian Irrigation Co., 60 Wash. 286, 111 Pac. 173. 292 Ch.5] Peomoters [§140 made,*^ or an action of assumpsit to recover the same,'* or it may bring an action for damages.®^ "Wtere promoters fail to disclose the whole truth in selling to the corporation, or where they obtain a secret profit, as a result of the transaction, either in cash or by way of an allotment of stock, there ' being other stockholders or it being expected that there will be other 89 United States. Chandler v. Bacon, 30 Fed. 538. California. Burbank v. Dennis, 101 Cal. 90, 35 Pae. 444. Connecticut. Yale Gas Stove Co. v. Wilcox, 64 Conn. 101, 25 L. E. A. 90, 42 Am. St. Eep. 159, 29 Atl. 303. Massachusetts. Hayward v. Leeson 176 Mass. 810, 49 L. R. A. 725, 57 N. E. 656. Missouri. South Joplin Land Co. v, Case, 104 Mo. 572, 16 S. "W. 390. New Jersey. Loudenslager v. Wood bury Heights Land Co., 58 N. J. Eq, 556, 43 Atl. 671, 56 N. J. Eq. 411, 41 Atl. 1115; Woodbury Heights Land Co. V. Loudenslager, 55 N, J. Eq. 78, 35 Atl. 436. New York. Hutchinson v. Simpson, 92 N. Y. App. Div. 382, 87 N. Y. Supp. 369; Colton Improvement Co. v. Eich- ter, 26 N. Y. Misc. 26, 55 N. Y. Supp. 486. Ohio. Marblehead Bank Co. v. Earidon, 4 Ohio App. 468. Oregon. Johnson v. Sheridan Lum- ber Co., 51 Ore. 35, 93 Pac. 470. Pennsylvania. McElhenny 's Appeal, 31 Pa. St. 188. Washington. See Mangold v. Adri- an Irrigation Co., 60 Wash. 286, 111 Pac. 173. Wisconsin. Zinc Carbonate Co. v. First Nat. Bank, 103 Wis. 125, 74 Am. St. Eep. 845, 79 N. W. 229; Fountain Spring Park Co. v. Eoberts, 92 Wis. 345, 53 Am. St. Eep. 917, 66 N. W. 399; Pittsburg Min. Co. v. Spooner, 74 Wis. 307, 17 Am. St. Eep. 149, 42 N. W. 259. England. Lydney & W. Iron Ore Co. V. Bird, 33 Ch. Div. 85; In re Cape Briton Co., 26 Ch. Div. 221; Emma Sil- ver Min. Go. v. Grant, 11 Ch. I)iv. 918; Bagnall v. Carlton, 6 Ch. Div. 371. See also Lagunas Nitrate , , Co, v. Lagunas Nitrate Syndicate, [1899] 2 Ch. 392. Equity alone is capable of granting adequate relief against a third person with notice who contracted with and paid a commission to the promoters. American Shipbuilding Co. V. Com. Steamship Co., 215 Fed. 296. 90 Simons v. Vulcan Oil & Mining Co., 61 Pa. St. 202, 100 Am. Dec. 628. Such a suit cannot be maiutained when the corporation is unable to re- store what it has received, unless, its inability to do so is due to the fault of the promoter. See Western Bank ■ of Scotland v. Addie, L. E. 1 H. L. Sc. 145; Phosphate; Sewage Co. v. Hart- mont, 5 Ch. Div. 394; In re Cape Briton Co., 29 Ch. Div. 795. See, as to the qualification, Head v. Tattersall, L. E. 7 Exoh. 7. 91 The remedy of a corporation against its promoters when the latter have made a secret profit in a sale to it is in damages. In re Leeds & Han- ley Theatres of Varieties, Ltd., [1902] 2 Ch. 809, 825. See also Getty v. Dev- lin, 70 N. Y. 504, 54 N. Y. 403, Marblehead Bank Co. v. Earidon, 4 Ohio App. 468. "If at the time when a fraud is discovered, which was perpetrated by promoters in a gale to the corporation of property owned by them, the prop- erty is no longer in the condition in which it was when the company took it, the company rnay, keeping the prop- erty, sue the promoters for the secret 293 §140] Peivate Coepobations [Ch.5 stockholders, the corporation may elect to avoid the purchase, or, if the profit was in cash, to hold the promoters accountable therefor, and, if in stock, require a return thereof, if unsold, or an accounting for the profits of its sale, if sold.'^ But a rescission of the contract by the corporation is not necessary to the recovery of a secret profit from the promoter ; the rule being that the promoter may be compelled to account without any such rescission.'' A corporation may sue for the cancellation of a note and of the trust deed securing! it when the basis thereof was a secret profit to its promoter in a sale to it.'* So also equity has jurisdiction of a suit by a corporation for the cancellation of a secret continuing contract by its promoters to pay a royalty to one of their number on articles manu- factured by the corporation, which contract, as alleged, would, unless profits which it was their duty not to make without notifying the company thereof." Hay ward v. Leeson, 176 Mass. 310, 49 L. R. A. 725, 57 N. E. 656. 92 Camden Land Co. v. Lewis, 101 Me. 78, 63 Atl. 523. See also Hayward V. Leeson, 176 Mass. 310, 49 L. K. A. 725, 57 N. E. 656; Mangold v. Adrian Irrigation Co., 60 Wash. 286, 111 Pac. 173. 93 Wills V. Nehalem Coal Co., 52 Ore. 70, 96 Pae. 528. "The contention that a person who, first as a promoter, then as a director, induces a corporation to embark its capital in a business, in such a way that the rescission of its purchase of property essential to the continued life of the company can only be made by the sacrifice of such existence, can retain his secret profits in the trans- action, unless the contract shall be rescinded and the enterprise aban- doned, is contrary to the doctrine of numerous cases, and without the in- tended sanction of any. Such a rule would permit retention of secret profits, and its enforcement would turn the courts into promoters, not of cor- porations, but of frauds upon them." Tale Gas Stove Co. v. Wilcox, 64 Conn. 101, 25 L. E. A. 90, 42 Am. St. Rep. 159, 29 Atl. 303. Where the promoters of a corpora- tion, after its creation, and while they were the sole stockholders, voted to issue its stock to themselves in pay- ment for services rendered in securing options on land, which they assigned to the corporation, the stock so issued being equal to the estimated profits to be derived from such options, and afterwards invited the public to sub- scribe to the stock, without disclosing such facts, it was held that they were guilty of a fraud, and that the company could, without returning the lands ac- quired under the options, maintain an action to recover such stock, or dam- ages for the loss thereof. Hayward v. Leeson, 176 Mass. 310, 49 L. R. A. 725, 57 N. E. 656. Where promoters transfer property at an inflated value in exchange for stock, the corporation may, however, tender back the property, its character remaining unchanged, and deem the contract terminated. Old Dominion Copper Mining & Smelting Co. v. Bige- low, 188 Mass. 315, 108 Am. St. Rep. 479, 74 N. E. 653. 94 California-Calaveras Min. Co. v. Walls, 170 Cal. 285, 149 Pac. 595. 294 Ch. 5] Promoters [§ 141 it was declared inoperative, injure the corporation's business and impair its credit.'^ Where, on a aale of property to a corporation, its promoters obtain a secret profit in the form of srtock and there can be no rescission without gross injustice to the parties wronged, and the property can- not be restored without serious prejudice to the interests of the cor- poration, and the promoters have no equity to have it restored, a suit to annul the promoters' title to the stock will be an appropriate remedy.'^ Again, the circumstances of the case may make proper a suit for the surrender and cancellation of the certificates of stock representing the secret profit.^' Where promoters sell property to the corporation on the one hand and purchase such property for the corporation on the other, thereby making a profit for themselves, the corporation may charge such profit with an implied trust for its benefit and recover the same in an action brought for that purpose.*' But whatever the form of the action wherein promoters are sought to be held liable for a profit obtained by them, the rights of the cor- poration in such action, it being brought in the corporation's name, are no greater than the rights of the stockholders for whose real benefit the action is prosecuted, and if the stockholders, by reason of knowledge on their part or otherwise, have no rights, as against the promoters, the corporation has none.*® § 141, — Defenses. The illegality of the organization of the cor- poration is not available to its promoters as a defense to an action 95 Fred Macey Co. v. Macey, 143 knowing them to be such, are liable Mich. 138, 5 L. K. A. (N. S.) 1036, 106 with the promoter to the corporation. N. W. 722. • Miasiasippi Lumber Co. v. Joiee, 176 96 Yeiser v. United States Board & 111. App. 110. Paper Co., 107 Fed. 340, 52 L. E. A. 99Eiehard Hanlon Millinery Co. v. 724. Mississippi Valley Trust Co., 251 Mo. 97 Mason v. Carrothers, 105 Me. 392, 553, 158 S. W. 359. 74 Atl. 1030. See also Bavis v. Las It was held in Erlanger v. New Som- Ovas Co., 227 U. S. 80, 57 L. Ed. 426, brero Phosphate Co., 5 Ch. Div. 73, aff 'g 35 App. Caa. (D. C.) 372; Hughes 114, aff'd 3 App. Cas. 1218, that a suit V. Cadena De Cobre Min. Co., 13 Ariz. by the corporation for an accounting 52, 108 Pac. 231; Cuba Colony Co. v. could not be defeated by showing that Kirby, 149 Mich. 453, 112 N. W. 1133; some of the shareholders were parties Eichlands Oil Co. v. Morriss, 108 Va; to the fraud, and would be benefited 288 61 S. E. 762. by the decree in favor of the eorpora- 98 Pittsburg Min. Co. v. Spooner, 74 tion. "If the argument were once Wis. 307, 17 Am. St. Eep. 149, 42 N. allowed to prevail," said Sir George W 259. Jessel, Master of the Eolls, "it would Persons who purchase secret profits only be necessary to corrupt one single from the promoter of a corporation, shareholder to prevent a compwiy from 295 §141] Private Coepoeations [Ch.5 by the corporation for secret profits obtained by them on a sale of property to the corporation.^ It would likewise seem that the remedy of a stockholder against the promoters to recover secret profits is not defeated by his not having paid par value for his stock.^ The fact that the corporation received the money which paid for the property which the promoters sold at a secret profit to themselves for stock which was illegally sold at less than its par value is not a defense to an action against the promoters to compel them to refund such part of the amount paid as constituted their unlawful profit.' Nor is the corporation's right of action defeated by the fact that the recovery will inure to the benefit of the guilty stockholders as well as to that of the innocent ones.* It has been held that promoters are not relieved from liability by reason of the fact that at the time of the issuance of the stock which represented their secret profit the corporation had no assets to make such stock valuable, shares of stock representing a right and interest ever setting the contract aside. It may be said you give to the sharehold- er, who was a party to the fraud, a profit, because he will take it in re- spect of his shares, and since as be- tween co-eonspiratoTB there is no contribution, therefore his brother con- spirators, who are made liable for the fraud, cannot make him repay his pro- portion. But the doctrine of this court has never been to hold its hand and avoid doing justice in favor of the innocent, because it cannot apportion the punishment fully amongst the guilty. ' ' See Exter v. Sawyer, 146 Mo. 302, 47 S. W. 951, in which this deci- sion was followed. See also Old Domin- ion Copper Mining & Smelting Go. v. Lewisohn, 210 XJ. S. 212, 52 L. Ed. 1025. 1 "These defendants, who wore the active agents in the formation of the corporation, who were instrumental in the issue of the alleged illegal stock, and who contracted with the corpora- tion having full knowledge of all of its transactions, are in no position to contest the regularity of the formation of the corporation." Pittsburg Min. Co. V. Spooner, 74 Wis. 307, 17 Am. St. Eep. 149, 42 N. W. 259. 2 A statutory provision that ' ' no corporation shall issue any stock or certificate of stock except in consid- eration of money, or labor or property estimated at its true money value, ac- tually received by it, equal to the par value thereof, * * * and all stocks * * ' issued contrary to the provi- sions of this section * * * shall be void," does not preclude .subscribers who have paid less than par for their stock from bringing a suit in equity for the benefit of the corporation against the promoters of the latter who sold property to it at a secret profit to themselves, the words "issue any stock" and "all stocks * * * is- sued" as used in the statute meaning the same, in effect, as the words "cer- tificate of stock," and not having reference to the stock itself. Pietsch V. Krause, 116 Wis. 344, 93 N. W. 9. 3 Pittsburg Min. Co. v. Spooner, 74 Wis. 307, 17 Am. St. Eep. 149, 42 N. W. 259. 4 Davis V. Las Ovas Co., 227 U. S. 80, 57 L. Ed. 426. See also Old Domin- 296 Ch. 5] • Promoters [§142 in the management and profits of a corporation as well as in its assets." The maxim that "he who comes into equity must come with clean hands" cannot be invoked to defeat the right of subsequent stock- holders to have certificates of stock received by the promoters as secret profits surrendered and canceled where there has been no wilful misconduct with reference to the matter in litigation and the plaintiffs do not require the aid of the illegal transaction set up by the defend- ants to make out their case, and this is true even though such trans- action may he indirectly connected with the matter at issue.® Nor will the fact that the corporation has issued statements misrepresent- ing the value of the property, on selling which to it the promoters obtained a secret profit in the form of stock, make proper the appli- cation of this maxim to defeat the corporation's right to have can- celed such of the stock as remains in the promoters' hands, and to recover the selling price of such of it as has been sold, where the promoters themselves have been largely responsible for the issuance of the statements and a decree against them will terminate their con- nection with the corporation.' § 142. — Parties. Where the obtaining of a secret profit by pro- moters is a wrong done to the corporation as such rather than to the stockholders individually, the right of action arising therefrom is, in ^e first instance, in the corporation, and the action is properly brought by it in its corporate name,^ against one or all of the pro- ion Copper Mining & Smelting Co. v. Hughes v. Cadena De Cobra Min. Co., Lewisohn, 210 U. S. 206, 52 L. Ed. 13 Ariz. 52, 108 Pac. 231. See also 1025. Tale Gas Stove Co. v. Wileox, 64 Conn. 5 Hughes V. Cadena De Cobre Min. 101, 25 L. B. A. 90, 42 Am. St. Kep. 159, Co., 13 Ariz. 52, 108 Pae. 231. 29 Atl. 303; Midwood Park Co. v. 6 Mason v. Carrothers, 105 Me. 392, Baker, 128 N. Y. Supp. 954, aff'd 129 74 Atl. 1030. See also Yale Gas Stove N. Y. Supp. 1135; Wills v. Nehalem Co. V. Wilcoi, 64 Conn. 101, 25 L. E. Coal Co., 52 Ore. 70, 96 Pac. 528; A. 90, 42 Am. St. Eep. 159, 29 Atl. MeAleer v. MeMurray, 6 Phila. (Pa.) 303. 244. 7 Cuba Colony Co. v. Kirby, 149 If the stockholder could not main- Mich. 453, 112 N. W. 1133. tain the action for an accounting by 8 ' ' The wrong being a wrong done a promoter for profits made on a sale by promoters to the corporation where- to the corporation without a demand by the promoters have derived in secret on the corporation to bring it, it must an advantage not disclosed to exist- follow that the action is properly ing members of the corporation, the brought by the corporation. Colton corporation was the proper person to Improvement Co. v. Eichter, 26 N. Y. bring the suit to remedy the wrong." Misc. 26, 55 N. Y. Supp. 486. See also 297 §142] Peivate Coepokations [Ch. 5 meters who shared in the profit.^ But a stockholder, joining the cor- poration as a defendant,^" may sue in equity in his own name for the benefit of the corporation if the latter is in the control of the pro- moters, or if the officers wrongfully refuse to bring the suit.^* Moreover, under certain circumstances, individual corporators may maintain actions against a promoter to recover a proportionate share of the secret profits made by him.^^ "When the corporation has bfecome insolvent and is in the hands of a receiver, an action to recover secret profits may be brought by the receiver^' or by the stockholders and the receiver.** While ordinarily the remedy of a defrauded subscriber is against the defrauding promoter and not the corporation, where the defraud- ing promoter and the defrauded subscribers constitute the corporation and there are therefore no rights of other stockholders intervening, relief may be had not alone against the promoter but against the corporation itself.** Old Dominion Copper Mining & Smelt- ing Co. V. Bigelow, 188 Mass. 315, 108 Am. St. Bep. 479, 74 N. B. 653; Pitts- burg Min. Co. V. Spooner, 74 Wis. 307, 17 Am. St. Bep. 149, 42 N. W. 259. And compare Old Dominion Copper Mining & Smelting Co. v. Lewisohn, 210 V. S. 206, 52 L. Ed. 1025, aff'g 148 Fed. 1020. 9 The fact that all of the promoters who may have shared in the secret profit are not sued is not fatal to the action; the corporation may sue one or all of them and there is no want of necessary parties because all are not sued. Davis v. Las Ovas Co., 227 U. S. 80, 57 L. Ed. 426, afl'g 35 App. Cas. (D. C.) 372. 10 Groll V. United Elec. Co., of New Jersey, 70 N. J. Eq. 616, 61 Atl. 1061. llBurbank v. Dennis, 101 Cal. 90, 35 Pac. 444; Exter v. Savifyer, 146 Mo. 302, 47 S. W. 951. When the promoters of a corpora- tion have received secret profits for which they should account, and it is apparent that an application to the officers of the corporation to take the necessary steps to secure an account- ing would be ineffectual, the stock- holders may proceed in their own name. Mason v. Carrothers, 105 Me. 392, 74 Atl. 1030. Before a stockholder can bring an action against a promoter for an ac- counting, he must request the corpora- tion to bring it and meet with a refusal by it so to do. Colton Improve- ment Co. V. Bichter, 26 N. Y. Misc. 26, 55 N. T. Supp. 486. 12 Emery v. Parrott, 107 Mass. 95; Brewster v. Hatch, 122 N. Y. 349, 10 Abb. N. Cas. (N. Y.) 400, 19 Am. St. Bep. 498, 25 N. E. 505; Getty v. Devlin, 70 N. Y. 504, 54 N. Y. 403; Franey v. Warner, 96 Wis. 222, 71 N. W. 81. IS Chandler v. Bacon, 30 Fed. 538. Compare Hayward v. Leeson, 176 Mass. 310, 49 L. B. A. 725, 51 N. E. 656. 14 Arnold v. Searing, 78 N. J. Eq. 146, 78 Atl. 762 (in this case the cor- poration was joined as a party de- fendant). ISA. J. Cranor Co. v. Miller, 147 Ala. 268, 41 So. 678. 298 Ch. 5] Pbomotees [§ 144 § 143. — Liinitations and laches. The fraudulent concealment by a promoter, who subsequently became an ofiQcer of the corporation, of his employment by the owner of property which the corporation was organized to purchase and which it actually did purchase, will post- pone the running of limitations against its right to recover the amount received by the promoter from the owner of the property, until its discovery of the breach of duty on the part of the promoter.^* But where under the statute the only actions for fraud as against which limitations will not run until the discovery of the fraud, are those which, prior to a certain date, were cognizable solely by a court of chancery, and both prior and subsequently to such date a corporation had a right of action at law against a promoter who had obtained a secret profit from a sale of property by him to the corporation, stock- holders cannot sue for the benefit of the corporation after the expira- tion of the statutory period on the ground that the action was brought within the prescribed period after the discovery of the fraud.^' Laches will bar a suit in equity by a corporation to recover secret profits made by its promoters; but since constructive knowledge, at least, of the existence of the cause of action, is an element of laches, the corporation is not chargeable therewith in the absence of such knowledge that secret profits were obtained.^' § 144. — Pleading. In order to be entitled to maintain a suit in equity for the benefit of the corporation against a promoter who has obtained a secret profit on a sale of property to the corporation, a stockholder need not allege with particularity that he has demanded 16 The Telegraph v. Loetseher, 127 not accrue until the fraud is discov- lowa 383, 4 Ann. Caa. 667, 101 N. W. ered. 773 (showing of fraudulent conceal- 18 Bagnall v. Carlton, 6 Ch. Div. 371. ment held sufficient). See also Caffeo See also Erlanger v. New Sombrero V. Berkley, 141 Iowa 344, 118 N. W. Phosphate Co., 3 App. Gas. 1218, aff'g 267. 5 Ch. Div. 73. 17 Pietsch V. Milbrath, 123 Wis. 647, A corporation, seeking the cancella- 68 L. B. A. 945, 107 Am. St. Eep. 1017, tion of a secret continuing contract by 102 N. W. 342, 101 N. W. 388. Com- its promoters to pay one of their pare Caflee v. Berkley, 141 Iowa 344, number a royalty on articles manu- 118 N. W. 267. faetured by the corporation, which In Marblehead Bank Co. v. Earidon, contract, it was alleged, would, unless 4 Ohio App. 468, it was held that an it was declared inoperative, injure action to recover secret profits is one the corporation's business and impair for breach of duty rather than for its credit, held not guilty of laches, fraud, and, hence, does not come it having protested promptly upon dis- within the saving clause which pro- covering the fraud, although foUow- vides that the cause of action shall ing its protest it occupied nearly two 299 § 144] Peivate Coepoeations [Ch. 5 and required of the officers of the corporation that they take steps to redress the wrong and that they have refused so to do, where he alleges facts which show that a demand would have been futile and by reason of which a refusal must be regarded as having existed.^' A demurrer for misjoinder of causes will lie to a complaint in an action by subscribers to the corporate stock against promoters who are alleged to have obtained a secret profit on a sale of property to the corporation, when such complaint prays judgment on behalf of the corporation for the amount of moneys which the defendants severally subscribed and pretended to pay in, but never in fact did pay in; that the plaintiffs have and recover of the defendants any damage and losses sustained by them by reason of the defendants' fraud and deception to be fixed and determined by the court; that the board of directors and the defendants be restrained and enjoined from enforcing the collection of an assessment on the plaintiffs' stock by a sale thereof, and that the defendants be restrained from selling their own stock or any part thereof.^" There is nothing inconsistent, however, in a prayer for a rescission of the contract and a prayer for damages in a bill by a corporation against its promoters who disposed of property to it at a secret profit to themselves.^^ § 145. — Burden of proof. Where a promoter seeks to retain prof- its made by him on a sale of property to the corporation, he has the burden of proving that his dealings were open and fair, that they were conducted in good faith, and that he took no undue advantage of those to whom he sustained the fiduciary relation.^^ § 146. — Character and measure of relief. The relief awarded a corporation suing its promoters who made secret profits on a sale of years in negotiations and discussions fraud or -wrong committed upon the whereby it sought to avoid litigation. corporation. Pietseh v. Krause, 112 Fred Macey Co. v. Macey, 143 Mich. Wig. 418, 88 N. W. 223. See also 138, 5 L. R. A. (N. S.) 1036, 106 N. Pietseh v. Krause, 116 Wis. 344, 93 W. 722. N. W. 9. 19 Wills V. Nehalem Coal Co., 52 Ore. 20 Pietseh v. Krause, 116 Wis. 344, 70, 9aPac. 528. 93 N. W. 9. A complaint, in an action hy stock- 21 Old Dominion Copper Mining & holders on behalf of the corporation. Smelting Co. v. Bigelow, 188 Mass. 315, whose oflScers refuged iio sue, against 108 Am. St. Eep. 479, 74 N. E. 653. promoters to recover profits alleged to 28 Hughes v. Cadena De Cobre Min. have been made by the promoters, on a Co., 13 Ariz. 52, 108 Pac. 231 ; Cplton . sale of property to the corporation, in Improvement Co. v. Bichter, 26 N. T. fraud of the latter, held not to con- Misc. 26, 55 N. Y. Supp. 486; Midwood nect one of the defendants with any Park Co. v. Baker, 128 N. T. Supp. 300 Ch.5] PeoMotees [§146 property to it^S" must be adapted to the situation as it existed when the suit was eommenced.^^ As a general proposition, the measure of damages recoverable is the profit realized.^* "Where a promoter uses his secret profit to pay for stock in the corporation and afterwards sells such stock at a profit, the corpora- tion may recover, at its option, eithei" the amount originally obtained and that representing the profit made on the sale of the stock, together with interest on each from the time of the making of the stock profit, or the amount originally obtained and interest thereon from the date on which it was received.''^ When the secret profit obtained by the promoters was in the form of stock, they may be compelled to account to the corporation for the shares received, with all dividends paid thereon, or, if the stock has been sold by them, for the proceeds of the sale, with interest from the date thereof, or for the fair market value of the stock, less the expenses of the formation of the corporation paid by and not repaid to them,^ and in this connection the fair market value of the stock is to be determined as of a data when it actually acquired a recog- nized market price. From such date the promoters may be charged with interest upon such value.^'' 954, aff'd 129 N. Y. Supp. 1155. See also Cushion Heel Shoe Co. v. Hartt, 181 Ind. 167, 50 L. R. A. (N. S.) 979, 103 N. E. 1063. 22a Generally, as to character and measure of relief granted, see eases cited iE §§ 135, 137, supra. 23 Yeiser v. United States Board & Paper C.., 107 Fed. 340, 52 L. E. A. 724. Relief when mortgage represents secret profit to promoter, see Hyde Park Terrace Co. v. Jackson Bros. Realty Co., 161 N. Y. App. Div. 699, 146 N. Y. Supp. 1037. 24 In re Leeds & Hanley Theatres of Varieties, Ltd., [1902] 2 Ch. 809, S33. See also Marblehead Bank Co. V. Raridon, 4 Ohio App. 468. Measure of relief to corporation on rescission by it against seller of prop- erty with notice who contracted with, and paid commission to promoters, see American Shipbuilding Co. v. Com. Steamship Co., 215 Fed. 296. 2B Mississippi Lumber Co. v. Jqice, 176 111. App; 110, 122. 26 Hayward v. Leeson, 176 Mass. 310, 49 L. E. A. 725, 57 N. E. 656. But see Arnold v. Searing, 78 N. J. Eq. 146, 78 Atl. 762. Where promoters have received a se- cret profit for which they should ac- count, it may be proper to appoint a master to hear and determine the pro- moters' claims for services and ex- penses and also to determine the value of the stock representing the profit, at the time it was issued to them. Miason v. Carrothers, 105 Me. 392, 74 Atl. 1030. 87 Hayward V. Leeson, 176 Mass. 310, 49 L. B. A. 725, 57 N. E. 656; East Ten- nessee Land Co. v. Leeson, 183 Mass. 37, 66 N. E. 427. 301 §147] Peivate Cokporations [Ch.5 § 147. — Commission from third person. The rule denying the right of a promoter to retain a secret profit applies where a person promotes a corporation to purchase a patent or other property from a third person, and receives a part of the purchase money, or a commission, under a secret agreement with the vendor.** Moreover, an action against the promoter directly is not the only remedy of the corporation when the promoter has received that which con- stituted his secret profit from a third person with notice who through him has dealt with the corporation. In such case, the latter has a remedy against the third person. Thus a corporation may sue a company, building and selling to the promoters of the corporation for the latter, a ship, the complete title to which did not pass until after the organization of the corporation and which wasi accepted and used by it and paid for with its funds, to rescind the transaction and recover the purchase money upon learning that the building company paid a commission to the promoters, such company having had full notice from the fact that the promoters were named in the contract, and signed the same "as trustees" that the subscribers to the stock of the complaining corporation which it was agreed should be created were the real purchasers of the ship.*^ 28 TTnlted States. Chandler v. Bacon, 30 Fed. 538. Iowa. See The Telegraph v. Loet- Bch«|-, 127 Iowa 383, 4 Ann. Cas. 667, lil N. W. 773. Massachusetts. Emery v. Farrott, 107 Mass. 95. New Jersey. Loudenslager v. Wood- bury Heights Land Co., 58 N. J. Eq. 556, 43 Atl. 671, 56 N. J. Bq. 411, 41 Atl. 1115; Woodbury Heights Land Co. V. Loudenslager, 55 N. J. Eq. 78, 35 Atl. 436. Virginia. Central Land Co. v. Oben- chain, 92 Va. 130. See also Bosher v. Richmond & H. Land Co., 89 Va. 455, 37 Am. St. Eep. 879, 16 S. E. 360. England. Emma Silver Min. Co. v. Grant, 11 Ch. Div. 918; Bagnall v. Carlton, 6 Ch. Div. 371; Emma Silver Min. Co. v. Lewis, 4 C. P. D. 396. Canada. Bennett v. Havelock Elec. Light & Power Co., 21 Ont. L. Rep. 1.20, 18 Ann. Cas. 354. Where a promoter of a corporation secretly agreed with a patentee to form the corporation to buy his pat- ents, the patentee to pay him half of the price received, and induced others to subscribe for stock in the proposed corporation by representing that he was subscribing on equal terms with the rest, and afterwards, as a director of the corporation, voted for a reso- lution to buy the patents, it was held that the corporation might recover o* him his secret profits, and that it was not bound to rescind the purchase. Yale Gas Stove Co. v. Wilcox, 64 Conn. 101, 25 L. R. A. 90, 42 Am. St. Rep. 159, 29 Atl. 303. 29 American Shipbuilding Co. v. Com. Steamship Co., 215 Fed. 296. See also Limited Inv. Ass'n v. Glendale Inv. Ass'n, 95 Wis. 54, 74 N. W. 633. 302 Ch.5] Peomoteks [§148 § 148. — Liability of persons conspiring witti promoters. Persons who conspire with promoters to consummate the transaction whereby a secret profit is obtained by the promoters, are, equally with the latter, liable for such profit, although they did not occupy the fiduciary relation of promoters:, had no dealings with the corporation or its members, and made no false representations to the stockholders, nor knew that any were made. This rule is based on the well-established principle that "where several persons combine to carry out a fraudu- lent conspiracy, to cheat another, each and all of such persons are liable to the defrauded party, without reference to the amount of the fruits of the fraudulent transaction he obtains or the degree of his activity in the scheme."^" Moreover, it is not essential to the liability of such persons that they should have been originally parties towthe contrivance of the fraud. If knowing the fraud contrived, they wilfully aided in its execution, they became parties to the plan and are chargeable with the consequences. All persons uniting or co- operating in such a wrong are jointly liable therefor without regard to their several degrees of culpability. It is not necessary that they be in pari delicto. It is enough that each vas at some time and 30 Lomita Land & Water Co. v. Bob- inson, 154 Cal. 36, 18 h. R. A. (N. S.) 1106, 97 Pac. 10; Fountain Spring Park Co. V. Eoberts, 92 Wis. 345, 53 Am. St. Rep. 917, 66 N. W. 399. See also Phosphate Sewage Co. v. Hart- mont, 5 Ch. Div. 394, 456. "If several persons unite to pro- mote the organization of a corporation and thereafter defraud it cut of its assets for their benefit, part of the scheme being that some of tho pro- moters shall be the active parties and take stock in and become ofieers and obtain control of the corporation, and thereafter while ostensibly acting in its interests carry out the fraud, and the scheme be fully consummated, one of the conspirators being a corporation, all are equally liable to make good to the defrauded corporation the loss caused to it, without reference to how the fruits of the fraud may have been divided, and an action will lie in the name of the injured corporation against the wrongdoers to compel an accounting of their ill-gotten gains and restitution thereof." Zinc Carbonate Co. v. First Nat. Bank, 103 Wis. 125, 74 Am. St. Rep. 845, 79 N, W. 229. A participant in the fraud of a pro- moter cannot plead a release from li- ability on the ground that there has been an accord and satisfaction with knowledge between the only stock- holder in the corporation, other than the promoter, and the promoter, when the only basis for such claim of an accord and satisfaction was the pay- ment by such other stockholder, who desired to rid the corporation of any control by tho promoter, of the amount owing the promoter for services to the corporation and the assignment by the promoter of his stock to a third person in trust for the corporation and the promoter's withdrawal from all connection with the corporation, there being no understanding between the two that they were settling the fraud or that their negotiations had any reference whatever to the fraudulent 303 § 148] Peivate Coepoeations [Ch. 5 in some degree a party to and an aider of the improper transaction.*^ It is not even essential to their liability that they share in any measure in the profit obtained. So where a person who was the owner of property, disposed of to a corporation, gave the promoter thereof, with knowledge of the latter 's intentions, a false receipt which per- mitted a misrepresentation and the obtaining of a profit by such pro- moter, the corporation and the one to whom the misrepresentation had been made, who was the only one putting money into the corpo- ration, were held entitled to have the deed from the owner and the mortgage running to him set aside, and to recover from him and the promoter moneys expended in permanent improvements. Said the court: "Where one deliberately gives another a false stateinent in writing, knowing the purpose for which it is to be used, which that other uses to deceive a third party, he is a joint wrong-doer, and must be held responsible for the consequences which follow * * * [and] cannot defend upon the ground that he received no benefit from the fraud."'* But where a special agent to sell land promoted a cor- poration for the purpc;o of disposing of the land to it, but the owner of the land had no knowledge of his agent's plans nor shared in any way in the profits of tho agent's scheme, the agent's acts in assisting in the formation of the corporation were outside both the real and the apparent scope of his authority and neither the owner of the land nor the one to whom the corporation's mortgage ran is liable to the corporation.'* transaction. Stoney Creek Woolen Co. enabled to obtain a secret profit in the V. Smalley, 111 Mich. 321, 69 N. W. form of stock, a certain part of which 722. was to go to the vendor of the land as 81 Lomita Land & Water Co. v. Bob- a part of the purchase price thereof, inSon, 154 Cal. 36, 18 L. R. A. (N. S.) does not render such vendor liable in 1106, 97 Pae. 10. damages to one induced to subscribe A corporation cannot escape liability for stock by false representations on for its participation in a fraudulent the part of the promoter, where the promotion scheme by a plea of ultra vendor in no way aided or assisted vires. Zinc Carbonate Co. v. First Nat. the promoter in inducing the subscrip- Eank, 103 Wis. 125, 74 Am. St. Eep. tion either by false representations or 845, 79 N. W. 229. by concealing from the subscriber the 32 Stoney Creek Woolen Co. v. fact that the promoter was to obtain Smalley, 111 Mich. 321, 69 N. W. 722. a secret profit. De Klotz v. Broussard, See also Lomita Land & Water Co. v. 203 Fed. 942. Robinson, 154 Cal. 36, 18 L. E. A. (N. 33 Forest Land Co. v. Bjorkquiat, 110 S.) .1106, 97 Pae. 10. Wis. 547, 86 N. W. 183. See also God- The act of naming a fictitious con- frey v. Schneek, 105 Wis. 568, 81 N. sideration in a contract to sell land to W. 656. promoters, whereby the latter, on sell- Evidence held not to show that do- ing the land to the corporation, were feridants aided and abetted promoter 304 ■ Ch. 5] Peomoteks [§ 149 §149. — Enforcement of claim. The rule that any agreement which contemplates the commission of a fraud, or the breach of fiduciary obligations', is contrary to public policy and illegal, applies to an agreement under which a promoter is to receive a secret profit from a transaction with the corporation, and hence he cannot sue thereon, even after he has performed his part thereof. So a secret agreement between a promoter and the owner of property, by which the property is to be sold to the corporation, and the owner is to pay the promoter a certain amount of the price received, since it con- templates a fraud upon the corporation and the persons afterwards taking shares thereiuj is contrary to public policy and illegal, and, although the property is sold to the corporation in pursuance of the agreement, the promoter cannot maintain an action against the vendor to recover his share of the proceeds.^* A promoter cannot recover from the corporation a secret profit intended to be made in disposing of property to it, which profit was defeated by the action of its trustees in waiting until the expiration of his option and then purchasing from the owner at the price origi- aally asked by him, upon the ground that the trustees perpetrated a fraud on him in so doing. ^.^ Nor can the beneficiary of an agreement with a promoter to hold a certain number of shares of stock in trust for him enforce the trust against the corporation when the stock issued to the promoter represented a secret profit, and was therefore issued without any actual consideration.^® in obtaining secret profit in purchase caused to be circulated a stock sub- of land by corporation. South Mis- scription contract by which the sign- souri Pine Lumber Go. v. Crommer, 202 era agreed not to purchase more than Mo. 504, 101 S. W. 22. a limited number of shares of stock 34 Yale Gas Stove Co. v. Wilcox, 64 each, and who himself, before the Conn. 101, 25 L. E. A. 90, 42 Am. St. stock was subscribed in full, obtained Eep. 159, 29 Atl. 303. control of the corporation by procur- A secret agreement between the di- ing an issue of stock to dummies, rectors and promoters of a corpora- which stock he afterwards had assigned tion, by which the promoters are to to himself, cannot come into a court receive a share of the profits before of equity and complain because the any dividends are paid, is a fraud upon directors of the corporation have taken the, stockholders, and invalid. Dillon such control from him by the sale of V. Commercial Cable Co., 87 Hun (N. the balance of the stock, even though T.) 444, 34..N. Y. Supp. 370. See also the principal purpose of such sale was Tegarden Bros. v. Big Star Zinc Co., to deprive him of that control. Cross 71 Ark. 277 72 S. W. 989. v. Farmers' Elevator Co. of Dawson, 35 Mangold v. Adrian Irrigation Co., 31 N. D. 116, 153 N. "W. 279. 60 "Wash. 286, 111 Pac. 173. 36 Travis v. Travis, 140 N. T. App. A promoter, who prepared and Div. 191, 124 N. Y.. Supp. 1021, 305 IPriv. Corp.— 20 §150] Pkivate Cokpoeations [Ch.5 §150. Liability of corporation on promoters' contracts — In gen- eral. It is a fundamental principle of law that at least two com- petent parties are necessary to the execution of a contract. That parties are not competent within the meaning of this principle except they are in heing, is too obvious to require the citation of authority. Hence it is that until a corporation has come into being, at least to the extent of having a de facto existence, it cannot contract as a corporation. Since it cannot contract and, for that reason, cannot appoint an agent to contract in its behalf, it follows that it will not be chargeable, in the first instance, with liability upon a contract made by its promoters, or by agents appointed by them, prior to the time of its coming into being, even though the contract may have been made in its name and with the understanding that it would perform the same.''' Plaintiff, who was induced to render promotion services by the secret prom- ise of one of the promoters to divide with him whatever stock could be ob- tained by the promoter for his (the promoter's) services, held not entitled to judgment in an action against the corporation and the promoter to com- pel the former to issue to the latter stock voted to him on the plaintiff's motion without knowledge by or no- tice to the other directors, and to com- pel the promoter to transfer such stock to the plaintiff, the agreement between the plaintiff and the promoter being fraudulent and voidable whether ' ' con- sidered in the light of the relations existing between the promoters of the corporation, or in the light of the re- lations existing between the same per- sons as stockholders, and their rela- tion to the corporation. " De La Motte V. Northwestern Clearance Co., 126 Minn. 197, 148 N. W. 47. 37 United States. In re Ballou, 215 Fed. 810; Winters v. Hub Min. Co., 57 Fed. 287; Summerlin v. Fronteriza Silver Mining & Milling Co., 41 Fed. 249. Alabama. Moore & Handley Hard- ware Co. V. Towers Hardware Co., 87 Ala. 206, 13 Am. St. Eep. 23, 6 So. 41. Arkansas. Little Bock & Ft. S. E. Co. V. Perry, 44 Ark. 383, 37 Ark. 164. California. Scadden Flat Gold Min. Co. V. Scadden, 121 Cal. 33, 53 Pac. 440; Blood v. La Serena Land & Water Co., 113 Cal. 221, 45 Pac. 252, 41 Pac. 1017; Hawkins v. Mansfield Gold Min. Co., 52 Cal. 513; Morrison v. Gold Mountain Gold Min. Co., 52 Cal. 306. Colorado. Miser Gold Mining & Mill Co. V. Moody, 37 Colo. 310, 86 Pae. 335; Hersey v. TuUy, 8 Colo. App. 110, 44 Pac. 854. Connecticut. New York & N. H. R. Co. V. Ketehum, 27 Conn. 170. Florida. Sumner-May Hardware Co. V. Scally, 66 Fla. 93, 62 So. 900. Georgia. See McRee v. Quitman Oil Co., 16 Ga. App. 12, 84 S. E. 487; Jos. Rosenheim Shoe Co. v. Home, 10 Ga. App. 582, 73 S. B. 953; Meinhard, Schaul & Co. V. Bedingfield Mercan- tile Co., 4 Ga. App. 176, 61 S. E. 34. Illinois. Park v. Modern Woodmen of America, 181 111. 214, 54 N. E. 932; Sellers v. Greer, 172 111. 549, 40 L. R. A. 589, 50 N. E. 246, aff'g 64 111. ApD 505; Gent v. Manufacturers' & Mer- chants' Mut. Ins. Co., 107 111. 652, aff'g 13 HI. App. 308; Western Screw & Manufacturing Co. v. Cousley, 72 HI. 531; Rockford, R. I. & St. L. B. Co. v. 306 Cli.5] Pbomoteks [§ 150 This rule is subject, however, to such qualifications with regard to Sage, 65 111. 328, 16 Am. Eep. 587; Safety Deposit Life Ins. Co. v. Smith, 65 111. 309. Indiana. Cushion Heel Shoe Co. v. Hartt, 181 Ind. 167, 50 L. E. A. (N. S.) 979, 103 N. E. 1063; Smith v. Parker, 148 Ind. 127, 45 N. E. 770; Davis & Rankin Bldg. & Mfg. Co. v. Hillsboro Creamery Co., 10 Ind. App. 42, 37 N. E. 549. Iowa. First Nat. Bank of Marshall- town V. Church Federation of Ameri- ca, 129 Iowa 268, 105 N. W. 578; Carey V. Dea Moines Co-op. Coal & Mining Co., 81 Iowa 674, 47 N. W. 882; Steven- son V. Dubuque Level & Lead Min. Co., 34 Iowa 577. Kansas. Tryber v. Girard Creamery & Cold Storage Co., 67 Kan. 489, 73 Pac. 83. Louisiana. Bradshaw v. Knoll, 132 La. 132, 61 So. 829; Marchand v. Loan & Pledge Ass 'n, 26 La. Ann. 389. Maine. Tuttle v. George A. Tuttle Co., 101 Me. 287, 8 Ann. Cas. 260, 64 Atl. 496; Blue Hill Academy v. Wit- ham, 13 Me. 403. Maryland. Franklin Fire Ins. Co. V. Hart, 31 Md. 59. Massachusetts. Abbott v. Hapgood, 150 Mass. 24H, 5 L. R. A. 586, 15 Am. St. Eep. 193, 22 N. E. 907; Penn Match Co. V. Hapgood, 141 Mass. 145, 7 N. E. 22; Frost v. Inhabitants of Belmont, 6 Allen 152. Michigan. Wright v. St. Louis Sugar Co., 146 Mich. 555, 109 N. W. 1062; Sullivan v. Detroit, Y. & A. A. R. Co., 135 Mich. 661, 64 L. R. A. 673, 106 Am. St. Eep. 403, 98 N. W. 756; Car- mody v. Powers, 60 Mich. 26, 26 N. W. 801. Minnesota. Bond v. Pike, 101 Minn. 127, 111 N. W. 916; Church v. Church Cementico Co., 75 Minn. 85, 77 N. W. 548; Battelle v. Northwestern C. & C. Pavement Co., 37 Minn. 89, 33 N. W. 327. IMississippl. Bank of Forest v. Orgill Bros. & Co., 82 Miss. 81, 34 So. 325. Missouri. Hill v. Gould, 129 Mo. 106, 30 S. W. 181; Queen City Furniture & Carpet Co. v. Crawford, 127 Mo. 356, 30 S. W. 163; Van Noy v. Central Union Fire Ins. Co., 168 Mo. App. 287, 153 S. W. 1090; Pitts v. D. M. Steele Mercantile Co., 75 Mo. App. 221; Joy V. Manion, 28 Mo. App. 55, 30 S. W. 163. Nebraska. Davis v. Ravenna Cream- ery Co., 48 Neb. 471, 67 N. W. 436; York Park Bldg. Ass'n v. Barnes, 39 Neb. 834, 58 N. W. 440; Clarke v. Oma- ha & Southwestern E. Co., 5 Neb. 314. Nevada. Paxton v. Beacon Mill & Mining Co., 2 Nev. 257. New Jersey. See Vandyke v. Brown, 8 N. J. Eq. 657. New York. Oakes v. Cattaraugus Water Co., 143 N. Y. 430, 26 L. E. A, 544, 38 N. E. 461, 66 Hun 634, 21 N. Y. Supp. 851; Lorillard v. Clyde, 122 N. Y. 498, 25 N. E. 917; Munson v. Syra- cuse, G. & C. E. Co., 103 N. Y. 58, 8 N. E. 855; Wilbur v. New Yori Elec. Const. Co., 58 N. Y. Super Ct. 539, 12 N. Y. Supp. 456; Bond V. Atlantic Terra Cotta Co., 137 N Y. App. Div. 671, 677, 122 N. Y. Supp. 425; Martin v. Eemington-Martin Co., 95 N. Y. App. Div. 18, 88 N. Y. Supp. 573; Quee Drug Co. v. Plant, 55 N. Y. App. Div. 87, 67 N. Y. Supp. 10; Mes- inger v. Mesinger Bicycle Saddle Co., 44 N. Y. App. Div. 26, 60 N. Y. Supp. 431; Burden v. Burden, 8 N. Y. App. Div. 160, 40 N. Y. Supp. 499, afE'd 159 N. Y. 287, 54 N. E. 17; Dillon v. Com- mercial Cable Co., 87 Hun 444, 34 N. Y. Supp. 370; Hall v. Herter Bros., 83 Hun 19, 31 N. Y. Supp. 692; Hecla Consol. Gold Min. Co. v. O'Neill, 65 Hun 619, 19 N. Y. Supp. 592; Thistle V. Jones, 45 N; Y. Misc. 215, 92 N. Y. Supp. 113; Burke v. Lincoln- Valentine Co., 28 N. Y. Misc. 202, 58 N. Y. Supp. 307 §150] Private Coepobations [Ch.5 the corporation's liability as may be declared by its charter or by 1077, 1124; Schmidt v. Nelke Art Lith- ograph Co., 16 N. Y. Misc. 300, 37 N. T. Supp. 1138; Central Park Fire Ins. Co. V. Callaghan, 41 Barb. 448; Wm. Allen & Co. v. Somerset Hotel Co., 88 N. Y. Supp. 944; Berridge v. Aber- nethy, 24 Wkly. Dig. 513. See also Horowitz V. Broads Mfg. Co., 54 N. Y. Misc. 569, 104 N. Y. Supp. 988. Oregon. See Sehreyer v. Turner Flouring Mills Co., 29 Ore. 1, 43 Pac. 719. Pennsylvania. Tift v. Quaker City Nat. Bank, 141 Pa. St. 550, 21 Atl. 660; 8 Pa. Co. Ct. 606; Bell's Gap E. Co. V. Christy, 79 Pa. St. 54, 21 Am. Eep. 39. Bhode Island. Ireland v. Glove Mill- ing & Reduction Co., 20 R. I. 190, 38 L. E. A. 299, 38 Atl. 116. Tennessee. Pittsburg & Tennessee Copper Min. Co. v. Quintrell, 91 Tenn. 693, 20 S. W. 248. Texas. Weatherford, M. W. & N. W. Ey. Co. V. Granger, 86 Tex. 350, 40 Am. St. Eep. 837, 24 S. W. 795; Lan- caster Gin & Compress Co. v. Murray Ginning System Co., 19 Tex. Civ. App. 110, 47 S. W. 387; Exline-Eeimerg Co. V. Lone Star Life Ins. Co., — Tex. Civ. App. — , 171 S. W. 1060; American Home Life Ins. Co. v. Jenkins, — Tex. Civ. App. — , 138 S. W. 424; Jones v. Smith (Tex. Civ. App.), 87 S. W. 210. Utah. Tanner v. Sinaloa Land & Fruit Co., 43 Utah 14, Ann. Cas. 1916 C 100, 134 Pac. 586; Wall v. Niagara Mining & Smelting Co., 20 Utah 474, 59 Pac. 399; Long v. Citizens' Bank, 8 Utah 104, 29 Pac. 878. Washington. Chilcott v. Washing- ton State Colonization Co., 45 Wash. 148, 88 Pac. 113; Bash v. Culver Gold Min. Co., 7 Wash. 122, 34 Pac. 462. Wisconsin. Pratt v. Oshkosh Match Co., 89 Wis. 406, 62 N. W. 84; Buflfing- ton V. Bardon, 80 Wis. 635, 50 N. W. 776. England. In re Skegness & St. Leonard's Tramways Co., 41 Ch. Div. 215; Gunn v. London & Lancashire Fire Ins. Co., 12 C. B. (N. S.) 695; Payne v. New South Wales Coal & I. S. Nav. Co., 10 Exch. 283; Caledonian & Junet. Ey. Co. V. Magistrates of Helensburgh, 2 Macq. H. L. 391. A contract by promoters of a bene- ficial association, before incorporation, to locate the chief office of the asso- ciation in a certain city in considera- tion of the payment by the citizens thereof of the of&ce expenses, head physician 'a salary, and other expenses, for one year, is not binding on the association after incorporation unless adopted or ratified. Park v. Modern Woodmen of America, 181 111. 214, 54 N. E. 932. When persons contemplate or at- tempt the formation of an insurance company under a general law, they must organize under the law to such an extent as to acquire at least a de facto corporate existence, before they can transact business and issue poli- cies of insurance as a corporation. Policies issued by them before they have organized, although In the name of the prospective corporation, will not be the contracts of the corporation when it afterwards comes into exist- ence, unless it then assumes or adopts them. Gent v. Manufacturers ' & Mer- chants ' Mut. Ins. Co., 107 HI. 652, afE'g 13 111. App. 308. A corporation is not bound by an agreement by its promoters that a per- son shall be appointed an oflScer of the corporation at a certain salary, or oth- erwise employed by it, when it shall be organized. Stevenson v. Dubuque Level & Lead Min. Co., 34 Iowa 577; Oakes v. Cattaraugus Water Co., 66 Hun (N. Y.) 634, 66 N. Y. Supp. 634, 143 N. Y. 430, 26 L. E. A. 544, 38 N. E. 461. See also Tuttle v. George A. 308 Ch. 5] Peomoteks [§150 some other statute which regulates its liabilities in such matters.^' "That a corporation should have a full and complete organization and existence as an entity before it can enter into any kind of a con- tract or transact any business, would seem to be self-evident. This is unconditionally true, unless the act of incorporation authorizes the corporators to perform acts and enter into contracts to bind the company when it shall be organized. As well say a child in ventre m mere may enter into a contract, or that its parents may bind it by contract. A corporation, until organized, has no being, franchises or faculties. Nor do those engaged in bringing it into being have any power to bind it by contract, unless so authorized by the charter. Until organized as authorized by the charter there is not a corpora- tion, nor does it possess franchises or faculties for it or others to exer- cise, until it acquires a complete existence. By its birth, so to speak, it for the first time acquires its faculties to transact its business and perform its functions. " *® In other words, the contracts of the pro- moters of a corporation are, as far as the latter is concerned, mere open offers to it which it may either accept or reject.*" In the applica- tion of this principle, it is immaterial that the promoters who made the contract are the only stockholders or members of the corporation, for a corporation, save when the doing of equity requires otherwise, is deemed a legal entity and an artificial person distinct from its stockholders or members as individuals." Tuttle Co., 101 Me. 287, 8 Ann. Cas. 40 Wall v. Niagara Mining & Smelt- 260, 64 Atl. 496. ing Co., 20 Utah 474, 59 Pac. 399; A promoter of a corporation cannot Pratt v. Oshkosli Match Co., 89 Wis. bind it by a contract made with a sub- 406, 62 N. W. 84. scriber to its stock before organization, The terms of a contract of the pro- in order to induce the subscription, meters with third persons regarding Joy V. Manion, 28 Mo. App. 55. a certain matter, entered into for the A corporation is not bound by con- corporation's benefit, do not necessa- tracts of promoters as to the right to rily define the terms of the contract stock. Hawkins v. Mansfield Gold Min. of the corporation with such persons Co., 52 Cal. 513; Morrison v. Gold regarding the same matter. Davis v. Mountain Gold Min. Co., 52 Cal. 306; Dexter Butter & Cheese Co., 52 Kan. Carey v. Des Moines Co-op. Coal & 693, 35 Pac. 776. Mining Co., 81 Iowa 674, 47 N. W. 882; 41 Battelle v. Northwestern C. & C. Dillon V. Commercial Cable Co., 87 Pavement Co., 37 Minn. 89, 33 N. W. Hun (N. Y.) 444, 34 N. Y. Supp. 370. 327. 38 See § 151, infra. A corporation is not liable, in the ab- 39 Gent V. Manufacturers ' & Mer- sence of ratification or adoption, or of chants ' Mut. Ins. Co., 107 111. 652, afE 'g a charter or statutory provision im- 13 111. App. 308. See also Montgom- posing liability, for the salary of a ery v. Whitbeek, 12 N. D. 385, 96 N. superintendent or other person for y^_ 527. services performed for it before its ,309 §151] Private Coepokations [Ch. 5 § 151, — Liability imposed by statute. The act by or under which a corporation is created may allow the promoters to make certain con- tracts on its behalf before it is organized, and may expressly or impliedly make it liable thereon. In such a case an action may be maintained against the corporation on the contract, if the charter or statutory provisions have been complied with,*^ although not other- wise ; ** for in accepting a charter, or organizing under a statute, a corporation becomes bound by all of its provisions and subject to all of the burdens imposed thereby.** § 152. — Adoption or ratification of contracts. The doctrine of the more recent English eases seems to be that, in the absence of a charter or statutory provision, a contract made by the promoters of a corporation on its behalf before incorporation is a nullity, and that the corporation cannot adopt or ratify it, and thus become bound by it, after incorporation," although an action quasi ex contractu may be maintained against the corporation, if it accepts the benefit of such organization under a contract made by its promoters, although the contract may have been made on its behalf and with the understanding that it should be bound, and although the promoters who made it may have become its stockholders and officers. Little Bock & Ft. Smith E. Co. v. Perry, 44 Ark. 383, 37 Ark. 164; Western Screw & Manufacturing Co. v. Cousley, 72 HI. 531; Carey v. Des Moines Co-op. Coal & Mining Co., 81 Iowa 674, 47 N. W. 882; Weatherford, M. W. & N. W. Ry. Co. V. Granger, 86 Tex. 350, 40 Am. St. Rep. 837, 24 S. W. 795. See also Tuttle V. George A. Tuttle Co., 101 Me. 287, 8 Ann. Cas. 260, 64 Atl. 496. An incorporated bank is not liable upon a certificate of deposit issued before its incorporation, although it was signed, as cashier, by a person who has become its cashier since its organization, where it does not appear that it has received the consideration or otherwise assumed the obligation. Long V. Citizens' Bank, 8 Utah 104, 29 Pac. 878. 42 Gent V. Manufacturers ' Mut. Ins. Co., 107 111. 652; Tilson v. Warwick Gaslight Co., 4 B. & C. 962; In re Brampton & Longtown By. Co., 10 Ch. App. 177. 43 Gunn v. London & Lancashire Fire Ins. Co., 12 C. B. (N. S.) 694; Hutchi- son V. Surrey Consumers' Gas-Light & Coke Ass 'n, 11 C. B. 689. 44 See § 248, infra. 45 In re Northumberland Ave. Hotel Co., 33 Ch. Div. 16; In re Empress En- gineering Co., 16 Ch. Div. 125; Melhado V. Porto Alegre, N. H. & B. Ry. Co., L. R. 9 C. P. 503; Kelner v. Baxter, L. B. 2 C. P. 174. See also Tuttle v. George A. Tuttle Co., 101 Me. 287, 8 Ann. Cas. 260, 64 Atl. 496; Ireland v. Globe Milling & Reduction Co., 20 B. I. 190, 38 L. B. A. 299, 38 Atl. 116. In Spiller v. Paris Skating Bink Co., 7 Ch. Div. 368, ratification of such a contract by the corporation was held valid and binding upon it in equity; but this case is overruled by In re Em- press Engineering Co., 16 Ch. Div. 125, and In re Northumberland Ave. Hotel Co., 33 Ch. Div. 16. Compare Touche V. Metropolitan Railway Warehousing Co., 6 Ch. App. 671. The adoption and confirmation by 310 Ch.5] Peomoters [§152 a contract.*^ This view is also the one taken by the Supreme Court of Massachusetts." The courts of other states have repudiated the English doctrine and hold that a contract made by the promoters of a corporation on its behalf may be adopted or ratified by the corporation when organized, and that the corporation is then liable, both at law and in equity, on the contract itself, and not merely for the benefits which it has received.*' In accordance with this view, bonds issued by promoters directors of a contract made before the formation of a company by persons purporting to act on behalf of the com- pany and others does not create any contractual relation between the com- pany and the other parties to the con- tract, nor impose any obligation on the company towards such parties. North Sydney Investment & Tramway Co. v. Higgins, [1899] App. Cas. 263. And see In re Johannesburg Hotel Co., [1891] 1 Ch. 119. 48 In re Northumberland Ave. Hotel Co., 33 Ch. Div. 16; In re Empress En- gineering Co., 16 Ch. Div. 125; In re Dale, 61 L. T. R. (N. S.) 206. See also Tuttle V. George A. Tuttle Co., 101 Me. 287, 8 Ann. Cas. 260, 64 Atl. 496. 47Koppel V. Massachusetts Brick Co., 192 Mass. 223, 78 N. E. 128; Holyoke Envelope Co. v. ITnited States Envelope Co., 182 Mass. 171, 65 N. E. 54; Abbott v. Hapgood, 150 Mass. 248, 5 L. B. A. 586, 15 Am. St. Eep. 193, 22 N. E. 907. Compare the dictum in Penn Match Co. v. Hapgood, 141 Mass. 145, 7 N. E. 22. See also Tuttle v. George A. Tuttle Co., 101 Me. 287, 8 Ann. Cas. 260, 64 Atl. 496, 498; Queen City Furniture & Carpet Co. v. Craw- ford, 127 Mo. 356, 30 S. W. 163; Ire- land V. Globe Milling & Beduction Co., 20 B. I. 190, 38 li. E. A. 299, 38 Atl. 116. 48 United States. Whitney v. Wy- man, 101 U. S. 392, 25 L. Ed. 1050; In re Ballou, 215 Fed. 810; In re Quality Shoe Shop, 212 Fed. 321; Bridgeport Electric & Ice Co. v. Meader, 72 Fed. 115. Alabama. Davis v. Montgomery Furnace & Chemical Co., 8 So. 496. Arkansas. Bloom v. Home Ins. Agency, 91 Ark. 367, 121 S. W. 293; Little Bock & Ft. S. R. Co. v. Perry, 44 Ark. 383; 37 Ark. 164. California. Chater v. San Fran- cisco Sugar Befining Co., 19 Cal. 220; Bideout v. National Homestead Ass 'n, 14 Cal. App. 349, 112 Pae. 192. See also Scadden Flat Gold-Min. Co. v. Scadden, 121 Cal. 33, 53 Pac. 440. Colorado. Hersey v. Tully, 110 Colo. App. 110, 44 Pae. 854; Arapahoe Inv. Co. V. Piatt, 5 Colo. App. 515, 39 Pac. 584; Colorado Land & Water Co. v. Adams, 5 Colo. App. 190, 37 Pac. 89. Connecticut. Stanton v. New York & Eastern By. Co., 59 Conn. 272, 21 Am. St. Eep. 110, 29 Atl. 300; In re Waterman's Appeal, 26 Conn. 96. Georgia. Chicago Building & Manu- facturing Co. V. Talbotton Creamery & Manufacturing Co., 106 Ga. 84, 31 S. E. 809. See also Jos. Bosenheim Shoe Co. V. Home, 10 Ga. App. 582, 73 S. E. 953. Idaho. Mantle v. Jack Waite Min. Co., 24 Idaho 613, 136 Pac. 1130, 135 Pac. 854. See also Henry Gold Min. Co. V. Henry, 25 Idaho 333, 137 Pac. 523. Illinois. Streator Independent Tel. Co. V. Continental Tel. Const. Co., 217 HI. 577, 75 N. E. 546, afE'g 118 HI. App. 14; Eeichwald v. Commercial Hotel Co., 106 HI. 439; Wood v. Whelen, 93 111. 153; Western Screw & Mfg. Co. v. Cousley, 72 HI. 531. Indiana. Cushion Heel Shoe Co. v. 311 152] Pbivate Cobpokations [Ch.5 in the name of a corporation before its organization, may be adopted Hartt, 181 Ind. 167, 50 L. R. A. (N. S.) 979, 103 N. E. 1063; Bruner v. Brown, 139 Ind. 600, 38 N. E. 318; Davis & Eankin Bldg. & Mfg. Co. v. Hillsboro Creamery Co., 9 Ind. App. 553, 37 T. W. 1056. 80 Marion Bond Co. v. Mexican Cof- fee & Bubber Co., 160 Ind. 558, 65 N. E. 748; Pittsburg, S. & N. E. Co. v. Keating & S. E. Co., 23? Pa. 71, 81 Atl. 935; Thomas v. Wilcox 18 S. D. 625, 101 N. W. 1072; Staackp ^. Boutledge, — Tex. Civ. App. — , 175 S. W. 444. Where a statute provides that a corporation shall not exist for more than twenty years, its inenrporatiou is not invalid because its articles of 385 § 189] Peivate Cokpobations [Ch. 7 certificate claim powers and privileges which are not authorized by the statute, they are void as to such claims only, and the validity of the organization is not otherwise affected. If the corporation exer- cises such unauthorized powers and privileges, the state may insti- tute proceedings against it, but no one else can attack the validity of its organization. In other words, if unauthorized provisions are added to the articles of incorporation, all acts done pursuant to such provisions will be void; but until the company is proceeded against by the state for an abuse of its franchises, its rights as a corporation will not be affected by such provisions.*^ However, the statement of unnecessary or improper matters may be ground for the court's or officer's refusal to grant an order or certificate of incorporation. ^^ § 190. Waiver and cure of defects. Irregularities and defects in the creation of a corporation may be waived or cured by the state, either expressly or impliedly by recognition of the corporation as legally existing.'' Since it is within the legislative power to prescribe the essentials to incorporation,** and since the conditions imposed by the legislature upon persons forming a corporation under a statute are imposed by the state merely on grounds of public policy, they may be waived by the state in the case of any particular corporation by a statute ex- pressly or impliedly approving and ratifying its creation or organ- ization without a compliance therewith.*^ For example, the state may association provide for an existence of 85 United States. Comanclie County fifty years, but it is a valid corporation v. Lewis, 133 U. S. 198, 33 L. Ed. 604; for the period of twenty years. People Western TJ. Tel. Co. v. Union Pae. Ey. V. Cheeseman, 7 Colo. 376, 3 Pac. 716. Co., 3 Fed. 721, 729; Kanawha Coal 81 Grangers ' Life & Health Ins. Co. Co. v. Kanawha & O. Coal Co., 7 V. Kamper, 73 Ala. 325, 341; Shick v. Blatehf. 391, Fed. Cas. No. 7,606. Citizens' Enterprise Co., 15 Ind. App. Alabama. State v. Webb, 110 Ala. 329, 57 Am. St. Eep. 230, 44 N. B. 214, 20 So. 462; Boykin v. State, 96 48; Eastern Plank Road Go. v. Ala. 16, 11 So. 66; Central Agricultural Vaughan, 14 N. Y. 546; Heck v. Mc- & Mechanical Ass'n v. Alabama Gold Ewen, 12 Lea (Teiin.) 97; Tennessee Life Ins. Co., 70 Ala. 120. Automatic Lighting Co. v. Massey California. People v. Perrin, 56 Cal. (Tenn. Ch.), 56 S. W. 35. 345. 82 In re Stevedores ' Beneficial Ass 'n, Georgia. McDougald v. Bellamy, IS 14 Phila. (Pa.) 130. Ga. 411. 83 See cases cited in following notes: Illinois. Snell v. City of Chicago, 84 Brown v. Atlanta Eailway & 133 111. 413, 8 L. E. A. 858, 24 N. E. Power Co., 113 Ga. 462, 39 S. E. 71; 532; Mitchell v. Deeds, 49 111. 416, 95 Smith V. Havens Eelief Fund Society, Am. Dec. 621; People v. Farnham, 35 44 N. Y. Misc. 594, 90 N. Y. Supp. 168. 111. 562; Goodrich v. Reynolds, 31 111. 386 Ch.7] Creation Under General Laws [§190 thus waive and cure the failure of the corporators to properly sign and acknowledge the articles of association, or the failure to file them for record in the ofSce of the secretary of state.'^ However, such a validating statute does not per se change the powers the corporation previously had as a de facto corporation nor change the rights of stockholders.^'' Recognition of a corporation by the legislature as legally existing is sufficient to cure defects in its organization.'^ Thus, defects in the 490, 83 Am. Dee. 240; Illinois Grand Trunk E. Co. v. Cook, 29 111. 237; Biee V. Rock Island & A. E. Co., 21 111. 93; Jameson v. People, 16 111. 257, 63 Am. Dec. 304. Indiana. MeCulloch v. State, 11 Ind. 424. Loulsdana. Shreveport Traction Co. V. Kansas City, S. & G. R. Co., 119 La. 759, 44 So. 457. Maxylaud. Basshor v. Dressel, 34 Md. 503. Micbigau. Attorney General v. Joy, 55 Mich. 94. Minnesota. Healey v. Steele Center Creamery Ass'n, 115 Minn. 451, 133 N. W. 69. Missouri. State v. Lincoln Trust Co., 144 Mo. 562, 46 S. W. 593; At- lantic & P. E. Co. V. City of St. Louis, 66 Mo. 228; St. Louis R. Co. v. North- western St. Louis E. Co., 2 Mo. App. 69. New York. Biker v. Cornwell, 113 N. Y. 115; Cayuga Lake R. Co. v. Kyle, 64 N. Y. 185; Black River & U. B. Co. V. Barnard, 31 Barb. 258; Syracuse City Bank v. Davis, 16 Barb. 188; Smith v. Havens Belief Fund Society, 44 Misc. 594, 90 N. Y. Supp. 168. Ohio. Spinning v. Home Bldg. & Sav, Ass'n, 26 Ohio St. 483; Melntire Poor School V. Zanesville Canal & Manu- facturing Co., 9 Ohio 203, 34 Am. Dee. 436. Pennsylvania. Workingmen 's Build- ing & Loan Ass'n v. Coleman, 89 Pa. St. 428. Tennessee. Williams v. Union Bank, 2 Humph. 339. 86 Central Agricultural & Mechanical Ass'n V. Alabama Gold Life Ins. Co., 70 Ala. 120; Bicker v. Cornwell, 113 N. Y. 115, 20 N. E. 602. 87 Healey v. Steele Center Creamery Ass'n, 115 Minn. 451, 133 N. W. 69. 88 United States. Town of Andes v. Ely, 158 tr. S. 312, 39 L. Ed. 996; Co- manche County V. Lewis, 133 TJ. S. 198, 33 L. Ed. 604; Kanawha Coal Co. v. Kanawha & Ohio Coal Co., 7 Blatehf. 391, Fed. Cas. No. 7,606. Alabama. State v. Webb, 110 Ala. 214, 20 So. 462. Colorado. Cowell v. Colorado Springs Co., 3 Colo. 82. Illinois. Snell v. City of Chicago, 133 111. 413, 8 L. E. A. 858, 24 N. E. 253; MeAuley v. Columbus, C. & I. C. B. Co., 83 Dl. 348; People v. Farnham, 35 111. 562; Jameson v. People, 16 111. 257, 63 Am. Dec. 304. Maryland. Koch v. North Avenue By. Co., 75 Md. 222, 15 L. E. A. 377; Basshor v. Dressel, 34 Md. 503. Massachusetts. Proprietors of Charles Eiver Bridge v. Proprietors of Warren Bridge, 7 Pick. 344, 371. Michigan. Attorney General v. Joy, 55 Mich. 94, 20 N. W. 806. Missouri. Atlantic & Pacific E. Co. V. City of St. Louis, 66 Mo. 228; St. Louis E. Co. V. Northwestern St. Louis E. Co., 2 Mo. App. 69. New Jersey. Morris & E. E. Co. v. Hudson Tunnel E. Co., 38 N. J. L. 548. New York. Cayuga Lake E. Co. v. Kyle, 64 N. Y. 185; Black Eiver & U. E. Co. V. Barnard, 31 Barb. 258. 387 §190] Private Cokpokations [Cli.7 organization of a corporation are cured by an act recognizing its business and changing its name,'^ or authorizing it to issue negotiable obligations,'" or granting additional time for the construction of its works,'^ or reducing the amount of its capital stock, though the stat- ute does not in any way refer to such defects,'* or by a statute author- izing a municipality to sell the stock of the corporation owned by it," or by an act increasing the amount of property which a charitable corporation may hold, and expressly reciting the purposes and objects for which such corporation was organized in the words used in its certificate of incorporation.'* Irregularities and defects may be thus waived or cured by the legislature by a special act, as well as by a general law, unless there is some constitutional prohibition in the way, and it has been held that a special act for this purpose is not within a constitutional pro- hibition against the creation of corporations by special aet.'^ In order that irregularities in the organization of a corporation may be cured by an act of the legislature, on the ground that it is a legislative recognition of the corporation, the act must be such as to amount to a recognition of the corporation as a legally existing body. Thus, it has been held that a provision in a statute that nothiiig in the OMo. Mclntire Poor School v. Zanesville Canal & Manufacturing Co., 9 .Ohio 203, 34 Am. Dee. 436. Tennessee, Tennessee Automatic Lighting Co. v. Masaey (Tenn. Ch.), 56 S. W. 35; Williama v. Union Bank, 2 Humph. 339. Compare Thornton v. Marginal Freight Ey. Co., 123 Mass. 32. It has been held in Louisiana that ratification or recognition by the leg- islature takes effect only from the time thereof, and does not relate back so as to affect previous contracts and other transactions. Chaffe v. Ludeling, 27 La. Ann. 607, 611. See, however, Spinning v. Home Bldg. & Sav. Ass'n, 26 Ohio St. 483, and other eases cited above. 89 White V. Ross, 15 Abb. Pr. (N. Y.) 66. 90 Jameson v. People, 16 111. 257, 63 Am. Dec. 904. 91 Morris & E. R. Co. v. Hudson Tun- nel R. Co., 38 N. J. L. 548. 98 State V. Webb, 110 Ala. 214, 20 So. 462 (holding that the fact that the authorized stock is fraudulently issued for property worth only half its par value is cured by an act reducing the stock one-half). 93 Town of Andes v. Ely, 158 U. S. 312, 39 L. Ed. 996. 94 Smith V. Havens Relief Fund So- ciety, 118 N. Y. App. Div. 678, 103 N. Y. Supp. 770, affirming 44 N. Y. Misc. 594, 90 N. Y. Supp. 168, which is af- firmed by 190 N. Y. 557, 83 N. E. 1132. 95 State V. Webb, 110 Ala. 214, 20 So. 462; Boykin v. State, 96 Ala. 16, 11 So. 66; Central Agricultural & Me- chanical Ass'n V. Alabama Gold Life Ins. Co., 70 Ala. 120; Koch v. North Avenue Ry. Co., 75 Md. 222, 15 L. E. A. 377; Basshor v. Dressel, 34 Md. 503; Syracuse City Bank v. Davis, 16 Barb. (N. Y.) 188. Contra, Oroville & V. R. Co. v. Plumas Co. Sup'rs, 37 Cal. 354. See Chap. 8, infra. 388 Ch. 7] Creation Under General Laws [§ 190 act contained should be construed as affecting the legal rights of a certain corporation could not be construed as a legislative recog- nition that such corporation had a legal existence.'^ And it has also been held thatt an act of the legislature supplementary to an act of incorporation is not conclusive of the existence of the corporation at the time of its passage, merely because the corporate name is used throughout the act, if the act is consistent with a belief upon the part of the legislature that the corporation was not then organized.^' General laws sometimes provide that an accidental or inadvertent failure to comply with the statutory requirements governing creation may be cured by filing and recording with the officer or court which issued the certificate of incorporation, a statement under oath setting forth the omission and supplying the same." Noncompliance with a provision requiring the name of the cor- poration to include some word designating the business to be carried on,®' or with a provision requiring the certificate of incorporation to be signed by the subscribers to the capital stock named therein,^ may be cured under such a statute so as to defeat quo warranto proceed- ings by the state, even though the omission is supplied after the pro- ceedings are instituted.'' Moreover, the fact that a statute provides that the organization of a corporation shall be "void" in case of certain omissions does not preclude such a curative statement from being effective even as to such omissions, since the word "void" may be construed as meaning "voidable." ^ In some states, by statute, the 96 Thornton v. Marginal Ey. Co., 123 elusive as to the legal existence of the Mass. 32. corporation. 97 Attorney General v. Chicago & In People v. Eensselaer Ins. Coj, 38 Northwestern Ey. Co., 35 Wig. 425. Barb. (N. Y.) 323, it was held that a It was held in this case that the rule legislative amendment authorizing a that legislative recognition of a cor- fire insurance company to take marine poration de facto will cure irregulari- risks on complying with a certain ties in its organization, does not apply statute did not amount to a recogni- where there was no organization at the ^^°^ »* *'^^ valid incorporation of the time of the statute. It was also held company. ?. ^, , ;i 4. „* 4.i,„ „T,„,+a^ „f 98Gelders v. State, 164 Ala., 592, 51. that an amendment of the charter oi ' ' ^. ., , i iv • So. 232; State v. Colias, 150 Ala. 515, a railroad company so as to authorize .„ „ -Inn „ . , :, i 43 So. 190. an extension of its road, and to pro- gg g^^^^ ^ ^^j.^^^ ^^^ ^j^ 5^^^ ^3 vide that whenever it should decide o_ iqq to so extend its road it might increase i Gelders v. State, 164 Ala. 592, 51 its capital stock, etc., created, in the gg 232. absence of proof to the contrary, a pre- , 2 Gelders v. State, 164 Ala. 592, 51 sumption that the corporation was in go. 232. existence at the time the amendment 3 State v. Colias, 150 Ala. 515, 43 So. was passed, but that it was not con- 190. 389 § 190] Private Corporations [Ch. 7 failure to make affidavit as to the payments for stock may be cured by the subsequent filing of an affidavit in regard thereto ; * and this has been held to warrant such an affidavit even after the company had gone into the hands of a receiver.* However, a statute providing that no certificate of incorporation shall be declared void for formal de- fects merely, and that where an effort has been made, in good faith, to form a corporation, neither party to any transaction with it shall deny the legality of ite incorporation, does not apply where, through indifference or neglect, there has been no attempt at all to comply with important requirements of the statute which are expressly made conditions precedent to the possession or use of any corporate fran- chises.^ Failure to perform conditions pj:ecedent, prescribed by the legis- lature, in an attempt to organize a corporation, cannot be waived by a municipal corporation which is interested in the formation of the corporation. Thus, where a statute authorized the organization of a corporation to construct waterworks and supply a municipal cor- poration and its inhabitants with water "whenever" the common council of the municipality should, by resolution, declare it expedient to have works constructed, and inexpedient for the municipality itself to construct them, it was held that failure to procure such a resolu- tion before organizing a waterworks company could not be waived by the municipality, so as to render the company a corporation as against a direct attack by the state in quo warranto proceedings.' § 191. What law governs. "Whether a company has been created a corporation de jure is to be determined by the law of the state where it was attempted to incorporate it.' ni. INCORPORATION PAPERS § 192. In general. The papers drawn up by or on behalf of the incorporators of a proposed corporation, to be presented for filing or approval to some officer or court, are variously denominated by the statutes in the different states as "articles of incorporation," "articles of association," "certificate of incorporation," "application for 4 People V. Board of Com 'rs, 81 N. 7 Attoraey General v. Hanchett, 42 Y. App. Div. 242, 81 N. Y. Supp. 20. Mieh. 436, 4 N. "W. 182. B In re New York, W. & B. B. Co., 8 Secombe v. Railroad Co., 23 Wall. 193 N. Y. 72, 85 N. E. 1014. (TJ. S.) 108, 23 L. Ed. 67; American 6 National Shutter Bar Co. v. G. E. Ball Bearing Co. v. Adams, 222 Fed. S. Zimmerman & Co., 110 Md. 313, 73 967; Wechselberg v. Flour City Nat. Atl. 19. Bank, 64 Fed. 90, 26 L. E. A. 470. 390 Cli. 7] Ceeation" Undeb Genekal. Laws [§192 charter," "statement of incorporation," "agreement of association," etc. However, the name is immaterial and it is deemed sufficient herein to refer to such papers merely as incorporation papers, since the statutes are much alike as to what such papers must contain, the necessity for filing and recording, etc. The method of proceeding is either (1) by drawing up articles of incorporation and then filing or recording them with some ministerial officer, generally the secretary of state, who thereupon, if the papers are in proper form, generally grants a certificate of incorporation, or (2) by application to a court. This latter method is in force in only a very few states, and in some ' of them it applies only to certain classes of corporations. Inasmuch as the rules governing incorporation papers presented to the secretary of state for filing or recording are substantially the same as the rules as to sufficiency of an application or petition to a court for incorporation, they will not be considered separately. In some states, the first step towards incol:^oration is to apply to the governor for a charter, whereupon he takes the advice of the attorney general as to the constitutionality and legality of the provisions of the proposed charter. If the governor approves the charter, and causes the seal of the state to be affixed thereto by the secretary of state, the corporation comes into existence.^ In order to create a cor- poration under general laws, the governing statute must of course be complied with in drawing up and presenting the incorporation papers. In most states, the persons forming a corporation under the general laws are required to prepare and sign a memorandum or articles of association.^' The form of the application or petition, and its con- tents, as well as the person to whom it is to be addressed, are generally 9 "W. L. Wells Co. V. Gastonia Cotton Missouri. Martin v. Pewell, 79 Mo. Mfg. Co., 198 U. S. 177, 49 L. Ed. 1003 401. (rule in Mississippi). New Hampshire. Unity Ins. Co. v. 10 California. People v. Monteeito Cram, 43 N. H. 636. Water Co., 97 Cal. 276, 33 Am. St. Eep. Vermont. Corey v. Morrill, 61 Vt. 172, 32 Pac. 236. 598, 17 Atl. 840. Iowa. Kaiser v. Lawrence Sav. Wisconsin. Behbein v. Eahr, 109 Bank, 56 Iowa 104, 4i Am. Eep. 85, Wis. 136, 85 N. W. 315. 8 N. W. 772. This is true even in the ease of Maine. Eichmond Factory Ass'n v. benevolent or charitable corporations Clarke, 61 Me. 351. not for pecuniary profit. People v. Massachusetts. TJtley v. Union Tool Golden Gate Lodge No. 6, 128 Cal. 257, Co., 11 Gray 139. 60 Pac. 865. Michigan. Carmody v. Powers, 60 Where there is an entire failure to Mich. 26, 26 N. W. 801. prepare and execute the certificate or Minnesota.' State v. Critchett, 37 articles of incorporation required by Minn. 13, 38 N. W. 787. law, and an entire failure to file a cer- 391 §192] Private Coepobations [Ch.7 prescribed and fixed by the statutes, wMeli, of course, vary in the different states ; and the statutes must be substantially complied with, or a charter or certificate will not be granted.^^ In some states, at least a certain number of persons must join in the application,^* but in others, no particular number is required. The application must be addressed, according to the requirement of the particular statute, to the state, or to some officer of the state, generally the secretary of state, or to some court or judge. The application need not be made by an existing association,^* unless it is so required by the statute.^* The articles need not be executed within the state where it is sought to incorporate.^* While not to be commended as a matter of form, it has been held that it is sufficienf that the articles of incorporation consist of several separate instruments which are exact copies of each other, except that they are signed by different persons.^^ Articles of corporation prepared by a committee need not be accepted by the other subscribers to the stock but may be rejected by the majority, who may then adopt new articles.^'' The articles of incorporation constitute the contract between the stockholders of the corporation ^' and are binding both on the stock- tifieate of any kind whatever, there is not even a de facto corporation. McLennan v. Anspaugh, 2 Kan. App. 269, 41 Pac. 1063; McLennan v. Hop- kins, 2 Kan. App. 260, 41 Pac. 1061; Utley V. Union Tool Co., 11 Gray (Mass.) 139. 11 Central Agricultural & Mechani- cal Ass'n V. Alabama Gold Life Ins. Co., 70 Ala. 120; Van Pelt v. Home Bldg. & Loan Ass'n, 79 Ga. 439, 4 S. E. 501; In re Deveaux, 54 Ga. 637; In re National Literary Ass 'n, 30 Pa. St. 150. 12 Workingmen 's Building & Loan Ass'n V. Coleman, 89 Pa. St. 428; In re People's Gas Light & Fuel Co. of Bucks County, 12 Pa. Dist. 184. 13 Eoman Catholic Orphan Asylum V. Abrams, 49 Cal. 455. If the number of person required by a statute for the organization of a corporation sign the application or articles, they need not all attend the first meeting, unless the statute so re- quires. Packard v. Old Colony B. Co., 168 Mass. 92, 46 N. E. 433. 14 It has been held that this is im- pliedly required in Pennsylvania, be- cause the statute requires that the certificate of incorporation shall give the names and residences of the di- rectors chosen for the first year. See In re Eedmen's Mut. Relief Ass'n, 10 Phil^. (Pa.) 546. IB Humphreys v. Mooney, 5 Colo. 282. 16 Lake Ontario, A. & N. Y. E. Co. v. Mason, 16 N. T. 451. See also Sodus Bay & G. E. Co. v. Hamlin, 34 Hun (N. T.) 390, holding that a subscriber is not relieved from liability because his name is cut from one of such sheets and pasted on another. 17 Mt. Carmel Tel. Co. v. Mt. Carmel & P. Tel. Co., 119 Ky. 461, 84 S. W. 515. 18 Croninger v. Bethel Grove Camp Ground Ass'n, 156 Ky. 356, 161 S. W. 230. 392 Ch. 7] Ckeation Undee Genbeal Laws [§ ^93 holders and officers of the corporation ; ^' and hence both the stockholders and officers are chargeable with knowledge of all the pro- visions of the articles of incorporation.^" §193. Contents — In general. The statutes which require articles of association generally prescribe their necessary contents, and a sub- stantial compliance with the requirements of the statute in this respect is essential to a valid incorporation.*^ If the statute specifically enumerates the various matters or facts which the articles must contain, and there is no other statute requir- ing other facts to be stated, only those matters specifically named need be contained in the articles.** Where, instead of presenting incorporation papers to a ministerial officer such as the secretary of state, it is necessary to petition a court, the contents of the petition are usually practically the same as the articles of incorporation except as to mere matters of form.** The incorporation papers must be so definite that those becoming members may know their rights, and the extent to which their in- terests are involved.** The fact that the incorporation papers are entitled "articles of association" instead of "charter," which is the term used in the statute, is immaterial.** And a mere clerical error ISCroninger v. Bethel Grove Camp quiring the articles to state "the Ground Ass'n, 156 Ky. 356, 161 S. W. methods and conditions upon which 230. members shall be accepted, discharged 20 Croninger v. Bethel Grove Camp or expelled, ' ' had no application to Ground Ass'n, 156 Ky. 356, 161 S. W. stock corporations). 230. England. In re Crown Bank, 44 21 California. People v. Golden Gate Ch. Div. 634. Lodge No. 6, 128 Cal. 257, 60 Pac. 865; Tor forms of articles or certificate of McCallion v. Hibernia Savings & Loan incorporation in every state, see Society, 70 Cal. 163, 12 Pac. 114. Pletcher on Corporation Forms, pp. Colorado. People v. Cheeseman, 7 1-364. Forms of articles in Missouri Colo. 376, 3 Pac. 716. are set out in Boatmen's Bank v. Georgia. Van Pelt v. Home Build- Gillespie, 209 Mo. 217, 108 8. W. 74. ing & Loan Ass'n, 79 Ga. 439, 4 S. E. 22 California Telephone & Light Co. 501. _ V. Jordan, 19 Cal. App. 536, 126 Pac. Indiana. Wert v. Crawfordsville & 598. A. Turnpike Co., 19 Ind. 242. ^g ^^^ instance, form of petition Michigan. Attorney General v. Lor- , \ ■ r^ ■ • -nn <. i. ^" . , ,^„ ' . -n OCT for charter in Georgia in Fletcher on man, 59 Mich. 157, 60 Am. Eep. 287, _ * 26 N W 311 Corporation Forms, p. 80. New York.' New York Cable Co. v. 2* I" ^^ National Literary Ass'n, 30 Pa. St. 150. New York, 104 N. Y. 1, 10 N. E. 332. Wisconsin. Edgerton Tobacco Mfg. ** Kaiser v. Lawrence Savings Bank, Co. V. Croft, 69 Wis. 256, 34 N. W. 143 56 Iowa 104, 41 Am. Eep. 85, 8 N. W. (holding, however, that a provision re- 772. 393 §194] Private Corpoeations [Ch.7 in naming an instrument filed declarative of incorporation will noi defeat such incorporation.^^ § 194. — Name of proposed corporation. The statutes invariably require that the articles state the name of the proposed corporation. A failure to set forth the name invalidates the corporation,*'' and it is not sufficient to merely put the name at the head of the articles.** What name may be adopted is treated of in another chapter.*' The fact that the name of the proposed corporation is in a foreign tongue does not justify the refusal to grant a charter.*" §195. — Purpose of creation and nature of business. The pur- poses for which corporations may be created under particular general statutes have already been treated of in a preceding chapter.'^ It is universally required that the articles or certificate state the purpose or objects of the proposed corporation, or the nature of the business sought to be transacted** and a substantial compliance with this requirement is a condition precedent to the existence of the corpora- tion.** This is the most important clause of the incorporation papers,** since the purpose for which a corporation is created must be ascer- tained by referring to the terms of its charter.*^ It is usually a very 26 Owensboro "Wagon Co. v. Bliss, 132 Ala. 253, 31 So. 81. 27 Rhodes V. Piper, 40 Ind. 369. 28 Piper V. Ehodes, 30 Ind. 309. The fact that the articles are headed "Fairview Turnpike" is not a suf- ficient compliance with the statute, where that does not profess to be the name of the company. Ehodes v. Piper, 40 Ind. 369; Piper v. Ehodes, 30 Ind. 309. 29 See Chap. 18. 30 In re Deutsch-Amerikanischer Volksfest-Verein, 200 Pa. 143, 49 Atl. 949. 31 See Chap. 4, supra. 32 State V. Vanderbilt University, 129 Tenn. 279, 164 S. "W. 1151. 33 Georgia. Van Pelt v. Home Building & Loan Ass'n, 79 Ga. 439, 4 S. E. 501. Indiana. Crawford v. Prairie Creek Ditching Ass'n, 44 Ind. 361; Ehodes v. Piper, 40 Ind. 369; Seyberger v. Calu- met Draining Co., 33 Ind. 330; O 'Eeiley v. Kankakee Valley Drain- ing Co., 32 Ind. 169; West v. Bullskin Prairie Ditching Co., 32 I,nd. 138; Piper V. Ehodes, 30 Ind. 309. Kentucky. Brown v. Threlkeld's Guardian, 154 Ky. 833, 159 S. W. 595. Maryland. Bane v. Calvert College Educational Society, 47 Md. 117. Pennsylvania. In re McKees Bocks Volunteer Firemen's Belief Ass'n, 6 Pa. Dist. 477. Texas. Johnston v. Townsend, 103 Tex. 122, 124 S. "W. 417; Lyons- Thomas Hardware Co. v. Perry Stove Mfg. Co., 86 Tex. 143, 22 L. E. A. 802, 24 S. "W. 16; Gulf, C. & S. F. Ey Co. V. Morris, 67 Tex. 692, 4 S. W. 156. England. In re Crown Bank, 44 Ch. Div. 634. 34 For forms of clauses as to pur- pose or object of corporation, see Fletcher on Corporation Forms, pp. 396-546. 35 Evanston Elec. Illuminating Co. V. Kochersperger, 175 111. 26, 51 N. E. 719; Distilling & Cattle Feeding Co. v. People, 161 111. 101, 43 N. E. 779. 394 Ch. 7] Creation Under Geneeal Laws [§195 broad statement, so as to include every possible purpose or object which the company may desire to pursue. However, it is necessary to keep in mind that the objects stated must not be broader than the statute authorizing the formation of the particular corporation.'^ The statement must be sufficiently definite to enable the court or officer to be satisfied that the purpose is one authorized by the corporation law.*'' "This should be done with sufficient clearness to enable the secretary of state to see that the purpose specified is one provided for by the statute, and to define with some certainty the scope of the business or undertaking to be pursued. " '* If the purpose stated is too indefinite, the application may be rejected.^' The articles need not designate with particularity all the powers which the corporation 36 See Chap. 4, supra. 37 In re National Literary Ass 'n, 30 Pa. St. 150; In re Ton-a-lu-ka-Club, 12 Pa. Co. Ct. 26 (holding that appli- cation for charter should state the means proposed to be employed to carry out the purposes of the associa- tion) . It must be stated so clearly as to afSrmatively bring it within one of the classes permitted by the statute to be incorporated. In re Board of Eeal Estate Brokers, 21 Pa. Dist. 59. Illustrations of sufficient statements. "Mining of gold, silver and lead in the territory of Utah." People v. Beach, 19 Hun (N. Y.) 259. "Build- ing, repairing and maintaining ' ' water craft. Gafe v. Flesher, 33 Ohio St. 453. "Putting up, packing, and manufacturing for market, Detroit river and lake ice, and distributing and selling the same." It is not nec- essary to state the means or method of manufacture. Attorney General v. Lorman, 59 Mich. 157, 60 Am. Eep. 287, 26 N. W. 311. Illustrations of too indefinite pur- poses. "Benefitting and protecting its members from funds collected there- in, " where there is nothing to show how the objects of the corporation are to be accomplished. In re Italian Mut. Ben. Ass 'n, 4 Pa. Dist. 857. ' ' To promote the business of such retail coal dealers as become members therd'- of, and to protect them from unwar- ranted increase in sales and prices, and in general to provide such lawful ways and means as may be necessary to aid and assist them in promoting and benefitting the business of retail coal dealers. " In re Richmond Ketail Coal Co., 9 Pa. Co. Ct. 172. A statement that the purpose is "to facilitate ne- gotiations in real estate, to take united action upon legislative and municipal matters relating to the interests of real estate, and to promote friendship among its members," is too indefinite. In re Board of Real Estate Brokers, 21 Pa. Dist. 59. Benefit and protection of members in case of death or sick- ness, as well as mutual assistance in all relations of life. In re Skandinaviska, 3 Pa. Dist. 235. 38 Johnston v. Townsend, 103 Tex. 122, 124 S. W. 417. 39 In re Accountant's Ass'n, 18 Pa. Co. Ct. 159. A charter, after naming certain dis- tinct purposes, will be rejected where it adds, and "for such other purposes as may be agreed upon by the associa- tion in the future." In re Charter of Journalists Pund of Philadelphia, 8 Phila. (Pa.) 272. 395 § 195] Peivate Coepoeations [Ch. 7 may exercise when duly incorporated, but it is sufficient to designate in general terms the purposes for which it is organized.*" The requirement, that the articles shall state the nature of the busi- ness to be carried on, is sufficiently complied with by stating it to be ' ' a general banking and trust business, as provided for by " a specified statute, where such statute fully sets forth the nature of the business that may be carried on by a combined bank and trust company.*^ It has been held sufficient where the name of the proposed corpora- tion shows the nature of the business.*^ It is not sufficient to state that the purpose is to carry on any business which may be deemed profit- able.** However, the articles of incorporation of a manufactiiring corporation need not state the particular kind of manufacturing in which it is proposed to engage, unless it is required by statute.** And in forming a charitable corporation, it is not necessary to specify with exactness who are to be the ultimate recipients of the charity.*' On the other hand, it has been held thai; the charter of a corporation formed under a provision permitting corporations to support and maintain bicycle clubs "and other innocent sports" must designate by name the sport or sports contemplated.*^ Where, in preparing a certificate of incorporation, the corporators employ only the words used in the statute to describe the general pur- poses of such incorporation, it will be presumed that they intended to create a corporation of the same general powers granted by the statute, rather than that by such words they sought to apply special limita- tions upon the powers of the corporation.*'' It is not always sufficient to state the purpose in the language of the statute.*' ' ' This requirement is not solely that evidence may be thus furnished that the company is one intending to pursue a business for which the statute permits incorporation, but is also intended for the pro- tection of those who may become stockholders or creditors, who are WWendel v. State, 62 Wis. 300, 22 44 Hughes v. Antietam Mfg. Co., 34 N. W. 435. Md. 316. The articles of a medical college need 46 Smith v. Havens Belief Fund So- not state that it shall have power to oiety, 44 N. Y. Misc. 594, 90 N. Y. issue diplomas to students. Wendel Supp. 168. V, State, 62 Wis. 300, 22 N. W. 435. 46 Smith v. Wortham, 106 Tex. 106, 41 Brown v. Threlkeld's Guardian, 157 S. W. 740. 154 Ky. 833, 159 S. W. 895. 47 Whetstone v. Ottawa University, 42 Van Pelt v. Home Bldg. & Loan 13 Kan. 320. Ass'n, 79 Ga. 439, 4 S. E. 501. *» In re Lodge Duch Nove Doby No. 48 In re Crown Bank, 44 Ch. Div. 165, 3 Pa. Dist. 215. 396 Cli. 7] Ckeation Under Genebal Laws [§ 196 entitled to know in what business the corporation may engage, for without this they can not know the extent of its powers, nor the hazards to which they may be legally exposed."*' It has been held that no other powers, privileges, or immunities than those prescribed by the legislature can be conferred upon a corporation by including them in the articles of association.*" But the statement of unauthor- ized purposes in addition to authorized purposes does not affect cor- porate existence but merely requires the rejection of the unauthorized parts as surplusage.*^ Thus, the incorporation of a lumber and saw- mill company is not void, as attempting to create a railroad company, because its articles state that it is formed in part to deal in railroads and tramways, where it appears that such statement refers merely to such railroads and tramways as may be necessary to its plant.*^ If the purpose is one for which the statute does not permit incor- poration, the court or secretary of state or other like officer may refuse to file the papers ; *' and even if they are filed, no corporation is created,** — not even a de facto corporation.** §196. — Place of business. Generally the statutes require that the articles or certificate of incorporation shall state the principal oiBce or place of business of the proposed corporation. Some statutes go even further, and in addition require a statement of the place where the operations of the company are to be carried on, while other stat- utes also provide that the company may designate an additional place of business outside the state.*® It is necessary that there shall be at least a substantial compliance with such mandatory provisions.*'' In this connection, however, it 49 Lyons-Thomas Hardware Co. v. removal of principal office to another Perry Stove Mfg. Co., 86 Tex. 143, 22 state). L. E. A. 802, 24 S. W. 16. 67 Califomia, Martin v. Deetz, 102 60 See § 207, infra. Cal. 55, 41 Am. St. Rep. 151, 36 Pac. 61 See § 207 infra. 368 ; Harris v. McGregor, 29 Cal. 124. 62 People V.' Mt. Shasta Mfg. Co., Kentucky. Johnson v. Mason Lodge, 107 Cal. 256, 40 Pac. 391. l^^ Ky. 838, 51 S. W. 620 (holding 63 See S 212 infra statute applies to charitable eorp'ora- 64 Attorney General v. Lorman, 59 tions). ,,. , „„ . „ „„„ „„ ^- -rrr Massachusetts. Montgomery v. Mich. 157, 60 Am. Eep. 287, 26 N. W. ^ ^^g ^^^^^ ^9 ^_ ^_ ^^^ q-l 1 ' ' • Minnesota. See Pinnegan v. Noeren- 66 See Chap. 10, infra. ^^^^^ 52 Minn. 239, 18 L. E. A. 778, 66 McConnell v. Combination Mining 33 ji^^^ gt_ jjep. 552, 53 N. W. 1150. & Milling Co., 30 Mont. 239, 104 Am. Montana. McConnell v. Combina- St. Eep. 703, 76 Pac. 194 (holding that tion Mining & Milling Co., 30 Mont such a provision does not authorize 239, 104 Am. St. Eep. 703, 76 Pac. 194. 397 §1196] Pbivate Cokpoeations [Ch. 7 is necessary to keep in mind that the principal office may be in one place and the place of operation in another place.^* If the statute requires "the place or places where its business is to be transacted" to be stated, it is not sufficient to merely state "the place where its office is to be located." *' A statement that the "office" of the company shall be in a certain place,*' or that the "operations of the company are to be carried on" in a certain place,*^ has been held to be insufficient. But a statement that a cer- tain city was the place of business instead of the principal place of business has been held to be a mere technical error which will not invalidate the incorporation,*'' under the rule that "substantial" compliance with the statutes is sufficient.*' If the statute requires the city or town to be stated, it is not suffi- cient to merely state the county ; ** and some statutes specifically pro- vide that the name of the county and town must be given.** On the New York. People v. Beach, 57 How. Pr. 337, 19 Hun 259. OMo. Snow Fork & Cleveland Coal Co. V. Hocking Coal & Bailroad Co., 7 Ohio N. P. 191; State of Ohio v. Coal Co., 4 Ohio N. P. 115. Pennsylvania. See Enterprise Mut. Beneficial Ass'n, 10 Phila. 380. Virginia. Loyd's Executorial Trus- tees V. City of Lynchburg, 113 Va. 627, 75 S. E. 233. Washington. Casey-Hedges Co. v. Wilcox, 72 Wash. 605, 131 Pac. 205; First Nat. Bank of Everett v. Wilcox, 72 Wash. 473, 130 Pac. 756; Hastings V. Anacortes Packing Co., 29 Wash. 776, 69 Pae. 776. Wisconsin. Milwaukee Steamship Co. v. Milwaukee, 83 Wis. 590, 18 L. E. A. 353, 53 N. W. 839. By the mere fact that in compliance with the exigencies of its work a cor- poration has its real place of business outside of the state during certain sea- sons of the year, it is not rendered guilty of a violation of a statutory provision requiring its articles to state the location of its principal place of business. Hastings v. Anacortes Pack- ing Co., 29 Wash. 224, 69 Pae. 776. 68 In re Federal Contracting Co., 212 Fed. 688; Kennett v. Woodworth- Mason Co., 68 N. H. 432, 39 Atl. 585. Under a statute which requires the articles of association to state the place in which the business of the cor- poration is to be carried on, it is not sufficient to state the city where stock- holders ' meetings are held and the clerk of the corporation has an office, where the business is carried on else- where. Kennett v. Woodworth-Mason Co., 68 N. H. 432, 39 Atl. 585. 69 In re Enterprise Mut. Beneficial Ass'n, 32 Leg. Int. (Pa.) 82, 10 Phila. (Pa.) 380. The reason for the rule is that a corporation may have its office in one place, and its place of business in an- other. In re Enterprise Mut. Bene- ficial Ass'n, 32 Leg. Int. (Pa.) 82, 10 Phila. (Pa.) 380. 60 Kennett v. Woodworth-Mason Co., 64 N. H. 432, 39 Atl. 585. 61 Harris v. McGregor, 29 Cal. 124. 62 In re Spring Valley Water Works., 17 Cal. 132. 63 See § 188, supra. 64 Harris v. McGregor, 29 Cal. 124. 65 People v. Beach, 19 Hun (N. Y.) 259. The Washington statute requires 398 Ch. 7] Ceeation Under General. Laws [§ 198 other hand, under some statutes only the county is to be stated.®® It seems that a statutory requirement that the articles of incor- poration shall specify the place in the state where the principal office or place of business of the corporation is to be located, means a des- ignation of the city or town where such office or place of business is to be located.®' If the corporation is formed for the purpose of carrying on any part of its business outside of the state, that fact is sometimes required to be stated.®^ §197. — Amount of capital stock. The amount of capital stock is almost universally required to be set out in the articles of incor- poration, as well as the number of shares into which it is divided. This statement is required independent of any statement o£ the amount of stock taken by each subscriber.®' Noncompliance with a statutory requirement that the articles shall fix and limit the amount of the capital stock, while preventing the association becoming a corporation de jure, does not prevent its existence as a de facto corporation.'''' Moreover, a statement of the capital stock of a railroad company has been held to be a sufficient compliance with a statute requiring the incorporation papers to state the amount of capital necessary to construct the road.'^ § 198. — Limitations on amount of indebtedness. In some states, the statute requires the application, articles of association, or certifi- cate to state the maximum amount of indebtedness which may be in- curred by the proposed corporation, and it is expressly provided that the amount shall not exceed a certain proportion of its capital stock.''* A substantial compliance with such a provision is all that is re- that the incorporation papers shall Utah," is sufficient. People v. Beach, state the name of the city, town, or 19 Hun (N. Y.) 259. locality and county in which the prin- 69 State v. Shelbyville & C. Turnpike eipal place of business is to be located. Co., 41 Ind. 151. First Nat. Bank of Everett v. Wilcox, 70 Healey v. Steele Center Creamery 72 Wash. 473, 130 Pac. 756. Ass'n, 115 Minn. 451, 133 N. W. 69. 66 Georgia Fire Ins. Co. v. Cedar- 71 Hyattsville v. Washington, W. & town, 134 Ga. 87, 19 Ann. Cas. 954, G. K. Co., 120 Md. 128, 87 Atl. 828. 67 S. B. 410. 78 Park v. Zwart, 92 Iowa 37, 60 N. 67Miniken v. Southern Nat. Life W. 220; Thornton v. Balcom, 85 Iowa Ins. Co., 155 Ky. 529, 159 S. W. 1141. 198, 52 N. W. 190; Sweney v. Taloott, 68 A statement that "the said com- 85 Iowa 103, 52 N. W. 106; Heuer v. pany is formed for the purpose of Carmichael, 82 Iowa 288, 47 N. W. carrying on some part of its business 1034. outside of the state of New York, The omission is "a failure to eom- namely, in Big Cottonwood County, ply substantially" with the statute 399 § 198] Private Coepoeations ' [Ch. 7 quired,''' and it has been held in a number of cases that it is sufficient if the amount of indebtedness is ascertainable from the statements madeJ* Thus, it is sufficient to state that the limit of the corpora- tion 's indebtedness shall be a certain percentage of the amount of the capital stock subscribed,''* or that it shall not at any one time exceed a specified amount, except by a majority vote of the stockholders present at a called or annual meeting ; ''^ and fixing the amount at a specific sum, "except for insurance liability," where the amount of such insurance risks may be easily ascertained, is sufficient in the case of a mutual fire insurance company.'''' § 199. — Duration of corporate existence. Statutes generally re- quire the articles of incorporation to state the period of existence and in some states they require in addition that the time when the cor- poration shall come into existence must be stated.'" If the articles are required to state the time when the corporation "is to commence and the period it is to continue," a definite time must be fixed; and it is not sufficient to state that the corporation shall begin business "as soon as authority for that purpose can be obtained from the secretary of state" and shall continue "until dissolved by the written consent of the holders of a majority of its then outstanding stock. ' ' '" Of course, if the time of duration expressed is in excess of the maxi- mum period fixed by statute, the corporation terminates according to the terms of the statute.^" The construction of particular charter provisions is hereinafter noticed.*^ §200. — Naane, residence and eligibility of incorporators. The question of who may become incorporators has already been consid- as to creation of corporations, within any time ascertainable. Park v. Zwart, the provisions of a statute . rendering 92 Iowa 37, 60 N. W. 220. the individual property of the stock- 76 Thornton v. Baleom, 85 Iowa 198, holders liable for the corporate debts 52 N. W. 190. on such a failure. Heuer v. Carmi- 77 Smith v. Sherman, 113 Iowa 601, chael, 82 Iowa 228, 47 N. W. 1034. 85 N. W. 747. 73 Smith v. Sherman, 113 Iowa 601, 78 On application to the court, the 85 N. W. 747; Park v. Zwart, 92 Iowa life of the proposed corporation should 37, 60 N. W. 220. be stated. In re Incorporation of In- 74 Smith v. Sherman, 113 Iowa 601, dependent Order of Silver Star, 1 Luz. 85 N. W. 747; Park v. Zwart, 92 Iowa Leg. Reg. (Pa.) 768. 37, 60 N. W. 220. 79 Cheaney v. Bruner, 141 Ky. 32, 75 Park v. Zwart, 92 Iowa 37, 60 N. 132 S. W. 167. W. 220. 80 People v. Cheeseman, 7 Colo. 376, The reason for the rule is that the 3 Pae. 716. amount of the stock subscribed is at 81 See Chap. 20, infra. 400 Ch. 7] Ceeation Under General Laws [§ 202 ered.** The citizenship *' or residence ^* of the incorporators need not be stated unless the statute so provides. In some states the names of the incorporators and their respective places of residence is re- quired to be stated,^* while in still other states it must be stated that the incorporators are of full age. "Where the certificate must be exe- cuted by persons of full age, at least two-thirds of whom are citizens of the United States, and one of whom must be a resident of the state, and the statute requires the written approval of the certificate by a judge in case of membership corporations, it is held that in such case an affidavit should be presented containing averments by all the incorporators as to full age, by each of them who is a citizen in regard to his citizenship, and by the one who is a resident in regard to his residence.'® However, the failure of the certificate of incorporation to show that .the incorporators are persons qualified by the statute to form a corporation, does not make the charter invalid, especially where the statute does not in terms require such a statement.*' §201. — Statements as to membership. A provision that the articles of incorporation shall state ' ' the methods and conditions upon which members shall be accepted, discharged or expelled," does not apply to stock corporations.'* § 202. — Statements as to officers and agents. A requirement that the articles state by what officers or persons the affairs of the corpora- tion are to be conducted, "merely means that, if the corporation shall have a president, vice president, treasurer, or board of directors, or other officers, for the conduct of its business, the articles shall so state. "89 A statutory requirement that the articles show the place at which the officers of the corporation are to be elected is substantially com- 88 See Chap. 3, supra. an affidavit added thereto, that three 83 American Salt Co. v. Heidenheim- of the subscribers are citizens of Penn- er, 80 Tex. 344, 26 Am. St. Eep. 743, sylvania. In re Enterprise Mut. Bene- 15 S. W. 1038. ficial Ass'n, 32 Leg. Int. (Pa.) 82, 10 84 Halbert v. San Saba Springs Land Phila, (Pa.) 380. & Live Stock Ass'n (Tex. Civ. App.), 86 In re Wendover Athletic Ass'n, 70 34 S. W. 636. See also Eogers v. Dan- N. Y. Misc. 273, 128 N. T. Supp. 561. by Universalist Society, 19 Vt. 187. 87 Baltzell v. Church Home & In- 86 Busenback v. Attica & B. Gravel fi'rmary of Baltimore City, 110 Md. 244, Eoad Co., 43 Ind. 265 (holding state- 73 Atl. 151. raent of residence essential to legal 88Edgerton Tobacco Mfg. Co. v. existence of corporation). Croft, 69 Wis. 256, 34 N. W. 143. In Pennsylvania, it must appear, 89 Williamsburg Canning Co. v. De either by the petition to have the Laney, 158 Ky. 649^ 166 S. W. 192. articles of corporation approved, or by 401 I Priv. Corp.— 26 202] Peivate Coepoeations [Ch.7 plied with by stating the principal place for transacting the business of the corporation, since the election of officers is a part of such busi- ness 90 In many states, the statute requires the articles to state the num- ber of directors and the names and residences of the directors cho*n for the first year; and it is held that the omission of this clause pre- cludes a de jure corporate existence.'^ However, it has also been held that a provision that the directors be named in the articles is merely directory.'^ It is not sufficient to merely state that the affairs and management of the corporation are to be under the control of certain named persons as president, vice president and secretary.** The directors need not be shareholders or subscribers to the sjtock of the corporation, unless this is expressly required by the statute.'* A provision that certain persons shall be directors perpetually is void where it contravenes a statute giving stockholders the right to elect directors annually.'* Likewise a requirement that the incor- poration papers state ' ' the number of directors and their names who 90McChesney v. Batman, 121 Ky. 303, 28 Ky. L. Eep. 281, 89 S. W. 198. 91 California. People v. Selfridge, 52 Cal. 331. Colorado. Bates v. Wilson, 14 Colo. 140, 24 Pao. 99. Indiana. Miller v. Wild Cat Gravel Eoad Co., 52 Ind. 51; Eeed v. Eich- mond St. E. Co., 50 Ind. 342. New York. People v. McDonough, 28 Mise. 652, 60 N. Y. Supp. 45. Pennsylvania. In re St. Ladislaus S. & B. Ass'n, 19 Pa. Co. Ct. 25. Under N. Y. Laws 1892, e. 687, as amended by Laws 1895, o. 672, the certificate need not show that more than one of the directors named there- in for the first year is a resident of the state. People v. McDonough, 28 N. Y. Misc. 652, 60 N. Y. Supp. 45. 92Bakright v. Logansport & N. I. R. Co., 13 Ind. 404; Mead v. Keeler', 24 Barb. (N. Y.) 20. Where the articles are adopted at the same meeting at which the directors are elected there is a sufficient compli- ance with such a provision, though the directors are not named in the articles. Eakright v. Logansport & N. I. E. Co., 13 Ind. 404. 93 Bates V. Wilson, 14 Colo. 140, 24 Pac. 99. "These officers can in no sense be regarded as a board of directors. In all regularly constituted corporations, they are elected by and are executive officers of the > board of directors or trustees. The corporation consists of its shareholders. The control of its affairs is vested in a board of directors. The shareholders elect this board, ex- cept for the first year. The number of directors and their names for the first year must be inserted in the certifi- cate. The body corporate can be reg- ularly organized only by and through its directors or trustees. It is their duty to select the officers, who in this instance are named in the certificate. This corporation was not regularly or- ganized.''' Bates V. Wilson, 14 Colo. 140, 24 Pac. 99. 94Densmore Oil Co. v. Densmore, 64 Pa. St. 43; In re British Provident L. & G. Ass 'n, 5 Ch. Div. 306. 95 State V. Anderson, 31 Ind. App. 34, 67 N. E. 207. 402 Ch. 7] Cbeation Under Gteneeal, Laws [§203 shall manage the affairs of such company for the first year" does not authorize the fixing of the number of directors for more than the one year.'® If a statute requires the incorporation papers to state the number of its managers, it is sufficient to state the names of all the persons who shall manage the affairs of the corporation.'" Where the statute requires the articles to set forth that a majority of the members of the association were present and voted at the elec- tion of directors, such a statement is a condition precedent to the existence of a de jure corporation.'* §203. — Subscriptions to stock and payment therefor. Under some general incorporation statutes, it is required that the full amount of the capital stock, or a certain percentage thereof, shall be subscribed as a condition precedent to incorporation, in which case legal existence as a corporation cannot be acquired until the condition is performed; but subscription to stock is not a condition precedent unless it is made so by the statute." Likewise, statutes sometimes require subscribers for stock to pay all or a certain per cent, of their subscriptions as a condition precedent to acquiring a legal corporate existence.^ Where the statute provides for subscription to stock or payment in of all or part of the subscription, as a condition, it also generally requires that the articles of incorporation or an affidavit attached thereto shall show compliance with the statute.^ Under a statute which required the affidavit attached to the cer- tificate of incorporation to state that a certain percentage of the amount of the stock subscribed had been actually paid in "in good faith, ' ' where the affidavit omitted the words quoted, but such a state- ment was contained in the certificate to which the affidavit was at- tached, it was held that the statute was substantially complied with, and that the incorporation was legal, even as against a direct attack by the state.' 96 Renn v. United States Cement 2 Hendrix v. Academy of Music, 73 Co., 36 Ind. App. 149, 73 N. E. 269. Ga. 437; Miller v. Wild Cat Gravel 97Betts V. Betts, 4 Abb. N. Gas. (N. Eoad Co., 52 Ind. 51; Biasenback v. At- Y.) 317. tica & B. Gravel Eoad Co., 43 Ind. 265; 98 People v. Selfridge, 52 Cal. 331. State v. Bethlehem & Z. Gravel Road 99 See Chap. 9, infra. Co., 32 Ind. 357; Williams v. Hewitt, Forma of provisions relating to 47 La. Ann. 1076, 49 Am. St. Rep. 394, capital stock and dividends, see 17 So. 496. Fletcher on Corporation Forms, pp. 3 People v. Stockton & V. R. Co., 45 571-599. Cal. 306, 13 Am. Rep. 178. See also 1 See Chap. 14, infra. Buffalo & P. R. Co. v. Hatch, 20 N. Y, 403 § 203] Pbivate Cobpokations [Ch. 7 Where the statute does not require any part of tlie capital stock to be paid before the charter is granted, a statement in the applica- tion for a charter of the amount of the capital stock, without stating the amount actually paid in, is sufficient, notwithstanding the statute requires the application to state "the amount of capital stock to be employed by them actually paid in. " * A requirement that the articles of incorporation shall show the num- ber of shares subscribed by each stockholder, and his name and place of residence, is sufficiently complied with where the articles are fol- lowed by the words "Names," "Residence," "Shares," under which the subscribers write their names and residence, and the number of shares subscribed;^ and the use of ditto marks (") following the name of a subscriber, under the name of a specified place, is sufficient to designate his residence.* A statutory requirement that the articles or certificate of incor- poration shall state the time when, and the manner in which, payment on stock subscribed shall be made, is substantially complied with by a statement that the stock shall be paid in cash at such times, in such amounts, and with such notice to subscribers, as the managers and directors shall deem best for all the parties in interest ; ' or by a state- ment that the stock shall be paid for in cash, and that no certificate shall be issued until such payment is made.* In Alabama, the articles need not provide that the unpaid portion of the capital be secured to be paid in fixed instalments, where an amended statute, if construed as providing therefor, would be uncon- stitutional, because not referred to in the title of the amendment.® It is sufficient to recite that the stock subscribed was to be paid for by the transfer of the stock of an old company, and that a contract had been executed for a transfer of the old stock, without also reciting that the old stock had been previously transferred.'''' A certificate which is false as to the amount of stock paid in and 157, where it was held that a state- 6Steinmetz v. Versailles & O. Turn- ment in an aflSdavit of the directors of pike Co., 57 Ind. 457. a railroad company that ' ' ten per cent. 7 Baltimore & Ohio Tel. Co. v. Mor- has been paid-in cash" on subsorip- gan's Louisiana & T. B. & S. S. Co., 37 tions is a substantial compliance with La. Ann. 883. a requirement that the affidavit shall 8 New Orleans & G. E. Co. v. Frank, show that such amount has been paid 39 La. Ann. 707, 2 So. 310. "in good faith" in cash. 9 Boiling v. Le Grand, 87 Ala. 482, 6 4 Bing V. Bank of Kinggton, 5 Ga. So. 332. App. 578, 63 S. E. 652. 10 State v. Citizens' Light & Power 6 Vawter v. Franklin College, 53 Ind. Co., 172 Ala. 232, 55 So. 193. 88. 404 Ch. 7] Cbeation Under General Laws [§ 206 the number of shares subscribed for is a nullity.^' False statements as to the amount of the capital stock paid for is ground for annulling the charter ; ^^ and where the statute requires that a statement must be made showing the amount of capital stock paid in, and there is a false statement that it has all been paid in when in fact only a fifth was paid in, there is no de jure corporation.^' §204. — Manner of carrying on business. Where a statute re- quired the certificate of incorporation to show "the manner of carry- ing on the business" of the corporation, a certificate setting forth that the "manner of carrying on the business shall be such as the association may from time to time prescribe by rules, regulations, and by-laws not inconsistent with the laws of the state, ' ' was held insuffi- cient.^* § 205, — Description of seal. When it is required by the statute, the articles of incorporation must contain £in impression or descrip- tion of the corporate seal. A statement in the articles that the cor- porate seal shall be a circle formed by the letters of the name of the corporation and the name of the state was held a sufficient com- pliance with such a requirement.^^ § 206. — • Route and termini of railroad company. Statutes some- times require articles of incorporation of a railroad company to specify the names of the termini, in which case they must specify termini in the state and not outside, although it is sufficient to designate with reasonable certainty the point where the road crosses the state line.^^ However, a statute requiring the articles of incorporation to state the city or cities through which the railroad shall pass does not necessi- tate the naming of every town or village through or by which the road shall be eventually laid out.^' 11 'Neil V. Eagle Generator Co., 92 14 State v. Central Ohio Mut. Belief Ark. 416, 123 S. W. 373 (where tho Ass 'n, 29 Ohio St. 399. court said: "The certificate required The present statute of Ohio does not by section 845 to be filed must be true require such a statement. 4 Page & and correct. It is required to be filed Adams Ann. Gen. Code, § 8625. for the protection of creditors; and it IBVawter v. Franklin College, 53 cannot subserve that purpose unless it Ind. 88. be true and correct ' ') . 16 Hyattsville v. Washington, W. & 12 Floyd v. State, 177 Ala. 169, 59 G. E. Co., 120 Md. 128, 87 Atl. 828. So. 280. 17 Hyattsville v. Washington, W. & 13 Floyd V. State, 177 Ala. 169, 59 G. R. Co., 120 Md. 128, 87 Atl. 828. So. 280. •405 § 206] Pkivatb Cobpoeations [Ch. 7 The requirement that the charter set forth the termini of the rail- road to be built is complied with by specifying only one terminus, where it provides for a circular route beginning at and returning to the same point.^* The articles of a railroad company sufficiently state the "places" from which and to which the road is to be operated, where they state the towns, cities or villages from and to which the road is to be operated.^^ The route of a commercial railroad may be generally, and need not be definitely, stated in its charter; 2° and in this respect it differs from a street railway.^' § 207. — Additional provisions not required by statute. "Whether particular clauses in incorporation papers, not required by statute, are binding on stockholders and third persons will be briefly noticed in this connection ; but the effect of soich clauses as to the powers and liabilities of the corporation will be considered in detail in connection with particular chapters or sections relating to the particular power or liability in question.*^ Independently of statute, the general rule in this country is that matters in the incorporation papers which are not required by the statute are of no effect and will be treated as surplusage,^* and 18 State V. Martin, 51 Kan. 462, 33 New York. Eastern Plank Eoad Co. Pac. 9; Collier v. Union E. Co., 113 v. Vaughan, 14 N. Y. 546. Tenn. 96, 83 S. W. 155. Pennsylvania. In re Medical Col- 19 New York & L. I. E. Co. v. lege of Philadelphia, 3 Whart. 445. O 'Brien, 121 N. Y. App. Div. 819, 106 Washington. Parsons v. Taeoma N. Y. Supp. 909. Smelting & Refining Co., 25 Wash. 492, 20 Collier v. Union E. Co., 113 Tenn. 65 Pac. 765; City of Spokane v. Ams- 96, 83 S. W. 155. terdamsch Trustees Kantoor, 22 Wash. 21 Citizens' St. By. Co. v. Africa, 100 172, 60 Pac. 141. Tenn. 26, 42 S. W. 485. "In O'Brien v. Cumniings, 13 Mo. 22 Forms of regulating clauses, see App. 197, * * * it was said: 'The Fletcher on Corporation Forms, pp. general statute, when aroused into 547-570. specific operation by a compliance with 23 United States. Oregon Ey. Co. v. its terms on the part of an association Oregonian Ey. Co., 136 U. S. 1, 34 L. of persons and capital, unites itself Ed. 478. with the terms and details of such a Alabama. Grangers' Life & Health compliance. The law and the articles Ins. Co. V. Kamper, 73 Ala. 325. of association become, as it were, a minois. People v. Chicago Gas compact between the state and the as- Trust Co., 130 111. 268, 6 L. E. A. 497, sociation, and this constitutes a char- 17 Am. St. Eep. 319, 22 N. E. 798. ' ter of the body politic. * * * But Kansas, Sherman Center Town Co. no provision in the articles which is V. Morris, 43 Kan. 282, 19 Am. St. Eep. not responsive to some specification 134, 23 Pac. 569. in the law can have any such force 406 ■ Ch. 7] Creation Under General Laws [§ 207 do not affect the power to enact by-laws in conflict therewith.^* Thus, it is held that the articles cannot create any privilege un- known to the law of the state, unless the power is expressly given in the general incorporation statute.** In like manner it has been held that provisions for the internal management of the corporation should not be contained, but are properly the subject of- by-laws.*^ However, there is some authority to the contrary which holds that additional matter may be added so as to be binding,'^'' provided, of course, such additional provisions do not conflict with statutory pro- visions.*' It has also been held that a provision in the articles forbidding a transfer of shares by shareholders indebted to the corporation, until the debt is paid, is valid, where not against public policy nor pro- hibited by statute ; *' and that a lien on its shares for debts due from the stockholders may be given a corporation by a provision in the articles of association, where such a provision is not contrary to the statute.'" In New York the statutes provide that the articles may contain, in addition to the statements required, "any other provision for the regulation of the business and the conduct of the affairs of the cor- poration and any limitation upon its powers and upon the powers of its directors and stockholders which does not exempt them from any obligation or from the performance of any duty imposed by law. " '^ It has been held thereunder that a provision that the num- and effect. Such a provision, not called State v. Anderson, 31 Ind. App. 34, 67 for by the law, will be a mere volun- N. E. 207. tary proposal from the association. It 24 Renn v. United States Cement will be lacking in the essential ale- Co., 36 Ind. App. 149, 73 N. B. 269 ments of a compact, will derive no (fixing number of directors), operative energy from the statute, and 26 New Orleans Nat. Banking Ass 'n can have no claim to the dignity and v. P. S. Wiltz & Co., 10 Fed. 330. effectiveness of a charter regulation.' 26 In re Stevedores ' Beneficial Ass 'n, In that case there were in the articles 14 Phila. (Pa.) 130. a limitation as to the number of shares 27 Bell & Coggeshall Co. v. Kentucky which a stockholder might own, and a Glass-Works Co., 106 Ky. 7, 50 S. W. limitation on the right of transfer of 2; Nelson v. Keith-O'Brien Co., 32 stock, but the statute contained no pro- Utah 396, 91 Pae. 30. visions for the statement of such mat- 28 See infra, this section, ters in the articles. It was held that 29 Gibbs v. Long Island Bank, 83 such provisions of the articles (which Hun (N. Y.) 92, 31 N. T. Supp. 406. were not repugnant to a statute, but 30 See chapter on Stock and Stock- were not responsive to any specifica- holders, infra. tion of the statute) had no greater 31 N. Y. Consol. Laws, 1909, c. 23, force than that of corporate by-laws. " § 10. 407 §207] Private Coepoeations [Ch.7 ber of directors shall not be changed, except by unanimous consent of the stockholders, is valid ; '* but that this provision does not author- ize a clause giving the directors power, with the consent of two-thirds of the capital stock, to sell or dispose of the corporate property.^' In New Jersey the incorporators may add a,ny provision "for the regulation of the business, and for the conduct of the affairs of the corporation, and any provision creating, defining, limiting and regu- lating the powers of the corporation, the directors and the stock- holdera, or any class or classes of stockholders; provided such pro- vision be not inconsistent with this act." It has been held thereunder that a provision in incorporation papers that any resolution in writing signed by all the directors shall constitute action by the board, the same as if duly passed at a regular meeting of the board, was un- authorized and void.^* 32Eipin V. Jacobs, 130 N. Y. Supp. 20. 33 People V. Whalen, 119 N. Y. App. Div. 749, 106 N. Y. Supp. 434, 104 N. Y. Supp. 555. 34Audenried v. Bast Coast Milling Co., 68 N. J. Eq. 450, 59 Atl. 577. "If the power to legislate as these incorporators have legislated exists, it must be found in the expression 'any provision creating, defining, limiting and regulating the powers' of direct- ors. Under this clause, it is insisted, the legislature has granted the right not only of creating, defining, limiting, and regulating the powers of the cor- poration, but also the right to author- ize the directors to exercise the powers thus established according to any method the incorporators may see fit to adopt, although the power to do this is not granted in express terms. I do not so interpret these words. The right 'to create' is limited to the es- tablishing of or regulating a power to be exercised by the corporation through its directors, which power shall not be inconsistent with the terms of the general act. The method ol exercising the power created must conform to settled legal principles, un- less it be otherwise distinctly author- ized by the legislative act. No such express authority is conferred by this act, and ought not to be inferred from ambiguous expressions. To hold that the legislature of our state, by the adoption of our general corporation act, intended to confer upon individ- uals an indefinite power of legislation, would require the adoption of a liber- ality of construction which the act does not warrant, and which, upon every known principle, is contrary to public policy.' The act is, by its terms, sufficiently broad, elastic, and liberal, and I am unwilling to read into it any such power as this complainant insists upon; for, in my judgment, it is only a board duly convened, and acting as a unit, that is made the representative of the company. Nowhere in this act is it intimated that a board of direct- ors may act independently, or other- wise than as a united body counseling with each other with regard to every determination that may affect the cor- poration. On the contrary, it requires that the business of every corporation shall be managed by its directors, and that all votes of the corporation and directors shall be recorded by the sec- retary in a book to be kept for that purpose, which we must assume means 408 Ch.7] Ceeation XJndeb Genebal, Laws [§207 Under other statutes, it has been held that statutory authority to insert in the articles provisions which the association may see fit to adopt "for the regulation of its business and the 'conduct of its affairs," does not authorize a provision giving the corporation a lien upon its stock, since such provision is neither a regulation of the business nor of the conduct of affairs.^* But such a statutory pro- vision has received a very liberal construction in a comparatively recent federal decision where a provision that the stockholders should not be permitted to vote or participate in any way in the control and management of the corporation, until a certain date some six years in the future, but that the entire control and management should be until that date vested in the directors, was upheld, notwithstanding the existence of a statute providing for annual meetings of the stock- that this secretary, who is required to be a sworn- officer, shall be present and record the' votes of the directors. The proposition that the stockholders, in assenting to this provision in the articles of association, waived the advantage and protection they would enjoy under the common law and our corporation act, does not meet the case. Stockholders may waive an advantage, but they cannot by waiver ordain a method of corporate action which the law does not recognize, nor dispense with the aid of a board of directors as a means of corporate action. Such a course is not sanctioned by our law, and is inconsistent with the twelfth section of our act, which requires that 'the business of every corporation shall be managed by its directors.' But we ought not to confine the consideration of this question to the relationship existing between the stockholders and the directors. The business of the state is to a large extent carried on by cor- porations, and their transactions directly and vitally affect the interests of all the people. In committing the transaction of busi- ness so generally to corporations, the legislature may be presumed to have provided for, and recognized deliber- ative meetings of directors as a safe- guard to the public interest, which presumption ought not to be over- thrown by forced construction of the act. The fundamental idea of a busi- ness corporation involves an advantage coming from the aggregation of wis- dom, knowledge, and business fore- sight which results from bringing a large number of stockholders and di- rectors into a common enterprise. It is their knowledge and wisdom com- bined, acting as a unit, that gives ef- ficiency and safety to. the corporate management. I am satisfied that the section of this charter now under con- sideration is contrary to the provi- sions of our corporation act, and that there is no express or implied author- ity conferred thereby which will allow a corporation to determine, in its ar- ticles of association, that its board of directors may avoid the performance of their duties in the manner required by the word and Spirit of our act and the well-settled law on that subject. To permit it would ingraft upon the law a vicious and dangerous power, and in the absence of express legislative au- thority I am unwilling to sanction it. ' * Audenried v. East Coast Milling Co., 68 N. J. Eq. 450, 59 Atl. 577. 35Bullard v. National Eagle Bank, 18. Wall. (U. S.) 589, 21 L. Ed. 923. 409 § 207] Private Corporations [Ch. 7 holders, etc.'^ However, there is authority to the contrary in Indiana where a provision that certain members should act as directors until their death or they became incapacitated wa^ held unauthorized.*'' Charter provisions as to the time of payment of dividends, where such provisions are expressly authorized by statute, are controlling.'* A provision in violation of the constitution of the state is, of course, void,** and the same is true of a provision in conflict with a statute.** Moreover, it has been held that a corporation organized under the gen- eral incorporation law cannot be clothed with the power to purchase and hold stock in other companies, by merely naming such power in the incorporation papers, where the statute expressly restricts powers of a corporation organized under it to such powers as are necessary and requisite to carry into effect the object for which it was formed.*^ If the incorporation papers contain provisions not authorized by, or which are in conflict with, the law, the court or officer to whom the papers are presented may refuse to allow them to be filed,** but if they are filed, the fact that the papers contain unauthorized pro- visions, in additidn to those that are authorized, does not render the creation of the corporation void, since such unauthorized provisions may be rejected as surplusage,*^ and will be no authority for doing the illegal acts nor in any way effective.** In other words, the fact that the articles contain provisions not authorized by the act will not affect the validity of the incorporation, though acts done pur- suant thereto will be void and may be ground for forfeiting the cor- porate franchise.** 36 Union Trust Co. of Maryland v. 230, 44 N. E. 48; Eastern Plank Koad Carter, 139 Fed. 717 (construing Vir- Co. v. Vaughan, 14 N. Y. 546; Shoun ginia statute). v. Armstrong (Tenn.), 59 S. W. 790. * 37 State V. Anderson, 31 Ind. App. The organization becomes at least a 34, 67 N. E. 207. corporation de facto. Marion Bond 38 Marquand v. Federal Steel Co., 95 Co. v. Mexican Coffee & Bubber Co., Fed. 725. 160 Ind. 558, 65 N. E. 748. 39 Van Pelt v. Gardner, 54 Neb. 701, 44 Van Pelt v. Gardner, 54 Neb. 701, 75 N. W. 874. 75 N. W. 874; Eastern Plank Eoad Co. 40 Eastern Plank' Boad Co. v. v. Vaughan, 14 N. Y. 546 (provision Vaughan, 14 N. Y. 546. that directors may increase the stock 41 People V. Chicago Gas Trust Co., without the consent of the majority of 130 111. 268, 8 L. E. A. 497, 17 Am. St. the stockholders). Eep. 319, 22 N. E. 798. 45 Eastern Plank Boad Co. v. 42 See §212, infra. Vaughan, 14 N. Y. 546; Albright v. 43 Marion Bond Co. v. Mexican Cof- Lafayette Bldg. & Sav. Ass 'n, 102 Pa. fee & Bubber Co., 160 Ind. 558, 65 N. St. 411; Beckett v. Uniontown Build- E. 748; Shick v. Citizens' Enterprise ing & Loan Ass 'n, 88 Pa. St. 211. Co., 15 Ind. App. 329, 57 Am. St. Beip. 410 Ch. 7] Creation Under General Laws [§ 208 Such special provisions, where lawful and binding, are binding on all who deal with the corporation or its stock, without regard to actual knowledge thereof.*® In this respect they differ from by-laws which are not binding on third persons who are ignorant of their existence.*'' It should be kept in mind, however, that when the incorporation papers enumerate certain powers as thereby conferred upon the cor- poration, it is to be construed as excluding or withholding all other powers than those enumerated, and such incidental powers as are reasonably necessary to the proper exercise thereof.** However, it is submitted that this effect can be overcome by a provision in the incorporation papers that no statement of objects or powers therein e'numerated shall be deemed to be exclusive, and it is deemed advisable, whenever the purposes or objects are set forth in detail, in addition to the requirements of the statute, to add this provision.*^ §208. Signatures. The articles, certificate or application, what- ever termed, must be signed by the incorporators ^° and by the number required by the statute.*^ Under some statutes all the original sub- scribers must sign.*2 It is not sufficient to subscribe a part of the articles.^' Initials may be used for the Christian name,** and if an incorporator cannot write, a signature by mark is sufficient.** Failure of the incorporators to sign the certificate at the end, while perhaps fatal to the existence of a de jure corporation, does not pre- 46 Dempster Mfg. Co. v. Downs, 126 men's Building & Loan Ass'n v. Iowa 80, 106 Am. St. Eep. 340, 3 Ann. Coleman, 89 Pa. St. 428. Cas. 187, 101 N. W. 735. 62 Gelders v. State, 164 Ala. 592, 51 47 See Chap. 16, infra. So. 282; In re Echo Park Protective 48 See Chap. 21, infra. Ass 'n, 5 Pa. Co. Ct. 383. 49 See form 965, Fletcher on COr- The object "is to provide against poration Forms, p. 546. bogus organizations by showing, over 60 Indianapolis Furnace & Mining their own signa;tures, who are the Co. V. Herkimer, 46 Ind. 142; Unity original stockholders." Gelders v. Ins. Co. V. Cram, 43 N. H. 636; Lawrie State, 164 Ala. 592, 51 So. 232. V. Silsby, 76 Vt. 240, 104 Am. St. Bep. Apparently it is not necessary under 927, 56 Atl. 1106. the California statutes that all of the 61 People V. Golden Gate Lodge No. subscribers to the capital stock sign. 6, 128 Cal. 257, 60 Pac. 865 (holding . San Joaquin Land & Water Co. v. that the general statute requiring five Beecher, 101 Cal. 70, 35 Pac. 865. or more persons to subscribe the 63 Kaiser v: Lawrence Sav. Bank, articles applied to an Elks' lodge 56 Iowa 104, 41 Am. Eep. 85, 8 N. W. organized for benevolent and social 772. purposes, although the statute govern- 64 State v. Beck, 81 Ind. 500. ing such corporations was silent in 66 Board Trustees Seventh St. Col- regard thereto) ; State v. Critehett, ored M. B. Church v. Campbell, 48 La, 37 Minn. 13, 32 N. W. 787; Working- Ann. 1543, 21 So. 184. 411 § 208] Peivate Coepoeations [Ch. 7 elude the existence of a de facto corporation where the certificate was signed by the incorporators above the attestation clause and they acknowledged the execution thereof.*^ Under a statute requiring the president and directors to sign the articles of incorporation, it is immaterial, if they do in fact sign, that they fail to write their official titles after their names.*'' A person may, without doubt, sign the articles as trustee for another.** A statute dispensing with the signing and acknowledging of articles of incorporation in case of religious societies and mutual benefit asso- ciations does not apply to social organizations such as the Elks.*' In Pennsylvania, the courts have refused an application for a charter which stated the number of subscribers to be fifteen, where only ten subscribed.^** Under a statute providing that where a corporation fails to comply with statutory requirements in its creation, its president may supply the defect by filing a verified statement setting forth the error and correcting it, the failure of part of the subscribers to sign the articles of incorporation may be remedied, even after the commencement of quo warranto proceedings, by filing a statement of the president that the error was accidental, and an instrument correcting the omission.^^ If the articles are signed upon the understanding and agreement that they are not to take effect until the happening of some event or con- tingency, they do not take effect, and hence there is no corporation, until it happens.^^ §209. Seals. Seals must follow the names of the corporators, when required by the statute.^^ The want of a seal may be remedied, however, by curative legislation.^* 56 Lyell Ave. Lumber Co. v. Light- 59 People v. Golden Gate Lodge No. house, 137 N. Y. App. Div. 422, 121 6, 128 Cal. 257, 60 Pae. 865. N. Y. Supp. 802. 60 In re Nether Providence Ass'n, 57 St. Louis & S. P. E. Co. V. South- 12 Pa. Co. Ct. 666. western Telephone & Telegraph Co., 61 Gelders v. State, 164 Ala. 592, 51 121 Ped. 876. So. 232. "It was the fact of the signature 62 Corey v. Morrill, 61 Vt. 598, 17 of the articles by the president and Atl. 840. the directors, ' ' said the court, ' ' and 63 Griffin v. Clinton Line Extension not the appearance of that fact that E. Co., Fed. Cas. No. 5j816 (holding conditioned the validity of the incor- certificate without seals a nullity), poration." St. Louis & S. F. E. Co. See generally Chap. 19, infra. V. Southwestern Telephone & Tele- 64 Warner v. Callender, 20 Ohio St. graph Co., 121 Ped. 276. 190. 68 Boatmen's Bank v. Gillespie, 209 Mo. 217, 108 S. W. 74. 412 eh.?] Ckeation Undeb Genebal Laws [§210 §210. Acknowledgment and verification. Incorporation papers need not be executed under oath, unless the statute so provides, ^^ but verification is sometimes required,*^ and a verified copy is sometimes required to be filed.^'' In order to become a corporation de jure, statutes requiring the incorperation papers to be acknowledged as well as signed must be compliad with.®* Likewise, where a statute requires the articles of incorporation to contain a verified statement as to election of officers, the requirement as to verification is not merely directory but is a 66 If so executed, the oath can be given no effect. Eoy v. Bor'das, 150 Mich. 242, 114 N. W. 81. 66 Certificate of incorporation of a religious society, prepared by the trustees, must be verified by one of their number. Fifth Bapt. Church V. Baltimore & P. B. Co., 4 Mackey (D. C.) 43. 67 See § 221, infra. 68 Calif ornla. People v. Montecito "Water Co., 97 Cal. 276, 33 Am. St. Eep. 172, 32 Pac. 236. Indiana. Doty v. Patterson, 155 Ind. 60, 56 N. B. 668; Indianapolis Furnace & Mining Co. v. Herkimer, 46 Ind. 142. Iowa. Kaiser v. Lawrence Sav. Bank, 56 Iowa 104, 41 Am. Eep. 85, 8 N. W. 772. Maryland. Boyce v. Towsontown Station of M. E. Church, 46 Md. 359; Hughes V. Antietam Mfg. Co., 34 Md. 316. Michigan. Carmody v. Powers, 60 Mich. 26, 26 N. W. 801; Doyle v. Miz- ner, 42 Mich. 332, 3 N. W. 968. Missouri. First Nat. Bank of Dead- wood, South Dakota v. Eockefeller, 195 Mo. 15, 93 S. W. 761. New York. People v. Board of E. Com'rs, 105 N. Y. App. Div. 273, 93 N. Y. Supp. 584; People v. Board of E. Com'rs, 75 N. Y. App. Div. 106, 77 N. Y. Supp. 380; First Baptist Society v. Eapalee, 16 Wend. 605. Ohio. Spinning v. Home Bldg. & Sav. Ass'n of Dayton, 26 Ohio St. 483; State V. Lee, 21 Ohio St. 662. West Virginia. Greenbrier Indus- trial Exposition v. Eodes, 37 W. Va. 738, 17 S. E. 305. The articles must be acknowledged even in the case of benevolent or charitable corporations not for pecu- niary profit. Civ. Code, §§ 292, 593, 594. People v. Golden Gate Lodge No. 6, 128 Cal. 257, 60 Pac. 865. "The requirement that articles of incorporation shall be subscribed and acknowledged by certain persons is contained in section 292 of the Civil Code. It is therein provided that ' the articles of incorporation must be sub- scribed by three or more persons, a majority of whom must be residents of this state, and acknowledged by each before some officer authorized to take and certify acknowledgments or conveyances of real property.' The meaning of the language of that sec- tion and the purpose of the section is merely this: That when the articles of incorporation themselves have been prepared in accordance with other re- quirements of the Code, the requisite number of the parties intending to form or associate themselves together as a corporation must acknowledge the due execution of the articles, and thus furnish proof that such articles have been properly executed. In other words, the primary purpose of the certificates is to secure 'the state and all concerned against the possibility of any fictitious names being sub- scribed to the articles, and to furnish 413 210] PeIVATE CoEtOEATIONS [Cli.7 prerequisite to existence as a de jure corporation.®' However, unless otherwise provided by the statute, the acknowledgment of the signa- tures of the subscribers, required by statute, is not a part of the articles of incorporation.'" The purpose of requiring the acknowledgment "is to secure the state and all concerned against the possibility of any fictitious names being subscribed to the articles, and to furnish proof of the genuine- ness of the signaitures. " '^ One who signs but does not acknowledge the agreement for the formation of a corporation does not become a stockholder.''® Each of the signers must acknowledge his signature to the articles,'' and there is no de jure corporation unless acknowledged by the number required by the statute.'* The signature and acknowledgment, when required, must generally be made by at least the minimum number of persons required to join in the formation of the corporation,'^ and proof of the genuineness of the signa- tures. ' People V. Golden Gate Lodge No. 6, 128 Gal. 257, 60 Pao. 865." Cali- fornia Telephone & Light Co. v. Jor- dan, 19 Cal. App. 536, 126 Pac. 598. 69 Wall V. Mines, 130 Cal. 27, 62 Pac. 386. 70 California Telephone & Light Co. V. Jordan, 19 Cal. App. 536, 126 Pae. 598 (where the court said: "We have not succeeded in finding in any of the sections of the Code relating to corpo- rations and their formation any lan- guage indicating that the Legislature intended to include such certificates as a part of the articles themselves, any more than the acknowledgment of a deed — a prerequisite to the right to record it — is made by the statute a part of the deed proper"). 71 People V. Golden Gate Lodge No. 6, 128 Cal. 257, 60 Pac. 865 ; People v. Monteoito Water Co., 97 Cal. 276, 33 Am. St. Kep. 172, 32 Pac. 236; Califor- nia Telephone & Light Co. v. Jordan, 19 Cal. App. 536, 126 Pac. 598; Green- brier Industrial Exposition v. Bodes, 37 W. Va. 738, 17 S. E. 305. 72 Greenbrier Industrial Exposition V. Eodes, 37 W. Va. 738, 17 S. E. 305. 78 People v. Board of R. Oom'rs, 75 N. Y. App. Div. 106, 77 N. Y. Supp. 380. But see Hughes v. Antietam Mfg. Co., 34 Md. 316 (holding that statute providing that five or more may incor- porate by signing and acknowledging articles, did not require the articles to be acknowledged by more than five of the subscribers). 74 People V. Monteoito Water Co., 97 Cal. 276, 33 Am. St. Eep. 172, 32 Pao. 236. Where a statute required articles of incorporation to be subscribed and ac- knowledged by five or more persons, and such articles, though subscribed by five persons, were acknowledged by four only, it was held that this was not a sufficient compliance with the statute, and that there was no legal incorporation as against a direct at- tack by the state. People v. Monteoito Water Co., 97 Cal. 276, 33 Am. St. Rep. 172, 32 Pac. 236. 76 California. People v. Golden Gate Lodge, 128 Cal. 257, 60 Pae. 865. IMinnesota. Johnson v. Okerstrom, 70 Minn. 303, 73 N. W. 147; State v. Critchett, 37 Minn. 13, 32 N. W. 787. New York. People v. Board of R. Com'rs, 105 App. Div. 273, 93 N. Y. Supp. 584; People v. Board of R. 414 Ch. 7] Cebation Under Geneeal Laws [§210 signature and acknowledgment by that number is generally sufii- cient.'® Acknowledgment by the officers is not necessary unless the statute so provides.''''' If the papers are required to be acknowledged before a certain officer or officers, acknowledgment before another officer is invalid.'" Thus, if the statute requires acknowledgment before a justice of the peace, acknowledgment before a notary public is not sufficient.''^ Moreover, one of the signers cannot take the acknowledg- ments of other signers."* The certificate of acknowledgment need not necessarily be in the same form as that required in the acknowledgment of deeds,'^ and it seems that the same particularity is not required in acknowledg- ments of this kind as is required in the acknowledgment of deeds." For instance, it is sufficient that the certificate of acknowledgment is preceded by the name of the state and county, and the signature of the officer is followed by the words "Notary Public," although neither the title of the officer nor the name of the county in which he is authorized to act is recited in the body of the certificate.*' Moreover, a requirement that the acknowledgment shall be before some officer authorized to take the acknowledgment of deeds does not necessarily imply that the officer taking it must certify to precisely the same matters in both instances.** Likewise, where the notary's certificate stated that the persons who signed the certificate of incorporation appeared before him and acknowledged it, but did not state that they were personally known to him, it was held a substantial and sufficient Com'rs, 75 App. Div. 106, 77 N. Y. 16 "Wend. (N. Y.) 505; State v. Lee, 21 Supp. 380. Ohio St. 662. Pennsylvania. Workingmen 's Build- 79 State v. Lee, 21 Ohio St. 662. See ing & Loan Ass'n v. Coleman, 89 Pa. also Spinning v. Home Bldg. & Sav. St. 428. Aas'n of Dayton, 26 Ohio St. 483. Utah. Mitchell v. Jensen, 29 Utah 80 People v. Board of E. Com'rs, 105 346, 81 Pac. 165. N. Y. App. Div. 273, 93 N. Y. Supp. The articles must be signed and ae- 584. knowledged by at least five persons, 81 Johnston v. Ewing Female TJni- and this is equally true in the case of versity, 35 111. 518. For forms of ac- benevolent and social corporations not knowledgment in particular states, for pecuniary profit. Civ. Code, §§ 292, see Fletcher on Corporation Forms, pp. 593, 594. People v. Golden Gate Lodge 366-394. No. 6, 128 Cal. 257, 60 Pac. 865. 82 Smith v. Sherman, 113 Iowa 601, 76 AH the subscribers need not ao- 85 N. W. 747. knowledge it. Hughes v. Antietam 83 Smith v. Sherman, 113 Iowa 601, Mfg. Co., 34 Md. 316. 85 N. W. 747. 77 Hughes V. Antietam Mfg. Co., 34 84 People v. Cheeseman, 7 Colo. 376, Md. 316. 3 Pac. 716. 78 First Baptist Society v. Eapalee, ^ 415 §211] Private Coepokations [Ch. 7 compliance with a requirement that the certificate should be acknowl- edged.** § 2H. Publication. Generally the statutes require that notice of the application for incorporation shall be given, either by publishing for a certain length of time the proposed charter, or a memorandum stating the objects of the proposed corporation, or in some other way prescribed by the statute, and such requirement must be at least sub- stantially complied with,*® and is generally a condition precedent to corporate existence,*'' although the terms of the statute may pro- vide otherwise.** For instance, where a statute provided that "before any corporation, formed and established by virtue of the provisions of this law, shall commence business, the president and directors thereof" shall cause the articles of association to be published and shall make a certificate, etc., the court said: "It would not be easy by any words to recognize the existence of the corporation, with- out the publication and without the certificate, or before they are made, more clearly than has been done here. The corporate existence is clearly acknowledged, and intended so to be, and the prohibition is only against its commencing business until the requirements of the section are complied with. It is spoken of as a corporation formed and established by virtue of the provisions of the law, and having officers such as the law prescribes, namely, a president and board of directors, capable of acting for the corporation, and upon whom, in their official capacity, certain duties are therein specifically imposed, and their performance commanded. ' ' *' Publication for a shorter time than that required by statute is a nullity.*" In some states posting as well as publication is required, and in such case publication without posting is insufficient.®^ 86 People V. Cheeseman, 7 Colo. 376, when certain provisions should be com- 3 Pae. 716; Johnston v. Ewing Female plied with, an association organized TJniversity, 35 111. 518. thereunder should be a corporation, 86Bigelow V. Gregory, 73 HI. 197; and then provided that, before any cor- Thornton v. Baleom, 85 Iowa 198, 52 poration so formed should commence N. W. 190; Clegg v. Hamilton & business, the of&eers should cause the Wright Co. Grange Co., 61 Iowa 121, articles of association to be published, 15 N. W. 865; Eisfeld v. Kenworth, it was held that such publication was 50 Iowa 389; Unity Ins. Co. v. Cram, not a condition precedent. Holmes v. 43 N. H.' 636; In re Church of Holy Gilliland, 41 Barb. (N. T.) 568. Communion, 14 Phila. (Pa.) 121, 8 89 Harrod v. Hamer, 32 Wis. 162. Wkly. Notes Cas. (Pa.) 357. 90 Bamberger v. White, 6 Ky. L. 87 Heinig v. Adams & Westlake Mfg. Eep. 292. Co., 81 Ky. 300, 5 Ky. L. Eep. 281, 317. 91 Unity Ins. Co. v. Cram, 43 N. H. 88 Where a statute declared that, 636. 416 Ch. 7] Creation Undee Geneeal Laws [§211 In Iowa, where the statute requires the publication of a notice of incorporation for four weeks, which must contain, among other things, a statement as to "whether private property is to be exempt from corporate debts," a notice which by mistake uses the word "suits" instead of "debts" is not fatally defective.'* Likewise, the require- ment that affidavit of publication be filed with the secretary of state is not mandatory, but is merely directory.'* But the requirement that the notice be published in some newspaper as convenient as practicable to the principal place of business of the corporation has been held to mean that it shall be published in the "nearest or most handy paper suitable therefor"; '* and it is not sufficient, where the principal place of business is in a good sized city, to publish it in a weekly paper in a small town more than sixty miles away.'* It is sufficient to publish the notice at any time before the incurring of debts.96 In Pennsylvania, the published notice must clearly specify the tinie and place of the intended application for a charter,''' although defects in regard thereto are not ground for refusing the charter where the persons objecting have received actual notice.'* It must be published in newspapers of the class required by statute," although a general 92 Commercial Nat. Bank of Council ness as soon as its articles are filed; Bluffs V. Gilinsky, 142 Iowa 178, 134 that its acts shall be valid if the pub- Am. St. Eep. 406, 120 N. W. 476. lication is made and the articles filed 93 Commercial Nat. Bank of Council with the secretary of state within Bluffs V. Gilinsky, 142 Iowa 178, 134 three months of filing in the recorder 'a Am. St. Eep. 406, 120 N. W. 476. office, and that failure to comply sub- 94 Clinton Novelty Iron Works v. stantially with such provisions shaU Neiting, 134 Iowa 311, 111 N. W. 974; ""^^^ ^^^ stockholders individually Berkson v. Anderson, 115 Iowa 674, 87 ^'^^^^ ^""^ corporate debts,-since the isr W 402 object of the statute is merely to in- form persons dealing with the corpo- 95 Berkson v. Anderson, 115 Iowa . . it, j. it j i- -j.. jjcmouu V. ja...iis. =« , ratiou that they are dealing with a 674 87 N W 402 ' ... corporation, and not with a natural 96 Publication of notice of incorpo- pgj,go„_ gg^ton v. Grimm, 110 Iowa ration at any time before the incur- j^g 81 N W 225 ring of debts by the corporation was ,; ^^ ^J Enterprise Mut. Benefidal held a substantial compliance (so as to ^ ^^ ^^^ ^^ p^^.^^ prevent individual liability) with the 380 Iowa statute, which provides that no- ' ' , . . , „ „ .. . , vT i,„a 98 In re Charter, ILegiRee. (Pa.) tice of incorporation must be published t o \ / for four successive weeks, and must state whether private property is to be "In re Enterprise Mut. Beneficial exempt from corporate debts; that Ass'n, 32 Leg. Int. (Pa.) 82, 10 Phila. the corporation may commence busi- (Pa.^ 380. 417 I Priv. Corp.— 27 § 212] Pbivate Corpobations [Ch. 7 statute requiring additional publication of notices in a paper pub- lished in the German language has been held not applicable.^ § 212. Powers and duties of officer or court. In most states, the incorporation papers are presented to the secretary of state for filing or recording. In a few states it is provided that persons who desire to form a corporation shall apply to some particular court which determines whether the application substantially complies with the statutes. Whether the application be made to an executive officer or to a court or judge, the rules as to his powers and duties are prac- tically the same, in that they are ministerial rather than judicial, and since an officer or court charged with the duty to determine whether the general incorporation law has been complied with in the organ- ization of a corporation, and, if so, to issue an order or certificate of incorporation, or to permit a certificate to be filed, acts in a ministerial capacity only, mandamus will lie to compel them to act, and, in a proper case, to issue or file such order or certificate.* Thus, the duty of the secretary of state is purely ministerial and may be controlled by mandamus.' The duty of the secretary of state, on presentation of articles of incorporation and tender of proper fees, to file the articles, and in some states to issue a duly certified copy thereof, is controlled by the statutes of the state and not by the discretion of the officer.* If 1 In re Church Club of Philadelphia, Tennessee. Ex parte Burns, 1 Tenn. 37 Wkly. Notes Cas. (Pa.) 47. ' Ch. 83. 2 Alabama. Sparks v. "Woodstock Where an officer wrongly refuses to Iron & Steel Co., 87 Ala. 294, 6 So. 195. file the declaration and statement on California. In re Spring Valley reincorporation on the ground that the Water Works, 17 Cal. 132; California name adopted is similar to that of an- Telephone & Light Co. v. Jordan, 19 other corporation, mandamus will lie Cal. App. 536, 126 Pac. 598. to compel him to do so. People v. Georgia. Franklin Bridge Co. v. Payn, 161 N. Y. 229, 55 N. E. 849, aff 'g Wood, 14 Ga. 80. 43 N. Y. App. Div. 621, 60 N. Y. Supp. Illinois. People v. Chicago Gas 1146, which affirmed 28 N. Y. Misc. Trust Co., 130 111. 268, 8 L. B. A. 497, 275, 59 N. Y. Supp. 851. 17 Am. St. Bep. 319, 22 N. E. 798. 8 State v. Cook, 174 Mo. 100, 73 8. Missouri. State v. Lesueur, 99 Mo. W. 489. 552, 7 L. R. A. 734, 13 S. W. 237; State "The action of the Secretary of V. McGrath, 92 Mo. 355, 5 S. W. 29. State in issuing the license and cer- Nebraska. State v. Searle, 86 Neb. tificate of organization is necessarily, 257, 125 N. W. 590. to a large extent, merely ministerial. ' ' New York. People v. McDonough, People v. Chicago Gas Trust Co., 130 28 Misc. 652, 60 N. Y. Supp. 45. 111. 268, 8 L. E. A. 497, 17 Am. St. Rep. Ohio. State v. Taylor, 55 Ohio St. 319, 22 N. E. 798. 61, 44 N. E. 513; State v. Lemert, 10 4 State v. Taylor, 55 Ohio St. 61, 44 Ohio N. P. (N. S.) 133. N. E. 513. 418 Ch. 7] Creation Under Gbnekal. Laws [§ 212 the articles of Incorporation substantially comply with the statute, the secretary of state has no discretion, but may be compelled by man- damus to file them.^ The discretion to be exercised by the secretary of state does not extend to the merits of an application for incorpora- tion, although it may be exercised as to matters of form.^ On the other hand, he is under no duty to file articles of incorporation not entitled to be filed for any reason, and hence he will not be compelled by mandamus to act in such a case.' Stated in another way, the duty of the secretary of state to file and record incorporation papers exists only when they are in form in compliance with the statutes.* Further- more, the secretary of state should refuse to file record incorporation papers not complying with the statutes.^ Generally, the officer has no discretionary power to look beyond the face of the incorporation papers, anc^ to determine from matters outside of such papers whether or not to file the papers.^* He cannot consider extraneous matters.^^ Thus, the secretary of state is not required to make inquiry outside the articles of incorporation filed with him, to determine whether the matters stated therein are in fact true, or whether all conditions precedent have in fact been performed.^^ If the incorporation papers are not in compliance with the require- ments of the statute, the fact that they are filed or recorded by the secretary of state or other officer does not have the effect of creating a corporation where otherwise the insufficiency of the papers would preclude the existence of a legal corporation ; ^' and the action of 6 McChesney v. Batman, 121 Ky. state to inquire into the question, and 303, 28 Ky. L. Rep. 281, 89 S. W. 198; that, if he finds no two of the subserib- State V. Taylor, 55 Ohio St. 61, 44 N. ers are citizens of the state, he should E. 513. decline to file the charter"). 6 State V. Taylor, 55 Ohio St. 61, 44 11 In re Seneca Bridge Co., 11 Pa. N. E. 513. Co. Ct. 337 (holding that governor ean- 7 Preferred Tontine Mercantile Co. not refuse a bridge company a charter V. Secretary of State, 133 Mich. 395, on ground that it would be injurious 95 N. W. 417; State v. Nichols, 40 to an existing company). Wash. 437, 82 Pae. 741, 38 Wash. 309, 12 Boatmen's Bank v. Gillespie, 209 80 Pac. 462. Mo. 217, 108 8. W. 74. 8 Kinston & C. K. Co. v. Stroud, 132 13 Kinston & C. R. Co. v. Stroud, 132 N. C. 413, 43 S. E. 918. N. C. 413, 43 S. E. 913. 9 Kinston & C. R. Co. v. Stroud, 132 "The 'filing and recording' by the N. C. 413, 43 S. E. 913. Secretary of State of articles of asso- 10 State V. Rotwitt, 17 Mont. 537, 43 elation, if not such as required by law, Pac. 922. But see American Salt Co. has no more effect than registration V. Heidenheimer, 80 Tex. 344, 26 Am. of a deed not duly authorized (Todd v. St. Rep. 743, 15 b. W. 1038 (where the Outlaw, 79 N. C. 235), or than docket- court said: "It would seem, however, ing a judgment confessed without legal that it is the duty of the secretary of requirements (Uzzle v. Vinson, 111 N. 419 § 212] Peivate Coepobations [Ch. 7 the secretary of state in filing incorporation papers or issuing a cer- tificate or license is not conclusive that the powers stated in the in- corporation papers may be lawfully exercised, but is subject to review by the courts." If application is made to a court, it acts ministerially rather than judicially,^^ and cannot create a corporation for any purpose not authorized by a general law ; '^ nor can the decree or charter depart in substance from, or grant more than is sought by, the petition to the court.^'' "Where application is made to a court for a charter, a third person cannot make himself a party to the proceeding for the purpose of resisting the granting of the application ; ^' but another association or corporation which has acquired a proprietary right in the name sought to be used may bring an injunction suit to prevent the prose- cution of the application for a charter.^^ In New York, the approval of a justice of the supreme court, required as to certain corporations, is not conclusive on the secretary of state.*" In that state, where the approval of the certificate of incorporation by a justice of the supreme court is a statutory requisite to the creation of a "membership" corporation, a certificate will not be approved where it fixes the annual meetings on Sunday, this being contrary to public policy.*^ In Pennsylvania, application to the court is required only as to cer- tain classes of corporations ; aad the power of the courts to refuse an C. 138, 16 S. E. 6), or recording a la- lent societies) appear to contemplate borer's lien without complying with an ex parte proceeding, instead of one the requirements of the statute (Cook to which persons or corporations can V. Cobb, 101 N. C. 68, 7 S. E. 700)." be made parties on their application Kingston & C. E. Co. v. Stroud, 132 because they hold rights which may be N. C. 413, 43 S. E. 913. infringed by granting the petition." 14 People V. Chicago Gas Trust Co., Young Women's Christian Ass'n v. 130 111. 268, 8L. R. A. 497, 17 Am. St. St. Louis Women's Ass'n, 115 Mo. App. Eep. 319, 22 N. E. 798. 228, 91 S. W. 171. 15 State V. Vanderbilt iJniversity, 19 Creswill v. Grand Lodge K. P. of 129 Tenn. 279, 164 S. W. 1151; Ex parte Georgia, 133 Ga. 837, 134 Am. St. Bep. Chadwell, 3 Baxt. (Tenn.) 98,108. 231, 18 Ann. Cas. 453, 67 S. E. 188; 16 Ex parte Chadwell, 3 Baxt. Lane v. Brothers & Sisters Evening (Tenn.) 98. Star Society, 120 Ga. 355, 47 S. E. 951. 17 State v. Vanderbilt University, 20 People v. Nelson, 46 N. Y. 477; 129 Tenn. 279, 164 S. W. 1151. People v. Rice, 68 Hun (N. Y.) 24, 22 18 Creswill v. Grand Lodge K. P. of N. Y. Supp. 631. Georgia, 133 Ga. 837, 134 Am. St. Rep. 21 In re Agudath Hakehiloth, 18 N. 231, 18 Ann. Cas. 453, 67 S. E. 188. Y. Misc. 717, 42 N. Y. Supp. 985. "The statutes (relating to benevo- ' 420 Ch. 7] Creation Under General Laws [§212 application for a charter seems to be broader than in other states. In that state it is held that the court is not authorized 'to grant or refuse incorporation except upon kgal grounds ; ^^ that it cannot confer corporate powers for any other purpose than is specified in the statute ; ^^ that the requirements fixed by law can neither be dis- pensed with nor added to ; ^* and that a charter cannot be refused merely because there is no necessity for incorporating,*^ nor because the name of the corporation is in a foreign language.*® On the other hand, in Pennsylvania, a charter of a beneficial association will not be approved by the court where there is a provision that membership is to be forfeited upon enlistment in the army or navy,*'' nor, where there is no indication as to who may become members or on what terms or conditions,*^ nor where there is no express provision for trial before expulsion from membership,*' nor where the grounds stated for expulsion of members are too indefinite ; ^^ and it has been held not an abuse of discretion for the court to refuse an application for a charter by the "Chiropractors' Association of Pennsylvania," at least until they have attained a legal status as medical practi- tioners under the laws governing such practitioners.'^ In Pennsyl- vania, the judge may defer final action on the application, for a reasonable time, although there are no objections interposed and no doubt as to the propriety of granting the charter.®* ' The secretary of state is justified in declining to issue a certificate of incorporation where the incorporation papers show that the pro- posed corporation is one not within the statute under which it is 22 In re Deutsch - Amerikanischer Volksf est-Verein, 200 Pa. 143, 49 Atl. Volksfest-Verein, 200 Pa. 143, 49 Atl. 949. 949. 27 In re Charter of David MulhoUand 23 In re Solebury Mut. Protective So- Benev. Soc. of Manayunk, 30 Leg. Int. ciety, 2 Del. Co. (Pa.) 189, 3 Pa. Co. (Pa.) 85, 10 Phila. (Pa.) 19. Ct. 637; In re Land Co., 1 Del. Co. 28 In re Accountant's Ass'n, 18 Pa. (Pa.) 431; Com. v. Conover, 30 Leg. Co. Ct. 159; In re Italian Mut. Ben. Int. (Pa.) 200; In re Cressona Bldg. Ass'n, 4 Pa. Dist. 357; In re Skandi- Ass'n, 1 Leg. Eee. (Pa.) 177; In re naviska, 3 Pa. Dist. 235. Medical College of Philadelphia, 3 29 In re Charter of Journalists Fund Whart. (Pa.) 444. of Philadelphia, 8 Phila.' (Pa.) 272. 24 In re Deutsch - Amerikanischer 30 In re Beneficial Ass 'n of Broth- Volksf est-Verein, 200 Pa. 148, 49 Atl. erly Unity, 38 Pa. St. 299; In re Butch- 949. ers ' Beneficial Ass 'n, 38 Pa. St. 298. ■ 25 In re Deutsch - Amerikanischer 31 In re Chiropractors ' ' ' Ass 'n - of Volksfest-Verein, 200 Pa. 143, 49 Atl. Pennsylvania, 243 Pa. 547, 90 Atl. 835. 949. 32 In re Central Democratie Ass'n, 26 In re Deutsch - Amerikanischer 8 Pa. Co. Ct. 892. 421 212] Pbivate Cobpoeations [Ch.7 sought to be incorporated ; *' and it is the duty of a court to whom application is made, in such a case, to refuse a charter ; 8* a fortiori, this is true where the corporation is created for an illegal purpose. The officer may reject the articles if they confer authority not per- mitted nor authorized by law.'* The same rule applies to an appli- cation to a court.'® Ordinarily if the association has complied with all the prerequisite statutory requirements, and its purpose is a lawful and authorized one, conditions cannot be imposed on granting the certificate.'' §213. Issuance of certificate by officer or court. The statutes generally provide for the issuance of a certificate of incorporation by some officer or court on the creation of a corporation, and the certifi- cate is sometimes, though not always, made a condition precedent to corporate existence. The certificate must be obtained when required by the statute, and must be substantially in the form prescribed by the statute." Where a statute provides that after articles of corporation are filed, 83 People V. Bose, 188 111. 268, 59 N. E. 432; People v. Nelson, 46 N. Y. 477; People v. Eice, 68 Hun (N. T.) 24, 22 N. T. Supp. 631. 84 In re Pennsylvania State Sports- men's Ass'n, 11 Pa. Co. Ct. 576, 1 Pa. Dist. 763. 35 Dancy v. Clark, 24 App. Cas. (D. C.) 487; People v. Whalen, 119 N. T. App. Div. 749, 106 N. T. Supp. 434, 104 N. T. Supp. 555. 38 In re North rifth St. Mut. Land Ass 'n, 8 Pa. Co. Ct. 17. 37 Bankers' Deposit Guaranty & Surety Co. v. Barnes, 81 Kan. 430, 432, 28 L. B. A. (N. S.) 1082, 105 Pae. 697 (holding that superintendent of insur- ance cannot impose requirements as condition precedent to issuance of cer- tificate to do business). 38 United States. Byland v. Hol- linger, 117 Fed. 216; Dundee Mortgage & Trust Inv. Co., Ltd. v. Cooper, 26 Fed. 665. California. Boman Catholic Orphan Asylum v. Abrams, 49 Cal. 455. Colorado. Humphreys v. Mooney, 5 Colo. 282. Illinois. Stowe v, Flagg, 72 111. 397. Louisiana. Field v. Cooks, 16 La. Ann. 153. Maine. Richmond Factory Ass'n v. Clarke, 61 Me. 351. Minnesota. Beeht v. Harris, 4 Minn. 504. Missouri. Boatmen's Bank v. Gil- lespie, 209 Mo. 217, 108 S. W. 74; First Nat. Bank of Deadwood, South Dakota V. Eockefeller, 195 Mo. 15, 93 S. W. 761; Elliot v. Sullivan, 156 Mo. App. 496, 137 S. W. 287. Montana. Merges v. Altenbrand, 45 Mont. 355, 123 Pac. 21; State v. Rot- witt, 18 Mont. 87, 44 Pac. 409. Ohio. Callendar v. Painesville & H. B. Co., 11 Ohio St. 516. Utah. Mitchell v. Jensen, 29 Utah 346, 81 Pae. 165; Jackson v. Grown Point Min. Co., 21 Utah 1, 81 Am. St. Rep. 651, 59 Pac. 238. Issuance by the secretary of state of the certificate required by Civ. Code, § 296, is a condition precedent. Wall V. Mines, 130 Cal. 27, 62 Pac. 386. 422 Ch. 7] Ceeation Under Geneeal Laws [§ 213 the secretary of state must issue his certificate to the corporation that the articles have been filed, and "thereupon" the persons signing the articles shall be a body corporate, the corporation has no legal ex- istence until the issuance of such certificate.'^ So under statutes fixing the procedure to incorporate, ending with the issuance by the secretary of state of a certified copy of the articles of incorporation, and .which provide that "thereupon" the petitioners "shall be created and be a corporate body," the certified copy from the secretary of state is the necessary and final act creating the corporation.*" In some jurisdictions, statutes have been enacted authorizing par- ticular courts to make an order conferring corporate powers under prescribed conditions, or to issue a certificate of incorporation.*^ Such statutes are not unconstitutional as a delegation of legislative power to the court, since the court merely acts in a ministerial capacity under the statute, and the corporations, when organized thereunder, are created, not by the court, but by the legislature.*^ Under such a statute, the court has such authority only as has been conferred upon it by the legislature. It can confer corporate powers for no other purpose than is specified in the statute.** In Louisiana the incorporators are required to obtain en authoriza- tion or certificate from the district attorney or a judge as a condition precedent to a valid incorporation.** But in Alabama, where the pro- cedure is like that of Illinois, and the statute provides that the probate judge shall issue a certificate "upon the completion of the organiza- tion of the company," it is held that the actual issuance of the cer- tificate is not a condition precedent to corporate existence, but the certificate is merely evidence that the corporation has been formed..*® 39 Merges v. Altenbrand, 45 Mont. Baxt. (Tenn.) 98; Coalter v. Bargamin, 355, 123 Pac. 21. 99 Va. 65, 37 S. E. 779. "The term 'thereupon,' * * * 42 See Chap. 6, supra, whether taken to signify 'in eonse- 43 See § 178. quenee of which' or 'immediately 44 Spencer, Field & Co. v. Cooks, 16 after,' or 'in sequence,' clearly im- La. Ann. 153. ports into it [the statute] the meaning 45 Sparks v. Woodstock Iron & Steel that all these steps, taken together, Co., 87 Ala. 294, 6 So. 195. are the causa sine qua non." Merges In Alabama under the law as it ex- V. Altenbrand, 45 Mont. 355, 123 Pac. isted prior to the adoption of the 21. Code of 1907, it was held that the is- 40 Sloan V. Loyal Fraternal Home suanee of the certificate by the judge Ass'n, 139 Mo. App. 443, 123 S. W. 57. of probate is "not a condition pre- 41 Sparks v. Woodstock Iron & Steel cedent to the company 's incorporation Co., 87 Ala. 294, 6 So. 195; State v. becoming complete under the statute, Vanderbilt University, 129 Tenn. 279, but it is the mere evidence of the fact 164 S. W. 1151; Ex parte Chadwell, 3 that it had already become so," and 423 § 214] Pkivate Cokpoeations [Ch. 7 § 214. Bevocation of certificate. In Illinois it has been held that after the secretary of state has issued a license or certificate for the organization of a corporation he has no power to revoke the same, except where the corporators fail to complete their organization as a corporation and proceed to business within the time allowed by statute.** In that sfate the failure of the company to complete its organization and to proceed to business within the time prescribed ipso facto works a revocation and ends the corporate existence,*'' and the fact that the organization is completed after that time can have no effect on the legal status of the corporation.** In Pennsylvania, where the court, under authority of a statute, granted a certificate of incorporation to a company claiming to be a beneficial association, and within a statute authorizing incorporation of such associations, and afterwards learned that the certificate should not have been granted, and revoked the same, it was held that the revocation was proper, as the certificate was improvidently granted, without authority, and was therefore void.*' §215. Filing' and recording — General rules. The necessity for either filing or recording, or both filing and recording, the incorpora- tion papers prepared by or on behalf of the incorporators, or the certificate issued by the state or other ofiicer, depends on the wording of the particular statute, as does the effect of failure to file or record. that proof that it has not been issued fact of incorporation in the office of will not sustain a plea of nul tiel cor- the secretary of state. Code 1907, poration. Sparks v. Woodstock Iron §§ 3448, 3454, 3455. & Steel Co., 87 Ala. 294, 6 So. 195. But 46 Illinois Watch Case Co. v. Pear- see Owensboro Wagon Co. v. Bliss, 132 son, 140 111. 423, 16 L. E. A. 429, 31 N. Ala. 253, 31 So. 81, where the failure E. 400. to issue the certificate is referred to as 47 People v. Maekey, 255 111. 144, a missing link for the perfection of a 99 N. E. 370. corporation de jure. See also State v. 48 Where the certificate of incorpora- Webb, 110 Ala. 214, 20 So. 462. Under tion is not filed for record in the re- the Alabama Code of 1907 a certificate corder's office within two years, the of incorporation, signed by the stock- company does not become a corpora- holders, is required to be filed and re- tion de jure by filing it after that corded in the office of the probate time. People v. Maekey, 225 111. 144, judge, and the latter is required to in- 99 N. E. 370 (explaining and modify- _dorse thereon a certificate of registra- ing the apparent contrary holding in tion. The incorporators become a body Marshall v. Keach, 227 111. 35, 118 corporate when the certificate is made, Am. St. Eep. 247, 10 Ann. Cas. 164, recorded and filed, and apparently no 81 N. E. 29). certificate of incorporation is required 49 In re National Indemnity & En- to be issued by the judge, though he is dowment Co., 142 Pa. St. 450, 21 Atl. required to file a statement of the 879. 424 Ch.7] Ckeation Under General Laws [§215 It is necessary, however, to distinguish between decisions where there has been no filing or recording of the incorporation papers with eny officer, and those decisions where there has been a filing with one of two or more officers but not with all the officers aS required by statute.^" Furthermore, it is necessary to distinguish between the initial filing of the articles of incorporation and the filing of papers subsequent thereto, such as additional affidavits or the certificate or charter issued by the secretary of state. In some jurisdiction^ the filing or recording is a condition preced- ent to the de jure existence of the corporation. ^^ Thus, where a 50 See §§216, 217, infra. 81 United States. Elgin Nat. Watch Co. V. Loveland, 132 Fed. 41 (Illinois law). Arkansas. Garnett v. Bichardson, 35 Ark. 144. Oalifoinla. California Telephone & Light Co. V. Jordan, 19 Cal. App. 536, 126 Pao. 598. Colorado. Aspen Water & Light Co. V. City of Aspen, 5 Colo. App. 12, 37 Pae. 728. Illinois. People v. Maekey, 255 El. 144, 99 N. E. 370; Edwards v. Armour Packing Go., 190 111. 467, 60 N. E. 807, afiE'g 90 111- App. 333; Loverin v. Mc- Laughlin, 161 111. 417, 44 N. E. 99, aff'g 46 111. App. 373; Bushnell v. Con- solidated Ice Mach. Co., 138 111. 67, 27 N. E. 596; Bigelow v. Gregory, 73 111. 197 (decided under Wisconsin law) ; Stowe V. riagg, 72 111. 397; Hamill V. Watts, 180 111. App. 279; Bicker V. Larkin, 27 III. App. 625; Cress- well V. Oberly, 17 III. App. 281. Indiana. Doty v. F'atterson, 155 Ind. 60, 56 N. E. 668; Miller v. Wild Cat Gravel Eoad Co., 52 Ind. 51; Nel- son V. Blakey, 47 Ind. 38; Indianapolis Turnaee & Mining Co. v. Herkimer, 46 Ind. 142; New Eel Biver Draining Ass'n V. Carriger, 30 Ind. 213; Wil- liams V. Franklin Tp. Academical Ass'n, 26 lud. 310. Iowa. Kaiser v. Lawrence Sav. Bank, 56 Iowa 104, 41 Am. Eep. 85. Kansas. Nemaha Coal & Mining Co. V. Settle, 54 Kan. 4^4, 38 Pac. 483; Walton V. Oliver, 49 Kan. 107, 33 Am. St. Eep. 355, 30 Pac. 172; Massey v. Citizens' Bldg. & Sav. Ass'n, 22 Kan. 624; Hunt v. Kansas & Missouri Bridge Co., 11 Kan. 439. Kentucky. Portland & G. Turnpike Co. V. Bobb, 88 Ky. 226, 10 S. W. 794; Walton V. Biley, 85 Ky. 413, 3 S. W. 605, overruling Heinig v. Adams & Westlake Mfg. Co., 81 Ky. 300, 5 Ky. L. Eep. 281; Sims v. Com., 24 Ky. L. Eep. 1591, 71 S. W. 929. Louisiana. Workingmen 's Accom- modation Bank v. Converse, 29 La. Ann. 369; Spencer, Field & Co. v. Cooks, 16 La. Ann. 153. Massachusetts. Montgomery v. Forbes, 148 Mass. 249, 19 N. E, 342 (rule in New Hampshire). Minnesota. Becht v. Harris, 4 Minn. 504. Missouri. Bichardson v. Pitts, 71 Mo. 128. Nefbraska. Meyer Cord Co. v. Hill, 84 Neb. 89, 120 N. W. 951 (holding, however, that manufacturing corpo- rations need not file their articles in the county where their headquarters are located) ; Lusk v. Biggs, 70 Neb. 713, 97 N. W. 1033; Kleekner v. Turk, 45 Neb. 176, 63 N. W. 469; Capps v. Hastings Prospecting Co., 40 Neb. 470, 24 L. E. A. 259, 42 Am. St. Eep. 677, 58 N. W. 956: Trester v. Missouri Pao. B. 425 § 215] PeIVATE CbEPOKATIONS [Ch.7 statute requires certificates of incorporation to-be recorded in a certain office, amd provides that "from thenceforth the subscribers and asso- ciates and successors shall be a corporation for the purposes and upon the terms named in the said charter," the existence of a company- organized thereunder dates from the recording of its certificate and not from the issue of letters patent, although another clause of the statute provides that companies organized thereunder shall ' ' from the Co., 33 Neb. 171, 49 N. W. 1110 (arti- cles of eousolidation of railroad com- panies need not be recorded in the county clerk's ofSce); Paxton Cattle Co. V. First Nat. Bank, 21 Neb. 621, 33 N. W. 271; Abbott v. Omaha Smelting & Eefining Co., 4 Neb. 416. See also Haas v. Bank of Commerce, 41 Neb. 754, 60 N. W. 85. And see State V. Searle, 86 Neb. 259, 125 N. W. 590; Equitable Building & Loan Ass'n V, Bidwell, 60 Neb. 169, 82 N. W. 38"4 (former rules as to building and loan associations). New York. De Witt v. Hastings, 69 N. Y. 518; Childs v. Smith, 46 N. Y. 34, rev'g 55 Barb. 45; Stevens v. Epis- copal Church History Co., 140 N. Y. App. Div. 570, 125 N. Y. Supp. 573; Childs V. Smith, 55 Barb. 45; Burt v. Farrar, 24 Barb. 518. North Carolina. Kinston & 0. B. Co. V. Stroud, 132 N. C. 413, 43 S. E. 913. Oregon. Goodale Lumber Co. v. Shaw, 41 Ore. 544, 69 Pac. 546. Pennsylvaiiia. Tonge^ v. Item Pub. Co., 244 Pa. 417, 91 Atl. 229; Borough of Braddook v. Penn Water Co., 189 Pa. St. 379-, 42 Atl. 15; New York Nat. Exoh. Bank v. Crowell, 177 Pa. St 313, 35 Atl. 613; Guekert v. Hacke, 159 Pa. St. 303, 28 Atl. 249. Texas. Bank of De Soto v. Eeeid, 50 Tex. Civ. App. 102, 109 S. W. 256. Utah. Mitchell v. Jensen, 29 Utah 846, 81 Pac. 165; Jackson v. Crown Point Min. Co., 21 Utah 1, 81 Am. St. Bep. 651, 59 Pac. 238. Washington. Spokane & I. Lumber Co. V. Loy, 21 Wash. 501, 58 Pac. 672; Bash V. Culver Gold Min. Co., 7 Wash. 122, 34 Pac. 462. West Virginia, Childs v. Hurd, 32 W. Va. 66, 9 S. E. 362. Wisconsin. Sentinel Co. v. A. D. Meiselbach Motor Wagon Co., 144 Wis. 224, 32 L. E. A. (N. S.) 436, 140 Am. St. Eep. 1007, 128 N. W. 861; Spiritual & Philosophical Temple v. Vincent, 127 Wis. 93, 105 N. W. 1026 (construing statutes relating to incorporation of religious societies); Eehbein v. Eahr, 109 Wis. 136, 85 N. W. 315; Slocum v. Head, 105 Wis. 431, 50 L. E. A. 324, 81 N. W. 673; Bergeron v. Hobbs, 96 Wis. 641, 65 Am. St. Eep. 85, 71 N. W. 1056; Badger Paper Co. v. Eose, 95 Wis. 145, 37 L. B. A. 162, 70 N. W. 302; Wood v. Union Gospel Church Bldg. Ass'n, 63 Wis. 9, 22 N. W. 756. Wyoming. Edelhoff v. State, 5 Wyo. 19, 36 Pac. 627. ' In Washington, the articles are re- quired to be executed in triplicate, one to be filed in the oflSce of the secretary of state, one in the county designated as the principal place of business, and one kept by the cor- poration. First Nat. Bank of Everett V. Wilcox, 72 Wash. 473, 130 Pac. 756. In Kwapil v. Bell Tower Co., 55 Wash. 583, 104 Pac. 824, where the articles were filed in the ofSces of the secretary of state and the county audi- tor, the court expressed the opinion that there was a substantial compli- ance with the law and the company was a corporation de jure although they were not executed in triplicate and one copy retained in the ofSce of the company as required by the stat- 426 Ch. 7] Creation Undeb Genekal, Laws [§215 date of letters patent creating the same ' ' have the powers conferred by the statutes.** So where a statute required incorporators to obtain a certificate from the attorney general and declared ' ' that they should be a corporation" from the time of filing such certificate, the ob- taining and filing such certificate is a condition precedent to corporate existence.*' In Illinois, the procedure as to corporations for pecuniary profit differs somewhat from that adopted in other states. There the steps are as follows: (1) The filing with the secretary of state of incor- poration papers called a "statement"; (2) issuance by secretary of state to incorporators, as "commissioners," of a license to open books for subscription to the capital stock; (3) calling of meeting by commissioners, as soon as stock is fully subscribed, to elect di- rectors and transact other business; (4) filing with secretary of state of report of commissioners as to amount of stock subscribed and paid in, the names of the subscribers, and the result of the election; (5) issuance by secretary of state of certificate "of complete organization" of the corporation; (6) recording of said certificate in oflSce of recorder of deeds of the county where the principal ofiice of the company is located. The statute then provides that on the recording of the certificate "the corporation shall be deemed fully organized and may proceed to business"; but that "unless such com- pany shall be organized and shall proceed to business * * * within two years after the date of such license, then such license shall be deemed revoked, and all proceedings thereunder void." It has been held thereunder that the failure to record the final certificate does not prevent the creation of a de facto corporation,** but does preclude the existence of a de jure corporation ; ** and that the re- cording of the certificate after the two years is of no effect.** ute, but further held that in any event 165- 111. 367, 46 N. E. 286, aff 'g 55 ni. there was a corporation de faeto, App. 181. which was sufficient for the case in 82 Borough of Braddock v. Penn hand. ' "Water Co., 189 Pa. St. 379, 42 Atl. 15. An averment that a majority of the 63 Richmond Factory Ass 'n v. stockholders "caused said articles to Clarke, 61 Me. 351. be put on record in the recorder's of- 64 Marshall v. Keaeh, 227 111. 35, 118 fice," etc., shows a suflaeient filing. Am. St. Eep. 247, 10 Ann. Cas. 164, 81 Vawter v. Franklin College, 53 Ind. 88. N. B. 29. After the certificate has been issued, 66 People v. Mackey, 255 111. 144, 99 but before it has been filed, the cor- N. E. 370; Loverin v. McLaughlin, 161 poration has such an existence as will 111. 417, 44 N. E. 99, aff'g 46 III. App. enable its officers and stockholders to 373. reduce the amount of capital stock. 66 People v. Mackey, 255 111. 144, 99 Gade v. Forest Glen Brick & Tile Co., N. E. 370, explaining and qualifying 427 §215] Pkivate Cokpoeations [Cli.7 On the other hand, the statute may he so worded as not to make the filing or recording a condition precedent. Thus, where a statute provides that "upon making said certificate, and causing the same to be recorded and filed as aforesaid," the incorporators shall be, "from the time of commencement fixed in said certificate, ' ' incorporated, the recording and filing are not a condition precedent to corporate ex- istence.*'' So the filing is not a condition precedent where the statute merely provides that when the company is "created and organized, a certificate shall * * * be filed."** Oftentimes the filing or recording is merely a condition precedent to the right of the corporation to engage in business.*' If the statute merely prohibits the doing of business until the articles or certificate is filed, the filing is not a condition precedent to the existence of the corporation, although it is a condition to the doing of business.^" Thus, where the statute merely makes the filing or recording of the certificate a condition precedent to the ' ' commence- ment of business," and_ the certificate is to be made by the president and secretary, the filing is not a condition precedent to corporate existence.*^ So where a statute provides that ' ' before any. corporation. the apparently contrary holding in Marshall v. Keach, 227 111. 35, 118 Am. St. Eep. 247, 10 Ann. Cas. 164, 81 N. E. 29. BTVanneman v. Young, 52 N. J. L. 403, 20 Atl. 53. 68 Granby Mining & Smelting Co, v. Eichards, 95 Mo. 106, 8 S. W. 246. 59 United States. "Whitney v. Wy- man, 101 V. 8. 392, 25 L. Ed. 1050. Iowa. Johnson v. Kessler, 76 Iowa 411, 41 N. W. 57. Massachusetts. Augur Steel Axle. & Gearing Co. v. Whittier, 117 Mass. 451; Merrick v. Reynolds Engine & Governor Co., 101 Mass. 381. Michigan. Galvin v. Detroit Steer- ing Wheel & Windshield Co., 176 Mich. 569, 142 N. W. 742; Newcomb-Endi- cott Co. V. Fee, 167 Mich. 574, 133 N. W. 540; Johns v. People, 25 Mich. 499. Missouri. Granby Mining & Smelt- ing Co. V. Eichards, 95 Mo. 160, 8 S. W. 246. Under Conn. Laws, 1903, c. 194, § 69, the filing of a certificate of organization is not a condition preced- ent to the existence of a corporation de jure. Chieppo v. Chieppo, 88 Conn. 233, 90 Atl. 940. 60 Card V. Moore, 74 N. Y. Supp. 18, aff 'd 173 N. Y. 598, 66 N. E. 1105, dis- tinguishing Augur Steel Axle & Gear- ing Co. V. Whittier, 117 Mass. 451; as a case decided under such a statute.. 61 Kaiser v. Lawrence Savings Bank, 56 Iowa 104, 41 Am. Rep. 85, 8 N. W. 772. "The certificate is to be made by the president and secretary. Before it can be made, then, there must be a president and secretary; but there can- not be a president and secretary until such officers have been duly chosen by a body of persons who have heaame associated under an agreement to become incorporated under a law authorizing them to become incorpo- rated. Now this agreement, which must not only precede the making of the certificate, but the choice of the president and secretary who are to make the certificate, it appears to us, would more naturally be deemed the 428 Ch.7] Ckeation Undee Geneeal Laws [§ 215 formed and established by virtue of the provisions of this act, shall commence business, the president and directors thereof shall" file a certificate, the filing is not a condition precedent, to corporate ex- istence.^* At any event this objection cannot be urged collaterally but only by a direct action by the people.*' Moreover, it has been said that failure to file does not debar a corporation "from access to the courts in protecting its previously vested estate."®* Of course, statutes requiring a filing of the articles of particular classes of corporations do not apply to other classes of corporations.** To sum up, the rules which govern may be stated as follows : 1. If there is no filing of the original incorporation papers, or a copy of them, in any office, there is no corporation de jure ** nor even de facto, where there is not even an attempt in good faith to file.*'' 2. If the papers are required to be filed or recorded with two or more officers, as for instance with the secretary of state and the county clerk of the county where the affice or principal place of business is located, the question whether a filing or recording in one but not in both offices is sufficient to create a de jure corporation depends on the wording of the particular statute.** 3. Although the filing of original incorporation papers may be a condition precedent, the statute may be so worded that the filing of additional affidavits or certificates (including the filing of the certifi- cate issued by the secretary of state or other officer) is not a condition precedent.*^ act of incorporation, and we see noth- ing in the incorporation laws of Kan- sas inconsistent with this view. Again, the certificate must state the time when the corporation was organized. This, to our mind, implies quite clearly that before the certificate is made or- ganization must have taken place." Kaiser v. Lawrence Sav. Bank, 56 Iowa 104, 41 Am. Rep. 85, 8 N. W. 772. 62 In re Shakopee Mfg. Co., 37 Minn. 91, 33 N. W. 219. 63 Baker v. Backus' Adm'r, 32 HI 79; Tarbell v. Page, 24 111. 46; Ameri' can Live Stock Commission Co. v. Chi- cago Live Stock Exchange, 41 111. App 149, aff'd 143 111. 210, 18 L. R. A 190, 36 Am. St. Rep. 385, 32 N. E. 274. 64 Probst V. Trustees of Board Do mestic Missions, 3 N. M. 237, 5, Pac 702. 6B Hervey v. Buchanan, 47 Iowa 588 (educational corporation) . 66 Middle Branch Mut. Tel. Co. v. Jones, 137 Iowa 396, 115 N. W. 3. 67 McLennan v. Hopkins, 2 Kan. App. 260, 41 Pac. 1061. See also Chap. 10, infra. 68 See §§216, 217, infra. 89 Where a special act of incorpora- tion provided that, when the corpora- tion should be created and organized under the act, a certificate of incorpo- ration should be filed with the clerk of the circuit court of the county in which the corporation was to do busi- ness, and a duplicate with the secre- tary of state, it was held that filing a certificate with the clerk was not a condition precedent to incorporation. Granby Mining & Smelting Co. v. Rich- ards, 95 Mo. 106, 8 S. W. 246. 429 §215] Pbivate Coepokations [Gh.7 If the papers have been fraudulently and surreptitiously recorded, contrary to the agreement of the incorporators, such record is of no effect.™ If the petition is required by statute to be filed in a court ' ' of the county in which they [the corporation] desire to transact business," it may and should be filed in the county where the principal office is to be located, rather than in the county where the actual opera- tions are to be conducted.''^ § 216. — With county officer. Filing of the incorporation papers in the county where the principal place of business or the work is situated, is often made by statute a condition precedent to corporate existence.'^ In such a ease, until this requirement as to recording 70 Bicker v. Larkin, 27 111. App. 625. 71 McCandless v. Inland Acid Co., 115 Ga. 968, 42 S. E. 449. 72 Elgin Nat. Watch Co. v. Loveland, 132 Fed. 41 (construing Illinois stat- ute); Marshall v. Keach, 227 HI. 35, 118 Am. St. Eep. 247, 10 Ann. Cas. 164, 81 N. E. 29; Miller v. Wild Cat Gravel- Boad Co., 52 Ind. 51; Mclntire v. Me- Lain Ditching Ass'n, 40 Ind. 104. "It is plain, even from a cursory reading of the act of April 29, 1874 (P. L. 76), that recording of the cer- tificate 'in the office for the recording of deeds, in and for the county where the chief operations are to be carried on,' was intended to be made one of the conditions precedent to corporate existence. That was the last of suc- cessive steps required to be taken, and the right to begin the transaction of corporate business was made to depend upon the taking of that step. 'From thenceforth,' the act expressly de- clares, the subscribers and their associates and successors 'shall be a corporation for the purposes and upon the terms named in the said charter.' One of the pur- jjoses of the act being exemption from personal liability in the trans- action of business, it is obviously material that the public should have notice, and notice by record was ac- cordingly prescribed. Failure to re- cord was failure to comply with one of the express conditions of incorpora- tion, and consequently of exemption from liability." Guckert v. Haeke, 159 Pa. St. 303, 28 Atl. 249, quoted in Tonge V. Item Pub. Co., 244 Pa. 417, 91 Atl. 229. In Alabama the certificate (corre- sponding to the articles) is required to be filed and recorded in the office of the probate judge of the county in which the principal business of the corporation is established. Code 1907, § 3448. Floyd v. State, 177 Ala. 169, 59 So. 280. See also Magnolia Shingle Co. V. J. Zimmern's Co., 3 Ala. App. 578, 58 So. 90. The articles of a draining company must be recorded in the county where the work is contemplated. Mclntire V. McLaiu Ditching Ass 'n, 40 Ind. 104; New Eel Eiver Draining Ass 'n v. Dur- bin, 30 Ind. 173. Under the law of Indian Territory the articles were required to be filed with the clerk of the judicial district in which the place of business was lo- cated, as well as with the clerk of tlie court of appeals, in order to constitute a corporation de jure. Harrill v. Davis, 168 Fed. 187, 22 L. E. A. (N. S.) 1153. Under a statute requiring the cer- tificate of registration of a corporation 430 Ch.7] Cbeation Under Genebal. Laws [§216 is complied with, there is no de jure corporation,''^ although there may be a de facto corporation.''* Thus, in Illinois, a corporation has no right to transact business where the certificate of incorporation haa not been recorded in the proper office of the county where the principal office of the company is located, as required by statute.''^ But the better rule seems to be that where the statute requires the president or other designated officer of the corporation to record the articles of incorporation, there is corporate existence even before such act, since the statute apparently contemplates the complete given by the secretary of state to be registered in the register 'a office of the county in which the principal place of business of the corporation is situated, with the facsimile of the great seal of the state, the existence of a corpora- tion cannot be attacked, where the certificate has been registered, because the facsimile of the seal is not accu- rately drawn. Carpenter v. Frazier, 102 Tenn. 462, 52 S. W. 858. 73 Martin v. Deetz, 102 Cal. 55, 41 (Am. St. Eep. 151, 36 Pac. 368; Clinton Co. V. Schwarz, 175 111. App. 577; Cresswell v. Oberly, 17 111. App. 281. 74 Humphreys v. Mooney, 5 Colo. 282; Curtis v. Meeker, 62 111. App. 49; Forest Glen Brick & Tile Co. v. Gade, 55 111. App. 181; SwofCord Bros. Dry Goods Co. V. Owen, 37 Okla. 616, 133 Pao. 193. See also Chap. 10, infra. 75 Loverin v. McLaughlin, 161 111. 417, 44 N. E. 99, followed in Hamill V. Watts, 180 111. App. 279. "The requirement in section 4 of our statute that the charter of the com- pany shall be recorded in the office of the recorder of deeds of the county within which the corporation has its principal ofS.ce is manifestly for the purpose of giving publicity to the fact that a corporation has been organized, its name, the purposes for which or- ganized, the amount of the capital stock, and whether the same has been paid in cash or in property, and what proportion in each, together with the list of the stockholders, with their post office addresses, and the names and ad- dresses of its officers and directors, so that all persons having occasion to transact business with such corpora- tion may go to the recorder 's office and obtain all necessary information. Undoubtedly, the legislature had the right to impose this condition upon corporations, and to provide that such corporations should not be fully or- ganized or proceed to business until such condition was complied with, and, by way of penalty to secure a compli- ance with this requirement, to provide that, unless the company 'shall be or- ganized and shall proceed to business as provided in this act within two years after the date of such license, then such license shall be deemed re- voked, and all proceedings thereunder void.' This language does not leave any room for construction. The result of a failure to comply with the stat- ute is a revocation of the license and the nullification of all subsequent pro- ceedings. The courts have no power to say that a corporation still survives, or that it may be resurrected after a sentence of death has been passed upon it by the legislature. We see no es- cape from the conclusion that the fail- ure to record the certificate of the sec- retary of state, and the copies of the papers attached thereto, within two years is fatal to the legal existence of this corporation." People v. Mackey, 255 111. 144, 99 N. E. 370. 431 § 216] Private Cobpokatioxs [Cb. 7 organization of the association and the election of officers before the recording of the artielesJ® However, filing in the county where the office of the company is located is generally sufficient without also filing in the county which is its principal place of business." Nor is it necessary to file a copy in each county where the corporation does business ; '* nor that duplicates of the articles of incorporation be filed in any county except the one in which the statute requires a copy to be filed.'* Filing the articles in the wrong county is ineffec- tive to create a de jure corporation.^" In some states, the statutes require a filing not only with the county clerk and secretary of state, but also in every coimty in the state in which the corporation holds any property.*^ This requirement as to filing a copy of the articles in the county where the business is located as well as with the secretary of state is applicable, in some states, only to certain kiuds of corporations.^ Sometimes the question arises whether the filing with the state officer, such as the secretary of state, is not of itself sufficient, and this depends largely on the wording of the particular statute. In some jurisdictions there is no corporate existence where the articles are not filed in both the places required by the statute : ^ but there may be a corporation de facto where a certificate is filed with the secretary of state, although there was not a preliminary fJing with the county clerk as required by statute.** 76 Xe^^ comb-Endieott Co. v. Fee, 167 82 Meyer-Cord Co. v. Hill, S4 Xeb. Mich. 574, 133 N. TV. 540 (holding that S9, 120 N. W. 951 (holding that statu- only the state can question the failure tory provision does not apply to manu- to record the articles with the county factoring corporations), clerk). 83 Harrill v. Davis, 168 Fed. 1S7, 22 IT Young Keversible Lock-Nut Co. v. L. E. A. (N. S.) 1153, rev "g Western Young Lock-Nut Co., 72 Fed. 62. Inv. Co. v. Davis, 7 Indian T. 152, 104 78 St. Louis & S. F. E. Co. v. South- S. W. 573 (decided under law of In- western Telephone & Telegraph Co., dian Territory, the statute of which 121 Fed. 276. was taken from Arkansas} : 'VVeehsel- 79 St. Louis & S. F. E. Co. v. South- berg v. Flour City Xat. Bank, 64 Fed. western Telephone & Telegraph Co., 90, 26 L. E. A. 470; Garnett v. Eiehard- 121 Fed. 276. son, 35 Ark. 144; Doyle v. Mizner, 42 80 Martin v. Deetz, 102 Cal. 55, 41 Mich. 332, 3 N. W. 968; Capps v. Hast- Am. St. Eep. 151, 36 Pae. 368. ings Prospecting Co., 40 Xeb. 470, 24 81 California Savings i- Loan Society L. E. A. 259, 42 Am. St. Eep. 677, 5S V. Harris, 111 Cal. 113, 43 Pae. 525 N. W. 956; Abbott v. Smelting & Ee- (construiug statute as requiring cer- fining Co., 4 Xeb. 416. tified copy of copy on file with secre- 84 De "SVitt v. Hastings, 40 X. Y. tary of state to be filed). . Super. Ct. 463. 432 Oh. 7] Cbeation Undeb General. Laws [§ 217 § 217. — With state officer. In many states the filing of the in- corporation papers with the secretary of state, or other state officer, is a condition precedent to corporate existence. ^^ This is often so although the statutory requirement as to recording a duplicate in the town or county clerk's office has beeii complied with.'^ In some states the incorporation papers must first be filed with a county officer and then a duplicate or copy filed with the secretary of state ; and in such a case it has been held that there is no corporate existence until both acts are performed, it not being sufficient to merely file with the county clerk." In New York, on the other hand, it has been held that the pro- vision as to filing a duplicate with the secretary of state is merely directory, and that a compliance is not essential to incorporation.^* Nor is the filing of a duplicate with the secretary of state a condition precedent to corporate existence under a statute which provides that "the corporation may commence business as soon as the articles are, filed for record in the office of the county court clerk. ' ' ^^ And in Illinois, under the Act of 1849, it was held that the omission to file a duplicate certificate of organization in the oflSee of the secretary of state was not fatal to corporate existence, where the statute provided that when "the certificate shall have been filed as aforesaid" the in- corporators shall be a body corporate.®" This construction was also placed upon a like provision in the California statute.'^ 85 Card V. Moore, 68 N. Y. App. Div. should date from such filing, the filing 327, 74 N. Y. Supp. 18, aft 'd 173 N. Y. of a copy of the articles themselves 598, 66 N. B. 1105 (construing Con- with the secretary of state, as well as necticut statutes) ; Perrine v. Levin, the filing of the articles in the reeord- 123 N. Y. Supp. 1007. But see State er's oface, was held a condition pre- V. Searles, 86 Neb. 259, 125 N. W. 590 cedent to incorporation. Hurt v. Salis- (holding statutory requirement not ap- bury, 55 Mo. 310. plicable to building and loan corpo: 88 Rassbeck v. Desterreicher, 55 rations). How. Pr. (N. Y.) 516. 86 Card V. Moore, 68 N. Y. App. Div. 89 Walton v. Eiley, 85 Ky. 413, 3 327, 74 N. Y. Supp. 18. S. W. 605, overruling Heinig v. Adams 87 Garnett v. Richardson, 35 Ark. & Westlake Mfg. Co., 81 Ky. 300, fol- 144; Indianapolis Furnace & Mining lowed in Portland & G. Turnpike Co. Co. V. Herkimer, 46 Ind. 142; Sims v. v. Bobb, 88 Ky. 226, 10 S. "W. 794. Com., 114 Ky. 827, 71 S. W. 929; Hurt 90 Cross v. Pinckneyville Mill Co., V. Salisbury, 55 Mo. 310. 17 111. 54. Where a general law authorizing the 91 And it was held that a provision formation of corporations required which required a certificate of incor- that the articles of association should poration to be filed in the office of the be filed in the recorder's office, and a clerk of the county in which the pro- copy with the secretary of state, and posed corporation was to do business, declared that corporate existence and a duplicate in the office of the sec- 433 I Priv. Corp.— 28 § 217] Private Coepokations [Ch. 7 "Where the statute requires the secretary of state to issue a certifi- cate of the filing of the articles of incorporation, and that "there- upon" the signers shall be a body corporate, the issuance of the certificate is a necessary prerequisite to corporate existence.'* § 218. — Subsequent papers. The filing of the original articles of incorporation may be a condition precedent to corporate existence while the filing of subsequent papers may not be a condition preced- ent.*' For instance, where articles called a charter are required by statute to be filed with the secretary of state, and then the charter is to be passed on by the attorney general, and, if approved, he is to certify such approval to the secretary of state, who then appoints three persons to certify as to the payment of stock or the possession of capital and assets required by law, and the statute then provides that copies of the certificate shall be filed with the secretary of state who must then furnish the corporation with a certified copy of the eharter and certificates which, upon being filed with the county clerk, shall be authority to commence business; the filing in the clerk's office of the copy of certificates and charter furnished by the secretary of state is not a condition precedent to corporate existence.'* In any event, the failure to file a subsequent certificate does not, it would seem, prevent the existence of a de facto corporation.'* So it has been held that the filing of the certificate of organization made by the president and directors is not a condition precedent to the legal existence of the corporation.'® § 219. — What constitutes filing. In order to constitute a filing, it is necessary not only that the papers should be left with the officer retary of state, and that, "when the The failure of the officers of a manu- certifieate" should be "filed as afore- facturing corporation to file the veri- said, " the persons executing the same fied certificate formerly required by and their successors should be a cor- Minn. Gen. St. 1878, c. 34, §137, did poration, made filing the certificate in "»* ^fEeet the existence of the eorpora- the county clerk's office a condition *i°°- ^^ ""^ Shakopee Mfg. Co., 37 ,.,..,,„,. J 1- 4. Minn. 91, 33 N. W. 219. precedent, but that filing a duplicate ..,, _ , ,,. , ^ .^^ ^^ ^ „ ^ : , 94 Johns V. People, 25 Mich. 499. with the secretary of state was merely ». t> i -o i i a a , on t„ •' ,, , , 96 Baker v. Backus' Adm'r, 32 111. a condition subsequent. Mokelumne .„ Hill Canal & Mining Co. v. Woodbury, jg j^^^^ g^g^j ^^j^ ^ ^.^^^j^g ^^ ^ 14 Cal. 424, 73 Am. Dec. 658. Whittier, 117 Mass. 451; Hawes v. An- 92 Wall V. Mines, 130 Cal. 27, 62 Pae. glo-Saxon Petroleum Co., 101 Mass. 386. 385j Merrick v. Reynolds Engine & 93 Ryland v. Hollinger, 117 Fed. 216. Governor Co., 101 Mass. 381. 434 Ch.7] Creation Undeb Genebal. Laws [§220 at his office, but also that they be received and retained by the officer as papers on file.*' There is no filing where a person goes to the officer to file papers, but on refusal to pay the filing fees he leaves the office, taking the papers with him with the consent of the officer." The fact that the indorsement of filing of the articles is not signed is immaterial where they were actually delivered to and received by the proper officer." § 220. — Distinction between filing and recording. Statutes some- times require "filing" in one office and "recording" in another. Incorporation papers may be "iiled" without being "recorded,"^ and the leaving of the papers temporarily to be recorded and thpn withdrawn is not a substantial compliance with a statute requiring the papers to be filed.^ There is no de jure corporation where the articles of incorporation, 97 state V. Chicago & E. I. R. Co., 145 Ind. 229, 43 N. E. 226. 98 State V. Chicago & E. I. R. Co., 145 Ind. 229, 43 N. E. 226. 99 Owensboro Wagon Co. v. Bliss, 132 Ala. 253, 31 So. 81. Under a statute requiring a declara- tion for incorporation to be filed in the office of the probate judge, it was held that, in the absence of a statute pre- scribing what constitutes filing, it was to be regarded as filed when it was delivered to and received by the judge, and that his failure to sign a certifi- cate of filing indorsed thereon was im- material. It was also held that the fact that such certificate referred to the declaration as a "conveyance," was a mere self-corrective clerical er- ror. Owensboro Wagon Co. v. Bliss, 132 Ala. 253, 31 So. 81. 1 Bushnell v. Consolidated Ice Mach. Co., 138 111. 67, 27 N. E. 596. 8 Bergeron v. Hobbs, 96 Wis. 641, 65 Am. St. Rep. 85, 71 N. W. 1056. "It cannot be doubted that the fil- ing of the proper papers in the proper office is made, by the statute, a condi- tion precedent to the vesting of cor- porate powers. The court may not be able to clearly define the respect where- in the mere recording and removal of the papers from the office fails to serve the full purpose which the leg- islature intended to accomplish by the filing of them. The legislature, no doubt, had good and sufficient reasons for its choice of means to promote its purpose. For the court it is not a question of equivalents. A literal fil- ing of the papers is necessary because it is so written in the law. The term 'filing' and the verb 'to file,' as re- lated to this subject, include the idea that the paper is to remain in its proper order on file in the office. A pa- per is said to be filed when it is deliv- ered to the proper officer, and by him received, to be kept on file. Bouv. Law Diet. The statute is plain and easy of observance. Valuable rights and exemption from personal liability are to be secured by its observance. It is no undue severity to require its strict observance. The defendants had not observed it, and had not secured cor- porate powers." Bergeron v. Hobbs, 96 Wis. 641, 643, 65 Am. St. Rep. 85, 71 N. W. 1056. 435 § 221] Peivate Coepoeations [Ch.7 although filed for record, are not recorded, where the statute requires the articles to be recorded.^ § 221. — Recording copy or original. An extreme illustration of requiring strict compliance with the statutes is shown by a decision that where a statute requires ' ' a copy of the articles of association, ' ' verified under oath, to be recorded in the o£&ce of the register of deeds, the recording of the original instead of a verified copy is insufficient.* § 222. — ' ' Duplicate ' ' as distinguished from ' ' copy. ' ' It has been held that if the statute requires a "duplicate" to be filed with the secretary of state, it is not sufficient to file a certified copy of the articles as recorded in the county clerk's office.* On the other hand, it has been held that if a duplicate is required to be filed with the secretary of state, the original need not be filed, but a copy is suffi- cient.^ However, where a certified copy is filed, there is a de facto 3 Byronville Creamery Ass 'n v. Ivers, 93 Minn. 8, 100 N. W. 387; John- son V. Okerstrom, 70 Minn. 303, 73 N. W. 147. 4Slocum V. Head, 105 Wis. 431, 50 L. E. A. 324, 81 N. W. 673. "The parties before us failed to comply with the requirement that they should record a copy of their articles, verified by two of the signers as being a true copy. Instead they recorded the original. Whether the record of the original might have accomplished the same purposes of publicity as would such verified copy is a question upon which opinions may differ. It may well be thought that the record of a paper bearing no evidence of au- thentication by any official lacks ele- ments of ostensible authenticity which were deemed by the legislature neces- sary, and which would be supplied by the presence of an affidavit, verified before a competent officer, that the paper so recorded was a copy of an existing original, impliedly thereby authenticating, iby oath, the exist- ence of such original. If two opinions may be held as to the superior advantage of one method over another, the question was one for resolution by the legislature and not by the courts. They having prescribed the copy, with the inci- dental authentication resulting from the affidavit thereto, it is not for the courts to declare something else suf- ficient, although it may seem to them equally efficient. The statute was plain, and the defendants, to secure its benefits, should have complied ex- actly with this requirement. ' ' Slocum V. Head, 105 Wis. 431, 433, 50 L. E. A. 324, 81 N. W. 673. 5 Nelson v. Blakey, 54 Ind. 29. "A duplicate is an original instru- ment, just as much so as the original article of which it is a duplicate. It must be executed by the same parties, in the same manner, with the same for- malities, and must contain the same matter, as an original instrument; else, it is not a duplicate of such original instrument. A certified copy of a record of articles of association is not a duplicate of such articles." Nelson v. Blakey, 54 Ind. 29. BLogansport Gaslight & Coke Co. v. Knowles, Fed. Cas. No. 8,466 (con- struing Indiana statute). 436 Ch. 7] Cbeation Under Geneeal, Laws [§ 225 corporation ; '' and error in filing a certified copy of the articles of association, instead of a duplicate, with one of the two depositaries designated by statute, does not preclude the existence of a de facto corporation.* §223. — Time and sufficiency of record. The time for filing a certificate as to stock being paid up is sometimes held merely di- rectory.^ In Illinois, the recording of the certificate after the expiration of the two years from the date of the license is of no effect.^" Mistakes of the recording ofiicer do not affect the question of cor- porate existence.^^ The failure to make an exact facsimile of the great seal of the state in registering the certificate of registration given by the secretary of state is immaterial where the seal was spread upon the record.^^ § 224. — Filing as relating back. Upon the filing of the articles, it seems that the existence of the corporation does not relate back to the adoption of the articles of incorporation and the election of officers.^' IV. FEES § 225. Necessity for payment and amount. A fee for the filing of the articles or certificate is generally required to be paid to the secre- tary of state or other officer in whose office they are filed:^* By many of 7 Williamson v. Kokomo Building & Walton v. Eiley, 85 Ky. 413, 3 S. W. Loan Fund Ass 'n, 89 Ind. 389. 605. 8 Hudson V. Green Hill Seminary, 12 Carpenter v. Frazier, 102 Tenn. 113 111. 618. 462, 52 S. W. 858. 9 Veeder v. Mudgett, 95 N. Y. 295, 13 Middle Branch Mut. Tel. Co. v. 315. Jones, 137 Iowa 396, 115 N. W. 3 ; State 10 People V. Maekey, 255 111. 144, v. American Medical College, 59 Mo. 99 N. E. 370. App. 264. 11 Walton V. Riley, 85 Ky. 413, 3 11 Edwards v. Denver & E. G. R. Co., S. W. 605; Veeder v. Mudgett, 95 N. 13 Colo. 59, 21 Pac. 1011; In re Union Y. 295, 315. American Church, 1 Chest. Co. Kep. Where the clerk of the county court (Pa.) 459. See also Combined Saw & certifies that they are lodged for rec- Planer Co. v. Flournoy, 88 Va. 1029, ord and duly recorded, it will be pre- 14 S. E. 976. sumed that they were recorded in tho Such a provision applies to a rail- proper book. The acts of the corpora- road corporation formed by purchase tion are not rendered invalid because of franchises and other property of they are recorded in a "deed book" several insolvent companies. People instead of "a book kept for that pur- v. Cook, 47 Hun (N. Y.) 467. pose," as required by the statute. A statute requiring the payment of 437 § 225] Peivate Coepoeations [Ch. 7 the statutes, the payment of such incorporation fee is a condition pre- cedent to corporate existence.^* However, failure to comply with a pro- vision requiring a fee to be paid the state before the corporation "shall be organized" does not prevent corporate existence.^^ But there is some authority, principally dicta, for the view that a statutory provision that no company shall "have or exercise any corporate powers" until payment of a bonus on the amount of the capital stock, precludes corporate existence before the payment of such fees.^' Under some statutes, the ofiScer cannot be required to file the articles of incorporation before the fee is paid,^* and, furthermore, has no authority to file the papers before payment of such fee.^^ But under some statutes the failure to pay the fee does not preclude the associa- tion from becoming a de facto corporation.*" Certain kinds of corporations, such as those formed for benevolent, religious, scientific or educational purposes, are sometimes expressly exempted from liability for such fees.*^ Moreover, statutes requiring a specified fee to be paid for the first fifty thousand, or any part thereof, of the capital stock, do not apply to corporations organized without capital stock and not for pecuniary profit.** Thus, payment of fees required as dependent oh the amount of the capital stock is not necessary in case of an educational institution in which no stock has been issued and which is not intended for profit.*' These statutes a certain per cent, of gross earnings, Atl. 19; Cleaveland v. MuUin, 96 Md. made applicable to old as well as new 598, 54 Atl. 665. corporations, is a tax and not a fee for 18 Scheidel Coil Co. v. Rose, 242 incorporation. Attorney General v. HI. 484, 90 N. E. 221; People v. Cook, Winnebago Lake & F. E. Plank-Eoad 10 N. T. St. 650, aff'd 110 N. Y. 443, Co., 11 Wis. 35. 18 N. E. 113. In Illinois, a railroad corporation 19 State v. Chicago & E. I. K. Co., must pay the same fees as other cor- 145 Ind. 229, 43 N. E. 226. porations. People v. Eose, 210 111. 20Owensboro Wagon Co. v. Bliss, 582, 71 N. E. 580. 132 Ala. 253, 31 So. 81. See also Chap. IS Union Horse-Shoe Works v. Lewis, ^^> i"fra. t'ed. Cas. No. 14,365; National Shutter " ^tate v. Lesueur, 99 Mo. 552, 7 Bar Co. v. G. F. S. Zimmerman & Co., ^- «■ ^- ^34, 13 S. W. 237 (holding club no Md. 313, 73 Atl. 19; Cleaveland v. '"^ debating, reading, social amuse- Mullin, 96 Md. 598, 54 Atl. 665 (where "l^"*^' f^y^^S^i^^'^^ games as ten- ' ' , , pins, chess, checkers, etc., was for nonpayment held to preclude recovery , , ea^eational ' ' purposes) . of stock subscription). 22 State v. Sehmahl, 118 Minn. 319, 18 Hughesdale Mfg. Co. v. Vanner, 135 jj_ -yy gyg, 12 E. I. 491. 23 Michigan Female Seminary v. Seo- 17 National Shutter Bar Co. v. C. F. retary of State, 115 Mich. 118, 73 N. S. Zimmerman & Co., 110 Md. 313, 73 W. 131. 438 Ch. 7] Creation Under General Laws [§ 225 do not ordinarily apply to foreign corporations on filing their charters.'^* Fees are also often provided for on increasing the capital stock.*' But if an amendment to the charter is filed and it does not increase the capital stock, an additional fee dependent on the amount of the stock is not necessary.** Thus, if the fee is made payable "upon the incorporation of the company and on the increase of the capital stock thereof," no new fee is necessary when a corporation proceeds to extend its corporate existence by amendment.*'' So if a corporation has once paid the fee, which is based on the amount of the capital stock, n'o additional fee is necessary on a reduction of the capital stock, where the statute merely provides for another fee on an increase of thfe amount of the capital stock ; ** and where the old corporation is continued" under a slightly changed name, with no change in its scope and powers, no new fee is necessary.*' On the other hand, if a corporation already existing, seeks the benefits arising from the general corporation laws, by organizing or amending under them, and it has not previously paid the incorporation fee or tax, it must pay such fee as a condition.^' Wherfe a fee is payable on an increase of the capital stock, the amount is to be determined by the statute in force at the time of the actual increase, rather than by the statute in force at the time of thV legislative authorization to increase the capital stock.^^ If the fee is paid on the amount of capital stock for which the company was originally incorporated, and thereafter the amount of stock is decreased, but subsequently is increased in excess of the original amount, the fee on the increase is to be based on the excess over and above the original amount of capital stock, rather than on the excess over the decreased amount.'* 24 State V. Eotwitt, 18 Mont. 87, 44 27 Ohio Valley Tie Co. v. Bruner, Pac. 409. 148 Ky. 358, 146 S. W. 749. 2B People V. Hinrichsen, 161 111. 223, 28 Bruner v. Louisville Packing Co., 43 N. E. 973 (holding statute requir-^ 144 Ky. 471, 139 S. "W. 764. ing such fee in case of all companies 29 Bruner v. Louisville Packing Co., "at present organized" applies to cor- 144 Ky. 471, 139 S. W. 764. porations subsequently organized) . SO Ohio M alley Tie Co. v. Bruner, 148 26 St. Louis Southwestern E. Co. of Ky. 358, 146 S. W. 749, following Com. Texas v. Tod, 94 Tex. 632, 64 S. W. 778 v. Licking Valley Bldg. Ass 'n, 118 Ky. (where statute provided for fee of 791, 82 S. W. 435. $100 for the filing of ' ' every charter, 31 Com. v. Independence Trust Co., amendment or supplement thereto," 233 Pa. 92, 81 Atl. 928. with an additional fee for every 32 Com. v. Independence Trust Co., $100,000 of stock after the first). 233 Pa. 92, 81 Atl. 928. 439 § 225] , Private Coepoeations [Ch. 7 Wtere the statute fixes a fee for incorporating in proportion to the amount of the capital stock, and then provides for a fee of five dollars for filing a certificate of increase of capital stock, the secretary of state cannot refuse to file a certificate of increase of stock from five thousand dollars to one million dollars, although the purpose to avoid the payment of larger fees is clearly evident.*' Where it is sought to organize a new corporation, there is no exemp- tion from the payment of fees, unless otherwise provided hy statute, because the corporation is to be organized by the consolidation of two corporations which have paid fees on their capital stock.** Statutes requiring the payment of a fee on filing articles of con- solidation have been held applicable to articles of consolidation be- tween a domestic company and a foreign company, as well as to articles of consolidation between domestic companies only.'* Fees paid without duress cannot be recovered back although col- lected under an erroneous construction of the law under which they were claimed.*^ V. CHARTER §226. What constitutes. What constitutes the charter of a cor- poration, as affecting construction of the charter, is considered in a su^jsequent chapter."' Strictly speaking there is no charter where a corporation is created under a general law. However, the incorpora- tion papers, whether called articles of incorporation, application for incorporation, certificate of incorporation, or any other term, together with the signature, seal or decree of approval, are often referred to as the charter, although as a matter of law, the so-caUed charter consists of such papers and the statutes under which the corporation is created." In other words, the provisions of the statute or general 33 state V. Eotwitt, 17 Mont. 537, 43 Lucas Prospecting Co., 124 Iowa 107, Pac. 922. 99 N. W. 290; Attorney General v. 34 Scheidel Coil Co. v. Eose, 242 111. Perkins, 73 Mich. 303, 41 N. W. 426. 484, 90 N. E. 221; People v. Kiee, 68 The charter of a fraternal benefit Hun (N. Y.) 24, 22 N. T. Supp. 631. organization, created a corporation, is 35 Ashley v. Eyan, 49 Ohio St. 504, the certificate of organization granted 31 N. E. 721. to it by the state and the statutes or 36 Alton Light & Traction Co. v. the state which provide for the organi- "Eose, 117 111. App. 83. zation of such associations and define 37 See Chap. 20, infra. their powers. Wood v. Supreme Eul- 38 Ozan Lumber Co. v. Biddie, 87 ing Fraternal Mystic Circle, 212 111. Ark. 587, 113 S. W. 796; McCallister v. 532, 72 N. E. 783; Sherry v. Women's Shannondale Co-operative Tel. Co., 47 Cath. Order of Foresters, 166 111. Ind. App. 517, 94 N. E. 910; Traer v. App. 254. 440 Cli. 7] Ckeatiox Under General Laws [§227 incorporation act enter into and form a part of the charter,^' and the incorporation papers and statute are to be construed together, the latter controlling in case of a conflict.*'* It is not necessary that the general law should be copied in the charter, but it forms an essential part of it, and all parties are bound by its terms, whether copied in the charter or found only on the statute book.*^ Moreover, constitutional provisions automatically be- come a part of the charter.*^ §227. Ac'ceptance. It has been held that the rule requiring an acceptance of a charter** "has no application whatever to corpora- tions formed under general laws * * * where the corporators are the acting party in creating the corporation. ' ' ** The signature of the articles of incorporation is in effect an accept- ance.*^ At any event, it seems that stronger proof of acceptance is necessary when the corporation is created by a special act of the legislature,** and that the charter need not be accepted by any par- ticular form of action on the part of the incorporators, but the acceptance may be inferred from the conduct of the incorporators in acting as a corporation.*'' 39 Bixler v. Summerfield, 195 111. 147, 62 N. E. 849. 40 See Chap. 20, infra. 41 Supreme Lodge, Knights of Pyth- ias V. "Weller, 93 Va. 605, 25 S. E. 891. 42 Arkansas Stave Co. v. State, 94 Ark. 27, 27 L. E. A. (N. S.) 255, 140 Am. St. Eep. 103, 125 S. W. 1001; Pio- neer Telephone & Telegraph Co. v. State, 38 Okla. 554, 134 Pae. 398. 43 See Chap. 8, infra. 44 Spring Valley Water Works v. San Francisco, 22 Cal. 434. "Upon compliance with th'ese pro- visions [filing, recording, etc.], the persons who have signed and acknowl- edged the articles of incorporation thereby become a corporate body, by the name stated in the articles. It would be idle, under such circum- stances, to require further proof that the corporators had accepted that which they had in express terms ap- plied for, and to obtain which they had complied with all the requirements of the law." Glymont Improvement & Excursion Co. v. Toler, 80 Md. 2T8, 30 Atl. 651. 4B Benbow v. Cook, 115 N. C. 324, 44 Am. St. Eep. 454, 20 S. E. 453. 46 Boatmen's Bank v. Gillespie, 209 Mo. 217, 108 S. W. 74. 47 Glymont Improvement & Excur- sion Co. V. Toler, 80 Md. 278, 30 Atl. 651; Boatmen's Bank v. Gillespie, 209 Mo. 217, 108 S. W. 74. 441 CHAPTER 8 Creation Under Special Acts § 228. Constitutional prohibitions against special acts. § 229. Exceptions. i 230. General rules of construction. § 231. Corporations within prohibition. § 232. What is special act. § 233. What constitutes creation of corporation — In general. § 234. — Amendment of charter. § 235. — Ratification of charter or cure of defects. § 236. What constitutes granting or conferring of corporate powers or privileges — In general. § 237. — Amendment of charter. § 238. Eetroactive operation of prohibition. § 239. Acceptance of charter — Necessity. § 240. — Conditions precedent. § 241. — Conditional or partial acceptance. § 242. — Persons accepting. § 243. — Time. § 244. — Place. § 245. — Formal acceptance. § 246. — Presumption of acceptance. § 247. — Question for jury. § 248. — Effect. § 249. — Proof of nonacceptance. § 228. Constitutional prohibitions against special acts. Formerly, corporations were created exclusively by special acts — that is', by acts creating a particular corporation, as distinguished from a general law allowing any persons to organize themselves into and be a cor- poration by complying with prescribed conditions; and corporations may still be created by special act, in the absence of a constitutional prohibition,' or when such mode of creation is expressly permitted by 1 Oregon Ry. & Nav. Co. v. Ore- A constitutional provision that the gonian R. Co., 130 U. S. 1, 32 L. Ed. legislature shall have "no power to 837; Downing v. Indiana State Board grant corporate powers and privileges of Agriculture, 129 Ind. 443, 12 L. R. to private companies," except rail- A. 664, 28 N. E. 123. road companies, etc., authorizes the 442 Ch.8] Creation Under Special Acts [§228 the constitution.^ When special acts of incorporation are permitted and such a one is passed, it constitutes the charter of the corporation created,' and of such charter the court is required to take judicial notice.* Provisions have been embodied, however, in the constitutions in this regard. These provisions are of two general types — those prohibiting the creation or formation of corporations by special d,cts, and those prohibiting the granting or conferring of corporate powers by such acts. Thus in many of the states, in order, among other things, to remove the danger of favoritism and corruption in the creation of corporations, there have been adopted constitutional provi- sions declaring that, with certain exceptions, the legislature shall not pass any special act creating a corporation, but that corporations shall be formed under general laws only ; and where there is such a prohibi- tion, a special act creating a corporation is absolutely void.* The object of the prohibition is not to prevent the legislature from legis- lating on a special subject,* nor to prevent corporations from obtaining exclusive powers, privileges and franchises, but to prevent the legisla- ture from granting corporate powers, privileges and franchises to one set of applicants and refusing exactly the same corporate powers, priv- ileges and franchises to another set of applicants.'' "Everybody who is familiar at all with the history of the growth legislature to grant a special charter to a railroad company, although by another article it is provided that "laws of a general nature shall have uniform operation throughout the state, and no special law shall be en- acted in any case for which provision has been made by an existing gen- eral law," and although the legisla- ture had adopted a general railroad incorporation law before the granting of the special charter. Hawkinsville & F. S. Ey. Co. V. Waycross Air Line E. Co., 114 Ga. 239, 39 S. E. 844. ZMeMeekin v. Central Carolina Power Co., 80 S. C. 512, 128 Am. St Eep. 885, 61 S. E. 1020. 3 Lord V. Equitable Life Assur. So ciety, 47 N. Y. Misc. 187, 94 N. Y, Supp. 65, aff'd 109 N. Y. App. Div 252, 96 N.Y. Supp. 10. 4 Grey v. Newark Plank Eoad Co. 65 N. J. L. 51, 46 Atl. 606, aff'd (ex cept as to judgment entered) 48 Atl. 557; Eoach v. Farmers' Mut. Ins. Ass'n, 102 S. C. 478, 86 S. E. 950. 6 School Dist. No. 56 v. St. Joseph Fire & Marine Ins. Co., 103 U. S. 707, 26 L. Ed. 601; San Luis Water Co. v. Estrada, 117 Cal.' 168, 48 Pac. 1075; City & County of San Francisco v. Spring Valley Water Works, 48 Cal. 493; Oroville & V. E. Co. v. Plumas County Com'rs, 37 Cal. 354; Low v. City of Marysville, 5 Cal. 214; Gilmore V. Norton, 10 Kan. 491; Clegg v. School Dist. No. 56, 8 Neb. 178 and cases cited in the notes following. 6 Kentucky Live Stock Breeders' Ass'n v. Hager, 120 Ky. 125, 9 Ann. Cas. 50, 85 S. W. 738. 7 Jersey City v. North Jersey St. E. Co., 73 N. J. L. 175, 63 Atl. 906. See also Gas Light Co. City of New Brunswick v. Borough of South Eiver, 77 N. J. Eq. 487, 77 Atl. 473. 443 § 22§] Peivate Coepoeations [Ch. 8 and organization of corporations in the United States knows that this rule, requiring corporations to be organized under a general law, is the growth of some years, and has grown out of the confusion, cor- ruption, the partial and inequitable legislation that was the result of allowing parties to go before the legislature and ask for a special charter. The time of the legislature was unnecessarily consumed by it ; the integrity of the members of the legislature was unduly exposed ; or, through the ignorance or carelessness of the legislature, and the astuteness and diligence of designing and overreaching men, there were constantly coming to light obscure clauses in these acts of the legisla- ture, giving powers and granting privileges which were unjust, in- equitable, and which would never have been done with the knowledge of the legislature. ' ' * But provisions in an act which, by reason of this prohibition, might invalidate it, were they necessary to the eifec- tuating of its purpose, will not thus operate when as a matter of fact they are superfluous.' Even though the creation of a corporation by a local or fecial act is prohibited, the corporate existence of a body thus created a corpora- tion cannot be attacked collaterally.^" §229. Exceptions. In some states, the constitutional prohibition against incorporation by special act contains an exception allowing such acts, when no general laws exist providing for the creation of corporations of the same general character as the corporation pro- 8 Wells, Fargo & Co. v. Northern it came at last to be perceived that Pac. Ey. Co., 23 Fed. 469. See also they were attended by many' evils in City & County of San Francisco v. their operation as well as much good, Spring Talley Water Works, 48 Cal. and that the hasty manner in which 493, 511. they were created by the legislatures, "The rapid growth of corporations, sometimes with exclusive privileges, which have come to take a part in often without due consideration and all or nearly all of the business opera- under the influence of improper mo- tions of the country, and especially tives, frequently led to bad results." in enterprises requiring large aggrega- Oregon Ey. & Nav. Co. v. Oregoniau tions of capital and individual energy, E. Co., 130 U. S. 1, 20, 32 L. Ed. 837. as well as their success in meeting 9 Vought v. Columbus, H. V. & A. the needs of a vast number of most E. Co., 58 Ohio St. 123, 50 N. B. 442, important commercial relations, have aff'd 176 TJ. S. 481, 44 L. Ed. 554. demanded the serious attention and 10 Com. v. Philadelphia County, 193 consideration of law makers. And while Pa. St. 236, 44 Atl. 336. valuable services have been rendered The subjects of corporate existence, to the public by this class of organ- de facto corporations and corporations izatious, which have stimulated their by estoppel are treated in detail else- formation by numerous special acts, where. See Chaps. 10 and 11, infra, 444 Ch.8] Ceeation Under Special Acts [§229 posed to be created, or where, in the judgment of the legislature, the objects of the proposed corporation cannot be attained under general laws. It has been held that a provision of the latter character is permissive and not mandatory,!^ and that the matter rests wholly in the discretion of the legislature.^^ The passage of a special act creates the conclusive presumption that in the judgment of the legislature the objects of the corporation were not attainable under general laws and that it was for this reason that the special act was passed.^^ That the legislature passes a special or local act is considered per se a legislative declaration that a general law cannot be made applicable;^* 11 Smith V. Havens Belief Fund So- ciety, 44 N. Y. Misc. 594, 90 N. Y. Supp. 168. "St. Louis, I. M. & T. B. Co. v. Board Directors Levee Dist. No. 2, Jackson Co., 103 Ark. 127, 145 S. W. 892; Oneonta Light & Power Co. v. Schwarzenbach, 164 N. Y. App. Div. 548, 150 N. Y. Supp. 76. 13 Economic Power & Construction Co.v. City of Buffalo, 59 N. Y. Misc. 571, 111 N. Y. Supp. 443, aff'd 128 N. Y. App. Div. 883, 112 N. Y. Supp. 1127. 14 Smith V. Indianapolis St. E. Co., 158 Ind. 425, 63 N. E. 849. See also Jordan v. City of Logansport, 178 Ind. 629, 99 N. E. 1061; School City of Marion v. Forrest, 168 Ind. 94, 78 N. E. 187; Thomas v. Spartanburg Bail- way, Gas & Electric Co., 100 S. C. 478, 85 S. B. 50; State v. Hammond, 66 S. C. 219, 44 S. E. 797. This doctrine, which also obtains in Illinois (Herschbach v. Kaskaskia Island Sanitary & Levee Dist., 265 111. 388, 106 N. E. 942), seems to have originally been based, in that state at least, on the ground of expediency. In Johnson v. Joliet & 0. B. Co., 23 111. 202, decided in 1859, the Supreme Court, considering the contention that the railroad company's special char- ter granted in 1855 was invalid under the provision in the Illinois Constitu- tion of 1848, that "corporations not possessing banking powers or privi- leges, may be formed under general laws, but shall not be created by special acts, except for municipal pur- poses, and in cases where, in the judg- ment of the general assembly, the objects of the corporation cannot be attained under general laws," said: "It is too late now to make this ob- jection, since, by the action of the general assembly under this clause, special acts have been so long the order of the day, and the ruling pas- sion with every legislature which has convened under the Constitution, until their acts of this description fill a huge and misshapen volume, and important and valuable rights [are] claimed under them. The clause has been wholly disregarded, and it would now produce far-spread ruin, to declare such acts unconstitutional and void. It is now safer, and more just to all parties, to declare, that it must be understood that in the opinion of the general assembly, at the time of pass- ing the special act, its objects could not be attained under the general law; and this, without any recital by way of preamble, as in the act to incor- porate the Central Bailroad Company. That preamble was placed there by the writer of this opinion, and a strict compliance with this clause of the Constitution would have rendered it necessary in every subsequent act. 445 §229] Peivate Cobpobations [Ch.8 There are divergent views as to the effect of the legislature 's deter- mination of this matter. According to one view, such determination is not subject to judicial review.** On the other hand, in decisions in which the same principle was involved, though the acts under consideration did not relate to private corporations, the view has been taken that the question whether a general law can be made applicable is ultimately a judicial one.*® But the legislature in theii wisdom, have thought differently, and have acted differently, until now our special legislation and its mischiefs are be- yond recovery or remedy. ' ' This case, in Indianapolis & St. L. B. Co. v. Vance, 96 U. S. 450, 24 L. Ed. 752, was held to dispose of an objection that the special act, passed by the Illinois legislature, which was then before the court and which contained nothing to show that the corporation named therein might not have been organ- ized under the general laws of Illinois, could not be construed as creating a new corporation without bringing it into conflict with the constitutional provision above quoted. IB Smith v. Indianapolis St. E. Co., 158 Ind. 425, 63 N. E. 849; Oneonta Light & Power Co. v. Schwarzenbach, 164 N. y. App. Div. 548, 150 N. Y. Supp. 76. See also Carpenter v. Peo- ple, 8 Colo. 116, 5 Pac. 828; Hersch- baeh v. Kaskaskia Island Sanitary & Levee Dist., 265 111. 388, 106 N. E. 942; Johnson v. Joliet & C. E. Co., 23 111. 202; Jordan v. City of Lo- gansport, 178 Ind. 629^ 99 N. E. 1061; School City of Marion v. Forrest, 168 Ind. 94, 78 N. E. 187; Knowles v. Board of Education, 33 Kan. 692, 699, 7 Pac. 561; State v. Hitchcock, 1 Kan. 178, 81 Am. Dec. 503; Eeed v. Balti- more Trust & Guarantee Co., 72 Md. 531, 20 Atl. 194; State v. Boone Coun- ty Court, 50 Mo. 317, 11 Am. Eep. 415; Evans v. Job, 8 Nev. 322. Of course these holdings were made under constitutions which contained no express provisions on the subject. But see article V, section 30 of the Michigan Constitution, which pro- vides that "the legislature shall pass no local or special act in any case where a general act can be made ap- plicable, and whether a general act can be made applicable shall be a judicial question." 18 ' ' Whether a given enactment is constitutional, involves interpretation and construction — the exercise of purely judicial functions. Policy is as clearly a question for the legisla- ture. The duty of the several branches of our state government is well de- fined. No legislative power is con- ferred upon the judiciary; no judicial power upon the legislature. It would require very clear language to justify the assertion that in these amendments the people intended to vest judicial power in the law-maker. Such a rule would subvert the theory upon which our system is framed, and disturb the checks and balances by which it is guarded. Whether the legislature has transcended its power, and passed an act in conflict with the Constitution, is essentially a question of law, and must necessarily be passed upon by the courts. These provisions being in- corporated into the fundamental law, were designed to establish a fixed and permanent rule, but it is manifest that nothing could be more flexible, if it rests solely in the judgment and dis- cretion of the body upon which it is intended to operate. No standard could be established by which the law-maker could be guided, and what might be rejected at one session aa 446 Ch.8] Cbeation Under Special Acts [§230 §230. General rules of construction. The constitutional prohibi- tion against the creation of corporations by special act is not subject improper, might become a law at the next, and thus the rule would fluc- tuate with the ever-changing member- ship in that body, and the validity of an act would depend, not so much upon the fixed rule of the Constitution as upon the liberality or strictness with which successive legislatures, under the pressure of local influences, might determine to interpret the restraint upon their own action. From one of the widest fields for the enactment of laws, in which the constitutional restraint was expressly designed to operate, not upon the courts, but upon the legislative department, in control- ling its methods, judicial investiga- tion would be absolutely excluded. The judiciary might declare that a law was unconstitutional because its title em- braced more than one object, or in that it had the effect to take private property for public use, without just compensation, or in any other of the many respects in which the exercise of the legislative function has been hitherto challenged; but in this par- ticular, in which an amendment has been introduced for the express pur- pose of trammeling the law-making power, its action would be unassail- able. That such an interpretation would render the amendment futile in its practical operation, must be appar- ent to any one who will examine the course of legislation during the last two years. It cannot be adopted by the courts without abandoning one of the most important branches of juris- diction committed to them by the constitution. That the legislature would act in good faith, must be pre- sumed; purity of motive and a desire to keep within the prescribed limita- tions must be conceded to its mem- bers at all times: but that the people should have deliberately framed and imbedded in their organic law an amendment to prohibit special legis- lation where general laws might be passed, and, at the same time, should have intended to put legislative action beyond review, where there was a, clear infraction of the prohibition, is a proposition to which it seems impos- sible to assent. The mere form in which a law is enacted cannot be con- clusive of the question." Pell v. Newark, 40 N. J. L. 71, aff'd 40 N. J. L. 550, 29 Am. Bep. 266 (involving amendment of municipal charter). "In determining whether a general law can be made applicable, the ju- diciary should indulge every presump- tion in favor of the legislative act; and 80 it should be presumed that the legislature, by the special or local en- actment, thereby declared its view that the general law could not be made applicable. This conclusion, however, being to some extent at least a ques- tion of law, would no more bind the judicial department in enforcing a constitutional limitation than the leg- islative determination that a statute is constitutional, which is presump- tively involved in the passage of every statute. * * * It is not in- tended to recede at all from the rule stated, that whenever the legislature has power to determine the existence of certain facts essential to the per- formance of some duty imposed by the Constitution, courts will not permit evidence aliunde assailing such con- clusions of fact, with a view to over- throw the legislation based thereon. But the applicability of a general law is not simply a question of fact, it in- volves matter of law; and it is not intended by this court now to assert that, when the legislature has said that a general law cannot be made applicable, such conclusion may be 447 230] Pbivate Cobpobations [Ch.8 to-exact definition,!'' and in determining the applicability of the prohibition against special or private acts granting corporate powers or privileges except to cities, it would seem that the spirit of the prohibition rather than its letter is to control.^' In determining the construction to be placed on the constitutional prohibition, the absence of a constitutional requirement that legislation be uniform,!' legislative exposition of the prohibitory provision,*" the situation of the state's corporation law as regards the existence of bad and vicious special charters,*^ and expediency, would seem to be factors to be considered.** Moreover, it is undoubtedly true that the usual presumption of validity should be given its proper weight in determining whether an act is violative of the prohibition,*^ and that an act which can reasonably be construed in such a manner as will prevent its violating the constitution will not be given a construction which will bring it into conflict therewith.** controverted by any evidence outside of what appears upon the face of the statute, and upon such matters as to which a court must take judicial cog- nizance." State V. Hammond, 66 S. C. 219, 44 S. B. 797 (involving crimi- nal statute). See also Thomas v. Spartanburg Railway, Gas & Electric Co., 100 S. C. 478, 85 S. E. 50 (involv- ing penal statute). 17 Marion Trust Co. v. Bennett, 169 Ind. 346, 124 Am. St. Eep. 228, 82 N. E. 782. 18 Globe Elevator Co. v. Andrew, 144 Fed. 871, aflf'd 156 Fed. 664. 18 City of Lansing v. Michigan Power Co., 183 Mich. 400, 150 N. W. 250. 20 Smith V. Indianapolis St. R. Co., 158 Ind. 425, 63 N. E. 849; In re Bank of Commerce, 153 Ind. 460, 47 L. R. A. 489, 53 N. E. 950, 55 N. E. 224; City of Indianapolis v. Navin, 151 Ind. 139, 41 L. R. A. 337, 51 N. E. 80, 47 N. E. 525; Duflfy v. City of New Orleans, 49 La. Ann. 114, 21 So. 179; Black River Improvement Co. v. Holway, 87 Wis. 584, 59 N. W. 126. il Jersey City v. North Jersey St. "8. Co., 73 N. J. L. 175, 63 Atl. 906. (In this case the court declined to ac- cept as a precedent, on the question of the character of a New Jersey act authorizing the extension of corpo- rate charters the case of State v. Lawrence Bridge Co., 22 Kan. 438, in which a Kansas act similar to the New Jersey one was held to be spe- cial in character, stating that an ex- amination of the opinion in that case disclosed "that the situation of the corporation law of that state [Kan- sas], at the time of the decision, was very different from the body of the corporation law of New Jersey.") 22 Black River Improvement Co. v. Holway, 87 Wis. 584, 59 N. W. 126 (numerous investments upon, and growth of large interests as result of, assumption that legislation of char- acter attached was valid). 23 Duffy v. City of New Orleans, 49 La. Ann. 114, 21 So. 179; St. Joseph & I. R. Co. V. Shambaugh, 106 Mo. 557, 17 S. W. 581. 24 Central Wisconsin Trust Co. v. Barter, 194 Fed. 835, aflf'g 185 Fed. 192; Smith v. Indianapolis St. R. Co., 158 Ind. 425, 63 N. E. 849. See also Gas Light Co. of City of New Bruns- wick V. Borough of South River, 77 N. J. Eq. 487, 77 Atl. 473; Jersey City 448 Ch. 8] Creation Undee Special Acts [§ 231 The federal courts will accept the judgment of the highest court o-f a state that the act creating a corporation is not invalid as a special act within the prohibition of the state constitution, unless a contrary- view is demanded by most cogent reasons involving or affecting the constitutional and statutory jurisdiction of the federal courts.''* With the policy, justice or wisdom of an act, the courts are not concerned so long as it cannot he said that the act contravenes the constitutional provision.** The court cannot set up its judgment whether an act which was within the legislative power was a wise exercise thereof, its duty where a valid act is involved being to enforce rather than to obstruct the legislative will.*^ §231. Corporations within prohibition. The fact that a body is declared to be a corporation,** or a body politic or corporate,*® or is denominated a corporation,*" or is given ' ' all the rights, powers and immunities incident to corporations,"'^ by the act which creates it does not definitely determine that it is a corporation as that ward is used in the constitution. The court will "look behind the name to the thing named. Its character, its relations, and its functions determine its position, and not the mere title under which it passes."'* Some of the state constitutions prohibiting incorporation by special V. North Jersey St. R. Co., 73 N. J. L. 31 Duflfy v. City of New Orleans, 49 175, 63 Atl. 906. La. Ann. 114, 21 So. 179 (commission 26 Thomas v. Board Trustees Ohio for part of New Orleans). State University, 195 U. S. 207, 49 32 Beach v. Leahy, 11 Kan. 23, ward L. Ed. 160. school board held to be a corporation 26 Cincinnati St. E. Co. v. Horstman, within the meaning of the prohibi- 72 Ohio. St. 93, 73 N. E. 1075. tion. Board School Directors Madi- 27 Smith V. Indianapolis St. E. Co., son Parish v. Coltharp, 127 La. 956, 158 Ind. 425, 63 N. E. 849. 54 So. 299. Sanitary district would 28 Napa State Hospital v. Dasso, seem to be a corporation within the 153 Cal. 698, 18 L. E. A. (N. S.) 643, meaning of the prohibition. Whedon 15 Ann. Cas. 910, 96 Pae. 355 (state v. Wells, 95 Neb. 517, 145 N. W. 1007. hospital for insane). Municipal as well as private eor- 29 Com. V. Philadelphia County, 193 porations are within a provision that Pa. St. 236, 44 Atl. 336 (trustees of "corporations, other than banking, state hospital for insane). shall not be created by special act." 30 Middleton v. Texas Power & Light Town of Longview v. City of Craw- Co., — Tex. — , 185 S. W. 556 (in- fordsville, 164 Ind. 117, 68 L. E. A. Burance association created by the 622, 3 Ann. Cas. 496, 73 N. E. 78, Texas Workmen 's Compensation Act A city would seem to be a corporation and therein denominated "a corpora- within the meaning of a prohibition tion"). against local or special acts granting 449 I Priv. Corp.— 29 231] Pkivate Cokpobations [Ch.8 act expressly except corporations of a certain kind, — as, for example, municipal corporations, or corporations having in view the issuing of bills to circulate as money, or the construction of some work of internal improvement, etc.'' §232. What is special act. A special, as distinguished from a general, law is one relating to particular persons or things of a class. charters to or amending charters of corporations. Bryan v. Voss, 143 Ky. 422, 136 S. W. 884. The following have been held not to be corporations within the mean- ing of the prohibition: levee district (St. Louis, I. M. & T. E. Co. v. Board Directors Levee Dist. No. 2, Jackson Co., 103 Ark. 127, 145 S. W. 892; People V. Levee Dist. No. 6, Sutter Co., 131 Cal. 30, 63 Pac. 676; Fenner V. Board Com'rs Bed Eiver, A. & B. B. Levee Dist., 137 La. 557, 68 So. 953; Beelfoot Lake Levee Dist. v. Dawson, 97 Tenn. 151, 34 L. E. A. 725, 36 S. W. 1041) ; library board (School City of Marion v. Forrest, 168 Ind. 94, 78 N. E. 187) ; normal college cre- ated for purpose of enabling state to discharge its duty of providing a complete system of schools and col- leges (Turner v. City of Hattiesburg, 98 Miss. 337, 53 So. 681; Turner v. County of Forrest [Miss.], 53 So. 684) ; reclamation district (Eeclamation Dist. No. 70 V. Sherman, 11 Cal. App. 399, 105 Pac. 277); school district (State V. State Board of Canvassers, 78 S. C. 461, 14 L. E. A. (N. S.) 850, 13 Ann. Cas. 1133, 58 S. F. 145) ; state board of control of certain public in- stitutions (State V. Bryan, 50 Fla. 293, 39 So. 929); state hospital for insane (Napa State Hospital v. Dasso, 153 Cal. 698, 18 L. E. A. (N. S.) 643, 15 Ann. Cas. 910, 96 Pac. 355, 357); township trustees (Brattleboro Sav. Bank v. Board of Trustees, 98 Fed. 524, afT'd 106 Fed. 986). Political cor- poration (sewerage district) held not within prohibition against conferring corporate powers. Van Cleve v. Passaic Valley Sewerage Com'rs, 71 N. J. L. 183, 58 Atl. 571, rev'd on an- other point, 71 N. J. L. 574, 108 Am. St. Eep. 754, 60 Atl. 214. An act granting to certain persons "and their assigns" the exclusive right to supply a town with water, prescribing certain duties, and author- izing the town ' ' to purchase the works and franchises" after a certain time, was also held not to create a corpora- tion, and not within such a prohibi- tion. San Luis Water Co. v. Estrada, 117 Cal. 168, 48 Pac. 1075. But the board of trustees of teach- ers ' retirement fund was held a corpo- ration of a political character if a corporation at all, and hence not within prohibition. Allen v. Board Education City of Passaic, 81 N. J. L. 135, 79 Atl. 101, afE'd 86 Atl. 1102. 33 School district is municipal cor- poration within provision excepting corporations for municipal purposes. Board Education Union Free School Dist. No. 6 v. Board Education Union Free School Dist. No. 7, 76 N. Y. App. Div. 355, 78 N. Y. Supp. 522, aff'd 179 N. Y. 556, 71 N. E. 1128. See also cases cited in preceding note. A cor- poration created for the purpose oi constructing and maintaining a pipe line in an oil district for the convey- ance or transportation of petroleum for the public generally has been held to be a corporation for constructing a work of internal improvement, within the meaning of such an exception. West Virginia Transp. Co. v. Volcanic Oil & Coal Co., 5 W. Va. 382. 450 Ch.8] Ceeation Under Special Acts [§232 A law becomes special within the meaning of the constitution when by force of an inherent limitation it arbitrarily separates or segregates some person or thing upon which, but for such limitation, it would operate.^* 34 state V. Columbia, G. & S. F. Turnpike Co., 133 Tenn. 446, 181 S. W. 682. See also In re Wyoming Val- ley Co-op. Ass'n, 198 Ted. 436; Frye V. Partridge, 82 111. 267; Weinman v. Wilkinsburg & E. L. P. Ey. Co., 118 Pa. St. 192, 12 Atl. 288. ' ' It seems impossible to fix any defi- nite rule by which to solve the ques- tion whether a law is local or general, and it has been found expedient to leave the matter, to a considerable ex- tent, open, to be determined upon the special circumstances of each case." Ferguson v. Ross, 126 N. Y. 459, 27 N. E. 954. See also St. John v. An- drews Institute for Girls, 191 N. Y. 254, 14 Ann. Cas. 708, 83 N. E. 981; Farrell v. Port of Columbia, 50 Ore. 169, 93 Pac. 254, 91 Pac. 546. On the question as to what consti- tutes general, special, public and private laws, Blackstone (Cooley's Edition p. 86*) says: "A general or public act is an universal rule, that re- gards the whole community; and of this the courts of law are bound to take notice judicially and ex officio (in the course of duty; by virtue of office) ; without the statute being par- ticularly pleaded, or formally set forth by the party who claims an advantage under it. Special or private acts are rather exceptions than rules, being those which only operate upon particu- lar persons, and private concerns; such as the Eomans entitled senatus decreta (decrees of the senate), in contradistinction to the senatus con- suUa (acts of the senate), which re- garded the whole community; and of these (which are not promulgated with the same notoriety as the for- mer), the judges are not bound to take notice, unless they be formally shewn and pleaded. Thus, to show the distinction, the statute 13 Eliz. c. 10, to prevent spiritual persons from making leases for longer terms than twenty-one years, or three lives, is a public act; it being a rule prescribed to the whole body of spiritual persons in the nation; but an act to enable the bishop of Chester to make a lease to A. B. for sixty years is an exception to this rule; it concerns only the parties and the bishop's successors; and is therefore a private act." See also Town of Unity v. Burrage, 103 U. S. 447, 26 h. Ed. 405; State v. In- dian Territory Illuminating Oil Co., 32 Okla. 607, 123 Pac. 166. A later authority (Lewis' Sutherland on Statutory Construction, §§ 194, 199, 327), considering the same question, says: "The descriptive term 'genefal laws' has been in use for a long time. In the common-law classification of statutes it applies to and includes all public acts; those of which the courts take judicial notice; all except pri- vate acts. This classification will be more particularly discussed in another place. It is obvious that this term is not used in these constitutional pro- visions in this sense. Some eases, however, seem to have proceeded on the contrary assumption, but I think erroneously. Public statutes may be local or special, and incapable of uni- form operation throughout the state, and therefore within the purpose of these provisions. The frequency and inconvenience of such local and spe- cial legislation in public acts led to the adoption of these provisions. The enumeration of subjects as to which local or special legislation is forbid- 451 232] Peivate Cokpokations [Ch.8 "Whether a law is general or special is to be determined from the law itself, and not from the designation which may be given it by the legislature,^" and the fact that an act which is special in its provisions den is chiefly an enumeration of subjects upon which the prior legisla- tion was of that character — public laws — of which courts would take ju- dicial , notice. Under these require- ments it must not be by special or local but by general laws; and where the requirement of uniform operation is in force these must so operate. An act to establish a municipal court in a particular city or a particular munici- pal government would not be a gen- eral law, but it would be a public law. That which concerns the admin- istration of public justice, like legisla- tion relating to a court, though it be of limited jurisdiction and its sittings confined to a specified locality, is a public: law, but local;:it is a law which affgcts the public generally. It is not necessary, in order to give a statute the' attributes of a public law that it shall be equally applicable to all parts of the state, nor that it extends in its operation to all of the inhabi- tants. 'Astatute may be general and yet be operative only in a particular locality.' " Act relating to public institutions held not special. State V. Bryan, 50 Fla. 293, 39 So. 929. Act unddr which consolidation of traction companies was efEected, held general and applicable to all street railroads. Thomson v. Indiana Union Traction Co., — Ind. — , 110 N. E. 121. Act authorizing formation of companies for manufacture and, sale of electricity for heating, lighting and power pur- poses for towns and cities, and the general public, held not special. Mil- ler V. Southern Indiana Power Co., — Ind. — , 111 N. E. 308. Act creating board of waterworks for cities of cer- tain class, held not invalid. Kirch V. City of Louisville, 125 Ky. 391, 101 8. W. 373. Act providing for incor- poration of supreme, grand and sub- ordinate lodges of a co-operativo fraternal building and loan society or order, held not invalid. People v. Wilson, 157 Mich. 650, 122 N. "W. 297. Act (April 21, 1876; P. L. 1876, p. 235) authorizing extension of cor- porate existence, held general as ap- plying to every corporation either then, or which should thereafter be organized. Jersey City v. North Jer- sey St. R. Co., 73 N. J. L. 175, 63 Atl. 906. See also Gas Light Co. City of New Brunswick v. Borough of South Eiver, 77 N. J. Eq. 487, 77 Atl. 473. Act (April 9, 1889) pro- viding for extension of corporate ex- istence, held special as providing for case of particular corporation. Grey V. Newark Plank Eoad Co., 65 N. J. L. 51, 46 Atl. 606, aff'd (except as to judgment entered) 48 Atl. 557. Act to enable any railroad company incor- porated under general laws to change either of its termini at any time prior to the final location of the road, held not special. Memphis & S. L. R. Co. V. Union R. Co., 116 Tenn. 500, 95 S. W. 1019. Law authorizing organ- ization of trust companies, held gen- eral and not special. Roane Iron Co. V. "Wisconsin Trust Co., 99 Wis. 273, 67 Am. St. Rep. 856, 74 N. W. 818. Statutes authorizing the incorporation of religious bodies, held not invalid. St. Hyacinth Congregation v. Borucki, 141 Wis. 205, 124 N. W. 284. 36 City & County of San Francisco V. Spring Valley Water Works, 48 Cal. 493. See also Belleville & I. R. Co. v. Gregory, 15 111. 20, 58 Am. Dec. 589. An act authorizing the purchasers of the property of a railroad company at a foreclosure sale to organize and form a corporation with the same rights and franchises as are possessed 452 Ch.8] Ceeation Under Special Acts [§ 232 has a title which would indicate that it was general, will not save it from invalidity.38 Nor can a special act be changed into a general one by the mere declaration in another act that such special act should be considered general.''' The fact that the occasion and the request for the enactment of the law were special does not necessarily determine that the act is a special one.** It is the substance of the act which determines its character. Even though its provisions be general in form, it cannot be regarded as a general act if such provisions be special in essence.^' Moreover, it would seem that an act ileed not designate or identify a particular corporation by name in order for it to be special in dhar- acter. ' ' Identification in instances may be as practically effectual by the use of the population standard as by name ; and identification, in such mode, is not necessarily classification, but may be the isolation against which the constitutional provision is directed."** But the by the company whose property is thus acquired is a special act, within the meaning of the prohibition. Atkinson V. Marietta & C. E. Co., 15 Ohio St. 21. 36 Grey r. Newark Plank Road Co., 65 N. J. L. 51, 46 Atl. 606, aff'd (ex- cept as to judgment entered) 48 Atl. 557. 37 City & County of San Francisco V. Spring Valley Water Works, 48 Cal. 493 (act granting to specified in- dividuals and their assigns certain powers and privileges, to take effect if they should, within a certain time, organize themselves into a corpora- tion under existing laws). SSClendaniel v. Conrad, 3 Del. 549, 83 Atl. 1036. "If we assume that such act was passed to aid in the incorporation of the Andrews Institute for Girls, it is not necessarily unconstitutional for that reason. It is not an uncommon thing in any state for questions to arise making it desirable or perhaps necessary for further general legisla- tion to enable persons interested to carry out desired and desirable meas- ures. The fact that such further gen- eral statute is passed to aid a particular person for the time being does not make the act a special, as distinguished from a general, one. Whether an act, general in form, is a mere device to evade a wholesome con- stitutional provision is largely de- pendent upon the special circumstances of each case. If the act relates to persons, places, and things as a class, and is neither local nor temporary, the mere fact that its practical effect is special and private does not neces- sarily prove that it violates con- stitutional provisions against special legislation." St. John v. Andrews Institute for Girls, 191 N. Y. 254, 14 Ann. Cas. 708, 83 N. E. 981. 39 Jersey City v. North Jersey St. E. Co., 73 N; J. L. 175, 63 Atl. 906; See also Gas Light Co. City of New BrunswiclE v. Borough of South Bivei^ 77 N. J. Eq. 487, 77 Atl. 473i' • ■' 40 State V. Columbia, G. & S. F. Turn- pike Co., 133 Tenn. 446, 181 S. W. 682 (holding special an act affecting turn- pike companies which applied only to counties having a population of not more than 42,750 nor less than 42,700): See also Etowah Light & Power Coi vi Yancey, 197 Fed. 845, writ of error dismissed 199 Fed. 988. 453 § 232] Pbivatb Coepoeations [Ch. 8 f act'that an act authorizing the formation of corporations or conferring powers or privileges upon corporations does not apply to every person or corporation in the state does not render it special, if it has a uniform operation as to all persons similarly situated." In other words, the fact that an act classifies persons who may form a corporation, or the purposes for which corporations may be formed, or the corporations which shall enjoy powers or privileges granted, does not render it a special act, if the classification is reasonable, and if the act applies to all persons or corporations falling within the particular classes.*^ The special laws prohibited are those which do not embrace all of the class to which they are naturally related but create preferences or establish inequalities of burden. "The true principle requires some- thing more than a mere designation by such characteristics as will serve to classify, for the characteristics which thus serve as a basis for classification must be of such a nature as to mark the objects so , designated as peculiarly requiring exclusive legislation. There must be a substantial distinction, having a reference to the subject-matter of the proposed legislation, between the objects or places embraced in such legislation and the objects or places excluded. ' ' ** The determination whether or not a given law is general involves the consideration both of the purpose of the act and the objects on which it is intended to operate. Provided these objects are dis- tinguished from others by characteristics evincing a peculiar relation to the legislative purpose, and showing the legislation to be reasonably appropriate to the former and inappropriate to the latter, the objects will be considered, as respects such legislation, to be a class by them- selves, and the legislation to be general. But if the characteristics 41 Clendaniel v. Conrad, 3 Del. 549, none of which was organized for pe- 83 Atl. 1036; Hazelett v. Butler Uni- cuniary profit or had any stock, but versity, 84 Ind. 230; Attorney General each and all of which were organized V. MeArthur, 38 Mich. 204; In re New for a public purpose, namely, in the York El. B. Co., 70 N. Y. 327. interest of education, and were of a The prohibition against special laws public character, the court said: "The ip not violated by an act limiting the fact that no other like corporations fares to be charged by street railroads may be formed does not destroy the in cities having a certain population or general and public character of the more. City of Indianapolis v. Navin, [creating] acts, because they are open 151 Ind. 139, 41 L. E. A. 337, 51 N. B. to all citizens to become members at 80, 47 N. E. 525. any time." Bullock v. Billheimer, 48 Clendaniel v. Conrad, 3 Del. 549, 175 Ind. 428, 94 N. E. 763. 83 Atl. 1036; Atlantic City Water • 43 State v. Columbia, G. & S. F. Works Co. v. Consumers Water Co., Turnpike Co., 133 Teun. 446, 181 S. W. 44 N. J. Eq. 427, 15 Atl. 581. 682. In a case involving corporations, 454 Ch. 8] Cbeation Undeb Special Acts [§ 232 used to distinguish the objects to which the legislation applies from others are not germane to the legislative purpose, or do not indicate a reasonable appropriateness in its application, or if objects with similar characteristics and like relation to the legislative purpose have been excluded from the operation of the law, then the classification must be regarded as incomplete. and faulty, and the legislation not general, but local or special.** The constitutional prohibition against special laws was not designed to hinder the legislature from confining the specified work or business of a corporation, by the terms of the law, within a given section of the state in any case when, in consequence of natural conditions, such work or business cannot be carried on elsewhere ; and therefore it does not prohibit acts authorizing the formation of corporations for the purpose of operating in certain localities only, where the operations are such that they cannot be carried on elsewhere.*^ That an act confers corporate powers upon the specially chartered corporations which take advantage of its provisions does not prevent its being a general law, where every corporation formed under the gen- eral law which accepts the powers and franchises granted to it by that law becomes as completely vested with the exclusive right to exercise those powers upon its property and to enjoy those franchises as if they had been conferred upon it by special' charter.** Since a special act may be perpetual in its operation and a general act may be temporary, an act is not special merely because it is tem- porary.*'' Moreover it would seem that a general act cannot be made special by a subsequent independent incorporation act.*' 44 Long Branch v. Sloane, 49 N. J. tute for Girls, 191 N. Y. 254, 14 Ann. L. 356, 8 Atl. 101. See also State ex Cas. 708, 83 N. E. 981, the following rel. Van Eiper v. Parsons, 40 N. J. L. sentence from the opinion in which 123, 29 Am. Rep. 210; Van Riper v. would seem to carry the intimation Parsons, 40 N. J. L. 1; Edmonds v. that the court would regard a tem- Herbrandson, 2 N. D. 270, 14 L; R. porary act as special in character: A. 725, 50 N. W. 970; Cincinnati St. "If the act relates to persons, places, R. Co. V. Horstman, 72 Ohio St. 93, and things as a class, and ia neither 73 N. E. 1075. local nor temporary, the mere fact 45 Attorney General v. McArthur, that its practical effect is special and 38 Mich. 204. . private does not necessarily prove that 46 Jersey City v. North Jersey St. it violates constitutional provisions R. Co., 73 N. J. L. 175, 63 Atl. 906. against special legislation." 47 Cincinnati St. E. Co. v. Horst- 48 Millville Improvement Co. v. Pit- man, 72 Ohio St. 93, 73 N. E. 1075. man, Glassboro & Clayton Gas Co., 75 But see St. John v. Andrews Insti- N. J. L. 410, 67 Atl. 1005. 455 §233] Peivate Cokporations [Ch.8 §233. What constitutes creation of corporation— In general. There has been some judicial discussion as to what constitutes the "creation" of a corporation within the meaning of those constitutional provisions which prohibit the creation or formation of corporations by special acts, the definition in question being mainly important in ascer- taining whether a particular act is one of creation, or merely one other- wise involving corporate powers.*® 49 See §§408-415, infra. "The word 'create,' has a clear, well-settled, and well-understood sig- nification. . It means to bring into be- ing; to cause to exist; to produce; to make, etc. To my apprehension, it appears to be one thing to create, or bring into being, a corporation, and quite another to deal with it as an existing entity, a person, after it is created by regulating its intercourse, relations, and acts as to other exist- ing persons, natural and artificial. * * * The creative act necessarily extends only to the bringing into be- ing of an artificial person, with the capacities stated, among which is 'a capacity to receive and enjoy in copi- mon grants and privileges and im- munities'; that is to say, a capacity to receive and enjoy such grants, privi- leges, and immunities as may be made either at the time of the creation or any other time. The creation of the being with the capacity to receive grants is one thing; the granting of other privileges and immunities, which it has the capacity to receive when created, 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 corporate name such things as the legislative power may permit, and receive such grants of such rights and privileges, and of such property, as the legisla- ture itself or private persons with the legislative permission may give. But I do not understand that every right, privilege, or grant that can be con- ferred upon a corporation, must be given simultaneously with the cre- ative act of incorporation. On the contrary, I suppose the artificial being must be created with a capacity to receive before anything can be re- ceived. The right to be a corporation is itself a separate, distinct, and in- dependent franchise, complete within itself. And a corporation having been created, enjoying 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 enjoys the latter franchises, they do not, therefore, constitute a part of the distinct and independent essential franchise, — the right to be a corpora- tion. They are additional franchises given to the corporation, and not parts of the corporation itself, — not of the essence of the corporation. * * » But, being created, theiy [corpora- tions] may be prohibited from doing one thing and permitted to do another, like natural persons; but this permis- sion or prohibition is not a creative act, but an act regulating the conduct of the corporation, and determining its rights and relations to the public, and to other existing persons, natural and artificial. * * * The power to create a corporation * * * extends, therefore, to the bringing into being of a legal .entity, having powers and privileges not possessed by individu- als; that is to say, possessing the pow- ers, which, as before stated, constitute the essence of a corporation, or corpo- rate powers, strictly speaking, and has 456 .Ch; 8] Cbeation Under Special Acts [§233 The fact that an act which neither creates a corporation nor author- izes the incorporation of one is entitled "An act to incorporate" a no reference to thp legislative dealings with that artificial person after its creation. I suppose the Constitution might have devolved the power of cre- ating a corporation on some other body, as the supreme court, and the power to deal with it after its cre- ation — to regulate its conduct and relations to the public, and to pre- scribe its rights, powers, and duties, other than those strictly corporate, to the legislature. Had it been so pro- vided, there can be no doubt that such powers would have been wholly dis- tinct and independent. I do not per- ceive that they are any the less so, because exercised by the same body. The act of creating a corporation by conferring upon an association of in- dividuals certain strictly corporate powers embracing only powers and privileges not possessed by individu- als and partnerships, and then grant- ing to it other privileges, enlarging or restricting its right to the enjoy- ment of other franchises that may be possessed in common with natural per- sons, and regulating its external rela- tions, are, to my mind, distinct and independent, and I find nothing in the Constitution prohibiting the latter power to the legislature. There are numerous distinct, independent fran- chises, any one or more of which may be granted indifferently either to nat- ural persons or existing corporations, and, in my judgment, the Constitu- tion no more prohibits the granting of any one of those franchises, except such as are expressly prohibited to corporations by special act, than to individuals. It only prohibits the creation of a corporation by special act; that is to say, that the creating or granting of the particular franchise constituting a corporation shall not be by special act. The prohibition applies to no other of the numerous franchises which are subjects of leg- islative grant." Southern Pac. E. Co. V. Orton, 32 Ped. 457. "The legislature cannot produce a corporation out of nothingness; in the Genesitic sense of creating the heav- ens and the earth; nor bring a cor- poration into being in the generative sense; nor give life to a corporation in the sense in which life is contra- distinguished from matter; nor make, produce, be the cause or occasion of, — in short, 'create,* strictly within the lexicographical definitions, — any pri- vate corporation for gain. For, al- though Webster gives 'renew' as one of the secondary significations of 'create,' the active agencies in the formation or renewal of the private corporation for business purposes are the persons who desire to conduct their gainful enterprises through the cor- porate form; and the legislature can do nothing towards the creation or extension of the corporation beyond granting the state's permission to the interested persons to carry on their proposed business through the agency of a corporation. The granting of leave to do business as a corporation is the essential thing; the nature of the business and the mode of doing it are incidental. As long as the li- cense lasts, the interested persons do not need another. When the license ends, the special privilege ends." In re Bank of Commerce, 153 Ind. 460, 47 L. R. A. 489, 53 N. E. 950. See- also Clark v. American Cannel Coal Co., 165 Ind. 213, 112 Am. St. Eep. 217, 73 N. E. 1083. An act does not create a railroad by merely authorizing the consolidation of two or more railroads. Bohmer v. Haffen, 22 N. Y. Misc, 565, 50 N. T. Supp. 857. A statute permitting the 457 233] Pbivate Coepokations [Oil. 8 certain company does not add anything to it."" Nor does the consti- tutional provision prohibit the enactment of special laws which do not attempt the creation of new corporate powers or franchises but which merely regulate existing corporations in the exercise of powers which have been conferred upon them."^ The granting to cities of power to contract with corporations of a certain class and the regulating of such power is not a violation of the constitutional prohibition."^ The legis- lature, however, does not create a corporation by providing for the creation of corporations of a certain character by action of the voters of the districts which are to constitute the same."' Moreover, where an act imposing a burden on a corporation was not violative of the constitutional provision but was valid under the legislature's reserved power of amendment, a subsequent act repealing the same cannot be obnoxious to such provision,"* nor does such prohibition preclude the consolidation of gas companies incor- porated under general laws, but not conferring any enlarged powers or privileges, held not invalid under a constitutional provision prohibiting the creation of a corporation or the extension of, change in or amendment of its charter by a special law. Peo- ple V. People's Gas Light & Coke Co., 205 111. 482, 98 Am. St. Eep. 244, 68 N. E. 950. Act providing for state fair and making live stock breeders' association agency to carry out leg- islative purposes, held not obnoxious to constitution. Kentucky Live Stock Breeders' Ass'n v. Hager, 120 Ky. 125, 9 Ann. Cas. 50, 85 S. W. 738. Act placing title to a sewer or drain, con- structed in any city of a certain class, in the unpaid contractor, and giving the city power to grant a franchise to such contractor to operate the same and power to provide for its use of the same, held not to purport to create a corporation. Jordan v. City of Logansport, 178 Ind. 629, 99 N. E. 1061. Under the provision of the Penn- sylvania Constitution that ' ' No law hereafter enacted shall create, re- new or extend the charter of more than one corporation," it has been held that a merger of the corporate rights and powers of a company, — chartered for the purpose of manu- facturing and furnishing gas for light- ing purposes with and into those of another company chartered for the purpose of collecting and supplying electricity for like purposes, does not constitute the creating, renewing or extending of a charter. Com. v. Hunt- ingdon Gas Co., 11 Pa. Dist. 546, 547. In the prohibition against the re- viving of charters by special act, there exists the implication that the charter to be revived is lifeless. St. Joseph & I. E. Co. v. Shambaugh, 106 Mo. 557, 17 S. "W. 581. BO People V. Wayman, 256 Bl. 151, 99 N. E. 941. Bl Town of Longview v. City of Crawfordsville, 164 Ind. 117, 68 L. E. A. 622, 3 Ann. Cas. 496, 73 N. E. 78; City of Indianapolis v. Navin, 151 Ind. 139, 41 L. E. A. 337, 51 N. E. 80, 47 N. E. 525. B2 Smith v. Indianapolis St. E. Co., 158 Ind. 425, 63 N. E. 849. See also School City of Marion v. Forrest, 168 Ind. 94, 78 N. E. 187. BSWhedon v. Wells, 95 Neb. 517, 145 N. W. 1007 (sanitary district). B4 Smith v. Indianapolis St. E. Co., 158 Ind. 425, 63 N. E. 849. 458 Ch.8l Cbeation Under Special Acts [§233 grant of privileges to a corporation by special act in any case in which the grant if made to an individual would not be invalid.^* A legislative grant to an existing corporation of a franchise which could not be acquired by its specification in the articles of incorpora- tion does not constitute the creation of a corporation.*^ "It is clear that the constitution prohibits the legislature from 'creating' corporations by special act, except for municipal purposes; and it is equally clear that this prohibition extends only to their 'creation.' There is nothing in the language used which either directly or impliedly prohibits the legislature from directly granting to a corporation, already in existence, and created under the general laws, special privileges in the nature of a franchise, by a special act, or prohibiting a corporation from purchasing or holding such fran- chises, which may have been granted to others. ' ' "'' M Detroit Citizens St. R. Co. v. De- troit, 125 Mich. 673, 84 Am. St. Rep. 589, 85 N. W. 96, rehearing denied 86 N. W. 809. That a special act which, without essentially changing the character of the corporation, confers upon it addi- tional powers or privileges is not in- valid, see Wallace v. Loomis, 97 U. S. 146, 24 If. Ed. 895; Southern Fac. R. Co. v. Orton, 6 Sawy. 157, Ted. Cas. No. 13,188a, 32 Fed. 457; Attorney General v. Joy, 55 Mich. 94, 20 N. W. 806; Attorney General v. North America Life Ins. Co., 82 N. Y. 172. The prohibition does not include an act which meraly changes the name of an existing corporation. State v. Butler, 86 Tenn. 614, 630, 8 S. W. 586. 66 State v. Portland General Elec. Co., 52 Ore. 502, 98 Pac. 160, 95 Fac. 722, denying petition for rehearing, 95 Pac. 722 (franchise to construct and operate locks on navigable stream and to collect tolls). Act undertaking to confer upon and grant to persons, firms, and corpora- tions engaged, or that might there- after engage, in the manufacture, transmission, and distribution of elec- tricity for lighting, heating and power purposes the use of the public streets, highways, and alleys of the state, ex- cept in a certain county, provided that the same should not injuriously inter- fere with other public uses of such streets, highways or alleys, etc., held not an attempt to create a corpora- tion. City of Lansing v. Michigan Power Co., 183 Mich. 400, 150 N. W. 250. »7 California State Tel. Co. v. Alta Tel. Co., 22 Cal. 398. While the hold- ing of this case on this point is de- clared erroneous in City & County of San Francisco v. Spring Valley Water Works, 48 Cal. 493, and that case is followed in the original opin- ion. in People V. Stanford, 77 Cal. 360, 2 L. R. A. 92, 19 Pac. 693, 18 Pac. 85, the court on a rehearing in the latter case said: "We adhere to that [origi- nal] opinion so far as it relates to these questions, except so far as it holds that a duly organized corporation cannot t»ke an assign- ment from its lawful owners of a franchise to lay down and maintain a street-railroad. This is based upon the constitutional provision that 'cor- porations may be formed under gen- eral laws, but shall not be created by special act' (Art. 4, §31.) This 459 § 233] Pkivate Corporations .[Ch. 8 But the evasion of the constitution by the creation of a corporation by general act and the subsequent grant to such corpora,tion of ex- traordinary powers by special act will not be sustained.*' In keeping with this rule it has been said that were a close or literal interpretation to be given the word "create," it would thereby become possible, after a corporation had been brought into existence under a valid law, to so fashion the organization as practically to open the way for the evil which it was the design of the constitution to prevent, namely, that of special privilege.*® § 234. — Amendment of charter. Whether or not a constitutional prohibition against the creation or formation of corporations by spe- cial act prevents the legislature from passing a special act modifying, enlarging, or otherwise amending the charter of an existing corpora- tion is a question upon which the courts have differed in opinion. Some courts have held that such a provision prevents any amendment by special act, unless the case is within some exception in the constitu- tion.®" Other courts have taken a different view of such a constitu- tional provision, and have held that the intention is merely to prevent the creation of corporations by special act, and that it does not prevent a special act modifying, enlarging, or otherwise amending the charter of an existing corporation, unless the amendment is such as essentially to change the character of the corporation.®^ In accordance with this provision applies to the formation or v. City of Cincinnati, 20 Ohio St. 18; creation of corporations, and to the Atkinson v. Marietta & C. E. Co., 15 powers directly conferred upon them Ohio St. 21. See generally the cases by legislative enactment, and can- cited in the preceding section and not, in our judgment, be construed as §§ 408-415, infra. prohibiting the assignment of a 61 United States. Wallace v. Loomis, franchise to a legally organized cor- 97 IT. S. 146, 24 L. Ed. 895; Southern poration, by persons having the law- Pac. E. Co. v. Orton, 6 Sawy. 157, Fed. ful right to exercise and transfer the Cas. No. 13,188a, 32 Fed. 457. same. ' ' See also Santa Ana Water Co. Indiana. Wiley v. Bluffton Corpo- V. Town of San Buenaventura, 56 Fed. ration, 111 Ind. 152, 12 N. B. 165; 339; City of Lansing v. Michigan Gentile v. State, 29 Ind. 409. Power Co., 183 Mich. 400, 150 N. W. Maine. Farnsworth v. Lime Eock 250. E. Co., 83 Me. 440, 23 Atl. 373. 58 Smith V. Indianapolis St. B. Co., Michigan. Attorney General v. Joy, 158 Ind. 425, 63 N. E. 849. 55 Mich. 04, 20 N. W. 806. 89 Marion Trust Co. v. Bennett, 169 Minnesota. Green v. Knife Falls Ind. 346, 124 Am. St. Eep. 228, 82 Boom Corporation, 35 Minn. 155, 27 N. E. 782. See the following section. N. W. 924; St. Paul Fire & Marine 60 Town of McGregor v. Baylies, 19 Ins. Co. v. Allis, 24 Minn. 75; Cotton Iowa 43; Davis v. Woolnough, 9 Iowa v. Mississippi & E. Eiver Boom Co., 104; Ex Parte Pritz, 9 Iowa 30; State 22 Minn. 372. 460 Ch.8] Ceeation Under Special Acts [§234 view, it has been held that the constitutional prohibition does not pre- vent the legislature from passing a. special act which merely changes the name of the corporation, or authorizes the corporation to change itf®* nor does it prohibit a special act which merely extends the period of existence of a corporation whose charter is about to expire, or has expired.^' It has even been held that a change may be made in the character of a corporation by a special act, if the change is not so fundamental as to essentially change its nature and make it a different kind of a corporation.** But the prohibition should be interpreted in such a manner as to render it impossible for the legislature by special law to so alter a charter as in effect to make a new corporation.** An objection that an act is a local or special law amending or extend- ing the charter of a corporation and is therefore repugnant to the constitution cannot be sustained, however, when it appears that such act is a supplement to one which subsequently became an amendment to the constitution.** Missouil. Eoos V. St. Joseph & I. E. Co., 114 Mo. 508, 21 S. W. 1124; St. Joseph & I. E. Go. v. Shambaugh, 106 Mo. 557, 17 S. W. 581; State v. Cape Girardeau & S. L. E. Co., 48 Mo. 468. New York. Attorney General v. North America Life Ins. Co., 82 N. Y. 172. See generally cases cited in pre- ceding section. See also News-Eegister Co. v. Eock- ingham Pub. Co., 118 Va. 140, 86 S. E. 874. 62 " To name a corporation is not to create it any more than a person. Nor does it confer on it a special privilege. The privilege of having a name is not thereby monopolized or exhausted, but may be en- joyed by every corporation that has wit ^nough to devise one, upon the same terms." Wells v. Oregon By. & Nav. Co., 8 Sawy; 608, 15 Fed. 561. See also Wallace v.- Loomis, 97 TJ. S. 146, 24 L. Ed. 895; Hazelett v. Butler University, 84 Ind. 230; Attor- ney General v. Joy, 55 Mieh. 94. See also People v. Detroit, G. H. & M. E. Co., 157 Mich. 144, 121 N. W. 814. 63 Cotton V. Mississippi & E. Eiver Boom Co., 22 Minn. 372;, Black Eiver Improvement Co. v. Holway, 87 Wis. 584, 59 N. W. 126. Contra, Clark v. American Cannel Coal Co., 165 Ind. 213, 112 Am. St. Eep. 217, 73 N. E. 1083; In re Bank of Commerce, 153 Ind. 460, 47 L. E. A. 489, 53 N. E. 950, 55 N. E. 224. 64 Thus it has been held that the constitutional prohibition did not pre- vent the passage of a special act changing the character of an insur- ance company from a mutual benefit company to a company having a capi- tal stock divided into shares. St. Paul Fire & Marine Ins. Co. v. Allis, 24 Minn. 75. 65 Ma-rion Trust Go. v. Bennett, 169 Ind. 346, 124 Am: St. Eep. 228, 82 N. E.. 782 (holding that an act -which attempted to change a corporation of. limited capital stock to one, the amount of whose stock was to be de- termined by the stockholders, was an attempt to "create" a corporation). 66 State V. Board of Adm'rs Tulane Education Fund, 125 La. 432, 51 So. 483. 461 § 235] Peivate Coepoeations [Ch. 8 '§235. — Ratification of charter or cure of defects. The prohibi- tion against creation of corporations by special act renders void and of no effect a special act undertaking, by ratification or recognition, to give corporate existence to a body which has assumed to act as a cor- poration without any color of authority ; ^'' but it has been held that it does not prevent the legislature from waiving and curing by special act mere irregularities and noncompliance with conditions in forming corporations under general laws.®' Where the constitution prohibits the legislature from passing special acts creating corporations, but contains an exception of eases in which the objects of the corporation cannot be attained under general laws, the legislature may by special act cure defects and irregularities in the organization of a corporation under the general laws, and thus render it legal,®' and if the curative act be otherwise valid, it seems that it cannot be attacked on the ground that it constitutes an impair- ment of the obligation of contracts.'"* §236. What constitutes granting or conferring of corporate powers or privileges — ^In general. In some states the constitution, instead of in terms prohibiting the creation or formation of corpora- tions by special act, prohibits special acts granting or conferring "corporate powers and privileges."''^ 67 Oroville & V. E. Co. v. County Johnson v. Board Com'rs Wells Co., Com'rs, 37 Cal. 354. 107 Ind. 15, 8 N. E. 1. 68 State V. Webb, 110 Ala. 214, 20 69 Central Agricultural & Mechani- So. 462; Central Agricultural & Me- cal Ass'n v. Alabama Gold Life Ins. chanieal Ass'n v. Alabama Gold Life Co., 70 Ala. 120; State v. Squires, 26 Ins. Co., 70 Ala. 120; McAuley v. Co- Iowa 340; Smith v. Havens Belief lumbus, C. & I. C. E. Co., 83 111. 348; Fund Society, 44 N. Y. Misc. 594, 90 Syracuse City Bank v. Davis, 16 Barb. N. Y. Supp. 168. (N. Y.) 188. 70Deitch v. Staub, 115 Fed. 309. "For the same reason that in some 71 An act which granted to individu- cases special statutes may be enacted als and their assigns certain powers in the first instance, special retrospec- and privileges, and then provided that tive statutes may be enacted. And it should not take effect unless the as in some cases the legislature is the persons to whom the grant was made sole judge as to whether or not a should, vvrithin a certain time, organ- general law can be made applicable ize themselves into a corporation un- in the first instance, so, in such cases, der existing general laws, was held it is the sole judge as to whether or a grant, not to such persons as in- not a general retrospective statute dividuals, but to the corporation when can be made applicable; and hence formed, and was therefore held to be special curative or retrospective legis- within a constitutional prohibition lation has been upheld. * * *" against conferring powers and privi- 462 Ch.8] Ckeation Under Special Acts [§236 The fact, however, that powers' are conferred on a body declared by statute to be a body corporate,''^ a body politic and corporate ''^ or a corporation ''* is not conclusive on the question whether there has been a conferring of corporate powers within the meaning of the constitu- tional provision. "While the conferring of certain powers upon an existing corporation may bring them within the designation "cor- porate powers," their character as "corporate" powers does not necessarily accompany them when they are conferred upon individuals or unincorporated associations.'^ It has been said that an act confers corporate powers whenever it either creates a corporation or adds to the powers of an existing cor- poration.'* But it has also been said in effect that the phrase "grant- ing corporate powers or privileges" means m principio donationis and is equivalent to the phrase "granting corporate charters," this being implied not only by the word "granting" but also by the word "corporate," and that, since each and every franchise obtainable is not corporate in character, it is not the granting of each and every franchise that is prohibited.''"' However this may be, the legislature leges upon a corporation by special act. City & County of San Fran- cisco V. Spring Valley Water Works, 48 Cal. 493. Semble, that the power to issue bonds and secure them by mortgage is not essentially a corporate power. Brattleboro Sav. Bank v. Board Trus- tees Hardy Tp., 98 Fed. 524, afE'd 106 Fed. 986. In some states the consti- tution expressly prohibits any special act, with certain restrictions, extend- ing, altering or amending an existing charter, and under such a prohibition, of course, an amendatory special act would be void. 72 St. Louis, I. M. & S. E. Co. v. Board Directors Levee Dist. No. 2, Jackson Co., 103 Ark. 127, 145 S. W. 892 (levee district); Beaph v. Leahy, 11 Kan. 23 (school district which un- der Gen. St. was "a body corporate" and possessed of "the usual powers of a corporation for public purposes." But compare Board School Directors Madison Parish v. Coltharp, 127 La. 956, 54 So. 299) ; Bees v. Olmsted, 135 Fed. 296 (road commissioners). See also Brattleboro Sav. Bank v. Board Trustees Hardy Tp., 98 Fed. 524, afE 'd 106 Fed. 986 (township trustees). 73 Keel v. Board Directors St. Fran- cis Levee Dist., 59 Ark. 513, 535, 27 S. W. 590 (levee directors). 74 Glove Elevator Co. v. Andrew, 144 Fed. 871, aff 'd 156 Fed. 664 (grain and warehouse commission). 76 State v. Pugh, 43 Ohio St. 98, 1 N. E. 439. "Corporate powers, strictly speak- ing, I suppose, are those peculiar and essential to a corporation, — not those which are or may be possessed in common with natural persons; and they are very few in number, em- bracing those which pertain to the es- sence of the corporation." Southern Pac. E. Co. v. Orton, 32 Fed. 457. 76 Brattleboro Sav. Bank v. Board Trustees Hardy Tp., 98 Fed. 524, aff 'd 106 Fed. 986. See also Rees v. Olm- sted, 135 Fed. 296. 77 Attorney General v. Chicago & N. W. By. Co., 35 Wis. 425. "The words 'corporate powers and privileges' * * * signify the cor- 463 §236] Private Cobpobations [Ch.8 may, without running counter to the constitutional prohibition, make a lease to an existing corporation by special act when the subject- matter is granted, not as a franchise but as property owned by the s^tate.''* Again, it would seem that the giving to a state board the power to supervise the exercise of certain authority vested in corpora- tions is not the conferring of a corporate power upon such board.''* § 237. — Amendment of charter. Some courts have construed such a prohibition literally, and have held that it not only prohibits the creation of a corporation by special act, but also prevents the legisla- ture from passing a special act amending the charter of an existing corporation by conferring upon it additional powers or privileges.*" Others, however, are opposed to this construction, and hold to the effect that such a prohibition is aimed at the creation of corporations by special act, and does not prevent a special act amending an existing charter by granting additional privileges. The United States Supreme porate franchise, the aggregate pow- ers and privileges which constitute a corporation, not every separate power and privilege which may be conferred upon a corporate body. The object is * * * not to prevent the legis- lature from amending the charters of corporations already existing, and modifying or enlarging their powers,, either by repealing former restric- tions or otherwise." Jones v. Haber- sham, 107 U. S. (17 Otto) 174, 27 L. Ed. 401. See also In re Southern Wisconsin Power Co., 140 Wis. 265, 133 Am. St. Bep. 1075, 122 N. W. 809, 140 Wis. 245, 122 N. W. 801. A franchise granted a corporation by a city is not a corporate power or privilege within the meaning of the constitution. Linden Land Go. y. Mil- waukee Elee. Railway & Lighting COip 1G7 Wis. 493, 83 N. W. 851. 78Vought V. Columbus, H. V. & A. E. Co., 58 Ohio St. 123, 50 N. E. 442, aff'd 176 U. S. 481, 44 L, Ed. 554, dis- tinguishing City & County of San Francisco v. Spring Valley Water Works Co., 48 Cal. 493. 79 West Jersey & S. E. Co. v. Board Public Utility Com'rs, 87 N. J. L. 170, 94 Atl. 57 (provision that no public utility shall, without the approval of the board of public utility commis- sioners lease its property, etc.). 80 School Dist. No. 56 v. St. Joseph Eire & Marine Ins. Co., 103 U. S. 707, 26 L. Ed. 601; Atkinson v. Marietta & C. E. Co., 15 Ohio St. 21; Clegg v. School Dist. No. 56, 8 Neb. 178. And see Gilmore v. Norton, 10 Kan. 491; Green v. Knife Falls Boom Corpora- tion, 35 Minn. 155, 27 N. W. 924. Provision prohibits the grant of any new privilege by special act, but does not prohibit a special act regulating the exercise of existing powers, fran- chises and privileges. In re New York Elevated E. Co., 70 N. Y. 327. See also Astor v. New York Arcade E. Co., 48 Hun (N. Y.) 562, 1 N. Y. Supp. 174, 113 N. Y. 93, 2 L. R. A. 789, 20 N. E. 594. Prohibition is violated, by a special act authorizing an incor- porated school district to issue bonds. School Dist. No. 56 v. St. Joseph Fire & Marine Ins. Co., 103 IT. S. 707, 26 L. Ed. 601; Clegg v. School Dist. No. 56, 8 Neb. 178. 464 Ch.8] Ceeation Undee Special Acts [§237 Court, speaking of such a prohibition in the Constitution of Georgia, has said : ' ' The words ' corporate powers and privileges, ' as here used, signify the corporate franchise, the aggregate powers and privileges which constitute a corporation, not every separate power and privilege which may be conferred upon a corporate body. The object is to take away from the legislature, and to vest in the courts, under its direc- tion,*^ for the future, the creation of private corporations for literary, religious, charitable, or other purposes, except those specially excepted ; but not to prevent the legislature from amending the charters of cor- porations already existing; and modifying or enlarging their powers, either by repealing former restrictions or otherwise." ** In accordance with this view, it has been held that such a prohibition does not prevent a special act changing the name of an existing cor- poration,83 or conferring power to purchase additional property,'* or to condemn property under the power of eminent domain.** On the question as to whether an act which extends the life of a corporation constitutes a grant of corporate power, there exists a 81 The Constitution of Georgia de- clared that the general assembly should have no power "to grant cor- porate powers and privileges to private companies," with certain exceptions, but should prescribe the manner in which such power should be exercised by the courts. Const. Ga. 1868, art. 3, § 6. 82 Jones V. Habersham, 107 U. S. 174, 188, 27 L. Ed. 401. In "Wisconsin it was held that the constitutional amendment prohibiting special laws granting corporate powers or privi- leges relates only to acts of incorpora- tion thereafter granted, and that it does not prevent such laws in the ex- ercise of the power to alter or repeal charters granted before adoption of the amendment, reserved by the Con- stitution to the legislature. Attorney General v. Chicago & N. W. Ey. Co., 35 Wis. 425. Special act authorizing an incorpo- rated village to issue bonds for water- works, held not invalid. Brady v. Moulton, 61 Minn. 185, 63 N. W. 489. Act giving certain street railways the 465 I Priv. Corp.— 30 right to become incorporated under another act, held a special one con- ferring corporate powers. Perrine v. Jersey Cent. Traction Co.j 70 N. J. L. 168, 56 Atl. 374. Special act author- izing county commissioners to issue and sell bonds for specified purpose, held invalid. . Terry v. King County, 43 Wash. 61, 9 Ann. Cas. 1170, 86 Pae. 210. Act relating to Society of Arizona Pioneers, held invalid under pro- visions of Harrison Act (Act of Con- gress of July 30, 1886; 7 Fed. St. Ann. p. 264), which prohibits the enactment of local or special laws in the terri- tories of the United States in certain cases in so far as it attempts to confer additional powers on, and to change the name of the society. Leatherwood V. Hill, 10 Ariz. 16, 89 Pae. 521, 85 Pac. 405. 83 Wallace v. Loomis, 97 IT. S. 146, 24 L. Ed. 895. 84 Wallace v. Loomis, 97 IT. S. 146, 24 L. Ed. 895. 86 North Eiver Boom Co. v. Smith, 15 Wash. 138, 45 Pac. 750. §238] Pkivate Corpobations [Ch. 8 difference of opinion, it having been held both that it does *' and that it does not constitute such grant.*'' § 238. Betroactive operation of prohibition. A constitutional pro- hibition against the creation of corporations by special act is not retroactive, and therefore it does not affect the existence or validity of corporations fully created by special act prior to its adoption," nor prevent the amendment of an existing special charter by special act," provided the amendment is germane to the original charter.'" A special act, passed after the adoption of the prohibition, which amends and re-enacts certain sections of a special charter granted prior thereto, is, however, beyond the power of the legislature.'^ §239. Aoceptajice of charter — Necessitj. The relation between the state and a private corporation is contractual.'^ This being so, 88 Jersey City v. North Jersey St. E. Co., 73 N. J. L. 175, 63 Atl. 906; ' Grey V. Newark Plank Eoad Co., 65 N. J. L. 51, 46 Atl. 606, aff'd (except as to judgment entered) 65 N. J. L. 603, 48 Atl. 557. 87 Black River Improvement Co. v. Holway, 87 Wis. 584, 59 N. W. 126. See also Bullock v. Billheimer, 175 Ind. 428, 94 N. E. 763. In the absence of constitutional re- strictions, there is nothing to prevent the legislature from passing a special act modifying, enlarging, or otherwise amending the charter of an existing corporation. Wallace v. Loomis, 97 U. S. 146, 24 L. Ed. 895; Hazelett v. Butler University, 84 Ind. 230; St. Paul Fire & Marine Ins. Co. v. Allis, 24 Minn. 75. 88 State V. Illinois Cent. E. Co., 33 Fed. 730. See City of Atlanta v. Gate City Gas Light Co., 71 Ga. 106; Gaslight Co. of City of New Bruns- wick v. Borough of South Eiver, 77 N. J. Eq. 487, 77 Atl. 473. A constitutional provision that ' ' the legislature shall pass no law altering or amending any act of incorporation heretofore granted, without the as- sent of two-thirds of the members 466 elected to each house; nor shall any such act be renewed" recognizes the existence and validity of corporations existing by special charter. People v. Detroit, G. H. & M. E. Co., 157 Mich. 144, 121 N. W. 814. Eight of bank to exemption from taxation, conferred by private charter, regardless of provisions of constitu- tions subsequently adopted, held res judicata. Citizens ' Bank of Louisiana v. Barker, 192 U. S. 73, 48 L. Ed. 346, rev'g 52 La. Ann. 1086, 27 So. 709. See also City of New Orleans v. Citi- zens' Bank of Louisiana, 167 U. S. 371, 42 L. Ed. 202. 89 St. Joseph & I. R. Co v. Sham- baugh, 106 Mo. 557, 17 S. W. 581. But see State v. Northern Pac. E. Co., 157 Wis. 73, 147 N. W. 219; Attorney General v. Chicago & N. W. E. Co., 35 Wis. 425. aOEarnsworth v. Lime Eock E. Co., 83 Me. 440, 22 Atl. 373. See also State V. City of Bangor, 98 Me. 134. 56 Atl. 589. 91 Com. V. Manchester & E. Free Bridge Co., 109 Va. 499, 63 S. E. 1083. 92 Dartmouth College v. Woodward, 4 Wheat. (U. S.) 518, 4 L. Ed. 629. Ch.8] Cbeation Undeb Special Acts [§240 the state cannot, in the first instance, eompel persons to form such a corporation or any person to become a member thereof, and hence, even when it is possible to create a corporation by special oharter, it is optional with the individuals in whose behalf the act of incorpora- tion is passed to reject or accept it.'' In other words, a private charter is, upon its issuance, a mere offer, which is revocable by the state, either by a legislative enactment or by the adoption of a con- stitutional amendment,'* and which must be accepted by the grantee before it will acquire any vitality, or become of any binding force or effect.'* § 240. — Conditions precedent. The acceptance of a charter by the corporators, to be effective, must be in accordance with its terms, for the legislature has a right to impose any conditions it may see fit. As 93 Eiddle v. Proprietors of Locks & Canals on Merrimack Eiver, 7 Mass. 169, 184, 5 Am. Dec. 35. 91 State V. Dawson, 16 Ind. 40; Chesapeake & O. Canal Co. v. Balti- more & O. R. Co., 4 Gill & J. (Md.) 1; Mississippi Society of Arts & Sci- ences V. Musgrove, 44 Miss. 820, 7 Am. Sep. 723; Williams v. State, 23 Tex. 264. 95 United States. Bank of United States V. Dandridge, 12 "Wheat. 64, 6 L. Ed. 552. Connecticut. Board Water Com'rs City of Hartford v. Manchester, 89 Conn. 671, 96 Atl. 182; State v. Bull, 16 Conn. 192, 41 Am. . Dec. 136. Indiana. State v. Dawson, 16 Ind. 40» Kentucky. Atkinson v. Tennill, 14 Ky. L. Eep. 922. Maine. Hudson v. Carman, 41 Me. 84; Lincoln & Kennebec Bank v. Eich- ardson, 1 Me. 79, 10 Am. Dec. 34. Maryland. Glymont Improvement & Excursion Co. v. Toler, 80 Md. 278, 30 Atl. 651; Smith v. Silver Valley Min. Co., 64 Md. 85, 54 Am. Eep. 760, 20 Atl. 1032. See also State v. Balti- more & O. E. Co., 12 Gill & J. (Md.) 399, 38 Am. Dec. 317, 321, aff'd 44 U. S. (3 How.) 534, 11 L. Ed. 714. Massacbusetts. Ellis v. Marshall, 2 Mass. 269, 3 Am. Dec. 49. Michigan. Mason v. Eineh, 28 Mich. 282; Cahill v. Kalamazoo Mut. Ins. Co., 2 Doug. 124, 43 Am. Deo. 457. New York. Troy & E. E. Co. v. Kerr, 17 Barb. 581, 604; Green v. Sey- mour, 35 Sandf. Ch. 285; Thomas v. Dakin, 22 Wend. 9, 78. Pennsylvania. Com. v. Cullen, 13 Pa. St. 133, 53 Am. Dee. 450; Com. V. Conover, 30 Leg. Int. 200; Brown V. Pairmount Gold & Silver Min. Co., 10 Phila. 32; Mutual Fire Ins. Go. v. Stokes, 9 Phila. 80. South Carolina. Haslett's Ex'r v. Wotherspoon, 1 Strob. Eq. 209. Texas. Quinlan v. Houston & T. C. Ey. Co., 89 Tex. 356, 34 S. W. 738. Virginia. Yeaton v. Bank of Old Dominion, 21 Gratt. 593. See also Philadelphia, W. & B. E. Co. v. Kent County E. Co., 5 Houst. (Del.) 127. Where the members of a joint-stock association procured the passage by the legislature of an act of incorpora- tion, under a name similar to that of the association, and voted to ac- cept the act, but no stock was issued as a corporation, no property trans- 467 §240] Peivate Cobpokations [Ch.8 a general rule, unless these conditions are complied with, an associa- tion does not become a corporation de jure,'^ though it may become a corporation de facto, or a valid corporation as against every person but the state.*'' ' ' The organic life of the corporation depends upon a strict compliance with the conditions imposed, and until this is done there can be no such thing as an acceptance of the charter. ' ' " § 241. — Conditional or partial acceptance. It follows from this that a charter must be accepted unconditionally and entirely as it is offered. It cannot be accepted on conditions not expressed in it nor implied by law; nor can it be accepted in part only, for, if this were possible, a corporation might reject the obligations imposed and ac- cept the benefits conferred,'' and this latter it will not be permitted to do; if it accepts the benefits o£ a charter it must bear such charter's burdens.^ § 242. — Persons accepting. Ordinarily, a charter can be accepted only by those persons to whom it is granted,® — by the corporators named in it, acting as such.' It has been said, however, that an acceptance by the directors acquiesced in by the company will be ferred, nor any meeting held for the election of officers, the association con- tinuing to do business as before the passage of the act, it was held that the association did not become a cor- poration. Willis V. Chapman, 68 Vt. 459, 35 Atl. 459. 96 Lyons v. Orange, A. & M. E. Co., 32 Md. 18; Mississippi Society of Arts 6 Sciences v. Musgrove,' 44 Miss. 820, 7 Am. Eep. 723; Eex v. Westwood, 4 Barn. & C. 781, 7 Bing>. 1. See Chap. 10, infra. 97 See Chap. 10, infra. 98 Lyons v. Orange, A. & M. E. Co., 32 Md. 18. 99 Per Chief Justice Tenterden, in Eex V. Westwood, 4 Barn. & C. 781, 7 Bing. 1. See also Lyons v. Orange, A. & M. E. Co., 32 Md. 18; Baldwin V. Hillsborough & C. E. Co., 1 Ohio Dee. 532, 10 West. L. J. 337, 345; Mul- loy V. Nashville & D. E. Co., 8 Lea (Teun.) 427; Eex v. Amery, 2 T. E. 515, 1 T. E. 589. 1 Monroe County Sav. Bank v. City of Eochester, 37 N. Y. 365, 370. 2 Eex V. Amery, 2 T. E. 515, 1 T. E. 575. When a statute declared that cer- tain persons, their associates and their successors, were made a corporation by the name of the "Athol Eeservoir Company," with certain powers, and one person named in the act, appar- ently without objection by the others, together with seven persons not nam"ed in the act, duly met, accepted the act of incorporation, adopted by-laws, elected officers, and transacted other business, it was held that the persons taking part in the proceedings be- came a corporation under the name of the "Athol Eeservoir Company." McGinty v. Athol Eeservoir Co., 155 Mass. 183, 29 N. E. 510. S Board Water Com 'rs City of Hart- ford v. Manchester, 89 Conn. 671, 96 Atl. 182. 468 Ch. 8] Cbeation Undeb Special Acts [§243 sufficient * and it has been held that where persons named in the charter and constituting a majority of those intended to be incor- porated are made competent to organize the corporation, they, have the power to accept the charter.^ While it has been intimated that the acceptance of the charter by a majority of the corporators is, in any event, sufficient to bring the corporation into existence,^ it would seem that in this matter of acceptance, a minority of the corporators have no power to bind the majority. '' The naming of a person in the charter does not necessarily prove his assent to or acceptance of the powers conferred,' but a person who was one of those applying for a charter, who was named in the charter granted as one of the corporators and first directors, and who, although absent from the meeting at which the company organized under such charter, expressed no dissent to its acceptance, will be considered as having acquiesced therein.^ § 243. — Time. If the charter fixes a time for its acceptance, such acceptance, to be effectual, must be within the time prescribed.^" Even if there is no time prescribed, the charter must be accepted within what may be regarded as a reasonable time under the circum- stances, or it will lapse, and no longer be open for acceptance.^^ While it has been held that a special act of incorporation, passed before the adoption of a constitutional provision that the legislature shall pass no special act conferring corporate powers, may be ac- cepted by the corporation after its adoption,^^ j^ j^^s also been held that the acceptance must precede the adoption of a constitutional provision declaring that corporations should not be created by special act. The constitutional restraint, it was said, "is plainly imposed 4 Mutual Fire Ins. Co. v. Stokes, 9 Co. v. McAllister, 12 Bush (Ky.) Phila. (Pa.) 80. 312; Cypress Pond Draining Co. v. B Cleaves v. Brick Church Turnpike Hooper, 2 Mete. (Ky.) 350; Eichmond Co., 1 Sneed (Tenn.) 491, 495. Factory Ass'n v. Clarke, 61 Me. 351, 6 Smith V. Silver Valley Min. Co., 358; Ellis v. Marshall, 2 Mass. 269, 3 64 Md. 85, 54 Am. Eep. 760, 20 Atl. Am. Dec. 49; Shortz v. Unangst, 3 1032. See also Low v. Connecticut & Watts & S. (Pa.) 45. P. Elvers E. Co., 45 N. H. 370, 379. 9 Ferris v. Strong, 3 Edw. Ch. (N. And compare Eex v. Amery, 2 T. E. Y.) 127, 128. 515, 1 T. E. 575 (public corporation). 10 State v. Bull, 16 Conn. 179; Bona- 7 Mutual Fire Ins. Co. v. Stokes, 9 parte v. Baltimore, H. & L. E. E. Co., Phila. (Pa.) 80. 75 Md. 340, 23 Atl. 784. 8 Coffin V. Collins, 17 Me. 440, U State v. Bull, 16 Conn. 179. 443. See also ScuflBetown Fence 12 State v. Eoosa,: 11 Ohio St. 16. 469 § 243] Private Cokporations [Ch. 8 upon the creation, the organization, of the corporation itself," and the creation of a corporation includes both the offer or grant of a charter by the legislature and its acceptance by the corporators.^* § 244. — Place. It has been held that since a corporation has no legal existence beyond the jurisdiction of the state by which it was created, and can do no acts outside of the state except such as it may do through its agents, as distinguished from those which are strictly corporate in character, its charter must be accepted within the limits of the state by which it is granted, and if the corporators meet and accept it in another state, the acceptance will have no effect.^* But if the corporate powers whose exercise under the charter creates a presumption of its acceptance ^* were exercised within the state which granted the charter, it would seem that this would be sufficient regardless of whether a foKtnal acceptance without the state could be sustained.^* § 245. — Formal acceptance. Of course, if the charter requires that the corporators shall signify their acceptance in a particular way, as by a formal vote at a meeting duly called, such acceptance is necessary.^'' Otherwise, the acceptance need not ordinarily be made in writing i* or by a formal vote.^' 13 Jennings v. Dark, 175 Ind. 332, 14 Smith v. Silver Valley Min. Co., 92 N.'E. 778; Snyder v. Studebaker, 64 Md. 85, 54 Am. Eep. 760, 20 Atl. 19 Ind. 462, 81 Am. Dee. 415; Gilles- 1032. Compare Heath v. Silverthorn pie V. Ft. Wayne & S. E. Co., 17 Ind. Lead Mining & Smelting Co., 39 Wis. 243; State v. Dawson, 16 Ind. 40. 146. Contra, State v. Hancock, 2 Pennew. 16 See § 246, infra. (Del.) 231, 45 Atl. 851. 16 See Glymont Improvement & Ex- Tor acts and proceedings held to cursion Co. v. Toler, 80 Md. 278, 30 constitute an organization, and com- Atl. 651 (incorporation under general mencement .of business in good faith law). within the meaning of a constitutional "Hudson v. Carman, 41 Me. 84; provision that "all existing charters ^om. v. CuUen, 13 Pa. St. 133, 53 Am. or grants of special or exclusive privi- ^«^- f^^\^^°'^' ^- ^^^^e^^> 3 Watts leges, under which a bona fide organ- & S. (Pa.) 45. 18 Com. v. Cullen, 13 Pa. St. 133, ization shall not have taken place and ^^^^ gg ^^_ j^^^ ^^^_ ^^^^^^ ^.^^ ^^^^ business teen commenced in good faith ^^ ^ g^^j^^^^ g pj^.j^ ^^^^ ^^^ ^^_ at the time of the adoption of this eieaves v. Brick Church Turnpike Co., Constitution, shall thereafter have no j Sneed (Tenn.) 491 496 validity," see Com. v. Continental 19 Board Water Com 'rs City of Hart- Trust & Finance Co. of Philadelphia, ford v. Manchester, 89 Conn. 671, 96 10 Pa. Dist. 451, 4 Dauph. Co. Bep. Atl. 182; CoflSn v. Collins, 17 Me. 440, (Pa.) 254. See also Chap. 9, infra. 443; Com. v. Cullen, 13 Pa. St. (1 Har- 470 Ch.8] Cbeation Undee Special Acts [§246 §246. — Presumption of acceptance. As a logical result of the above rule, an acceptance may be presumed from the acts of persons interested *^ in applying for the charter,** in openly and plainly rec- ognizing the grant,*^ in organizing the corporation under the terms of the charter ** — by electing officers, holding meetings and adopting by-laws** — or in exercising the powers granted and the privileges conferred.*® ris) 133, 140, 53 Am. Dec. 450; Mutual Fire Ins. Co. v. Stokes, 9 Phila. (Pa.) 80, 82; Gleaves v. Brick Church Turn- pike Co., 1 Sneed (Tenn.) 491, 496. See also Trustees of School Dist. No. 3 in Blandford v. Gibbs, 2 Cush. (56 Mass.) 39, 43. An express acceptance is not essen- tial. Farnsworth v. Lime Eock B. Co., 83 Me. 440, 22 Atl. 373. See also § 246, infra. 21 Mutual Fire Ins. Co. v. Stokes, a Phila. (Pa.) 80, 82. An application for the amendment of a charter is very strong evidence of its acceptance. Farnsworth v. Lime Eock E. Co., 83 M.e. 440, 22 Atl. 373. 22 City of Atlanta v. Gate City Gas Light Co., 71 Ga. 106; Society of Mid- dlesex Husbandmen & Manufacturers V. Davis, 3 Mete. (Mass.) 133; Per- kins V. Sanders, 56 Miss. 733; St. Jo- seph & L. E. Co. V. Shambaugh, 106 Mo. 557, 17 S. W. 581. "It was not only proven that the corporators applied to the legislature for the passage of the act in question, already drawn up as passed, excepting the clause authorizing a repeal; that one of the corporators appeared be- fore a legislative committee, to whom the bill was referred, and on behalf of himself and the other corporators, explained to the committee the ob- jects of the proposed organization; but it was also proven that, after the leg- islature appended the clause authoriz- ing a repeal in certain cases, such of the corporators as were present, one of whom, at least, appears to have been acting by the authority, express or implied, of those who were absent, met together and consulted upon the amendment, and agreed to accept the charter in that form. If the evidence stopped here, it would be clearly suf- ficient to show an acceptance. ' ' State V. Dawson, 22 Ind. 272, 273. 23 Brown v. Fairmount Gold & Sil- ver Min. Co., 10 Phila. (Pa.) 32, 34. 24 Delaware. Logan v. McAllister, 2 Del. Ch. 176. Maryland. Glymont Improvement & Excursion Co. v. Toler, 80 Md. 278, 30 Atl. 651. North Carolina. Benbow v. Cook, 115 N. C. 324, 44 Am. Eep. 454, 20 S. E. 453. Texas. Quinlan v. Houston & T. C. Ey. Co., 89 Tex. 356, 34 S. "W. 738. Wiscon^n. Heath v. Silverthorn Lead Mining & Smelting Co., 39 Wis. 146. A call for a meeting for thei pur- pose of organizing the corporation un- der the charter has been held to be sufficient evidence of an acceptance thereof, there being deducible no other conclusion than that such call was preceded by a determination to accept the same. Gleaves v. Brick Church Turnpike Co., 1 Sneed (Tenn.) 491. 25 Mutual Fire Ins. Co. v. Stokes, 9 Phila. (Pa.) 80, 82. 26 United States. Louisville, N. A. & C. Ey. Co. V. Louisville Trust Co,, 174 U. S. 552, 577, 43 L. Ed. 1081; Bank of United States v. Dandridge, 12 Wheat. 64, 6 L. Ed. 552; Louis- ville Trust Co. V. Louisville, N. A. & C. E. Co., 75 Fed. 433; Dorsey Harvester Eevolving Eake Co. v. 471 246] Peivate Cobporations [Ch.8 While this Bresumption of acceptance arising from the fact that powers have been exercised under the charter is generally regarded as a conclusive one, at least to the extent that it will create an estoppel, there is authority for the proposition that it is a presumption of fact Marsh, 6 J'ish. Pat. Cas. 387, Fed. Caa. No. 4,014. Alabama. Talladega Ins. Oo. v. Landers, 43 Ala. 115. See also Eppea V. Mississippi, G. Sa T. B. Co., 35 Ala. 33. Connecticut. Board Water Com'rs City of Hartford v. Manchester, 89 Conn. 671, 96 Atl. 182. See also Dan- bury & N. R. Co. V. Wilson, 22 Conn. 435, 448. , Delaware. Logan v. McAllister, 2 Del. Ch. 176. See also Philadelphia, W. & B. R. Co. V. Kent County E. Co., 5 Houst. 127, 132. Georgia. City of Atlanta v. Gate City Gas Light Co., 71 Ga. 106. Kentucky. See Kenton County Court V. Bank Lick Turnpike Co., 73 Ky. 529, 535. Maine. Famsworth v. Lime Bock B. Co., 83 Me. 440, 22 Atl. 373 (the expenditure of a large sum of money in constructing its road, held confirma- tory evidence of the acceptance by a railroad eompapy of the charter granted it); South Bay Meadow Dam Co. V. Gray, 30 Me. 547; Penobscot Boom Corporation v. Lamson, 16 Me. 224, 33 Am. Dec. 656; Trott v. Warren, 11 Me. 227; Lincoln & Kennebec Bank V. Bichardson, 1 Me. 79, 10 Am. Dee. 34. Maryland. Glymont Improvement 6 Excursion Co. v. Toler, 80 Md. 278, 30 Atl. 651; Hammond v. Straus, 53 Md. 1. Massachusetts. Society of Middle- sex Husbandmen & Manufacturers v. Davis, 3 Mete. 133; Bussell v. Me- Lellan, 14 Pick. 63. MicUgau. Cahill v. Kalamazoo Mut. Ins. Co., 2 Doug. 124, 43 Am. Dec. 457. Minnesota. St. Paul Division No. 1, Sons of Temperance v. Brown, 11 Minn. 356. See also St. Paul Division No. 1, Sons of Temperance v. Brown, 9 Minn. 157, 165. Mississippi. Perkins v. Sanders, 56 Miss. 733. Missouri. Boatmen's Bank v. Gil- lespie, 209 Mo. 217, 108 S. W. 74; St. Joseph & I. B. Co. v. Shambaugh, 106 Mo. 557, 17 S. W. 581 (construction and operation of part of road, held sufficient evidence of railroad's ac- ceptance of special charter); Sum- rail V. Sun Mut. Ins. Co., 40 Mo. 27. New Hampshire. Woods v. Banks, 14 N. H. 101; Ameriscoggin Bridge v. Bragg, 11 N. H. 102. New York. Demarest v. Flaek, 128 N. T. 205, 13 L. E. A. 854, 28 N. E. 645. See also Williams v. Bank of Michigan, 7 Wend. 539; Utica Ins. Co. V. Tilman, 1 Wend. 555. North Carolina. Taylor v. New- berne Com'rs, 2 Jpnes Eq. 141. Pennsylvania. Com. v. Cullen, 13 Pa. St. 133, 140, 53 Am. Dec. 450. See also Brown v. Fairmount Gold & Sil- ver Min. Co., 10 Phila. 32, 34; Mutual Fire Ins. Co. v. Stokes, 9 Phila. 80, 83. South Carolina. McKay v. Beard, 20 S. C. 156. Tennessee. Gleaves v. Brick Church Turnpike Co., 1 Sneed 491; Augusta Mfg. Co. V. Vertrees, 4 Lea, 75. Vermont. Bank of Manchester v, Allen, 11 Vt. 302. Wisconsin. See Heath v. Silver thorn Lead Mining & Smelting Co, 39 Wis. 146, 155. England. Bex v. Amery, 2 T. B, 515, 1 T. E. 575. Acceptance of a charter will be pre^ 472 Ch.8] Cbeation Under Special Acts [§248 and not of law, and may therefore be rebutted by showing that there has actually been no acceptance.^* Moreover, it has been said that this presumption does not obtain in eases where the charter does not name the corporators, and prescribes conditions and formalities by which indeterminate persons may become incorporated.^^ §247. — Question for jury. Whether acts performed are suffi- cient to constitute the acceptance of a charter by user has been held to be a question for the jury.^" § 248. — Effect. Upon the acceptance of the charter, there exists an express contract between the corporation and the state,*^ and the acceptance is not subject to revocation or withdrawal except upon the state's consent.*'' When an act of incorporation is accepted, and the corporation sumed from acceptance of a lease re- citing corporate existence, and from condemnation of land under a petition reciting power to do so under the charter. Louisville Trust Co. v. Louis- ville, N. A. & C. E. Co., 75 Fed. 433. See Louisville, N. A. & C. E. Co. v. Louisville Trust Co., 174 U. S. 552, 577. The books of the corporation are the best evidence of the corporate acts relied on. Coffin v. Collins,, 17 Me. 440, 443. 28 Newton v. Carbery, 5 Cranch C. C. 632, Ted. Cas. No. 10,190. See also Philadelphia, W. & B. E. Co. v. Kent County E. Co., 5 Houst. (Del.) 127; Hammond v. Straus, 53 Md. 1. 29 ' ' We have been referred by th& defendant's counsel to some authori- ties holding that acceptance of a char- ter applied for, or beneficial to the corporators, may be presumed; and that, in similar cases, slight acts of the corporators looking towards ac- ceptance are sufficient to establish it. But these authorities relate to char- ters naming the corporators and de- claring them incorporated, without preliminary steps, ipso facto, by force of the charter. These rules have no application to charters not naming the corporators, and prescribing conditions and formalities by which indetermi- nate persons may become incorpo- rated." Attorney General v. Chicago & N. W. E. Co., 35 "Wis. 425, 601. When the charter does not directly incorporate persons named but ap- points commissioners to open books for the subscription of stock and in- corporates the subscribers, acceptance of the charter must be shown. Au- gusta Mfg. Co. V. Vertrees, 4 Lea (Tenn.) 75, 78. "If the charter de- pends upon any precedent conditions an acceptance made in strict compli- ance therewith is necessary to ren- der it operative, either as a grant to or an obligation upon the corpora- tion." Atkinson v. Tennill, 14 Ky. L. Eep. 922. 30 Augusta Mfg. Co. V. Vertrees, 4 Lea (Tenn.) 75, 78. 31 People V. Michigan Cent. E. Co., 145 Mich. 140, 108 N. W. 772. 32 Eiddle v. Proprietors of Locks & Canals on Merrimack Eiver, 7 Mass. 169, 5 Am. Dec. 35. See also Goshen & S. Turnpike Co. v. Sears, 7 Conn. 86. 472 §248] Private Coepokations [Ch.8 organized provisionally under it, no subsequent withdrawal of any of the corporators can aifect its validity.^^ By accepting the charter, the corporation becomes bound by its terms,'* and charged with the performance of the duties and obliga- tions imposed.*' §249. — Proof of nonacceptance. Quo warranto proceedings against persons in whose behalf an act of incorporation had been passed, in which the defendants alleged that they had never used the franchise of a corporation, and in which the People had judgment of preclusion, have been held decisive of the question of the nonaccept- ance of the charter.'® It has also been held that nonaction under a charter negatives any implied acceptance of it.*'' 33Buse7 ^- Hooper, 35 Md. 15, 6 Am. Bep. 350. 34Bushwiek & N. Bridge & Turn- pike Road Co. V. Ebbets, 3 Edw. Ch. (N. Y.) 353, 355; City of New York V. Broadway & Seventh Ave. E. Co., 17 Hun (N. Y.) 242, 245. The acceptance of the charter cre- ates the presumption of assent to its terras. People v. Michigan Cent. E. Co., 145 Mich. 140, 108 N. W. 772. 36 Riddle V. Proprietors of Locks & Canals on Merrimack River, 7 Mass. 169, 184, 5 Am. Dec. 35. See also Goshen & 8. Turnpike Co. v. Sears, 7 Conn. 86. 36 Thompson v. New York & H. E. Co., 3 Sandf. Ch. (N. Y.) 625, 651. 37 Philadelphia, W. & B. R. Co. v. Kent County E. Co., 5 Houst. (Del.; 127, 132. 474 CHAPTER 9 Oeganization § 250. Terminology. § 251. Elements. § 252. Necessity of organization. I 253. Time for organization — In the absence of statute. § 254. — Under constitutional and statutory provisions. { 255. Time for election of directors and officers. § 256. Place of organization. § 257. Procedure generally to effect organization. S 258. Commissioners — ^^Qualifications. { 259. — Powers. I 2C0. — Duties. i 261. — Termination or revocation of authority. i 262. Notice of first meeting — Provision for. } 263. — Purpose of provision for notice. I 264. — By whom given. 5 265. — Time for giving. I 266. — Form and contents. 8 267. — Service. I 268. — Effect of noncompliance with provisions as to notice. I 269. Postponement of meeting. § 270. Conduct of meeting and persons who may participate. § 271. Beport of commissioners, corporators or oflScers. f 272. Certificate of organization; issuing and recording. §250. Termiaology. The words "organize" and "organization" are often used both in statutes and by the courts as synonymous with "incorporate" and "incorporation," and in this sense include all the steps necessary to perfect the incorporation of an association.* 1 Com. V. Wm. Mann Co., 150 Pa. Such organization has no reference to St. 64, 24 Atl. 601. the internal proceedings of the cor- Corporations formed under authority poration, such as a meeting of of the general laws "are organized stockholders and the like; it means the by a compliance with the provisions formation or birth of the body corpo- of general laws permitting corpora- rate." Morrison v, Clark, 24 Mont, tions to be formed. A compliance 515, 63 Pae. 98. with these laws results, of itself, in The word "organized" as used in the organization of tlie corporations. Const, art. XV, §1, providing that 475 §250] Private Coepoeations [Ch.9 So the word "organized" has been held to be used in this sense in a statute conferring powers on corporations "organized" for the pur- poses named therein, and under which the appointment of officers becomes effective eo instanti with the incorporation and neither can take place without the other,^ and also in a statute exempting from taxation corporations "organized" for certain purposes.^ And it is frequently used in this sense in contracts of subscription to stock where the subscriber agrees to pay the whole or a part of his subscrip- tion on the "organization" of the corporation, or within a specified time thereafter,* or where one contracts to pay a certain sum when a corporation is "organized." * But these terms are also often given all existing charters under which the corporations shall not have organized at the time of the adoption of the Constitution, shall thereafter have ne validity, is not appropriate ' ' to de- scribe what corporations formed un- der general laws must do before the adoption of the Constitution in order to preserve their franchises, for such corporations had already been organ- ized, by virtue of the filing in the proper offices of the certificates re- quired." That section was not de- signed, therefore, to invalidate the cliarters of corporations so formed for failure to organize in the sense of electing directors, and the like. Mor- rison V. Clark, 24 Mont. 515, 63 Pae. 98. In Capps V. Hastings Prospecting Co., 40 Neb. 470, 24 L. E. A. 259, 42 Am. St. Eep. 677, 58 N. VSr. 956, it was held that, "To organize a corporation there must be subscribers to the stock; a meeting of said subscribers, or some of them; the adoption of articles of association for the government of the proposed corporation, and such arti- cles must be filed in the office of the county clerk of the county in which is fixed the corporation's principal place of business." See also Eliot v. Freeman, 220 U. S. 178, 55 L. Ed. 424, construing the words "organized un- der the laws of the United States or of any state or territory" in the Fed- eral Corporation Tax Law. And see the following eases where the terms are used in this sense. Drake v. Hern- don, 122 Ky. 206, 91 S. W. 674; Em- pire Mfg. Co. v. Stuart, 46 Mich. 482, 9 N. W. 527; Johnson v. Okerstrom, 70 Minn. 303, 73 N. W. 147; Finnegan v. Noerenberg, 52 Minn. 239, 18 L. E. A. 778, 38 Am. St. Eep. 552, 53 N. W. 1150, East Norway Lake Church v. Froislie, 37 Minn. 447, 35 N. W. 260; MacGinniss v. Boston & M. Consol. Copper & Silver Min. Co., 29 Mont. 428, 75 Pae. 89. 2 Com. V. Wm. Mann Co., 150 Pa. St. 64, 24 Atl. 601. 3Com. V. Wm. Mann Co., 150 Pa. St. 64, 24 Atl. 601. 4 Under such circumstances it means when everything necessary to the for- mation of a corporation de jure has been done. Capps v. Hastings Pros- pecting Co., 40 Neb. 470, 24 L. E. A. 259, 42 Am. St. Eep. 677, 58 N. W. 956. See Chap. 17, infra. Bin Childs v. Smith, 46 N. Y. 34, rev'g 55 Barb. (N. Y.) 45, it was held that a corporation was organized within the meaning of such a con- tract when there had been "such acts and doings among the associates, as should form and set on foot, in prac- tical existence, a body in which they should have rights, and to which they would owe obligation, and through which they should possess rights 476 Ch. 9] Obganization [§250 a more restricted meaning as including only those things that are necessary to be done after incorporation in order to give the corpora- tion power to act and to carry out the objects and purposes for which it was formed,* and it is in this sense that they are used in this chapter. against, and incur obligations to, each other," and hence, that it was suffi- cient where a certificate of incorpo- ration had been signed, by-laws adopted, and officers elected, and they had a place of business as a corpora- tion, though there was not a corpora- tion de jure because the certificate had not been filed. 6 United States, See Planters' F. & M. Ins. Co. V. Tennessee, 161 U. S. 193, 40 L. Ed. 667; Falconer v. Camp- bell, Fed. Cas. No. 4,620, 2 McLean 195. Alabama. White v. Kahn, 103 Ala. 308, 15 So. 595; Sparks v. Woodstock Iron & Steel Co., 87 Ala. 294, 6 So. 195. See also First Nat. Bank of De- catur V. Henry, 159 Ala. 367, 49 So. 97. Connecticut. Pub. Acts 1903, c. 194, §69; Gen. St. 1902, §3365. Canfield V. Gregory, 66 Conn. 9, 33 Atl. 536. Delaware. Lippman v. Kehoe Steno- graph Co., — Del. Ch. — , 95 Atl. 895. Georgia. Brooke v. Day, 129 Ga. 694, 59 S. E. 769; Bau v. Union Paper Mill Co., 95 Ga. 208, 22 S. E. 146; Michael Bros. Co. v. Davidson & Cole- man, 3 Ga. App. 752, 60 S. B. 362. See also Ward-Truitt Co. v. Bryan & Lamb, 144 Ga. 769, 87 S. E. 1037. Kansas. Murdook v. Lamb, 92 Kan. 857, 142 Pac. 961; Nemaha Coal & Mining Co. v. Settle, 54 Kan. 424, 38 Pac. 483; Walton v. Oliver, 49 Kan. 107, 33 Am. St. Eep. 355, 30 Pac. 172; Hunt V. Kansas & Missouri Bridge Co., 11 Kan. 412. IVIaryland. See Taggart v. Western Maryland E. Co., 24 Md. 563, 89 Am. Dec. 760; Wellersburg & W. N. Plank Eoad Co. V. Hoffman, 9 Md. 559. Massachusetts. See Hawes v. An- glo-Saxon Petroleum Co., 101 Mass. 385; Merrick v. Eeynolda Engine & Governor Co., 101 Mass. 381. Mississippi. Ellison v. Mobile & O. E. Co., 36 Miss. 572. See also Eag- land V. Doolittle, 100 Miss. 498, 59 So. 445. Missouri. McDermott v. Donegan, 44 Mo. 85; Foster v. White Cloud City Co., 32 Mo. 505. New Jersey. See Booth v. Won- derly, 36 N. J. L. 250. New York. See Hone v. Allen, 1 Sandf. 171 note; Brouwer v. Appleby, 1 Sandf. 158. North CaroUna. See Fayetteville St. Ey. v. Aberdeen & E. E. Co., 142 N. C. 423, 9 Ann. Cas. 683, 55 S. E. 345. Ohio. Powers v. Hazelton & L. Ey. Co., 33 Ohio St. 429; Toledo Consol. St. Ey. Co. V. Toledo Elec. St. Ey. Co., 6 Ohio N. P. 537, aff'd 6 Ohio Cir. Ct. 362, aff'd 50 Ohio St. 603, 36 N. E. 312. See also Second Nat. Bank V. Hall, 35 Ohio St. 158; James v. Cin- cinnati, H. & D. E. Co., 2 Disney 261. Oregon. See McVicker v. Cone, 21 Ore. 353, 28 Pac. 76. Pennsylvania. Com. v. Wm. Mann Co., 150 Pa. St. 64, 24 Atl. 601. See also Com. v. Continental Trust & Fi- nance Co., 10 Pa. Dist. 451. South Carolina. See Spartanburg & A. E. Co. V. Ezell, 14 S. C. 281. Tennessee. Gleaves v. Brick Church Turnpike Co., 1 Sneed 491. See also State V. Butler, 86 Tenn. 614, 8 S. W. 586. Texas. Quinlan v. Houston & T. C. Ey. Co., 89 Tex. 356, 34 8. W. 738; Williams v. State, 23 Tex. 264. See 477 §250] Private Coeporations [Ch.9 Obtaining authority to do business is not the equivalent of organiza- also Patty v. Hillsboro Boiler Mill Co., 4 Tex. Civ. App. 224, 23 S. W. 336. Vermont. See Lawrie v. Silsby, 76 Vt. 240, 104 Am. St. Eep. 927, 56 Atl. 1106; Vermont Mining & Quarrying Co. V. Windham County Bank, 44 Vt. 489; Vermont Cent. E. Co. v. Clayes, 21 Vt. 30. Virginia, See Grays v. Lynchburg & S. Turnpike Co., 4 Band. 578. ' West Virginia. Bee Greenbrier In- dustrial Exposition v. Squires, 40 W. Va. 307, 52 Am. St. Eep. 884, 21 S. E. 1015. Wyoming. See Grand Eapids Fur- niture Co. V. Grand Hotel & Opera House Co., 11 Wyo. 128, 72 Pae. 687, 70 Pae. 838. If the charter is accepted at the first meeting, "an organization takes place by the election of permanent officers, and other acts important to carry into effect the objects of the company, and a record thereof made." Hudson V. Carman, 41 Me. 84. The only business which a national bank is permitted to carry on prior to the time when it is authorized by the comptroller of the currency to commence the business of banking is "such as is incidental and necessarily preliminary to its organization," that is to say, such as is necessary ' ' to com- plete its organization as a corpora- tion, which might doubtless include electing directors and officers, receiv- ing subscriptions and payments for shares, procuring a corporate seal, and a book for recording its proceedings, temporarily hiring a room, and con- tracting any small debts incidental to the completion of its organization." McCormiek v. Market Nat. Bank, 165 V. S. 538, 41 L. Ed. 817, aff'g 162 111. 100, 44 N. E. 381, which affirms 61 111. App. 33. "A special or private charter pur- porting to create a corporation does not necessarily organize it — in order that the corporation be organized, there must be an acceptance of the charter, and a compliance with what- ever the special law may require." Morrison v. Clark, 24 Mont. 515, 63 Pae. 98. In Watson v. Albany & N. By. Co., Ill Ga. 10, 36 S. E. 324, it is said that the purchasers of a i'ailroad at a judicial sale did not formally or- ganize until a certain date, when "they met, adopted a common seal, issued stock, made by-laws, and elected a board of directors." In Wechselberg v. Elour City Nat. Bank, 64 Ped. 90, 26 L. B. A. 470, it is said that the inhibition of a statute was "against any transac- tions except such as tend to organiza- tion, — i. e. perfecting incorporation # » # J, In McGinty v. Athol Beservoir Co., 155 Mass. 183, 29 N. E. 510, it was held that where at least one of the persons named in the act of incorpora- tion, without objection from the oth- ers, with seven others not so named, met and accepted the act, adopted by-laws, chose officers, and transacted other business, the persons taking part in such proceedings became a corpo- ration. In Abbott V. Omaha Smelting & Eefining Co., 4 Neb. 414, 421, the court says that the word "organization," as used in a statute providing that a corporation, "previous to the com- mencement of any business, except its own organization," must adopt arti- cles of incorporation and have the same recorded, "means simply the process of forming and arranging into suitable disposition the parts which are to act together in, and in defin- ing the objects of the compact body, and that this process, even when com- pleted in all its parts, does not confer 478 Ch.9] Obganization L§251 tion, "organized" is not synonymous with "licensed to do business." ' And the use of the word ' ' organize ' ' is incompatible with the idea of adopting or domesticating a foreign corporation by legislative fiat, since in that event the corporation is already organized and therefore no organization is necessary.' § 251. Slements. When given the restricted construction defined above, these terms have been variously stated to include the choice the franchise, either valid or de- fective, but on the contrary, it is only the act of the individuals, and there- fore something else must be done to secure the franchise." In Capps V. Hastings Prospecting Co., 40 Neb. 470, 24 L. E. A. 259, 43 Am. St. Eep. 677, 58 N. W. 956, it is said: "To organize a corporation there must be subscribers to the stock; a meeting of said subscribers, or some of them; the adoption of articles of association for the government of the proposed corporation, and such articles must be filed in the office of the county clerk of the county in which" is fixed the corporation's principal place of business." In Nebraska, corporations are formed under general laws, and the organization, using the word as above defined, takes place before the articles of incorporation are adopted and filed. The corporation must be regarded as organized, so as to permit a trans- fer of the franchise, and within the meaning of a provision that the franchise shall remain in the incor- porators until the corporation is or- ganized, "when the first meeting has been called, the act of incorporation accepted, the officers elected and by- laws providing for future meetings adopted, at least where there are any stockholders." Roosevelt v. Ham- blin, 199 Mass. 127, 18 L. E. A. (N. S.) 748, 85 N. E. 98. The word is used in this sense in Eev. Codes 1907, § 3892, providing that if a corporation does not "organize" within one year from the date of its incorporation, its corporate powers shall cease. Daily V. Marshall, 47 Mont. 377, 133 Pac. 681. And in the provision of the Pennsylvania Constitution for the for- feiture of charters under which a bona fide organization has not taken place at the time of its adoption. Chincle- clamouche Lumber & Boom Co. v. Com. 100 Pa. St. 438. "The word 'formed' is used in the Ohio statutes as a synonym for 'or- ganized.' " Cincinnati v. Queen City Tel. Co., 2 Ohio N. P. (N. S.) 349, aff'd 5 Ohio Cir. Ct. (N. S.) 411,. which is affirmed by 73 Ohio St. 64, 76 N. B. 392. 7 An insurance company incorpo- rated under the laws of Great Britain and licensed to do business in New York is not organized in New York. Employers' Liability Assur. Co. v. Commissioner of Insurance, 64 Mich. 614, 31 N. W. 542. 8 For this reason a statute provid- ing for the domesticating of foreign corporations oe petition of the cor- poration, was held to violate a con- stitutional provision that no law should be passed for the benefit of a foreign corporation and no grant of any right or privilege, or exemption from any burden, should be made to it, ' ' except upon the condition that the owners or stockholders thereof shall first or- ganize a corporation in this state * * *." Carolina, C. & O. Ey. v. Mc- Cown, 84 8. C. 318, 66 S. E. 418, con- curring opinion. 479 § 251] Pbivate Cokpoeations [Ch. 9 and qualification of directors and officers,' the adoption of corporate s United States. McCormick v. Market Nat. Bank, 165 U. S. 538, 41 li. Ed. 817, aff'g 162 111. 100, 44 N. E. 381, which affirms 61 111. App. 33. Alabama. First Nat. Bank of De- catur V. Henry, 159 Ala. 367, 49 So. 97; White v. Kahn, 103 Ala. 308, 15 So. 595. Connecticut. Pub. Acts 1903, c. 194, § 67; Gen. St. 1902, § 3365. Canfield V. Gregory, 66 Conn. 9, 33 Atl. 536. Delaware. See Lippman v. Kehoe Stenograph Co., — Del. Ch. — , 95 Atl. 895. Qeorgia. Watson v. Albany & N. Ey. Co., Ill Ga. 10, 36 S. E. 324. Indiana. See Atherton v. Sugar Creek & P. Turnpike Co., 67 Ind. 334. Kansas. Murdock v. Lamb, 92 Kan. 857, 142 Pae. 961; Nemaha Coal & Mining Co. v. Settle, 54 Kan. 424, 38 Pac. 483; Walton v. Oliver, 49 Kan. 107, 33 Am. St. Eep. 355, 30 Pae. 172. Maine. Hudson v. Carman, 41 Me. 84. Maryland. See Taggart v. Western Maryland K. Co., 24 Md. 563, 89 Am. Dec. 760. Mississippi. See Ragland v. Doolit- tle, 100 Miss. 498, 59 So. 445; Perkins V. Sanders, 56 Miss. 733; Ellison v. Mobile & O. E. Co., 36 Miss. 572. Montana. Daily v. Marshall, 47 Mont. 377, 133 Pae. 681; Morrison v. Clark, 24 Mont. 515, 63 Pac. 98. Ohio. Second Nat. Bank v. Hall, 35 Ohio St. 158; Milford & Chillicothe Turnpike Co. v. Brush, 10 Ohio 111, 36 Am. Dec. 78; Toledo Consol. St. Ey. Co. V. Toledo Elec. St. Ey. Co., 6 Ohio N. P. 537, aff'd 6 Ohio Cir. Ct. 362, aff'd 50 Ohio St. 603, 36 N. E. 312. Oregon. Pairview E. Co. v. Spill- man, 23 Ore. 587, 32 Pae. 688; Mc- Vicker v. Cone, 21 Ore. 353, 28 Pac. 76; Coyote Gold & Silver Min. Co. v. Euble, 8 Ore. 284; HoUaday v. Elliott, 8 Ore. 84; Willamette Freighting Co. V. Stannus, 4 Ore. 261. South Carolina. Carolina, C. & O. Ey. V. McCown, 84 S. C. 318, 66 S. E. 418, concurring opinion; McKay v. Beard, 20 S. C. 156. Tennessee. See Woodward v. Beas- ley, 2 Tenn. Ch. App. 339. Wyoming. See Grand Eapids Fur- niture Co. v. Grand Hotel & Opera House Co., 11 Wyo. 128, 72 Pac. 687, 70 Pac. 838. "To organize is to furnish with or- gans. An organ is defined to be an instrument or medium by which an action is performed or an object ac- complished. The inedium by or through which a corporation can alone act or accomplish the object for which it was created is the officers provided for in the law of its being. Hence it is organized when these officers have been appointed and taken upon them- selves the burden of their offices; it is then furnished with organs; 'en- dowed with capacity for the functions of life' (Webst.); 'qualified for the exercise of its appropriate func- tions.' " Com. V. Wm. Mann Co., 150 Pa. St. 64, 24 Atl. 601. "A corporation cannot act without officers and agents, and it is powerless to do anything until its incorporators or promoters give it the means whereby it can act." Walton v. Oli- ver, 49 Kan. 107, 33 Am. St. Eep. 355, 30 Pac. 172, quoted with approval in Murdock v. Lamb, 92 Kan. 857, 142 Pac. 961. Before a railroad company can ex- ercise the power of eminent domain it must show, "in addition to the fact of its incorporation, that it had brought itself into a condition to ex- ercise its powers for the construction of the road, by a full organization in 480 Ch.9] Okganization [§ 251 by-laws,^" and the other steps ' ' necessary to endow the legal entity with capacity to transact the legitimate business for which it was cre- ated. " ^^ So a corporation is not organized in this sense though a charter has been obtained, and a certificate that a certain percentage the election of directors." Powers v. Hazelton & L. Ey. Co., 33 Ohio St. 429. In Cincinnati v. Queen City Tel. Co., 2 Ohio N. P. (N. S.) 349, 361, aff'd 5 Ohio Cir. Ct. (N. S.) 411, which is affirmed by 73 Ohio St. 64, 76 N. B. 392, it is said that the language of Judge Day in Powers v. Hazelton & L. Ey. Co., 33 Ohio St. 429, 432, '"a full organization in the election of directors,' ought to set at rest the question as to what our supreme court means when it speaks of the organi- zation of a corporation." "By the organization of a com- pany, we understand the meeting of individuals claiming to be corpora- tors and their action in choosing officers and servants." Duke v. Ca- hawba Nav. Co., 10 Ala. 82, 44 Am. Dec. 472. "The 'organization' of a corpora- tion is the election of officers by the stockholders." Cincinnati v. Queen City Tel. Co., 2 Ohio N. P. (N. S.) 349, aff'd 5 OLio Cir. Ct. (N. S.) 411, which is affirmed by 73 Ohio St. 64, 76 N. E. 392. Organization includes the election of directors. Cincinnati v. Queen City Tel. Co., 2 Ohio N. P. (N. S.) 349, aff'd 5 Ohio Cir. Ct. (N. S.) 411, which is affirmed by 73 Ohio St. 64, 76 N. E. 392. The word organize "ordinarily sig- nifies the choice and qualification of all necessary officers for the transac- tion of the business of the corpora- tion." New Haven & D. E. Co. v. Chapman, 38 Conn. 56. Organization for the transaction of business "is effected by the election of a board of directors, and other proper officers" as provided by the statute. Hunt v. Kansas & M. Bridge Co., 11 Kan. 412. "The organization is completed only when directors have been elected, and they have elected a president and secretary, which it is contemplated they shall do at their first meeting." Nicknm v. Burckhardt, 30 Ore. 464, 60 Am. St. Eep. 822, 48 Pac. 474, 47 Pac. 788. "The neglect to show that one-half of the capital stock had been taken, or a board of directors elected, was a failure to prove that plaintiff had ever been organized as a de jure cor- poration. " Goodale Lumber Co. v. Shaw, 41 Ore. 544, 69 Pac. 546. 10 Watson V. Albany & N. Ey. Co., Ill Ga. 10, 36 S. E. 324; Murdock v. Lamb, 92 Kan. 857, 142 Pac. 961; Nemaha Coal & Mining Co. v. Settle, 54 Kan. 424, 38 Pac. 483; Walton v. Oliver, 49 Kan. 107, 33 Am. St. Eep. 355, 30 Pac. 172; Daily v. Marshall, 47 Mont. 377, 133 Pac. 681; Carolina, C. & O. Ey. V. McCown, 84 S. C. 318, 66 S. E. 418, concurring opinion. 11 Murdock v. Lamb, 92 Kan. 857, 142 Pac. 961; Nemaha Coal & Min- ing Co. v. Settle, 54 Kan. 424, 38 Pac. 483; Walton v. Oliver, 49 Kan. 107, 33 Am. St. Eep. 355, 30 Pac. 172, quoted in Carolina, C. & O. Ey. v. McCown, 84 S. C. 318, 66 S. E. 418, concurring opinion. This expression refers solely to such steps as are necessary to complete or- ganization to ' the point that genuine and not merely formal or paper ex- istence is created. Murdock v. Lamb, 92 Kan. 857, 142 Pac. 961. See also Hudson V. Carman, 41 Me. 84. 481 I Priv. Corp.— 3-1 §251] Private Corporations [Ch.9 of the capital stock has been subscribed as required by the statute,^'' or though the charter has been accepted, the enrollment tax paid, and books opened and subscriptions received for half of the capital stock,^' if nothing further has been done. The same result follows where nothing is done to perfect the organization after the charter or articles, or certificate of incorporation is filed, in states where such filing takes place before the stock is subscribed for and the officers chosen,^* even though the statute provides that the corporate existence shall date from the time of such filing.^* While organization is sometimes said to include providing for the subscription and payment of the capital stoek,^^ it does not neces- A corporation comes into existence when its articles are filed, but must then proceed in its organization and the carrying on of the business for which it is incorporated, or it is liable to ouster. State v. Bobinson, 9 Ohio Dec. 383. IB See Chap. 14, infra. 16 McCormick v. Market Nat. Bank, 165 U. S. 538, 41 L. Ed. 817, aff'g 162 111. 100, 44 N. E. 381, which affirms 61 111. App. 33; Brooke v. Day, 129 Ga. 694, 59 S. E. 769; Murdock v. Lamb, 92 Kan. 857, 142 Pac. 961; Ne- maha Coal & Mining Co. v. Settle, 54 Kan. 424, 38 Pac. 483; Walton v. Oli- ver, 49 Kan. 107, 33 Am. St. Eep. 355, 30 Pac. 172; Carolina, C. & O. Ey. v. MeCown, 84 S. C. 318, 66 S. B. 418, concurring opinion. See also Wechsel- berg V. Flour City Nat. Bank, 64 Fed 90, 26 L. E. A. 470; Goodale Lumber Co. V. Shaw, 41 Ore. 544, 69 Pac. 546; Nickum v. Burckhardt, 30 Ore, 464, 60 Am. St. Eep. 822, 48 Pac. 474, 47 Pac. 788; Fairview E. Co. v. Spill- man, 23 Ore. 587, 32 Pac. 688; Mo- Vicker v. Cone, 21 Ore. 353, 28 Pac. 76; HoUaday v. Elliott, 8 Ore. 84; Willamette Freighting Co. v. Stan- nus, 4 Ore. 261. The organization is not complete where no stock has been subscribed, although the charter has been filed. Nemaha Coal & Mining Co. v. Settle, 54 Kan. 424, 38 Pac. 483; Whetstone 12 These "are only the first toward forming a corporation. At such a stage of its existence a corpo- ration cannot be said to be organized, and the term is not so used in the re- ports. ' ' Cincinnati v. Queen City Tel. Co., 2 Ohio N. P. (N. S.) 349, aff'd 5 Ohio Cir. Ct. (N. S.) 411, which is affirmed by 73 Ohio St. 64, 76 N. E. 392. 13 Chincleclamouche Lumber & Boom Co. V. Com., 100 Pa. St. 438. 14 Murdock v. Lamb, 92 Kan. 857, 142 Pac. 961; Walton v. Oliver, 49 Kan. 107, 33 Am. St. Eep. 355, 30 Pac. 172; McVicker v. Cone, 21 Ore. 353, 28 Pac. 76. And see Eutherford v. Hill, 22 Ore. 218, 17 L. E. A. 549, 29 Am. St. Eep. 596, 29 Pac. 546. The making, filing and recording of articles of incorporation do not make an incorporated company, but the articles are merely authority to do so. No corporation exists under such circumstances, where it does not appear that any officers or directors have been chosen, or that any of the stock has been subscribed, or that any organization whatever has been ef- fected. State V. Insurance Co., 49 Ohio St. 440, 16 L. E. A. 611, 34 Am. St. Eep. 573, 31 N. E. 658; Cincinnati V. Queen City Tel. Co., 2 Ohio N. P. (N. S.) 349, aff'd 5 Ohio Cir. Ct. (N. S.) 411, which is affirmed by 73 Ohio 8t. 64, 76 N. E. 392. 482 Ch.9] Obganization [§252 sarily include the procuring of subscriptions, and there are many- cases in which manifestly it is not used in any such sense,^'' and in which organization may be perfected and the company may proceed to business before the full amount of the capital has been subscribed,^* the matter being one that is governed entirely by the charter or gen- eral law under which the corporation is formed.^' ' §252. Necessitj of organizatioii. Since a corporation is power- less to do anything until its incorporators, or promoters, give it the means whereby it can act,*" an organization in accordance with the provision of the statute to which it owes its existence is ordinarily necessary before it can assume its franchise, or enter into any kind of contract, or transact any business.*^ And this is often held to be equally true though the statute provides for the filing of the charter. V. Crane Bros. Mfg. Co., 1 Kan. App. 320, 41 Pae. 2ll. 17 New Haven & D. E. Co. v. Chap- man, 38 Conn., 56. 18 New Haven & D. E. Co. v. Chap- man, 38 Conn. 56. See Chap. 10 and Chap. 17, infra. 19 ' ' This ia usually done after all the capital stock has been subscribed. ' ' New Haven & D. E. Co. v. Chapman, 38 Conn. 56. See Chap. 10 and Chap. 17, infra. ZOMurdock v. Lamb, 92 Kan. 857, 142 Pae. 961; Walton v. Oliver, 49 Kan. 107, 33 Am. St. Eep. 355, 30 Pae. 172. 21 United States. Elgin Nat. Watch Co. v. Loveland, 132 Fed. 41. Delaware. City of Wilmington v. Addicks, 7 Del. Ch. 56, 43 Atl. 297. Illinois. Gent v. Manufacturers' & Merchants' Mut. Ins. Co., 107 111. 652, aff'g 13 111. App. 308; Western Screw & Manufacturing Co. v. Cousley, 72 III. 531; Merrick v. Consumers Heat & Electric Co., Ill 111. App. 153; Cres- well v. Oberly, 17 111. App. 281. See also Stowe v. Flagg, 72 111. 397. Kansas. Murdock v. Lamb, 92 Kan. 857, 142 Pae. 961; Walton v. Oliver, 49 Kan. 107, 33 Am. St. Eep. 355, 30 Pae. 172. Oregon. McVicker v. Cone, 21 Ore. 353, 28 Pae. 76; Coyote Gold & Silver Min. Co. V. Euble, 8 Ore. 284. Wisconsin. See Attorney General v. Chicago & N. W. Ey. Co., 35 Wis. 425. Wyoming. See Grand Eapids Fur- niture Co. V. Grand Hotel & Opera House Co., 11 Wyo. 128, 72 Pao. 687, 70 Pao. 838. Organization under the charter is essential to give the corporation an actual entity and to enable it to trans- act business. Ward-Truitt Co. v. Bryan & Lamb, 144 6a. 769, 87 S. E. 1037; Eau V. Union Paper Mill Co., 95 Ga. 208, 22 S. E. 146; Michael Bros. Co. v. Davidson & Coleman, 3 Ga. App. 752, 60 S. E. 362. "A corporation, until organized, has no being, franchises, or faculties. • * * Until organized as authorized by the charter there is not a corpora- tion, nor does it possess franchises or faculties for it or others to exercise, until it acquires a complete exist- ence." Gent V. Manufacturers' & Merchants' Mut. Ins. Co., 107 HI. 652, 658, aff'g 13 111. App. 308. Quoted with approval in Owen v. Shepard, 59 Fed. 746. "Unless something is done towards organization, so as to show an inten- 483 §252] Private Coepobations [Ch.9 or the articles or certificate of incorporation before the organization is completed and that the corporate existence shall date from the time of such filing.** tion to conduct the business as a cor- poration, it will be presumed to be an individual enterprise." Brooke v. Day, 129 Ga. 694, 59 S. E. 769. There must be an organization of a corporation with the amount of cap- ital specified in the act of incorpora- tion before the capital is increased. So it was held that where twice the requisite amount was subscribed, and the organization meeting was held by all the subscribers, including those subscribing for the excess, and the capital stock was there increased on motion of one of the latter, and direc- tors were then chosen, there was not a valid organization and that the stock subscriptions were not enforce- able. Katama Land Co. v. HoUey, 129 Mass. 540. The issuance by the secretary of state of a certificate of incorporation to the purchasers of a railroad at a judicial sale does not ipso facto cre- ate a corporation authorized to operate the road and exercise the franchises of the old company, but such a cor- poration does not come into complete existence until after organization under the certificate in the manner prescribed by law, and until such or- ganization it is not liable as such for injuries received by an employee in the operation of the road. Watson v. Albany & N. Ey. Co., Ill Ga. 10, 36 8. B. 324. Subscription to the minimum amount of stock and a meeting of stockholders are necessary to corporate exist- ence under legislative charters. Coal- ter V. Bargamin, 99 Va. 65, 37 S. E. 779; Martin v. South Salem Land Co., 94 Va. 28, 26 S. E. 591. A partnership is not changed into a corporation, where a charter is ob- tained and the two partners agree that each shall hold certain offices, but there is no stock subscription or list of stockholders, no minutes are kept, and nothing further is done towards organization. Under such cir- cumstances, such persons are liable as partners on notes signed with the firm name. Ward-Truitt Co. v. Bryan & Lamb, 144 Ga. 769, 87 S. E. 1037. 22 Coyote Gold & Silver Min. Co. V. Ruble, 8 Ore. 284. Under such circumstances the asso- ciates are a corporation in name merely. Cincinnati v. Queen City Tel. Co., 2 Ohio N. P. (N. S.) 349, afC'd 5 Ohio Cir. Ct. (N. S.) 411, which is af- firmed by 73 Ohio St. 64, 76 N. E. 392. Though a certificate of incorpora- tion has been executed and filed, the corporation is not sufficiently in esse to accept a grant of a franchise where nothing further has been done towards organization. Aspen Water & Light Co. v. City of Aspen, 5 Colo. App. 12, 37 Pac. 728. Where the statute provides that the corporate powers shall be exercised by a board of directors or trustees who must be stockholders, and from which body a president may be elected, there can be no legal officers capable of making a contract in behalf of the corporation where no stock has ever been subscribed for or issued, and no agreement is shown obligating the promoters to take stock. Aspen Water & Light Co. V. City of Aspen, 5 Colo. App. 12, 37 Pac. 728. Though the charter naming the di- rectors for the first year is duly ac- knowledged and filed in the office of the secretary of state, the corporation has no power to proceed to the trans- action of business where no other of- ficers have been chosen, no portion of the capital stock has been subscribed 484 Ch.9] Obganization [§252 The exercise of a corporate right presupposes a previous corporate organization,^' and without such organization the association can do no corporate act, can receive no corporate property, and can incur no corporate liability, nor can any corporate judgment be rendered against it.''* "Without organization and members, without officers and stock- holders, a corporation is but a naked body. " ^^ "It may be author- ized to exercise corporate franchises, but is without means or instru- mentalities for such exercise. "28 So it has been held that while it and no books opened for subscriptions, and notMng has been done to complete the preliminary business of organiz- ing the corporation, and if, under such circumstances, the directors incur a liability or indebtedness in the name of the corporation, they are person- ally liable therefor. Murdoek v. Lamb, 92 Kan. 857, 142 Pac. 961; Wal- ton V. Oliver, 49 Kan. 107, 33 Am. St. Rep. 355, 30 Pac. 172. See also Nema- ha Coal & Mining Co. v. Settle, 54 Kan. 424, 38 Pac. 483. The incorporators are individually liable for debts incurred in the cor- porate name, where, though a charter was obtained under the laws of Ari- zona, no books were ever opened for the purpose of receiving stock sub- scriptions, no subscriptions were ever made, no stock was issued, no by-laws were adopted, no meetings were called or held for the election of directors or officers, and no other steps were taken to complete the organization. Central Nat. Bank v. Sheldon, 86 Kan. 460, 121 Pac. 340. Under the Wisconsin statutes the signers of the articles are personally, liable upon obligations incurred in the corporate name after the articles are filed and recorded, but before any stock has been subscribed for or issued or any further proceedings taken to organize. Wechselberg v. Flour City Nat. Bank, 64 Fed. 90, 26 L. E. A. 470. In the case of a railroad corpora- tion, the existence of the body corporate does not depend upon the election of, or the right to elect direc- tors, though it cannot locate or con- struct its road until after their election. Ashtabula & N. L. E. Co. v. Smith, 15 Ohio St. 328. By statute a consolidated corpora- tion does not succeed to the rights and franchises of the consolidating companies until the election of its first board of directors, though it comes into existence when the statutory cer- tificate is filed. Mansfield, C. & L. M. E. Co. v. Brown, 26 Ohio St. 223. A failure to organize under a spe- cial charter amounts to a refusal to accept it and the corporation never comes into existence. State v. Simon- ton, 78 N. C. 57. See also Chap. 8, supra and Chapi 14, infra, 23Lechmere Bank v. Boynton, 11 Cush. (Mass.) 369. 24Eau V. Union Paper Mill Co., 95 6a. 208, 22 S. E. 146; Michael Bros. Co. V. Davidson & Coleman, 3 Ga. App. 752, 60 S. E. 362. 25 Arkansas Eiver Land, Town & Canal Co. v. Farmers' Loan & Trust Co., 13 Colo. 587, 22 Pac. 954. Quoted with approval in Aspen Water & Light Co. V. City of Aspen, 5 Colo. App. 12, 37 Pac. 728. 26 Arkansas Eiver Land, Town & Canal Co. v. Farmers' Loan & Trust Co., 13 Colo. o87, 22 Pac. 954. 485 §252] Pbivate Coepokations [Ch.9 may do sucli acts as are necessary to perfect its organization,*'' it cannot exercise the power of eminent domain,*' nor locate and con- struct a railroad,*^ nor accept a franchise,^" and there is authority to the effect that it cannot take title to real property before its organ- ization,*^ though the contrary has been held to be true where under its charter or the general law it is deemed to exist as an entity before that time.*^ And a deed to a corporation dated after the date of its charter but before its organization and recorded after its organization is valid, since its acceptance will be presumed as soon as the corporation was competent to take.'^ The same is true of a deed which is placed in escrow to be delivered to the corporation ST Such as receiving subscriptions to its capital stock and electing direc- tors. Powers V. Hazelton & L. Ey. Co., 33 Ohio St. 429, 432; Ashtabula & N. L. B. Co. V. Smith, 15 Ohio St. 328. 2S Powers V. Hazelton & L. Ey. Co., 33 Ohio St. 429; Cincinnati v. Queen City Tel. Co., 2 Ohio N. P. (N. S.) 349, aflf'd 5 Ohio Cir. Ct. (N. 8.) 411, which is aSarmed by 73 Ohio St. 64, 76 N. E. 392; Toledo Consol. St. By. Co. V. Toledo Blee. St. Ey. Co., 6 Ohio N. P. 537, aff'd 6 Ohio Cir. Ct. 362, which is affirmed by 50 Ohio St. 603, 36 N. E. 312. See also Chap. 36, infra. 29 A railroad corporation cannot lo- cate and construct its road before the election of directors. Powers v. Hazel- ton & L. By. Co., 33 Ohio St. 429; Ashtabula & N. L. E. Co. v. Smith, 15 Ohio St. 328. 30 Aspen Water & Light Co. v. City of Aspen, 5 Colo. App. 12, 37 Pac. 728. 31 Before organization it cannot take title to real property, though the corporators may be estopped as against bona fide creditors of the corporation to set up title in themselves to prop- erty which they have treated as as- sets of the corporation in their petition for a charter, and of which the cor- poration when organized has taken possession. Bau v. Union Paper Mill Co., 95 Ga. 208, 22 S. E. 146. See also Chap. 11, infra. 32 " A corporation may have such an existence by force of the act of the legislature creating it as to- give it a capacity to take a grant, before it has such an organization and appoint- ment of officers as to enable it to enter upon the transaction of its general business;" as, for example, where the act ipso facto creates certain named persons a corporation. Vermont Min- ing & Quarrying Co. v. Windham County Bank, 44 Vt. 489. Where the statute provides that upon filing the certificate of incor- poration the associates and their suc- cessors shall be a body politic and corporate, a conveyance to it after the certificate is filed, but before any meeting of the stockholders or direc- tors has been held, or any business has been transacted, is valid. Morrison v. Clark, 24 Mont. 515, 63 Pac. 98. It may hold property necessary for its contemplated purposes before its organization is completed and pre- serve such property for its future use where it is deemed to exist as an en- tity from the time when its articles are filed. Coyote Gold & Silver Min. Co. V. Buble, 8 Ore. 284. 38 Botch's Wharf Co. v. Judd, 108 Mass. 224. 486 Ch.9] Obganization [§252 after its organization.'* But while organization is ordinarily essen- tial to the exercise of corporate powers, unless restricted by the constitution, the legislature may create or provide for the creation of corporations without requiring a conformity to the usual modes of organization known to the law,** and may make a corporation liable on contracts made before its organization is completed.'^ So a special charter, may create a corporation ipso facto upon the taking effect of the act, or as soon as the required amount of stock has been subscribed, without the election of directors or ofSeers and without formal organization.*' And requirements in special charters or gen- 84 A deed made to a corporation be- fore its charter had been obtained is valid where it is delivered to a third person to be delivered to the corpora- tion after it has obtained its charter and organized. Spring Garden Bank V. Hulings Lumber Co., 32 W. Va. 357, 3 L. K. A. 583, 9 S. E. 243. 36 Penobscok Boom Corporation v. Lamson, 16 Me. 224, 33 Am. Dee. 656. The legislature may grant a char- ter to a single individual, giving him liberty to take associates, or to have succession without it, and without any provision for the division of the prop- erty allowed to be held into shares, or for the call of any meetings, or the choice of any officers, or the keeping of any records, or any mode of organ- ization, and when it does so, no or- ganization whatever is necessary. Penobscot Boom Corporation v. Lam- son, 16 Me. 224, 33 Am. Dee. 656. Formerly the Montana statute pro- vided that the due incorporation of a company should, without further proof or acts, operate as its organization. Washington & L E.. Co. v. Coeur D'Alene Ey. & Nav. Co., 52 Fed. 765. 36 Under the Wisconsin statute the corporation exists from the time when: its articles have been filed for record in the office of the register of deeds, and it may then contract in its cor- porate capacity though not yet organ- ized, and is liable on such a contract. But it cannot enforce a contract made before half of its stock has been sub- scribed, and its stockholders are also personally liable on such a contract. Badger Paper Co. v. Eose, 95 Wis. 145, 37 L. E. A. 162, 70 N. W. 302. 87 Frost's Lessee v. Frostburg Coal Co., 24 How. (U. S.) 278, 16 L. Ed. 637; Judah v. American Live Stock Ins. Co., 4 Ind. 333; Brouwer v. Ap- pleby, 1 Sandf. (N. Y.) 158. It "may constitute the persons named a corporation at once, with- out further action on their part, either in the admission of associates, the choice of officers, or the division of the capital stock. ' ' Hawes v. Anglo-Saxon Petroleum Co., 101 Mass. 385. In St. Joseph & I. E. Co. v. Sham- baugh, 106 Mo. 557, 17 S. W. 581, it was held that where a special act provided that "A company is hereby incorporated" under a certain name and with a specified amount of stock, and designated the persons who were to compose the first board of direc- tors, further provisions that the di- rectors should meet and organize, and open books for stock subscriptions do not prescribe conditions precedent to corporate life, but merely confer pow- ers to be exercised by the corporation. See also Stoops v. Greensburgh & B. Plank-Eoad Co., 10 Ind. 47, where it was held that inasmuch a^ the charter declared the directors named therein a corporation ab initio, a provision requiring them to meet and elect offi- 487 §252] Private Cohpoeations [Ch.9 eral incorporation laws relative to organization are often construed to be merely directory,'* or to be conditions subsequent rather than conditions precedent,'* so that, while the failure to observe them will expose the corporation to the peril of dissolution upon inquiry by the state, it will not ipso facto result in forfeiture, and the cor- porate existence will continue until the forfeiture has been judicially decreed at the instance of the state.*** Accordingly, under such cir- cumstances, "when the corporation has been regularly brought into existence, it is not deprived of the right to exercise corporate func- tions by the failure of the directors designated by the statute to perfect the organization,"*^ or because of a failure to fix and limit the amount of the capital stock of the company at the first meeting,** cers was directory merely, and that a stock subscription made before they had done so was valid. See also Chap. 17, infra. 88 City Hotel in Worcester v. Dick- inson, 6 Gfray (Mass.) 586; Narra- gansett Bank v. Atlantic Silk Co., 3 Mete. (Mass.) 282; Hughes v. Parker, 20 N. H. 58. The requirements of the general corporation law "to be observed for the perfection of the organization, the election of officers, and the like per- tain exclusively to its private affairs, of which the public can have no in- formation, and in the absence of statu- tory provisions to the contrary, or of inquisition at the instance of the state, are to be deemed directory only." Daily v. Marshall, 47 Mont. 377, 133 Pac. 681. Where the statute provides that upon filing the certificate of incorporation the associates and their successors shall be a body politic and corporate, and such provision is complied with, failure to hold any meeting of the stockholders or directors, or to com- mence business, will not prevent the associates from becoming a corpora- tion, or dissolve the corporation, or invalidate the acts or proceedings al- ready taken, under which it has be- come a corporation. Morrison v. Clark, 24 Mont. 515, 63 Pac. 98. 89 Southern Bank v. Williams, 25 Ga. 534; City Hotel in Worcester v. Dickinson, 6 Gray (Mass.) 586; Daily V. Marshall, 47 Mont. S77, 133 Pac. 681. See also Narragansett Bank v. Atlantic Silk Co., 3 Mete. (Mass.) 282; Union Water Co. v. Kean, 52 N. J. Eq. Ill, 27 Atl. 1015, reversed 52 N. J. Eq. 813, 46 Am. St. Eep. 588, 31 Atl. 282, on the ground that a court of equity had no jurisdiction to de- termine the questions involved. The legislature may make the tak- ing of associates by the grantee of a special charter and the calling of a meeting of them conditions subse- quent, in which case a failure to observe such conditions will not pre- vent the act from taking effect, or the exercise of the powers granted by it, and cannot be taken advantage of in a collateral action by individuals whose rights have not been violated. Day V. Stetson, 8 Me. 365. See also Penobscot Boom Corporation v. Lam- son, 16 Me. 224, 33 Am. Dee. 656. 40 See Chap. 10, infra. 41 Daily v. Marshall, 47 Mont. 377, 133 Pac. 681. 42 City Hotel in Worcester v. Dick- inson, 6 Gray (Mass.) 586. 488 Ch. 9] Obganizatiok [§ 252 or a failure to issue stock,** or to obtain subscriptions for stock,** or by a failure on the part of the corporators to elect directors,*^ even though the taking of these various steps is necessary to the proper use of the franchise.*® For "it would be a gross injustice to those who propose to deal with an ostensible corporation to make it incumbent upon them first to ascertain whether in the conduct of its private affairs its directors have proceeded in strict conformity with all the statutory requirements as to the organization of the board of directors, the election of officers," and the like, "at the peril of being cast in actions subsequently brought by them to enforce their rights against it, upon a plea by it that it has no capacity to be sued. ' ' *'' Persons who subscribe to the stock of a corporation having a legal existence,** and others who deal with it as a corporation *8 and the corporation itself,^" may be estopped to set up want of formal organ- ization as a defense to an action on the contract. So one who has incurred liability to a company as a corporation cannot set up as a defense that the forms of law have not been complied with in per- fecting its organization,^^ nor, for the same reason, can a company which has incurred obligations as a corporation escape liability thereon on this ground.*^ And while there must be a bona fide attempt to comply with the statute in order to create even a de facto corporation,^' if there has been such an attempt, a failure to comply « Daily v. Marshall, 47 Mont. 377, 52 Daily v. Marshall, 47 Mont. 377, 133 Pac. 681. 133 Pac. 681; State v. Simonton, 78 See Chap. 10, infra. N. C. 57. 41 See Chap. 10, infra. 83 "Where the directors named in ar- 45 Daily v. Marshall, 47 Mont. 377, tides of incorporation for the first 133 Pac.' 681. year never met or acted, but delib- Such failure does not render the in- erately refused to do so; no stock was corporators liable as partners. Drake ever issued; no by-laws were ever V. Herndon, 122 Ky. 206, 91 S. W. 674. passed; no seal was adopted; no per- 46 Daily v. Marshall, 47 Mont. 377, sons ever met, or pretended to meet, 133 Pac. 681. in corporate body assembled; no o&- 47 Daily v. Marshall, 47 Mont. 377, cers were ever elected; no person was 133 Pac. 681. ever appointed by the asserted cor- 48 Stoops V. Greensburgh & B. Plank- poration to represent it in any way, Eoad Co., 10 Ind. 47; Judah v. Ameri- or to act as its agent; and no jour- can Live Stock Ins. Co., 4 Ind. 333. nal or record of the proceedings of See Chap. 11, infra. the body corporate was ever kept, it 49 Drake v. Herndon, 122 Ky. 206, was held that the pretended corpora- 91 S. W. 674. tion was never in a position to exer- See Chap. 11, infra. cise, or to pretend to exercise, any of 50 See Chap. 11, infra. the powers granted to corporations 51 Daily v. Marshall, 47 Mont. 377, by the statute, and was not even a de 133 Pac. 681. facto corporation, or within a statu- 489 §252] Peivate Coeporations [Ch.9 with some of the statutory requirements cannot be taken advantage of collaterally, but only in a direct proceeding instituted for that purpose by the state.^* The conduct of the corporators in acting under the charter may, as between themselves, amount to an organization, or preclude them from contending that no formal organization was had.** And there is authority to the effect that a special charter cannot be forfeited in quo warranto proceedings on the ground of nonuser based on the failure of the corporators to organize under it, where, by reason of such failure, the corporation never came into existence.** The maxim that all things shall be presumed to have been rightly and correctly done, until the contrary is proved, extends to the tory provision prohibiting collateral inquiry into the due incorporation of any company claiming in good faith to be a corporation and doing business as such. Martin v. Deetz, 102 Cal. 55, 41 Am. St. Eep. 151, 36 Pac. 368. "The evidence tended to show that there were no meetings of the mem- bers or trustees, no election of officers, no by-laws adopted, no certifi- cates of shares or membership issued, no seal adopted or used, no records or minutes kept — in short, nO corporate acts of any character performed; the institution was managed after as it had been before the attempt to incor- porate. There was, therefore, no cor- poration de facto." Wall v. Mines, 130 Cal. 27, 62 Pac. 1115. There is not even a corporation de facto where there is no stock nor sub- scription of stock, and no officers nor board of directors, and nothing has been done to perfect the organization. McVicker v. Cone, 21 Ore. 353, 28 Pac. 76. See Chap.. 10, infra. 64 Indiana. Stoops v. Greensburgh & B. Plank-Eoad Co., 10 Ind. 47. Montana. Daily v. Marshall, 47 Mont. 377, 133 Pac. 681. New Jersey. Hackensaek Water Co. V. De Kay, 36 N. J. Eq. 548. New York. Brouwer v. Appleby, 1 Sandf. 158. North Carolina. Tar Eiver Nav. Co. V. Neal, 10 N. C. 520. If the necessary amount of stock has been subscribed for, the validity of the acts of directors elected at a meeting of stockholders held for that purpose cannot be questioned collat- erally on account of irregularities in their election. Chamberlain v. Paines- ville & H. E. Co., 15 Ohio St. 225; Toledo Consol. St. Ey. Co. v. Toledo Elec. St. Ey. Co., 6 Ohio Cir. Ct. 362, 393, aff'g 6 Ohio N. P. 537, which is affirmed by 50 Ohio St. 603, 36 N. E. 312. See Chap. 10, infra. 56 After a corporation, composed of only two persons, has been duly con- stituted by act of the legislature, has entered upon the work for which it was established, appointed an agent, expended large sums on such work, and has done acts which it would not have been lawful to do but for the charter, it is too late to say that such corpora- tion never had accepted the charter or been organized as such, even though it does not appear that there was ever any formal organization by a meeting of the corporators and an election of the usual officers. McKay v. Beard, 20 S. C. 156. 66 " If they have never organized under the charter, they have simply refused to accept it, and to become a 490 Ch.9] Obganization [§253 organization proceedings, and hence the corporation will be presumed to have been duly organized where it proceeds to act as a corporation.*' A previous organization may be presumed from a legislative act recognizing the corporation as organized.** And defects in the organ- ization may be cured by a recognition by the legislature of the cor- poration as a lawfully existing body.*^ Of course the legality of the organization cannot in any way be affected by matters or pro- ceedings which take place after it has been perfected.'* § 253. Time for orgaoizatioii — ^In the absence of statute. In the absence of any statutory provision on the subject, organization must take place within a reasonable time.*^ So a railroad corporation has no legal existence where its charter is not accepted and no organiza- tion is had until after the expiration of the time fixed thereby for the completion of the line.®* corporation, and it can be of no mo- ment to the state whether the act re- mains a dead letter or is formally repealed. In such a case the assembly might clearly repeal the act, though it is doubtful if the court could annul it; for that would be simply to repeal an act of the assembly. ' ' State v. Si- monton, 78 N. C. 57. See Chap. 10, infra. 57 Maltby v. Northwestern Virginia B. Co., 16 Md. 422; Hagers-Town Turnpike Eoad Co. v. Creeger, 5 Harr. & J. (Md.) 122, 9 Am. Dee. 495; Ben- bow V. Cook, 115 N. C. 324, 44 Am. St. Eep. 454, 20 S. E. 453. "As the corporation could not pro- ceed lawfully until duly organized, and as they did not proceed to act as a corporation, this presumption has its effect. ' ' Packard v. Old Colony E. Co., 168 Mass. 92, 46 N. E. 433; Narragan- sett Bank v. Atlantic Silk Co., 3 Mete. (Mass.) 282. It is to be presumed that the amount of stock requisite to authorize the election of directors had been sub- scribed. Ashtabula & N. L. E. Co. v. Smith, 15 Ohio St. 3'28. B8 In Attorney General v. Chicago & N. W. Ey. Co., 35 "Wis. 425, 586, 602, it was held that an amendatory act did not necessarily constitute a recognition of the corporation as or- ganized so as to prevent the state from questioning such organization at the time of its passage. 59 State V. Webb, 110 Ala. 214, 20 So. 462. 60 Lane v. Brainerd, 30 Conn. 565. 61 United States. See Planters' F. & M. Ins. Co. V. Tennessee, 161 U. S. 193, 40 L. Ed. 667. Connecticut. State v. Bull, 16 Conn. 179. Georgia. Atlanta v. Gate City Gas Light Co., 71 Ga. 106. Maiyland. Bonaparte v. Baltimore, H. & L. E. E. Co., 75 Md. 340, 23 Atl. 784. Texas. Quinlan v. Houston & T. C. Ey. Co., 89 Tex. 356, 34 S. W. 738. In Atlanta v. Gate City Gas Light Co., 71 Ga. 106, it was held that the fact that a corporation created by a special act in 1875 was not organized until 1881 could not be taken ad- vantage of collaterally. 62 Bonaparte v. Baltimore, H. & L. E. E. Co., 75 Md. 340, 23 Atl. 784. Where the charter of a railroad company provides that the company 491 §254] Peivate Cokpokations [Ch.: § 254. — Under constitutional and statutory provisions. General incorporation laws and special charters frequently provide that the corporation must be organized within a specified time.®^ And it is frequently specifically provided that the charter shall be void, or be regarded as revoked, or that the corporate powers shall cease, unless the corporation is organized within a specified time from the date of its incorporation,^* or after the proceedings for incorporation have must commence the construction of its road within twelve months from its organization and must have at least twenty-five miles of it graded within two years from the passage of the act, it necessarily follows that it must organize before the expiration of two years from the date of the charter. If it does not, its position is the same as if no charter had been granted. Quinlan v. Houston & T. G. Ey. Co., 89 Tex. 356, 34 S. W. 738. 63 County of Macon v. Shores, 97 U. S. 272, 24 L. Ed. 889; Lehman, Durr & Co. v. Warner, 61 Ala. 455; People v. Bowen, 21 N. Y. 517, 30 Barb. (N. Y.) 24. Where the act of incorporation pro- vides that notice of organization shall be given on or before a certain date, and the corporation is found in opera- tion afterwards under the act, it is to be presumed that it was organized as early as the time prescribed. Bank of United States v. Lyman, 20 Vt. 666, aflf'd 12 How. (U. S.) 225, 13 L. Ed. 965. 61 California. Civ. Code, § 358, pro- vides that " if a corporation does not organize and commence the trans- action of its business, or the con- struction of its works within one year from the date of its incorpora- tion, * * * its corporate powers shall cease * * *." Martin v. Deetz, 102 Gal. 55, 41 Am. St. Rep. 151, 36 Pao. 368; People v. Stockton & V. R. Co., 45 Cal. 306, 13 Am. Rep. 178. In People v. Eosenstein-Cohn Cigar Co., 131 Cal. 153, 63 Pac. 163, the evi- dence was held to support a finding that the corporation organized and commenced business immediately after the issuance of its certificate of incorporation. Georgia. In Atlanta v. Gate City Gas Light Co., 71 Ga. 106, a provision that ' ' No charter shall have any force or effect for a longer period than two years, unless the incorporators within that time shall in good faith commence to exercise the powers granted by the act of incorporation," was held not to apply to charters granted by the general assembly, but only to those granted by the courts. Montana. Rev. Codes 1907, § 8892. This provision is the same as that of the California statute. Daily v. Mar- shall, 47 Mont. 377, 133 Pac. 681. New York. Rev. St. 1829, part 1, e. 18, tit. 3, § 7, provided that if any corporation tfiereafter created by the legislature should not organize and coinmence business within one year from the date of its incorporation, its corporate powers should cease. Laws 1846, c. 155, excepted from the terms of that provision any act incorporat- ing a railroad company which itself provided the terms and times in which it should be forfeited for non- user. These provisions were contin- ued by the General Corporation Law of 1890 (c. 563, §21), which was amended by Laws 1892, c. 687, so as to read: "If any corporation, except a railroad, turnpike, plankroad or bridge corporation shall not organize and commence the transaction of its business or undertake the aischarga 492 Ch. 9] Oeganizatiow [§254 reached a certain stage,*^ or after the taking effect of the provision imposing the limitation.^^ of its corporate duties within two ness within two years after tie date years from the date of its incorpora- of the license to the cbmmiasioners to tion, its corporate powers shall cease. ' ' This provision is now embodied in the General Corporation Law. (Consol. Laws 1909, e. 23, § 36.) Peo- ple V. Stilwell, 142 N. Y. Supp. 881, afC'g 78 Misc. 96, 138 N. Y. Supp. 693. People V. Ellison, 51 Misc. 413, 101 N. Y. Supp. 444, aff'd 115 N. Y. App. Div. 254, 101 N. Y. Supp. 55, which is aflarmed by 188 N. Y. 523, 81 N. E. 447. If the corporation does not organ- ize and does not commence business within the time prescribed, the at- torney general may maintain an action to oust the persona claiming to act as a corporation. People v. Stilwell, 142 N. Y. Supp. 881, 78 Misc. 96, 138 N. Y. Supp. 693. The date when the organization and commencement of business is re- quired is not postponed by a pro- vision in a special charter appointing certain persons as commissioners to open subscription books "at such times and places as they or a majority of them shall determine." People v. Stilwell, 142 N. Y. Supp. 881. The statute applies to corporations formed under general or special laws. People V. Stilwell, 142 N. Y. Supp. 881. North Carolina. Code, § 688; Ee- visal 1905, § 1246; Boyd v. Redd, 120 N. C. 335, 58 Am. St. Eep.. 792, 27 S. E. 35. South Carolina. Code 1902, § 1850, provides that unless a corporation organizes within twc years from the date of its incorporation or the date of the commission appointing the board of corporators, its corporate powers shall cease. 66 Unless the corporation shall be organized and shall proceed to busi- open books for stock subscriptions, then such license shall be deemed re- voked, and all proceedings thereunder void. Kurd's Eev. St. 1913, c. 32, § 4; J. & A. 112421; Africani Home Pur- chase & Loan Ass'n v. Carroll, 267 111. 380, 108 N. B. 322; People v, Mackey, 255 111. 144, 99 N". E. 370: Marshall v. Keach, 227 111. 35, 118 Am St. Eep. 247, 10 Ann. Cas. 164, 81 N, E. 29; Illinois Watch-Case Go. v. Pear son, 140 111. 423, 16 L. E. A. 429, 31 N, E. 400. "During the two years, the license is authority for taking the steps au- thorized by the law, and cannot be revoked" by the secretary of state. Illinois Watch-Case Co. v. Pearson, 140 111. 423, 16 L. E. A. 429, 31 N. E. 400. Any corporation which does not elect directors and commence business with- in one year from the time of filing the articles of incorporation, shall thenceforth be divested of its cor- porate powers. Lord's Ore. Laws, § 6698; Coyote Gold & Silver Min. Co. v. Euble, 8 Ore. 284. Any corporation of the second class which fails to organize within two years from the date of the letters patent shall be held and -deemed to have forfeited its charter. 1 Purd. Dig. 789, §49; Unorganized Trust Companies, 33 Pa. Co. Ct. 353; Leba,- non Water Co., 9 Pa. Co. Ct. 589, 4 Dauph. Co. Eep. (Pa.) 228. seuiinois Constitution of 1870, art. 11, § 2, provides that all existing charters under which organization' shall not have taken place or which shall not have been iii operation vjrith- in ten days from the time when such Constitution takes effect, shall there- after have no validity or effect 493 §254] Pbivate Corpobations [CL9 In the ease of corporations creatqd under special charters, it is often provided that such results shall follow where there is a failure whatever. St. Louis, A. & T. H. K. Co. V. Belleville City E. Co., 158 111. 390, 41 N. E. 916; McCartney v. Chi- cago & E. E. Co., 112 111. 611; Attor- ney General v. Chicago & E. E. Co., 112 111. 520. So in condemnation proceedings, the introduction by the petitioner of its corporate charter, together with proof of the exercise under it of the fran- chises and powers thereby granted, is sufficient to establish prima facie, the existence of the corporation de facto, and if it failed to become organized and go into operation within the time prescribed by the Constitution, it is for the defendant to show that fact. Bast St. Louis & C. E. Co. v. Belle- ville City E. Co., 159 111. 544, 42 N. E. 974; St. Louis, A. & T. H. E. Co. v. Belleville City E. Co., 158 111. 390, 41 N. E. 916. In such a proceeding it is not nec- essary for the petitioner to show that an organization was had within the time thus limited. Peoria & P. IT. E. Co. V. Peoria & F. E. Co., 105 111. 110. "The Constitution is silent as to what extent the charter should have been in operation, requiring, merely, its being in operation." McCartney V. Chicago & E. E. Co., 112 111. 611. In this case it was held that the charter of a railroad company, which had been organized, was in operation vrithiu the meaning of this provi- sion. See also State v. Illinois Cent. E. Co., 33 Fed. 730, 769 (reversed on other grounds, 146 U. S. 387, 36 L. Ed. 1018), where it is said that by this provision "it is clear that the framers of the Constitution intended to strike down all corporations then existing which, within ten days after that instrument took effect, were still unorganized, or were not in opera- tion as corporations. There was no purpose to take away any additional special or exclusive privileges granted to corporations, organized and in actu- al operation * * * at the time the Constitution was submitted to the popular vote, or to interfere with any grant of land made by the state before that date." This section is also cited in People v. Loewenthal, 93 111. 191. "All existing charters, or grants of special or exclusive privileges, un- der which a bona fide organization shall not have taken place, and busi- ness commenced in good faith, at the adoption of the Constitution, shall thereafter have no validity." Mo. Const. 1875, art. ZII, §1. Mont. Const, art. XV, § 1, provides that "All existing charters or grants of special or exclusive privileges, un- der which the corporations or grantees shall not have organized or com- menced business in good faith at the time of the adoption of this Constitu- tion, shall thereafter have no valid- ity." This provision refers only to corporations formed under special or private charters, and not to those formed under general laws. Morrison V. Clark, 24 Mont. 515, 63 Pac. 98. All existing charters, or grants of special or exclusive privileges, under which a bona fide organization shall not have taken place and business been commenced in good faith at the time of the adoption of this Constitu- tion, shall thereafter have no validity. Pa. Const, art. XVI, § 1; In re Phila- delphia & M. Ey. Co.'s Petition, 187 Pa. S,t. 123, 40 Atl. 967; Chinclocla- mouche Lumber & Boom Co. v. Com., 100 Pa. St. 438; Com. v. Continental Trust & Finance Co., 10 Pa. Dist. 451; Lejee v. Continental Pass. Ey. Co., 10 Phila. (Pa.) 362, 32 Leg. Int. (Pa.) 386, 2 Wkly. Notes Cas. (Pa.) 170. This provision ^oes not violate the 494 Cli.9] Oeganization [§ 254 to organize within a specified time after the passage of the act of incorporation.^'' Organization within the time prescribed is essential to the existence of a corporation de jure.** Noncompliance with such provisions has sometimes been held to forfeit the corporate charter,'^ or the license provision of the Federal Constitution Com. v. California & T. Ey. Const. that no state shall pass any law im- pairing the obligation of contracts, and is valid. Chincleclamouche Lum- ber & Boom Co. V. Com., 100 Pa. St. 438. "The word 'charter,' in the above section of the Constitution, is syn- onymous with the words 'grants of exclusive or special privileges,' im- mediately following it; and the pur- pose of the constitutional provision under certain conditions, is to make invalid and destroy the entire cor- porate power and franchise and not to make invalid and destroy a mere enlargement of privileges granted by subsequent legislation to a corpora- tion already organized." In re Le- high Water Company's Appeal, 102 Pa. St. 515, afE'd 121 U. S. 388, 30 L. Ed. 1059. "The charters, etc., referred to in the section, contemplate an organiza- tion by individuals under the existing charters or grants of special or ex- clusive privileges, and business com- menced under said organization." In re Lehigh Water Company's Appeal, 102 Pa. St. 515, aff'd 121 U. S. 388, 30 L. Ed. 1059. This provision does not apply to a corporation which was fully organized and doing business in good faith at the time of the adoption of the Con- stitution, although it has an added privilege which it has not exercised. In re Philadelphia & M. E. Company 's Petition, 187 Pa. St. 123, 40 Atl. 967. Where the corporation was fully or- ganized and engaged in business in good faith when the Constitution was adopted, the validity of its charter was not affected by this provision. Co., 5 Dauph. Co. Eep. (Pa.) 181. 67 Illinois. Where the act of incor- poration provides that it shall be void unless the corporation shall organize and proceed to business within two years after its passage, and under it the company has no authority to com- mence business until all of its stock is subscribed, the act becomes void if all of the stock is not subscribed within the two years. People v. Na- tional Sav. Bank, 129 111. 618, 22 N. B. 288. Maine. Eev. St. 1883, o. 1, § 6, art. 26; Eev. St. 1903, c. 1, §6, art. 28; Farnsworth v. Lime Eock E. Co., 83 Me. 440, 22 Atl. 373. New Hampshire. Pub. St. 1901, c. 149, § 2; Comp. St. o. 147, § 35; Ossipee Hosiery & Woolen Mfg. Co. v. Canney, 54 N. H. 295. New York. Welch v. Old Dominion Min. & Ey. Co., 56 Hun 650, 10 N. Y. Supp. 174 (construing the laws of Vir- ginia). See also Johnson v. Bush, 3 Barb. Ch. 207. North Carolina. Seaboard Air Line E. E. V. Olive, 142 N. C. 257, 55 S. E. 263. Vermont. See Bank of Manchester V. Allen, 11 Vt. 302. 68 Lehman, Durr & Co. v. Warner, 61 Ala. 455; African! Home Purchase & Loan Ass'n v. Carroll, 267 111. 380, 108 N. E. 322; People v. Maekey, 255 HI. 144, 99 N. E. 370. 69 Attorney General v. Chicago & E. E. Co., 112 111. 520. New York Consol. Laws 1909, c. 23, § 36, is self-executing and no ac- tion or judicial proceeding is needed to declare or complete the loss of cor- porate uowers. People v. Stilwell, 495 §254] Private Coepobations [Ch.9 to organize a corporation,'"' ipso facto, and without the intervention of the courts, in which case an attempted complertion of the organiza- tion after the time prescribed is wholly ineffectual, and a complete reorganization from the beginning is necessary in order to give the corporation a legal existence.''^ So where the recording of a certificate of complete organization issued by the secretary of state is a necessary step in the organization of the corporation and a condition precedent to its legal existence,'* it must be filed for record within the time prescribed for completing the organization, and, if this is not done, the license to organize is ipso facto revoked, all subsequent proceed- ings looking toward the completion of the organization are void, and the subsequent recording of the certificate has no effect on the legal status of the corporation and cannot give it a legal existence.''' On the other hand, some courts have held that provisions of this sort are directory merely, and are not self-executing unless the statute pro- vides to the contrary,''* and that they are conditions subsequent rather than conditions precedent to incorporation.''* And it is generally held 142 N. T. Supp. 881, 78 N. T. Miac. 96, 138 N. Y. Supp. 693. See also Brooklyn Steam Transit Co. v. City of Brooklyn, 78 N. Y. 524; In re Ijong Acre Elec. Light & Power Co., 117 N. Y. App. Div. 80, 102 N. Y. Supp. 242; 51' N. Y. Misc. 407, 101 N. Y. Supp. 460; Welch v. Old Domin- ion M. & B. Co., 56 Hun (N. Y.) 650, 10 N. Y. Supp. 174 (construing the laws of Virginia) ; People v. Ellison, 51 N. Y. Misc. 413, 101 N. Y. Supp. 444, aff'd 115 N. Y. App. Div. 254, 101 N. Y. Supp. 55, 188 N. Y. 523, 81 N. E. 447. 70 Af ricani Home Purchase & Loan Ass'n V. Carroll, 267 111. 380, 108 N. E. 322; People v. Mackey, 255 111. 144, 99 N. E. 370. 71 African! Home Purchase & Loan Ass'n V. Carroll, 267 111. 380, 108 N. E. 322; People v. Mackey, 255 HI. 144, 99 N. E. 370. 72 See § 272, infra. 73 Africani Home Purchase & Loan Ass'n V. Carroll, 267 111. 380, 108 N. E. 322; People v. Mackey, 255 111. 144, 99 N. E. 370. In People v. Mackey, 255 HI. 144, 99 N. E. 370, it is said that there is some language in the opinion in Mar- shall V. Keach, 227 111. 35, 81 N. E. 29, "from which the inference might be drawn that the failure to file and have recorded the certificate with the recorder was a mere informality, which did not affect the existence of the corporation. In the course of the discussion in that case it is said: 'Under such a state of facts a copy of the certificate could still be filed for record with the recorder of the county and the corporation would then be fully organized de jure.' If the above language be understood as authorizing the filing of the certificate after the two years from the date the license had expired it is misleading and should not be understood as the rule in this State. If applied to the period of two years from the date of license the language correctly states the law." 74 Daily v. Marshall, 47 Mont. 377, 133 Pac. 681. 75 Daily v. Marshall, 47 Mont. 377, 133 Pac. 881. 496 Ch. 9] Obganization- [§ 254 that noncompliance will not prevent an association from becoming a corporation de facto,''® and that a forfeiture for failure to organize within the time prescribed cannot be taken advantage of collaterally, but only in a direct proceeding instituted for that purpose by the state.'' But this; rule has been held not to apply where an act of incorporation does not ipso facto create a corporation, but only pro- vides for the creation of one in the future upon the performance of certain prescribed conditions, and the charter is not accepted or the corporation organized until after the expiration of the time limited by the act for carrying out the objects for which the corporation is to be formed, this for the reason that the corporation never has a legal existence under such circumstanoes, and that a person setting up such facts as a defense to an action by the corporation does not seek to have a forfeiture declared.'* Such a provision does not take away from a corporation falling within its purview title to property previously acquired.'^ Since the state imposes the condition, it may waive the same, and a waiver must be presumed until the state intervenes.*" Nor, as long as the state acquiesces, have individuals any cause to complain.*^ And it has been held that a de facto organization in good faith under color of the charter is a sufReient compliance with such a provision in a charter or general law.*^ A waiver may also result from a subsequent recognition of the corporation by the legislature, as, for example, by amending its charter.** And the legislature, in the absence of constitutional limitations on its power, may revive cor- porate charters which have become subject to forfeiture on this ground,** and may also exempt corporations granted special charters 76 See Chap. 10, infra. 83 Farnsworth v. Lime Rock E. Co., 77 See Chap. 10, infra. 83 Me. 440, 22 Atl. 373. But see Quin- 78 Bonaparte v. Baltimore, H. & L. Ian v. Houston & T. C. Ey. Co., 89 Tex. E. E. Co., 75 Md. 340, 23 Atl. 784. 356, 34 S. W. 738. See also Planters' See also State v. Bull, 16 Conn. 179. F. & M. Ins. Co. v. Tennessee, 161 79 Morrison v. Clark, 24 Mont. 515, U. S. 193, 40 L. Ed. 667. 63 Pac. 98. 84 Mo. Const. 1865, art. 8, §2, pro- 80 Lehman, Durr & Co. v. Warner, vided that "No law shAll be passed 61 Ala. 455. revivilig or re-enacting any act here- "The state may Vaive the for- tofore passed, creating any private f eiture by its nonaction. ' ' Atlanta v. corporation, where such corporation Gate City Gas Light Co., 71 Ga. 106. shall not have been organized, and 81 Lehman, Durr & Co. v. Warner, commenced the transaction of its busi- 61 Ala. 455. ness within one year from the time 82 0ssipee Hosiery & Woolen Mfg. such act took effect, or within such Co. V. Canney, 54 N. H. 295. other time as may have been pre- 497 I Priv. Corp.— 32 §255] Pbivate Corpoeations [Cli.9 from the provisions of general laws in this regard,'* or extend the time ■within which the organization is required to be effected.*^ § 255. Time for election of directors and officers. The election of directors cannot be had before the corporation comes into existence.*^ Persons incorporated under a special act have no authority to hold the first meeting and elect officers before the day when the act of incorporation goes into effect, and their acts in so doing are wholly void.** But it has been held that when on and after that day persons are found actually exercising the corporate powers, and claiming and using the franchise, with the consent of the designated corporators, and without objection on the part of the state, they constitute a corporation de facto, and the lawfulness of their organization cannot be impeached collaterally.'^ Since corporations have inherent power to elect directors and other officers,®" provisions requiring that directors be chosen at the annual meeting are directory merely, and the fact that the first directors are chosen at a meeting held at some other time does not render their scribed in such act for such organiza- tion and commencement of business." This provision against reviving charters implies that the charter to be revived is lifeless, and does not pro- hibit the legislature from reviving prior acts creating private corpora- tions in all eases. Such an act which does not on its face come within the prohibited cases will be presumed to be valid until the contrary is shown, as, for example where it is not shown that the company in question was not organized and did not commence busi- ness within the time specified. St. Joseph & I, R. Co. V. Shambaugh, 106 Mo. 557, 17 'S. "W. 581. 85 A provision in an act incorporat- ing a gas company that it shall be deemed to be organized when the president is elected and shall be deemed to be in practical operation from the time when permission to lay pipes is obtained from the city coun- cil, relieves the corporation from a provision of the general statute re- quiring corporations to organize and commence business within a year. People v. Bowen, 21 N. Y. 517, 30 Barb. (N. Y.) 24. 88 See Johnson v. Bush, 3 Barb. Ch. (N. Y.) 207. 87 The election of the first directors of a consolidated corporation cannot be held before the consolidated corpo- ration comes into existence by filing the required certificate with the sec- retary of state. Mansfield, C. & L. M. R. Co. V. Brown, 26 Ohio St. 223. 88Appleton Mut. Fire Ins. Co. v. Jesser, 5 Allen (Mass.) 446. 89 The defective organization of a mutual insurance company cannot be set up as a defense to an action against a policy holder to collect assessments under such circumstances. Appleton Mut. Fire Ins. Co. v. Jesser, 5 Allen (Mass.) 446. 90 Hughes V. Parker, 20 N. H. 58. 498 Ch.9] Obganization [§256 election void.'^ Nor can the right of those chosen to hold office be questioned collaterally.*'' A provision that the directors and treasurer shall be chosen an- nually at such time and place as shall be provided by the by-laws is obviously inapplicable to the first choice of such ofScers of a corporation established by voluntary association, where organization is essential to corporate existence, since no by-laws can be adopted before the corporation itself is created.*' §256. Place of organization. Since, as is noted elsewhere, a corporation can do no act outside of the state by or under whose laws it is created, except such acts as it may do through its agents,** it is generally held that the formal organization of a corporation in another state is ineffectual, as this is a corporate act which cannot be done through mere agents,'^ and that, when held outside of the 91 Though the charter provides that the directors are to be chosen at the annual meetings to be held at such times as the by-laws provided, an elec- tion held at the first meeting and before the adoption of by-laws is not void. Hughes v. Parker, 20 N. H. 58, 19 N. H. 181. 92 Hughes V. Parker, 19 N. H. 181. 93 In such case the officers may be elected at the first meeting in such manner as the corporators deem proper. Boston Acid Mfg. Co. v. Mor- ing, 15 Gray (Mass.) 211. 94 See chapter on Foreign Corpora- tions, infra. See also Chap. 13, infra. 95 Florida. Duke v. Taylor, 37 Pla. 64, 31 L. E. A. 484, 53 Am. St. Eep. 232, 19 So. 172; Taylor v. Branham & Co., 35 Fla. 297, 39 L. E. A. 362, 48 Am. St. Eep. 249, 17 So. 552. ludiaua. See Aspinwall v. Ohio & M. E. Co., 20 Ind. 492, 83 Am. Dec. 329. Maine. Freeman v. Machias "Water Power & Mill Co., 38 Me. 343; Miller v. Ewer, 27 Me. 509, 46 Am. Dee. 619. Maryland. Smith v. Silver Valley Min. Co., 64 Md. 85,' 54 Am. Eep. 760, 20 Atl. 1032. Missouri. Camp v. Byrne, 41 Mo. 525. See also Ohio & M. By. Co. v. McPherson, 35 Mo. 13, 86 Am. Dec. 128. North Carolina. Tuckasegee Min. Co. V. Goodhue, 118 N. C. 981, 24 S. E. 797. In Heath v. Silverthorn Lead Min- ing & Smelting Co., 39 Wis. 146, it is said: "It may well be that the election of a board of directors at the first meeting held outside the limits of the state was irregular and not warranted by the charter, and yet the corporation may not be in a position to take advantage of the irregular- ity" in an action upon its contracts. Speaking of corporations aggregate, it was said by Judge Shepley in a Maine case: "It is often stated in the books, that such a corporation is created by its charter. This is not precisely correct. The charter only confers the power of life, or the right to come into existence, and provides the instruments by which it may be- come an artificial being, or acting entity. Such a corporation has been well defined to be an artificial being, invisible, intangible, and existiiig only in contemplation of law. The instru- ments provided to bring the artificial 499 §256] Peivate Cobpoeations [Ch. 9 state, a first meeting for purposes of organization, and all the pro- ceedings taken at it and all acts done pursuant to it, are without right or authority, and wholly void.'® And this is true though the being into life and active operation, are the persons named in the charter, and those who by virtue of its provi- sions, may become associated with them. Those persons or corporators, as natural persons, have no such power. The charter confers upon them a new faculty for this purpose. A faculty which they can have only by virtue of the law, which confers it. That law is inoperative beyond the bounds of the legislative power, by which it is enacted. As the corporate faculty cannot accompany the natural persons beyond the bounds of the sovereignty, which confers it; and they cannot pos- sess or exercise it there, can have no more power there to make the arti- ficial being act, than other persons not named or associated as corpora- tors, any attempt to exercise such a faculty there, is merely an usurpation of authority by persons destitute of it, and acting without any legal ca- pacity to act in that manner. It fol- lows that all votes and proceedings of , persons professing to act in the ca- pacity of corporators, when assembled without the bounds of the sovereignty granting the charter, are absolutely void." Miller v. Ewer, 27 Me. 509, 518, 46 Am. Dec. 619. In "Wright V. Lee, 2 S. D. 596, 51 N. "W. 706, it is held that the rule laid down in Miller v. Ewer, supra, does not apply in the case of meetings other than the first one, where the first meeting has been held and the organ- ization perfected in the state under whose laws the corporation is formed. Where a charter granted by the leg- islature of Illinois declared certain persons to be a corporation, and named the directors, thereby creating the cor- poration, it was held in a Missouri case that the directors could meet and act in Missouri in organizing the cor- poration, as the directors of a corpo- ration are its agents, and not the corporation itself. Ohio & M. Ey. Co. V. McPherson, 35 Mo. 13, 86 Am. Dec. 128. A corporation, however, may enter into contracts and do other acts in another state through agents. See chap- ter on Foreign Corporations, infra. 96 Duke V. Taylor, 37 Fla. 64, 31 L. E. A. 484, 53 Am. St. Eep. 232, 19 So. 172; Miller v. Ewer, 27 Me. 509, 46 Am. Dec. 619; Camp v. Byrne, 41 Mo. 525; Welch v. Old Dominion Min. & Ey. Co., 56 Hun (N. Y.) 650, 10 N. Y. Supp. 174 (construing Virginia stat- ute). Copp V. Lamb, 12 Me. (3 Pairf.) 312, apparently holds to the contrary, but in Miller v. Ewer, 27 Me. 509, 46 Am. Dec. 619, it is pointed out that the court in that case did not enter upon an examination of the question whether the corporators had a right to organize outside of the state, but that the decision was based upon the ground that all its acts were ratified at a subsequent meeting which did not appear to have been held out of the state, and that it was not com- petent for a person claiming under one of the corporators, who had acted as an officer of the corporation at that meeting, to deny after so long a time and under such circumstances, the le- gality of the exercise of the corporate powers. The court in Miller v. Ewer also points out that while in McCall v. Byram Mfg. Co., 6 Conn. 428, it ap- peared that all the meetings of the stockholders and directors were held outside of the state, the capacity of the stockholders to act there was not examined or discussed, but that the 500 Ch.9] Okganization [§256 charter authorizes certain named persons to call the first meeting at such place aa they may see fit,^' though it has been intimated that such may not be the case where the charter provides for the meeting of directors and the transaction of business outside of the state.** Some courts have held that there is not even a de facto corporation under such circumstances," and that the members are liable as part- ners for debts contracted and liabilities incurred in behalf of the asso- ciation, at least where there is no estoppel on the part of the other party to deny that they are a corporation.^ Where the proceedings are deemed wholly void, persons chosen as officers and directors at such a meeting are not even officers and directors de facto, since the corporators have no power at all to proceed to an election under such circumstances, and the persons so chosen must therefore be considered as assuming to be officers and directors withcmt any election,^ and hence have no authority to convey or mortgage the corporate property.^ Nor can one become a stockholder by virtue of such an attempted organization,* or recover holding was that the secretary of the corporation appointed by the directors at a meeting held outside of the state was a legally appointed of&cer, and distinguishes that case on the ground that, "The directors of a corpora- tion are not a corporate body, are, when acting as a board, but a board of officers or agents, and they may exercise their powers as agents be- yond the bounds, where the corpora- tion exists." This explanation of those two cases is referred to in Smith V. Silver Valley Min. Co., 64 Md. 85, 54 Am. Eep. 760, 20 Atl. 1032. 97 Such a provision cannot be con- strued as authorizing them to call the meeting at a place outside of the state. Miller v. Ewer, 27 Me. 509, 46 Am. Dec. 619. 88 See Hasbi'ouck v. Eich, 113 Mo. App. 389, 88 S. W. 131, where the court, while so intimating, held that in any event the defendant was es- topped to set up that the organization was invalid. 99 Welch V. Old Dominion Min. & Ey. Co., 56 Hun (N. T.) 650, 10 N. T. Supp. 174. This for the reason that such at- tempted organization is wholly ille- gal and without any semblance of authority. Duke v. Taylor, 37 Fla. 64, 31 L. E. A. 484, 53 Am. St. Eep. 232, 19 So. 172. See Chap. 10, infra. IDuke V. Taylor, 37 Fla. 64, 31 L. E. A. 484, 53 Am. St. Eep. 232, 19 So. 172 (action on a note by an in- dorsee thereof) ; Taylor v. Branham & Co., 35 Fla. 297, 39 L. E. A. 362, 48 Am. St. Eep. 249, 17 So. 552 (as- sumpsit on an account for work and labor and materials). 2 Miller v. Ewer, 27 Me. 509, 46 Am. Dee. 619. 8 A title derived through such a mortgage will not support a writ of entry to recover the land. Miller v. Ewer, 27 Me. 509, 46 Am. Dec. 619. 4 There cannot be stock or stock- holders in a nonexistent corporation, and a stock certificate evidenced by ofBcers chosen at such a meeting is invalid. Freeman v. Machias Water Power & Mill Co., 38 Me. 343. Since the corporation has no legal existence, a suit by the holder of what 501 § 256] Private Cobpobations [Ch. 9 dividends on stock certificates evidenced by officers chosen at such a meeting.^ Such acts constitute mere usurpation of power, or, in other words, mere attempts to exercise authority by persons destitute of it, and will be declared inoperative and void whenever a court is asked to grant relief, the right to which is founded upon the assumed or supposed validity of those acts.^ Furthermore, the rule under con- sideration will be applied and enforced in a proper ease in the tribunals of the state in which the unauthorized acts are done or the suit instituted, as well as by thef courts of the incorporating stated Some courts, however, hold that, in the case of corporations formed under general laws the fact that the meeting for purposes of organ- ization was held outside of thp state cannot be taken advantage of in a collateral action, but that such an inquiry can be made only in a direct action instituted for that purpose,' by or under the authority of the state under whose laws the incorporation was attempted.^ So it has been held that such a defect cannot be taken advantage of in a collateral proceeding by either the corporaticta or one contracting with it as such, where the incorporation is pursuant to a general law which does not expressly prohibit organization out of the state, and under which the corporation comes into existence when the certificate of incorporation is filed, and the directors for the first year are named in the certificate and become such by operation of law, so that it is possible for the corporation to carry on business for a year without any meeting of the stockholders.^' And it has also been held that purports to be a certificate of its stock and Welch v. Old Dominion Min. & to set aside a forfeiture of such stock By. Co., 56 Hun (N. Y.) 650, 10 N. Y. for nonpayment of assessments will Supp. 174, where it was held that no be dismissed. Smith v. Silver Valley recovery could be had in New York Min. Co., 64 Md. 85, 54 Am. Eep. 760, for services rendered to a pretended 20 Atl. 1032. corporation attempted to be orgau- B Freeman v. Machias Water Power ized in that state under an act of the & Mill Co., 38 Me. 343. legislature of Virginia. 6 Smith V. Silver Valley Min. Co., g McKee v. Title Insurance & Trust 64 Md. 85, 54 Am. Eep. 760, 20 Atl. q^ ^gg c^l. 206, 113 Pac. 140, hold- 1032 . mg that the inquiry cannot be made 7 Smith V. Silver Valley Mm. Co., ; . _ i- v ii. ■ • i „. -.,, „- ,. . -r, i..„ „„ ... 1° s-n action by the assignee in insol- 64 Md. 85, 54 Am. Rep. 760, 20 Atl. . j., ^- j. 1032. See also Duke t. Taylor, 37 ^"7 ■ . t '^°''P'"^**^°" *" ''^'"'^^ Fla. 64, 31 L. R. A. 484, 53 Am. St. ^<""^' '""""^ ^^ '*• Eep. 232, 19 So. 172, and Taylor v. ^®« ^'^^P- ^^' ^'^^''^■ Branham & Co., 35 Pla. 297, 39 L. R. ' McKee v. Title Insurance & Trust A. 362, 48 Am. St. Rep. 249, 17 So. Co., 159 Cal. 206, 113 Pac. 140. 552, where the members were held 10 Humphreys v. Mooney, 5 Colo. liable as partners in the state where 282. But see Jones v. Pearl Min. Co., the attempted organization took place, 20 Colo. 417, 38 Pac. 700. 502 Ch.9] Organization [§256 where a special charter ipso facto creates a corporation, and consti- tutes the corporators therein named a board of directors, without further action, until their successors are chosen, there is a corpora- tion de facto though the first meeting of the stockholders is held outside the state,^^ and that the officers and directors chosen at such meeting are officers and directors de facto.^* And it seems to have been generally held that neither the corporation nor its debtors, nor any one dealing with it as a lawful corporation, will be permitted to deny its existence as a corporation, upon the ground that it was organized in another state. *^ H Heath v. Silverthorn Lead Min- ing & Smelting Co., 39 "Wis. 146. But it is to be noted that in this case the court held that the corporation was estopped to deny the validity of its organization as a defense to an action on a note and mortgage executed by it. 12 Heath v. Silverthorn Lead Min- ing & Smelting Co., 39 Wis. 146. Directors so chosen, who accept their offices and act under their election, are directors de facto, and their au- thority to act in behalf of the corporation cannot be questioned col- laterally without showing a judgment of ouster against them in a direct pro- ceeding by the government for that purpose. Hence a subscriber to the corporate stock cannot question the validity of their election in an action against him on a call made by them. Ohio & M. Ey. Co. v. McPherson, 35 Mo. 13, 86. Am. Dec. 128. 13 Tuckasegee Min. Co. v. Goodhue, 118 N. C. 981, 24 S. E. 797. "The company ought not to be per- mitted to say, in defense of an ac- tion of its contracts entered into under such circumstances, that it had no legal existence when the contracts were executed, or that its officers were not duly elected or appointed." Heath V. Silverthorn Lead Mining & Smelt- ing Co., 39 Wis. 146. A subscriber to stock who gives notes for the amount of his subscrip- tion is estopped to deny the validity of the corporation on this ground as a defense to an action thereon by a bona fide holder. Camp v. Byrne, 41 Mo. 525. In Duke v. Taylor, 37 Fla. 64, 31 L. B. A. 484, 53 Am. St. Eep. 232, 19 So. 172, it was held that the facts did not bring the case within the rule that one contracting with an associa- tion as a corporation is estopped to deny its corporate existence. In Miller v. Ewer, 27 Me. 509, 46 Am. Dec. 619, it is held that the gran- tees of the corporation and their grantees could not claim to be pur- chasers from persons who had been held out by the corporation to the public as its officers without any knowl- edge of their real character and au- thority, since the conveyances were made to persons who claimed to be stockholders actively participating in the proceedings of the corporation. Tn this case the court also says that the holding in Copp v. Lamb, 12 Me. (3 Fairf.) 312, was based on the ground that it was not competent for a person claiming under one of the corporators, who had acted as an of- ficer at the first meeting, to deny the legality of the exercise of cor- porate powers on the ground that such meeting was held outside of the state, in view of the length of time that had elapsed and the fact that all the acts of the corporatioa 503 § 256] Peivate Coepoeations [Ch.9 The defective organization may be legalized by a subsequent re- organization in the state,^* and acts done and contracts made in the meantime may then be ratified and confirmed.^^ And it has been held that where the directors of a corporation meet and organize outside of the state, and afterwards the corporators, acting within the state, elect directors, issue stock, and otherwise exercise corporate powers, there is a sufficient organization within the state.^' There is authority to the effect that where a special charter pro- vides for a corporation of a local character to be located in a par- ticular city, an organization and attempted establishment of a corporation thereunder in another city is a perversion of the statute and void.^'' §257. Procedure generally to effect organization. The pro- cedure by which the organization of a corporation is effected depends entirely on the terms of the act creating it or the general law under had subsequently been ratified at a meeting which it did not appear was held out of the state. This explana- tion of Copp V. Lamb is also referred to in Smith v. Silver Valley Min. Co., 64 Md. 85, 54 Am. Eep. 760, 20 Atl. 1032. In Handley v. Stutz, 139 U. S. 417, 35 L. Ed. 227, it is said: "It is true there are cases holding that stock- holders' meetings cannot be legally held outside of the home state of the corporation, but the question has gen- erally arisen where a majority present at such meeting had attempted by their action to bind a dissenting mi- nority, or had taken action prejudicial to the rights of third persons. * * * Indeed, so far as we know, the authori- ties are uniform to the effect that the action taken at such meetings is binding upon those who participate in or take the benefit of them." The meeting in question in this case, how- ever, was one held after organization. Creditors who have dealt with the corporation as such and whose claims arise out of contracts made with it as such, are estopped to deny the le- gality of its organization on this ground for the purpose of avoiding a prior mortgage. Hasbrouck v. Rich, 113 Mo. App. 389, 88 S. "W. 131. See also Humphreys v. Mooney, 5 Colo. 282; Ohio & M. Ey. Co. v. McPherson, 35 Mo. 13, 86 Am. Dec. 128. See Chap. 11, infra. 14 Freeman v. Machias Water Power & Mill Co., 38 Me. 343. 16 But one who has acquired stock pursuant to an organization outside of the state, and whose stock has been sold for nonpayment of assessment before the reorganization takes place, cannot recover dividends thereon by virtue of a vote then passed, ratifying and confirming all the previous acts and proceedings of the company, since if his ownership of the stock is thereby confirmed and made valid, the con- firmation also extends to and validates its sale, and he is deprived of the stock by the same act which invests him with its ownership. Freeman v. Machias "Water Power & Mill Co., 38 Me. 343. 16 Glymont Improvement & Excur- sion Co. V. Toler, 80 Md. 278, 30 Atl. 651. 17 Booth V. Wonderly, 36 N. J. L. 250. 504 Cli.9] Obganization [§ 257 which it is formed. Under some statutes the organization meeting is held and the directors or trustees and other officers are chosen before the articles or certificate of incorporation are filed,^' and the directors for the first year are sometimes required to be named in the articles.^' Special charters sometimes name certain persons as commissioners, whose duty it is to call for subscription to stock, and, when the required amount is subscribed, to convene a meeting of the subscribers at which the formal organization is perfected,^" or provide for the 18 The statute requires some sort of a preliminary organization, since the application for the charter is re- quired to state the number of direc- tors and the names of those for the first year, and to show that ten per cent, of the authorized capital has been paid in. Smith v. First Nat. Bank, 43 Tex. Civ. App. 495, 95 S. W. 1111. See Chap. 40, infra. 19 See Chap. 7, supra. 20 ' ' Sometimes the statute names certain persons who as public officers call for subscriptions to the stock of the corporation, and, when" the re- quired amount "is subscribed, call a meeting of the subscribers to organ- ize the corporation, at which meeting the organization is effected by the subscribers." Eoosevelt v. Hamblin, 199 Mass. 127, 18 L. E. A. (N. S.) 748, 85 N. E. 98. "An act is passed to create an in- surance compan,y. It is to consist of the stockholders. But it seems proper that, for convenience, some persons should be designated to take the in- itiatory steps in getting up the com- pany, and, at a proper time, to call the members together to fulfill another requirement of the charter, viz.: the election of directors. Thus concert and union of action would be secured, when, otherwise, it might not." Ju- dah V. American Live Stock Ins. Co., 4 Ind. 333. For examples of charters of this kind see the following cases: United States. Falconer v. Camp- bell, 2 McLean 195, Fed. Cas. No. 4,620. Connecticut. Saugatuck Bridge Co. v. Westport, 39 Conn. 337; Litchfield Bank V. Church, 29 Conn. 137; State V. Bull, 16 Conn. 179. Georgia. Wood v. Coosa & C. R. B. Co., 32 Ga. 273. Illinois, Smith v. Bangs, 15 111. 399. Louisiana. Lallande v. Louisiana State Ins. Co., 9 La. 326. Maryland. Bonaparte v. Baltimore, H. & L. E. E. Co., 75 Md. 340, 23 Atl. 784; Wellersburg & "W. N. Plank Eoad Co. v. Hoffman/ 9 Md. 559. Mississippi. Ellison v. Mobile & O. E. Co., 36 Miss. 572. New Jersey. Union Water Co. v. Kean, 52 N. J. Eq. Ill, 27 Atl. 1015 (rev'd 52 N. J. Eq. 813, 46 Am. St. Eep. 538, 31 Atl. 282, for want of equitable jurisdiction) ; Elizabethtown Gas-Light Co. v. Green, 46 N. J. Eq. 118, 18 Atl. 844; Van Dyke v. Stout, 8 N. J. Eq. 333; Hardenburgh v. Farmers' & Mechanics' Bank of New Brunswick, 3 N. J. Eq. 68. New York. Troy & B. E. Co. v. Tib- bits, 18 Barb. 297; Haight v. Day, 1 Johns. Ch. 18; Walker v. Devereaux, 4 Paige 229; Crocker v. Crane, 21 Wend. 211, 34 Am. Dec. 228. Ohio. James v. Cincinnati, H. & D. E. Co., 2 Disney 261. Pennsylvania. Bavington v. Pitts- burgh & S. E. Co., 34 Pa. St. 358. 505 §257] Peivate Cokpoeations [Ch.9 performance of these duties by the corporators or persons to whom the charter is granted, or a specified number of them.''^ Similar provisions are also found in the general incorporation laws of some of the states.*^ So it is sometimes provided that persons desiring to form a corporation shall file a statement to that effect in the office of the secretary of state, and the latter officer then issues to them a license to act as commissioners.^^ And under some general laws the organization is perfected by the corporators or a specified Texas. Quinlan v. Houston & T. C. By. Oo., 89 Tex. 356, 34 S. W. 738; Williams v. State, 23 Tex. 264. Veimont. Connecticut & P. B. B. Co. V. Bailey, 24 Vt. 465, 58 Am. Dec. 181; In re White Biver Bank, 23 Vt. 478; "Vermont Cent. B. Co. v. Clayes, 21 Vt. 30. Virginia. Martin v. South Salem Land Co., 94 Va. 28, 26 S. E. 591; Stuart V. Valley R. Co., 32 Gratt. 146; Grays v. Lynchburg & S. Turnpike Co., 4 Band. 578. Wisconsin. Attorney General v. Chicago & N. W. By. Co., 35 Wis. 425. 21 For examples of charters of this kind see the following cases: Connecticut. Eidgefield & N. T. E. Co. V. Brush, 43 Conn. 86; Lane v. Braiuerd, 30 Conn. 565. Maryland. Franklin Fire Ins. Co. V. Hart, 31 Md. 59. Massachusetts. Boosevelt v. Ham- blin, 199 Mass. 127, 18 L. B. A. (N. S.) 748, 85 N. B. 98. New Hampshire. Low v. Connecti- «-4t & P. B. E. Co., 45 N. H. 370; Hughes V. Parker, 20 N. H. 58. Ohio. Second Nat. Bank v. Hall, 35 Ohio St. 158. 22 See Peninsular By. Co. v. Duncan, 28 Mich. 130. 23 The Illinois statute provides for the formation in this manner of cor- porations for pecuniary profit other than those for banking, insurance, real estate brokerage, the opera- tion of railroads, and the loaning of money. J. & A. 11112418, 2419. People V. Larsen, 265 111. 406, 106 N. E. 947; Butler Paper Co. v. Cleve- land, 220 HI. 128, 110 Am. St. Bep. 230, 77 N. E. 99, aff'g 121 111. App. 491; People v. Eose, 210 111. 582, 71 N. E. 580; McCoy v. World's Colum- bian Exposition, 186 111. 356, 78 Am. St. Eep. 288, 57 N. E. 1043, aff'g 87 HI. App. 605; Loverin v. McLaughlin, 161 111. 417, 44 N. E. 99, aff'g 46 111. App. 373; Illinois Watch-Case Co. v. Pearson, 140 111. 423, 16 L. B. A. 429, 31 N. E. 400; Western Screw Mfg. Co. v. Cousley, 72 111. 531. "When the proposers of the corpo- ration have obtained a license, they have called into exercise the power of the state, which alone can give being to a corporation." Illinois Watch-Case Co. v. Pearson, 140 111. 423, 16 L. E. A. 429, 31 N. E. 400. The action of the secretary in is- suing the license is necessarily, to a large extent, merely ministerial, and the fact that he issues it is not conclu- sive as to the right of the corporation to exercise all of the powers enu- merated in the application therefor. People V. Chicago Gas Trust Co., 130 111. 268, 269, 8 L. E. A. 497, 17 Am. St. Eep. 319, 22 N. E. 798. In Illinois, railroad corporations are not organized in this manner, but un- der J. & A. Iflf 8735-8738, and do not require a license from the secretary of state. People v. Eose, 210 111. 582, 71 N. E. 580. 506 Oh. 9] Organization [§257 number of them, whose duties are substantially the same as those of commissioners.^* ZlAlaliaiua. Formerly in Alabama persons desiring to incorporate were required to file a declaration to that effect with the probate court, where- upon the probate judge was required to issue to them, or any two of them, a commission constituting them a board of corporators and giving them authority to open books of subscrip- tion and to call a meeting of the subscribers after the required amount had been subscribed. First Nat. Bank of Decatur v. Henry, 159 Ala. 367, 49 So. 97; White v. Kahn, 103 Ala. 308, 15 So. 595; Boiling v. Le Grand, 87 Ala. 482, 6 So. 332; Sparks v. Wood- stock Iron & Steel Co., 87 Ala. 294, 6 So. 195. This method of incorporation no longer obtains in that state. See Code 1907, § 3445 et seq. Connecticut. The statute provides that after the required amount of stock has been subscribed, a majority of the corporators shall call the first meeting of the stockholders at which the organization is perfected. Pub. Acts 1903, e. 194, § 67; Gen. St. 1902, § 3363. Canfield v. Gregory, 66 Conn. 9, 33 Atl. 536. Delaware. Until directors are elected, the signers of the certificate of incorporation "shall have the di- rection of the affairs of the corpora- tion and may take such steps as are proper to obtain the necessary sub- scriptions to stock and to perfect the organization of the company." 22 Bel. Laws, e. 394, § 8. Lippman v. Kehoe Stenograph Co., — Del. Ch. — , 95 Atl. 895. Kansas, "Until directors and other proper oflScers are elected, indeed, in our judgment, until the corporation may enter fully upon its corporate functions, the original corporators' are the representatives of the corporation. and are the only persons authorized to attend to the preliminary business of the corporation. The directors when elected, are elected (in our judg- ment) to do the business of a com- pletely-organized corporation. They are not elected for the purpose of ef- fecting an organization. That is the business of the original corporators. They are elected to attend to the busi- ness of the corporation after its or- ganization." Hunt v. Kansas & Mis- souri Bridge Co., 11 . Kan. 412. Maine. Eev. St. 1903, e. 47, § 7. Eichmond Factory Ass'n v. Clarke, 61 Me. 351. Oregon. The corporators, or any portion of them designated by a ma- jority of the whole number are re- quired to open books, to give notice to the stockholders to meet at such time and place as they may designate for the election of directors, to act as inspectors at such meeting, and to cer- tify who are elected and to appoint the time and place for their first meet- ing. Lord's Ore. Laws, § 6687. Good- ale Lumber Co. v. Shaw, 41 Ore. 544, 69 Pac. 546; Nickum v. Burekhardt, 30 Ore. 464, 60 Am. St. Eep. 822, 48 Pac. 474, 47 Pac. 788; Fairview E. Co. v. Spillman, 23 Ore. 587, 32 Pae. 688; Coyote Gold & Silver Min. Co. v. Eu- ble, 8 Ore. 284. South Carolina. Under the statute the secretary of state issues to the persons who petition for incorpora- tion, or to any two of them, a com- mission constituting them a board of corporators, and, where there is to be capital stock, authorizing them to open subscription books. When the required amount is subscribed, the board calls a meeting of the stock- holders at which directors are elected. Code 1902, §§1881, 1883. Glenn v. Eosborough, 48 S. C. 272, 26 S. E. 611. 507 §257] Private Coepobations [Cli.9 Under some statutes, persons desiring to form a corporation may apply to a justice of the peace, who is required to issue a warrant directed to one of the applicants requiring him to call a meeting of the applicants and the latter organize the corporation at such meeting.25 "Where the charter provides for a provisional or temporary organ- ization by the corporators to manage the affairs of the company until the first meeting of the stockholders, and the charter is accepted and such provisional organization effected, no subsequent withdrawal of any of the corporators will affect its vitality, and those remaining may call the first meeting.^* A preliminary organization effected prior to incorporation does not continue after the perfection of the incorporation and organization thereunder.'^'' In the case of special charters, the organization must be perfected by those who are thereby incorporated,** and they have no right to assign the corporate franchise before organization, except where the charter or statute so provides.*^ The grantees named in such a charter are the sole members of the corporation until associates are Wisconsin. Stat. 1898, § 1773, pro- vides "Until the directors or trus- tees shall be elected, the signers' of the articles of organization shall have direction of the affairs of the corpo- ration and make such rules as may be necessary for perfecting its organ- ization, accepting members, or regulat- ing the subscription of the capital stock, ' ' and also provides for the call- ing of the first meeting by any two of the signers of the articles after half of the stock has been subscribed. Bad- ger Paper Co. v. Eose, 95 Wis. 145, 37 L. R. A. 162, 70 N. W. 302; "Wechsel- berg V. Flour City Nat. Bank, 64 Fed. 90, 26 L. E. A. 470 (construing the Wisconsin act). 25 Packard v. Old Colony E. Co., 168 Mass. 92, 46 N. E. 433 (ceniietery and religious corporations). Legal incorporation under such a provision is not shown where there is no evidence that application was ever made for a warrant, or that any war- rant was ever issued or served. Mc- Kenney v. Bowie, 94 Me. 397, 47 Atl. 918. 26Busey v. Hooper, 35 Md. 15, 6 Am. Eep. 350. 27 The officers of such preliminary organization are superseded by those chosen after the incorporation. Muhl- hauser v. Cleveland Hospital for Wom- en and Children, 21 Ohio Cir. Ct. 88, afE'd 66 Ohio St. 688, 65 N. E. 1131. 28 Welch V. Old Dominion Min. & Ey. Co., 56 Hun (N. Y.) 650, 10 N. Y. Supp. 174. See also Booth v. Wonder- ly, 36 N. J. L. 250. 29 In Welch v. Old Dominion Min. & Ey. Co., 56 Hun (N. Y.) 650, 10 N. Y. Supp. 174, it was held that such an assignment was void, and that neither a de jure nor a de facto cor- poration was created by an attempted organization thereunder by the as- signees. See also Com. v. McKean County Bank, 32 Pa. St. 185. 508 Ch.9] Organization [§259 admitted by them;^*' "and they may, at a meeting duly called and holden, accept the charter and choose directors and other officers. "^^ In such eases "the duty to take the necessary steps to organize the corporation rests, not upon individual members, but on the body of the grantees, which, in its corporate capacity has the sole power to determine by what measures and by what agents it shall be ef- fected. "^^ Generally, where the charter is granted to certain named persons and their associates, those named may take in associates or not, as they see fit.^^ §258. Commissioners — Qualifications. The commissioners or cor- porators need not be made members of the corporation,'* nor need they have any pecuniary interest therein.'^ The grantees of a special charter are often designated as commissioners, however,*' and gen- erally the commissioners may become subscribers to the stock in the absence of a provision to the contrary.*'' §259. — Powers. Commissioners do not constitute the corpora- tion, nor is the corporate franchise in any form or degree vested in them.** Nor are they the agents of the corporation, for it is not 30 Low V. Connecticut & P. E. E. Co., 45 N. H. 370. "If there are no associates, then the grantees compose the corpora- tion." Hughes V. Parker, 20 N. H. 58. 31 Low V. Connecticut & P. E. E. Co., 45 N. H. 370. And see to the same effect, Hughes v. Parker, 20 N. H. 58. 32 Low V. Connecticut & P. E. E. Co., 45 N. H. 370. 33 Prost 's Lessee v. Prostburg Coal Co., 24 How. (U. S.) 278, 16 L. Ed. 637; Low v. Connecticut & P. E. E. Co., 45 N. H. 370; Hughes v. Parker, 20 N. H. 58, 19 N. H. 181; Union Water Co. v. Kean, 52 N. J. Eq. Ill, 27 Atl. 1015 (rev'd 52 N. J. Eq. 813, 46 Am. St. Eep. 538, 31 Atl. 282, on the ground that a court of equity had no jurisdiction to determine the ques- tions involved). 34Judah V. American Live Stock Ins. Co., 4 Ind. 333; Bonaparte v. Bal- timore, H. & L. E. E. Co., 75 Md. 340, 23 Atl. 784; Walker v. Devereaux, 4 Paige Ch. (N. Y.) 229. 36 Roosevelt v. Hamblin, 199 Mass. 127, 18 L. E. A. (N. S.) 748, 85 N. E. 98; Coyote Gold & Silver Min. Co. v. Euble, 8 Ore. 284. 36McDermott v. Donegan, 44 Mo. 85. See also Walker v. Devereaux, 4 Paige Ch. (N. Y.) 229. 37 See Chap. 17, infra. '38 Falconer v. Campbell, 2 McLean 195, Fed. Cas. No. 4,620; Eoosevelt v. Hamblin, 199 Mass. 127, 18 L. E. A. (N. S.) 748, 85 N. E. 98. See also Bonaparte v. Baltimore, H. & L. E. E. Co., 75 Md. 340, 23 Atl. 784. See Chap. 14, infra, for treatment of the status of the franchise after the grant of a charter and before organization. 509 259] Pkivate Cokpoeatiows [CIi.9 yet in being.'* They "act as a statutory board, and derive their powers from, the law and not from the corporation, ' ' *"> and are officers or agents of the state.*^ Their powers are limited to those conferred by the statute,**^ and all who deal with them must look to the source of their authority.** Their authority is generally con- fined to receiving subscriptions, convening the first meeting of the 39Rutz V. Esler & Eopiequet Mfg. Co., 3 111. App. 83; Walker v. Dev- ereaux, 4 Paige Ch. (N. Y.) 229; Caley V. Philadelphia & C. C. R. Co., 80 Pa. St. 363; Williams v. State, 23 Tex. 264. See also Lallande v. Louisiana State Ins. Co., 9 La. 326. They are a part of the necessary machinery for getting the corpora- tion into operation, "and are quasi agents of the corporation, necessarily acting in their behalf prior to an or ganization." Vermont Cent. R. Co. V. Clayes, 21 Vt. 30. 40Shurtz V. Schoolcraft & T. R. R, Co., 9 Mich. 269. 41 State V. Bull, 16 Conn. 179; Bona- parte V. Baltimore, H. & L. R. R. Co 75 Md. 340, 23 Atl. 784; Caley v, Philadelphia & C. C. R. Co., 80 Pa, St. 363; Attorney General v. Chicago & N. W. Ey. Co., 35 Wis. 425, 600. A commissioner "is an agent ap- pointed by law with a special power of attorney." Nippenose Mfg. Co. v. Stadon, 68 Pa. St. 256. See also Lal- lande V. Louisiana State Ins. Co., 9 La. 326. They act all the way through as public officers. Roosevelt v. Hamblin, 199 Mass. 127, 18 L. R. A. (N. S.) 748, 85 N. E. 98. And the public has an interest in the faithful discharge of such duties. In re White River Bank, 23 Vt. 478. "They are agents for those who shall afterwards subscribe to the stock; and they have, in a certain sense, a trust to execute on behalf of the public." Hardenburgh v. Farm- ers' & Mechanics' Bank of New Brunswick, 3 N. J. Eq. 68. Where the stock is oversubscribed, and hence there can be neither a cor- poration nor stockholders until the stock has'been apportioned among the subscribers, they do not hold the stock nor act in the capacity of officers, servants, agents or trustees of the cor- poration nor of the subscribers, but act "merely as officers or agents of the government, appointed by the leg- islature to assist in the organization of the corporation and to create a stock in the same." Walker v. Dev- ereaux, 4 Paige Ch. (N. Y.) 229. Quoted in Williams v. State, 23 Tex. 264. On the appointment of "the presi- dent and directors" of an existing corporation, the charter of which is about to expire, as commissioners to open books for subscriptions to the stock of another corporation, they do not cease to be commissioners on the expiration of such charter. In open- ing the books they do not represent either corporation, but act as indi- viduals appointed by law to perform a trust, and while so acting cannot bind the stockholders of the first com- pany. Lallande v. Lauisiana State Ins. Co., 9 La. 326. 42 Bonaparte v. Baltimore, H. & L. E. R. Co., 75 Md. 340, 23 Atl. 784; Caley v. Philadelphia & C. C. E. Co., 80 Pa. St. 363; Nippenose Mfg. Co. v. Stadon, 68 Pa. St. 256. See also Wood V. Coosa & C. R. R. Co., 32 Ga. 273. 43 Caley v. Philadelphia & C. C. R, Co., 80 Pa. St. 363; Nippenose Mfg. Co. v. Stadon, 68 Pa. St. 256. 510 Ch. 9] Ohganization [§ 260 subscribers, and making a report of their proceedings.** They have no right or power to accept the charter,** and hence none of their acts can tend to show an acceptance.*^ Nor have they any right to change the terms of the contract of subscription which the charter or law authorizes them to make.*'' It has been held that, where the majority of the commissioners Qorruptly agree to transfer the franchise to a citizen of another state without any bona fide subscription to the stock, an organization per- fected by the minority is valid.** Even though an incorporator as such cannot delegate his authority as against the objection of his fellow incorporators, yet, if he attempts to do so, neither he nor those of his fellow incorporators who acquiesce in such delegation can question the validity of the organization on that ground.*' §260. — Duties. Their duties are to perfect the organization of the corporation and to put it in working order, rather thau to carry on its business enterprises, and they have no power to make assessments, nor to prosecute the business for which the corporation was created, nor to dispose of its future earnings, nor to fix rules to control the action of the directors to be elected.*" Under some char- ters they are required to apportion the stock among the subscribers, where the capital is oversubscribed.*^ In the absence of a provision to the contrary, the election is not under their management or control, and they are not required to attend it, and have no power over it if they do attend.** But it is 44 McCoy V. World 's Columbian Ex- 46 Attorney General v. Chicago & N. position, 186 111. 356, 78 Am. St. Eep. W. By. Co., 35 Wis. 425, 600. 288, 57 N. E. 1043, aff'g 87 111. App. 47 See Chap. 17, infra. 605; Coyote Gold & Silver Min. Co. v. 48 An organization by three eom- Euble, 8 Ore. 284. missioners, and letters patent issued For matters relating to the giving pursuant thereto were held valid, of notice of the first meeting, see ^jjere the act authorized nine eom- §§262-268, infra. missioners, or any three of them, to For matters relating to the report, ; „ iu j.- /-, * i- ' organize the corporation. Com. v. For matters relating to the taking . _ ' ... of subscriptions to stock, see Chap. «Lippmaa v. Kehoe Stenograph 17 infra ^°-> ~ ^^^- ^^- ~' ®^ ^^^- *^^- 45 Bonaparte v. Baltimore, H. & L. *<> Coyote Gold & Silver Min. Co. v. R. K. Co., 75 Md. 340, 23 Atl. 784; At- Euble, 8 Ore. 284. torney General v. Chicago & N. W. 81 See Chap. 17, infra. By. Co., 35 Wis. 425, 600. 62 Hardenburgh v. Farmers' & M«- 511 260] Peivate Coepoeations [Ch.9 sometimes provided that they shall be inspectors of the election,''* and shall certify to the election of the directors chosen.** They may be compelled by the courts to perform the duties imposed upon them.** Where they are required to certify to the stockholders that the requisite amount of stock has been subscribed, and by whom, such certificate is conclusive, and a subscriber cannot show that the same is false in order to "escape liability on his subscription.*^ §261. — Termination or revocation of authority. The powers and functions of commissioners or corporators cease as soon as the organization is fully perfected, and all the corporate powers conferred by the charter then vest in the corporation.*'' chanics' Bank of New Brunswick, 3 N. J; Eq. 68. See Chap. 40, infra. 63 Illinois. Smith v. Bangs, 15 111. 399. Missouri. McDermott v. Donegau, 44 Mo. 85. New York. Troy & B. B. Co. v. Tib- bits, 18 Barb. 297; Walker v. Dev- ereaux, 4 Paige Ch. 229. Oregon. Nickum v. Burckhardt, 30 Ore. 464, 60 Am. St. Eep. 822, 48 Pae. 474, 47 Pac. 788 (Lord's Ore. Laws, § 6687). Vermont. Connecticut & P. E. B. Co. V. Bailey, 24 Vt. 465, 58 Am. Dec. 181. See also Chap. 40, infra. B4 Smith V. Bangs, 15 111. 399; Nick- um V. Burckhardt, 30 Ore. 464, 60 Am. St. Eep. 822, 48 Pac. 474, 47 Pac. 788 (Lord's Ore. Laws, §6687); Connecti- cut & P. B. E. Co. V. Bailey, 24 Vt. 465, 58 Am. Dec. 181. See also Chap. 40, infra. 5S Lallande v. Louisiana State Ins. Co., 9 La. 326; Walker v. Devereaux, 4 Paige Ch. (N. Y.) 229; In re White Eiver Bank, 23 Vt. 478. 66 Lane v. Brainerd, 30 Conn. 565; Litchfield Bank v. Church, 29 Conn. 137. See also Chap. 17, infra. 57 Wellersburg & W. N. Plank Eoad Co. V. Hoffman, 9 Md. 559; Harden- burgh V. Farmers' & Mechanics' Bank of New Brunswick, 3 N. J. Eq. 68; James v. Cincinnati, H. & D. E. Co., 2 Disney (Ohio) 261; Nickum v. Burck- hardt, 30 Ore. 464, 60 Am. St. Eep. 822, 48 Pac. 474, 47 Pac. 788. Where books of subscription are regularly opened, the requisite amount of stock subscribed, and a meeting of the stockholders held after due notice, at which directors are elected, the powers of the commissioners are at an end, and they will be enjoined from holding another meeting for the election of directors. Smith v. Bangs, 15 111. 399. And see to the same eflfect Union Water Co. v. Kean, 52 N. J. Eq. Ill, 27 AtL 1015 (rev'd 52 N. J. Eq. 813, 46 Am. St. Eep. 538, 31 Atl. 282, for want of equitable jurisdic- tion). Upon the election of a board of di- rectors the management of the affairs of the corporation vests in them. Lippman v. Kehoe Stenograph Co., — Del. Ch. — , 95 Atl. 895. Thereafter all the affairs of the corporation, including that "of receiv- ing further subscriptions, are in the hands of the directors. Eidgefield & N. Y. E. Co. V. Brush, 43 Conn. 86, and 512 Cli.9] Oeganization [§263 A license issued to commissioners by the secretary of state is authority for taking the steps towards organization authorized by law,*' and cannot be revoked unless the statute so provides." A revocation is sometimes provided for where the organization is not perfected within the time prescribed by law.^° And it has beeh held that where no such time is prescribed, the commissioners wil| be deemed to have surrendered their authority if the organization of the corporation is unreasonably delayed.^^ §262. Notice of first meeting' — Provision for. Provision i» gen- erally made for giving notice to the stockholders or members of the first meeting for the purpose of organization.*^ §263. — Purpoce of provision for notice. The purpose of pro- visions requiring notice is to provide an orderly method of organiza- tion and to secure the proper, orderly and prompt calling of the the commissioners have no power to take subscriptions (Ellison v. Mobile & O. E. Co., 36 Miss. 572), and cannot apportion the stock among the sub- scribers (State V. Lehre, 7 Blch. [S. C] 234). 58 Illinois Wateh-Case Co. v. Pear- son, 140 ni. 423, 16 L. E. A. 429, 31 N. E. 400. 59 ' ' The law nowhere confers upon the secretary of state the power to revoke the license, except for failure to organize and proceed to business within two years from the date of such license," and during the two years it cannot be revoked. Illinois "Watch-Case Co. v. Pearson, 140 HI. 423, 16 L. K. A. 429, 31 N. E. 400. ■ 60 Illinois Wateh-Case Co. v. Pear- son, 140 111. 423, 16 L. R. A. 429, 31 N. B. 400. 61 So it was held that where sub- scriptions were opened, but the re- quired amount was not subscribed, and the commissioners thereupon closed the subscriptions, repaid in- italments paid by subscribers, and re- tired from the concern, they could not again open subscriptions ten years afterwards, and that where they did so, and their subscribers attempted to organize a corporation, quo warranto would lie. State v. Bull, 16 Conn. 179. "Where commissioners' appointed to take subscriptions to the stock of a railroad corporation delay action un- til after the expiration of the time limited by the charter for completing the road, their powers are at an end, and they have no authority to then take subscriptions and take steps to- wards the incorporation of the com- pany. Bonaparte v. Baltimore, H. & L. K. E. Co., 75 Md. 340, 23 Atl. 784. 62 Illinois. See Eice v. Eock Island & A. R. Co., 21 ni. 93. Indiana. Steinmetz v. Versailles & O. Turnpike Co., 57 Ind. 457. Maine. McKenney v. Bowie, 94 Me. 397, 47 Atl. 918. Minnesota. East Norway Lake Church V. Proislie, 37 Minn. 447, 35 N. W. 260. North Carolina. Eev. 1905, §1142. Benbow v. Cook, 115 N. C. 324, 44 Am. St. Eep. 454, 20 S. E. 453. Ohio. 4 Page & Adams Ann Gen Code, §8635. Toledo Consol. St. Ey. 513 I Priv. Corp.— 33 §263] Private Corpokations [Ch.9 meeting by the persons intrusted with the duty of calling it,*^ and to secure to all the members of the corporation their right to par- ticipate in its proceedings.** The notice is not intended for the benefit of the public, but rather for the benefit of the subscribers or members themselves.** §264. — By whom given. This notice is generally to be given by the persons whose duty it is to convene such meeting, as, for example, by the commissioners or corporators,** or by a majority *'' or other specified number ** of the persons named in the act of in corporation. Co. V. Toledo Elec. St. By. Co., 6 Ohio Cir. Ct. 362, 392, aff'g 6 Ohio N. P. 537, which is affirmed by 50 Ohio St. 603, 36 N. E. 312; State v. Halloway, 1 Ohio Cir. Ct. 157. See also Chap. 40, infra. 63 J. W. Butler Paper Co. v. Cleve- land, 220 111. 128, 110 Am. St. Bep. 230, 77 N. E. 99, aff'g 121 111. App. 491; Neweomb v. Beed, 12 Allen (Mass.) 362; Ossipee Hosiery & Woolen Mfg. Co. v. Canney, 54 N. H. 295. 64Braintree Water-Supply Oo. v. Braintree, 146 Mass. 482, 16 N. E. 420; Benbow v. Cook, 115 N. C. 324, 44 Am. St. Bep. 454, 20 S. E. 453. 66 J. W. Butler Paper Co. v. Cleve- land, 220 111. 128, 110 Am. St. Bep. 230, 77 N. E. 99, aff'g 121 111. App. 491; McClinch v. Sturgis, 72 Me. 288. The strict requirements of the stat- ute are intended to protect the stock- holders. Benbow v. Cook, 115 N. C. 324, 44 Am. St. Eep. 454, 20 S. E. 453. 86 Alabama. White v. Kahn, 103 Ala. 308, 15 So. 595. nUnois. Kurd's Eev. St. 1913, e. 32, § 3; J. & A. If 2420; People v. Lar- son, 265 111. 406, 106 N. E. 947; J. W. Butler Paper Co. v. Clevelandy 220 111. 128, 110 Am. St. Bep. 230, 77 N. E. 99, aff'g 121 m. App. 491; Bice v. Eoek Island & A. E. Co., 21 111. 93. Indiana. Judah v. American Live Stock Ins. Co., 4 Ind. 333. Massachusetts. See Eoosevelt v. Hamblin, 199 Mass. 127, 18 L. E. A. (N. S.) 748, 85 N. E. 98, where this method of calling meetings is referred to. Michigan. See Swartwout v. Michi- gan Air Line B. Co., 24 Mich. 389. New Jersey. Hardenburgh v. Farm- ers' & Mechanics'. Bank of New Brunswick, 3 N. J. Eq. 68. Ohio, Chamberlain v. Painesville & H. E. Co., 15 Ohio St. 225. Oregon. Lord's Ore. Laws, §6688; Nickum v. Burekhardt, 30 Ore. 464, 60 Am. St. Bep. 822, 48 Pac. 474, 47 Pac. 788. 67 Walworth v. Brackett, 98 Mass. 98; Chester Glass Co. v. Dewey, 16 Mass. 94, 8 Am. Dec. 128; Neweomb V. Beed, 12 Allen (Mass.) 362. In Chester Glass Co. v. Dewey, 16 Mass. 94, 8 Am. Dec. 128, D and L, who were partners, were named in the act of incorporation, and their firm name was signed to the advertisement for calling the first meeting. Consid- ering this as one signature, the advertisement was not signed by a majority of the corporators, while, if the names were taken separately, it was. It was held that the advertise- ment would be regarded as signed by each of the partners, the one who actually signed, acting for the other. 68Lechmere Bank v. Boynton, 11 Cush. (Mass.) 369. 514 Ch. 9] ' Oeganization ' [§ 266 The persons calling the meeting and giving the notice act in a purely ministerial capacity in so doing.*^ Their power is limited to calling a meeting of those entitled to participate in the organiza- tion,'" and the number so entitled cannot be enlarged or diminished by any act of theirs.'^ When given by commissioners, it is not essen- tial that the call should be the result of any formal order on their part. So it has been held sufficient though there was no formal action on their part, where the notice was prepared by one of the commissioners who was the secretary of the board, and who signed the names of all the others thereto, where it was not recalled or dis- owned by the commissioners, but on the contrary was recognized by them as valid by an attempt to postpone the meeting." §265. — Time for giving'. Statutes and charters generally pro- vide that the notice must be given a specified number of days before the time fixed for the meeting.''* §266. — Form and contents. The form and contents of the notice are fixed by the charter or the general law under which the corporation is formed.''* Usually it is required to be printed or in writing,''^ and to be signed by the persons issuing it,''^ and to state the object of the meeting and the time when and the place where it is to be held.''^ By three named persons, or any two 74 For form of notice see Stuart v. of them. Hughes v. Parker, 20 N. Valley E. Co., 32 Gratt. (Va.) 146. H. 58. These matters are regulated by stat- 69Lechmere Bank v. Boynton, 11 utes in most jurisdictions, to which Cush. (Mass.) 369. reference should be had. 70Leehmere Bank v. Boynton, 11 76Hurd's Rev. St. 1913, c. 32, §3; Cush. (Mass.) 369. J. & A. 1 2420; J. "W. Butler Paper Co. 71 See § 270, infra. v. Cleveland, 220 111. 128, 110 Am. St. 72 Hardenburgh v. Farmers' & Me- Rep. 230, 77 N. E. 99, aff'g 121 111. chauics^ Bank of New Brunswick, 3 App. 491. N. J. Eq. 68. ''6 Burns' Ind. Ann. St. 1914, § 4048; 73 Ossipee Hosiery & "Woolen Mfg. Newcomb v. Reed, 12 Allen (Mass.) Co. v. Canney, 54 N. H. 295. 362. In Illinois it must be given at least 77Hurd's Rev. St. 1913, c. 32, §3; ten days before the time fixed. Hurd's J. & A. If 2420; J. W. Butler Paper Co. Rev. St. 1913, c. 32, § 3; J. & A. If 2420; v. Cleveland, 220 111. 128, 110 Am. St. J. W. Butler Paper Co. v. Cleveland, Rep. 230, 77 N. E. 99, aff'g 121 111. 220 111. 128, 110 Am. St. Eep. 230, 77 App. 491; Burns' Ind. Ann. St. 1914, N. E. 99, afE'g 121 111. App. 491. See §4048; Judah v. American Live Stock also Rice v. Rock Island & A. R. Ins. Co., 4 Ind. 333; In re London & Co., 21 111. 93. S. C. T. L. Co., 31 Ch. Div. 223. 515 § 267] Peivate Cobpoeations [Ch.9 § 267. — Service. Provision is variously mad'e for personal service,''" or for giving notice by mail,''' or by publication *" and, gen- erally, if no other mode of notification is provided for in the charter or by-lawB, or by statute, express notice must be given.'^ §268. -^Effect of noncompliance with provisioni ' as to notice. Statutory and charter provisions as to notice are generally held to be directory merely, so that a failure to comply with them will not prevent the corporation from becoming one de jure, if the same result is reached in some other mode.'^ Nor is such a provision rendered mandatory by the use of the word "shall," "s nor by reason of the fact that a copy of the notice is required to be included in a report of the organization required to be made to the secretary of state.** As has been seen above, the purpose of the notice is the protection of the subscribers or members, and not to benefit the general public,** and it may be waived by the subscribers or members.** Hence it is , WB»^na' Ind. Ann. St. 1914, § 4048. 79 The Illinois statute provides for the depositing of written or printed notices in the post oflce, properly ad- dressed to each subscriber. Kurd's Eev. St. 1913, c. 32, § 3; J. & A. H 2420; J. W. Butler Paper Co. v. Cleveland, 220 111. 128, 110 Am. St. Eep. 230, 77 N. E. 99, aff'g 121 111. App. 491. 80 Burns ' Ind. Ann. St. 1914, §§ 4048, 4515; Steinmetz v. Versailles & O. Turnpike Co., 57 Ind. 457; Judah v. American Live Stock Ins. Co., 4 Ind. 333; Ossipee Hosiery & Woolen Mfg. Co. V. Canney, 54 N. H. 295; Harden- burgh V. Farmers' & Mechanics' Bank of New Brunswick, 3 N. J. Eq. 68. SlBenbow v. Cook, 115 N. C. 324, 44 Am. St. Eep. 454, 20 S. E. 453. SZIUlnois. J. W. Butler Paper Co. v. Cleveland, 220 111. 128, 110 Am. St. Eep. 230, 77 N. E. 99, aff'g 121 111. App. 491. Indiana. Judah v. American Live Stock Ins. Co., 4 Ind. 333. Maine. McClinch v. Sturgis, 72 Me. 288. Massachusetts. Braintree Water- Supply Co. V. Braintree, 146 Mass. 482, 16 N. B. 420; Walworth v. Brack- ett, 98 Mass. 98; Newcomb v. Eeed, 12 Allen 362. New Hampshire. Ossipee Hosiery & Woolen Mfg. Co. v. Canney, 54 N. H. 295. Ohio. Chamberlain v. Painesville & H. E. Co., 15 Ohio St. 225; To- ledo Consol. St. Ey. Co. v. To- le3o Elec. St. Ey. Co., 6 Ohio Cir. Ct. 362, 392, afe'g 6 N. P. 537, which is affirmed by 50 Ohio St. 603, 36 N. E. 312. 83 J. W. Butler Paper Co. v. Cleve- land, 220 111. 128, 110 Am. St. Eep. 230, 77 N. E. 99, aff'g 121 111. App. 491. 84 The filing of a written waiver of the required notice, signed by all of the subscribers, is a sufficient compli- ance with such a provision. J. W. Butler Paper Co. v. Cleveland, 220 111. 128, 110 Am. St. Eep. 230, 77 N. E. 99, aff'g 121 III. App. 491. 8B See § 263, supra. SBBenbow v. Cook, 115 N. C. 324, 44 Am. St. Eep. 454, 20 S. E. 453. See also Lippman v. Kehoe Stenograph Co., — Del. Ch. — , 95 Atl. 895; Pair- view E. Co. V. Spillman, 23 Ore. 587, 32 Pac. 688. 516 Ch. 9] Organization [§268 immaterial that no notice is given,*' or that it is not given in the manner pointed ou(t by the statute,** if the persons entitled to notice actually attend the meeting and participate in the business there trans- acted. In other words, an organization is valid though the statutory provisions as to notice are disregarded, if all the members consent »' thereto. Under such circumstances, the validity of the incorporation is not affected by the fact that ithe notice was not signed by a majority of the persons named in the act of ineorporation.^" Subscribers or members who are present at the meeting and partici- pate therein cannot attack the validity of the organization on the ground that they themselves were not properly notified,'^ nor on the ground that notice was not given to other subscribers or members, at' least where the amount of stock required to perfect the organization is represented at the meeting.'^ Nor, where neither the state nor the 87 It is immaterial whether the stockholders came together on a notice given by the persons designated in the statute, or without any notice at all, if all came, and in a proper and satisfactory manner elected directors. Judah V. American Live Stock Ins. Co., 4 Ind. 333. They may all meet by common con- sent without notice. Union Water Co. V. Kean, 52 N, J. Eq. Ill, 27 Atl. 1015, rev'd 52 N. J. Eq. 813, 46 Am. St. Rep. 538, 31 Atl. 282, for want of equitable jurisdiction. "If all the persons interested should come together without any no- tice or call whatever, and proceed to accept the charter, and do the other acts necessary to constitute the cor- poration, we cannot doubt that their action would be valid, and that neither the public, nor any persons not be- longing to the association, would have any interest to question their proceed- ings." Newcomb v. Eeed, 12 Allen (Mass.) 362. Quoted in J. W. Butler Paper Co. v. Cleveland, 220 111. 128, 110 Am. St. Rep. 230, 77 N. E. 99, aff'g 121 111. App. 491. See also Handley V. Stutz, 139 U. S. 417, 422, 35 L. Ed. 227. 88 J. W. Butler Paper Co. y. Cleve- land, 220 111. 128, 110 Am. St. Rep. 230, 77 N. E. 99, aff'g 121 HI. App. 491; Braintree Water-Supply Co. v. Braintree, 146 Mass. 482, 16 N. E. 420. Compliance with the statute need not be shown when every person in- terested had express notice and par- ticipated in the meeting. Benbow v. Cook, 115 N. C. 324, 44 Am. St. Rep. 454, 20 S. B, 453. See also South Bay Meadow Dam Co. v. Gray, 30 Me. 547. . 89 Braintree Water-Supply Co. v. Braintree, 146 Mass. 482y 16 N. E. 420. 90 Braintree Water-Supply, Qo. v. Braintree, 146 Mass. 482, 16 N. E. 420; Walworth v. Braekett, 98 Mass. 98; Newcomb v. Reed, 12 Allen (Mass.) • 362. ■ 91 In sUch case they do not suffef' by the oinission. Schenectady &' si' Plank Road Co. v. Thatcher, 11 N. T. 102. See also Judah v. American Live Stock Ins. Co., 4 Ind. 333; Bucksport & B. R. Co. v. Buck, 68 Me. 81. 92Nickum v. Burckhardt; 30 Ore. 464, 60 Am. St. Rep. 822, 48 Pae. 474, 47 Pac. 788. Thus it is not a valid ground of oId- jection in aueh a case that no notice 517 §268] Private Coepoeations [Cli.9 grantees of the charter complain, can the validity of the incorporation be questioned by third persons, especially where they have recognized the corporate existence.®' So notwithstanding the fact that the notice is not signed by a majority of those named in the act of incorporation, and though those not signing refuse to join in the call, and do not participate in the organization, it has been held that the organization is valid as Sigainst all persons but the state and those so refusing.®* Nor can the fact that notice was not given to all of the corporators be taken advantage of by a person who, though not one of the corporators, was elected an associate at the first meeting, took part in the organization, and subsequently recognized the cor- poration as having a legal existence.®* Nor can persons who subscribe to stock after the organization takes place object to the regularity of the organization on the ground that notice was not given to certain was given, and that some of the sub- scribers did not attend the meeting. Schenectady & S. Plank Boad Co. v. Thatcher, 11 N. Y. 102. This is especially true of one who signed a certificate reciting that he and eight others had been duly elected by the subscribers as directors, and swore in the affidavit filed in the sec- retary of state's office that he was a director. Schenectady & S. Plank Eoad Co. V. Thatcher, 11 N. Y. 102. 93 " If neither the grantors of the charters (i. e., the state) nor the gran- tees complained of the defect in the preliminary notice, it would seem that the objection could not be subse- quently raised by this defendant who has taken stock in the corporation, thereby recognizing the corporate ex- istence and manifesting his purpose to participate in the profits thereof." Ossipee Hosiery & Woolen Mfg. Co. V. Canney, 54 N. H. 295. Quoted with approval in McClinch v. Sturgis, 72 Me. 288. One who subscribes to stock after the organization of the corporation and otherwise deals with it as a cor- poration, cannot defend an action on his subscription on the ground that a majoiity of those named in the act of incorporation did not join in call- ing the first meeting, where all the members were preseiit at such meet- ing, and no otjier objection to the manner of calling it was made. Ches- ter Glass Co. v. Dewey, 16 Mass. 94, 8 Am. Dec. 128. 94 The organization is valid, except as against the state, though only one of three persons named in an act in- corporating them and their associates signed the notice, and the other two refused to join in the call and did not take part in the organization, or au- thorize the other persons participating in the meeting to do so, where they made no objection to their associates proceeding without them, and no claim to the exercise of the corporate pow- ers, and there were no subscribers to the stock before the act of incorpora- tion. Walworth v. Brackett, 98 Mass. 98. See also McGinty v. Athol Reser- voir Co., 155 Mass. 183, 29 N. E. 510, holding that where at least one of the persons named in the act of in- corporation, without objection from the others, with seven others not named, met and accepted the charter, etc., the persons taking part in such proceedings became a corporation. 96 McClinch' V. Sturgis, 72 Me. 288. 518 Ch. 9] Obganizatiok [§268 of the stockholders who were entitled thereto, if the amount of stock required to perfect the organization was represented at the meeting,'* nor on the ground that a less number of days' notice was given than the charter required.'' And the acts of directors chosen at the meet- ing cannot be questioned collaterally on the ground that the notice was not given by the persons designated by the statute to give it." The subscribers may also expressly waive the giving of notice, where all agree thereto, and the meeting is actually held." And the action of the meeting will be valid though it was not called in the manner prescribed where its action is subsequently ratified by all those who were not present.^ Of course no notice is necessary where a charter is granted to a single individual who is not required to take associates and does not do so.'' Until the contrary is shown it is always presumed that the required notice was given.^ 98 Niokum v. Burekhardt, 30 Ore. 464, 60 Am. St. Eep. 822, 48 Pae. 788. ' ' The result is that, in so far as they are concerned, the company was diily incorporated; and this result is reached, not because they are estopped by having dealt with it, but because it was legally organized prior to their subscription to the capital stock." Mckum V. Burekhardt, 30 Ore. 464, 60 Am. St. Eep. 822, 47 Pae. 788, 48 Pac. 474. 97 0ssipee Hosiery & Woolen Mfg. Co. V. Canney, 54 N. H. 295. 98 Chamberlain v. Painesville & H. R. Co., 15 Ohio St. 225. See also Chap. 10, infra. But it has been held that the ap- pointment of a director is invalid where the notice required by the char- ter is not given. Wolf v. East Nigel Gold Min. Co., 21 T. L. R. 660. 99 There is a corporation de jure v/here all the subscribers execute a written instrument waiving the statu- tory notice and requesting the commis- sioners to convene the meeting at a specified time and place, and where a notice specifying the object, time and place of the meeting is personally de- li vfered to each of them before such meeting is held. J. W. Butler Paper Co. V. Cleveland, 220 111. 128, 110 Am. St. Rep. 230, 77 N. E. 99, aff'g 121 111. App. 491. In Ohio the statute provides that if all subscribers to stock are present in person or by proxy, such notice may be waived by them in writing. 4 Page & Adams Ann. Gen. Code, § 8635; To- ledo Consol. St. Ry. Co. v. Toledo Elec. St. Ry. Co., 6 Ohio Cir. Ct. 362, 392, aff'g 6 Ohio N. P. 537, which is af- firmed by 50 Ohio St. 603, 36 N. E. 312. Similar provisions are to be found in the statutes of a number of other states, to which reference should be "had. 1 Benbow v. Cook, 115 N. C. 324, 44 Am. St. Rep. 454, 20 S. E. 453. ZA provision for notice in such a charter "assumes that persons were to assemble, entitled to be notified of the time and place of meeting. It would have been necessary, if the de- fendant had taken associates; but if he had no one to notify, and no one to consult, it would have been a use- less formality. ' ' Day v. Stetson, 8 Me. (8 Greenl.) 365. 3 Benbow v. Cook, 115 N. C. 324, 44 Am. St. Rep. 454, 20 S. E. 453; 519 § 269] Peivatb Cokporations [Ch. 9 § 269. Postponement of meeting. As soon as a lawful notice has been given, the subscribers acquire the right to meet and hold the election at the time appointed and to come into possession of the property they have invested in, with which rights the commissioners cannot, as a general rule, thereafter interfere.* So, unless given authority to do so, the commissioners cannot thereafter adjourn or postpone the meeting, at least where it is not necessary to do so for the protection of their own interests, or of those of the subscribers or of the community. For example, it has been held that they have no right to postpone or adjourn it because their treasurer has. refused or neglected, when requested, to deposit subscription money collected by them in a bank which they have designated, nor because their expenses have not been paid. Nor will a court of equity interfere with an election held on the date originally fixed because of such attempted postponement, where it does not appear that any consider- able number of subscribers were deprived of their elective franchise by reason thereof, or that any fraud or concealment was practiced, or that the officers elected were not chosen by a majority of the whole number of votes.^ It has also been doubted whether, if the meeting is not held at the time originally appointed, the commissioners have power to designate another day.^ §270. Conduct of meeting and persons who may participate. Only those persons who are incorporated may take part in the first meeting.'' "Whether or not persons other than those petitioning for a special charter, as, for example, persons who subscribe to stock, may do so depends entirely upon the terms of the charter.^ Grays v. Lynchburg & S. Turnpike Co., 6 See Walker v. Devereaux, 4 Paige 4 Band. (Va.) 578. See also Bank Ch. (N. Y.) 229, 247. of United States v. Lyman, 20 Vt. ' Leehmere Bank v. Boynton, 11 666, aff'd 12 How. (TJ. S.) 225, 13 L. Cush. (Mass.) 369. Ed. 965. "The grantees named in the charter 4 Hardenburgh v. Farmers ' & Me- are the sole members of the eorpora- chanics' Bank of New Brunswick, 3 tion until associates are admitted by N. J. Eq. 68. See also Union Water them; and they may, at a meeting Co. V. Kean, 52 N. J. Eq. Ill, 27 Atl. duly called and holden, accept the 1015, rev'd 52 N. J. Eq. 813, 46 Am. charter and choose directors and other St. Eep. 538, 31 Atl. 282, for want of corporate officers." Low v. Connecti- equitable jurisdiction. cut & P. E. E. Co., 45 N. H. 370. B Hardenburgh v. Farmers' & Me- 8 In Leehmere Bank v. Boynton, 11 chanics' Bank of New Brunswick, 3 Cush. (Mass.) 369) it was held that N. J. Eq. 68. where a charter was granted to three 520 Ch.9] Okganization [§271 The number entitled to participate cannot be increased or dimin- ished by the person or persons issuing the call for the meeting, and hence persons not so entitled cannot be given that right by the fact that the notice is addressed to them.^ Nor are they given that right by being invited to participate by those who are so entitled.^" In the absence of a provision in the statute or charter, it is not essential that all the corporators, or any particular number of them, be present at the first meeting.^^ And if any particular number are required to be present, it will be presumed that they were present, where there is no showing to the contrary, and the meeting was held and the corporators proceeded to act as a corporation.^'^ The meeting is conducted in the same manner as other stockholders' meetings and the same rules as to voting apply.^' Usually the incorporators may act by proxy,^* and in any event neither those who attempt to so act nor others who acquiesce in this mode of procedure can afterwards question the validity of the organi- zation on that ground.^* §271. Eeport of commissioners, corporators or officers. Where the organization is in charge of commissioners or a board of corpo- such an application, it was held that it was not necessary for all of them, or even for ten of them, to attend the first meeting. Packard v. Old Colony R. Co., 168 Mass. 92, 46 N. E. 433. See also § 268, supra. 12 Packard v. Old Colony E. Co., 168 Mass. 92, 46 N. E. 433. 13 See Chap. 40, infra. 14 See Lippman v. Kehoe Steno- graph Co., — Del. Ch. — , 95 Atl. 895. See also Chap. 40, infra. 15 In Lippman v. Kehoe Steno- graph Co., — Del. Ch. — , 95 Atl. 895, there were three incorporators, who were also the only stockholders. Two of them executed a power of attorney authorizing a fourth person to vote their stock and act for them at the first meeting, which he did. The third incorporator participated in the meet- ing without objection. It was held that the meeting was valid and was unimpeachable by any one, and espe- cially by any of the incorporators. named persons and their associates and successors, the word "associates" meant those who were associated with the persons named in petitioning for the charter, and did not include per- sons who subscribed for stock but did not join in the petition, and that the latter had no right to participate in the meeting. 9Lechmere Bank v. Boynton, H Cush. (Mass.) 369. 10 The power of a corporation to re- ceive associates is a corporate right, and hence cannot be exercised until after corporate organization, "and therefore, until such organization, there can be no such associates, and therefore no such one can act in the organization, although invited to do so by some, or even a majority of in- dividual grantees." Lechmere Bank V. Boynton, 11 Cush. (Mass.) 369. • 11 Where the statute required ten or more persons to sign an application for the formation of a cemetery cor- poration, and eleven persons signed 521 §271] Private Coepoeations [Ch.9 rators, they are aften required to make a report of their proceedings and to file the same in some public ofiice, usually that of the secretary of state.^^ The form and contents of the report is governed by the general or special law under which the corporation is organized. Among the common requirements are that it shall contain a statement as to the amount of capital subscribed and the amount paid in,^'' and the names of the directors or managers chosen and their terms of ofiice. ^^ Under some statutes it must also include a copy of the subscription list,^' and 16 Under Code 1896, §§1251-1260, and earlier statutes, upon {he comple- tion of the organization and the pay- ment of a designated per cent, of the subscriptions to the stock, the board of corporators were required to cer- tify the facts to the judge of probate. First Nat. Bank v. Henry, 159 Ala. 367, 49 So. 97; White v. Kahn, 103 Ala. 308, 15 So. 595; Boiling v. Le Grand, 87 Ala. 482, 6 So. 332; Sparks V. Woodstock Iron & Steel Co., 87 Ala. 294, 6 So. 195. This method of incorporation no longer obtains in that state. See Code 1907, § 3445 et seq. The commissioners are required to make a full report of their proceed- ings, which must be sworn to by at least a majority of the commission- ers, and must be filed in the office of the secretary of state. Kurd's Eev. St. 1913, c. 32, §4; J. & A. 112421; People V. Larsen, 265 111. 406, 106 N. E. 947; McCoy v. World's Columbian Exposition, 186 111. 356, 78 Am. St. Bep. 288, 57 N. B. 1043, afE'g 87 111. App. 605; Western Screw & Manufac- turing Co. V. Cousley, 72 111. 531. In South Carolina upon payment of the required amount on stock subscrip- tions to the treasurer of the corpora- tion, or some other officer designated for the purpose by the subscribers, the board of corporators, or a majority of them, are required to certify to the secretary of state that the statutory requirements have been complied with. Their certificate is known as the re- turn of the corporators. Code 1902, § 1884. See Glenn v. Eosborough, 48 S. C. 272, 26 S. E. 611. Under the Act of 1845, §5, the commissioners were required to make and file with the secretary of state a certificate of organization, which was conclusive evidence of the legal or- ganization of the corporation. Con- necticut & P. E. E. Co. V. Bailey, 24 Vt. 465, 58 Am. Dec. 181. 17 See Boiling v. Le Grand, 87 Ala. 482, 6 So. 332. The Illinois statute provides that the report must include, "a statement of the amount of the capital, not less than one-half actually paid in, the amount of such capital not paid in, what disposition has been made of stock subscribed and not paid, and if any proportion of the capital has been paid in property, the same shall be ap- praised by said commissioners and they shall report the fair cash value thereof." Kurd's Eev. St. 1913, c. 32, § 4; J. & A. f 2421; People v. Lar- sen, 265 111. 406, 106 N. E. 947. See also Foster v. Kip Lung Ying Kee & Co., 243 111. 163, 90 N. E. 375. 18 Kurd's Eev. St. 1913, c. 32, §4; J. & A. H 2421. 19 Kurd's Eev. St. 1913, e. 32, § 4; J. & A. 1[ 2421; People v. Larsen, 265 111. 406, 106 N. E. 947; McCoy v. World's. Columbian Exposition, 186 111. 356, 78 Am. St. Eep. 288, 57 N. E. 1043, aflf'g 87 111. App. 605. 522 Ch.9] Oeganization [§ 271 a copy of the notice of the first meeting of the subscribers or cor- porators.^" Under some statutes the ofiScers and directors of the corporation are required to make a certificate of organization and to file the same with the secretary of state.''^ Statutes in some states require the corporation to make a report of its organization to the secretary of state within a specified time after such organization, and provide that, if it is not made within the time required, the charter shall be void and that all persons doing business thereunder shall be liable as partners.^* And it is also some- times provided that no corporation shall commence business until a majority of its directors have caused to be filed a certificate of organization.23 And that a certified copy of such certificate shall be prima facie evidence that the corporation has been duly organized and is duly authorized to exercise all of its corporate powers.^* Since 20 Hurd's Kev. St. 1913, o. 32, § 4; J. & A. 11 2421; People v. Larsen, 265 111. 406, 106 N. E. 947. This provision is fully satisfied by including in the report a written in- strument in which such notice is waived. J. W. Butler Paper Co. v. Cleveland, 220 111. 128, 110 Am. St. Eep. 230, 77 N. E. 99, aff'g 121 111. App. 491. 21 Mass. Eev. L. 1902, c. 110, §20; Boston Acid Mfg. Co. v. Moring, 15 Gray (Mass.) 211. Under some statutes, especially in the case of religious and other corpo- rations having no capital stock, the first step in the process of incorpora- tion is to choose directors or trustees and other officers, and these officers are then required to make and file a certificate of incorporation or organ- ization, which takes the place of, or corresponds to the articles of incorpo- ration required by other statutes. This is really a part of the proceedings to effect incorporation and has been con- sidered in the chapter dealing with that subject. See Chap. 7, supra. 22 Miss. Code 1906, §930; Eagland V. Doolittle, 100 Miss. 498, 56 So. 445. An attempt to comply with the stat- ute by making a report which is not received by the secretary of state is not sufficient, but the incorporators must see that it is received. Eagland V. Doolittle, 100 Miss. 498, 56 So. 445. 23 The Connecticut statutes contain such a provision. Pub. Acts 1903, c. 194, § 69; Gen. St. 1902, § 3365; Chieppo V. Chieppo, 88 Conn. 233, 90 Atl. 940; Scholfield Gear & Pulley Co. v. Schol- field, 71 Conn. 1, 40 Atl. 1046; Canfield V. Gregory, 66 Conn. 9, 33 Atl. 536. See also Wood v. Wiley Const. Co., 56 Conn. 87, 13 Atl. 137. The disability imposed by this pro- vision is merely temporary, and is re- movable at the volition of the corporation, without the consent of any official vested with discretionary power. Chieppo v. Chieppo, 88 Conn. 233, 90 Atl. 940. In Maine the president, secretary and a majority of the directors are required to prepare such a certificate. Eev. St. 1903, e. 47, § 8; Eichmoud Fac- tory Ass'n V. Clarke, 61 Me. 351. 24 Conn. Pub. Acts 1903, e. 194, § 69; Gen. St. 1902, § 3365; Canfield v. Greg- ory, 66 Conn. 9, 33 Atl. 536; Wood v. Wiley Const. Co., 56 Conn. 87, 13 Atl. 137. See Chap. 14, infra. 523 §271] PKIVATE COEPOKATIONS [Cli.9 the first meeting must be held and the onganization perfected before such a certificate can be filed, it follows that the corporation must have a qualified existence for some purposes before it is filed.^^ So it may recover for false representations made to its directors after its first meeting and before the certificate is filed, where it has acted upon them after such filing.^^ And it has also been held that such a provi- sion does not operate to make contracts of a corporation made after the approval of its certificate of incorporation and before the filing of its certificate of organization mere nullities, and does not prevent their enforcement against the corporation on principles of ratification or estoppel after the certificate of organization is filed.^'' Directors who sign such a certificate are estopped to deny the truth of the matters recited therein.^' §272. Certificate of organization; issuing and recording. Under some statutes upon the filing of the report of the commissioners or corporators having charge of the organization of the corporation,^^ or SBScholfield Gear & Pulley Co. v. Scholfield, 71 Conn. 1, 40 Atl. 1046; Canfield v. Gregory, 66 Conn. 9, 33 Atl. 536. 26Scliolfield Gear & Pulley Co. v. Scholfield, 71 Conn. 1, 40 Atl. 1046. 27 Chieppo V. Chieppo, 88 Conn. 233, 90 Atl. 940. 28 Canfield v. Gregory, 66 Conn. 9, 33 Atl. 536. 29 In the case of corporations for pecuniary profit, the Illinois statute provides that upon the filing of the report of the commissioners, the sec- retary of state shall issue a certificate of complete organization, "making a part thereof a copy of all the papers filed in his oflSce in and about the or- ganization of the corporation, and duly authenticated under his hand and seal of state." Kurd's Rev. St. 1913, c. 32, § 4; J. & A. U 2421; People v. Lar- sen, 265 111. 406, 106 N. E. 947; Gay V. Kohlsaat, 223 111. 260, 79 N. E. 77, aff'g 126 111. App. 4, 8; Edwards v. Armour Packing Co., 190 111. 467, 60 N. B. 807, aff'g 90 111. App. 333; Mc- Coy V. World's Columbian Exposition, 186 111. 356, 78 Am. St. Eep. 288, 57 N. E. 1043, afe'g 87 111. App. 605; Loverin v. McLaughlin, 161 111. 417, 44 N. E. 99, aff'g 46 111. App. 373; Bushnell v. Consolidated Ice Mach. Co., 138 111. 67, 27 N. E. 596; Western Screw Mfg. Co. v. Cousley, 72 111. 531; Standard Varnish Co. v. Jay, 149 m. App. 25; Hoyt v. McCallum, 102 111. App. 287; Gay v. Kohlsaat, 80 111. App. 178; Owen v. Shepard, 59 Fed. 746 (Illinois statute). In South Carolina, upon the filing of the return of the board of corpora- tors, and the payment of a recording- fee, the secretary of state is required to issue a certificate, to be known as the charter, that the corporation has been fully organized according to law and is authorized to commence busi- ness. Code 1902, § 1884. The statutes of Alabama (Code 1876, § 1807; Code 1896, §§ 1251-1260) for- merly provided that upon certification of the facts as to the organization by the board of corporators to the judge of probate, the latter should issue such a certificate to the company. First Nat. Bank of Decatur v. Henry, 159 Ala. 367, 49 So. 97; State v. Webb, 524 Ch.9] Oeganizatioit [§272 the filing of a certificate of intention to incorporate by the persons desiring to form the corporation,'" with the secretary of state or the probate judge, that officer is required to issue a certificate of organiza- tion. Some enactments require that this certificate be recorded in the office of the recorder of deeds, or. other similar officer, in the county where the principal office of the corporation is located,*^ and 110 Ala. 214, 20 So. 462; White v. Kahn, 103 Ala. 308, 15 So. 595; Boil- ing V. Le Grand, 87 Ala. 482, 6 So. 332; Sparks v. Woodstock Iron & Steel Co., 87 Ala. 294, 6 So. 195. This pro- vision has since been abrogated, the present law (Code 1907, § 3445 et seq.) providing an entirely different method of incorporation. 80 This provision is made by the Il- linois statute in the case of corpora- tions not for pecuniary profit. Hurd's Rev. St. 1913, e. 32, §§ 29, 30; J. & A. 1[1f2447, 2448. Slit is so provided in Illinois. Hurd's Eev. St. 1913, o. 32, §§4, 30; J. & A. 11112421, 2448; African! Home Purchase & Loan Ass'n v. Carroll, 267 111. 380, 108 N. E. 322; People v. Lar- sen, 265 111. 406, 106 N. E. 947; Peo pie V. Mackey, 255 111. 144, 99 N. E, 370; O. S. Eichardson Fueling Co. v. Seymour, 235 111. 319, 85 N. B. 496 Marshall v. Keach, 227 111. 35, 118 Am, St. Eep. 247, 10 Ann. Cas. 164, 81 N. E. 29; Chicago Tel. Co. v. Northwest- ern Tel. Co., 199 111. 324, 65 N. E 329, aff'g 100 111. App. 57; Edwards v, Armour Packing Co., 190 111. 467, 60 N. E. 807, aff'g 90 111. App. 333 McCoy V. World's Columbian Exposi- tion, 186 111. 356, 78 Am. St. Eep. 288. 57 N. A 1043, aff'g 87 111. App. 605 Curtis v. Tracy, 169 111. 233, 61 Am, St. Eep. 168, 48 N". E. 399, aff'g 62 111. App. 49; Gade v. Forest Glen Brick & Tile Co., 165 111. 367, 46 N. B. 286, aff'g 55 111. App. 181; Western Screw & Manufacturing Co. v. Cous- ley, 72 HI. 531; Woodlawn Social En- tertainment Ass'n V. Anderson, 187 111. App. 507; Clinton Co. v. Schwarz, 175 111. App. 577; Standard Varnish Co. V. Jay, 149 111. App. 25; Stanwood V. Sterling Metal Co., 107 111. App. 569; Seymour v. O. S. Eichardson Fueling Co., 103 111. App. 625, reversed on other grounds 205 111. 77, 68 N. E. 716; Hoyt v. McCallum, 102 111. App. 287: The Joliet v. Frances, 85 111. App. 243; Eicker v. Larkin, 27 111. App. 625. And see the following decisions construing the Illinois statute. Elgin Nat. Watch Co. v. Loveland, 132 Fed. 41; Owen v. Shepard, 59 Fed. 746; EoU v. St. Louis & C. Smelting & Mining Co., 52 Mo. App. 60. Compliance with such provision as to recording is essential to a complete organization. Eicker v. Larkin, 27 111. App. 625. But the corporators have done all that is required of them when they file the certificate with the proper of- ficer for record. Bushnell v. Consoli- dated Ice Mach. Co., 138 111. 67, 27 N. E. 596. Although the literal language of the statute "would seem to demand only a, recording of the 'copy of all pa- pers filed' in the oflSce of the secre- tary of state, yet it is the evident intention to require the recording, not of the copy only/ but also of the cer- tificate of the secretary of which such copy is a: part." Loverin v. Mc- Laughlin, 161 111. 417, 44 N. E. 99, aff'g 46 111. App. 373. A similar provision is found in the statutes of South Carolina. Code 1902, § 1884. See Glenn v. Eosborough, 4S 8. C. 272, 26 S. E. 611- 525 272] Peivate Corporations [Ch.9 it is sometimes provided that when the same is recorded, the corpora- tion shall be deemed fully organized and may proceed to business.^^ It has been held that a provision of the latter character is equivalent to a provision that the corporation shall not be deemed fully organized and shall not be authorized to proceed to business unless and until the certificate is so recorded.^^ But while it has been held that the 32 Such a provision is contained in the statutes of Illinois. Kurd's Eev. St. 1913, c. 32, §§4, 30; J. & A. 1I1f2421, 2448; People v. Liarsen, 265 111. 406, 106 N. E. 947; Marshall v. Keaeh, 2^7 111. 35, 118 Am. St. Eep. 247, 10 Ann. Caa. 164, 81 N. E. 29; McCoy V. World's Columbian Exposi- tion, 186 111. 356, 78 Am. St. Rep. 288, 57 N. E. 1043, aff'g 87 111. App. 605; Loverin v. McLaughlin, 161 111. 417, 44 N. E. 99, aff'g 46 111. App. 371; Bushnell v. Consolidated Ice Mach. Co., 138 111. 67, 27 N. E. 596; Western Screw & Manufacturing Co. v. Cous- ley, 72 111. 531; Woodlawn Social En- tertainment Ass'n v. Anderson, 187 111. App. 507; Eioker v. Larkin, 27 111. App. 625; Creswell v. Oberly, 17 111. App. 281. This statute was similarly construed in Elgin Nat. Watch Co. v. Loveland, 132 Fed. 41; Owen v. Shep- ard, 59 Fed. 746. S3 Edwards v. Armour Packing Co., 190 111. 467, 60 N. E. 807, aflE'g 90 111. App. 333; Gade v. Forest Glen Brick & Tile Co., 165 111. 367, 46 N. E. 286, aff'g 55 HI. App. 181; Loverin v. Mc- Laughlin, 161 111. 417, 44 N. E. 99, aff'g 46 111. App. 373; Elgin Nat. Watch Co. V. Eppenstein, 1 Cir. Ct. (111.) 602. "It seems clear that the act of re- cording the certificate is the neces- sary and final act which gives to the organization its corporate life and en- dows it with its franchises and facul- ties. Until this is done, there is in fact no corporation in esse, capable of doing business or contracting liabili- ties." Creswell v. Oberly, 17 111. App. 281. ' ' The grant ' to proceed to business ' is plainly made to depend on such re- cording. The prohibition to proceed to business' need not bo in express words. The corporation depends for its powers upon the provisions of the statute either express or implied, and none is granted without the record." Eieker v. Larkin, 27 111. App. 625. Eeeording is a necessary step in the organization of the corporation, and a condition precedent to its legal ex- istence. Elgin Nat. Watch Co. v. Loveland, 132 Fed. 41; African! Home Purchase & Loan Ass'n v. Carroll, 267 HI. 380, 108 N. E. 322; People v. Mac- key, 255 111. 144, 99 N. E. 370; Schei- del Coil Co. v. Eose, 242 111. 484, 90 N. E. 221; Chicago Tel. Co. v. North- western Tel. Co., 199 111. 324, 65 N. E 329, aff'g 100 111. App. 57; Standard Varnish Co. v. Jay, 149 111. App. 25; EoU V. St. Louis & Colorado Smelting & Mining Co., 52 Mo. App. 60. Until the certificate is recorded, no authority exists for the corporation to proceed to business. Hamill v. Watts, 180 111. App. 279; J. W. Butler Paper Co. v. Cleveland, 121 111. App. 491, aff'd 220 111. 128, 110 Am. St. Eep. 230. But where everything necessary has been done except to file the certificate, the corporation is in existence for all purposes incident to the completion of its organization, and its officers and stockholders may reduce the amount of its capital stock, and the organization may then be completed with the reduced capital. Gade v. Forest Glen Brick & Tile Co., 165 111. 526 Ch.9] Oeganization [§272 issuance ^* and recording ^^ of the certificate are essential to a de jure corporation, and a failure to record it may render the officers and directors individually liable for debts contracted in the corporate name,'® it is generally held that the fact that it is not so recorded will not prevent the association from becoming a corporation de facto, and is not ground for collateral attack.'' And the pretended corporation and persons contracting with it as such may be estopped to deny its corporate existence on the ground that no certificate was issued or recorded." Under some statutes the certificate is merely evidence of the fact that the incorporation has become complete, and is not a condition precedent to its becoming so.'^ The recording is of no effect where it is done fraudulently and surreptitiously and contrary to the agreement of the incorporators.*** Where, under the statute, the first meeting cannot he convened nor the certificate of complete organization be issued until the full amount of capital has been subscribed *^ the certificate is prima facie evidence that such subscription has been made.*^ 367, 46 N. E. 286, aff'g 55 111. App. 181. And an ordinance granting a fran- chise to a corporation is valid though it is introduced before the certificate is filed, where it is not passed until after it has been filed. Chicago Tel. Co. V. Northwestern Tel. Co., 199 111. 324, 65 N. E. 329, aff'g 100 111. App. 57. 34 Gay V. Kohlsaat, 223 111. 260, 79 N. E. 77, aff'g 126 111. App. 4, 8, 80 111. App. 178. 35 Elgin Nat. Watch Co. v. Loveland, 132 Fed. 41; Africani Home Purchase & Loan Ass'n v. Carroll, 267 111. 380, 108 N. E. 322; People v. Mackey, 255 111. 144, 99 N. E. 370; O. S. Eichard- son Fueling Co. v. Seymour, 235 111. 319, 85 N. E. 496; 103 111. App. 625, reversed on other grounds, 205 111. 77, 68 N. E. 716, which reverses 103 111. App. 625; Marshall v. Keach, 227 111. 35, 118 Am. St. Rep. 247, 10 Ann. Cas. 164, 81 N. E. 29; Clinton Co. v. Schwarz, 175 111. App. 577; Stanwood V. Sterling Metal Co., 107 111. App. 569; Hoyt v. McCallum, 102 111. App. 287; The Joliet v. Frances, 85 111. App. 243; Forest Glen Brick & Tile Co. V. Gade, 55 111. App. 181, aff'd 165 111. 367, 46 N. E. 286; Creswell v. Oberly, 17 111. App. 281; Elgin Nat. Watch Co. v. Eppenstein, 1 Cir. Ct. (111.) 602. See also Bushnell V. Consolidated Ice Mach. Co., 138 111. 67, 27 N. E. 596. 36 See Chap. 10, infra. 37 See Chap. 10, infra. 38 See Chap. 10 and Chap. 11, infra. 39 This was held to be true in Ala- bama under statutes, since repealed, requiring the probate judge to issue such a certificate. Sparks v. Wood- stock Iron & Steel Co., 87 Ala. 294, 6 So. 195. 40 Kicker v. Larkin, 27 111. App. 625. 41 See Chap. 40, and Chap. 17, infra. 42 McCoy V. World's Columbian Ex- position, 186 111. 356, 57 N. E. 1043, aff'g 87 111. App. 605; 527 § 272] ' Peivate Coepoeations [Ch. 9 If the statement in the report of the commissioners as to the fact of such payment is false, the organization and certificate are illegal, and the corporation may be ousted of its franchise in a quo warreinto proceeding instituted for that purpose by the state.*' The action of the designated officer in issuing the certificate is neces- sarily, to a large extent, merely ministerial,** and the fact that he issues it is not conclusive on the question of the right of the corpora- tion to exercise the powers enumerated in its application for incor- poration.*^ When his duty in this regard is deemed ministerial, mandamus will lie to compel its performance.** 43 People V. Larsen, 265 111. 406, 106 Co., 87 Ala. 294, 6 So. 195; People v. N. E. 947. See also State v. Webb, Chicago Gas Trust Co., 130 111. 268, 110 Ala. 214, 20 So. 462. 269, 8 L. E. A. 497, 17 Am. St. Eep. As to the right of subscribers to 319, 22 N. E. 798. avoid their subscriptions on this 4S See Chap. 21, infra, ground, see Chap. 17, infra. 46 See chapter on Mandamus, infra. 44 Sparks v. Woodstock Iron & Steel 528 CHAPTER 10 De Facto Corporations I. GENERAL CONSIDERATIONS § 273. Definition and nature. II. DOCTKINE IN RELATION TO COLLATERAL ATTACK § 274. Statement of the rule. § 275. Statutory provisions. § 276. Basis of and reasons for the rule. § 277. Limitations of and exceptions to rule. III. REQUISITES OP CORPORATIONS DE FACTO § 278. General statement. § 279. Lawful authority for existence of corporation — ^In general. § 280. — Organization under unconstitutional statute. § 281. — Corporations prohibited by statute or contrary to public policy. § 282. — Organization under inapplicable statute. § 283. — Unauthorized consolidation. § 284. — Corporations organized in one state to do business in or to evade laws of another. § 285. — Expiration or forfeiture of charter. § 286. — Effect of ouster by state. § 287. Effect of fraud— Special charters. § 288. — Organization under general laws. § 289. Bona fide attempt to incorporate. § 290. Compliance with provisions of statute or charter — In general. §291. — View that substantial compliance necessary. § 292. — View that colorable compliance suficient. § 293. — Provisions as to persons who may incorporate. § 294. — Execution of articles or certificate. § 295. — Contents of articles or certificate and affidavits. § 296. — Corporate name. § 297. — Provisions as to capital stock. § 298. — Piling or recording articles or certificate. § 299. — Payment of fees and deposit of securities. § 300. — Issuance of certificate or authorization by public officer. § 301. — Provisions as to organization. § 302. — Consolidation, reorganization and amendment. § 303. Assumption or user of corporate powers. 529 I Priv. Corp.— 34 § 273] Peivate Cokpoeations [Ch, 10 IV. BIGHTS AND LIABILITIES OF DE TACTO CORPOKATIONS AND THEIB MEMBERS § 304. In general. § 305. Contracts with de facto corporations. § 306. Ownership of property and conveyances of same. I 307. Mortgages. § 308. Devises or bequests to corporation. § 309. Eight to exercise special franchises. § 310. Eight to exercise power of eminent domain. § 311. Eight to exercise taxing power. § 312. Actions by and jigainst — In general. § 313. — Actions by and against state. § 314. Torts by and against — Torts by. § 315. — Torts against. § 316. Criminal proceedings — Criminal responsibility. § 317. — Crimes against de facto corporations. § 318. Eights and liabilities of members and officers — In general. § 319. — Controversies between members or members and officers. § 320. — Liability on subscriptions to capital stock. § 321. — Statutory liability for corporate debts. I. GENERAL CONSIDBEATIONS §273. Definition and nature. "The expression 'de facto corpora- tions' is generally used to denote associations exercising corporate powers under color of a more or less legal organization,"^ and "a corporation de facto is in plain English a corporation in fact."^ It Las been defined to be "a corporation from the fact of its acting as such, though not in law or of right a corporation." ^ And also "one where the proceedings for its organization are irregular or defective, when, by regularity of proceedings to incorporate, it might be one de jure. " * " It is an apparent corporate organization, asserted to be a corporation by its members, and actually acting as such, but lack- ing the creative fiat of the law." ^ A corporation de facto exists "where a number of persons have organized and acted as a corporation; * * * have conducted 1 Brown v. Atlanta Eailway & Power 2 Lamkin v. Baldwin & Lamkin Mfg. Co., 113 6a. 462, 39 S. E. 71; Cason v. Co., 72 Conn. 57, 44 L. E. A. 786, 43 State, 16 Ga. App. 820, 86 S. E. 644. Atl. 593. "De facto" means, "of fact; in deed; 'Finnegan v. Noerenberg, 52 Minn, in point of fact; actually; really." 239, 18 L. E. A. 778, 38 Am. St. Eep. Jaques v. Board Sup 'rs Yuba Co. 24 552, 53 N. W. 1150. Cal. App. 381, 141 Pac. 404. Also, 4City of Guthrie v. Wylie, 6 Okla. "from, arising out of, or founded in 61, 55 Pac. 103. fact." McCahon v. Leavenworth 5 In re Gibb 's Estate, 157 Pa. St. 59, County Com'rs, 8 Kan. 437, quoting 22 L. E. A. 276, 27 Atl. 383. Burr. L. Diet. 530 Ch. 10] De Facto Cobpobations [§ 274 their affairs, to some extent at least, by the methods and through the oflScers usually employed by corporations, and have assumed the appearance, at least, of the counterfeit presentment of a legal cor- porate body."^ It is "not a corporation legally constituted, but a corporation organized and operated under color of law. " ' So long as it exists, it is a reality and has a substantial, legal existence,' and "an independent status, recognized by the law, as distinct from that of its members. " ^ It is, as the term implies, a corporation,^" and enjoys the status of a corporation de jure until the state ques- tions its existence.^^ A corporation cannot act simultaneously in the dual capacity of a corporation de jure and a corporation de facto.^* II. DOCTRINE IN RELATION TO COLLATERAL ATTACK § 274. Statement of the rule. If an association assuming to act as a corporation has been so far organized in compliance with the law as to be a de facto corporation, the general rule is that its existence as a corporation cannot be collaterally attacked, either by the state or by private individuals, although its organization may have been so irregular and defective that the state might bring a direct proceeding against it to oust it from the exercise of corporate powers.^^ 8 Martin v. Deetz, 102 Cal. 55, 41 9 Owensboro Wagon Co. v. Bliss, 132 Am. St. Eep. 151, 36 Pae. 368, quoted Ala. 253, 90 Am. St. Eep. 907, 31 So. in Jaques v. Board Sup'rs Yuba Co., 81; Snider's Sons' Co. v. Troy, 91 Ala. 24 Cal. App. 381, 141 Pac. 404; Barnes 224, 11 L. E. A. 515, 24 Am. St. Eep. V. Board Sup'rs Colusa Co., 13 Cal. 887, 8 So. 658. App. 760, 110 Pac. 820; Eeclamation lOKleckner v. Turk, 45 Neb. 176, 63 Dist. No. 765 v. McPhee, 13 Cal. App. N. W. 469; Society Perun v. Cleve- 382, 109 Pac. 1106. See also Camp v. land, 43 Ohio St. 481, 3 N. E. 357. Land, 122 Cal. 167, 54 Pac. 839. H Bearing Springs Townsite Co. v. 7 American Salt Co. v. Heiden- Paducah Tel. Co., — Tex. Civ. App. heimer, 80 Tex. 344, 26 Am. St. Eep. — , 164 S. W. 50. It is to be regarded 743, 15 S. W. 1038. as a corporation duly formed. People 8 Marshall v. Reach, 227 111. 35, 118 v. Leonard, 106 Cal. 302, 39 Pac. 617. Am. St. Eep. 247, 10 Ann. Cas. 164, 12 Boca & L. E. Co. v. Sierra Valleys 81 N. E. 29; Kleckner v. Turk, 45 Neb. E. Co., 2 Cal. App. 546, 84 Pac. 298. 176, 188, 63 N. W. 469; Society Perun 13 United States. D. E. Wilder v. Cleveland, 43 Ohio St. 481, 3 N. E. Mfg. Co. v. Corn Products Eeflning 357; Beck v. Eocky Elver Village Co., 236 XT. S. 165, 59 L. Ed. 520, Ann. School Dist., 14 Ohio N. P. 312. It Cas. 1916 A 118, aff'g 11 Ga. App. 588, has an existence for all purposes so 75 S. E. 918; Tulare Irrigation Dist. long as it is not questioned by a direct v. Shepard, 185 U. S. 1, 46 L. Ed. 773; proceeding. People v. Schafer, 228 Shapleigh v. San Angelo, 167 IT. S. 111. 17, 81 N. E. 785. 646, 42 L. Ed. 310; Dallas County v. 531 §274] Pbivate Cobpokations [Ch. 10 This rule, the basis and reasons for which are discussed in a sue- Huidekoper, 154 U. S. 654 appx., 25 L. Ed. 974, aff'g 3 Dill. 171, Fed. Cas. No. 6,850; id., 154 U. S. 655 appx., 25 L. Ed. 974; Baltimore & P. E. Co. V. Fifth Bapt. Church, 137 U. S. 568, 34 L. Ed, 784; Pacific Railroad Re- moval Cases, 115 IT. S. 1, 16, 29 L. Ed. 319, 324; Ralls County v. Douglass, 105 U. S. 728, 26 L. Ed. 957; Macon County V. Shores, 97 U. S. 272, 24 L. Ed. 889; Douglass County Com'rs v. Bolles, 94 U. S. 104, 24 L. Ed. 46; Smith V. Sheeley, 12 Wall. 358, 20 L. Ed. 430; Frost's Lessee v. Frostburg Coal Co., 24 How. 278, 16 L. Ed. 637; Utah Light & Traction Co. v. United States, 230 Fed. 343; Quinton v. Equi- table Inv. Co., 196 Fed. 314; In re .lackson Brick & Tile Co., 189 Fed. 636; Goldfield Consol. Mines Co. v. Goldfield Miners' Union No. 220, 159 Fed. 500; Knapp v. S. Jarvis Adams Co., 135 Fed. 1008; Old Colony Trust Co. V. City of "Wichita, 123 Fed. 762, aff'd 132 Fed. 641; Armour v. E. Bement'a Sons, 123 Fed. 56; Eyland v. Holliuger, 117 Fed. 216; Postal Tel. Cable Co. of Montana v. Oregon Short Line R. Co., 114 Fed. 787; AUis Chal- mers Co. V. Reliable Lodge, 111 Fed. 264; Manship v. New South Building & Loan Ass'n, 110 Fed. 845; Clapp v. Otoe County, 104 Fed. 473; Davis v. Stevens, 104 Fed. 235; Miller v. Perria Irrigation Dist., 9.9 Fed. 143, 92 Fed. 263, 85 Fed. 693; Toledo, St. L & K. C. R. Co. v. Continental Trust Co., 95 Fed. 497, afC'g 86 Fed. 929, 82 Fed. 642, application for certiorari denied 176 U. S. 219, 44 L. Ed. 442; American Steel & Wire Co. v. Wire Drawers' & Die Makers' Unions Nos. 1 and 3, 90 Fed. 608; Speer v. Board Com'rs Kearney Co., 88 Fed. 749; Andrews v. National Foundry & Pipe Works, 77 Fed. 774, 36 L. R. A. 139; Young Re- versible Lock-Nut Co. V. Young Lock- Nut Co., 72 Fed. 62; Farmers' Loan &. Trust Co. V. Toledo, A., A. & N. M. Ry. Co., 67 Fed. 49; National Life Ins. Co. of Montpelier v. Board of Education, City of Huron, 62 Fed. 778, certiorari denied 159 U. S. 262, 40 L. Ed. 147 (mem. dec); Hyde v. Doe, 4 Sawy. 133, Fed. Cas. No. 6,969. See also Harrison v. Philadelphia Contri- butionship, etc., 171 Fed. 178, aff'd 176 Fed. 323, certiorari denied 217 U. S. 603, 54 L. Ed. 898 (mem. dec.) ; Jones v. Missouri-Edison Eleo. Co., 144 Fed. 765; Dental Vulcanite Co. v. Wether- bee, 2 Cliff. 555, 3 Pish. Pat. Cas. 87, Fed. Cas. No. 3,810. Alabama. Floyd v. State, 177 Ala. 169, 59 So. 280; Rudolph v. City of Ely ton, 161 Ala. 525, 50 So. 80; Planters' & Merchants' Independent Packet Co. v. Webb, 144 Ala. 666, 39 So. 562; Central of Georgia R. Co. v. Union Springs & N. R. Co., 144 Ala. 639, 2 L. R. A. (N. S.) 144, 39 So. 473; Owensboro Wagon Co. v. Bliss, 132 Ala. 253, 90 Am. St. Rep. 907, 31 So. 81; Harris v. Gateway Land Co., 128 Ala. 652, 29 So. 611; Christian & Craft Grocery Co. v. Fruitdale Lum ber Co., 121 Ala. 340, 25 So. 566 Bibb V. Hall, 101 Ala. 79, 14 So. 98 Snider 's Sons' Co. v. Troy, 91 Ala 224, 11 L. R. A. 515, 24 Am. St. Rep 887, 8 So. 658; Merchants' & Planters' Line v. Waganer, 71 Ala. 581; Central Agr. & Mech. Ass'n v. Alabama Gold Life Ins. Co., 70 Ala. 120; Ex parte Moore, 62 Ala. 471; Lehman, Durr & Co. V. Warner, 61 Ala. 455; Duke v. Cahawba Nav. Co., 16 Ala. 372, 10 Ala. 82; Selma & T. E. Co. v. Tipton, 5 Ala. 787, 39 Am. Dee. 344. See also Harris v. Nesbit, 24 Ala. 398. Arkansas. Jones v. Dodge, 97 Ark. 248, L. R. A. 1915 A 472, 133 S. W. 828; Whipple v. Tuxworth, 81 Ark. 391, 99 S. W. 86; Town of Searcy v. Yarnell, 47 Ark. 269, 1 S. W. 319; Nie- meyer & Darragh v. Little Rock June- 532 Ch. 10] De Facto Cobpobations [§274 ceeding section of this chapter, is so well-settled that it may be tion Ey., 43 Ark. 111. See also Brown v. Wyandotte & S. E. Ey. Co., 68 Ark. 134, 56 S. "W. 862. Califomla. MoPhee v. Eeclamation Dist. No. 765, 161 Cal. 566, 119 Pac. 1077; Keeeh v. Joplin, 157 Cal. 1, 106 Pae. • 222; California Cured Fruit Ass'n V. Stelling, 141 Cal. 713, 75 Pac. 320; Eaphael Weill & Co. v. Critten- den, 139 Cal. 488, 73 Pac. 238; San Diego Gas Co. v. Frame, 137 Cal. 441, 70 Pac. 295; People v. Linda Vista Irrigation Dist., 128 Cal. 477, 61 Pac. 86; Los Angeles Holiness Bank v. Spires, 126 Cal. 541, 58 Pae. 1049; Hamilton v. County of San Diego, 108 Cal. 273, 41 Pac. 305; People v. Leon- ard, 106 Cal. 302, 39 Pae. 617; Eecla- mation Dist. No. 542 v. Turner, 104 Cal. 334, 37 Pac. 1038; Quint v. HofE- man, 103 Cal. 506, 37 Pac. 514; Mar- tin V. Deetz, 102 Cal. 55, 41 Am. St. Eep. 151, 36 Pae. 368; Swamp Land Dist. No. 150 V. Silver, 98 Cal. 51, 32 Pae. 866; Eeelamation Dist. No. 124 V. Gray, 95 Cal. 601, 30 Pac. 779; First Bapt. Church of San Jos6 v. Branham, 90 Cal. 22, 27 Pac. 60; Peo- ple V. La Eue, 67 Cal. 526, 8 Pac. 84; Bakersfield Town Hall Ass'n v. Ches- ter, 55 Cal. 98; Dean v. Davis, 51 Cal. 406; Stockton & L. Grave'l Eoad Co. v. Stockton & C. E. Co., 45 Cal. 680; Pacific Bank v. De Eo, 37 Cal. 538; Eondell v. Fay, 32 Cal. 354; Danne- broge Gold Quartz Min. Co. v. Ailment, 26 Cal. 286; Spring Valley Water Works v. San Francisco, 22 Cal. 434; Mokelumne Hill Canal & Mining Co. V. Woodbury, 14 Cal. 424, 73 Am. Dec. 658; Jaques v. Board Sup'rs Yuba Co., 24 Cal. App. 381, 141 Pac. 404; Metcalfe v. Merritt, 14 Cal. App. 244, 111 Pac. 505; Barnes v. Board Sup'rs Colusa Co., 13 Cal. App. 760, 110 Pac. 820; Eeclamation Dist. No. 765 V. McPhee, 13 Cal. App. 382, 109 Pac. 1106; Madera E. Co. v. Eaymond Granite Co., 3 Cal. App. 668, 87 Pac. 27; Boca & L. E. Co. v. Sierra Valleys is. Co., 2 Cal. App. 546, 84 Pac. 298 Colorado. Union Pac. E. Co. v. Colo rado Postal Tel. Cable Co., 30 Colo, 133, 97 Am. St. Eep. 106, 69 Pac. 564 Jones v. Aspen Hardware Co., 21 Colo 263, 29 L. E. A. 143, 52 Am. St. Eep. 220, 40 Pae. 457; Grand Elver Bridge Co. V. Eollins, 13 Colo. 4, 21 Pac. 897 Duggan V. Colorado Mortgage & Invest ment Co., 11 Colo. 113, 17 Pac. 105; City of Denver v. Mullen, 7 Colo. 345, 3 Pac 693; Humphreys v, Mooney, 5 Colo 282; Cowell v. Colorado Springs Co.; 3 Colo. 82, aflE'd 100 U. S. 55, 25 L, Ed. 547; Denver & S. Ey. Co. v. Den ver City Ey. Co., 2 Colo. 673; Crystal Park Co. v. Morton, 27 Colo. App. 74, 146 Pac. 566. See also O'Eeilly v. Noxon, 49 Colo. S62, 113 Pac. 486; Woods Gold Min. Co. v. Eoyston, 46 Colo. 191, 103 Pac. 291. Connecticut. New Hartford Water Co. V. Village Water Co., 87 Conn. 183, 87 Atl. 358; New Haven Wire Co. Cases, 57 Conn. 352, 394, 5 L. E. A. 300, 18 Atl. 266. Delaware. Wilmington City E. Co. V. Wilmington & B. S. E. Co., 8 Del. Ch. 468, 46 Atl. 12; City of Wilming- ton V. Addicks, 8 Del. Ch. 310, 7 Del. Ch. 56, 43 Atl. 297. Georgia. Brown v. Atlanta Eail- way & Power Co., 113 Ga. 462, 39 S. E. 71; Georgia Southern & F. E. Co. V. Mercantile Trust & Deposit Co., 94 Ga. 306, 32 L. E. A. 208, 47 Am. St. Eep. 153, 21 S. E. 701; Pattisoh v. Al- bany Building & Loan Ass'n, 63 Ga. 373; Wood v. Coosa & C. B. Co., 32 Ga. 273; Southern Bank v. Williams, 25 Ga. 534; McDougald v. Lane, 18 Ga. 444; Cason v. State, 16 Ga. App. 820, 86 S. E. 644. See also City of Atlanta v. Gate City Gas Light Co., 71 Ga. 106. Idaho. Henry Gold Min. Co. v. 533 §274] Pkivate Coepoeations [Ch. 10 reckoned among the axioms of the law. However, there is great Henry, 25 Idaho 333, 137 Pac. 523; Pickett V. Board County Com'rs, 24 Idaho 200, 133 Pac. 112; School Dist. No. 25 V. Rice, 11 Idaho 99, 81 Pac. 155; Bellevue Water Co. v. Stocks- lager, 4 Idaho 636, 43 Pac. 568; Wright V. Kelley, 4 Idaho 624, 43 Pac. 565; Boise City Canal Co. v. Pinkham, 1 Idaho 790. Illinois. Hossack v. Ottawa Devel- opment Ass'n, 244 111. 274, 91 N. E. 439; Foster v. Hip Lung Ying Kee & Co., 243 111. 163, 90 N. E. 375; Im- perial Bldg. Co. V. Chicago Open Board of Trade, 238 111. 100, 87 N. E. 167; Smith v. Claussen Park Drainage & Levee Dist., 229 111. 155, 82 N. B. 278; Gillette v. Aurora Rya. Co., 228 111. 261, 81 N. E. 1005; People v. Soha- fer, 228 III. 17, 81 N. E. 785; Marshall V. Keach, 227 HI. 35, 118 Am. St. Rep. 247, 10 Ann. Cas. 164, 81 N. E. 29; People V. Pederson, 220 111. 554, 77 N. E. 251; Eddlenfan v. Union County Traction & Power Co., 217 111. 409, 75 N. E. 510; Cleveland, C, C. & St. L. R. Co. V. Polecat Drain. Dist., 213 111. 83, 72 N. E. 684; Illinois State Trust Co. V. St. Louis, I. M. & S. R. Co., 208 111. 419, 70 N. E. 357; People v. Dyer, 205 m. 575, 69 N. E. 70; Gale v. Knopf, 193 111. 245, 62 N. E. 229; Morrison v. Forman, 177 111. 427, 53 N. E. 73; Aldis v. South Park Com'ra, 171 HI. 424, 49 N. E. 565; Dubs v. Egli, 167 111. 514, 47 N. E. 766; Coz- zens V. Chicago Hydraulic-Press Brick Co., 166 111. 213, 46 N. E. 788, aff'g 64 111. App. 569; Thomas v. St. Louis, B. & S. R. Co., 164 111. 634, 46 N. E. 8; Smith v. Mayfield, 163 HI. 447, 45 N. B. 157, aff'g 60 III. App. 266; American Loan & Trust Co. v. Minne- sota & N. W. R. Co., 157 111. 641, 42 N. E. 153; Bushnell v. Consolidated Ice Mach. Co., 138 111. 67, 27 N. E. 596; School Directors Union School Dist. V. School Directors New Union School Dist., 135 HI. 464, 28 N. E. 49; Winget V. Quincy Building & Home- stead Ass'n, 128 III. 67, 21 N. E. 12, aff'g 29 111. App. 173; Cook County v. Chicago Industrial School for Girls, 125 111. 540, 1 L. R. A. 437, 8 Am. St. Rep. 386, 18 N. E. 183; Evans v. Lewis, 121 lU. 478, 13 N. E. 246; Henry v. Centralia & C. R. Co., 121 111. 264, 12 N. E. 744; Keigwin v. Drain- age Com'rs Hamilton Tp., 115 111. 347, 5 N. E. 575; Hudson v. Green Hill Seminary Corporation, 113 111. 618; People V. School Trustees, 111 111. 171; Blake v. People, 109 111. 504; Louisville, N. A. & C. R. Co. v. Shires, 108 111. 617; Peoria & P. U. R. Co. v. Peoria & F. R. Co., 105 III. 110; Os- born V. People, 103 111. 224; Alderman V. School Directors, 91 111. 179; Mix V. National Bank of Bloomington, 91 HI. 20, 33 Am. Rep. 44; McCarthy v. Lavasche, 89 111. 270, 31 Am. Rep. 83; People V. Trustees of Newberry's Es- tate, 87 111. 41; Meeker v. Chicago Cast-Steel Co., 84 HI. 276; Renwick v. Hall, 84 111. 162; Trumbo v. People, 75 HI. 561; Cincinnati, L. & C. R. Co. v. Danville & V. R. Co., 75 111. 113; Thompson v. Candor, 60 111. 244; Ket- tering V. City of Jacksonville, 50 111. 39; Mitchell v. Deeds, 49 111. 416, 95 Am. Dec. 621; Tisdale v. Town of Minonk, 46 111. 9; Chiniquy v. Catho- lic Bishop of Chicago, 41 HI. 148; Stone V. Great Western Oil Co., 41 111. 85; Baker v. Backus' Adm'r, 32 111. 79; Goodrich v. Reynolds, Wilder & Co., 31 lU. 490, 83 Am. Dec. 240; Illi- nois Grand Trunk R. Co. v. Cook, 29 111. 237; Marsh v. Astoria Lodge No. 112, I. O. O. F., 27 m. 421; Tarbell v. Page, 24 111. 46; Hamilton v. Carth- age, 24 111. 22; Rice v. Rock Island & A. R. Co., 21 III. 93; Town of Men- dota V. Thompson, 20 111. 197; Wood- land Social Entertainment Ass'n v. Anderson, 187 111. App. 507; People 534 Ch. 10] De Facto Cokpokations [§274 difficulty regarding its applicability to the facts of each case in which V. Citizens Tel. Co. of Pekin, Illinois, 186 III. App. 260; Melick v. Central Investment Co., 186 111. App. 24; Brown v. Melick, 185 111. App. 3; Nelson Chesman & Co. v. Singers, 183 111. App. 591; Henssler v. A. G. Wiese Drug Co., 133 111. App. 539; Stan- wood V. Sterling Metal Co., 107 111. App. 569; Terry v. Chicago Packing & Provision Co., 105 111. App. 663; Lincoln Park Chapter No. 177, E. A. M. V. Swatek, 105 111. App. 604, aff'd 204 111. 228, 68 N. E. 429; Joliet v. "Frances, 85 111. App. 243; Concord Apartment House Co. v. Alaska Ee- frigerator Co., 78 111. App. 682. See also Lees v. Drainage Com'rs, 125 111. 47, 16 N. E. 915. Indiana. Louisville & N. Ey. Co. v. Western U. Tel. Co. of Indiana, — Ind. — , 110 N. E. 70; Jo^lifE v. Mun- cie Elec. Light Co., 181 Ind. 650, 105 N. E. 234; Cluthe v. Evansville, Mt. C. & N. E. Co., 176 Ind. 162, Ann. Gas. 1914 A 935, 95 N. E. 543; Jen- nings v. Dark, 175 Ind. 332, 92 N. B. 778; Smith v. Cleveland, C, C. & St. L. E. Co., 170 Ind. 382, 81 N. E. 501; Clark V. American Cannel Coal Co., 165 Ind. 213, 112 Am. St. Eep. 217, 73 N. E. 1083, 35 Ind. App. 65, 73 N. E. 727; Marion Bond Co. v. Mexi- can Coffee & Eubber Co., 160 Ind. 558, 65 N. E. 748; Doty v. Patterson, 155 Ind. 60, 56 N. E. 668; Carmel Nat. Gas & Improvement Co. v. Small, 150 Ind. 427, 50 N. E. 476, 47 N. E. 11; Williams v. Citizens' Ey. Co., 130 Ind. 71, 15 L. E. A. 64, 30 Am. St. Eep. 201, 29 N. E. 408; Crowder v. Town of Sullivan, 128 Ind. 486, 13 L. E. A. 647, 28 N. E. 94; North v. State, 107 Ind. 356, 8 N. E. 159; Hasselman v. United States Mortgage Co., 97 Ind. 365; Williamson v. Kokomo Building & Loan Fund Ass'n, 89 Ind. 389; How V. State, 89 Ind. 249; Smelser v. Wayne & II. Straight Line Turnpike Co., 82 Ind. 417; Baker v. Neff, 73 Ind. 68; Mullikin v. City of Bloom ington, 72 Ind. 161; White v. State, 69 Ind. 273; Aurora & C. E. Co. v, Miller, 56 Ind. 88; Heaston v. Cinein nati & Ft. Wayne E. Co., 16 Ind. 275, 79 Am. Dee. 430; Farmers' Ins. Co v. Borders, 26 Ind. App. 491, 60 N. E. 174. See also Board Com'rs Law- rence Co. v. Hall, 70 Ind. 469. Iowa. Troutman v. Council Bluffs Street Fair & Carnival Co., 142 Iowa 140, 120 N. W. 730; Petty v. Hayden, 115 Iowa 212, 88 N. W. 339; Town of Decorah v. Gillis, 10 Iowa 234. See also Cedar Eapids Water Co. v. Cedar Eapids, 118 Iowa 234, 91 N. W. 1081; State V. City of Des Moines, 96 Iowa 521, 31 L. E. A. 186, 59 Am. St. Eep. 381, 65 N. W. 818. Kansas. Levitt v. City of Wilson, 72 Kan. 160, 83 Pac. 397; Topeka v. Dwyer, 70 Kan. 244, 3 Ann. Cas. 239, 78 Pac. 417; State v. Mason, 61 Kan. 102, 58 Pac. 978; Atchison, T. & 8. F. E. Co. v. Board Com 'rs Sumner Co., 51 Kan. 617, 33 Pac. 312; In re Short, 47 Kan. 250, 27 Pac. 1005; School Dist. No. 2 v. School Dist. No. 1, 45 Kan. 543, 26 Pac. 43; Mendenhall v. Bur- ton, 42 Kan. 570, 22 Pac. 558; Eitchie V. Mulvane, 39 Kan. 241, 17 Pac. 830; Chicago, K. & W. E. Co. v. Staf- ford County Com'rs, 36 Kan. 121, 12 Pae. 593; Atchison, T. & S. F. E. Co. v. Wilson, 33 Kan. 223, 6 Pac. 281; School Dist. No. 25 v. State, 29 Kan. 57; Eeisner v. Strong, 24 Kan. 410; Pape V. Capitol Bank, 20 Kan. 440, 27 Am. Eep. 183; Krutz v. Paola Town Co., 20 Kan. 397; Voss v. Union School Dist. No. 11, 18 Kan. 467; Hunt v. Kansas & M. Bridge Co., 11 Kan. 412; Kansas Town & Land Co. v. City of Kensington, 6 Kan. App. 247, 51 Pac. 804; McLennan v. Hopkins, 2 Kan. App. 260, 41 Pac. 1061. Kentucky. Calor Oil & Gas Co. v. 535 §274] Peivate Cobpobations [Ch. 10 it is invoked. That this is trire is apparent from thfe number of cases Franzell, 128 Ky. 715, 36 L. E. A. (N. S.) 456, 109 S. W. 328; Cumberland Telegraph & Telephone Co. v. Louis- ville Home Tel. Co., 114 Ky. 892; 72 S. W. 4; Johnson v. Mason Lodge No. 33, I. O. O. F., 106 Ky. 838, 51 S. W. 620; "Wight v. Shelby E. Co., 16 B. Mon. 4, 63 Am. Dee. 522; Harrison v. Lexington & F. E. Co., 9 B. Mon. 470; Gill's Adm'x v. Kentucky & C. Gold & Silver Min. Co., 7 Bush. 635; Hughes V. Bank of Somerset, 5 Litt. 45. But see Warden v. Madisonville, H. & E. E. Co., 125 Ky. 644, 101 S. W. 914. Louislaua, New Iberia Sugar Co. V. Lagarde, 130 La. 387, 58 So. 16; Weil V. Leopold Weil Building & Im- provement Co., 126 La. 938, 53 So. 56. See also Chicago, St. L. & N. O. E. Co. V. Town of Kentwood, 49 La. Ann. 931, 22 So. 192. Maine. Taylor v. Portsmouth, Kit- tery & Y. St. E. Co., 91 Me. 193, 64 Am. St. Eep. 216, 39 Atl. 560; Simp- son V. Garland, 76 Me. 203; McClineh V. Sturgis, 72 Me. 288. Maryland. Keene v. Van Eeuth, 48 Md. 184; Laflin & Eand Powder Co. V. Sinsheimer, 46 Md. 315, 24 Am. Eep. 522; Lord v. Essex Bldg. Ass'n No. 4, 37 Md. 320; Taggart v. West- ern Maryland E. Co., 24 Md. 5.63, 89 Am. Dec. 760. See also Planters' Bank V. Bank of Alexandria, 10 Gill. & J. 346; University of Maryland v. Wil- liams, 9 Gill. & J. 365, 31 Am. Dee. 72; Chesapeake & O. Canal Co. v. Bal- timore & O. E. Co., 4 Gill. & J. 1. Massachusetts. Butchers' & Drov- ers' Bank of St. Louis v. McDonald, 130 Mass. 264; Barrett v. Mead, 10 Allen 337; Appleton Mut. Fire Ins. Co. V. Jesser, 5 Allen 446. Michigan. Newcomb-Endicott Co. V. Fee, 167 Mich. 574, 133 N. W. 540; International Harvester Co. of Ameri- ca V. Eaton Circuit Judge, 163 Mieh. 55, 30 L. E. A. (N. S.) 580, Ann. Cas. 1912 A 1022, 127 N. W. 695; Bridge St. & A. Gravel-Eoad Co. v. Hoga- done, 150 Mich. 638, 114 N. W. 917; Detroit & T. S. L. E. Co. v. Campbell, 140 Mich. 384, 103 N. W. 856; Shad- ford V. Detroit, Y. & A. A. Ey., 130 Mich. 300, 89 N. W. 960.; Wyandotte Elec. Light Co. v. City of Wyandotte, 124 Mich. 43, 82 N. W. 821; Canal St. Gravel Eoad Co. v. Paas, 95 Mich. 372, 54 N. W. 907; Chicago & G. T. Ey. Co. v. Miller, 91 Mich. 166, 51 N. W. 981; Nichols v. Ann Arbor & Y. St. Ey. Co., 87 Mich. 361, 16 L. E. A. 371, 49 N. W. 538; Toledo & A. A. E. Co. V. Johnson, 55 Mich. 456, 21 N. W. 888; Coe v. Gregory, 53 Mich. 19, 18 N. W. 541; Wilcox v. Toledo & A. A. E. Co., 43 Mich. 584, 5 N. W. 1003; Merchants' & Manufacturers' Bank v. Stone, 38 Mich. 779; Grand Eapids Bridge Co. v. Prange, 35 Mich. 400, 24 Am. Eep. 585; Bold v. Perkins, 33 Mich. 28; Clement v. Everest, 29 Mich. 19; Monroe v. Ft. Wayne, J. & S. E. Co., 28 Mich. 272; Swartwout V. Michigan Air Line E. Co., 24 Mich. 389. See also Toledo & A. A. E. Co. V. Johnson, 49 Mich. 148, 13 N. W. 492; Montgomery v. Merrill, 18 Mich. 338. Minnesota. St. Paul Gaslight Co. v. Village of Sandstone, 73 Minn. 225, 75 N. W. 1050; State v. Board Com'rs Crow Wing Co., 66 Minn. 519, 35 L. E. A. 745, 73 N. W. 631, 69 N. W. 925, 68 N. W. 767; State v. Honerud, 66 Minn. 32, 68 N. W. 323; Finnegan v. Noerenberg, 52 Minn. 239, 18 L. E. A. 778, 38 Am. St. Eep. 552, 53 N. W. 1150; East Norway Lake Church V. Froislie, 37 Minn. 447, 35 N. W. 260; In re Minneapolis & St. L. Ey. Co., 36 Minn. 481, 32 N. W. 556. Mississippi. See Fargason v. Ox- ford Mercantile Co., 78 Miss. 65, 27 So. 877. 536 Ch. 10] De Facto Cokpoeations [§274 m which the question has been passed upon these cases, as will be MIssovirl. State v. Center Creek Min. Co., 262 Mo. 490, 171, S. W. 356; Barnes v. Missouri Valley Const. Co., 257 Mo. 175, Ann. Gas. 1915 C 34, 165 S. W. 723; State v. Young, 255 Mo. 627, 164 8, W. 579; State v. Blair, 245 Mo. 680, 151 S. "W. 148; State v. Woods, 233 Mo. 357, 135 S. W. 932; State V. Miner, 233 Mo. 312, 135 S. W. 483; School Dist. of Columbia v. Jones, 229 Mo. 510, 129 S. W. 528; State V. Andrae, 216 Mo. 617, 116 S. W. 561; Webb v. Rockefeller, 195 Mo. 57, 6 L. R. A. (N. S.) 872, 93 S. W. 772; First Nat. Bank of Deadwood, S. D. V. Rockefeller, 195 Mo. 15, 93 S. W. 761; State v. Birch, 186 Mo. 205, 85 S. W. 361; School Dist. No. 35 v. Hodgin, 180 Mo. 70, 79' S. W. 148; Kansas City v. Stegmiller, 151 Mo. 189, 52 S. W. 723; Flynn v. City of Neosho, 114 Mo. 567, 21 S. W. 903; Crenshaw v. UUman, 113 Mo. 633, 20 S. W. 1077; Finch v. UUnian, 105 Mo. 255, 24 Am. St. Rep. 383, 16 S. W. 863; State V. Fuller, 96 Mo. ,165, 9 S. W. 583; Haskell v. Worthington, 94 Mo. 560, 7 S. W. 481; Fredericktown v. Fox, 84 Mo. 59; Catholic Church v. Tobbein, 82 Mo. 418; Franklin Ave. German Sav. Inst. v. Board of Educa- tion, 75 Mo. 408; St. Louis v. Shields, 62 Mo. 247; Smith v. Clark County, 54 Mo. 58, 81; Ohio & M. Ry. Co. v. Mc- Pherson, 35 Mo. 13, 86 Am. Dec. 123; Bank of Missouri v. Merchants ' Bank, 10 Mo. 123; Atchison v. Crawford County Farmers' Mut. Fire Ins. Co., 192 Mo. App. 362, 180 S. W. 438; Campbell Lumber Co. v. Levee Diit. No. 4, 186 Mo. App. 371, 172 S. W. 64; Rialto Co. v. Miner, 183 Mo. i.pp. 119, 166 S. W. 629; O'Kell v. Chama Valley Lands & Irrigation Co., 181 Mo. App. 466, 168 S. W. 887; Salem v. Young, 142 Mo. App. 160, 125 S. W. 857; Stout v. St. Louis, L M. & S. B. Co., 142 Mo App, 1, 125 S. W. 230; Klix V. Polish Roman Catholic SI. Stanislaus Parish, 137 Mo. App. 347, 118 S. W. 1171; National Lead Co. v. S. E. Grote Paint Store Co., 80 Mo. App. 247; School Dist. of Agency v. Wallace, 75 Mo. App. 317; Billings V. Dunnaway, 54 Mo. App. 1; Pierce V. Lutesville, 25 Mo. App. 317; Staun- ton Copper Min. Co. v. Thurmond, 7 Mo. App. 587. See also Kansas City Hotel Co. v. Hunt, 57 Mo. 126. Montana. Barnes v. Smith, 48 Mont. 309, 137 Pac. 541; Daily v. Marshall, 47 Mont. 377, 133 Pac. 681. Nebraska. Lusk v. Biggs, 70 Neb. 718, 102 N. W. 88; Davis' Estate v. Watkins, 56 Neb. 288, 76 N. W. 575; Livingston Loan & Building Ass'n v. Drummond, 49 Neb. 200, 68 N. W. 375; Hogue v. Capital Nat. Bank of Lincoln, 47 Neb. 929, 66 N. W. 1036; Kleckner v. Turk, 45 Neb. 176, 63 N. W. 469; Haas v. Bank of Commerce, 41 Neb. 754, 60 N. W. 85; State v. Whitney, 41 Neb. 613, 59 N. W. 884; Lincoln Bldg. & Sav. Ass'n v. Gra- ham, 7 Neb. 173; Abbott v. Omaha Smelting & Refining Co., 4 Neb. 416; Otoe County Fair & Driving Park Ass'n V. Doman, 1 Neb. (UnofE.) 179. Nev Hampshire. Saunders v. Farmer, 62 N. H. 572; Haynes v. Brown, 36 N. H. 545, 562; State v. Carr, 5 N. H. 367. New Jersey. Way v. American Grease Co., 60 N. J. Eq. 263, 47 Atl. 44; Coast Co. v. Borough of Spring Lake, 56 N. J. Eq. 615, 51 L. R. A. 657, 36 Atl. 21, afE'd 58 N. J. Eq. 586, 51 L. R. A. 657, 47 Atl. 1131; Attor- ney General v. American Tobacco Co., 55 N. J. Eq. 352, 36 Atl. 971, aS'i 56 N. J. Eq. 847, 42 Atl. 1117; Kuser v. Wright, 52 N. J. Eq. 825, 31 Atl. 397, rev'g 52 N. J. Eq. 392, 28 Atl. 719; Union Water Co. v. Kean, 52 N. J. Eq. Ill, 27 Atl 1015, rev'd on other grounds 52 N. J. Eq. 813, 46 Am. St, 537 §274] Pbivate Coepoeations [Ch. 10 seen by referring to tlie note in support of the rule, ranging from the earliest period to the present day. Eep. 538, 31 Atl. 282; Blizabethtown Gas-Light Co. v. Green, 46 N. J. Eq. 118, 18 Atl. 844, aff'd 49 N. J. Eq. 329, 24 Atl. 560; Hackensack Water Co. V. De Kay, 36 N. J. Eq. 548; West Jersey B. Co. v. Cape May & 8. L. E. Co., 34 N. J. Eq. 164; National Docks Ey. Co. V. Central E. Co. of New Jer- sey, 32 N. J. Eq. 755, rev'g 31 N. J. Eq. 475; Attorney General v. Stevens, 1 N. J. Eq. 369, 22 Am. Dec. 526; St. John the Baptist Greek Catholic Church V. Baron (N. J. Ch.), 73 Atl. 422; Bell v. Pennsylvania, 8. & N. E. E. Co. (N. J. Ch.), 10 Atl. 741, 10 N. J. L. J. 336; Walsh v. Thompson, 87 N. J. L. 49, 93 Atl. 857; Sisters of Charity of St. Elizabeth v. Morris E. Co., 84 N. J. L. 310, 50 L. E. A. (N. S.) 236, 86 Atl. 954, aff'g 82 N. j; L. 214, 81 Atl. 817; Philadelphia & C. Ferry Co. v. Intercity Link E. Co., 73 N. J. L. 86, 62 Atl. 184, afC'd 74 N. J. L. 594, 65 Atl. 1118; Keyes v. Smith, 67 N. J. L. 190, 51 Atl. 122; Attorney General v. Town of Dover, 62 N. J. L. 138, 41 Atl. 98; Eichman v. Adams, 59 N. J. L. 280, 36 Atl. 699; Eiverton & P. Water Co. v. Haig, 58 N. J. L. 295, 33 Atl. 215; Mueller v. Egg Har- bor City, 55 N. J. L. 245, 26 Atl. 89; Vanneman v. Young, 52 N. J. L. 403, 20 Atl. 53; State ex rel. Steelman \. Viekers, 51 N. J. L. 180, 14 Am. St. Eep. 675, 17 Atl. 153; Stout v. Zulick, 48 N. J. L. 599, 7 Atl. 362. See also Terhune v. Potts, 47 N, J. L. 218; State V. Patterson & H. Turnpike Co., 21 N. J. L. 9. New Mexico. Community Ditches or Acequias of Tularosa Townsite v. Tularosa Coinmunity Ditch, 16 N. M. 750, 120 Pac. 301; Palatine Ins. Co. V. Santa Fe Mercantile Co., 13 N. M. 241, 82 Pac. 363. New York. Coxe v. State, 144 N. Y. 396, 39 N. F,. 400; United States Vinegar Co. v. Schlegel, 143 N. Y, 537, 38 N. E. 729, aff'g 67 Hun 356, 22 N. Y. Supp. 407; Lancaster v. Am- sterdam Improvement Co., 140 N. Y. 576, 24 L. E. A. 322, 35 N. E. 964; Phoenix Warehousing Co. v. Badger, 67 N. Y. 294; Buffalo & A. E. Co. v. Gary, 26 N. Y. 75; Bank of Toledo v. International Bank, 21 N. Y. 542; Methodist Episcopal Union Church v. Pickett, 19 N. Y. 482, aff'g 23 Barb. 436; Eaton v. Aspinwall, 19 N. Y. 119, aff'g 6 Duer 176; Stevens v. Episcopal Church History Co., 140 App. Div. 570, 125 N. Y. Supp. 573; Smith v. Havens Belief Fund Society, 118 App. Div. 678, 103 N. Y. Supp. 770, aff'g 44 Misc. 594, 90 N. Y. Supp. 168, aff'd 190 N. Y. 557, 83 N. E. 1132; In re Long Acre Elee. Light & Power Co., 117 App. Div. 80, 102 N. Y. Supp. 242; Green v. Grigg, 98 App. Div. 445, 90 N. Y. Supp. 565; Bank of Port Jef- ferson V. Darling, 91 Hun 236, 36 N. Y. Supp. 153; Lamming v. Galusha, 81 Hun 247, 30 N. Y. Supp. 767, aff'd 151 N. Y. 648, 45 N. E. 1132; Globe Sewer Pipe Co. V. Otis, 67 Hun 652, 22 N. Y. Supp. 411; Sodus Bay & C. E. Co. v. Hamlin, 24 Hun 390; National See. U. S. Daughters of 1812 v. American Surety Co. of N. Y., 56 Misc. 627, 107 N. Y. Supp. 820; Eaisbeck v. Oster- richer, 4 Abb. N. Cas. 444; Persse & Brooks Paper Works v. Willett, 19 Abb. Pr. 416; White v. Boss, 15 Abb. Pr. 66; Buffalo City Ey. Co. v. New York Cent., etc., B. Co., 22 Alb. L. J. 134; Erie County Sav. Bank v. Bald- win, 22 Alb. L. J. 134; Dorris v. Sweeney, 64 Barb. 636; Van Buren v. Eeformed Church of Gansevoort, 62 Barb. 495; Doyle v. Peerless Petroleum Co., 44 Barb. 239; Sands v. Hill, 42 Barb. 651, rev'd on other grounds 55 N. Y. 18; Cooper v. Shaver, 41 Barb. 151; Hyatt v. Esmond, 37 Barb. 538 Ch. 10] De Facto Cobpoeations [§274 There have been, manifold statements of the rule, varying greatly 601; Abbott v. Aspinwall, 26 Barb. 202; Jones v. Dana, 24 Barb. 395; In re Arden, 1 Connolly Surr. 159, 4 N. Y. Supp. 177; Mechanics' Bldg. Ass'n V. Stevens, 5 Duer 676. North Caxolina. Claremont College V. Eiddle, 165 N. C. 211, 81 S. E. 283; Daniels v. Boanoke Bailroad & Lum- ber Co., 158 N. 0. 418, 74 S. E. 331; Holly Shelter R. Co. v. Newton, 133 N. C. 132, 45 S. E. 549; Kinston & 0. K. Co. V. Stroud, 132 N. C. 413, 43 S. E. 913; Boyd v. Eedd, 120 N. C. 335, 58 Am. St. Kep. 792, 27 S. E. 35; Wellington & P. E. Co. v. Cashie & C. Eailroad & Lumber Co., 114 N, C. 690, 19 S. E. 646; Atkinson v. Ashe- ville St. By. Co., 113 N. C. 581, 18 S. E. 254; Atlantic, T. & O. E. Co. v. Johnston, 70 N. C. 348; Wilmington, C. & E. E. Co. V. Thompson, 52 N. C. 387; Wilmington & M. E. Co. v. Saunders, 48 N. C. 126. See also Elizabeth City Academy v. Lindsey, 28 N. C. 476, 45 Am. Dec. 500; Buncombe Turnpike Co. V. McCarson, 1 Dev. & B. 306; Tar Biver Nav. Co. v. Neal, 3 Hawks 520." North Dakota. Coler v. Dwight School Tp., 3 N. D. 249, 28 L. E. A. 649, 55 N. W. 587. Ohio. Society Perun v. City of Cleveland, 43 Ohio St. 481, 3 N. E. 357; Webb v. Moler, 8 Ohio St. 548, 72 Am. Dec. 606; Dickason v. .Grafton Sav. Bank Co., 6 Ohio Cir. Ct. (N. S.) 329; Shawnee Commercial & Savings Bank Co. v. Miller, 1 Ohio Cir. Ct. (N. S.) 569; Fosdick v. Green, 13 Ohio Dec. 707, 1 Cine. Super. Ct. 537, rev'd on other grounds 27 Ohio St. 484, 22 Am. Eep. 328; Benninger v. Gall, 13 Ohio Dec. 581, 1 Cine. Super. Ct. 331; Beck v. Eocky Biver Village School Dist., 14 Ohio N. P. 312. Oklahoma. Swofford Bros. Dry Goods Co. V. Owen, 37 Okla. 616, 133 Pao. 193; Mitchell v. Carter, 31 Okla. 592, 122 Pac. 691; Blackwell v. City of Newkirk, 31 Okla. 304, Ann. Cas. 1913 E 441, 121 Pac. 260. Oregon. State v. Adler, 71 Ore. 70, 142 Pao. 344; Tyree v. Crystal Dist. Improvement Co., 64 Ore. 251, 126 Pac. 605; Splonskofsky v. Minto, 62 Ore. 560, 126 Pac. 15; Brown v. Webb, 60 Ore. 526, Ann. Cas. 1914 A 148, 120 Pac. 387; Leavengood v. McGee, SO Ore. 233, 91 Pac. 453; Marsters v. Umpqua Oil Co., 49 Ore. 374, 12 L. E. A. (N. S.) 825, 90 Pac. 151; Wash- ington Nat. Building, Loan & Invest- ment Ass'n v. Stanley, 38 Ore. 319, 58 L. E. A. 816, 84 Am. St. Eep. 793, 63 Pac. 489; Jones v. Hale, 32 Ore. 465, 52 Pac. 311. See also Pairview B. Co. V. Spillman, 23 Ore. 587, 32 Pao. 688; Oregon Cent. B. Co. v. Seoggin 3 Ore. 161. Pennsylvania. Curry v. Harmony Elee. Co., 251 Pa. 344, 96 Atl. 822; Burkhard v. Pennsylvania Water Co., 234 Pa. 41, 82 Atl. 1120; Pittsburg, S. & N. B. Co. V. Keating & S. E. Co., 233 Pa. 71, 81 Atl. 935; Andel v. Du- quesne St. B. Co., 219 Pa. 635, 69 Atl. 278; Myersdale & S. St. E. Co. v. Penn- sylvania & M. St. E. Co., 219 Pa. 558, 69 Atl. 92; Tibby Bros. Glass Co. v. Pennsylvania E. Co., 219 Pa. 430, 68 Atl. 975; Thirteenth & Fifteenth Sts. Passenger E. Co. v. Broad St. Eapid Transit B. Co., 219 Pa. 10, 67 Atl. 901; Packard v. Thiel College, 209 Pa. 349, 58 Atl. 670; Windsor Glass Co. v. Car- negie Co., 204 Pa, 459, 54 Atl. 329; Olyphant Sewage-Drainage Co. v. Borough of Olyphant, 196 Pa. St. 553, 46 Atl. 896; Monongahela Bridge Co. V. Pittsburg & B. Traction Co., 196 Pa. St. 25, 79 Am. St. Eep. 685, 46 Atl. 99; Com. v. Philadelphia County, 193 Pa. St. 236, 44 Atl. 336; Pinkerton v. Pennsylvania Traction Co., 193 Pa. St. 229, 44 Atl. 284; Hooven Mercan- tile Co. V. Evans Min. Co., 193 Pa. St. 539 §274] Pkivate Coepoeations [Ch. 10 in form, but it is believed that the terms in which it is given above 28, 44 Atl. 277; Com. v. Yetter, 190 Pa. St. 488, 43 Atl. 226; In re Peti- tion of Philadelphia & M. Ey. Co., 187 Pa. St. 123, 40 Atl. 967; In re Gibb's Estate, 157 Pa. St. 59, 22 L.. E. A. 276, 27 Atl. 383; Hamilton v. Clarion, M. & P. E. Co., 144 Pa. St. 34, 13 L. E. A. 779, 23 Atl. 53; Twelfth St. Market Co. V. Philadelphia & E. Terminal E. Co., 142 Pa. St. 580, 21 Atl. 902, aff'g 10 Pa. Co. Ct. 25; Eliot v. Himrod, 108 Pa. St. 569, 580; Johnston v. Eliza- beth Building & Loan Ass'n, 104 Pa. St. 394; Spahr v. Farmers' Bank of Carlisle, 94 Pa. St. 429; Becket v. Ilniontown Building & Loan Ass'n, 88 Pa. St. 211; Henry v. Deitrieh, 84 Pa. St. 286; Garrett v. Dillsburg & M. E. Co., 78 Pa. St. 465; Cochran v. Arnold, 58 Pa. St. 399, overruling 45 Pa. St. 410; Dyer & Co. v. Walker, 40 Pa. St. 157; McCully v. Pittsburgh & C. E. Co., 32 Pa. St. 25; MeConahy v. Centre & K. Turnpike Eoad Co., 1 Penr. & W. 426; Centre & K. Turnpike Eoad Co. V. MeConaby, 16 Serg. & E. 140; Yeingst v. Philadelphia, H. & P. E. Co., 40 Pa. Super. Ct. 106; Dunmore Borough V. Seranton Ey. Co., 34 Pa. Super. Ct. 294; International Savings & Trust Co. V. Stenger, 31 Pa. Super. Ct. 294; Com. v. Philadelphia, H. & P. E. Co., 23 Pa. Super. Ct. 235; Good- bread V. Philadelphia, B. & B. M. Turnpike Co., 13 Pa. Super. Ct. 82; Chester County Gas Co. v. Merion & E. Gas & Electric Co., 16 Pa. Dist. 214; Hartman v. Pennsylvania Eange Boiler Co., 9 Pa. Dist. 560, 24 Pa. Co. Ct. 324; Travaglini v. Soeieta Italiane, 5 Pa. Dist. 441; Thirteenth & Fifteenth Sts. Passenger Ey. Co. v. Southern Passenger Ey., 3 Pa. Dist. 337; Ger- man Ins. Co. v. Strahl, 13 Phila. 512; Consolidated Stock Exchange of Phila- delphia, 31 Pa. Co. Ct. 226 (opinion of attorney general on application for a writ of quo warranto) ; Thirteenth & Fifteenth Sts. Passenger Ey. Co. v. Broad St. Eapid Transit Ey. Co., 31 Pa. Co. Ct. 99; Pexnsylvania IVTilk Producers' Ass'n v. First Nat. Bank of Honeybrook, 20 Pa. Co. Ct. 540; Eothschild v. Eochester & P. E. Co., 1 Pa. Co. Ct. 620; Donaldson v. Ea- benhold, 5 Berks Co. L. J. 282; Oly- phant Sewage-Drainage Co. v. Oly- phant, 5 Lack. Leg. N. 346; White Haven Loan & Building Ass'n v. Kel- ley, 9 Luz. Leg. Eeg. 9; Benevolent Order of Active Workers v. Sanders, 28 Wkly, Notes Cas. 321. See also Albright v. Lafayette Bldg. & Sav. Ass'n, 102 Pa. St. 411. South Carolina. Atlantic Coast Line E. Co. V. Epperson, 85 S. C. 134, 67 S. E. 235. South Dakota. Sogers v. Penobscot Min. Co., 28 S. D. 72, Ann. Cas. 1914 A 1184, 132 N. W. 792; Building & Loan Ass'n of Dakota v. Chamberlain, 4 8. D. 271, 56 N. W. 897; Davis v. Stevens, 104 Fed. 235 (construing South Dakota statute). See also Sioux Falls Light & Power Co. v. Coughran, 27 S. D. 443, 1 31 N. W. 504; Thomas v. Wilcox,' 18 S. D. 625, 101 N. W. 1072; Wright v. Lee, 2 S. D. 596, 51 N. W. 706. Tennessee. Shields v. Clifton Hill Land Co., 94 Tenn. 123, 26 L. E. A. 509, 45 Am. St. Eep. 700, 28 S. W. 668; Greene ville & P. E. Narrow Gauge E. Co. V. Johnson, 8 Baxt. 332; Merri- man v. Magiveny, 12 Heisk. 494; Ten- nessee Automatic Lighting Co. v. Mas- sey (Tenn. Ch.), 56 S. W. 35. See also La Grange & M. E. Co. v. Eainey, 7 Coldw. (47 Tenn.) 420; State v. Mer- chants' Insurance & Trust Co., 8 Humph. (27 Tenn.) 235. Texas. Crabb v. Celeste Independ- ent School Dist., 105 Tex. 194, 39 L. E. A. (N. S.) 601, Ann. Cas. 1915 B 1146, 146 S. W. 528; El Paso v. Euck- man, 92 Tex. 86, 46 S. W. 25; McLeary v. Dawson, 87 Tex. 524, 29 S. W. 1044; 540 Ch. 10] De Facto Cobpokations [§274 are sufficiently comprehensive. A brief statement is that of the American Salt Co. v. Heidenheimer, 80 Tex. 344, 26 Am. St. Eep. 743, 15 S. W. 1038; Lum v. City of Bowie, (Tex.), 18 S. "W. 142; Graham v. City of Greenville, 67 ^x. 62, 2 S. W. 742; Brennan v. City of Weather- ford, 53 Tex. 330, 37 Am. Eep. 758; Medlin v. Commonwealth Bonding & Casualty Ins. Co., — Tex. Civ. App. — , 180 S. W. 899; Cohen v. City of Houston, — Tex. Civ. App. — , 176 S. W. 809; Roaring Springs Townsite Co. v. Padueah Tel. Co., — Tex. Civ. App. — , 164 S. W. 50; Wilson v. Carter, — Tex. Civ. App. — , 161 S. W. 411; Davis V. Parks, — Tex. Civ. App. — , 157 S. W. 449; Conley v. Daughters of Republic of Texas, — Tex. Civ. App. — , 151 S. W. 877; International & G. N. Ey. Co. v. Anderson County, — Tex. Civ. App. — , 150 S. W. 239; Parker v. Harris County Drain. Dist. No. 2, — Tex. Civ. App. — , 148 S. W. 351; Wilson v. Brown, — Tex. Civ. App. — , 14? S. W. 639; Dillard v. A. G. McAdams Lumber Co., — Tex. Civ. App. — , 141 S. W. 1023; Coffman v. Goi-ee Independent School Dist., — Tex. Civ. App. — , 141 S. W. 132; Chapman v. Trinity Valley & N. By. Co., — Tex. Civ. App. — , 138 S. W. 441; Missouri, K. & T. E. Co. of Texas V. Bratcher, 54 Tex. Civ. App. 10, 118 S. W. 1091; City of Carthage v. Bur- ton, 51 Tex. Civ. App. 195, 111 S. W. 440; Oriental In v. Co. v. Sline, 17 Tex. Civ. App. 692, 41 S. W. 130; The Oriental v. Barclay, 16 Tex. Civ. App. 193, 41 8. W. 117; McCrary v. City of Comanche (Tex. Civ. App.), 34 S. W. 680; Troutman v. McClesky, 7 Tex. Civ. App. 561, 27 S. W. 173. See also Parks v. West, 102 Tex. 11, 111 S. W. 726, rev'g (Tex. Civ. App.), 108 S. W. 466. Utah. Mitchell v. Jensen, 29 Utah 346, 81 Pac. 165; Postal Tel. Cable Co. of Utah V. Oregon Short Line E. Co., 23 Utah 474, 90 Am. St. Eep. 705, 65 Pae. 735; Marsh v. Mathias, 19 Utah 350, 56 Pac. 1074; Tarpey v. Deseret Salt Co., 5 Utah 494, 17 Pac. 631. Virginia. Shinn v. Com., 32 Gratt. 899. See also Dismal Swamp E. Co. V. John L. Eoper Lumber Co., 114 Va. 537, Ann. Cas. 1914 C 641, 77 S. E. 598. Washington. Kwapil v. Bell Tower Co., 55 Wash. 583, 104 Pac. 824; Pur- din v. Washington Nat. Building, Loan & Investment Ass'n, 41 Wash. 395, 83 Pac. 723; Carroll v. Pacific Nat. Bank, 19 Wash. 639, 54 Pac. 32; State v. Superior Court of Spokane County, 15 Wash. 668, 37 L. E. A. Ill, 55 Am. St. Eep. 907, 47 Pac. 31. West Virginia. Board of Education V. Berry, 62 W. Va. 433, 125 Am. St. Eep. 975, 59 S. E. 169; Bon Aqua Im- provement Co. V. Standard Eire Ins. Co., 34 W. Va. 764, 12 S. E. 771; Childs V. Hurd, 32 W. Va. 66, 98, 9 S. E. 362. Wisconsin. Pranke v. Mann, 106 Wis. 118, 48 L. E. A. 856, 81 N. W. 1014; Slocum v. Head, 105 Wis. 431, 50 L. E. A. 324, 81 N. W. 673; Gilkey v. Town of How, 105 Wis. 41, 49 L. K. A. 483, 81 N. W. 120; Golonbieski V. State, 101 Wis. 333, 77 N. W. 189; Boane Iron Co. v. Wisconsin Trust Co., 99 Wis. 273, 67 Am. St. Eep. 856, 74 N. W. 818; Independent Order of For- esters V. United Order of Foresters, 94 Wis. 234, 68 N. W. 1011; City of Ashland v. Wheeler, 88 Wis. 607, 60 N. W. 818; Whitney v. Eobinson, 53 Wis. 309, 10 N. W. 512. See also Stedman v. City of Berlin, 97 Wis. 505, 73 N. W. 57; Strong v. McCagg, 55 Wis. 624, 13 N. W. 895. Canada. Askew v. Manning, 38 U. C. Q. B. 345. "A certiiicate of incorporation is- sued by the secretary of state is a final determination of the corpora- tion's right to do business as such, 541 §274] Peivate Cobpoeations [Ch. 10 Indiana court, that "mere irregularities in organization cannot be shown collaterally, where there is no defect of power. ' ' ^* §275. Statutory provisions. In some jurisdictions the doctrine under consideration is established by express statutory provision. Thus, the statutes of several states provide that the due incorpora- tion of any company claiming in good faith to be a corporation, and doing business as such, shall not be inquired into collaterally in any private suit to which the de facto corporation shall be a party. ^^ and * * * thereafter, the state only, by a direct proceeding, can challenge its corporate existence or its right to do business as a corporation." Boat- men's Bank v. Gillespie, 209 Mo. 217, 108 S. W. 74. The fact that a school district vol- untarily becomes a party to a suit to enjoin the collection of school taxes, in which the validity of its or- ganization is assailed, and tenders the issue of its corporate existence, does not estop it from contending that the plaintiff has no right to attack its existence collaterally. Black v. Early, 208 Mo. 281, 106 S. "W. 1014. But ■where parties agree to submit the question of the legality and regular- ity of the organization of a corpora- tion to the court in a collateral proceeding, they cannot thereafter question the right to do so. Ft. Dodge City School Dist. v. District Tp. of - Wahkansa, 17 Iowa 85. 14 Perkins, J., in Heaston v. Cincin- nati & F. W. E. Co., 16 Ind. 275, 79 Am. Dec. 430. 16 California. Civ. Code, § 358; Val- lejo & N. E. Co. V. Eeed Orchard Co., 169 Cal. 545, 147 Pac. 238; Eobinson V. Blood, 151 Cal. 504, 91 Pac. 258; San Diego Gas Co. v. Frame, 137 Cal. 441, 70 Pac. 295; Los Angeles Holi- ness Bank v. Spires, 126 Cal. 541, 58 Pac. 1049; People's Ditch Co. v. '76 Land & Water Co., (Cal.), 44 Pac. 176; People v. Leonard, 106 Cal. 302, 39 Pac. 617; Martin v. Deetz, 102 Cal. 55, 41 Am. St. Eep. 151, 36 Pac. 368; Golden Gate Mill & Mining Co. v. Joshua Hendy Mach. Works, 82 Cal. 184, 23. Pac. 45; Lake- side Ditch Co. V. Crane, 80 Cal. 181, 22 Pac. 76; Weaver ville & M. Wagon Eoad Co. V. Board of Sup'rs, 64 Cal. 69, 28 Pac. 496; Bakersfield Town Hall Ass'n v. Chester, 55 Cal. 98; Pa- cific Bank v. De Eo, 37 Cal. 538; Oro- ville & V. E. Co. v. Plumas County, 37 Cal. 354; Daunebroge Gold Quartz Min. Co. V. Ailment, 26 Cal. 286; Eec- lamation Dist. No. 765 v. MePhee, 13 Cal. App. 382, 109 Pac. 1106; Her- ring V. Modesto Irrigation Dist., 95 Fed. 705 (construing California stat- utes). The statute was not intended as a curative act only, but was intended as a rule for future corporations as well. Pacific Bank v. De Eo, 37 Cal. 538, distinguishing Harris v. McGre- gor, 29 Cal. 124. Montana. Eev. Code, § 3892; Barnes V. Smith, 48 Mont. 309, 137 Pac. 541; Daily v. Marshall, 47 Mont. 377, 133 Pac. 681. The purpose of this provision is to prohibit inquiry in any private civil action into the question whether the ostensible corporation has a legal ex- istence, further than to ascertain whether the requirements prescribed by Eev. Code, § 3825, relative to the preparation and filing of articles of incorporation with the county eierk and the secretary of state, and the issuance of a certificate by the lat- 542 Ch. 10] Db Facto Cobpobations [§275 In other statutes are contained somewhat similar provisions." Pro- ter, have been complied with. Daily V. Marshall, 47 Mont. 377, 133 Pae. 681. Oklahoma. Rev. Laws 1910, § 1212; Watton V. Cruce, 44 Okla. 186, 143 Pae. 1152; Mitchell v. Carter, 31 Okla. 592, 122 Pae. 691; "Western U. Tel. Co. V. Mexican Agr. Land Co., 31 Okla. 528, Ann. Cas. 1914 C 1244, 122 Pae. 505; Higbee v. .3!tna Building & Loan Ass'n, 26 Okla. 327, Ann. Cas. 1912 B 223, 109 Pae. 236. South Dakota. Civ. Code, § 399 (Comp. Laws 1910, p. 39) ; Mason v. Stevens, 16 S. D. 320, 92 N. W. 424; Building & Loan Ass'n of Dakota v. Chamberlain, 4 S. D. 271, 56 N. W. 897; Davia v. Stevens, 104 Fed. 235 (construing South Dakota statute). 18 Georgia. Code 1911, § 2226, pro- vides that the existence of a corpo- ration claiming a charter under color of law cannot be collaterally at- tacked. Kentucky. Gen. St. 1873, c. 56, § 17, provided that persons acting as a cor- poration under the provisions of the act "shall be presumed to be legally organized until the contrary is shown ; and no such franchise shall be de- clared actually null or forfeited ex- cept in a regular proceeding brought for that purpose." Walton v. Eiley, 85 Ky. 413, 3 S. W. 605, overruling Heinig v. Adams & Westlake Mfg. Co., 81 Ky. 300. This provision has been replaced by Ky. St. 1909, § 566, which provides that no corporation shall be permitted to set up or rely upon the want of legal organization as a defense to any action against it; nor shall any person transacting busi- ness with such corporation, or sued for injury to its property, be permit- ted to rely upon such want of legal organization as a defense. Johnson v. Mason Lodge No. 33, L O. O. F., 106 Ky. 838, 51 S. W. 620; Wood v. Friendship Lodge No. 5, I. O. O. F. of Lexington, 106 Ky. 424, 50 S. W. 836; Drake v. Herndon, 28 Ky. L. Eep. 1106, 91 S. W. 674. Louisiana. Act. No. 78 of 1904, § 2, provides "that wherever parties have attempted to form a corporation and have executed, recorded and published the charter, all contracts made and acts done by such corporation shall be treated as the contracts and acts of valid corporations so far as affects the rights and obligations of the cor- poration and its shareholders, reserv- ing, however, to the state the right to take such proceedings as may be authorized by law to enjoin or dis- solve said corporation if informal, or to compel the compliance by them with the requirements of the law in the formation of corporations." Bond & Braswell v. Seott Lumber Co., 128 La. 818, 55 So. 468; Leader Eealty Co. V. Lakeview Land Co., 127 La. 1059, 54 So. 350. Tennessee. Shannon 's Code, § 2063, provides that persons acting as a cor- poration under the provisions of the statute will be presumed to be legally incorporated until the contrary is shown, and that no such franchise shall be declared actually null or forfeited except in a regular proceed- ing brought for the purpose. Id., § 2026, provides that a certificate of registration of the application for in- corporation given by the secretary of state, under the great seal of the state, shall, when registered in the register's ofSce of the county where the principal ofllce of the company is situated, with a facsimile of said seal, complete the formation of the com- pany as a body politic, and the va- lidity of the same in any legal proceeding shall not be collaterally questioned. Carpenter v. Frazier, 102 Tenn. 462, 52 S. W. 858. Id., §2031, 543 §275] Peivate Cobpobations [Ch. 10 visions of this character are merely declaratory of the existing law,^'' suppose that a de facto corporation exists,^* and do not preclude a private person from denying the existence de jure or de facto of an alleged corporation,^' nor render the mere allegation that a party is a corporation conclusive so as to put the question whether it is such a corporation beyond the reach of inquiry in a suit with a pri- vate person.^" Moreover, to render such a provision operative, the alleged corporation must both claim in good faith that it is such cor- poration and must be doing business as such corporation.*^ A statute giving the courts the right of inquiry^, at the instance of private parties, into the existence and extent ** of franchises conferred relative to the amendment of special charters, provides that the validity of the amendment shall not be col- laterally questioned in any legal pro- ceeding. Deitch V. Staub, 115 Fed. 309. South Carolina. Civ. Code 1902, §§ 1885, 1906, provide that no irregu- larity in complying with the provi- siotis of the statute "shall be held to vitiate the incorporation until a di- rect proceeding to set aside and annul the charter be instituted by the proper authorities of the state; and all acts done and contracts entered into shall have the same force and effect as if no irregularity had existed." Meyer V. Brunson, — S. C. — , 88 S. E. 359; Sumter Tobacco Warehouse Co. v. Phoenix Assur. Co., 76 S. C. 76, 10 L. E. A. (N. S.) 736, l2l Am. St. Eep. 941, 11 Ann. Cas. 780, 56 S. E. 654. In construing this provision, the court in Meyer v. Brunson, supra, says: "We take it the legislature meant that a failure of the corporators to comply regularly and exactly with all the provisions of the law about the formation of corporations should not vitiate the charter. We think that it did not mean that the corporators might ignore the substance of the lav,^ and escape." 17 Davis V. Stevens, 104 Fed. 235; Bond & Braswell v. Scott Lumber Co., 128 La. 818, 55 So. 468; Leader Eealty Co. V. Lakeview Land Co., 127 La 1059, 54 So. 350. 18 Davis V. Stevens, 104 Fed. 235 Meyer v. Brunson, — S. C. — , 88 S E. 359. 19 McPhee v. Eeclamation Dist. No 765, 161 Cal. 566, 119 Pac. 1077; Mar tin V. Deetz, 102 Cal. 55, 41 Am. St Eep. 151, 36 Pac. 368; Oroville & V E. Co. V. Plumas County, 37 Cal. 354 Milwaukee Gold Extraction Co. v Gordon, 37 Mont. 209, 95 Pac. 995 Meyer v. Brunson, — S. C. — , 88 S E. 359. So it may be shown that there was no law authorizing its incorporation. Davis V. Stevens, 104 Fed. 235. Or that it was organized for a purpose not authorized by law. Western U. Tel. Co. V. Mexican Agr. Land Co., 31 Okla. 528, Ann. Cas. 1914 C 1244, 122 Pac. 505. 20 Martin v. Deetz, 102 Cal. 55, 41 Am. St. Eep. 151, 36 Pac. 368; Oro- ville & V. E. Co. V. Plumas County, 37 Cal. 354; Milwaukee Gold Extrac- tion Co. V. Gordon, 37 Mont. 209, 95 Pac. 995. 21 Oroville & V. E. Co. v. Plumas County, 37 Cal. 354. 22 Andel v. Duquesne St. E. Co., 219 Pa. 635, 69 Atl. 278; Myersdale & S. St. E. Co. V. Pennsylvania & M. St. E. Co., 219 Pa. 558, 69 Atl. 92; Tibby Bros. Glass Co. v. Pennsylvania E. Co., 219 Pa. 430, 68 Atl. 975. 544 Ch. 10] Db Facto Cobpobatiows [§276 by corporate charters when the latter are set up in support of acts injurious to the individual parties complaining, has been held not to have the effect of permitting inquiries respecting the validity of charters to be entertained in such proceedings. § 276. Basis of and reasons for the rule. The doctrine in relation to de facto corporations and that their corporate existence cannot be questioned in collateral proceedings is generally held to be based upon grounds of public policy.^' It has been said that the reason for it ' ' is that if rights and franchises have been usurped they are the rights and franchises of a sovereign, and he alone can interpose. Until such interposition the public may treat those possessing and exercising cor- porate powers under color of law as doing so rightfully. The rule is in the interest of the public, and is essential to the safety of business transactions with corporations."^* For "it would produce only dis- order and confusion, embarrass and endanger the rights and interests of all dealing with the association, if the legality of its existence coul'd be drawn in question, in every suit to which it was a party, or in S3Pape V. Capitol Bank, 20 Kan. 440, 27 Am. Rep. 183; Krutz v. Paola Town Co., 20 Kan. 397; State v. Board Com'rs Crow Wing Co., 66 Minn. 519, .■iS L. E. A. 745, 73 N. W. 631, 69 N. W. 925, 68 N. W. 767; State v. Hone- rud, 66 Minn. 32, 68 N. W. 323; East Norway Lake Church v. Froislie, 37 Minn. 447, 35 N. W. 260; Society Perun v. Cleveland, 43 Ohio St. 481, 3 N. E. 357; Beck v. Rocky River Vil- lage School Dist., 14 Ohio N. P. 312; Parks V. West, 102 Tex. 11, 111 S. W. 726, rev'g (Tex. Civ. App.), 108 S. AV. 466. It "is founded upon the policy of the common-law prohibition against unauthorized corporate action." Mil- ler v. Newburg Orrel Coal Co., 31 W. Va. 836, 13 Am. St. Rep. 903, 8 S. E. 600. In Buffalo & A. R. Co. v. Cary, 26 N. y. 75, it is said that "any other rule * * * must be fraught with serious consequences and great public mischief." 24 Duggan V. Colorado Mortg. & Inv. Co., 11 Colo. 113, 17 Pac. 105. "As to third parties the legality of the corporation is avouched by its charter from the state which re- serves to itself the power to with- draw the franchises bestowed upon evidence of fraudulent obtention or subsequent abuse." National Lead Co. v. S. E. Grote Paint Store Co., 80 Mo. App. 247. It is for the state alone to question the right, in appro- priate proceedings for that purpose. Haas v. Bank of Commerce, 41 Neb. 754, 60 N. W. 85. "The corporation must of necessity be presumed to be rightfully in pos- session of the franchise, and right- fully to exercise the power, which the legislative grant confers. Individual right is not invaded, if the negative is true in fact, and there is usurpation. It is the state — the sovereign — whose rights are invaded, and whose author- ity is usurped. The individual could not create the corporation — could not grant, define, limit its powers; and no grant of these by the sovereign can lessen his rights. There can conse- quently be no cause of complaint by 545 I Priv. Corp. — 35 §276] Private Coepobations [Ch. 10 which rights were involved springing out of its corporate existence. ' ' ^^ Another reason sometimes given is that the state, though it is the party chiefly concerned, could not be heard by counsel in the col- lateral action.** In some of the cases, the doctrine in relation to de facto corpora- tions has been confused with the' doctrine in relation to estoppel to deny corporate existence, and it seems to have been assumed that the existence of a de facto corporation may be collaterally questioned by an individual, unless he has dealt with the association as a corpora- tion, and thereby estopped himself to deny its corporate character ; *'' the citizen, and no right to inquire whether the corporate existence is rightful — de jure, or merely color- able." Lehman v. Warner, 61 Ala. 455, quoted with approval in Snider 'a Sons' Co. V. Troy, 91 Ala. 224, 11 L. E. A. 515, 23 Am. St. Eep. 887, 8 So. 658. 26 Central Agricultural & Mechani- cal Ass'n V. Alabama Gold Life Ins. Co., 70 Ala. 120, quoted with approval in Floyd v. State, 177 Ala. 169, 59 So. 280; Bibb v. Hall, 101 Ala. 79, 97, 14 So. 98; Calor Oil & Gas Co. v. Pran- zell, 128 Ky. 715, 36 L. E. A. (N. S.) 456, 109 S. "W. 328; Cumberland Tele- graph & Telephone Co. v. Louisville Home Tel. Co., 114 Ky. 892, 72 S. W. 4. "It would be unjust and intoler- able if * * » every interloper and intruder were allowed to thus take advantage of every informality or irregularity of organization." East Norway Lake Church v. Proislie, 37 Minn. 447, 35 N. W. 260. It would be intolerable to permit an inquiry into the right to exercise cor- porate powers in every action to which such body was a party, a right which it is for the state alone to question in appropriate proceedings for that purpose. Lusk v. Eiggs, 70 Neb. 718, 102 N. W. 88; Haas v. Bank of Com- merce, 41 Neb. 754, 60 N. W. 85. It would lead to intolerable embarrass- ments and inconveniences. Eiee v. Eock Island & A. E. Co., 21 III. 93. Business could not be transacted un- der such circumstances. Smith v. May- field, 163 111. 447, 45 N. E. 157, aflf'g 60 111. App. 266. And to the same eifect, see Wright v. Kelley, 4 Idaho 624, 43 Pac. 565; Black v. Early, 208 Mo. 281, 106 S. W. 1014; School Dist. No. 35 V. Hodgin, 180 Mo. 70, 79 S. W. 148; Askew v. Manning, 38 U. C. Q. B. 345. 26 Abbott V. Omaha Smelting & Ee- fining Co., 4 Neb. 416. 27 See Bates v. Wilson, 14 Colo. 140, 158, 24 Pae. 99; Wheelock v. Kost, 77 111. 296. In Butchers' & Drovers' Bank v. McDonald, 130 Mass. 264, it is said that: "The plaintiff being a corpo- ration de facto, and the defendant having contracted with it as such, the legality of its organization cannot bo impeached by him when sued upon his contract. ' ' In Sloeum v. Providence Steam & Gas Pipe Co., 10 E. I. 112, the court said: "We know of no rule which pre- cludes inquiry into the question whether a company which assumes to act as a corporation has ever been incorporated, in any case, in the ab- sence of any matter of estoppel to prevent the inquiry." See also Slo- eum V. Warren, 10 E. I. 116; National Mut. Fire Ins. Co. v. Yeomana, 8 E. L 25, 86 Am. Dec. 610. 546 Ch. 10] De Facto Cobpobations [§277 but this is contrary to the weight of authority. According to most of the cases, such corporations have a substantial legal existence,** and the rules in relation to them do not depend upon the ground of equi- table estoppel, but may be applicable though the elements of an estoppel are not shown.*^ Among other cases in which it has been held that the existence of a de facto corporation cannot be attacked, though there are no ele- ments of estoppel, are eases in which an attack is made on the right of a de facto corporation to condemn land under the power of emi- nent domain,'" or to collect assessments for benefits,'^ or to build a railroad or canal, or take tolls, or exercise the exclusive franchise of maintaining a bridge, or water or gas works, and the like,'* or to recover damages for injuries to its property.'' § 277. Limitations of and exceptions to rule. To render the rule prohibiting collateral attack applicable, the existence of the requisites necessary to constitute a corporation de facto must be shown.'* Hence not by any one else. ' ' The court thus clearly shows that it did not intend to say that any element, of estoppel was necessary to prevent a person from collaterally attacking the existence of a corporation de facto. New York. Buffalo & A. E. Co. v. Gary, 26 N. Y. 75. Ohio. Society Perun v. City of Cleveland, 43 Ohio St. 481, 490, 3 N. E. 357; Beck v. Eocky Eiver "Village School Dist., 14 Ohio N. P. 312. West Virginia. Miller v. Newburg Orrel Coal Co., 31 W. Va. 836, 13 Am. St. Eep. 903, 8 S. E. 600. "This rule is not limited to cases where one by contract admits corpo- rate existence, but it is a rule of gen- eral application." Doty v. Patterson, 155 Ind. 60, 56 N. E. 668. But see Heaston v. Cincinnati & F. W. E. Co., 16 Ind. 275, 79 Am. Dec. 430. SO See § 310, infra. 31 See § 311, infra. 32 See § 309, infra. S3 See § 315, infra. 34Stanwood v. Sterling Metal Co., 107 111. App. 569; School Dist. of Agency v. Wallace, 75 Mo. App. 317. 28 See § 273, supra. 29 Kansas. Pape v. Capitol Bank, 20 Kan. 440, 27 Am. Eep. 183; Krutz V. Paola Town Co., 20 Kan. 397. Minnesota. East Norway Lake Church v. Froislie, 37 Minn. 447, 35 N. W. 260. Nebraska. Kleckner v. Turk, 45 Neb. 176, 188, 63 N. W. 469. New Jersey. In Stout v. Zulick, 48 N. J. L. 599, 7 Atl. 362, it was said: "In the absence of a statutory provi- sion making shareholders liable in case of failure to comply with the require- ments of the charter, or with the re- quirements of the act under which the company is incorporated, persons who have contracted with a de facto cor- poration, as a corporation, cannot deny its corporate existence in order to charge its shareholders individually as partners. ' ' Immediately afterwards, however, the court goes on to say, after defining the essentials of a de facto corporation: "And it is entirely settled that the corporate existence of such corporation de facto cannot bo inquired into collaterally. * * * The legality of its corporate existence may be inquired into by the state, but 547 §277] Peivate Cobpobations [Ch. 10 it does not preclude inquiry as to whether or not there is a corpora- tion de facto,'* and a determination of this question may involve nec- essarily the question of the legal right of the corporation to exist.*' If the articles or the charter are void on the face, the court will so declare in any proceeding to exercise corporate power claimed there- under.*' There is not a collateral attack upon the charter under such circumstances, but merely a holding that the articles are invalid and of no effect and confer no corporate powers.** "Whether or not a corporation exists which may sue or he sued, is always open to challenge by a proper plea in an action by or against it as such. * * * And such a plea is not regarded as a collateral attack, hut one which challenges the very existence of the corpora- tion and its right to sue or be sued. ' ' *® And it follows that where the corporate existence of the plaintiff corporation is properly denied, the burden is on it to prove its corporate existence either de jure or de facto, or else to show an estoppel on the part of the defendant to deny such existence.*" So the rule as to collateral attack has no application where persons 35 Carey v. Cincinnati & C. E. Co., 5 Iowa 357; Sisters of Charity of St. Elizabeth v. Morris B. Co., 84 N. J. L. 310, 50 L. E. A. (N. S.) 236, 86 Atl. 954, aff'g 82 N. J. L. 214, 81 Atl. 817. See also Griffin v. Clinton Line Ext tension E. Co., I'ed. Cas. No. 5,816; Mahouey v. Bank of State, 4 Ark. 620. "The issue of nul tiel corporation is upon the existence of a de facto corporation, where one de jure is au- thorized. " Heaston v. Cincinnati & Ft. W. E. Co., 16 Ind. 275, 79 Am. Dec. 430. 36 Sisters of Charity of St. Eliza- beth V. Morris E. Co., 84 N. J. L. 310, 50 L. E. A. (N. S.) 236, 86 Atl. 954, afE'g 82 N. J. L. 214, 81 Atl. 817. 37 Holly Shelter E. Co. v. Newton, 133 N. C. 132, 45 S. E. 549; Kinston 6 C. E. Co. V. Stroud, 132 N. C. 413, 43 S. E. 913. So held where the ar- ticles of a railroad company showed on their face that the required amount of stock per mile had not been sub- scribed or paid in. Kinston & C. E. Co. V. Stroud, 132 N. C. 413, 43 S. E. 913. 38 Kinston & C. E. Co. v. Stroud, 132 N. C. 413, 43 S. E. 913. 39 Elgin Nat. Watch Co. v. Love- land, 132 Eed. 41. The contention that the company never had any corporate existence may be inquired into in a collateral pro- ceeding. Carey v. Cincinnati & C. E. Co., 5 Iowa 357. In assumpsit against a corporation, the plaintiff must prove that the de- fendant was in fact incorporated, or that it contracted as a corporation, so as to create an estoppel. Stoddard v. Onondaga Annual Conference, 12 Barb. (N. Y.) 573. 40 Schloss V. Montgomery Trade Co., 87 Ala. 411, 13 Am. St. Eep. 51, 6 So. 360. "Before a suit can be maintained by an alleged corporation, although it may not be necessary to prove tho legality of the existence of such cor- poration, its actual or de facto exist- ence must be proved, or else a state of facts shown which will operate to es- top the defendant from denying such de facto existence. ' ' Schloss v. Mont- 548 Ch. 10] De Facto Coepokations [§277 who are sued individually seek to escape individual liability by setting up the defense that the services were performed for a corpora- tion. In such case the burden of proving the existence of the cor- poration rests upon the defendants, and requiring them to prove it does not constitute a collateral attack upon the validity of the cor- poration by the plaintiff.*^ Nor does the rule whereby corporations are upheld as de facto corporations where they have exercised acts of user apply in a proceeding in which it seeks to be invested with cor- porate life and functions, as, for example, in a proceeding by a rail- road company to obtain from the board of railroad commissioners a certificate that public convenience and necessity require the construc- tion of its proposed road. At that time it is subject to inspection for the very purpose of determining whether it exists as a legal body, and the certificate may be refused on the ground that the statutory provisions relative to incorporation have not been complied with.** There is also ' ' an obvious distinction between a challenge to the cor- porate existence and a challenge to the power which may be exercised by the corporation, whether it be a de facto or de jure corporation. In the former ease the general rule is * * * that the corporate existence may not be attacked collaterally; but it has always been gomery Trade Co., 87 Ala. 411, 13 Am. St. Rep. 51, 6 So. 360. Though ordinarily the right to ques- tion the exercise of corporate powers is with the state and cannot be raised collaterally, "a denial of corporate existence in an answer requires some proof on the part of the plaintiff. This may be furnished by the introduction of a charter and evidence of its ac- ceptance, by evidence of the exercise of the powers of a corporation for a long time without objection, by estop- pel, and in other ways." Daniels v. Eoanoke Railroad & Lumber Co., 158 N. C. 418, 74 S. E. 331. If the plaintiff 's corporate existence is properly denied, the plaintiff must prove it, and if no evidence is of- fered on that issue, a judgment in favor of the plaintiff will be reversed. Hartford Fire Ina. Co. v. Central E. E. of Oregon, 74 Ore. 144, 144 Pac. 417. So where the complaint alleges that the plaintiff is a corporation, and this is denied in the answer, the bur- den is on the plaintiff to prove that fact. Goodale Lumber Co. v. Shaw, 41 Ore. 544, 69 Pac. 546; Columbia Valley Trust Co. v. Smith, 56 Ore. 6, 107 Pac. 465. «Owen V. Shepard, 59 Fed. 746. 42 As, for example, that the re- quired amount of the subscriptions to the stock has not been paid in cash. In re Kings, Q. & S. E. Co., 6 N. T. App. Div. 241, 39 N. Y. Supp. 1004. See also In re Wood, 99 N. Y. App. Div. 334, 91 N. Y. Supp. 225, aff'd 181 N. Y. 93, 73 N. E. 561; People v. Board of Eailroad Com'rs, 81 N. Y. App. Div. 242, 81 N. Y. Supp. 20, aff'd 175 N. Y. 516, 67 N. E. 1088. Or that the certificate of incorporation is not piroperly acknowledged. People v. Board of Eailroad Com'rs, 105 N. Y. App. Div. 273, 93 N. Y. Supp. 584, 7S N. Y. App. Div. 106, 77 N. Y. Supp. 380. 549 § 277] Pbivate Cokpobations [Ch. 10 held that the ultra vires acts of the corporation may be thus chal- lenged, often by the corporation itself. And this rule would apply as well to a de facto corporation as to one de jure. ' ' ^ There is no such thing in law as a de facto power.** So a conten- tion by heirs of a deceased person that corporations to whom he devised land are religious corporations and hence cannot take such property is not a collateral attack on the existence of such corporations.** Since the rule with reference to de facto corporations and col- lateral attack on their existence is founded on public policy,*^ it will not be so applied as to defeat the assertion of just, legal rights by parties in the courts.*' And it has been said that even where the conditions requisite to the existence of a de facto corporation are ful- filled, the courts will allow enjoyment of the corporate franchise with- out a substantial compliance with the statutory requirements as to incorporation only where considerations of equitable estoppel or of public policy justify it.*' In Rhode Island the doctrine relative to collateral attack appears to have been entirely repudiated.*^ And statutes sometimes expressly permit inquiries respecting the validity of the charter to be made in other proceedings than by an action in the name of the state.*" 43 Boca & L. K. Co. v. Sierra Val- which precludes inquiry into the ques- leys E. Co., 2 Cal. App. 546, 84 Pae. tion, whether a company which as- 298. And see Lehman, Durr & Co. v. sumea to act as a corporation has Warner, 61 Ala. 455, 467. ever been incorporated, in any ease, in 14 Boca & L. E. Co. v. Sierra Val- the absence of any matter of estoppel leys E. Co., 2 Cal. App. 546, 84 Pae. to prevent the inquiry." And it was 298. held that, unless an estoppel was 45 Proctor V. Board of Trustees M. shown, the defendant might take E. Church, 225 Mo. 51, 123 S. W. 862. advantage of noncompliance with a See also People v. Dyer, 205 111. 575, statute providing that no act of in- 69 N. E. 70; In re McGraw's Estate, corporation shall "take effect until 111 N. Y. 66, 2 L. E. A. 387, 19 N. E. the persons therein incorporated shall 233. have paid to the general treasurer 46 See § 275, supra. the sum of one hundred dollars. ' ' It 47 Parks v. West, 102 Tex. 11, 111 is to be noted, however, that it was S. W. 726, rev'g (Tex. Civ. App.), 108 also held that the defendant was es- S. W. 466. topped, and hence that the above 48 American Ball Bearing Co. v. quoted statement was not necessary Adams, 222 Fed. 967. to a decision. See also, in this con- 49 In Slocum V. Providence Steam nection, Slocum v. Warren, 10 E. 1. & Gas Pipe Co., 10 E. I. 112, which was 116; National Mut. Fire Ins. Co. v. an action by creditors to enforce the Yeomans, 8 E. I. 25. individual liability of stockholders, *" See § 275, supra, the court said: "We know of no rule 550 Ch. 10] De Facto Coepobations [§ 278 m. REQUISITES OP CORPORATIONS DE FACTO §278. General statement. There has been so much conflict in the decisions of the different courts with respect to what is sufficient to give a body of men the status of a de facto corporation, that it is difficult to formulate definite rules on the subject which will apply in all the states. On some points, the decisions in the different states are in direct conflict. Indeed, on some points it is difficult, if not impossible, to reconcile the decisions in the same state. As we shall see in the following paragraphs, some courts have l^eld that there may be a corporation de facto without ra valid law authorizing it. Some have held, or seem to have held, that it is not necessary that there shall have been any organization or attempt to organize under the law, but that mere user of corporate powers is sufficient. Some, while requiring an attempt to organize, have held that there need not be even a colorable compliance with conditions precedent prescribed by the legislature ; and others have held that all conditions precedent must be substantially complied with. The rule laid down by a ma- jority of decisions seems to be that the essential requisites of a de facto corporation are : First, the existence of a charter or law under which a corporation with the powers assumed might lawfully exist; second, an effort in good faith to incorporate thereunder ; and third, an actual user or exercise of corporate powers ; and that there is such a corporation when the existence of these requisites is shown, not- withstanding irregularities or defects in the organization, or a fail- ure to comply in all respects with the provisions of the charter or statute.*^ Bl United Sta,tes. Tulare Irrigation Arkansas. Bainwater v. Childress, Dist. V. Shepard, 185 TJ. S. 1, 46 L. Ed. — Ark. — , 182 S. W. 280; Bank of 773; Baltimore & P. E. Co. v. Fifth Midland v. Harris, 114 Ark. 344, Ann. Baptist Church, 137 U. S. 568, 34 L. Cas. 1916 B 1255, 170 S. "W. 67; Hears Ed. 784; Whitney v. Wyman, 101 U. v. State, 84 Ark. 136, 104 S. W. 1095; S. 392, 25 L. Ed. 1050; Commissioners Whipple v. Tuxworth, 81 Ark. 391, of Douglass Co. v. Bolles, 94 U. S. 104, 99 S. W. 86. See also Steele v. Hughes, 24 L. Ed. 46; Utah Light & Traction 104 Ark. 517, 149 S. W. 336. Co. V. United States, 230 Fed. 343; California. People's Ditch Co. v. Allen V. Rhodes, 230 Fed. 321; Ameri- '76 Land & Water Co. (Cal.), 44 Pac. can Ball Bearing Co. v. Adams, 222 176; Hamilton v. San Diego County, Fed. 967; In re Cordova Shop, 216 108 Cal. 273, 41 Pae. 305; People v. Fed. 818. See also Toledo, St. L. & K. La Rue, 67 Cal. 526, 8 Pac. 84; Jaques C. E. Co. V. Continental Trust Co., 95 v. Board Sup 'rs Tuba Co., 24 Cal. App. Fed. 497, aff'g 86 Fed. 929, 82 Fed. 381, 141 Pae. 404. See also Stockton 642, application for certiorari denied & L. Gravel Road Co. v. Stockton & 176 U.. S. 219, 44 L. Ed. 442. C. R. Co., 45 Cal. 680. 553 §278] Pkivate Coepobations [Ch. 10 By some of the eases is added as a fourth requisite a colorahle or Colorado. Jones v. Aapen Hard- ware Co., 21 Colo. 263, 29 L. E. A. 143, 52 Am. St. Eep. 220, 40 Pae. 457; Bates V. Wilson, 14 Colo. 140, 24 Pae. 99; Buggan v. Colorado Mortg. & In v. Co., 11 Colo. 113, 17 Pae. 105; Cowell V. Colorado Springs Co., 3 Colo. 82, aff'd 100 U. S. 55, 25 L. Ed. 547. Connecticut. State v. Byrne, 45 Conn. 273. See also New York, B. & E. E. Co. V. Motil, 81 Conn. 466, 71 Atl. 563; Lamkin v. Baldwin & Lam- kin Mfg. Co., 72 Conn. 57, 44 L. E. A. 786, 43 Atl. 593. Delaware. City of Wilmington v. Addicks, 8 Del. Ch. 310, 43 Atl. 297. Georgia. McEee v. Quitman Oil Co., 16 Ga. App. 12, 84 8. E. 487. Idaho. Fairview Inv. Co. v. Lamber- Bon, 25 Idaho 72, 136 Pae. 606; Pick- ett V. Board of County Com'rs, 24 Idaho 200, 133 Pae. 112. See also School Dist. No. 25 v. Eice, 11 Idaho 99, 81 Pae. 155. Illinois. Imperial Bldg. Co. v. Chi- cago Open Board of Trade, 238 111. 100, 87 N. E. 167, aff'g 136 111. App. 006; Gillette v. Aurora Eys. Co., 228 111. 261, 81 N. E. 1005; People v. Scha- fer, 228 111. 17, 81 N. E. 785; Marshall V. Keaeh, 227 111. 35, 118 Am. St. Eep. 247, 10 Ann. Cas. 164, 81 N. E. 29; People V. Pederson, 220 III. 554, 77 N. E. 251; Cozzens v. Chicago Hy- draulic Press Brick Co., 166 111. 213, 46 N. B. 788, aff'g 64 111. App. 569; American Loan & Trust Co. v. Minne- sota & N. W. E. Co., 157 in. 641, 42 N. E. 153; Hudson v. Green Hill Semi- nary Corporation, 113 111. 618; Blake V. People, 109 111. 504; Cincinnati, L. & C. E. Co. V. Danville & V. E. Co., 75 111. 113; Willard v. Methodist Epis- copal Church of Eockville Centre, 66 HI. 55; Thompson v. Candor, 60 111. 244; Mitchell v. Deeds, 49 111. 416, 95 Am. Dee. 621; Marsh v. Astoria Lodge No. 112, I. O. O. F., 27 111. 421; Dean & Son v. W. B. Conkey Co., 180 111. App. 162; Clinton Co. v. Schwarz, 175 111. App. 577; Stanwood v. Sterling Metal Co., 107 111. App. 569; Joliet v. Frances, 85 111. App. 243; Edwards v. Cleveland Dryer Co., 83 111. App. 643; Concord Apartment House Co. v. Alaska Refrigerator Co., 78 111. App. 682. Indiana. Jennings v. Dark, 175 Ind. 332, 92 N. E. 778; Clark v. American Cannel Coal Co., 165 Ind. 213, 112 Am. St. Eep. 217, 73 N. E. 1083, 35 Ind. App. 65, 73 N. E. 727; Marion Bond Co. V. Mexican Coffee & Eubber Co., 160 Ind. 558, 65 N. E. 748; Doty v. Patterson, 155 Ind. 60, 56 N. E. 668; Crowder v. Town of Sullivan, 128 Ind. 486, 13 L. E. A. 647, 28 N. E. 94; Harter v. Eltzroth, 111 Ind. 159, 12 N. E. 129; North v. State, 107 Ind. 356, 8 N. E. 159; Hasselman v. United States Mortg. Co., 97 Ind. 365; Wil- liamson V. Kokomo Building & Loan Fund Ass'n, 89 Ind. 389; Hon v. State, 89 Ind. 249; Smelser v. Wayne & U. Straight Line Turnpike Co., 82 Ind. 417; Baker v. Neff, 73 Ind. 68; Mulli- kin V. City of Bloomington, 72 Ind. 161; Shafer v. Moriarty, 46 Ind. 9; Farmers' Mutual v. Eeser, 43 Ind. App. 634, 88 N. E. 349; Cleveland, C, C. & St. L. E. Co. V. Feight, 41 Ind. App. 416, 84 N. E. 15; Huntington Mfg. Co. V. Sehofield, 28 Ind. App. 95, 62 N. E. 106. See also Ewing v. Eobeson, 15 Ind. 26. Kansas. Levitt v. City of Wilson, 72 Kan. 160, 83 Pae. 397; Topeka v. Dwyer, 70 Kan. 244, 3 Ann. Cas. 239, 78 Pae. 417; State v. Mason, 61 Kan. 102, 58 Pae. 978; School Dist. No. 2 V. School Dist. No. 1, 45 Kan. 543, 26 Pae. 43. See also Eitehie v. Mulvane, 39 Kan. 241, 17 Pae. 830 (holding that certain territory was de-facto a part 552 Ch. 10] De Facto Cobpokations [§278 apparent compliance with such requirements of the charter or law of a city) ; Atchison, T. & S. F. R. Co. V. Wilson, 33 Kan. 223, 6 Pae. 281; School Dist. No. 25 v. State, 29 Kan. 57; Massey v. Citizens Bldg. & Sav. Ass'n, 22 Kan. 624; Pape v. Capitol Bank, 20 Kan. 440, 27 Am. Eep. 183; Kansas Town & Land Co. v. City of Kensington, 6 Kan. App. 247, 51 Pac. 804; McLennan v. Hopkins, 2 Kan. App. 260, 41 Pac. 1061. Louisiana. Bond & Braswell v. Scott Lumber Co., 128 La. 818, 55 So. 468; Leader Eealty Co. v. Lakeview Land Co., 127 La. 1059, 54 So. 850; Weil V. Leopold Weil Building & Im- provement Co., 126 La. 938, 53 So. 56. Maryland. Keene v. Van Eeuth, 48 Md. 184; Laflin & Band Powder Co. V. Sinsheimer, 46 Md. 315, 24 Am. Eep. 522. Massachusetts. Montgomery v. Forbes, 148 Mass. 249, 19 N. E. 342; Barrett v. Mead, 10 Allen 337. See also Packard v. Old Colony E. Co., 168 Mass. 92, 46 N. E. 433; Merchants' Nat. Bank v. Glendon Co., 120 Mass. 97. Michigan. Newcomb-Endicott Co. V. Pee, 167 Mich. 574, 133 N. W. 540; People V. Carter, 122 Mich. 668, 81 N. W. 924; Eaton v. Walker, 76 Mich. 579, 6 L. E. A. 102, 43 N. W. 638; Mer- chants' & Manufacturers' Bank v. Stone, 38 Mich. 779; Clement v. Ever- est, 29 Mich. 19; Monroe v. Ft. Wayne, J. & S. E. Co., 28 Mich. 272; Swart- wout V. Michigan Air Line E. Co., 24 Mich. 389. Minnesota. Healey v. Steele Center Creamery Ass'n, 115 Minn. 451, 133 N. W. 69; St. Paul Gaslight Co. v. Village of Sandstone, 73 Minn. 225, 75 N. W. 1050; Johnson v. Okerstrom, 70 Minn. 303, 73 N. W. 147; Hause v. Mannheimer, 67 Minn. 194, 69 N. W. 810; Finnegan v. Noerenberg, 52 Minn. 239, 18 L. E. A. 778, 38 Am. St. Rep. 552, 53 N. W. 1150. See also East Norway Lake Church v. Froislie, 37 Minn. 447, 35 N. W. 260. Missouri. Eialto Co. v. Miner, 183 Mo. App. 119, 166 S. W. 629. Montana. Milwaukee Gold Extrac- tion Co. v. Gordon, 37 Mont. 209, 95 Pac. 995. Nebraska. Lusk v. Riggs, 70 Neb. 718, 102 N. W. 88; Haas v. Bank of Commerce, 41 Neb. 754, 757, 60 N. W. 85. See also Porter v. Sherman Coun- ty Banking Co., 36 Neb. 271, 54 N. W. 424. New Jersey. McCarter v. Keteham, 72 N. J. L. 247, 62 Atl. 693; Keyes v. Smith, 67 N. J. L. 190, 51 Atl. 122; Vanneman v. Young, 52 N. J. L. 403, 20 Atl. 53; In re Trenton St. R. Co. (N. J. Eq.), 47 Atl. 819; Way v. American Grease Co., 60 N. J. Eq. 263, 47 Atl. 44. New York. Leonardsville Bank v. Willard, 25 N. Y. 574; Eaton v. Aspin- wall, 19 N. Y. 119, aff'g 6 Duer 176; Welch v. Old Dominion Min. & Ey. Co., 56 Hun 650, 10 N. Y. Supp. 174; Buffalo City Ry. Co. v. New York Cent., etc., R. Co., 22 Alb. L. J. 134; Dorris v. Sweeney, 64 Barb. 636; Hyatt V. Esmond, 37 Barb. 601. North Carolina. Claremont College V. Riddle, 165 N. C. 211, 81 S. E. 283; Wilmington & M. R. Co. v. Saunders, 48 N. C. 126. Ohio. Society Perun v. Cleveland, 43 Ohio St. 481, 3 N. E. 357; Gaff v. Flesher, 33 Ohio St. 107, 453; State V. Toledo & L. C. Burial Ass 'n, 8 Ohio Cir. Ct. (N. S.) 233; Shawnee Commer- cial & Savings Bank Co. v. Miller, 1 Ohio Cir. Ct. (N. S.) 569; Union Trust Co. V. New York, C. & St. L. R. Co., 9 Ohio Dec. 773. See also Hagerman v. Ohio Bldg. & Sav. Ass'n, 25 Ohio St. 186. Oklahoma. Swofford Bros. Dry Goods Co. V. Owen, 37 Okla. 616, 133 Pae. 193; Mitchell v. Carter, 31 Okla. 553 278] Peivate Cobpobations [Ck 10 as are intended by the legislature to be conditions precedent to cor- 592, 122 Pac. 691; Guthrie v. Wylie, 6 Okla. 61, 55 Pae. 103. Oregon. Splonskofsky v. Minto, 62 Ore. 560, 123 Pac. 15; Brown v. Webb, 60 Ore. 526, Ann. Gas. 1914 A 148, 120 Pac. 387; Leavengood v. McGee, 50 Ore. 233, 91 Pae. 453; Marsters v. Umpqua Oil Co., 49 Ore. 374, 12 L. E. A. (N. S.) 825, 90 Pac. 151; Washing- ton Nat. Building, Loan & Investment Ass'n V. Stanley, 38 Ore. 319, 58 L. E. A. 816, 84 Am. St. Eep. 793, 63 Pac. 489; State v. Savage, 36 Ore. 191, 61 Pac. 1128, 60 Pac. 610; Jones V. Hale, 32 Ore. 465, 52 Pac. 311. PennsylvSinla. In re Gibb's Estate, 157 Pa. St. 59, 22 L. E. A. 276, 27 Atl. 383. Bhode Island, Providence Pire & Marine Ins., Co. v. Murphy, 8 E. I. 131. South Dakota. Mason v. Stevens, 16 S. D. 320, 92 N. W. 424; State v. Stevens, 16 S. D. 309, 92 N. W. 420. See also Merchants' Nat. Bank v. Me- Kinney, 2 S. D. 106, 48 N. W. 841 (as to de facto county). Tennessee. Tennessee Automatic Lighting Co. v. Massey (Tenn. Ch.), 56 S. W. 35; Merriman v. Magiveny, 12 Heisk. 494. Texas. HcLeary v. Dawson, 87 Tex. 524, 29 8. W. 1044, rev'g (Tex. Civ. App.), 25 S. W. 705; Cohen v. City of Houston, — Tex. Civ. App. — , 176 S. W. 809 (as to de facto munici- pal corporations); Eoaring Springs Townsite Co. v. Paducah Tel. Co., — Tex. Civ. App. — , 164 S. W. 50; Wil- son V. Carter, — Tex. Civ. App. — , 161 S. W. 411; Wilson v. Brown, — Tex. Civ. App. — , 145 S. W. 639; City of Carthage v. Burton, 51 Tex. Civ. App. 195, 111 S. W. 440. Utah. Mitchell v. Jensen, 29 Utah 346, 81 Pac. 165; Tarpey v. Deseret Salt Co., 5 Utah 494, 17 Pac. 631. Vermont. Vermont Mining & Quar- rying Co. V. Windham County Bank, 44 Vt. 489. Washington. Bash v. Culver Gold Min. Co., 7 Wash. 122, 34 Pac. 462. West Virginia. Board of Education V. Berry, 62 W. Va. 433, 125 Am. St. Eep. 975, 59 S. E. 169; Bon Aqua Im- provement Co. V. Standard Fire Ins. Co., 34 W. Va. 764, 12 S. E. 771. Wisconsin. Gilman v. Druse, 111 Wis. 400, 87 N. W. 557; Franke v. Mann, 106 Wis. 118, 48 L. E. A. 856, 81 N. W. 1014; Gilkey v. Town of How, 105 Wis. 41, 49 L. E. A. 483, 81 N. W. 120. See also Stedman v. City of Berlin, 97 Wis. 505, 73 N. W. 57; Evenson v. Ellingson, 67 Wis. 634, 31 N. W. 342. A de facto corporation exists where an association of persons to whom the sovereign has offered a franchise has "done acts indicating a purpose to accept such offer and effected an or- ganization designated to be, but in fact not, in substantial conformity with its terms." Mackay v. New York, N. H. & H. E. Co., 82 Conn. 73, 24 L. E. A. (N. S.) 768, 72 Atl. 583. ' ' Any actual organization of a munici- pality in the ostensible possession and in the exercise of municipal powevs ia a de facto corporation." Salem v. Young, 142 Mo. App. 160, 125 S. W. 857. To the same effect see Pierce v. Lutesville, 25 Mo. App. 317. Proof that defendant was known and trans- acted business as a corporation was held sufficient to show that it was a de facto corporation, in Patton & Gib- son Co. v. Shreve & Kelso, 134 111. App. 271. In United States Mortg. Co. v. McClure, 42 Ore. 190, 70 Pac. 543, v^rit of error dismissed 197 U. S. 624, 49 L. Ed. 911 (mem. dec), it is held that the production of a duly authen- ticated copy of the special charter of 554 Ch. 10] Db Facto Cobpoeations [§278 porate existence ; *^ or state that the essentials are a charter or law under which such a corporation could exist with the powers it assumes to exercise, a colorable compliance with its requirements and a user of the rights claimed under it, or hold that a de facto corporation exists when these facts are shown ; ^' or where there is an exercise and a foreign corporation plaintiff, with proof of user, was prima faeie suf- ficient to establish its corporate exist- ence, and to show that the conditions precedent to the assumption of the power conferred had been complied with, and that the defendant was thereby put to his proof to overcome the case thus made. In the case of corporations created by special acts of the legislature, it has been held in a number of eases that to show the charter or act creat- ing the corporation and user is at least prima facie sufl&cient. Illinois. East St. Louis & C. E. Co. V. Belleville City E. Co., 159 111. 544, 42 N. E. 974. Maine. Penobscot Boom Corpora- tion V. Lamson, 16 Me. 224, 33 L. E. A. 656. Massachusetts. Com. v. Bakeman, 105 Mass. 53; Appleton Mut. Eire Ins. Co. V. Jesser, 5 Allen 446. Michigan. Way v. Billings, 2 Mich. 397. New York. McFarlan v. Triton Ins. Co., 4 Denio 392; United States Bank v. Stearns, 15 Wend. 314; Williams v. Bank of Michigan, 7 Wend. 539; Utica Ins. Co. v. Cadwell, 3 Wend. 296; Utica Ins. Co. v. Tilman, 1 Wend. 555. Vermont. Montpelier & W. E. E. Co. V. Langdon, 46 Vt. 284; Sears- burgh Turnpike Co. v. Cutler, 6 Vt. 315. 62 Gillette v. Aurora Eys. Co., 228 111. 261, 81 N. E. 1005; Society Perun v. Cleveland, 43 Ohio St. 481, 3 N. E. 357; Brown v. Webb, 60 Ore. 526, Ann. Cas. 1914 A 148, 120 Pac. 387. See also Eainwater v. Childress, — Ark. — , 182 S. W. 280; Steele v. Hughes, 104 Ark. 517, 149 S. W. 336; Whipple v. Tuxworth, 81 Ark. 391, 99 S. W. 86, where both rules are stated. It would appear that this require- ment is intended to be included in the requirement that there must have been a bona flde efEort to incorporate under the law, for there could hardly be a bona fide effort to comply with a law unless there was at least a color- able compliance with its provisions. And at least a colorable compliance with the provisions of the statute or charter is required even in those states where it is not specifically enumerated in stating the essential requisites of such corporations. See cases cited in preceding note, and also § 292, infra. 63 United States. Upton v. Hans- brough, 3 Biss. 417, Eed. Cas. No. 16,801. Alabama. Cory v. Lee, 93 Ala. 468, 8 So. 694; Snider 's Sons' Co. v. Troy, 91 Ala. 224, 11 L. E. A. 515, 24 Am. St. Eep. 887, 8 So. 658. See also Selma & T. E. Co. v. Tipton, 5 Ala. 787, 39 Am. Dec. 344. Georgia. Brooke v. Day, 129 Ga. 694, 59 S. E. 769; Brown v. Atlanta Eailway & Power Co., 113 Ga. 462, 39 S. E. 71; Georgia Southern & F. E. Co. V. Mercantile Trust & Deposit Co., 94 Ga. 306, 32 L. E. A. 208, 47 Am. St. Eep. 153, 21 S. E. 701. Nebraska. Kleckner v. Turk, 45 Neb. 176, 63 N. W. 469. New Jersey. Stout v. Zulick, 48 N. J. L. 599, 601, 7 Atl. 362. New York. Buffalo & A. E. Co. v. Gary, 26 N. Y. 75; Bank of Toledo v. International Bank, 21 N. Y. 542 • §278] Pbivate Cobpobations [CL 10 user of the corporate franchises under color of legal organization;** or under color of authority or of law.** While some of the cases omit one or more of these essentials in stat- Lamming v. Galusha, 81 Hun 247, 30 N. Y. Supp. 767, afE'd 151 N. Y. 648, 45 N. E. 1132; Dewitt v. Hastings, 40 Super. Ct. (8 J. & S.) 463, afE'd 69 N. Y. 518. See also In re Long Acre Elec. Light & Power Co., 117 App. Div. 80, 102 N. Y. Supp. 242. Nortli Dakota. Coler v. Dwight School Tp., 3 N. D. 249, 28 L. E. A. 649, 55 N. W. 587. Utah. Marsh v. Mathias, 19 Utah 350, 56 Pac. 1074; Kilpatriok-Koch Dry-Goods Co. v. Box, 13 Utah 494, 45 Pac. 629. Washington. Kwapil v. Bell Tower Co., 55 "Wash. 583, 104 Pac. 824. Wisconsin. Independent Order of Foresters v. United Order of Forest- ers, 94 Wis. 234, 68 N. W. 1011. "Color of legal organization as a corporation under some charter or law, and user of the supposed corporate franchise in good faith are indis- pensable * * *." Harrill v. Davis, 168 Fed. 187, 22 L. E. A. (N. S.) 1153, rev'g 7 Indian T. 152, 15 Ann. Gas. 1134, 104 S. W. 573. In Bradley Fer- tilizer Co. V. South Pub. Co., 4 N. Y. Misc. 172, 23 N. Y. Supp. 675, rev'g 1 N. Y. Mise. 512, 21 N. Y. Supp. 472; id., 44 N. Y. St. Eep. 119, 17 N. Y. Supp. 587, rev'g 39 N. Y. St. Eep. 218, 14 N. Y. Supp. 917, it is said: "A de facto corporation is constituted by a user of corporate franchises, and by acts in the nature of corporate pro- ceedings under color of organization (Childs V. Smith, 55 Barb. 56); or where proceedings have been taken in professed compliance with some law authorizing the formation of a cor- poration, and there are acts of subse- quent user (Church v. Pickett, 19 N. y. 482) ; or where there is a user of corporate franchises under color of an act authorizing the incorporation (Bank 'of Toledo v. International Bank, 21 N. Y. 542)." A motion for leave to appeal to the Court of Ap- peals in this case was denied, 6 N. Y. Misc. 128, 26 N. Y. Supp. 4. It will be noted that a number of the cases adopting this rule are from states in which the court has also adopted the rule first stated (see note 51, this section), and that a color- able compliance with the provisions of the statute is generally required even by those courts which do not specifically include it in the general statement of the essentials to de facto corporate existence. (See § 290, infra.) It would therefore appear that the re. quirement of a colorable compliance with the statute is regarded by them as being included in the requirement that there must be a bona flde attempt to incorporate under the statute. 84 Harris v. Gateway Land Co., 128 Ala. 652, 29 So. 611; Bibb v. Hall, 101 Ala. 79, 14 So. 98; Central Agricultur- al & Mechanical Ass'n v. Alabama Gold Life Ins. Co., 70 Ala. 120. See Floyd Vi State, 177 Ala. 169, 59 So. 280; Gunderson v. Illinois Trust & Savings Bank, 199 111. 422, 65 N. E. 326, aflf'g 100 111. App. 461. 65 United States. National Life Ins. Co. of Montpelier v. Board of Education, City of Huron, 62 Fed. 778. Idaho. Bellevue Water Co. v. Stockslager, 4 Idaho 636, 43 Pac. 568; Wright V. Kelley, 4 Idaho 624, 43 Pac. 565. Nebraska. Otoe County Fair & Driving Park Ass'n v. Doman, 1 Neb. (Unoffi.) 179. Korth Carolina. Buncombe Turn- pike Co. v. McCarson, 1 Dev. & B. (18 N. C.) 306. 556 Cli.lO] De Facto Coepoeatiosts [§279 ing the general rule, as, for example, the requirement that there must be an attempt in good faith to incorporate under the statute,^^ an ex- amination of them will generally disclose that the omitted element was shown to exist, or that its absence was held to prevent the cor- poration from being one de facto. And regardless of how the require- ments are stated, at least a colorable compliance with the statute is generally required to be shown.^'' "It is not necessary that some particular period of time should elapse in order to show a de facto existence. Such existence depends rather upon what has been done under and by virtue of the organ- ization, rather than upon the length of time which may elapse after its inception. ' ' 5* The fact that a corporation was insolvent from the time of its organization does not prevent it from being a corporation de facto,^^ nor does a corporation de jure become one de facto by entering into an ultra vires contract with another corporation.^" "Whether a corporation is in existence either de jure or de facto is a question for the court to determine where there is no dispute as to the facts.®^ § 279. Lawful authority for existence of corporation — ^In general. In some of the cases it has been held that a corporation de facto may exist without any authority at all from the legislature.®'' And there Oklahoma. Blackwell v. City of L. E. A. (N. S.) 144, 39 So. 473; Newkirk, 31 Okla. 304, Ann. Gas. Owensboro Wagon Co. v- Bliss, 132 1913 E 441, 121 Pae. 260. Ala. 253, 90 Am. St. Bep. 907, 31 So. Washington. Purdin v. Washington 81; Snider 's Sons' Co. v. Troy, 91 Ala. Nat. Building, Loan & Investment 224, 11 L. E. A. 515, 24 Am. St. Eep. Ass'n, 41 Wash. 395, 83 Pac. 723. 887, 8 So. 658; Duke v. Taylor, 37 Fla. "A corporation de facto exists 64, 31 L. E. A. 484, 53 Am. St. Eep. when, from irregularity or defect in 232, 19 So. 172. the organization or constitution, or 66 See § 289, infra, from some omission to comply with 87 See § 292, infra, the conditions precedent, a corpora- 68 Eeclamation Dist. No. 765 v. tion de jure is not created, but there McPhee, 13 Cal. App. 382, 109 Pae. has been a colorable compliance with 1106. the requirements of some law under 69 Lamkin v. Baldwin & Lamkin which an association might be law- Mfg. Co., 72 Conn. 57, 44 L. E. A. 786, fully incorporated for the purposes 43 Atl. 593. and powers assumed, and a user of 60 Dayton & Union Ey. Co. v. Pitts- the rights claimed to hp conferred by burgh, C, C. & St. L. Ey. Co., 15 Ohio the law, when there is an organiza- Cir. Dee. 705, afif'd 67 Ohio St. 523. tion with color of law and the 61 Daily v. Marshall, 47 Mont. 377, exercise of corporate franchises." 133 Pac. 681. Central of Georgia E. Co. v. Union 62 In a dictum in Pergusou v. Ox- Springs & N. E. Co., 144 Ala. 639, 2 ford Mercantile Co., 78 Miss. 65, 27 557 12791 Peivate Cobporations [Oh. 10 is authority to the effect that there may be a corporation de facto though it is organized for a purpose not authorized by the statute." But according to the great weight of authority, in order that there may be a corporation de facto, there must be a charter or law under which a corporation of its character, and for the objects and purposes for which it is organized, might exist.** So. 877, it is stated that "even if a rev'g 7 Indian T. 152, 15 Ann. Cas. concern should be carried on, appar- ently as a corporation, without any charter at all, it cannot be that its creditors would be powerless to collect from it, or that it could not pay its debts." And in Cullins v. Overton, 7 Okla. 470, 54 Pac. 702, it was held that a county organized pursuant to an act of the legislature of Texas was one de facto, though the Federal Su- preme Court later decided that the territory comprising it did not belong to that state. De facto existence has been accord- ed a corporation even though it was illegally organized for an illegal pur- pose, to evade and violate the law. Lincoln Bldg. & Sav. Ass 'n v. Graham, 7 Neb. 173. See also United States V. Insurance Companies, 22 Wall. (TJ. S.) 99, 22 L. Ed. 816, holding that a statute creating a corporation passed by the legislature during the civil war was valid, and that such corporation could sue in the federal courts after the war, since such legislature was at least a legislature de facto. 63 Thus in New Orleans Debenture Bedemption Co. v. Louisiana, 180 U. S. 320, 45 L. Ed. 550, aff'g 51 La. Ann. 1827, which was a proceeding in the nature of quo warranto to an- nul a corporate charter, the defendant was held to be a corporation de facto though it was organized for a pur- pose not authorized by the statute. et United States. Tulare Irrigation Dist. V. Shepard, 185 U. S. 1, 46 L. Ed. 773; American Ball Bearing Co. v. Adams, 222 Fed. 967; Harrill v. Davis, 168 Fed. 187, 22 L. R. A. (N. S.) 1153, 1134, 104 S. W. 573; Davis v. Stevens, 104 Fed. 235; Toledo, St. L. & K. 0. E. Co. V. Continental Trust Co., 95 Fed. 497, aff'g 86 Fed. 929, 82 Fed. 642, application for certiorari denied, 176 TJ. S. 219, 44 L. Ed. 442-; In re Mendenhall, Fed. Cas. No. 9,425. Alabama. Cory v. Lee, 93 Ala. 468, 8 So. 694; Snider 's Sous' Co. v. Troy, 91 Ala. 224, 11 L. E. A. 515, 24 Am. St. Rep. 887, 8 So. 658. And see Cen- tral Agricultural & Mechanical Ass'n V. Alabama Gold Life Ins. Co., 70 Ala. 120. Arkansas. Whipple v. Tuxworth, 81 Ark. 391, 99 S. W. 86. California. Brandenstein v. Hoke, 101 Cal. 131, 35 Pac. 562. Coloiado, Jones v. Aspen Hard- ware Co., 21 Colo. 263, 29 L. E. A. 143, 52 Am. St. Rep. 220, 40 Pac. 457. Florida. Duke v. Taylor, 37 Fla. 64, 31 L. R. A. 484, 53 Am. St. Rep. 232, 19 So. 172. See also Taylor v. Bran- ham, 35 Fla. 297, 39 L. R. A. 362, 48 Am. St. Rep. 249, 17 So. 552. Georgia. Brown v. Atlanta Bail- way & Power Co., 113 Ga. 462, 39 S. E. 71; Georgia Southern & F. R. Co. V. Mercantile Trust & Deposit Co., 94 6a. 306, 32 L. R. A. 208, 47 Am. St. Rep. 153, 21 S. E. 701. Illinois. Chicago & W. I, R. Co. v. Heidenreioh, 254 111. 231, Ann. Cas. 1913 .C 266, 98 N. B. 567; Hossack v. Ottawa Development Ass 'n, 244 111. 274, 91 N. E. 439; Imperial Bldg. Co. V. Chicago Open Board of Trade, 238 111. 100, 87 N. E. 167, 136 111. App. 606; Gillette v. Aurora Bys. Co., 228 111. 261, 81 N. E. 1005; Marshall v. 558 Ch. 10] De Facto Coepoeations [§279 A somewhat different form in which this rule as to the necessity Keach, 227 111. 35, 118 Am. St. Eep. 247, 10 Ann. Cas. 164, 81 N. E. 29; American Loan & Trust Co. v. Min- nesota & N. W. R. Co., 157 111. 641, 42 N. E. 153; Woodla^nd Social Enter- tainment Ass'n V. Anderson, 187 111. App. 507; Concord Apartment House Co. V. Alaska Refrigerator Co., 78 111. App. 682. See also People v. Cowan, 247 HI. 357; People v. Shedd, 241 111. 155, 89 N E. 332, aff'd 217 TJ. S. 597, 54 L. Ed. 896 (mem. dec); Pettis v. Atkins, 60 111. 454. Indiana. Jennings v. Dark, 175 Ind. 332, 92 N. E. 778; Clark v. American Cannel Coal Co., 165 Ind. 213, 112 Am. St. Rep. 217, 73 N. E. 1083, 35 Ind. App. 65, 73 N. E. 727; Doty v. Patter- son, 155 Ind. 60, 56 N. E. 668; Heas- ton V. Cincinnati & F. W. R. Co., 16 Ind. 275, 79 Am. Dec. 43»; Harrimau V. Southam, 16 Ind. 190; Farmers' Mutual V. Eeser, 43 Ind. App. 634, 88 N. E. 349; Indiana Bond Co. v. Ogle, 22 Ind. App. 593, 72 Am. St. Rep. 326, 54 N. E. 407. See also Snyder v. Studebaker, 19 Ind. 462, 81 Am. Dee. 415; Farmers' Ins. Co. v. Borders, 26 Ind. App. 491, 60 N. E. 174. Iowa. See Cedar Rapids Water Co. V. Cedar Rapids, 118 Iowa 234, 91 N. W. 1081. Kansas. Pape v. Capitol Bank, 20 Kan. 440, 27 Am. Rep. 183; Krutz v. Paola Town Co., 20 Kan. 397. Iiouisiana. Bond & Braswell v. Scott Lumber Co., 128 La. 818, 55 So. 468; Leader Realty Co. v. Lake view Land Co., 127 La. 1059, 54 So. 350. Michigan. Eatoa v. Walker, 76 Mich. 579, 6 L. R. A. 102, 43 N. W. 638; Burton v. Schildbach, 45 Mieh. 504, 8 N. W. 497. And see Schuetzen Bund V. Agitations Verein, 44 Mich. 313, 38 Am. Rep. 270, 6 N. W. 675. Minnesota. Healey v. Steele Center Creamery Ass'n, 115 Minn. 451, 133 N. W. 69; Johnson, v. Okerstrom, 70 Minn. 303, 73 N. W. 147; Hause t. Mannheimer, 67 Minn. 194, 69 N. W. 810; Finnegan v. Noerenberg, 52 Minn. 239, 18 L. R. A. 778, 38 Am. St. Rep. 552, 53 N. W. 1150; East Norway Lake Church V. Froislie, 37 Minn. 447, 35 N. W. 260. Montana. Milwaukee Gold Extrac- tion Co. V. Gordon, 37 Mont. 209, 95 Pac. 995. Nebraska. Kleckner v. Turk, 45 Neb. 176, 63 N. W. 469; Abbott v. Omaha Smelting & Refining Co., 4 Neb. 416. New Jersey. Sisters of Charity of St. Elizabeth, v. Morris R. Co., 84 N. J. L. 310, 50 L. R. A. (N. S.) 236, 86 Atl. 954, aff 'g 82 N. J. L. 214, 81 Atl. 817. New York. Methodist Episcopal Union Church v. Pickett, 19 N. Y. 482, aff 'g 23 Barb. 436; Welsh v. Old Dominion Min. & By. Co., 56 Hun 650, 10 N. Y. Supp. 174. Ohio. Society Perun v. Cleveland, 43 Ohio St. 481, 3 N. E. 357; GafE v. Flesher, 33 Ohio St. 107, 453. See Raccoon River Nav. Co. v. S^gle, 29 Ohio St. 238, the holding in which is explained in Society Perun v. Cleve- land, 43 Ohio St. 481, 3 N. E. 357, and in Gaff v. Flesher, 33 Ohio St. 107. Oklahoma. Mitchell v. Carter, 31 Okla. 592, 122 Pac. 691; Western U. Tel. Co. V. Mexican Agr. Land Co., 31 Okla. 528, Ann. Cas. 1914 C 1244, 122 Pac. 505; Guthrie v. T. W. Harvey Lumber Co., 9 Okla. 464, 60 Pae. 247; Guthrie v. Wylie, 6 Okla. 61, 55 Pac. 103; Guthrie Nat. Bank v. McEl Hinney, 5 Okla. 107, 47 Pae. 1062; Oklahoma City v. T- M. Richardson Lumber Qo., 3 Okla. 5, 39 Pac. 386; Blackburn v. Oklahoma City, 1 Okla. 292, 33 Pac. 708, 31 Pae. 782; Guthrie v. Territory, 1 OkJa. 188, 21 L. R. A. 841, 31 Pac. 190. 559 §279] Peivate Cokpokations [Ch.lO of lawful authority to incorporate is occasionally stated is that Tennessee. Tennessee Automatic- Lighting Co. V. Massey (Tenn. Ch.), 56 S. W. 35. Texas. MeLeary v. Dawson, 87 Tex. 524, 29 S. "W. 1044, rev'g (Tex. Civ. App.), 25 S. W. 705; Staaeke v. Eout- ledge, — Tex. Civ. App. — , 175 S. W. 444; Gordon v. American Patriots of Springfield, Illinois, — Tex. Civ. App. — , 141 S. W. 331; Whaley v. Bankers' Union of World, 39 Tex. Civ. App. 385, 88 S. W. 259. And see Parks v. West, 102 Tex. 11, 111 S. W. 726, rev'g (Tex. Civ. App.), 108 S. W. 466. Vermont. State v. Rutland Rail- way, Light & Power Co., 85 Vt. 91, Ann. Cas. 1914 A 1305, 81 Atl. 252. Wisconsin. Huber v. Martin, 127 Wis. 412, 3 L. E. A. (N. S.) 653, 115 Am. St. Rep. 1023, 7 Ann. Cas. 400, 105 N. W. 1031; Town of Winneconne V. Village of Winneconne, 111 Wis. 10, 86 N. W. 589; Gilkey v. Town of How, 105 Wis. 41, 49 L. E. A. 483, 81 N. W. 120. A charter granted by the chancery court for a purpose not authorized by the general law is void on collateral attack. Heck v. McEwen, 12 Lea (Tenn.) 97. Where two or more churches cannot lawfully be organized into one cor- poration, an attempt to do so does not create a corporation de facto. Ev- enson v. Ellingsou, 67 Wis. 634, 31 N. W. 342. See African M. E. Church V. New Orleans, 15 La. Ann. 441, where it was held, in an action by a colored religious corporation to have certain ordinances interfering with its church services declared void, that the statute did not authorize the organi- zation of corporations by colored per- sona, and that such corporation ha;d no legal existence. In Western U. Tel. Co. V. Mexican Agr. Land Co., 31 Okla. 528, Ann. Cas. 1914 C 1244, 122 Pac. 505, it was held that a demurrer to an answer in an action for dam- ages alleging that the plaintiff's or- ganization was a pretended one in fraud of the law, in that it was not organized for any purpose authorized by such laws, was improperly sus- tained. Where there is no law authorizing incorporation for the purposes in question, the members are liable as partners. Hanstein v. Johnson, 112 N. C. 253, 17 S. E. 155; Bain v. Clin- ton Loan Ass'n, 112 N. C. 248, 17 S. E. 154; Lynch v. Perryman, 29 Okla. 615, Ann. Cas. 1913 A 1065, 119 Pac. 229. But in Watton v. Cruce, 44 Okla. 186, 143 Pac. 1152, it was held that a person who had done work for a cor- poration under a contract could not attack its existence nor hold its mem- bers liable as partners on the ground that the statute did not authorize the formation of a corporation for the pur- poses stated in its articles. This was a commissioner's opinion, adopted by the court, and while it was held that the ruling of the trial court sustaining a demurrer to the complaint could be sustained on the ground above stated, it was also held that the purpose for which the corporation was organized was authorized by the statute. Apple- ton Mut. Eire Ins. Co. v. Jesser, 5 Allen (Mass.) 446, was an action by a mutual insurance company, incor- porated under a special charter, to collect assessments upon premium notes. The defense interposed was that the corporators met and chose officers before the act of incorpora- tion went into effect. In the course of the Opinion the court says: "The essential quality of a corporation is the power granted by the sovereign to persons designated and described, to act in a corporate capacity. The acts of this corporation before the day when the statute went into effect were 560 Ch. 10] Db Facto Coeporations [§279 there must be at least color of law for its corporate existence,*^ and if there is no law under which the power assumed by the corpora- tion might lawfully be created, the mere fact of assuming such power does not constitute the persons a corporation de facto, even though they act in the full belief that they are legally incorporated. «* In other words, in order that a body may become a corporation de facto, a law must exist authorizing it to become a corporation de jure,®'' ' ' and acts done in the former case must be legally authorized to wholly void. But when on and after that day persons were found with the consent and under the authority of the designated corporators, and with- out objection on the part of the sov- ereign power, actually exercising the corporate powers, and claiming and using the franchise, they constituted a corporation de facto; and the law- fulness of their organization cannot be impeached collaterally in an action to recover an assessment." That there is no law authorizing the formation of a union school section out of parts of other sections may be taken advantage of as a defense to the collection of a school rate im- posed by the officers of a union sec- tion so formed. Askew v. Manning, 38 U. C. Q. B. 345. See also eases cited § 277, supra. 6B Snider 's Sons' Co. v. Troy, 91 Ala. 224, 11 L. E. A. 515, 24 Am. St. Eep. 887, 8 So. 658; Lehman, Kurr & Co. V. Warner, 61 Ala. 455; Bradley v. Eeppell, 133 Mo. 545, 54 Am. St. Eep. 685, 34 S. W. 841, 32 S. "W. 645; Catholic Church v. Tobbein, 82 Mo. 418; St. Louis v. Shields, 62 Mo. 247; Douthitt V. Stinson, 63 Mo. 268; Atchison v. Crawford County Farmers ' Mut. Fire Ins. Co., 192 Mo. App. 362, 180 S. W. 438. See also Douthitt v. Stinson, 63 Mo. 268; Foster v. Hare, 26 Tex. Civ. App. 177, 62 S. W. 541. In Eialto Co. v. Miner, 183 Mo. App. 119, 166 S. W. 629, it wag held that an Illinois corporation was organized for a purpose authorized by the laws of that state, and hence that a conten- tion that it was neither a corporation de jure nor de facto within the rule laid down in Imperial Bldg. Co. v. Chicago Open Board of Trade, 238 III. 100, 87 N. E. 167, could not be sustained. 66 Imperial Bldgi. Co. v. Chicago Open Board of Trade, 238 111. 100, 87 N. B. 167, 136 111. App. 606; Gillette V. Aurora Eys. Co., 228 111. 261, 81 N. E. 1005; American Loan & Trust Co. V. Minnesota & N. W. E. Co., 157 111. 641, 42 N. E. 153; Eaton v. Walker, 76 Mich. 579, 6 L. E. A. 102, 43 N. W. 638. See also Mandeville v. Court- wright, 126 Fed. 1007, rev'd on other grounds 142 Fed. 97, 6 L. E. A. (N. S.) 1003. 67 United States. Davis v. Stevens,' 104 Fed. 235; Toledo, St. L. & K. C. E. Co. V. Continental Trust Co., 95 Fed. 497, aff'g 86 Fed. 929, 82 Fed. 642, application for certiorari denied, 176 U. S. 219, 44 L. Ed. 442. See also Cunningham v. City of Cleveland, 98 Fed. 657. Florida. Duke v. Taylor, 37 Fla. 64, 31 L. E. A. 484, 53 Am. St. Eep.. 232, 19 So. 172. Georgia. Brown v. Atlanta Eailway & Power Co., 113 6a. 462, 39 S. E. 7; Georgia Southern & F. E. Co. v. Mer- cantile Trust & Deposit Co., 94 Ga. 306, 32 L. E. A. 208, 47 Am. St. Eep. 153, 21 S. E. 701. Illinois. Imperial Bldg. Co. v. Chi- I Priv. Corp.— 36 561 §279] Peivate Cokpobations [Ch. 10 be done in the latter, or they are not protected or sanctioned by the law. Such acts must have an apparent right. " ^* It follows that "the question whether there is any law under which it could exercise the powers assumed is open to question at all times when it attempts to ex'ercise such powers, ' ' ^* and may be raised in a collateral proceeding.'"' So, where a charter is assigned by the per- sons to whom it is granted before any organization under it, the eago Open Board of Trade, 238 111. ]00, 87 N. E. 167, 136 111. App. 606; Gillette v. Aurora Eys. Co., 228 111. 261, 81 N. E. 1005; American Loan & Trust Co. V. Minnesota & N. W. B. Co., 157 111. 641, 42 N. E. 153. Indiana. Clark v. American Cannel Coal Co., 165 Ind. 213, 112 Am. St. Eep. 217, 73 N. E. 1083, 35 Ind. App. 65, 73 N. E. 727; Indiana Bond Co. v. Ogle, 22 Ind. App. 593, 72 Am. St. Eep. 326, 54 N. E. 407. Iowa. See Cedar Eapids Water Co. V. Cedar Eapids, 118 Iowa 234, 91 N. W. 1081. Missouri. Bradley v. Eeppell, 133 Mo. 545, 54 Am. St. Eep. 685, 34 S. "W. 841, 32 S. W. 645. OWo. See Gaff v. Flesher, 33 Ohio St. 107, 453. Oklahoma. Mitchell v. Carter, 31 Okla. 592, 122 Pac. 691; Western U. Tel. Co. V. Mexican Agr. Land Co., 31 Okla. 528, Ann. Cas. 1914 C 1244, 122 Pac. 505; Guthrie v. T. W. Harvey Lumber Co., 9 Okla. 464, 60 Pac. 247; Guthrie v. Wylie, 6 Okla. 61, 55 Pac. 103; Guthrie Nat. Bank v. McEl Hin- ney, 5 Okla. 107, 47 Pac. 1062; Okla- homa City V. Eichardson Lumber Co., 3 Okla. 5, 39 Pac. 386; Blackburn v. Oklahoma City, 1 Okla. 292, 33 Pac. 708, 31 Pac. 782; Guthrie v. Territory, 1 Okla. 188, 21 L. E. A. 841, 31 Pac. 190. Tennessee. See Euohs v. Athens, 91 Tenn. 20, 30 Am. St. Eep. 858, 18 S. W. 400. Texas. Gordon v. American Patri- ots of Springfield, Illinois, — Tex. Civ. App. — , 141 S. W. 331; Whaley v. Bankers' Union of World, 39 Tex. Civ. App. 385, 88 S. W. 259. Vermont. State v. Eutland Eail- ■way. Light & Power Co., 85 Vt. 91, Ann. Cas. 1914 A 1305, 81 Atl. 252. Wisconsin. Huber v. Martin, 127 Wis. 412, 3 L. E. A. (N. S.) 653, 115 Am. St. Eep. 1023, 7 Ann. Cas. 400, 105 N. W. 1031; Town of Winneconne v. Village of Winneconne, 111 Wis. 10, 86 N. W. 589; Gilkey v. Town of How, 105 Wis. 41, 49 L. E. A. 483, 81 N. W. 120; Evenson v. EUingson, 67 Wis. 634, 31 N. W. 342. 68 Evenson v. EUingson, 67 Wis. 634, 31 N. W. 342, quoted in Clark v. American Cannel Coal Co., 165 Ind. 213, 112 Am. St. Eep. 217, 73 N. E. 1083, 35 Ind. App. 65, 73 N. E. 727. 69 Gillette v. Aurora Eys. Co., 228 111. 261, 81 N. E. 1005. 70 United States. Davis v. Stevens, 104 Fed. 235. Illinois. Imperial Bldg. Co. v. Chi- cago Open Board of Trade, 238 111. 100, 87 N. E. 167, 136 111. App. 606; Gillette v. Aurora Eys. Co., 228 111. 261, 81 N. E. 1005. Indiana. Clark v. American Cannel Coal Co., 165 Ind. 213, 112 Am. St. Eep. 217, 73 N. B. 1083, 35 Ind. App. 65, 73 N. B. 727; Indiana Bond Co. v. Ogle, 22 Ind. App. 593, 72 Am. St. Eep. 326, 54 N. E. 407. See also Farmers' Ins. Co. v. Borders, 26 Ind. App. 491, 60 N. E. 174. Micmgan. Eaton v. Walker, 76 Mich. 579, 6 L. E. A. 102, 43 N. W. 638. 562 Ch. 10] De Facto Cobpobations [§279 assignment is void, and the assignees do not acquire existence as a de facto corporation by organizing under it and assuming corporate powersJ^ But it has been held that a corporation organized in a territory where no law provides therefor may become a corporation de facto upon the passage of a law authorizing corporations of a similar nature, there having been continuance of the business as if incorporated,''^ and that even though a charter granted by the chancery court is in- valid because the court had no power to create a corporation for the purpose in question, it is sufficient if there is an attempt to comply with a general law subsequently passed providing for the incorpora- tion of such associations and permitting corporations previously organized under special charters to take advantage of its provisions^* There may also be a de facto corporation though the articles of Missouri. Atchison v. Crawford County Farmers' Mut. Fire Ins. Co., 192 iMo. App. 362, 180 S. "W. 438. Oklahoma. Western U. Tel. Co. v. Mexican Agr. Land Co., 31 Okla. 528, Ann. Cas. 1914 1244, 122 Pac. 505. Texas. Staacke v. Eoutledge, — Tex. Civ. App. — , 175 S. W. 444; Gor- don V. American Patriots of Spring- field, Illinois, — Tex. Civ. App. — , 141 S. W. 331; Whaley v. Bankers' Union of World, 39 Tex. Civ. App. 385, 88 S. W. 259. See also Parks v. West, 102 Tex. 11, 111 S. W. 726. Wisconsin. Huber v. Martin, 127 Wis. 412, 3 L. E. A. (N. S.) 653, 115 Am. St. Rep. 1023, 7 Ann. Caa. 400, 105 N. W. 1031; Town of Winneconne V. Village of Winneconne, 111 Wis. 10, 86 N. W. 589; Chicago & N. W. Ey. Co. v. Oshkosh, A. & B. W. R. Co., 107 Wis. 192, 83 N. W. 294. Where there is no law authorizing incorporation for the purpose in ques- tion, the attempted incorporation has no legal effect and does not relieve from individual liability. Vredenburg V. Behan, 33 La. Ann. 627. One who is injured by the negli- gence of the employees of a corpora- tion may set up that the business in which they were engaged at the time was not one which the statute per- mitted corporations to carry on, for the purpose of holding the stockhold- ers liable as partners. Staacke v. Eoutledge, — Tex. Civ. App. — , 175 S. W. 444. In Doty V. American Telephone & Telegraph Co., 123 Tenn. 329, Ann. Cas. 1912 C 167, 130 S. W. 1053, which was an ejectment suit to recover prop- erty taken by the telephone company under the power of eminent domain, the court considered ajid passed on the contention of the plaintiff that there was no law authorizing the in- corporation of a telephone company with power to construct or operate a telephone line, holding that there was such a law. The right to raise the question was not discussed or raised. See also cases cited in previous notes in this section. 71 Welsh v. Old Dominion Min. & Ry. Co., 56 Hun (N. T.) 650, 10 N. Y. Supp. 174. 72 Mason v. Stevens, 16 8. D. 320, 92 N. W. 424; State v. Stevens, 16 S. D. 309, 92 N. W. 420. 73 Deitch V. Staub, 115 Fed. 309. 563 §279] Pbivate Coepoeations [Ch. 10 incorporation enumerate purposes which are in part not authorized by the statute,''* or confer powers not authorized by the statute.''* §280. — Organization under unconstitutional statute. It would seem necessarily to follow from this principle that there cannot be a corporation de facto under a statute which is unconstitutional, for an unconstitutional statute is absolutely void, and the better opinion is in support of this view.''® 74 Marion Bond Co. v. Mexican Cof- fee & Rubber Co., 160 Ind. 558, 65 N. E. 748; Saunders v. Farmer, 62 N. H. 572; In re Trenton St. Ry. Co. (N. J. Ch.), 47 Atl. 819. See also Shoun v. Armstrong (Tenn. Ch.), 59 S. W. 790. St. George's Church Society v. Branch, 120 Mo. 226, 25 S. W. 218. The fact that a corporation was formed for two incompatible purposes, in violation of the statute, is a good defense to an expropriation proceed- ing instituted by it. Bayou Cook Navigation & Fisheries Co. v. Doullut, 111 La. 517, 35 So. 729. 7B Weil V. Leopold Weil Building & Improvement Co., 126 La. 938, 53 So. 56; Eastern Plank Eoad Co. v. Vaughan, 14 N. Y. 546; Becket v. TJniontovvra Building & Loan Ass'n, 88 Pa. St. 211. See also Albright v. La- fayette Bldg. & Sav. Ass'n, 102 Pa. St. 411. A charter is not void on collateral attack because it attempts to confer some powers not authorized by tlio general law, but such provisions will be treated as surplusage. Heck v. McEwen, 12 Lea (Tenn.) 97; Tennes- see Automatic Lighting Co. v. Massey (Tenn. Ch.), 56 S. W. 35. 76 California. Brandenstein v. Hoke, 101 Cal. 131; City & County of San Francisco v. Spring Valley Water Works, 48 Cal. 493. Delaware. See Wilmington v. Ad- dicks, 8 Del. Ch. 310. Georgia. Georgia Southern & F. R. Co. V. Mercantile Trust & Deposit Co., 94 Ga. 306, 32 L. R. A. 208, 47 Am. St. Rep. 153, 21 S. B. 701; Doboy & Union Island Tel. Co. v. De Magathias, 25 Fed. 697 (construing Georgia statute). Illinois. See Imperial Bldg. Co. v. Chicago Open Board of Trade, 238 111. 100, 87 N. E. 167, 136 111. App. 606; People V. Hamill, 134 111. 666, 17 N. E. 799, 29 N. E. 280; Ross v. Chicago, B. & Q. E. Co., 77 111. 127. But in Winget v. Quincy Building & Home- stead Ass'n, 128 111. 67, 84, 21 N. E. 12, aff'g 29 111. App. 173, it is said that a party who has contracted with a de facto corporation cannot allege any defect in its organization as a de- fense to an action by it on the con- tract, and that "this rule applies even where the corporation is organized under a law alleged to be unconsti- tutional. ' ' Indiana. Clark v. American Cannel Coal Co., 165 Ind. 213, 112 Am. St. Rep. 217, 73 N. E. 1083, 35 Ind. App. 65, 73 N. E. 727; Heaston v. Cincin- nati & Ft. W. R. Co., 16 Ind. 275, 79 Am. Dec. 430. See also Marion Trust Co. v. Bennett, 169 Ind. 346, 124 Am. St. Rep. 228, 82 N. E. 782. Michigan. Eaton v. Walker, 76 Mich. 579, 6 L. R. A. 102, 43 N. W. 638; Skinner v. Wilhelm, 63 Mich. 568, 30 N. W. 311; Burton v. Schild- bach, 45 Mich. 504, 8 N. W. 497; Hurl- but V. Britain & Wheeler, 2 Dougl. 191; Green v. Graves, 1 Dougl. 351. 564 Ch. 10] De Facto Cobpobations [§280 It has been held, however, in a state in which this view is taken, that the fact that the particular statute under which it is attempted to organize a corporation is unconstitutional does not prevent its exist- ence as a corporation de facto under another statute, which is con- stitutional, and under which it might have been organized.''' And it has also been held that an unconstitutional statute of another state, intended to legalize a corporation there attempted to be organized, is New Jersey. Sisters of Charity of statute under which the plaintiff cor- poration was organized was unconsti- tutional. See also Kellogg v. Union Co., 12 Conn. 7, where the question of the eonatitutiouality of the special charter of a navigation company was raised and considered in an action by said company to recover tolls. A further illustration of the application of this rule is seen in Kline v. State, 146 Ala. 1, in which case it was held that an indictment for a crime com- mitted in territory attempted by an unconstitutional statute to be detached from one county and attached to another was improperly found in the latter county, and a conviction was re- versed on that ground. 77 Georgia Southern & F. E. Co. v. Mercantile Trust & Deposit Co., 94 Ga. 306, 32 L. E. A. 208, 47 Am. St. Eep. 153, 21 S. E. 701. In this case it was held that a railroad company might be regarded as a de facto corporation under a general law under which it might have been organized, and which was constitutional, although it was in fact organized under an unconstitu- tional special charter. This decision was followed by the federal court in Georgia. Central Trust Co. of New York V. Chattanooga, E & C. E. Co., 94 Fed. 275, aff'g 89 Fed. 388. See also Georgia Southern & F. Ey. Co. v. Barton, 101 Ga. 466, 471, 28 S. E. 842; St. John V. Andrews Institute for Girls, 117 N. Y. App. Div. 698, 102 N. Y. Supp. 808, modified as to another point, 191 N. Y. 254, 14 Ann. Cas. 708, 83 N. E. 981. St. Elizabeth v. Morris E. Co., 84 N. J. L. 310, 50 L. E. A. (N. S.) 236, 86 Atl. 954, aff'g 82 N. J. L. 214, 81 Atl. 817. Wisconsin. Huber v. Martin, 127 Wis. 412, 3 L. E. A. (N. S.) 653, 115 Am. St. Eep. 1023, 7 Ann. Cas. 400, 105 N. W. 1031; Town of Winneconne V. Village of Winneconne, 111 Wis. 10, 86 N. W. 589. See also Evenson v. Ellingson, 67 Wis. 634, 31 N. W. 342. But see Black Eiver Improvement Co. V. Holway, 85 Wis. 344, 55 N. W. 418, holding that a corporation whose origi- nal charter had expired and had been extended by an unconstitutional stat- ute was a de-facto corporation as to a former stockholder who has sold his stock after such extension. An unconstitutional law is abso- lutely void, and "a void law is no law. ' ' Brandenstein v. Hoke, 101 Cal. 131, 35 Pac. 562, To the same effect see Norton v. Shelby County, 118 U. S. 425, 30 L. Ed. 178; Clark v. Ameri- can Cannel Coal Co., 165 Ind. 213, 112 Am. St. Eep. 217, 73 N. E. 1083, 35 Ind. App. 65, 73 N. E. 727. In accordance with this view it has been held that the unconstitutionality of the statute under which a bank was organized is a good defense to an ac- tion by its receiver on a note payable to it. Green v. Graves, 1 Dougl. (Mich.) 351. In Etowah Light & Power Co. v. Yancey, 197 Fed. 845, a demurrer to the petition in a suit to condemn land was sustained on the ground that the §65 §280] Pbivate Cokpobations [Ch. 10 admissible to show a recognition by that state of the fact that the corporation there assumes to exist and act as a corporation, and as evidence that such state has treated it as a de facto corporation and has acquiesced in its acting as such.''* There is not wanting, however, authority for the view that there may be a corporation de facto though the statute under which the organization is attempted is unconstitutional.™ In support of this view it is claimed that even under such circumstances the corpora- tion is organized under color of law ; '" that the statute is presump- tively valid until it has been judicially declared to be invalid, and that until it is so declared men have a right to act and contract on this presumption ; '^ and that their acts and contracts and those of 78 Hudson V. Green Hill Seminary Corporation, 113 111. 618. 79 United States. See Clapp v. Otoe County, 104 Fed. 473. Maine. Taylor v. Portsmouth, K. & Y. St. Ey., 91 Me. 193, 64 Am. St. Rep. 216, 39 Atl. 560; McClineh v, Sturgis, 72 Me. 288. Minnesota, Bichards v. Minnesota Sav. Bank, 75 Minn. 196. See also East Norway Lake Church v. Froislie, 37 Minn. 447, 35 N. W. 260. Missouri. Catholic Church v. Tob- bein, 82 Mo. 418; City of St. Louis v. Shields, 62 Mo. 247. In Farmers' Bank V. Garten, 34 Mo. 119, the ques- tion of the constitutionality of the act chartering a bank was considered in an action brought by it on a bill of exchange. And in Keith &• Perry Coal Co. V. Bingham, 97 Mo. 196, 10 S. W. 82, the constitutionality of the statute was inquired into and the stat- ute upheld. But see Bradley v. Eep- pell, 133 Mo. 545, 54 Am. St. Bep. 685, 34 S. W. 841, 32 S. W. 645, which holds that there can be no corporation de facto where there cannot be one de jure, at least where there is no estoppel, and that a corporation is not one de facto after the expiration of its corporate existence by limitation. Nebraska. Lincoln Bldg. & Sav. Ass'n T. Graham, 7 Neb. 173. New York. Coxe v. State, 144 N. Y, 396, 39 N. E. 400; St. John v. An drews Institute for Girls, 117 App Div. 698, 102 N. Y. ffupp. 808, modi fled as to another point 191 N. Y. 254, 14 Ann. Cas. 708, 83 N. B. 981 And see Chenango Bridge Co. v. Paige, 83 N. Y. 178, 38 Am. Rep. 407, holding that an unconstitutional charter is void and affords no protection to those who act under it. But see Debow v. People, 1 Denio 9. Pennsylvania. Burkhard v. Penn- sylvania Water Co., 234 Pa. 41, 82 Atl. 1120; Com. v. Philadelphia County, 193 Pa. St. 236, 44 Atl. 336; Yeingst V. Philadelphia, H. & P. E. Co., 40 Pa. Super. Ct. 106; Com. v. Philadelphia, H. & P. R. Co., 23 Pa. Super. Ct. 235, holding such to be the case though the title of the act granting its char- ter does not clearly express the subject of the act as required by the constitution. 80 Clapp V. Otoe County, 104 Fed. 473; Speer v. Board Com'rs Kearney Co., 88 Fed. 749; Back v. Carpenter, 29 Kan. 349. See also McCain v. Des Moines, 174 U. S. 168, 43 L. Ed. 936; State V. Des Moines, 96 Iowa 521, 31 L. B. A. 186, 59 Am. St. Rep. 381, 65 N. W. 818; Topeka v. Dwyer, 70 Kan. 244, 3 Ann. Cas. 239, 78 Pac. 417. 81 Speer v. Board Com 'rs Kearney Co., 88 Fed. 749. 566 Ch. 10] De Facto Coepobations [§280 the corporation, before the validity of the statute is challenged or its invalidity is so declared, must be treated as valid and lawful, and cannot be avoided, as against the interests of the public or of third parties who have acted or invested in good f Eiith in reliance upon their validity, by any ex post facto declaration or decision that the law under which they acted was void.'^ This rule is frequently applied in the case of municipal and quasi municipal corporations organized under unconstitutional statutes,^' SZSpeer v. Board Com'rs Kearney Co., 88 Fed. 749. 83 United States. Speer v. Board Com'rs Kearney Co., 88 Fed. 749. Idaho. Bellevue Water Co. v. Stockslager, 4 Idaho 636, 43 Pac. 568; Wright V. Kelley, 4 Idaho 624, 43 Pac. 565. Iowa. See State v. Des Moines, 96 Iowa 521, 31 L. E. A. 186, 59 Am. St. Eep. 381, 65 N. W. 818; McCain v. Des Moines, 174 U. S. 168, 43 I/. Ed. 936. Kansas. Topeka v. Dwyer, 70 Kan. 244, 3 Ann. Cas. 239, 78 Pac. 417; Eiley v. Garfield Tp., 58 Kan. 299, 49 Pac. 85. In Bitchie v. Mulvane, 39 Kan. 241, 17 Pac, 830, it was held that certain territory was de facto a part of a city, though annexed under the provisions of an unconstitutional stat- ute. And see also School Dist. No. 25 V. State, 29 Kan. 57, holding that a school district was organized under the general laws of the state relating to the organization of school districts, and not under an unconstitutional statute detaching the territory in in which it was situated from one county and attaching it to another county. But in Atchison, T. & S. F. E. Co. V. Board Com'rs Kearny Co., 58 Kan. 19, 48 Pac. 583, it was held that "there can be no such thing as a de facto municipal organization where the evidence of its nonexistence de jure is patent from the face of the law itself," and hence that where a statute purporting to attach an un- organized county to an organized one for judicial purposes was void because its title purported to attach said un- organized county to one county while the body of the act attached it to an- other one, a township organized in the attached territory was not one de facto. The court distinguishes School Dist. No. 25 V. State, supra, on the ground that there the error did not inhere in the law creating the district, and that it could be ascertained only by a measurement and calculation of land areas. In Speer v. Board Com'rs Kearney Co., 88 Fed. 749, which was a case involving the same questions and arising under the same statutes, the federal court refused to follow the holding in Atchison, T. & S. F. E. Co. v. Board Com'rs Kearney Co., supra, but instead applied the rule laid down in School District No. 25 v. State, and held that where an unor- ganized county was attached to an existing county by an unconstitutional statute, and it was provided by a valid law that unorganized coun- ties so attached to organized counties should constitute townships of the latter, its organization into a township was under the latter law and not under the unconstitutional stat- ute, and also that there might be a de facto corporation under an unconsti- tutional law. In Clapp v. Otoe Coun- ty, 104 Fed. 473 (certiorari denied 180 U. S. 638, 45 L. Ed. 710), in sus- taining this view the court said: "There is another reason why the d& 567 §280] Peivate Coepoeations [Ch. 10 and this view has Keen taken even where it is held that there cannot be a de facto private corporation under such circumstances.** § 281. — Corporations prohibited by statute or contrary to public policy. When the existence of a particular corporation, or of fense which we have been consider- ing cannot be sustained. It is that the general acquiescence by the inhabit- ants of a political subdivision organ- ized under color of law, and by the departments and officers of the state and county having official relations with it, gives to the acts and con- tracts of those officers on its behalf as a subdivision de facto all the force and validity of their acts in its behalf as a subdivision de jure. The acts of ordinary municipal bodies or- ganized under color of law depend far more upon general acquiescence than upon the legality of their action or the existence of every condition prece- dent prescribed by the statutes un^ der which they organize and act. The interests of the public which depend upon such municipalities and their various subdivisions, the rights and the relations of private citizens which become fixed in reliance upon their existence, the injustice and confusion which must result from an ex post facto avoidance of their acts, com- mend the justice and demand the en- forcement of the rule that, when a municipal body or a political subdi- vision of a state or county has, or its officers have, assumed, under color of authority, and have exercised for a considerable period of time, with the consent of the state and its citizens, powers of a kind recognized by the organic law, neither the corporation, subdivision, nor any pp-ivate party can, in private litigation, question the legality of the existence of the cor- poration or subdivision." In Back v. Carpenter, 29 Kan. 349, it was held that a city was a city of the second class de facto, though it was organized as such under an unconstitutional statute. Louisiana. See Chicago, St. L. & N. O. E. Co. V. Town of Kentwood, 49 La. Ann. 931, 22 So. 192. Minnesota. See Burt v. Winona & St. P. E. Co., 31 Minn. 472, 18 N. W. 285. Missouri. St. Louis v. Shields, 62 Mo. 247; State v. Eich & Eich, 20 Mo. 393. In State v. Blair, 245 Mo. 680, 151 S. W. 148, it was held that the le- gality of the organization of a drain- age district could not be collaterally attacked on the ground that the stat- ute under which it was organized was unconstitutional. Ohio. Beck v. Eocky Eiver Village School Dist., 14 Ohio Dec. N. P. 312. See State v. Gardner, 54 Ohio St. 24, 31 L. E. A. 660, 42 N. E. 999, where it is held that there may be a df facto public officer under an uncon- stitutional statute, until the statute has been held to be unconstitutional in a direct proceeding appropriate to that end. Pennsylvania. Com. v. Philadelphia County, 193 Pa. St. 236, 44 Atl. 336. See also King v. Philadelphia Co., 154 Pa. St. 160, 21 L. E. A. 141, 35 Am. St. Eep. 817, 26 Atl. 308. For a detailed treatment of this question, see McQuillin on Municipal Corporations, § 151, et seq. 84 Lang V. Bayonne, 74 N. J. L. 455, 15 L. E. A. (N. S.) 93, 68 Atl. 90; Holloway v. Dickinson, 69 N. J. L. 72, 54 Atl. 529; Attorney General v. Town of Dover, 62 N. J. L. 138, 41 Atl. 98; Eiverton & P. "Water Co. v. Haig, 58 N. J. L. 295, 33 Atl. 215; Steelman v. Vickers, 51 N. J. L. 180, 14 Am. St. Eep. 675, 17 Atl. 153; Coast Co, v. Borough' of 568 Ch. 10] De Facto Coepobations [§281 corporations for a particular purpose, is prohibited by a positive law, or is contrary to public policy, such a corporation cannot be recog- nized as having a de facto existence, and its existence and right to exercise corporate powers may be attacked collaterally as well as directly, and by individuals.** Or, stated in another way, a de facto corporation can never be recognized in violation of a positive law.** And a similar rule has been applied where a charter is granted to a corporation by the court notwithstanding a constitutional provision giving the legislature exclusive power to grant such charters.*' Some courts, however, seem to have adopted a contrary view. So Spring Lake, 56 N. J. Eq. 615, 51 L. E. A. 657, 36 Atl. 21, afE'd 58 N. J. Eq. 586, 51 L. E. A. 657, 47 Atl. 1131. The unconstitutionality of a stat- ute under which a village was reor- ganized cannot be raised in an action to recover back property seized for taxes. Coe v. Gregory, 53 Mich. 19, 18 N. W. 541. 85 United States. See Oregonian Ey. Co. V. Oregon Ey. & Nav. Co., 10 Sawy. 464, 23 Fed. 232, 241, 27 Fed. 277. Where a corporation is organized ostensibly for the purpose of constructing and operating works of public improvement, but in reality for the purpose of conducting a lot- tery, and its stock is issued as fully paid when in fact nothing has been paid thereon, the charter is a fraud on the law, and the court will not lend its aid to protect the rights of the original stockholders. Le Warns v. Meyer, 38 Fed. 191. Colorado. Jones v. Aspen Hardware Co., 21 Colo. 263, 29 L. E. A. 143, 52 Am. St. Eep. 220, 40 Pac. 457, Greorgla. Georgia Southern & F. E. Co. V. Mercantile Trust & Deposit Co., 94 Ga. 306, 32 L. E. A. 208, 47 Am. St. Eep. 153, 21 S. E. 701. Illinois. Imperial Bldg. Co. v. Chi- cago Open Board of Trade, 238 111. 100, 87 N. E. 167, 136 111. App. 606. Louisiana. Workingmen 's Accom- modation Bank v. Converse, 29 La. Ann. 369. Texas. Empire Mills v. Alston Gro- cery Co., 4 Willson Civ. Cas. Ct. App. §221. A corporation organized for the purpose of agitating the repeal of liq- uor laws and to resist their enforce- ment cannot sue to recover a debt. Schuetzen Bund v. Agitations Verein, 44 Mich. 313, 38 Am. Eep. 270, 6 N. W. 675. In McGrew V. City Produce Exchange, 85 Tenn. 572, 4 Am. St. Eep. 771, 4 S. W. 38, it was held that a pretended corporation organized for the ostensible purpose of dealing in grain, but with the real object of il- legally gambling in futures, was not a corporation de facto. In Chicora Exporting & Importing Co. of South Carolina v. Crews, 6 S. C. 243i it was held that a corporation organized for the purpose of running the blockade during the civil war could not sue on contracts made by it. 86 Jones V. Aspen Hardware Co., 21 Colo. 263, 269, 29 L. E. A. 143, 52 Am. St. Eep. 220, 40 Pae. 457; National Shutter Bar Co. v. Zimmerman & Co., 110 Md. 313, 73 Atl. 19; Maryland Tube & Iron Works v. West End Im- provement Co., 87 Md. 207, 39 L. E. A. 810, 39 Atl. 620. 87 In such case the charter is void, and the coi-poration cannot maintain an action for damages for injury to its property. Doboy & V. I. Tel. Co. v. De Magathias, 25 Fed. 697. 569 §281] Peivate Cobpoeations [Ch. 10 it has been held that the existence of a corporation cannot be col- laterally attacked on the ground that it was organized for an illegal purpose, as, for example, to evade and violate the usury laws,'* or for the purpose of running the blockade during the civil war, where its ostensible purpose was a legal one,'® or to foster gambling,"* nor on the ground that it violates a constitutional provision prohibiting the organization of religious corporations except to hold title to real estate for certain church purposes.'^ And it has been held that there is a de facto school district though its organization is in violation of a statute prohibiting the formation of a new district, the boundary line of which will be nearer than one mile to a schoolhouse.®" It has also been held by a number of courts that the existence of a corporation cannot be collaterally attacked on the ground that it is a trust and therefore illegal, or that the purpose of the incorporation was to establish a monopoly, at least if the purpose stated in the articles is a lawful one,'* though there is authority permitting a col- lateral attack on this ground.'* 88 Lincoln Bldg. & Sav. Ass'n v. Graham, 7 Neb. 173. 89 Importing & Exporting Co. v. Locke, 50 Ala. 332. 90 Where a corporation is ostensi- bly organized for a legitimate purpose, it is no defense to an action by a re- ceiver to recover the amount of an unpaid stock subscription that its real purpose was to foster gambling. Augir V. Eyan, 63 Minn. 373, 65 N. W. 640. 91 Klix V. Polish Eoman Catholic St. Stanislaus Parish, 137 Mo. App. 347, 118 S. W. 1171. But see St. Louis Colonization Ass'n v. Hennessy, 11 Mo. App. 555. 92Trumbo v. People, 75 111. 561. 93 Allis Chalmers Co. v. Reliable Lodge, 111 Fed. 264; American Steel & Wire Co. v. Wire Drawers' & Die Makers' Unions, 90 Fed. 608; Inter- national Harvester Co. of America v. Eaton Circuit Judge, 163 Mich. 55, 30 L. R. A. (N. S.) 580, Ann. Cas. 1912 A 1022, 127 N. W. 695; Attorney General v. American Tobacco Co., 53 N. J. Eq. 352, 36 Atl. 971, aflf'd 56 N. J. Eq. 847, 42 Atl. 1117. See also United States Vinegar Co. v. Sehlegel, 143 N. Y. 537, 38 N. E. 729, a£E'g 67 Hun (N. Y.) 356, 22 N. Y. Supp. 407; Globe Sewer Pipe Co. v. Otis, 67 Hun (N. Y.) 652, 22 N. Y. Supp. 411. "Where a suit is brought by a cor- poration to enforce or protect a pri- vate right by injunction, a claim that the corporation is illegal or is a mo- nopoly cannot be made collaterally as a defense." Goldfield Consol. Mines Co. V. Goldfield Miners' Union No. 220, 159 Fed. 500. The existence of a corporation can- not be collaterally attacked on the ground that it was not organized in good faith but is a . subsidiary cor- poration, acting in combination with other similar corporations in pursuit of an unlawful monopolistic conspiracy in restraint of trade and to prevent competition. Joliff v. Muncie Elee. Light Co., 181 Ind. 650, 105 N. E. 234. 94 "Where the unlawful conspiracy exists in the articles of association * * *." Finek v. Schneider Granite Co., 187 Mo. 244, 106 Am. St. Eep. 452, 86 S. W. 213. The Missouri stat- ute expressly permits the violation 570 Oh. 10] De Facto Coepokations [§282 It has also been held that motives or intentions of the incorporators in obtaining a charter or certificate of incorporation cannot be i*- quired into in a collateral proceeding,^^ and that where the purpose as expressed in the charter is within the statute, there is a de facto corporation though the real purpose is other than that so expressed and authorized.^^ So the existence of a corporation cannot be col- laterally attacked on the ground that it was a fraudulent scheme entered into for the purpose of cheating and defrauding the public, where the purpose expressed is a lawful one.''' §282. — OrgaJiization under inapplicable statute. Since a cor- poration cannot exist de facto in the absence of a law authorizing it, an association for a particular purpose, or of a particular character, is not a de facto corporation, when the statute under which it claims the right to corporate existence authorizes corporations for some other purpose only, or of some other character only ; '* nor can a corpora- tion organized under a special law claim a de facto existence under a general law which it does not recognize as its charter, and under which its rights and liabilities would be different.'* Some courts, however, hold that a corporation may be one de facto though it is of its provisions to be set up as a defense to an action by the corpora- tion to recover the purchase price of goods sold. National Lead Co. v. S. E. Grote Paint Store Co., 80 Mo. App. 247. 95 Boatmen 's Bank v. Gillespie, 209 Mo. 217, 108 S. W. 74. 96 Seymour Opera-House Co. v. Wooldridge (Tex. Civ. App.), 31 S. W. 234. 97 Boatmen's Bank v. Gillespie, 209 Mo. 217, 108 S. W. 74. 98 Thus, in Davis v. Stevens, 104 Fed. 235, it was held that a bank was not a de facto corporation where there was no statute permitting the incor- poration of banks when it received its certificate of incorporation. In like manner it has been held that a corporaticta created under a statute limiting its powers to educational and social purposes does not become a corporation de facto to transact com- mercial business. Henry v. Siman- ton, 64 N". J. Eq. 572, 54 Atl. 153, rev'd on other grounds 67 N. J. Eq. 606, 61 Atl. 1065. And in Evenson v. El- lingson, 67 Wis. 634, 645, 31 N. W. 342, it was held that an attempt to organize a corporate body composed of two churches did not create a cor- poration de facto under a statute au- thorizing a corporation composed of one church only. See also Indiana Bond Co. V. Ogle, 22 Ind. App. 593, 72 Am. St. Rep. 326, 54 N." E. 407, where it is said that: "If a corpora- tion claims the right to exist for a certain purpose, it must show that it was organized under a statute author- izing the creation of a corporation for that particular purpose." But in this case there was no statutory au- thority whatever for the organization of the corporation. 99 Marion Trust Co. v. Bennett, 169 Ind. 346, 124 Am. St. Eep. 228, 82 N. E. 782. But see Jennings v. Dark, 175 Ind. 332, 92 N. E. 778. 571 282r Pbivate Coepobations [Ch. 10 organized under a statute which does not co rer corporations for the purpose in question, where there is another statute permitting incor- poration for that purpose.^ § 283. — Unauthorized consolidation. The rule that there can be no de facto corporation in the absence of lawful authority, or, in other words, that there cannot be a de facto corporation where there cannot be a corporation de jure, applies to an unauthorized consoli- dation of corporations, and hence there cannot be a de facto consolidated corporation where there is no law authorizing the con- solidation of corporations.'' So it has been held that an attempted 1 Pennsylvania Milk Producers' Ass'n V. First Nat. Bank of Honey- brook, 20 Pa. Co. Ct. 540. Pursuant to this view, there may be a de faeto religious corporation, though it is organized under a statute pro- viding for the organization of corpo- rations not for pecuniary profit instead of under the act providing for the in- corporation of religious societies. St. John the Baptist Crreek Catholic Church v. Baron (N. J. Ch.), 73 Atl. 422. This has also been held true of a corporation organized under a stat- ute permitting incorporation for the purpose "of carrying on any lawful business not otherwise specially pror vided for" instead of under one au- thorizing incorporation for works of public utility and advantage, as it should have been. Weil v. Leopold Weil Building & Improvement Co., 126 La. 938, 53 So. 56. In Vredenburg v. Behan, 33 La. Ann. 627, it was held that a rifle club or- ganized under a statute authorizing corporations for scientific purposes only was not a corporation de facto, as the purpose was not within the stat- ute, but apparently there was no other provision under which it might have been incorporated. A city which has granted a fran- chise to an electric light company can- not question the legality of its existence, in a collateral proceeding, on the ground that it was incorpo- rated under the statute relating to manufacturing companies instead of under the statute relating to electric light companies. Wyandotte Elec. Light Co. V. City of Wyandotte, 124 Mich. 43, 82 N. W. 821. See also Fos- ter V. Moulton, 35 Minn. 458, 29 N. W. 155, holding that a mutual bene- fit association was a corporation de facto as between its members though it had not complied with the statute so as to become an insurance corpora- tion de jure, and was not a benevolent society and hence could not have been incorporated under the statute rela- tive to such societies. 2 United States. Toledo, St. L. & K. C. K. Co. V. Continental Trust Co., 95 Fed. 497, aff'g 86 Fed. 929, 82 Fed. 642, application for certiorari denied 176 U. S. 219, 44 L. Ed. 442. See also Kavanagh v. Omaha Life Ass'n, 84 Fed. 295. Illinois. American Loan & Trust Co. V. Minnesota & N. W. E. Co., 157 111. 641, 42 N. E. 153. Indiana. Cleveland, C, C. & St. L. E. Co. V. Peight, 41 lud. App. 416, 84 N. E. 15. 572 Ch. 10] De Facto Cobpoeations [§ 283 consolidation by a foreign and a domestic corporation does not create a de facto consolidated corporation where there is no statute authoriz- ing the consolidation of domestic and foreign corporations.' And it has also been held that the petition of a foreign railroad company- seeking to exercise the power to condemn land conferred by a statute upon foreign corporations purchasing railroad lines in the state will be dismissed where in attempting to prove its right it shows that the line purchased was a parallel and competing one and therefore one which, under the statute, it could not lawfully purchase.* Some courts, however, hold that where there is a statute authoriz- ing the consolidation of corporations of the class in question, the con- solidated corporation may have a de facto existence notwithstanding a defect in the qualification of' some of the constituent companies, or in other words, though some of them do not possess all the qualifica- tions which the statute requires corporations to possess in order to effect a consolidation under it.® So it has been held that where the statute permits the consolidation of railroad companies only where they have lines constructed and in operation,^ or where their lines have been built or are in process of construction,'' there may be a de facto consolidated corporation though these conditions do not exist in the case of one or more of the consolidating corporations. And it has also been held that there may be a de facto consolidated corpora- tion though the lines of the consolidating companies are not in ad- joining states and the statute only permits a consolidation with roads in adjoining states ; * and that the fact that the consolidation was in violation of a statute prohibiting the consolidation of competing rail- road lines is no defense to eminent domain proceedings instituted by Texas. Gordon v. American Patri- 70 N. E. 357. See also Chicago & W. ots of Springfield, Illinois, — Tex. Civ. I. B. Co. v Heidenreich, 254 111. 231, App. — , 141 S. W. 331; Whaley v. Anpi. Cas. 1913 C 266, 98 N. E. 567. Bankers ' Union of World, 39 Tex. Civ. 6 Continental Trust Co. v. Toledo, App. 385, 88 S. W. 259. St. L. & K. C. E. Co., 86 Ted. 929, 82 Vermont. State v. Eutland Rail- Fed. 642, afC'd 95 Fed. 497, applica- way. Light & Power Co., 85 Vt. 91, tion for certiorari denied 176 U. S. Ann. Cas. 1914 A 1305, 81 Atl. 252. 219, 44 L. Ed. 442; Cleveland, C, C. & S American Loan & Trust Co. v. St. h. B. Co. v. Feight, 41 Ind. App. Minnesota & N. W. E. Co., 157 111. 641, 416, 84 N. E. 15. 42 N. E. 153; Gordon v. American Pa- 6 Cleveland, C, C. & St. L. R. Co. v. triots of Springfield, Illinois, — Tex. Feight, 41 Ind. App. 416, 84 N. E. Civ. App. — , 141 S. W. 331. See also 15. Kavanagh v. Omaha Life Ass'n, 84 7 Union Trust Co. v. New York, C. Fed. 295. & St. L. E. Co., 9 Ohio Dee. 773. 4 Illinois State Trust Co. v. St. 8 Union Trust Co. v. New York, C. Louis, I. M. & S. R. Co., 208 111. 419, & St. L. E. Co., 9 Ohio Dee. 773. 573 § 283] Private Cokpobations [Oh. 10 the consolidated corporation.^ A reason given for this rule is that "the possibility of a de jure corporation is the only condition requisite to a de facto corporation, ' ' in such cases, and that " It is not a sound test that the particular constituents could not have become a de jure consolidated corporation. That would open every such organization to parol attack, and destroy its de facto character, not by showing the impossibility of a de jure corporation of the kind in question, but by evidence affecting the internal history of the parts composing the whole."" A corporation resulting from the consolidation of two existing cor- porations has been held to be a new corporation, at least de facto, though the title to the act amending the charter of one of them, under which the attempted consolidation was made, did not authorize the creation of a new corporation.^^ And it has been held that there is a de facto consolidated corporation though the acts under which the consolidating corporations were organized did not authorize a con- solidation,^^ or though they have no authority to consolidate, if they attempt to do so, and the legislature subsequently confirms the con- solidation.^' § 284. — Corporations organized in one state to do business in or to evade laws of another. There is a conflict of authority as to the status of a corporation organized in one state to carry on business entirely in other states. According to one view, such a corporation may be one de facto,^* while other decisions have held that the incor- porators are liable as partners under such circumstances, upon the 9 Oregon-Washington E. & Nav. Co. cation for certiorari denied 176 IT. S. V. Wilkinson, 188 Fed. 363; Tibby Bros. 219, 44 L. Ed. 442, quoted with ap- Glass Co. V. Pennsylvania E. Co., 219 proval in Cleveland, C, C. & St. L. Pa. 430, 68 Atl. 975. See also Toledo, E. Co. v. Peight, 41 Ind. App. 416, 34 St. L. & K. C. E. Co. V. Continental N. E. 15. Trust Co., 95 Fed. 497, aff 'g 86 Fed. 11 Atlanta & E. A. L. E. Co. v. State, 929, 82 Fed. 642, application for eer- 63 Ga. 483. tiorari denied 176 U. S. 219, 44 L. Ed. 12 Shadf ord v. Detroit, T. & A. A. 442, where it is said by way of die- E. E., 130 Mich. 300, 89 N. W. 960. turn that if the law permits noncom- 13 Eaeine & M. E. Co. v. Farmers ' peting railroads to consolidate, the de Loan & Trust Co., 49 111. 331, 95 Am. facto consolidation cannot be de- Dec. 595. As to the effect generally stroyed by proof that the consolidat- of legislative recognition of defec- ing companies were in fact operating tively organized corporations, see Chap, competing lines. 11, infra. 10 Toledo, St. L. & K. C. E. Co. v. 14 Burwash v. Ballou, 230 111. 34, 15 Continental Trust Co., 95 Fed. 497, L. E. A. (N. S.) 409, 82 N. E. 355, afE'g 86 Fed. 929, 82 Fed. 642, appli- aff'g 132 111. App. 71. 574 Ch. 10] De Facto Cokpokations [§284 ground that the attempted incorporation is a fraud upon the law which does not produce even a de facto corporation.^" In some juris- dictions this latter rule has heen held to apply only where the cor- poration wag organized in another state for the purpose of evading the laws of the forum, or for some other fraudulent purpose.^* IB Lynch v. Ferryman, 29 Okla. 615, Ann. Gas. 1913 A 1065, 119 Pae. 229; Empire Mills v. Alston Grocery Co., 4 Willson Civ. Cas. Ct.App. §221. In Hill V. Beach, 12 N. J. Eq. 31, where persons associated themselves together for the purpose of carrying on the quarrying business in New Jersey, and took proceedings to incorporate under a general corporation law of New York, they were held liable as part- ners upon the ground that they were not even a corporation de facto. The chancellor said that they were not a domestic corporation, and could not be sued as such, and that they were not a foreign corporation, because it was manifest upon the face of their proceedings that their attempted or- ganization under the general law of New York was a fraud upon that law. 16 The Missouri Court of Appeals has decided in several eases that the stock- holders of a corporation which had been incorporated in another state for the purpose of evading the laws of Missouri, or for some other fraudu- lent purpose, will be held liable as partners. So in Journal Co. v. Nelson, 133 Mo. App. 482, 113 S. "W. 690, it was held that where citizens of Mis- souri organized a corporation under the laws of Arizona for the ostensible purpose of mining in Colorado, but its capital stock was fixed at $5,000,000, of which only about $500 had been paid, although the prospectus stated that it had all been paid, and its evi- dent purpose was to sell stock in Missouri, and not to conduct mining operations in Colorado, it was, from its inception, a fraud upon the laws of the states of Arizona and Colorado, and never had any legal existence, and that its members would be held liable as partners in Missouri. In Davidson v. Hobson, 59 Mo. App. 130, and Cleaton v. Emery, 49 Mo. App. 345, the mem- bers of corporations organized under the laws of Colorado to do business in Missouri were held to be liable as partners on the ground of fraud where none or only a small part of the al- leged large capital had in fact been subscribed. But it has been pointed out that these decisions "are really based upon the theory that fraud was contemplated in the very inception of the organization of the corporation, and that, therefore, the corporation had no legal existence." Tribble v. Halbert, 143 Mo. App. 524, 127 S. W. 618. These cases and also many from other states on the same subject are reviewed in State v. Cook, 181 Mo. 596, 80 S. W. 929, where a similar conclusion is reached. See also to the same effect First Nat. Bank of Dead- wood, South Dakota v. Eockefeller, 195 Mo. 15, 56, 93 S. W. 761. A corporation is not invalidated nor are its members liable as part- ners merely because the object of pro- curing the charter in the state of the forum rather than in another state, where most of the incorporators re- sided, was to evade the laws of the latter state relative to the liability of stockholders. Boatmen's Bank v. Gillespie, 209 Mo. 217, 108 S. W. 74. The Missouri statute provides that "the secretary of state shall not li- cense any foreign corporation to do business in Missouri when it shall ap- pear that such corporation was organ- ized under the laws of a foreign state 575 § 284] Peivate Coepokations [Ch. 10 It has alsp been held that the legal existence of a foreign corpora- tion cannot be collaterally attacked on the ground that it was organ- ized in another state in order to escape certain provisions of the law of the forum and secure the privileges of the less stringent laws of another state.^? Nor is the existence of a domestic corporation liable to attack on the ground that the object of procuring the charter in the state of the forum rather than in another state where most of the incorporatoris resided was to evade the laws of the latter state relative to the liability of stockholders.^' Nor can such a corpora- tion's existence be questioned in an eminent domain proceeding on the ground that it was organized solely for the purpose of con- demning land for the benefit of a foreign corporation so as to evade by indirection the laws of the state which do not extend the right of eminent domain to foreign corporations.^® §285. — Expiration or forfeiture of charter. In some states, corporations continuing to exercise corporate powers after the expira- by citizens and residents of Missouri where there is no actual intent to for the purpose of avoiding the laws of this state, as it would be a fraud upon the laws of both states and its pretended incorporators would be held as partners, and as such become liable for the debts of the alleged corpora- tion." Laws 1903, pp. 122-123. This provision has no application where the pretended purpose of the corporation was not to do business in Missouri. Journal Co. v. Nelson, 133 Mo. App. 482, 113 S. W. 690. In State v. Cook, 181 Mo. 596, 80 S. W. 929, it is held that the secretary of state has no right to refuse a foreign corporation a license to do business in Missouri merely because two of its three incorporators, who own all its stock but one share, reside in Mis- souri, and all its property is located there and all its business is to be transacted there, where it is organ- ized for a lawful purpose and in con- formity with the laws of the state where it was incorporated, and its proposed business will not violate the laws of Missouri. There is no liability as partners evade or defraud the laws of the state. Second Nat. Bank v. Lovell, 13 Ohio Dee. 972, 2 Cine. Super. Ct. 397. IT Cumberland Telegraph & Tele- phone Co. V. Louisville Home Tel. Co., 114 Ky. 892, 72 S. W. 4. See also State v. Cook, 181 Mo. 596, 80 S. W. 929. In Indian Biver Mfg. Co. v. Wooten, 55 Fla. 745, 46 So. 185, it was held that it was no defense to an action bj' a foreign corporation to protect real estate belonging to it from trespass that it was organized under the laws of another state with intent to evade the requirements of the law of the forum as to cash capital, where the laws of the foreign state were com- plied with and there was no show- ing that they were in any way evaded or that any fraud was committed. See chapter on Foreign Corporations, infra. 18 Such a corporation is not illegal Boatmen's Bank v. Gillespie, 209 Mo 217, 108 S. "W. 74. 19 Louisville & N. By. Co. v. West' eru U. Tel. Co. of Indiana, — Ind- — , 110 N. E. 70. 576 Ch, 10] De Facto Cobpobations [§285 tion of their charter have been recognized as corporations de facto, on the ground that there is color of authority, and it has been held that no person except the state can question their corporate existence.*^" The same rule has been applied where an attempted extension of the corporate existence was void because the statute under which the proceedings were taken was inapplicable to corporations of the kind in question,2i and where a statute renewing an expired corporate charter was unconstitutional.^'* By the weight of authority, however, a corporation is dissolved and ceases to exist when its charter expires, unless there is some statutory provision to the contrary, for there is no longer any law under which it can exist, and therefore it cannot, after expiration of its charter, be a corporation either de jure or de facto. According to this view, its right to exercise corporate powers, including the right to srue as a corporation, may be questioned collaterally.^^ 20 Brady v. Delaware Mut. Life Ins. Co., 2 Pennew. (Del.) 237, 45 Atl. 345. See Wilmington v. Addieks, 8 Del. Ch. 310; Bushnell v. Consoli- dated Ice Mach. Co., 138 111. 67, 71, 27 N. E. 596; Campbell v. Perth Am- boy Mut. Loan, Homestead & Build- ing Ass'n, 76 N. J. Eq. 347, 74 Atl. 144. In "Wassori v. Boland, 136 Mo. App. 622, 118 S. W. 663, this is said to be the rule in Iowa. In Citizens' Bank of Clinton v. Jones, 117 Wis. 446, 94 N. W. 329, it is said that there are adjudications to this effect. The expiration of the charter can- not be interposed as a defense in con- demnation proceedings. People v, Wayman, 256 111. 151, 99 N. E. 941. In West Virginia, where a statute provided in effect that when the char- ter of a corporation should expire, or it should be dissolved, suits might be brought, continued or defended, prop- erty conveyed, and all lawful acts be done in the corporate name in the like manner and with like effect as be- fore such dissolution or expiration, so far as necessary to wind up its affairs, it was held that a corporation continu- ing in business and committing a tort after expiration of the term of its existence as limited in its charter could not set up the expiration of its charter to defeat an action against it for the tort. Miller v. Newburg Orrel Coal Co., 31 W. Va. 836, 13 Am. St. Eep. 903, 8 S. E. 600. See Merges v. Altenbrand, 45 Mdnt. 355, 123 Pac. 21, where it is said that while a cor- poration which continues in business after the expiration of its charter may properly be regarded as one de facto for certain purposes, that the rule had no application in the case at bar, which was an action for the purpose of having it adjudged that the charter of a corporation had ex- pired and to have a receiver appointed. 21 Campbell v. Perth Amboy Ship- building & Engineering Co., 70 N. J. Eq. 40, 62 Atl. 319, aff'd 71 N. J. Eq. 302, 71 Atl. 1133. 22 Black River Improvement Co. v. Holway, 85 Wis. 344, 55 N. W. 418. 23 United States. If there is no sav- ing statute, the corporation is de facto dead when the term limited by its charter expires. Greeley v. Smith, 3 Story 657, Fed. Gas. No. 5,748. Indiana. Clark v. Americain Can- nel Coal Co., 165 Ind. 213, 112 Am. St. Eep. 217, 73 N. E. 1083; 35 Ind. App I Priv. Corp.— 37 577 285] Private Corporations [Ch. 10 A corporation continues to be one de facto, and its corporate ex- istence cannot be questioned collaterally, though its charter and rights and franchises are subject to forfeiture for misuser or nonuser where there has been no judgment or decree declaring such forfeiture.^* And it has also been held that the existence of a corporation cannot 65, 73 N. E. 727; Brookville & G. Turnpike Co. v. McCarty, 8 Ind. 392, 65 Am. Dec. 768; Morgan v. Lawrence- burg Ins. Co., 3 Ind. 285; Guaga Iron Co. V. Dawson, 4 Blackf. 202. Kansas. Marysville Inv. Co. v. Munson, 44 Kan. 491, 24 Pao. 977; Krutz V. Paola Town Co., 20 Kan. 397. See also Eagle Chair Co. v. Kel- sey, 23 Kan. 632. Michigan. See Grand Bapids Bridge Co. V. Prange, 35 Mich. 400, 24 Am. Bep. 585. Missouri. Bradley v. Beppell, 133 Mo. 545, 54 Am. St. Eep. 685, 34 S. W. 841, 32 S. W. 645. In this case it is pointed out that the statement to the contrary in St. Louis Gaslight Co. V. St. Louis, 84 Mo. 202, aff'g 11 Mo. App. 55, is dictum, and hence not controlling. New York. Sturges v. Vanderbilt, 73 N. Y. 384. See People v. Man- hattan Co., 9 "Wend. 351, 383. North Carolina. Asheville Div. No, 15, Sons of Temperance v. Aston, 92 N. C. 578; Dobson v, Simonton, 86 N. C. 492. Tennessee, ua Grange & M. B. Co. V. Eainey, 7 Coldw. 420; White v. Campbell, 5 Humph. 38. In La Grange & M. E. Co. V. Bainey, supra, it is said that if the act of incorporation fixes a definite time in which the char- ter shall expire, the corporation is dissolved when that time expires, but that if the continuance of the corpo- ration beyond a fixed time is made to depend on the performance of a con- dition precedent, nonperformance of the condition is a mere ground of for- feiture, which cannot be taken ad- vantage of collaterally. Virginia. Supreme Lodge K. of P. V. Weller, 93 Va. 605, 25 S. E. 891. In a prosecution for practicing medi- cine without a license from a board of examiners appointed by a medical society, the defendant may show that the charter of the society had been vacated and the society dissolved. United States v. Williams, 5 Craneh C. C. 62, Fed. Cas. No. 16,713. Where the law under which a cor- poration is organized is repealed un- der a reserved power, the officers have no right to contract as such, and if they do so, the corporation and its stockholders are not liable thereon, and may interpose such repeal as a defense. Wilson v. Tesson, 12 Ind. 285. If, during the pendency of an ac- tion, a corporation defendant becomes extinct by a voluntary surrender of its charter and an acceptance of the surrender by the legislature, the suit abates as to it by operation of law. In such case the fact may be suggested by the attorney for the corporation by plea, or otherwise, on the record. Gree- ley V. Smith, 3 Story 657, Fed. Cas. No. 5,748. Where the charter of a corporation expires pending an action against it, the act of persons owning all its stock in continuing to defend the ac- tion does not make it a corporation de facto so as to authorize the plain- tiff to proceed to judgment against it. Venable Bros v. Southern Granite Co., 135 Ga. 508, 32 L. B. A. (N. S.) 446, 69 S. E. 822. See also § 286, infra. 24 Phillips V. Albany, 28 Wis. 340. 578 Ch. 10] De Facto CoBPOBATioNS [§287 be collaterally attacked on the ground that it has been dissolved by the purchase of all its stock by a municipality.^'' § 286. — Effect of ouster by state. Since a corporation de facto is a reality, and has an actual and substantial legal existence, subject only to the right of the state to oust it from the exercise of corporate powers in a direct proceeding brought for that purpose, it follows that a judgment of ouster in such a proceeding does not relate back so as to affect the validity of transf ere or other acts done or contracts made by it before its corporate existence was questioned. As to such acts, the rules in relation to de facto corporations apply notwith- standing the judgment of ouster.^® For this reason, when a corpora- tion de facto has been ousted from the franchise of being a corporation in quo warranto proceedings by the state, such ouster is no defense to a suit by a creditor of the corporation against stockholders to enforce payment of their subscriptions.'*'' Nor will such ouster affect the validity of prior assessments by a reclamation district if it was a de facto corporation when they were levied,*' nor destroy all the property held by the supposed corporation at the date of the judgment.*' It is otherwise, of course, with respect to acts done after such judgment.^" § 287. Effect of fraud— Special charters. If a special charter is obtained from the legislature by false and fraudulent representations, the state may obtain a judgment of forfeiture in direct proceedings 26 Monongahela Bridge Co. v. Pitts- Texas. American Salt Co. v. Hei- burg & B. Traction Co., 196 Pa. St. 25, denheimer, 80 Tex. 344, 26 Am. St. 79 Am. St. Eep. 685, 46 Atl. 99. Kep. 743, 15 S. W. 1038. See also 28 United States. Shapleigh v. San Bwing v. Commissioners ' Court of Angelo, 167 U. S. 646, 42 L. Ed. 310; Dallas Co., 83 Tex. 663, 19 S. W. 280; Miller v. Perris Irrigation Dist., 99 White v. City of Quanah (Tex. Civ. Fed. 143. See also Hill v. City of App.), 27 S. W. 839. Kahoka, 35 Fed. 32. Wisconsin. Gilkey v. Town of How, California. McPhee v. Reclamation 105 Wis. 41, 49 L. B. A. 483, 81 N. W. Dist. No. 765, 161 Cal. 566, 119 Pae. 120'. 1077. 27 Rowland v. Header Furniture Co., Indiana. Farnsworth v. Drake, 11 38 Ohio St. 269; Gaflf v. Flesher, 33 Ind. 101. Ohio St. 107, 115. Kansas. Riley v. Garfield Tp., 58 28 McPhee v. Reclamation Dist. No. Kan. 299, 49 Pac. 85. 765, 161 Cal. 566, 119 Pac. 1077. Ohio. Society Perun v. Cleveland, 29 New York, B. & E. R. Co. v. Mo- 43 Ohio St. 481, 3 N. E. 357; Rowland til, 81 Conn. 466, 71 Atl. 563. V. Neader Furniture Co., 38 Ohio St. 30 See chapter on Forfeiture, Dis- 269; Gaff v. Flesher, 33 Ohio St. 107, solution, etc., infra. 453. 579 § 287] Pbivate Cobbobations [Oh. 10 for that purpose, but the fraud is no ground for a collateral attack upon the existence of the corporation and its exercise of corporate powers. Notwithstanding the fraud, it is a corporation de f acto.'^ ' It is otherwise, however, when persons not named as corporators in a special charter fraudulently attempt to organize and exercise corporate powers under it. This distinction is well illustrated by a New Jersey case, in which persons who had obtained control of a special charter creating a corporation to be located in Trenton, but who were not named as corporators therein, attempted to use it to establish a corporation to be located at Jersey City. The court said that the company had some semblance of a corporation in name, form of organization and assumption of a seal, yet not enough to give it a de facto corporate existence. The attempt to establish the company in Jersey City, it was said, was a palpable and entire perversion of the act, and a fraud upon the act, and could not give corporate color to the company.''' 5i — Organization under general laws. There seems to be a eo'nflict of authority as to the effect in this regard of a fraudulent attempt to incorporate under general laws. Some courts have adopted the rule that if persons fraudulently attempt to organize and exercise corporate powers under color of a general incorporation law, the fraud ■Will preiveht them from acquiring the status of a corporation de facto, and their corporate existence may be collaterally attacked whenever it is properly in issue, or, in other words, that if the pretended in- corporation is a fraud upon the act under which corporate existence is claimed, there is no corporation either de jure or de facto.'' So .31 Alabama. Duke v. Cahawba Nav. 32 Booth v. Wonderly, 36 N. J. L. Go,, 10 Ala. 82, 44 Am. Dee. 472; 16 250. Ala. 372. 33 See Chicago & G. T. Ey. Co. v. Georgia. Pattison v. Albany Build- Miller, 91 Mich. 166, 51 N. W. 981. iug & Loan Ass 'n, 63 Ga. 373. This is true where it is alleged that Massachusetts. Proprietors of its organization is a pretended one Charles Eiver Bridge Vw Proprietors in fraud of the laws of the state in of Warren Bridge, 7 Pick. 345, 371, that it is not organized for any pur- aff'd 11 Pet. (II; S.) 420, 9 L. Ed. 773. pose authorized by them. Western U. New York. See All Saints Church Tel. Co. v. Mexican Agr. Land Co., 31 V. Lovett, 1 Hall 213. Okla. 528, Ann; Cas. 1914 C 1244, 122 Pennsylvania. McGonahy v. Centre Pac. 505. & K. Turnpike Road Co., 1 Penr. & W. In Gartside Coal Co. v. Maxwell, 22 426; Centre & K. Turnpike Eoad Co. Fed. 197, it is said that "where per- Vi McConaby, 16 Serg. & E. 140. sons knowingly and fraudulently Vermont. See State v. Bradford, assume a corporate existence, or pre- 32 Vt. 50. tend to have a corporate existence, 580 Ch. 10] De Facto Cobpobations [§288 it has been held that, in the absence of the element of estoppel, the incorporation is open to collateral attack where it is a mere fraudulent device on the part of the incorporators to escape liability as partners by putting forward a sham Corporation without capital or assets to cover a real partnership, though on the face of the proceedings there is a regular and complete corporation.^* And it has also been held that it is a good defense to condemnation proceedings instituted by a corporation, or good ground for enjoining the same, that the cor- poration was fraudulently organized for the purpose of enabling the incorporators to exercise the power of eminent domain for their own private use and benefit ; ^' or on the ground that it was not a bona fide corporation organized to build and operate a railroad as pretended, but was in effect a bridge company, and that its organiza- tion was merely a colorable scheme to enable certain existing com- panies to construct and use a bridge and derive revenue therefrom with the exemption from taxation accorded by statute to the bridges of railroads.'^ In this connection it has been said that: ""With regard to corporations not acting under special charters of legislative grant, but voluntarily organized under general laws, although their existence as corporations cannot be questioned collaterally, yet if they they can be held liable as individu- als," on contracts made in the corpo- rate name. See Metcalf v. Arnold, 110 Ala. 180, 55 Am. St. Rep. 24, 20 So. 301, where it was held that a bill by judgment creditors of a partner- ship to set aside a transfer of firm as- sets to a corporation, organized after the indebtedness to the complainants was incurred, on the ground that the formation of the corporation and the transfer to it were in fraud of credi- tors, was not a collateral attack on the existence of the corporation. See also State v. Webb, 110 Ala. 214, 20 So. 462, holding that a corporate char- ter may be ratified and confirmed by a subsequent act of the legislature though property taken in payment of stock subscriptions was fraudulently overvalued. 34 Christian & Craft Grocery Co. v. Fruitdale Lumber Co., 121 Ala. 340, 25 So. 566. To this end it may be shown, in an action in which it is sought to hold the stockholders li- able as partners on a contract which they claim was made in behalf of the corporation, that the company had no capital, that no stock subscriptions were paid, that no corporate functions were performed except the pretended election of officers, that no meeting of directors was held, and that no in- corporation fee was paid. Christian & Craft Grocery Co. v. Fruitdale Lum- ber Co., 121 Ala. 340, 25 So. 566. 35 Mountain Park Terminal R. Co. V. Field, 76 Ark. 239, 88 S. W. 897; ' New Orleans Terminal Co. v. Teller, 113 La.' ^33, 2 Ann. Cas. 127, 37 So;'*' 624; Sarinan v. Caretta R. Co., 61 W:* Va. 356, 123 Am. St. Rep. 985, '56 S. E. 520. See also §310, infra, as to the right of de facto corporations to exercise the power of eminent do- main. 36Niemeyer & Darragh v. Little Rock Junction Ry., 43 Ark. 111. 581 §288] Peivate Coepoeations [Ch. 10 have resulted from fraudulent combinations of individuals to procure powers under circumstances, and for purposes not within the scope and purpose of legislative intent, and the corporators, under shelter of their articles, are about to exercise powers oppressive to the indi- vidual, they may be restrained by private suit of those injured or about to be. Fraud has no immunity anywhere, in any guise. ' ' ^"^ Other courts, however, hold that there may be a corporation de facto notwitstanding the incorporation is procured through fraud, and that the corporate existence of such a corporation cannot be collaterally attacked on that ground, but can only be questioned in a direct proceeding instituted for that purpose by the state.^® So it 37Niemeyer & Darragh v. Little Bock Junction Ey., 43 Ark. Ill, 120, quoted in Mountain Park Terminal E. Co. V. Field, 76 Ark. 239, 88 S. W. 897. 38 United States. Knapp v. S. Jar- vis Adams Co., 135 Fed. 1008. See Comanche County v. Lewis, 133 IT. S. 198, 33 L. Ed. 604, holding that there was a de facto county, which was made into one de jure by legislative recognition, though it was fraudu- lently organized. "The rule that the existence of a corporation may not be collaterally assailed by a private individual constitutes no bar to a suit by a minority stockholder to avoid for fraud or breach of trust a contract and act of consolidation of corporations and to restore the prop- erty of the corporation injured to its former owner." Jones v. Missouri- Edison Elec. Co., 144 Fed. 765. CaUfomia. Dean v. Davis, 51 Cal. 406. Georgia. In Southern Bank v. Wil- liams, 25 6a. 534, it was held that the ifact that a bank was fraudulently or- ganized was no defense to an action by it on bills of exchange against the acceptor thereof. XUinols. In Foster v. Hip Lung Ting Kee & Co., 243 111. 163, 90 N. E. 375, it was contended that a corporation was fraudulently organized for the purpose of fraudulently purchasing a stock of goods of a partnership so as to defeat the creditors of the latter. The charge of fraud was based chiefly on the fact that the statement of the commissioners authorized to incorpo- rate the company showed that all of the stock was paid to them on or be- fore the date of the alleged incorpo- ration, while it appeared that a part or all of it was not paid until after that date, and that the law required the commissioners to report that not less than half of the stock subscribed had been paid in before the certificate of organization issued. It did appear that the full amount was paid before the merchandise was purchased. The court held that the evidence did not show a fraudulent incorporation, and said that, moreover, they were "dis- posed to hold that the legal existence of this corporation can only be deter- mined by a direct proceeding, the evidence showing a de facto corpora- tion," and that therefore it was unnecessary to decide whether the statute required payment of half the amount subscribed before the report by the commissioners. In Gunderson V. Illinois Trust & Savings Bank, 199 111. 422, 65 N. E. 326, aff'g 100 111. App. 461, it was held that fraud in the organization of a corporation would not afford a valid defense to an action by holders of its bonds to foreclose a trust deed securing them. See Foster 582 Ch. 10] De Facto Cokpoeations [§288 has been held that the legal existence of a corporation cannot be col- laterally attacked, nor its members held liable as partners, on the ground that its incorporation was procured through false representa- V. Staar, 148 111. App. 485, aff'd 243 111. 163, 90 N. E. 375, on the question as to what constitutes such fraudulent organization as will prevent the cor- poration fpom obtaining relief in a court of equity. See also Terwilliger V. Great Western Tel. Co., 59 111. 249. Maryland. Haacke v. Knights of Liberty Social & Literary Club, 76 Md. 429; Laflin & Band Powder Co. V. Sinsheimer, 46 Md. 315, 24 Am. Eep. 522v Massachusetts. In Eice v. National Bank of Commonwealth, 126 Mass. 300, it is held that where all the laws with reference to the organization of cor- porations are complied with and a certificate of incorporation is issued, which the statute makes conclusive evidence of the establishment and or- ganization of the coxporaition, the corporate franchise cannot be annulled in quo warranto proceedings upon the application of individuals on the ground that the incorporation was ob- tained by fraud, but only by the leg- islature, or at the suit of the state' or of the attorney general in its be- half. In Boston Eubber Shoe Co. v. Boston Eubber Co., 149 Mass. 436, 21 N. E. 875, it is said that "The ques- tion whether the franchise was im- properly obtained, or improvidently granted may arise in proceedings for a forfeiture in behalf of the public, but is not open in proceedings by a private person * * * ?? In Montgomery v. Eorbes, 148 Mass. 249, 19 N. E. 342, it was held that where the pretended associates of the defendant in the or- ganization of the corporation were such in name only, and he alone was interested in the enterprise, and took all the shares of stock, and the busi- ness was not carried on at the' place where the articles were recorded and where they stated that it was to be carried on, and was not intended to be carried on there, and the jury found that the defendant did not in good faith intend to organize a corporation, there was no corporation, and that the defendant was individually liable Jor the purchase price of goods bought in the corporate name. Missouri. Webb v. Eockefeller, 195 Mo. 57, 6 L. E. A. (N. S.) 872, 93 S. W. 772; First Nat. Bank of Deadwood, South Dakota v. Eockefeller, 195 Mo. 15, 9S S. W. 761; Smith v. Heidecker, 39 Mo. 157. "A certificate of in- corporation issued by the secretary of state is a final determination of the corporation's right to do business as such, and * * » thereafter the state only, by a direct proceeding, can challenge its corporate existence or its right to do business as a corpora- tion, even though fraud should be prac- ticed upon the secretary of state in obtaining the certificate. ' ' Boatmen 's Bank v. Gillespie, 209 Mo. 217, ig8 S. W. 74. "It cannot be shown, in de- fense to a suit of a corporation, that the charter was obtained by fraud." Kayser v. Trustees of Bremen, 16 Mo. 88. New Jersey. In Sisters of Charity of St. Elizabeth v. Morris E. Co., 84 N. ,7. L. 310, 50 L. E. A. (N. S.) 236, 86 Atl. 954, aff 'g 82 N. J. L. 214, 81 Atl. 817, it is held that if the organization of a railroad company is regular on its face, whether or not it was fraudu- lent is not open to question in con- demnation proceedings. And in Bell V. Pennsylvania, S. & N. E. E. Co. (N. J. Ch.), 10 Atl. 741, it is held that a stockholder of a consolidating company cannot maintain a bill to annul the consolidation and to set 583 §288] Private Coepokations [Ch. 10 tions as to the amount of capital subscribed or paid in ; '* nor because the cash payment required by the statute was not exacted from sub- aside mortgages of the consolidated and, when this is made to appear, the company on the ground that the con- solidation was fraudulent. But in Hill V. Beach, 12 N. J. Eq. 31, persona who endeavored to incorporate under the laws of New York for the purpose of carrying on business in New Jer- sey were held liable as partners on the ground that such attempted in- corporation was a fraud on the laws of New York. And see in this con- nection Stout V. Zulick, 48 N. J. L. 599, 7 Atl. 362, where the holding in Hill V. Beach, supra, is explained. New York. Jones v. Dana, 24 Barb. 395; Palmer v. Lawrence, 3 Sandf. 161. A fraudulent misstatement in the arti- cles of a railroad company as to the length of the road will not defeat an action by the company. Buffalo & P. B. Co. V. Hatch, 20 N. Y. 157. In United States Vinegar Co. v. Schlegel, 143 N. Y. 537, 38 N. E. 729, afC'g 67 Hun 356, 22 N. Y. Supp. 407, it was held that the fact that the promoters of a foreign corporation procured its incorporation by deceiving the au- thorities of the state, where it was or- ganized as to their real purpose in forming it, was no defense to an ac- tion by it to recover on a subscrip- tion to its stock. See also Demarest y. Flack, 128 N. Y. 205, 13 L. E. A. 854, 28 N. E. 645. North Carolina. Holly Shelter E. Co. V. Newton, 133 N. C. 132, 45 S. E. 549. Ohio. Benninger v. Gall, 13 Ohio Dec. 581, 1 Cine. Super. Ct. 331. But see First Nat. Bank of Chicago- v. Trebein Co., 59 Ohio St. 316, 52 N. E. 834, in the syllabus of which the court says: "A corporation cannot be formed for the purpose of accomplish- ing a fraud or other illegal act under the disguise of the fiction [of the separate entity of the corporation]; fiction will be disregarded by the courts, and the acts of the real par- ties dealt with, as though no such corporation had been formed, on the ground that fraud vitiates everything into which it enters, including the most solemn acts of men." Fennsylvaiua. Garrett v. Dillsburg & M. E. Co., 78 Pa. St. 465; Cochran V. Arnold, 58 Pa. St. 399, overruling Paterson v. Arnold, 45 Pa. St. 410; Travaglini v. Societa Italiane, 5 Pa. Dist. 441; German Ins. Co. v. Strahl, 13 Phila. 512; Benevolent Order of Active Workers v. Sanders, 28 Wkly. Notes Cas. 321; Donaldson v. Eaben- hold, 5 Berks Co. L. J. 282. Stock- holders who participated in the fraud cannot procure the appointment of a receiver on this ground. Hartman v. Pennsylvania Eange Boiler Co., 9 Pa. Dist. 560. Whether a consolidation was fraudu- lent cannot be inquired into collat- erally in a suit by a stockholder to annul the consolidation and to set aside mortgages given by the consolidated company. Bell v. Pennsylvania, S. & N. E. E. E. (N. J. Ch.), 10 Atl. 741. 39 Georgia. In Southern Bank v. Williams, 25 Ga. 534, it was held that the fact that incorporation was pro- cured by fraudulent representations as to the amount of capital paid in, was no defense to an action by the bank against the acceptor of a bill of ex- change. Maryland. The existence of the corporation could not be collaterally attacked on the ground that the per- sons whose names were signed to the articles of association, and who were represented to the secretary of state as corporators, had not paid ten per cent, of the par value of the stock subscribed for. Laflin & Eand Pow^ 584 Ch. 10] Db Facto Cobpobations [§288 scribers; *•> nor because there was a fraudulent overvaluation of prop- erty taken in payment of subscriptions ; *^ nor because the secretary of state did not know, when he issued the certificate of incorporation, that all the incorporators had not signed the articles of incorpora- tion.** And it has also been held that the good faith of the corporators in forming the corporation cannot be inquired into in condemnation proceedings, nor can it be shown as a defense to such proceedings or as a basis for enjoining the exercise of the power of eminent domain that the corporation is not in fact a bona fide corporation ; ^ or that it was fraudulently organized for the purpose of enabling the cor- porators to exercise the power of eminent domain for their own private use and benefit.** der Co. v. Sinsheimer, 46 Md. 315, 24 Am. Eep. 522. Massachusetts. See Bice v. Nation- al Bank of Commonwealth, 126 Mass. 300. Missouri. Webb v. Rockefeller, 195 Mo. 57, 6 L. R. A. (N. S.) 872, 93 S. W. 772; First Nat. Bank of Dead- wood, South Dakota v. Rockefeller, 195 Mo. 15, 93 S. W. 761; "Webb v. Rockefeller, supra, expressly over- rules the contrary holding in Hyatt v. Van Riper, 105 Mo. App. 664, 78 S. W. 1043, and also necessarily overrules the contrary holdings in Davidson v. Hobson, 59 Mo. App. 130, and cases there cited, though not specifically mentioning them. New York. There is a de facto corporation from the time when a cer- tificate of association conforming to the terms of the statute is recorded and filed, notwithstanding false and fraudulent statements therein as to the capital subscribed and paid. Palmer V. Lawrence, 8 Sandf. 161. See also Farnham v. Benedict, 107 N. Y. 159, 13 N. E. 784. Pennsylvania, Cochran v. Arnold, 58 Pa. St. 399, overruling Paterson v. Arnold, 45 Pa. St. 410. Stockholders who participated in the fraud cannot procure the appointment of a receiver on this ground. Hartman v. Pennsyl- vania Range Boiler Co., 9 Pa. Dist. 560. See also Patterson v. Franklin, 176 Pa. St. 612, 35 Atl. 205, holding that a receiver of the corporation can- not maintain an action for damages against the incorporators because of their fraud in this regard, because the corporation was benefited rather than injured by it. 40 Donaldson v. Rabenhold, 5 Berks Co. L. J. (Pa.) 282. 41 State V. "Webb, 110 Ala. 214, 20 So. 462. 48 First Nat. Bank of Deadwood, South Dakota v. Rockefeller, 195 Mo. 15, 93 S. "W. 761. 43 Madera E. Co. v. Raymond Gran- ite Co., 3 Cal. App. 668, 87 Pao. 27; Joliff V. Muneie Elec. Light Co., 181 Ind. 650, 105 N. E. 234; Dismal Swamp R. Co. V. John L. Roper Lumber Co., 114 Va. 537, Ann. Cas. 1914 C 641, 77 S. B. 598. 44 The good faith of the incorpora- tors cannot be inquired into. Ma- dera E. Co. V. Raymond Granite Co., 3 Cal. App. 668, 87 Pae. 27. See also Union Pac. R. Co. v. Colorado Postal Tel. Cable Co., 30 Colo. 133, 97 Am. St. Eep. 106, 69 Pae. 564; Connolly V. Woods, 13 Idaho 591, 92 Pac. 573; Kansas & T. Coal Ey. v. Northwestern Coal & Mining Co., 161 Mo. 288, 51 L. R. A. 936, 84 Am. St. Rep. 717, 61 S. W. 684; Postal Tel. Cable Co. of Utah V. Oregon Short Line E. Co., 23 585 §288] Private Corpobations [Ch. 10 A reason sometimes given for the latter holding is that if the cor- poration is in fact a public service corporation it may be compelled to perform the duties which such corporations owe to the public if it refuses to perform them voluntarily.** It has been held that in such a proceeding the landowner cannot raise the question as to whether the plaintiff is not a corporation in fact, but only a pretended or "fake" corporation ; *® nor make the objection that the company is not using the power granted it to condemn land for a steam railway, but is exercising it for the purpose of securing lands for the construc- tion of the line of a trolley company which the latter could not law- fully take because it had not complied with the statute under which it was incorporated.*' There is also a conflict of authority as to whether the legal existence of a corporation may be collaterally attacked on the ground that it was formed under the laws of one state for the sole purpose of carry- ing on business in another.*' § 289. Bona fide attempt to incorporate. To give an association the status of a corporation de facto, there must have been, at the very least, a bona fide attempt to incorporate under the statute.*' The Utah 474, 90 Am. St. Eep. 705, 65 Pac. 735; Dismal-Swamp E. Co. v. John L. Eoper Lumber Co., 114 Va. 537, Ann. Cas. 1914 G 641. That the corporators of a railroad company were mere agents of a cor- poration which was to furnish all the money to be paid on their subscrip- tions, and that the road was solely for its benefit, and therefore for a private purpose, is not ground for an injunc- tion. National Docks Ey. Co. v. Cen- tral E. Co. of New Jersey, 32 N. J. Eq. 755, rev'g 31 N. J. Eq. 475; "Wel- lington & P. E. Co. V. Cashie & C. Eailroad & Lumber Co., 114 N. C. 690, 19 S. E. 646. The objection that the charter of a railroad company is a fraud upon the public in that the real object is to operate a lumber road and not a road for the conveyance of freight and passengers cannot be raised in con- demnation proceedings. Holly Shelter E. Co. V. Newton, 133 N. G. 132, 45 S. E. 549; Windsor Glass Co. v. Car- negie Co., 204 Pa. 459, 54 Atl. 329. See also Oliver v. Thompson's Eun Bridge Co., 197 Pa. 344, 47 Atl. 230; Chapman v. Trinity Valley & N. Ey. Co., — Tex. Civ. App. — , 138 S. W. 440. See also § 310, infra, as to the right of de facto corporations to ex- ercise the power of eminent domain. 46 Connolly v. "Woods, 13 Idaho 591, 92 Pac. 573. 46 Postal Tel. Cable Co. of Mon- tana v. Oregon Short Line E. Co., 114 Fed. 787. 47 Sisters of Charity of St. Eliza- beth V. Morris E. Co., 84 N. J. L. 310, 50 L. E. A. (N. S.) 236, 86 Atl. 954, aff'g 82 N. J. L. 214, 81 Atl. 817. 48 See § 284, supra. 49 United States. Tulare Irrigation Dist. V. Shepard, 185 TJ. S. 1, 46 L. Ed. 773; Kline Bros. & Co. v. Eoyal Ins. Co., 192 Eed. 378, rev'd on other grounds 198 Fed. 468; Harrill v. Davis, 168 Fed. 187, 22 L. E. A. (N. 586 Ch. 10] Be Facto Cobpobations [§289 mere assumption of a corporate name will not constitute an association a corporation de facto where there was never any attempt by the asso- S.) 1153, rev'g 7 Indian T. 152, 15 Ann. Cas. 1134, 104 S. W. 573. Arkansas. Eainwater v. Childress, — Ark. — , 182 S. W. 280; Whipple v. Tuxworth, 81 Ark. 391, 99 S. W. 86. Callfoniia. Hamilton v. San Diego County, 108 Gal. 273, 41 Pac. 305; Martin v. Deetz, 102 Cal. 55, 41 Am. St. Rep. 151, 36 Pac. 368; People v. Volcano Canyon Toll-Road Co., 100 Cal. 87, 34 Pac. 522; Oroville & V. E. Co. V. Supervisors of Plumas Co., 37 Cal. 354. Colorado. Jones v. Aspen Hardware Co., 21 Colo. 263, 269, 29 L. E. A. 143, 52 Am. St. Rep. 220, 40 Pac. 457; Dug- gan V. Colorado Mortg. & Inv. Co., 11 Colo. 113-, 17 Pac. 105. Illinois. Gillette v. Aurora Rys. Co., 228 111. 261, 81 N. E. 1005; Marshall v. Keach, 227 111. 35, 118 Am. St. Eep. 247, 10 Ann. Cas. 164, 81 N. E 29; Bushnell v. Consolidated Ice Mach. Co., 138 111. 67, 27 N. E. 596; Concord Apartment House Co. v. Alaska Re- frigerator Co., 78 111. App. 682. Indiana. Doty v. Patterson, 155 Ind. 60, 56 N. E. 668; Farmers' Mutual v. Eeser, 43 Tnd. App. 634, 88 N. E. 349; Huntington Mfg. Co. v. Sehofield, 28 Ind. App. 95, 62 N. E. 106. Kansas. Papa v. Capitol Bank, 20 Kan. 440, 27 Am. Eep. 183; McLennan V. Hopkins, 2 Kan. App. 260, 41 Pae. 1061. Massachusetts. Montgomery v. Forbes, 148 Mass. 249, 19 N. E. 342. Michigan. Baton v. Walker, 76 Mich. 579, 6 L. E. A. 102, 43 N. W. 638. Minnesota. Healey v. Steele Center Creamery Ass'n, 115 Minn. 451, 133 N. W. 69; Finnegan v. Noerenberg, 52 Minn. 239, 18 L. E. A. 778, 38 Am. St. Eep. 552, 53 N. W. 1150. Montana. Milwaukee Gold Extrac- tion Co. V. Gordon, 37 Mont. 209, 95 Pac. 995. New Jersey. Henry v. Simanton, 64 N. J. Eq. 572, 54 Atl. 153, rev'd on other grounds 67 N. J. Eq. 606, 61 Atl. 1065. See also Hill v. Beach, 12 N. J. Eq. 31; Booth v. Wonderly, 36 N. J. L. 250. New York. Von Lengerke v. New York, 150 App. Div. 98, 134 N. Y. Supp. 832, aff'd 211 N. Y. 558, 105 N. E. 1101; Stevens v. Episcopal Church History Co., 140 App. Div. 570, 125 N. Y. Supp. 573; Emery v. De Peyster, 77 App. Div. 65, 78 N. Y. Supp. 1056; Card v. Moore, 68 App. Div. 327, 74 N. Y. Supp. 18, aff'd 173 N". Y. 598, 66 N. E. 1105; Welsh v. Old Domin- ion Min. & Ey. Co., 56 Hun 650, 10 N. Y. Supp. 174; Perrine v. Levine, 68 Misc. 327, 123 N. Y. Supp. 1007; Bradley Fertilizer Co. v. South Pub. Co., 4 Misc. 172, 23 N. Y. Supp.- 675, rev'g 1 Misc. 512, 21 N. Y. Supp. 472, 44 N. Y. St. Eep. 119, 17 N. Y. Supp. 587, rev'g 39 N. Y. St. Eep. 218, 14 N. Y. Supp. 917; motion for leave to appeal denied 6 Misc. 128, 26 N. Y. Supp. 4; Van Buren v. Eeformed Church of Gansevoort, 62 Barb. 495. Tesas. McLeary v. Dawson, 87 Tex. 524, 29 S. W. 1044, rev'g (Tex. Civ. App.) 25 S. W. 705; Allen v. Long, 80 Tex. 261, 26 Am. St. Eep. 735, 16 S. W. 43; Eoaring Springs Townsite Co. v. Paducah Tel. Co., — Tex. Civ. App. — , 164 S. W. 50. Utah. Mitchell v. Jensen, 29 Utah 346, 81 Pac. 165. Washington. Bash v. Culver Gold Min. Co., 7 Wash. 122, 34 Pac. 462. Wisconsin. Gilman v. Druse, 111 Wis. 400, 87 N. W. 557. "To give a body of men assuming to act as a corporation, where there has been no attempt to comply with 587 §289] Private Cobpoeations [Ch. 10 elates to organize themselves into a corporation.^'* Nor is a de facto corporation created by merely taking out a license to open books for the provisions of any law authorizing them to become such, the status of a de facto corporation might open the door to frauds upon the public. It would certainly be impolitic to per- mit a number of men to have the sta- tus of a corpci!ration to any extent merely because there is a law under which they might have become in- corporated, and they have agreed among themselves "to act, and they have acted, as a corporation." Per GrilfiHan, C. J., in Finnegan v. Noeren- berg, 52 Minn. 239, 243, 18 L. E. A. 778, 38 Am. St. Eep. 552, 53 N. W. 1150, quoted with approval in Harrill V. Davis, 168 Fed. 187, 22 L. E. A. (N. S.) 1153, rev'g 7 Indian T. 152, 15 Ann. Gas. 1134, 104 S. W. 573. In Kline Bros. & Co. v. Eoyal Ins. Co., 192 Fed. 378, it is said: "The doctrine of de facto corporations only helps out a corporation in Whose or- ganization there has been some de- fect after the incorporators have bona fide completed all the steps that they meant to take. It implies that they have in good faith completed the or- ganization so far as they understood the statutory requirements^ but that their understanding of those require- ments is defective. ' ' The circuit court in this ease hisld that the doc- trine had no application to a case where a policy of insurance was issued before the incorporation of the insured was completed, where the incorpora- tors knew what the requirements of the law were and subsequently fully complied with them, so that the ebi:- poration became one de jure. A judg- ment for the plaintiff in this case was reversed by the Circuit Court of Ap- peals (198 Fed. 468) on the ground that the provisions of the policy had been violated, the court expressly de- clining to consider any other question. A mere general statement by a mem- ber of the alleged corporation that the corporation was duly organized is not sufficient to show such an at- tempted organization. Von Lengerke V. New York, 150 N. Y. App. Div. 98, 134 N. Y. Supp. 832, aff'd 211 N. Y. 558, 105 N. B. 1101. See also State V. Ford County, 12 Kan. 441, holding that there was no de facto county or- ganization prior to the completion of the proceedings for the organization of the county. 50 Forbes v. V^hittemore, 62 Ark. 229, 35 S. W. 223. Such is the case where an individual operates a toll road under a corporate name, but without officers or directors and with- out acting in corporate form. Peo- ple v. Volcano Canyon Toll-Eoad Co., loo Cal. 87, 34 Pae. 522. A bank owned exclusively by a pri- vate individual is not a corporation de facto though its business is conducted by a president and cashier, where ar- ticles of incorporation have never been adopted and it has no board of di- rectors and has never pretended to possess or exercise corporate powers. Longfellow v. Barnard, 59 Neb. 455, 8'1 N. W. 307, 58 Neb. 612, 76 Am. St. Eep. 117, 79 N. W. 255. VPhere parties make no pretense whatever to an organization, but siiiiply take a corporate name and commence business, they are liable as partners. Cincinnati Cooperage Co. v. Bate, 96 Ky. 856, 49 Am. St. Eep. 300, 26 S. W. 538, aff'g 14 Ky. L. Eep. 469. See in this connection Drake v. Herndon, 122 Ky. 206, 91 S. W. 674. In MeKenney v. Bowie, 94 Me. 397, 47 Atl. 918, it was held that members Of an agricultural society signing a note were individually liable thereon, where there was no evidence that any application was ever made to a jus- 588 Ch. 10] Db Facto Cokpoeations [§289 stock subscriptions,^^ nor by merely obtaining a charter,^^ nor is it sufficient to show -that there is a law under which they might have incorporated and that they agreed to form a corporation and have acted as such;*^ but there must have been "an apparent attempt to perfect an organization under the law, ' ' ** and some of the statutory steps must have been taken in an honest attempt to comply with its requirements.** ' ' There must also be something more tangible and effective than a mere mental operation in the direction of what is intended ; " *® or a 85 Eainwater v. Childress, — Ark. — , 182 S. W. 280; Stevens v. Episco- pal Church History Co., 140 N. Y. App. Div. 570, 125 N. Y. Supp. 573; Dewitt V. Hastings, 40 N. Y. Super. Ct. (8 J. & S.) 463, aff'd 69 N. Y. 518; Guth- rie V. Wylie, 6 Okla. 61, 55 Pae. 103. The mere signing of a subscrip- tion contract with the intention of forming a corporation is not enough, where no steps whatever are taken towards its organization. Eainwater V. Childress, — Ark. — , 182 S. W. 280. 66 McLennan v. Hopkins, 2 Kan. App. 260, 41 Pac. 1061. A mere unexecuted intention to be- come a corporation will not relieve the associates in a business from li- ability as partners. Martin v. Fewell, 79 Mo. 401. One who takes part in preliminary proceedings looking towards the for- mation of a corporation and is chosen as a director at a preliminary meeting held before the filing of articles of incorporation, but who later refuses to act further as such director and whose place is filled by another, can- not be held liable for an assessment levied by the reOr-ganized board before incorporation, oli'the theory that there was a de facto" corporation, where he took no further part in the incorpora- tion, and the articles did not purport to include' as members all persons who had previously acted as directors nor in any way recognize them by name. Middle Branch Mut. Tiel. Co. v. Jones^ 137 Iowa 396, 115 K W. 3, tice of the peace for a warrant to call a, meeting for the organization of a corporation, or that any such war- rant was ever issued. 51 Petrue v. Wakem & McLaughlin, 99 ni. App. 463. 52 ' ' Individuals who embark in a business cannot escape personal lia- bility because prior thereto they had secured a charter to conduct a busi- ness of the character in which they have engaged," but in addition thereto, "they must do some act manifesting an attempt at corporate organization." So the mere obtain- ing of a charter will not constitute them a corporation de facto where they do no act indicating an accep- tance of it, or colorable compliance with its requirements. Brooke v. Day, 129 Ga. 694, 59 S. E. 769. 63 Eainwater v. Childress, — Ark. — , 182 S. W. 280; Finnegan v. Noe- renberg, 52 Minn. 239, 18 L. R. A. 778, 38 Am. St. Eep. 552, 53 N. W. 1150; Guthrie v. Wylie, 6 Okla. 61, 55 Pac. 103. 64 Finnegan v. Noerenberg, 52 Minn. 239, 18 L. E. A. 778, 38 Am. St. Eep. 552, 53 N. W. 1150; Kwapil v. Bell Tower Co., 55 Wash. 583, 104 Pac. 824. Where there is no attempt to comply with the terms of the statute relative to incorporation, the members are liable as partners. .Hanstein v. Johnson, 112 N. C. 253, 17 S. E. 155; Bain v. Clinton Loan Ass 'n, 112 N. C. 248, 17 S. E. 154. 589 § 289] Peivate Cokpoeations [Oh. 10 "mere physical organization, or formal arrangement into a working force, of the promoters of the enterprise;"" and "something must be done beyond the mere transaction of business in the manner and form usually adopted by corporations. ' ' ** ' ' The steps taken and the attempt made must, to some extent and in some degree, have resulted in the effecting of those things which the law designates as prerequisites to a corporate existence, however informal and irregular such proceedings and results may be."*' If there was no intention to incorporate and no effort to do so, the association cannot be held to be a de facto corporation.®" So where partners do not intend to form a corporation, but merely to carry on business under a corporate name, and deliberately intend to stop short of complete incorporation, there is no de facto corporation as between them though some of the statutory steps to incorporate are taken.** And where a single individual took all the stock in a pretended cor- poration and the other persons who signed the articles were his asso- ciates in name only, and the statement in the articles as to the place where the business was to be carried on was knowingly false, it was, held that there was no corporation and that such individual was personally liable on contracts made in the corporate name, even though he believed that there was a valid corporation.*^ But it has been held that, where the requirements for organization under a special charter and under a general law are substantially the same, 57 McLennan v. Hopkins, 2 Kan. a president and cashier. Longfellow App. 260, 41 Pae. 1061. v. Barnard, 58 Neb. 612, 76 Am. St. 58 McLennan v. Hopkins, 2 Kan. Eep. 117, 79 N. "W. 255. App. 260, 41 Pae. 1061. 61 Card v. Moore, 68 N. Y. App. Div. 69 McLennan v. Hopkins, 2 Kan. 327, 74 N. Y. Supp. 18, aff'd 173 N. App. 260, 41 Pae. 1061. Y. 598, 66 N. E. 1105. 60 See People v. Reclamation Dist. 62 Montgomery v. Forbes, 148 Mass. No. 556, 130 Cal. 607, 63 Pae. 27; 249, 19 N. E. 342. In this case the Farmers' Mutual v. Eeser, 43 Ind. court says: "Here there was no cor- App. 634, 88 N. E. 349. This is true poration. It was just the same as if where it does not appear that the the defendant had done nothing at all association ever attempted or desired in the way of organizing a corpora- to be a body corporate. Atchison v. tion, but had conducted his business Crawford County Farmers' Mut. Fire under the name the 'Forbes Woolen- Ins. Co., 192 Mo. App. 362, 180 S. W. Mills,' calling it a corporation. The 438. business was his personal business, An unincorporated bank exclusively which he transacted under that name, owned by one person, and which never * * * He cannot escape responsibility pretended to be a corporation, was held for his purchases by the device of not to be a corporation de facto, al- putting such a mere name between though the business was conducted by himself and the plaintiffs. ' ' 590 Ch. 10] De Facto Coepobations [§289 it is sufficient to constitute a de facto corporation under the general law if there is an attempt to organize under the special charter, though it is unconstitutional, and though there has been no attempt to or- ganize under the general law.®' There are some cases which seem to omit this requirement of a bona fide attempt to incorporate, and to hold that it is sufficient to show a user of corporate powers under color of authority from the state, but it is believed that in most instances, at least, an examination of them will show that there was in fact an attempt to comply with the provisions of the statute.®* 63 Georgia Southern & F. E. Co. v. Mercantile Trust & Deposit Co., 94 Ga. 306, 32 L. E. A. 208, 47 Am. St. Eep. 153, 21 S. E. 701. 64 For example, in Methodist Epis- copal Union Church v. Pickett, 19 N. Y. 482, afE'g 23 Barb. 436, it is said that: "Two things are necessary to be shown in order to establish the ex- istence of a corporation de facto, viz.: 1. The existence of a charter, or some law under which a corporation with the powers assumed might lawfully be created; and, 2, a user by the party to the suit, of the rights claimed to be conferred by such charter or law." But it appears that there ac- tually was an attempt to organize under the statute. The requirements as stated in the above case were quoted in Van Buren v. Eeformed Church of Gansevoort, 62 Barb. (N. Y.) 495, but it was held that there was not even a de facto corporation where there was no special charter and no attempt to incorporate under the general law. In Jones v. Dana, 24 Barb. (N. Y.) 395, it is said: "If the company had in form a charter authorizing it to act as a body corporate, and was in fact in the exercise of corporate powers at the time of its dealings with the plaintiffs then it was, as to them and all third persons, a corporation de facto." And this statement is quoted with approval in Miller v. Perris Ir- rigation Dist., 85 Fed. 693; Dean v. Davis, 51 Cal. 406; Laflin & Band Powder Co. v. Sinsheimer, 46 Md. 315, 24 Am. Eep. 522. But in all these cases it appears that an attempt had been made to comply with the statute, and some of its provisions had been com- plied with. In Finnegau v. Noerenberg, 52 Minn. 239, 18 L. E. A. 778, 38 Am. St. Eep. 552, 53 N". W. 1150, it is said that the statement of the essentials in East Norway Lake Church v. Prois- lie, 37 Minn. 447, 35 N. "W. 260, which was apparently adopted from Metho- dist Episcopal Church v. Pickett, supra, is defective in that it leaves out of account any attempt to organ- ize under the charter or law. In Eaton v. Walker, 76 Mich. 579, 585, 6 L. E. A. 102, 43 N. W. 638, Long, J., said: "Two things are necessary to be shown in order to es- tablish a corporation de facto, viz.: 1. The existence of a charter or some law under which a corporation, with the powers assumed, might lawfully be created. 2. A user by the party to the suit of the rights claimed to be conferred by such charter or law." In the very next sentence, however, he goes on to say: "If the law ex- ists, and the record exhibits a bona fide attempt to organize under it, very slight evidence of user beyond this is all that can be required." In Osborn v. People, 103 111. 224, it is said that a plea of nul tie! corpora- tion in an action by a corporation "is overcome when the corporation proves 591 §290] Pbivate Coepoeations [CL 10 § 290. Compliance with provisions of statute or charter — ^In gen- eral. The authorities are agreed that to constitute a body of men a de facto corporation, there must be at least a colorable or apparent compliance with statutory requirements. Mere assumption of cor- porate powers under a statute authorizing incorporation, without an organization in apparent or colorable compliance with the statute, does not give corporate existence either de jure or de facto.®* But there is much conflict in the decisions as to just how far the pro- it is known and transacts business under that name," but it appears that the forms required by the statute for the organizing of drainage districts had been complied with. In Miami Powder Co. v. Hotchkiss, 17 111. App. 622, it is said that the essentials are the existence of a char- ter or law under which a corporation with the powers assumed might exist, and user of corporate powers, but it appears from the opinion that a cer- tificate of incorporation had been issued, and hence that some of the statutory steps had been taken. In Lakeside Ditch Co. v. Crane, 80 Cal. 181, 22 Pac. 76, it is said that the corporation in question was rec- ognized in the community as a cor- poration and acted as such, and that the evidence was suflB.cient to support a finding that it was a corporation, acting in good faith as such, so that it came within the terms of a statute prohibiting collateral inquiry into the due incorporation of any company, "claiming in good faith to be a cor- poration, and doing business as such. ' ' It does not appear that no attempt to comply with the statute was made, and the California cases previously cited in this section will show that '; such an attempt' is necessary before"' it can be said that the company is ' ' claiming, in good faith to be a cor- poration." 65 Arkansas. Rainwater v. Chil- dress, — Ark. — , 182 S. W. 280; Whip- ple V. Tuxworth, 81 Ark. 391, 99 S. W. 86. Callfoinia. McCallion v. Hibernia Savings & Loan Society, 70 Cal. 163, 12 Pac. 114; Oroville & V. E. Co. v. Supervisors of Plumas Co., 37 Cal. 354. Colorado. Jones v. Aspen Hardware Co., 21 Colo. 263, 29 L. E. A. 143, 52 Am. St. Eep. 220, 40 Pac. 457; Dug- gan V. Colorado Mortg. & Inv. Co., 11 Colo. 113, 17 Pac. 105. Georgia. Brooke v. Day, 129 Ga. 6S4, 59 S. E. 769; Georgia Southern & r. E. Co. V. Mercantile Trust & De- posit Co., 94 Ga. 306, 32 L. E. A. 208, 47 Am St. Eep. 153, 21 S. E. 701. See also Ward-Truitt Co. v. Bryan & Lamb, 144 Ga. 769, 87 S. E. 1037. Illinois. Gillette v. Aurora Eys. Co., 228 111. 261, 81 N. E. 1005; Loverin v. McLaughlin, 161 111. 417, 44 N. E. 99; Gent V. Manufacturers' & Merchants' Mut. Ins. Co., 107 111. 652; Bigelow V. Gregory, 73 HI. 197, Iowa. Kaiser v. Lawrence Sav. Bank, 56 Iowa 104, 41 Am. St. Eep. 85, 8 N. W. 772. Kansas, Walton v. Oliver, 49 Kan. 107, 33 Am. St. Eep. 355, 30 Pac. 172; McLennan v. Hopkins, 2 Kan. App. 260, 41 Pae. 1061. Maine. Eichmond Factory Ass 'n v. Clarke, 61 Me. 351. Massacliusetts, Montgomery v. Forbes; 148 Mass. 249, 19 N. E. 342; Utley v. Union Tool Co., 11 Gray 139. Michigan. Eaton v. Walker, 70 Mich. 579, 6 L. E. A. 102, 43 N. W. 638; Doyle v. Mizner, 42 Mich. 332, 3 N. W. 968. 592 Ch. 10] Db Facto Cobpoeations [§291 visions of the statute must be followed, and as to whether and how far compliance with conditions precedent must be shown. Some of the cases hold that a substantial compliance with all conditions precedent is necessary. Others hold, or seem to hold, that no com- pliance at all with conditions precedent is necessary. And others range between these two extremes. Indeed it is sometimes difiScuIt, if not impossible, to reconcile decisions, in the same state. ®^ Statutes in some states make the stockholders individually liable for corporate debts in case there is a failure to comply substantially with the statutory conditions precedent, and, where this is the case, substantial compliance must be shown in order to relieve them from such liability.*'' § 291. — View that substantial compliance necessary. In a num- ber of states it seems to have been held that if a general laW author- Minnesota. Johnson v. Okerstrom, 70 Minn. 303, 73 N. W. 147; Johnson V. Corser, 34 Minn. 355, 25 N. W. 799. Missouri. Hurt v. Salisbury, 55 Mo. 310. Montana. Teitig v. Boesman, 12 Mont. 404, 31 Pac. 371. New Jersey. Oottentin v. Meyer, 80 N. J. L. 52, 76 Atl. 341; Stout v. Zuliek, 48 N. J. L. 599, 7 Atl. 362; Union Water Co. v. Kean, 52 N. J. Eq. Ill, 27 Atl. 1015. New York. Card v. Moore, 68 App. Div. 327, 74 N. Y. Supp. 18, aff'd 173 N. Y. 598, 66 N. E. 1105; Lamming V. Galusha, 81 Hun 247, 30 N. Y. Supp. 767, afE'd 151 N. Y. 648, 45 N. E. 1132; Perrine v. Levin, 68 Misc. 327, 123 N. Y. Supp. 1007; Dewitt v. Hast- ings, 40 Super. Ot. (8 J. & S.) 463, aff'd 69 N. Y. 518. North Carolina. Wilmington & M. E. Co. V. Wright, 5 Jones 304. Ohio. Society Perun v. Cleveland, 43 Ohio St. 481, 3 N. E. 357. Oregon. McVicker v. Cone, 21 Ore. 353, 28 Pae. 76. Pennsylvania. Guekert v. Hacke, 159 Pa. St. 303, 28 Atl. 249. Washington. Bash v. Culver Gold Min. Co., 7 Wash. 122, 34 Pac. 462. Wisconsin. Gilkey v. Town of How, 105 Wis. 41, 49 L. R. A. 483, 81 N. W. 120; Bergeron v. Hobbs, 96 Wis. 641, 65 Am. St. Eep. 85, 71 N. W. 1056. There must be color of legal organ- ization under the statutes. Eainwater V. Childress, — Ark. — , 182 S. W. 280. There must be color of incorporation or apparent corporation. Harrill v. Davis, 168 Fed. 187, 22 L. E. A. (N. S.) 1153, rev'g 7 Indian T. 152, 15 Ann. Cas. 1134, 104 S. W. 573. Where there is no attempt to com- ply with the terms of the statute rela- tive to incorporation, the members are liable as partners. Hanstein v. John- son, 112 N. C. 253, 17 S. E. 155; Bain V. Clinton Loan Ass'n, 112 N. C. 248, 17 S. E. 154. See Coler v. Dwight School Tp., 3 N. D. 249, 264, 28 L. E. A. 649, 55 N. W. 587, holding that a school township was a de facto municipal corporation and distinguish- ing Dartmouth Sav. Bank v. School Dists. Nos. 6 & 31, 6 Dak. 332, 43 N. W. 822, on the ground that in the latter case "it might be said that there was no color of organization." See § 278 and § 281, supra. 66 See §§ 291-301, infra. 67 See Chap. 17. 593 I Priv. Corp.— 38 291] Pbivate Coepobations [Ch. 10 izing the formation of corporations requires certain steps to be taken, and expressly or impliedly makes compliance with such requirements a condition precedent to the existence of corporate powers, failure to comply substantially with any one of such conditions precedent will prevent the coming into existence of a corporation either de jure or de facto, and that the omission may be taken advantage of collaterally as well as directly, and in any action or proceeding in which the question of incorporation may be properly in issue,^' unless there is 68 United States. Griffin v. Clinton Line Extension E. Co., Fed. Cas. No. 5,816. Kansas. See Central Nat. Bank of Junction City v. Sheldon, 86 Kan. 460, 121 Pac. 340, where it is said that the incorporators cannot be held person- ally liable on contracts made or debts incurred in the name of the corpo- ration if there has been a substan- tial compliance with the statute. In McLennan v. Hopkins, 2 Kan. App. 260, 41 Pac. 1061, it is said: "That a substantial, though imperfect and and irregular, compliance with the law," will create a de facto corpo- ration. In reference to tlie associa- tion in question in that case, it was said: "There was no substantial com- pliance with the law, and there could be no de facto corporation." In the latter ease, however, there was not even a colorable compliance with the statute, for there was an entire fail- ure to execute and file articles of in- corporation. And in the former case the indebtedness sued on was incurred before any part of the capital stock had been subscribed or paid. Kentucky. In Kentucky it is held that where the corporation is organ- ized as the statute requires, neither its purpose nor its validity can be inquired into collaterally. Calor Oil & Gas Co. V. Franzell, 128 Ky. 715," 36 L. R. A. (N. S.) 456, 109 S. "W. 328. But in condemnation proceed- ings, at least, the defendant may deny the incorporation of the company seek- ing to condemn where it does not ap- pear that the statutory conditions precedent have been complied with. The introduction of a duly certified copy of the articles of incorporation will make out a prima facie case of in- corporation, however. Warden v. Madi- sonville, H. & E. E. Co., 128 Ky. 563, 108 S. W. 880. Maryland. National Shutter Bar Co. V. Zimmerman & Co., 110 Md. 313, 73 Atl. 19; Maryland Tube & Iron Works V. West End Improvement Co., 87 Md. 207, 39 L. B. A. 810, 39 Atl. 620; Bonaparte v. Baltimore, H. & L. E. E. Co., 75 Md. 340; Boyce v. Tow- sontown Station of M. E. Church, 46 Md. 359. But see Keene v. Van Eeuth, 48 Md. 184; Laflin & Eand Powder Co. V. Sinsheimer, 46 Md. 315, 24 Am. Eep 522. Tennessee. The rule stated in the text appears to have been adopted in Tennessee. In Shields v. Clifton Hill Land Co., 94 Tenn. 123, 26 L. E. A. . 509, 45 Am. St. Eep. 700, 28 S. W. 668, it is said: "There can be no doubt that persons assuming to act under a charter, invalid because some positive requirement of the law has not been complied with, are liable as individuals for all debts contracted by them in the name of such corpora- tion." And a charter was held void because the acknowledgment of the proposed incorporators was made be- fore a notary instead of the clerk of court. In Brewer v. State, 7 Lea 682, it was held that a person indicted for 594 Ch. 10] De Facto Cobpobations [§292 some element of estoppel.^' In this connection it has been said that "there is a broad distinction between those acts made necessary by the statute as a prerequisite to the exercise of corporate powers and those acts required of individuals seeking incorporation, but not made prerequisites to the exercise of such powers." And it was further added that "In respect to the former, any material omission will be fatal to the existence of the corporation, and may be taken advantage of collaterally, in any form in which the fact of incorporation can properly be called in question. In respect to the latter the incorpora- tion is responsible only to the government in a direct proceeding to forfeit the charter. ' ' '" § 292. — View that colora.ble compliance sufficient. The view that there cannot be a corporation de facto without a substantial com- pliance with all conditions precedent cannot be sustained either in reason or on principle, and it is opposed to the decided weight of authority. A substantial compliance with all conditions precedent will make a corporation de jure, and therefore, to hold that this much is necessary to give rise to a corporation de facto, does away alto- gether with the necessity for the doctrine in relation to de facto selling liquor within four miles of an incorporated institution of learning could not be convicted where the in- corporators of such institution had not registered the certificate of incorpora- tion issued by the secretary of state and the facsimile of the seal of the state. This case is referred to in Carpenter v. Prazier, 102 Tenn. 462, 52 S. W. 858, as sustaining the rule that when compliance with certain statutory requirements is made a condition of corporate life, noncompli- ance is fatal, and the corporation can- not be viewed as a de facto concern, but it is held that the rule was inap- plicable to the case at bar because there had been a substantial compli- ance with the statute. Though this view was apparently not followed in Tennessee Automatic. Lighting Co. v. Massey (Tenn. Ch.), 56 S. W. 35, it is to be noted that in that case the ele- ment of estoppel was present. 69 See § 276, supra. 70 Colorado. Jones v. Aspen Hard- ware Co., 21 Colo. 263, 29 L. E. A. 143, 52 Am. St. Eep. 220, 40 Pae. 457; Humphreys v. Mooney, 5 Colo. 282. Iowa. Kaiser v. Lawrence Sav. Bank, 56 Iowa 104, 41 Am. Rep. 85, 8 N. W. 772. Maryland. Maryland Tube & Iron "Works V. West End Improvement Co.. 87 Md. 207, 39 L. E. A. 810, 39 Atl 620. Missouri. Granby Mining & Smelt ing Co. V. Eichards, 95 Mo. 106, 8 S, W. 246. Ifebraska. Abbott v. Omaha Smelt ing & Eefining Co., 4 Neb. 416. This rule is also stated in Moke lumne Hill Canal & Mining Co. v Woodbury, 14 Cal. 424, 73 Am. Dec 658. And see also, to the same effect, Elgin Nat. Watch Co. v. Loveland- 132 Fed. 41; National Shutter Bar Co, v. Zimmerman & Co., 110 Md. 313, 73 Atl. 19; Boatmen's Bank v. Gillespie, 209 Mo> 217, 108 S. W. 74. But as 595 292] Peivate Ookporations [Ch. 10 corporations. In reason, it is too clear to adfuit of question that some- thing less is required for a corporation de facto than is necessary for a corporation de jure. According to the weight of authority, there- fore, it is sufficient to constitute a de facto corporation if there has been a colorable or apparent compliance with the requirements of the charter or general law under which incorporation is attempted, and it is immaterial that the requirements which have not been sub- stantially complied with were intended by the legislature as condi- tions precedent to the exercise of corporate powers.'^ shown in § 292, infra, this rule does not now obtain in California, Colorado or Nebraska. See criticism of rule in Lamming v. Galusha, 81 Hun (N. Y.) 247, 30 N. Y. Supp. 767, affi'd 151 N. Y. 648, 45 N. E. 1132. 71 United States. Stokes v. Pindlay, 4 McCrary 205, Fed. Cas. No. 13,478. Alabama. Central of Georgia E. Co. V. Union Springs & N. R. Co., 144 Ala. 639, 2 L. R. A. (N. S.) 144, 39 So. 473. Arkansas. Rainwater v. Childress, — Ark. — , 182 S. W. 280; Bank of Midland v. Harris, 114 Ark. 344, Ann. Cas. 1916 B 1255, 170 S. W. 67; Whip- ple V. Tuxworth, 81 Ark. 391, 99 S. W. 86. See also Steele v. Hughes, 104 Ark. 517, 149 S. "W. 336. Califoniia. In Mokelumne Hill Ca- nal & Mijiing Co. v. Woodbury, 14 Cal. 424, 73 Am. Dec. 658, the court lays down the rule that where the corpora- tion is formed under a general statute, substantial compliance with conditions precedent must be shown, and that any material omission in this regard will be fatal to the existence of the corpo- ration and may be taken advantage of collaterally in any form of action in which the fact of incorporation can properly be called in question, but holds that the filing of a dupli- cate certificate of incorporation in the of&ce of the secretary of state is not such a condition, and that the failure to file it cannot be taken ad- vantage of collaterally. But this rule no longer obtains in view of the statutory provision that the due in- corporation of any company claiming in good faith to be a corporation, and doing business as such, shall not be inquired into collaterally in any pri- vate suit to which such de faeto cor- poration shall be a party. "Many of the acts required to be performed in order to make a complete organiza- tion of the corporation may have been irregularly performed, or some of them may have been entirely omitted, and the rule of the statute is, that such irregular or defective performance shall not defeat the incorporation when drawn into question collater- ally." Oroville & V. E. Co. v. Super- visors of Plumas Co., 37 Cal. 354, quoted with approval in Bakersfield Town Hall Ass'n v. Chester, 55 Cal. 98. In Harris v. McGregor, 29 Cal. 124, it is said that there must be at least a substantial compliance with conditions precedent before the cor- poration can be considered in esse, but in Pacific Bank v. De Ro, 37 Cal. 538, it is pointed out that the statute was not referred to in that case, that the action was not one to which the corporation whose existence was attacked was a party, and that no attempt was made to prove that it was a corporation de facto. See also § 291, supra, and eases there cited. Colorado. The rule stated in the text is adopted in Duggan v. Colorado 596 Ch. 10] Db Facto Corpobations [§292 Or, to state the rule in another way, "the failure as to some sub- Mortg. & Inv. Co., 11 Colo. 113, 116, 17 Pac. 105, where the court, in the course of its opinion, says: "We are aware of the distinction between mere omissions or irregularities, and what are called 'prerequisites' of the stat- utes. The distinction may well be taken in a direct proceeding or other exceptional cases where strict proof is required, but we do not regard it as having any controlling place in the case at bar. "What is or what is not a prerequisite is often a difficult ques- tion for a professional man, and much more for a layman, to determine. To cast such a burden upon the public as between its individual members is to lose sight of the reason for, and largely abrogate, the salutary rule respecting de facto corporations." In Humphreys v. Mooney, 5 Colo. 282, the court refers to the other rule, but goes no further than to hold that a requirement that the articles should specify whether the stock was assess- able or nonassessable was not a con- dition precedent, and that a failure to observe it would not prevent the corporation from being one de facto even under that rule. The holding in Jones V. Aspen Hardware Co., 21 Colo. 263, 29 L. R. A. 143, 52 Am. St. Eep. 220, 40 Pac. 457, that there can be no corporation de facto where the statu- tory fee for filing the articles of in- corporation has not been paid, is not in conflict with this rule. It was based on a statute providing that no corporation "shall have or exercise any corporate powers or be permit- ted to do any business in this state until the said fee shall have been paid," and the court said that to rec- ognize the defendant as a de facto corporation would be in direct con- flict with the express language of the act, and applied the rule that a de facto corporation can never t)e recog- nized in violation of a positive Isiw. Oounectlcut. Canfield v. Gregory, 66 Conn. 9, 33 Atl. 536. . Idaho. Even a failure to perform conditions precedent Can be inquired into by the state only. Boise City Canal Co. v. Pinkham, 1 Idaho 790. Illiuois. Gunderson v. Illinois Trust & Savings Bank, 199 111. 422, 65 N. E. 326, afe'g 100 111. App. 461; Bushnell V. Consolidated lee Mach. Co., 138 111. 67, 27 N. E. 596; Hudson v. Green Hill Seminary Corporation, 113 III. 618. Indiana. Heaston v. Cincinnati & Ft. W. E. Co., 16 Ind. 275, 79 Am. De;e. 430. Louisiana. The statute now prohibits collateral attacks on the existence of a corporation which has executed, recorded and published its char- ter, except in the ease of insurance or banking corporations, or those having the right to exercise the power of eminent domain. Act No. 78 of 1894. In Bond & Braswell v. Scott Lumber Co., 128 La. 818, 55 So. 468, the court says: "It is quite evident that, if there had been no mistakes, omissions, irregularities, or defects in the pro- ceedings, the result would have been a perfect de jure corporation" to which the statute would have no appli- cation. The statute is "intended to apply in cases where there have been mistakes, or omissions, and where the law has not been complied with, and it applies (to quote the language) 'wherever parties have attempted to form a corporation and have exe- cuted, recorded, and published the charter.' " In this case the statute was held applicable where one of the three incorporators required by the statute was ineligible. Some of the earlier cases decided before the adoption of the statute seem to have required a substantial compliance. See 597 292] Pbivate Coepobations [Ch. 10 stantial requirement will prevent the body being a corporation de Williams v. Hewitt, 47 La. Ann. 1076, 49 Am. St. Rep. 394, 17 So. 496; Spencer Field & Co. v. Cooks, 16 La. Ann. 153. Michigan. Eaton v. Walker, 76 Mich. 579, 6 L. E. A. 102, 43 N. W. 638. Minnesota. Healey v. Steele Center Creamery Ass'n, 115 Minn. 451, 133 N. W. 69; Johnson v. Okerstrom, 70 Minn. 303, 73 N. W. 147; Finnegan v. Noerenberg, 52 Minn. 239, 18 L. E. A. 778, 38 Am. St. Eep. 552, 53 N. W. 1150. Nebraska. Lusk v. Eiggs, 70 Neb. 718, 102 N. W. 88. New Jersey. Stout v. Zulick, 48 N. J. L. 599, 7 Atl. 362; Union Water Co. V. Kean, 52 N. J. Eq. Ill, 27 Atl. 1015. New York. ' ' A distinction between corporations having their charter di- rectly from legislative enactment and those created pursuant to general laws is observed by the courts in some cases, where it is held that failure of the former to perform certain condi- tions imposed to enable them to take the benefit of the charter will not sub- ject their corporate character to at- tack by third persons, while it is otherwise in respect to corporations sought to be created under general laws when there is a failure to comply fully with the conditions precedent to their creation. That distinction may be well founded so far as relates to the organization of them, as in the one case they are created by the stat- ute and in the other their creation is authorized by it. But when, by pro- ceedings taken for the purpose, there has been an attempt to comply with the statute under which it is sought to incorporate the company, and articles of association have been filed, it, by user as such, becomes a cor- poration de facto, with all the rights as to third persons which that im- ports, although its articles filed are in some particular defective. I see no reason why it does not then stand on the same footing as does a corpora- tion de facto whose charter has come directly from legislative enactment, and by which certain conditions made requisite to its creation or organiza- tion have not been performed." Lam- ming V. Galusha, 81 Hun 247, 30 N. Y. Supp. 767, aflf'd 151 N. Y. 648, 45 N. E. 1132; Buffalo & A. E. Co. v. Cary, 26 N. Y. 75; Methodist Episco- pal Union Church v. Pickett, 19 N. Y. 482; Eaton v. Aspinwall, 19 N. Y. 119. North Caiollna. Tar Eiver Nav. Co. V. Neal, 3 Hawks 520. Ohio. Society Perun v. Cleveland, 43 Ohio St. 481, 3 N. E. 357. See Union Trust Co. v. New York, C. & St. L. E. Co., 9 Ohio D^c. 773. But see Bartholomew v. Bentley, 1 Ohio St. 37, where it is said that mere ir- regularities in organizing under a charter will not deprive the officers and stockholders of its benefit nor make them privately responsible, but that the provisions of the act of in- corporation must be substantially pur- sued to entitle them to such benefit. Oregon. Splonskofsky v. Minto, 62 Ore. 560, 126 Pac. 15; Brown v. Webb, 60 Ore. 526, Ann. Cas. 1914 A 148, 120 Pac. 387. Pennsylvania. In re Gibb's Estate, 157 Pa. St. 59, 22 L. E. A. 276, 27 Atl. 383. See also Spahr v. Farmers' Bank, 94 Pa. St. 429. Utah. Marsh v. Mathias, 19 Utah 350, 56 Pac. 1074. Washington. Kwapil v. Bell Tower Co., 55 Wash. 583, 104 Pac. 824; Car- roll V. Pacific Nat. Bank, 19 Wash. 639, 54 Pac. 32; Bash v. Culver Gold Min. Co., 7 Wash. 122, 34 Pac. 462. Wisconsin. Franke v. Mann, 106 Wis. 118, 48 L. R. A. 856, 81 N. W. 1014; Slocum v. Head, 105 Wis. 431, 598 Ch. 10] De Facto Cokpobations [§293 jure ; but, if there be user pursuant to such attempted organization,, it will not prevent it being a corporation de facto." ■" §293. — Provisions as to persons who may incorporate. When persons assume to act as a body, and are permitted by the acquiescence of the public and the state to act as if they were legally a particular kind of corporation, for the organization, existence and continuance of which there is express recognition by the general law, such a body of persons is a corporation de facto, although the particular persons thus exercising the franchise of being a corporation may have been ineligible and incapacitated by the law to do so. This is on the same principle on which it is held that a person may be a de facto of&cer, although ineligible.''' So there may be a corporation de facto though the corporators and ofScers, or a certain number of them, are not residents of the state,''* or though one of them was the wife of one of the others, and so was incapable.''* And the same rule has been 50 L. E. A. 324, 81 N. "W. 673. But see Bergeron v. Hobbs, 96 "Wis. 641, 65 Am. St. Eep. S5, 71 N. "W. 1056. See also § 290, supra. 78 Gilfillan, C. J., in Finnegan v. Noerenberg, 52 Minn. 239, 244, 18 L. E. A. 778> 38 Am. St. Eep. 552, 53 N. W. 1150, quoted with approval in Whipple V. Tuxworth, 81 Ark. 391, 99 S. W. 86; Johnson v. Okerstrom, 70 Minn. 303, 73 N. W. 147; Eoariug Springs Townsite Co. v. Paducah Tel. Co., — Tex. Civ. App. — , 164 S. W. 50. 73 Toledo, St. L. & K. C. E. Co. v. Continental Trust Co., 95 Fed. 497, aff'g 92 Fed. 642, 86 Fed. 929, appli- cation for certiorari denied, 176 U. S. 219, 44 L. Ed. 442. And see American Salt Co. V. Heidenheimer, 80 Tex. 344, 26 Am. St. Eep. 743, 15 S. W. 1038. In Ashley v. Board Sup'rs Presque Isle Co., 60 Fed. 55, which is cited as authority in Toledo, St. L. & K. C. E. Co. V. Continental Trust Co., supra, it was held that a county was a de facto corporation, and that its exist- ence could not be collaterally attacked in an action on bonds issued by it, though when organized it had within its borders but one township, while the constitution provided that no coun- ty could be organized until more than one township had been organized in the proposed county territory. 71 Humphreys v. Mooney, 5 Colo. 282. Where articles of association and incorporation, alleging that two of the corporators were residents of the state, were regularly filed, and a cer- tificate issued by the secretary of state, and it afterwards appeared that there were not two citizens of the state among the corporators, it was held that there was a de facto cor- poration, and that subsequent stock- holders could not be held liable as partners. American Salt Co. v. Heid- enheimer, 80 Tex. 344, 26 Am. St. Eep. 743, 15 S. W. 1038. The corporate existence cannot be collaterally attacked on the ground that the requirement has not been complied with, where the articles are regular on their face. The Oriental V. Barclay, 16 Tex. Civ. App. 193, 41 S. W. 117. And see Halbert v. San Saba Spring Land & Live Stock Ass'n (Tex. Civ. App.), 34 S. W. 636. 76 Bond & Braswell v. Scott Lumber Co., 128 La. 818, 55 So. 468. 599 §293] Peivatb Corpobations [Ch. 10 applied in the case of consolidated corporations where one or more of the constituent companies is not within the class of corporations which the statute provides may consolidate.''* But it has been held that there is no de facto corporation where certain corporations at- tempt to form another corporation, though thie la,w does not authorize them to do so, and where there is no room for the application of the doctrine of estoppel and no considerations, of puljlic policy require a contrary holding.''' §294. — Execution of articles or certificate. According to the great weight of authority there is not even a de facto corporation where there has been an entire failure to execute articles of incor- poration,'" though there seem to be some holdings to the contrary.''^ But, on the other hand, there may be such a corporation though the articles or certificate are not executed by the full number of persons required by law,*" or though a purported signature thereto Vfi See § 283, supra. 77Ameriean Ball Bearing Co. v. Adams, 222 Fed. 967. 78 McLennan v. Anspaugh, 2 Kan. App. 269, 41 Pae. 1063; McLennan v. Hopkins, 2 Kan. App. 260, 41 Pac. 1061; Cottentin v. Meyer, 80 N". J. L. 52, 76 Atl. 341; Childs v.' Smith, 550 Barb. (N. Y.) 45. If the articles, though adopted, have never been subscribed by any of the members, there is no corporation hav- ing capacity to sue, and hence a con- tention that an action should have been brought by it, rather than by the individuals composing it, cannot be sustained. Lawrie v. Silsby, 76 Vt. 240, 104 Am. St. Eep. 927, 56 Atl. 1106. In Utley v. Union Tool Co., 11 Gray (Mass.) 139, it was held that the members of a company sued as a cor- poration could not be held liable as stockholders where the issue of the existence of the corporation was prop- erly raised, and there was nothing in the evidence to show that any articles of agreement were ever entered into for the formation of a corporation under the statute, though it was shown that some organization took place with a view to establish a corporation. In the course of the opinion the court says: "It is not a case of a defective organization under a charter or act of incorporation, nor of erroneous pro- ceedings after the necessary steps were taken to the assumption of corporate powers, but there is an abso- lute want of proof that any corpora- tion was ever called into being, which had the power of contracting debts or of rendering persons liable therefor as stockholders." 79 In Knight v. Flatrock & "W. Turn- pike Co., 45 Ind. 134, it was said that a turnpike company was a corpora- tion by user where organization had been attempted by electing officers and choosing a corporate name, and the functions of a corporation had been exercised, though no articles of as- sociation had been entered into and none existed. The question involved in this ease, however, was whether the company was a corporation de jure. 80 Johnson v. Okerstrom, 70 Minn. 303, 73 N. W. 147; First Nat. Bank of Deadwood, South Dakota v. Rocke- feller, 195 Mo. 15, 93 S. W. 761; Buf- 600 Ch. 10] De Facto Cobpobations [§294 is a forgery,8i or though they are signed and acknowledged in behalf of one or more of the incorporators by an attorney in fact,^^ or by a trustee who had no authority to act for them.^s And the same may be true though the articles or certificate were signed and acknowledged outside of the state,^* or though the statutory provisions relative to their execution have not been strictly complied with ; ^s as, for ex- ample, where they are not signed at the end thereof; ** or where there are no seals annexed to the names of tte incorporators, *' or though the articles were not executed in triplicate and no copy was retained in the office of the company.** It is also generally held that there may be a de facto corporation, the existence of which is not subject to collateral attack, though the acknowledgment of the articles or certificate of incorporation is in- sufficient or defective in form,*' or though they were acknowledged falo City R. Co. v. New York Cent., etc., E. Co., 22 Alb. L. J. (N. Y.) 134; Washington. Nat. Buildingf, Loan & Investment Ass'n v. Stanley, 38 Ore. 319, 58 li. E. A. 816, 84 Am. St. Eep. 793, 63 Pae. 489. 81 Duggan V, Colorado Mortg. & Inv. Co., 11 Colo. 113, 17 Pac. 105. 82 Doyle V. San Diego Land & Town Co., 46 Fed. 709. 83 Boatmen's Bank v. Gillespie, 209 Mo. 217, 108 S. W. 74. 84 See Humphreys v. Mooney, 5 Colo. 282. 85 Keene v. Van Eeuth, 48 Md. 184; Kalamazoo v. Kalamazoo Heat, Light & Power Co., 124 Mich. 74, 82 N. W. 811; East Norway Lake Church v. Troislie, 37 Minn. 447, 35 N. W. 260. 86 Gilman v. Druse, 111 Wis. 400, 87 N. W. 557. Such is the case where the incor- porators did not sign the certificate at the end thereof, but signed it above the attestation clause, and it was properly acknowledged. Lyell Ave. Lumber Co. v. Lighthouse, 137 N. Y. App. Div. 422, 121 N. Y. Supp. 802. But see Kaiser v. Lawrence Sav. Bank, 56 Iowa 104, 41 Am. Eep. 85, 8 N. W. 772, holding that an attempt to in- corporate under the laws of Kansas did not create a de facto corporation where only six out of eight articles were subscribed, and at least one of the others was material under the statute. 87 Stoker v. Schwab, 56 N. Y. Super. Ct. 122, 1 N. Y. Supp. 425. Contra, GrifSn v. Clinton Line Extension E. Co., Fed. Cas. No. 5,816. 88Kwapil V. Bell Tower Co., 55 Wash. 583, 104 Pac. 824. 89 OaJlfornia.. Danuebroge Gold Quartz Min. Co. v. Ailment, 26 Cal. 286. See also Oroville & V. E. Co. v. Supervisors Plumas Co., 37 Cal. 354. Iowa. Troutman v. Council BlufEs Street Fair & Carnival Co., 142 Iowa 140, 120 N. W. 730. Minnesota. East Norway Lake Church V. Froislie, 37 Minn. 447, 35 N. W. 260. New Jersey. Keyes v. Smith, 67 N. J. L. 190, 51 Atl. 122; Stout v. Zu- lick, 48 N. J. L. 599, 7 Atl. 362. Tennessee. Tennessee Automatic Lighting Co. v. Massey (Tenn. Ch.), 56 S. W. 35. As, for example, where a corporator probated the articles upon the oath of a subscribing witness and acknowl- edged their execution by himself. Wadesboro Cotton Mills Co. v. Burns, 114 N. C. 353, 19 S. E. 238. 601 §294] Pbivate Cobpobations [Oh. 10 before the wrong officer,®" or before a notary who was himself a Cor- porator ; ®^ and the same is generally held to be true though there is no acknowledgment whatever,** though there is authority to the con- trary.'^ § 295. — Contents of articles or certificate and affidavits. There may be a de facto corporation, the existence of which cannot be col- laterally attacked, though the certificate filed in the office of the secretary of state varies from the articles of association,'* or though the articles or certificates fail to state all the facts required by the statute to be stated,'* or state some of them incorrectly,'^ or contain unnecessary statements,''' or even though some of such statements are knowingly false and fraudulent." For example, it has been held that there may be such a corporation though there is a failure to state the names of the corporators," or 90 As where they were acknowl- edged before a notary instead of the clerk of court (Bon Aqua Improve- ment Co. V. Standard Fire Ins. Co., 34 W. Va. 764, 12 S. B. 771); or a justice of the peace. (See Spinning v. Home Bldg. & Sav. Ass'n, 26 Ohio St. 483; Hagerman v. Ohio Bldg. & Sav. Ass'n, 25 Ohio St. 186.) 91 Whitney v. Wyman, 101 U. S. 392, 25 L. Ed. 1050. 92 Alabama. Central Agricultural & Mechanical Ass'n v. Alabama Gold Life Ins. Co., 70 Ala. 120. Colorado. Duggan v. Colorado Mortg. & Inv. Co., 11 Colo. 113, 17 Pac. 105. New Jersey. Philadelphia & C. Ferry Co. v. Intercity Link E. Co., 73 N. J. L. 86, 62 Atl. 184, aff'd 74 N. J. L. 594, 65 Atl. 1118. Oregon. Brown v. Webb, 60 Ore. 526, Ann. Cas. 1914 A 148, 120 Pac. 387. Wisconsin. Oilman v. Druse, 111 Wis. 400, 87 N. W. 557; Franke v. Mann, 106 Wis. 118, 48 L. E. A. 856, 81 N. W. 1014. Such was the holding though the statutory memorandum was not ac- knowledged until after the organiza- tion of the corporation and after the making of the contract sued on. Mer- riman v. Magiveny, 12 Heisk. (Tenn.) 494. 93 In Kaiser v. Lawrence Sav. Bank, 56 Iowa 104, 41 Am. Eep. 85, 8 N. W. 772, it is held that an attempt to in- corporate under the laws of Kansas did not create a de facto corporation where the articles were not acknowl- edged. 94 Saunders v. Farmer, 62 N. H. 572. 9B Lamming v. Galusha, 81 Hun (N. Y.) 247, 30 N. Y. Supp. 767, aff'd 151 N. Y. 648, 45 N. B. 1132. See also People V. Leonard, 106 Cal. 302, 39 Pac. 617, and cases cited in the follow- ing notes. 96 In an action by a railroad cor- poration, evidence that the length of the road differs from that stated in the articles is not admissible to de- feat the action, whether the difference arose from fraud or mistake. Buffalo & P. E. Co. V. Hatch, 20 N. Y. 157. See also Oroville & V. E. Co. v. Su- pervisors of Plumas Co., 37 Cal. 354; Spring Valley Water Works "v. San Francisco, 22 Cal. 434. 97 Eastern Plank Eoad Co. v. Vaughan, 14 N. Y. 546. 98 See § 288, supra. 99 Central of Georgia E. Co. v. Union 602 Ch. 10] Db Facto Cokpoeations [§295 the number and names of the first trustees,^ or the date of their election and their term of ofBce,^ or to include a provision for di- rectors, trustees or any governing body,' or to fix and limit the amount of the capital stock,* or to state whether or not it is assessable,* or to state the place where the corporate business is to be carried on.' But the contrary has been held to be true where the articles fail to state the corporate name,' or the number of shares of stock held by each stockholder,* or the maximum indebtedness which the corpora- tion may ineur.^ It has been held that there may be a de facto railroad, ditch or bridge company though the articles or certificate do not comply with the statute in describing the proposed improvement,^" while on the other hand there is authority to the effect that the failure of the Springs & N. R. Co., 144 Ala. 639, 2 L. E. A. (N. S.) 144, 39 So. 473. 1 See Oroville & V. E. Co. v. Super- visors Plumas Co., 37 Cal. 354; Spring Valley Water Works v. San Francisco, 22 Cal. 434. 2 Baltimore & P. E. Co. v. Fifth Baptist Church, 137 U. S. 568, 34 L. Ed. 784. 3 Bates V. Wilson, 14 Colo. 140, 24 Pae. 99. 1 Healey v. Steele Center Creamery Ass'n, 115 Minn. 451, 133 N. W. 69. 5 Humphreys v. Mooney, 5 Colo. 282. 6 Farmers ' Ins. Co. v. Borders, 26 Ind. App. 491, 60 N. E. 174; Finne- gan V. Noerenberg, 52 Minn. 239, 18 L. E. A. 778, 38 Am. St. Eep. 552, 53 N. W. 1150. See also Kennett v. Woodworth-Mason Co., 68 N. H. 432, 39 Atl. 585. Stating that a certain city is the place of business of the corporation instead of the "principal place of business" is immaterial in condemna- tion proceedings. In re Spring Val- ley Water Works, 17 Cal. 132. Harris v. McGregor, 29 Cal. 124, ap- parently holds to the contrary, but in Pacific Bank v. De Eo, 37 Cal. 538, it was pointed out that the question of the de facto existence of the cor- poration was not involved. See also Oroville & V. E. Co. v. Supervisors Plumas Co., 37 Cal. 354; Spring Val- ley Water Works v. San Francisco, 22 Cal. 434. 'Failure of the articles of a gravel road company to state the corporate name is ground for enjoining the col- lection of assessments for the con- struction of the road. Piper v. Ehodes, 30 Ind. 309. 8 Williams v. Hewitt, 47 La. Ann. 1076, 49 Am. St. Eep. 394, 17 So. 496. 9 Stivers v. Carmichael, 83 Iowa 759, 49 N. W. 983; Heuer v. Carmichael, 82 Iowa 288, 47 N. W. 1034. 10 Detroit & T. S. L. E. Co. v. Camp- bell, 140 Mich. 384, 103 N. W. 856. This has been held true though the certificate of incorporation of a rail- road company fails to state the route or termini of the road, as required by the statute. Cayuga Lake E. Co. v. Kyle, 64 N. Y. 185. It has so been held though the certificate of incorporation of a ditch company does not specify from what stream the water is to be taken, the terminal points of the ditch and other specifications required by the statute. City of Denver v. Mullen, 7 Colo. 345, 3 Pae. 693. In Hunt V. Kansas & M. Bridge Co., 11 Kan. 412, it was held that the description of the location of a bridge for the purpose of building 603 §295] Pbivate Coepoeations [Ch. 10 articles of a draining or ditching association to describe the proposed drain or ditch with reasonable certainty renders the attempted in- corporation invalid on collateral attack.^^ There may be a corporation de facto though affidavits required by law are not attached to the articles or filed with them,^" or though an affidavit so attached or filed does not comply with the statute,!^ or does not contain all the allegations required.^* § 296. — Corporate name. There may be a de facto corporation though the corporate name violates the statute in that it so closely resembles that of a pre-existing corporation that it will tend to de- ceive the public, and hence the secretary of state should have refused to file the articles,^" or though the name does not indicate the char- acter of business to be carried on, as required by statute.^® which the corporation was organized was not so indefinite as to render the organization invalid on collateral attack. llMilligan v. State, 60 Ind. 206; Smith V. Duck Pond Ditching Ass'n, 54 Ind. 235; Crawford v. Prairie Creek Ditching Ass'n, 44 Ind. 361; Newton County Draining Co. v. Nofsinger, 43 Ind. 566; Skelton Creek Draining Co. V. Mauek, 43 Ind. 300; Seyberger v. Calumet Draining Co., 33 Ind. 330; O'Eeiley v. Kankakee Yalley Drain- ing Co., 32 Ind. 169; West v. Bullskiu Prairie Ditching Co., 32 Ind. 138. This rule was afterwards changed by a re- peal of the statute. Milligan v. State, 60 Ind. 206. 12 So held though there is a failure to attach to the certificate of incor- poration an affidavit that the state- ments therein are true. Baltimore & P. E. Co. V. Fifth Baptist Church, 137 IT. S. 568, 34 L. Ed. 784. Where a certificate of authority has been issued to an electric light, street railway, or power company by the secretary of state, it is a de facto cor- poration though an affidavit that the signatures to the articles are genuine and that it is intended in good faith to construct or maintain and operate the utilities referred to is not attached to or filed with the articles. Sioux Palls Light & Power Co. v. Coughran, 27 S. D. 443, 131 N. W. 504. For the effect of a failure to file . an affidavit or certificate showing that the required amount of capital stock has been subscribed and paid, see § 297, infra. 13 Sioux Falls Light & Power Co. v. Coughran, 27 S. D. 443, 131 N. W. 504. 14 So held though the affidavit an- nexed to the articles of association of a railroad company does not contain the allegation required by statute, that it is intended in good faith to con- struct or to maintain and operate the road mentioned in the articles. Buf- falo & A. E. Co. V. Cary, 26 N. T. 75; First Baptist Society v. Eapalee, 16 Wend. (N. T.) 605, and decisions of the supreme court. ISVallejo & N. E. Co. v. Eeed Or- chard Co., 169 Cal. 545, 147 Pae. 238. But it has been held that there is no de facto corporation where the secre- tary of state refuses to allow the in- corporation papers to be filed because of a similarity of title to that of an existing corporation. Sherwin v. Sternberg, 78 N. J. L. 557, 74 Atl. 510, aff'g 77 N. J. L. 117, 71 Atl. 117. 16 Crystal Park Co. v. Morton, 27 Colo. App. 74, 146 Pac. 566. 604 Ch. 10] De Facto Cobpoeations [§297 § 297. — Provisions as to capital stock. According to the weight of authority, there may be a de facto corporation, the existence of which cannot be collaterally attacked though the capital stock or a certain percentage thereof weis not subscribed or paid, as required by the statute,^'' or though an affidavit or certificate showing such sub- 17 United States. Allen v. Ehodes, 230 Fed. 321; In re Jackson Brick & Tile Co., 189 Fed. 636; Young Re- versible Lock-Nut Co. V. Young Lock- Nut Co., 72 Fed. 62; Stokes v. Findlay, 4 MeCrary 205, Fed. Caa. No. 13,478. Alabama. Bibb v. Hall, 101 Ala. 79, 14 So. 98; Lehman, Durr & Co. v. War- ner, 61 Ala. 455; Duke v. Cahawba Nav. Co., 16 Ala. 372; id., 10 Ala. 82, 44 Am. Dee. 472. See also Selma & T. E. Co. V. Tipton, 5 Ala. 787, 39 Am. Dec. 344. California, See Spring Valley Water Works v. San Francisco, 22 Cal. 434. Connecticut. Fish v. Smith, 73 Conn. 377, 84 Am. St. Eep. 161, 47 Atl. 711; Lamkin v. Baldwin & Lamkin Mfg. Co., 72 Conn. 57, 44 L. E. A. 786, 43 Atl. 593; Oanfield v. Gregory, 66 Conn. 9, 17, 33 Atl. 536. Creorgia. Howard v. Long, 142 Ga. 789, 83 S. E. 852; Burns v. Beck, 83 Ga. 471, 10 S. B. 121; McDougald v. Lane, 18 Ga. 444; Cason v. State, 16 Ga. App. 820, 86 S. E. 644; Orr v. Mc- Leay, 6 Ga. App. 417, 65 S. E. 164. Illinois. Foster v. Hip Lung Ying Kee & Co., 243 111. 163, 90 N. E. 375; Henry v. Centralia & C. E. Co., 121 111. 264, 12 N. E. 744; Illinois Grand Trunk E. Co. v. Cook, 29 111. 237; Eice V. Eock Island & A. E. Co., 21 111. 93; Washburn v. Eoesch, 13 HI. App. 268. Indiana. Smith v. Cleveland, C, 0. & St. L. R. Co., 170 Ind. 382, 81 N. E. 501. Maryland. Laflin & Eand Powder Co. V. Sinsheimer, 46 Md. 315, 24 Am. Eep. 522. Idicliigan. Love v. Eamsey, 139 Mich. 47, 102 N. W. 279; Continental Varnish & Paint Co. v. Secretary of State, 128 Mich. 621, 87 N. W. 901; Swartwout v. Michigan Air Line E. Co., 24 Mich. 389. Mississippi. Fargasou v. Oxford Mercantile Co., 78 Miss. 65, 27 So. 877. Missouri, Webb v. Eockefeller, 195 Mo. 57, 6 L. E. A. (N. S.) 872, 93 S. W. 772; First Nat. Bank of Deadwood, South Dakota v. Eockefeller, 195 Mo. 15, 93 S. W. 761; O'Kell v. Chama Valley Lands & Irrigation Co., 181 Mo. App. 466, 168 S. W. 887. Nebraska. Porter v. Sherman Coun- ty Banking Co., 36 Neb. 271, 54 N. W. 424. New Jersey. Attorney General v. American Tobacco Co., 55 N. J. Eq. 352, 36 Atl. 971, aff'd 56 N. J. Eq. 847, 42 Atl. 1117; Elizabethtown Gas- Light Co. V. Green, 46 N. J. Eq. 118, 18 Atl. 844, aff'd 49 N. J. Eq. 329, 24 Atl. 560; Hackensack Water Co. v. DeKay, 36 N. J. Eq. 548. In Eliza- bethtown Gas-Light Co. v. Green, 46 N. J. Eq. 118, 18 Atl. 844, aff'd 49 N. J. Eq. 329, 24 Atl. 560, it is said that Jersey City Gas Co. v. Dwight, 29 N. J. Eq. 242, is in effect overruled by National Docks Ey. Co. v. Central E. Co. of New Jersey, 32 N. J. Eq. 755. New York. Aspinwall v. Sacehi, 57 N. Y. 331; Eaton v. Aspinwall, 19 N. Y. 119, aff'g 6 Duer 176; Jones v. Dana, 24 Barb. 395. North Carolina. Fayetteville St. Ey. V. Aberdeen & E. E. Co., 142 N. C. 423, 9 Ann. Cas. 683, 55 S. E. 345; Marshall Foundry Co. v. Killiau, 99 N. C. 501, 6 Am. St. Eep. 589, 6 S. E. 680. 605 §297] Private Coepobations [Ch. 10 seription and payment has not been filed,^* or is insufficient,^® or though some of the subscriptions were fictitious or were not made in good faith,^" or were not paid in cashj'^i or though there was a Ohio. Dickason v. Grafton Sav. Bank Co., 6 Ohio C. C. (N. S.) 329; Shawnee Commercial •& Savings Bank Co. V. Miller, 1 Ohio 0. C. (N. S.) 569. Pennsylvania. Johnston v. Eliza- beth Building & Loan Ass'n, 104 Pa. St. 394; Cochran v. Arnold, 58 Pa. St. 399, overruling 45 Pa. St. 410. Washington. See American Eadi- ator Co. V. Kinnear, 56 Wash. 210, 35 L. E. A. (N. S.) 453, 105 Pac. 630. Noncompliance with a statute re- quiring a certain amount to be paid in before commencing business cannot be set up to defeat an action against a stockholder on a subscription note. Jones V. Dodge, 97 Ark. 248, L. E. A. 1915 A 472, 133 S. W. 828. 18 McGowau V. American Pressed Tan Bark Co., 121 U. S. 575, 30 L. Ed. 1027; Bank of Port Jefferson v. Dar- ling, 91 Hun (N. Y.) 236, 36 N. Y. Supp. 153. See also In re New York, W. & B. E. Co., 193 N. Y. 72, 85 N. E. 1014. The contrary view has been taken, however, where the corporation was created under a special charter making the filing of a certificate showing sub- scription and payment a. condition precedent. Attorney General v. Chi- cago & N. W. Ey. Co., 35 Wis. 425, 603. For the effect of a failure to make the required statements as to the capi- tal in the articles or certificate of in- corporation, see § 295, supra. 19 It was so held where the af&davit as to the amount subscribed and paid, required by the statute to be annexed to the articles filed in the ofliice of the secretary of state, was made by three of the directors instead of five, as re- quired. Monroe v. Ft. Wayne, J. & S. E. Co., 28 Mich. 272. 20 United States. In re Jackson Brick & Tile Co., 189 Fed. 636. Illinois. Gunderson v. Illinois Trust & Savings Bank, 199 111. 422, 65 N. E. 326, aff'g 100 111. App. 461; Illinois Grand Trunk E. Co. v. Cook, 29 111. 237. Missouri. Webb v. Eockefeller, 195 Mo. 57, 6 L. E. A. (N. S.) 872, 93 S. W. 772; First Nat. Bank of Deadwood, South Dakota v. Eockefeller, 195 Mo. 15, 93 S. W. 761. New York. Palmer v. Lawrence, 3 Sandf. 161, aff'd 5 N. Y. 389. See also Abbott v. Aspinwall, 26 Barb. 202. This is true though stock notes were surrendered to the makers without payment. Cooper v. Shaver, 41 Barb. (N. Y.) 151. And though subscrip- tions were paid by checks which were not used and were returned. Union Water Co. v. Kean, 52 N. J. Eq. Ill, 27 Atl. 1015, rev'd (on other grounds) 52 N. J. Eq. 813, 46 Am. St. Eep. 538, 31 Atl. 282. Or by checks which it was agreed should not be presented for payment, and which were never so presented. Bibb v. Hall, 101 Ala. 79, 14 So. 98. But the contrary has been held to be true where there was never any real subscription to the capital stock or any intention by the corporators to so subscribe, and no payments for such stock were ever made or intended to be made. Provident Bank & Trust Co. V. Saxon, 116 La. 408, 40 So. 778. 21 United States. Armour v. E. Bement's Sons, 123 Fed. 56. Georgia. McDougald v. Bellamy, 18 Ga. 411; Cason v. State, 16 Ga. App. 820, 86 S. E. 644. Illinois. Washburn v. Eoeseh, 13 111. App. 268. 606 Ch. 10] Db Facto Cobpobations [§297 fraudulent overvaluation of property taken in payment of subscrip«- tions,22 or though there were irregularities in the manner of obtaining subscriptions,^ or in paying them.^* But some courts have held that there is not even a de facto cor- poration where no part of the capital stock has been subscribed or paid in,^ or where statutory provisions as to the amount that must be subscribed and paid as a condition to incorporation,^ or requiring Ifllssisslppi. See Smith v. Missis- sippi & A. E. Co., 6 Smedes & M. 179. Missouri. Staunton Copper Min. Co. V. Thurmond, 7 Mo. App. 587. Nebraska. Porter v. Sherman County Banking Co., 36 Neb. 271, 54 N. W. 424. Such was the holding where the stock was issued without being fully paid in cash. Healey v. Steele Center Creamery Ass'n, 115 Minn. 451, 133 N. W. 69. And where property in- stead of money was taken for stock. Persse & Brooks Paper Works v. Wil- lett> 19 Abb. Pr. (N. Y.) 416. See also Persse & Brooks Paper Works v. Willett, 24 N. Y. Super. Ct. (1 Eob.) 131. That subscriptions were paid in se- curities instead of in cash cannot be raised on collateral attack. Boane Iron Co. V. Wisconsin Trust Co., 99 Wis. 273, 67 Am. St. Eep. 856, 74 N. W. 818. 22 See § 288, snpra. 23 Attorney General v. Stevens, 1 N. J. Eq. 369, 22 Am. Dec. 526; Mc- Farlan v. Triton Ins. Co., 4 Denio (N. Y.) 392. 24 See Geneva Mineral Spring Co. v. Coursey, 45 N. Y. App. Div. 268, 61 N. Y. Supp. 98. 25 In McVicker v. Cone, 21 Ore. 353, 28 Pae. 76, it is held that there was not a de facto corporation where no part of the stock had been subscribed, and the corporation had not been or- ganized by the election of officers. See also Coyote Gold & Silver Min. Co. v. Ruble, 8 Ore. 284; Fairview E. Co. v. Spillman, 23 Ore. 587, 32 Pae. 688; Goodale Lumber Co. v. Shaw, 41 Ore. 544, 69 Pae. 546. The corporators are individually liable for corporate debts where no part of the stock has been subscribed for. Smith v. Colorado Fire Ins. Co., 14 Fed. 399. In Ward-Truitt Co. v. Bryan & Lamb, 144 Ga. 769, 87 S. E. 1037, it was held that the members of a firm could not escape individual liability on notes signed in the firm name on the ground that the partner- ship had been dissolved and a corporation had succeeded to the busi- ness, where there was no stock sub- scription or list of stockholders, and no minutes were kept. In Weehsel- berg V. Flour City Nat. Bank, 64 Fed. 90, 26 L. E. A. 470, it was held that, under the laws of Wisconsin, persona who signed the articles of incorpora- tion were individually liable for debts incurred in the corporate name where no part of the capital stock was paid in or subscribed. 26 In Attorney General v. Chicago & N. W. Ey. Co., 35 Wis. 425, 603, it was so held under a special charter mak- ing subscription and payment condi- tions precedent. In American Ball Bearing Co. v. Adams, 222 Fed. 967, it was held that a corporation attempted to be organized under the laws o£ Ohio, but failing to comply with the statutes of that state in this regard, could not maintain an action for in- fringement of a patent on the ground that it was a de facto corporation, there being no considerations of equit- able estoppel or public policy requir- ing the application of the de facto 607 § 298], Peivate Cobpoeations [Ch. 10 the original subscriptions to be recorded,'^'' have not been complied •with. § 298. — Piling or recording articles or certificate. The author- ities seem to be agreed that there is not even a .de facto corporation where no articles or certificate of incorporation have ever been filed or recorded as? required by law, or, in other words, where there has been no attempt whatever to comply with the provisions of the statuta doctrine. In JMeyer v. Brunson, — S. C. — , 88 S. E. 359, tjiere was held to be no de facto corporation where the required amount was not sub- scribed or paid, there had been no meeting of the subscribers, and it did not appear that the return of the cor- porators to the secretary of state showed what part of the stock sub- scribed had been paid. While a corporation has an exist- ence when its charter is filed with the secretary of state, still, if nothihg further is done to perfect its organi- zation, and no part of its capital stock is subscribed or paid, it has no right to transact any business, nor have its directors any right to enter into con- tracts or incur debts or liabilities in its name, and they are personally liable for any debts or liabilities so incurred. Central Nat. Bank of Junction City v. Sheldon, 86 Kan. 460, 121 Pac. 340; Walton V. Oliver, 49 Kan. 107, 33 Am. St. Kep. 355, ,30 Pac. 172. ' ' Where the only facts alleged as to the organization of a corporation, so called, are that there was a notarial charter, and that the same was record- ed in the proper mortgage book, there is no basis for the contention that the petition admits the organization of a corporation, either de jure or de facto; it not appearing what was the amount of the capital stock requisite for the organization, or that the same was actually subscribed or paid." Louisi- ana Nat. Bank v. Henderson, 116 La. 413, 40 So. 779. In Bond & Braswell v. Scott Lum- ber Co., 128 La. 818, 55 So. 468, it was held that stockholders could not be held individually liable for corporate debts though the sub- scribed capital was not all paid. Nor is it a defense, in an action against a third person, that the stock of the plaintiff, which was organized under the Act of 1904, was issued without any real consideration. See Leader Eealty Co. v. Lakeview Land Co., 127 La. 1059, 54 So. 350. In Glove Eealty Co. v. Whitney, 106 La, 257, 30 So. 745, it was held that a corporation formed under Act No. 36 of 1888 could have no existence until it had obtained a capital stock of $5,000, and that it took no title to property purchased in the corporate name before that time, and that this fact was a good defense to a suit by it for breach of a contract to pur- chase such property from it. If the articles show on their face that the required amount of stock has not been subscribed and that the required amount has not been paid in, the court will declare them void in a proceeding in which it is sought to exercise corporate powers, as in emi- nent domain proceedings. Kinston & C. E. Ca V. Stroud, 132 N. C. 413, 43 S. E. 913. 27 Louisiana Nat. Bank v. Hender- son, 116 La. 413, 40 So. 779; Provident Bank & Trust Co. v. Saxon, 116 La. 408, 40 So. 778. 608 Gh. 10] Db Facto Cokpoeations [§298 in this regard,''* but that there may be such a corporation if there has been an attempt in good faith to comply with such provisions 28 McLennan v. Anspaugh, 2 Kan. App. 269, 41 Pac. 1063; McLennan v. Hopkins, 2 Kan. App. 260, 41 Pac. 1061; Provident Bank & Trust Co. v. Saxon, 116 La. 408, 40 So. 778; Spencer Meld & Co. V. Cooks, 16 La. Ann. 153; Stevens v. Episcopal Church History- Co., 140 N. Y. App. Div. 570, 125 N. Y. Supp. 573; Childs v. Smith, 55 Barb. (N. Y.) 45. See also Kaiser v. Lawrence Sav. Bank, 56 Iowa 104, 41 Am. Bep. 85, 8 N. W. 772; Daily v. Marshall, 47 Mont. 377, 183 Pac. 681; Bash v. Culver Gold Min. Co., 7 "Wash. 122, 34 Pac. 462. There is not even a de facto cor- poration where the articles have not been filed with the secretary of state. Bank of De Soto v. Eeed, 50 Tex. Civ. App. 102, 109 S. W. 256. Where the articles or certificate are not filed, and nothing further has been done towards incorporating than sign- ing the same, the associates are liable as partners. Bigelow v. Gregory, 73 111. 197; Tuccillo v. Pittelli, 127 N. Y. Supp. 314. In Goodale Lumber Co. v. Shaw, 41 Ore. 544, 69 Fac. 546, which was an action by a corporation on a prom- issory note, it was held that where the plaintiff's corporate existence was properly put in issue and there was no proof that the articles were ever filed either in the office of the secre- tary of state or with the county clerk, or that any of its capital stock had been taken, or that any directors had been elected, a nonsuit should have been granted. See in this connection United States Mortg. Co. v. MoClure, 42 Ore. 190, 201, 70 Pac. 543. In Finnegan v. Noerenberg, 52 Minn. 239, 18 L. E. A. 778, 38 Am. St. Eep. 552, 53 N". W. 1150, and Johnson V. Okerstrom, 70 Uinn. 303, 73 N. "W. 147, it is stated that the reason for holding the associates liable as part- ners in Johnson v. Gorser, 34 Minn. 355, was that they had merely signed articles bu.t had not filed them f dr record, which was necessary' to con- stitute them a de facto corporation. There is no de facto partnership as- sociation, limited, where the articles are never filed or recorded as required by law. Nichols v. Buell, 157 Mich. 609, 122 N". W. 217. But it has been held that a corporation attempted to be formed before there was any law authorizing its incorporation became one de jure where it continued to do business after the passage of such a law providing that corporations pre- viously formed inight take advantage of its provisions by filing a certificate of acceptance with the secretary of state, though no such certificate was . filed. Mason v. Stevens, 16 S. D. 320, 92 N. W. 424. In Utah Light & Traction Co. v. United States, 230 Fed. 343, it was held that the existence of a corpora- tion attempted to be organized under the laws of Utah territory could not be collaterally attacked on the ground that it had not filed its articles nor made any other filing in the ofS^ce of the secretary of the territory. It does not appear from the case whether the articles had been filed elsewhere. In re Shakopee Mfg. Co., 37 Minn. 91, 33 N. W. 219, it was held that the filing of the certificate re- quired by Gen. St. 1878, o. 37, § 178, to be filed by manufacturing compan- ies before commencing business was not essential to the creation and ex- istence of the corporation, and hence that the fact that such a certificate was not verified did not make the stockholders liable as partners. I Priv. Corp.— 39 609 298] Pbivate Coepobations [Ch. 10 though all of the statutory requirements have not been strictly ob- served.*^ There is considerable conflict of authority, however, as to the effect in this regard of a failure to comply with particular statutory pro- visions relative to filing and recording, due, in part at least, to the wording of the various statutes on the subject. So the authorities are in conflict as to whether there may be a de facto corporation though the articles or certiflcate of incorporation,^" or a certificate or affidavit of organization, required to be prepared by the cor- 29 Stevens v. Episcopal Church His- tory Co., 140 N. Y. App. Div. 570, 125 N. Y. Supp. 573. See also Keene v. Van Eeuth, 48 Md. 184, where there was at least an attempt to comply with the statute, and see cases cited in the following notes. sounder tie general law of Ar- kansas in force in the Indian Ter- ritory, it was held that there could be no color of a legal' incorporation, and hence no de facto corporation, until the articles of incorporation were filed with the clerk of the court of appeals. Harrill v. Davis, 168 Fed. 187, 22 L. E. A. (N. S.) 1153, rev'g 7 Indian T. 152, 15 Ann. Cas. 1134, 104 S. W. 573. "Agreements to form one, state- ments that there was one, signed ar- ticles of association to make one, acts as one, created no color of in- corporation, because there could be no incorporation or color of it under the law until the articles were filed. ' ' Harrill v. Davis, 168 Fed. 187, 22 L. B. A. (N. S.) 1153, rev'g 7 Indian T. 152, 15 Ann. Cas. 1134, 104 S. W. 573. The corporation is one de facto, and its charter cannot be collaterally attacked by one who has dealt with it as a corporation, though the certificate of incorporation is not recorded in the ofice of the recorder of the county where its chief operations are to be carried on. Tonge v. Item Pub. Co., 244 Pa. 417, 91 Atl. 229; Pinkerton v. Pennsylvania Traction Co., 19S Pa. St. 229, 44 Atl. 284; Pierce v. Hacke, 1 Pa. Dist. 517. So one who brings an action for damages for the death of a passenger against two railway com- panies, one of which has leased its lines to the other, cannot contend that the lessor is not a legal corporation because its certiflcate was not record- ed, and hence that the lease was void, and the lessor was therefore liable. Pinkerton v. Pennsylvania Tractiou Co., 193 Pa. St. 229, 44 Atl. 284. The court in this case distinguishes the cases of New York Nat. Exch. Bank V. Crowell, and Guckert v. Hacke, infra, on the ground that they express- ly concede that actual knowledge by the plaintiff and dealing as with a cor- poration will estop him notwithstand- ing the failure to record, and say that in the case at bar the lessor made the lease in its corporate capacity, was sued as a corporation, and the necessary basis of the action was the passage ticket bought from it as an acting corporation. But if the cer- tificate is not so recorded the incorporators are personally liable on contracts made with persons who have no knowledge of the incorporation. Tonge V. Item Pub. Co., 244 Pa. 417, 91 Atl. 229; Pittsburg Sheet Mfg. Co. V. Beale, 204 Pa. 85, 53 Atl. 540; Pinkerton v. Pennsylvania Traction Co., 193 Pa. St. 229, 44 Atl. 284; New York Nat. Exch. Bank of City of New York v. Crowell, 177 Pa. St. 313, 35 Atl. 613; Guckert v. Hacke, 159 Pa. St. 303, 28 Atl. 249. 610 Ch. 10] De Facto Corporations [§298 porators '^ or a certificate of ineorpoTation or registration, or complete organization wMeh the statute requires to be issued by the secretary of state,^2 is not gied or recorded in the designated office in the county where the principal office of the corporation is located. It has been very generally held that there may be a de facto cor- poration where the articles or certificate have been filed or recorded 31 Failure of a religious corporation to show that its certificate of organi- zation was recorded in the offlce of the recorder of deeds does not prevent it from proving its corporate existence by user. Fifth Baptist Church of Washington, D. C. v. Baltimore & P. R. Co., 5 Mackey (D. C.) 269. A church may be a religious corpora- tion de facto though the afSdavit or organization has not been recorded in the office of the recorder of deeds. Trapp V. St. John's Baptist Church, 174 111. App. 213. In East Norway Lake Church v, Froislie, 37 Minn. 447, 35 N. W. 260, the court said that it was wholly un- necessary to consider the contention that the certificate of incorporation of a religious corporation was "not properly executed, acknowledged, or recorded," for the reason that it was at least a corporation de facto. If the certificate of organization of an agricultural association, with a copy of its constitution, is not filed with the register of deeds as required by the statute, the organizers are not acting as a corporation under color of legal right, and hence are not a cor- poration de facto. The mere record- ing of the papers is not enough where they are neither left nor intended to be left there. Bergeron v. Hobbs, 96 Wis. 641, 65 Am. St. Eep. 85, 71 N. W. 1056. 32 It has been held in numerous eases that there may be a de facto corporation though the certificate of incorporation has not been recorded in the office of the recorder of deeds of the county where the principal office of the corporation is located. Mar- shall V. Keach, 227 111. 35, 118 Anu St. Eep. 247, 10 Ann. Cas. 164, 81 N. E. 29; Bushnell v. Consolidated Ice Mach. Co., 138 111. 67, 27 N. E. 596; Woodland Social Entertainment Ass'n V. Anderson, 187 111. App. 507; People V. Citizens Tel. Co. of Pekin, Illinois, 186 111. App. 260; Clinton Co. v. Schwarz, 175 111. App. 577; Eiemann V. Tyroler & Vorarlberger Verein, 104 111 App. 413; Hoyt v. McCallum, 102 111. App. 287; Joliet v. Frances, 85 111. App. 243; Edwards v. Cleveland Dryer Co., 83 111. App. 643; Curtis v. Meeker, 62 111. App. 49, aff'd 169 111. 233, 61 Am. St. Eep. 168, 48 N. E. 399; Forest Glen Brick & Tile Co. v Gade, 55 111. App. 181, aff'd 165 111. 367, 46 N. E. 286; American Live Stock Commission Co. v. Chicago Live Stock Exchange, 41 111. App. 149, aff'd 143 HI. 210, 18 L. E. A. 190, 36 Am. St. Eep. 385, 32 N. E. 274. But in Africani Home Purchase & Ijoan A.ss'n v. Carroll, 267 111. 380, 108 IM. E. 322, it was held that, in view of tHe provisions of the statute (Kurd's Eev. St. 1913, o. 32, § 4, J. & A. If 2421), that unless the corpora- tion shall be organized and shall pro- ceed to business within two years after the date of such license, then such license shall be deemed revoked, and all proceedings thereunder void, the faUure to record the certificate within two years ipso facto terminates the corporate existence, and thereafter there is no license to organize a cor- poration. All subsequent proceed- ings looking to its organization are void, and a complete reorganization 611 § 298] Private Cobpobations [Ch. 10 in one or more of several places required by the statute, though not in all of them,33 as, for example, where they are filed in the office of the seoretary of state, but are not filed or recorded in the required office of the county where the corporation has its principal place of business,^* or where they are filed or recorded in the proper county office but not with the secretary of state.** is necessary. And such failure may be taken advantage of in a collateral proceeding, as, for example, in a suit by tke corporation for specific per- formance of a contract. The statute relative to homestead loan associations (Hurd's Bev. St. 1913, c. 32, § 80, J. & A. H 2592) con- tains a similar provision, and hence the, same rule applies tb them. It is to be noted that the contract involved in the above ease was held to be ultra vires and hence that the holding was not necessary to the decision. It ap- pears to be in conflict with Bushnell v. Consolidated Ice Mach. Co., 138 111. 67, 27 N. E. 596, and at least some of the other eases previously cited. See also People v. Mackey, 255 111. 144, 99 N. E. 370, which explains and quali- fies the holding on this subject in Marshall v. Keach, supra. The charter may be collaterally at- tacked if the certificate of registra- tion in the of&ce of the secretary of state and the facsimile of the seal of the state are not registered in the county where the principal office of the company is situated. Brewer v. State, 7 Lea (Tenn.) 682. But where it appears that the certificate was registered, it is not ground for col- lateral attack that the facsimile of the seal was not accurately drawn. Carpenter v. Frazier, 102 Tenn. 462, 52 S. W. 858. 33 Stevens v. Episcopal Church His- tory Co., 140 N. Y. App. Div. 570, 125 N. T. Supp. 573. In Childs v. Hurd, 32 W. Va. 66, 9 S. E. 362, it is held that under the New Tork law the existence of a cor- poration may be collaterally attacked on the ground that the certificate was not filed in the oflSce of the county clerk, though not because a dupli- cate was not filed in the office of the comptroller of the treasury. 34 California. Bakersfield Town Hall Ass'n v. Chester, 55 Cal. 98. Colorado. Humphreys v. Mooney, 5 Colo. 282. See also Woods Gold Min. Co. V. Eoyston, 46 Colo. 191, 103 Pac. 291. Michigan. Galvin v. Detroit Steer- ing Wheel & Windshield Co., 176 Mich. 569, 142 N. W. 792; Newcomb-Endi- cott Co. V. Pee, 167 Mich. 574, 133 N. W. 540; Whitney v. Wyman, 101 U. S. 392, 25 L. Ed. 1050 (construing the Michigan act). Missouri. Granby Mining & Smelt- ing Co. V. Richards, 95 Mo. 106, 8 S. W. 246. New York. Dewitt v. Hastings, 40 N. Y. Super. Ct. 463, afC'd 69 N. Y. 518; In re Cordova Shop, 216 Fed. 818 (construing the New York act). Oklahoma. Swofford Bros. Dry Goods Co. v. Owen, 37 Okla. 616, 133 Pac. 193. 35 Arkansas. Bank of Midland v. Harris, 114 Ark. 344, Ann. Cas. 1916 B 1255, 170 S. W. 67. In Garnett v. Eichardson, 35 Ark. 144, it was held that where the act of incorporation was incomplete by reason of a failure to file the articles of incorporation with the secretary of state, the incorporators were person- ally liable as partners. But in Bank of Midland v. Harris, 114 Ark. 344, Ann. Cas. 1916 B 1255, 170 S. W. 67, the court holds that there is a de 612 Ch. 10] De Facto Coepobations [§298 Usually there may be a de facto railroad company though its artides facto corporation under such circum- stances and that the stockholders may be held liable under a statutory pro- vision making stockholders in banks personally liable for public funds de- posited therein which the bank fails to pay over on demand. In speaking of the decision in Garnett v. Eichard- son, the court says: "That decision seems to be against the weight of modern authority, and the doctrine of it should not be extended any fur- ther. It does not follow that the corporation itself would not also bo liable as a de facto corporation, nor that statutory liability of incorpora- tors would be unenforceable." California. Mokelumne Hill Canal & Mining Co. v. Woodbury, 14 Cal. 424, 73 Am. Dec. 658; Hyde v. Doe, 4 Sawy. (U. S.) 133, Fed. Cas. No. 6,969 (under California act). See also Oroville & V. E. Co. v. Supervisors of Plumas Co., 37 Cal. 354; Spring "Val- ley Water Works v. San Francisco, 22 Cal. 434. Colorado. Grand Eiver Bridge Co. V. EoUins, 13 Colo. 4, 21 Pac. 897. In Jones v. Aspen Hardware Co., 21 Colo. 263, 29 L. E. A. 143, 52 Am. St. Eep. 220, 40 Pac. 457, it was held that there was no de facto corpora- tion though the articles were filed with the county clerk, where they were not filed with the secretary of state and the required fees were not paid. The holding in this case was based on the nonpayment of the fee, however. Illinois. Under Act Feb. 10, 1849, Baker v. Backus' Adm'r, 32 111. 79; Tarbell v. Page, 24 111. 46; Cross v. Pinekneyville Mill Co., 17 111. 54; Act Feb. 18, 1857; Stone v. Great West- ern Oil Co., 41 111. 85. Indiana. Baker v. Neff, 73 Ind. 68. Iowa. See Seaton v. Grimm, 110 Iowa 145, 81 N. W. 225; First Nat. Bank v. Da vies, 43 Iowa 424; Stokes V. Findlay, 4 McCrary (U. S, C. C.) 205, Fed. Cas. No. 13,478 (under Iowa act). Kentucky. Failure to file the ar- ticles with the secretary of state can be taken advantage of only in a direct proceeding to annul the franchise. Portland & G. Turnpike Co. v. Bobb, 88 Ky. 226, 10 S. 'W. 794. Failure of a corporation organized for the purpose of constructing a work of internal improvement to file its articles with the secretary of state within the time prescribed by the statute can be taken advantage of only in a direct proceeding to annul its franchise. Walton v. Eiley, 85 Ky. 413, 3 S. W. 605, overruling Heinig v. Adams & Westlake Mfg. Co., 81 Ky. 300. Louisiana. Bond & Braswell v. Scott Lumber Co., 128 La. 818, 55 So. 468. MicMgan. In Sehaub v. Coffin, 135 Mich. 435, 97 N. W. 968, it was held that a company was liable as a do facto corporation on a contract made by it with a person who was given to understand that it was incorpo- rated, where its articles had been signed and filed with the county clerk, and sent to the secretary of state, though they were afterwards rejected and returned by the latter officer. Nebraska. Lincoln Butter Co. v. Edwards-Bradford Lumber Co., 76 Neb. 477, 107 N. W. 797; Lusk v. Biggs, 70 Neb. 718, 102 N. W. 88. Prior to the adoption of the Act of 1897, e. 18, requiring the articles to be filed in both places, they were only required to be filed with the county clerk, and it was then held that filing them there was a condition precedent to the right to ■do business other than the organization of the company, and that the mere adoption of articles without so filing them gave no right 613 298] Peivate Ooepobations [Ch. 10 or certificate are not recorded in every county through which its road runs.'^ As a rule, the fact that the articles or certificate of incorporation are filed in the wrong puhlie office will not prevent the corporation from attaining de facto existence.''' Nor will the fact that the certifi- cate of incorporation issued hy the secretary of state instead of the articles of incorporation,'* or a copy instead of a duplicate of the even as a de faeto corporation to transact business. Lusk v. Eiggs, 70 Neb. 718, 102 N. W. 88; Abbott v. Omaha Smelting & Befining Co., 4 Neb. 416. New Jersey. Mc Carter v. Ketch am, 74 N. J. L. 829, 69 Atl. 253; 74 N. J. L. .825, 67 Atl. 610; 72 N. J. L. 247, 62 Atl. 693; Vanneman v. Young, 52 N. J. L. 403, 20 Atl. 53; Way v. Ameri- can Grease Co., 60 N. J. Eq. 263, 47 Atl. 44. In Sherwin v. Sternberg, 78 N. J. L. 557, 74 Atl. 510, aff'g 77 N. J. L. 117, 71 Atl. 117, it is held that there was no de facto corporation where the secretary of state refused to al- low the incorporation papers to be filed because of a. similarity of title to that of an existing corporation, though the certificate of incorpora- tion was filed with the county clerk. New York, Leonardsville Bank v. Willard, 25 N. Y. 574; Greorgeson v. Caffrey, 71 Hun 472, 24 N. Y. Supp. 971; Baisbeck v. Oesterricher, 4 Abb. N. Cas. 444; Meriden Tool Co. v. Mor- gan, 1 Abb. N. Cas. 125, note; Erie County Sav. Bank v. Baldwin, 22 Alb. L. J. 134. See also "Western U. Tel. Co. V. Union Pac. By. Co., 3 Fed. 721, 729 (under New York act). Tennessee. Merriman v. Magiveny, 12 Heisk. 494. 36 Brown v. Melick, 185 HI. App. 3. Eegistration in the county where its principal office is situated is sufficient to protect the corporate existence against collateral attack. Anderson V. Eailroad, 91 Tenn. 44, 17 S. "W. 803. 37Bakersfield Town Hall Ass'n v. Chester, 55 Cal. 98; Emery v. De Peys- ter, 77 N. Y. App. Div. 65, 78 N. Y. Supp. 1056. That the proposed charter was reg- istered in the office of the register of deeds instead of before the clerk does not prevent de facto existence. Clare- mont College v. Eiddle, 165 N. C. 211, 81 S. E. 283. Nor does such result arise because the articles were filed in the office of the county clerk in- stead of recorded in the office of the register of deeds; Kalamazoo v. Kala- mazoo Heat, Light & Power Co., 124 Mich. 74, 82 N. W. 811, nor because the county clerk, to whom the articles were handed, and who was also the county recorder, marked the docu- ment as filed with the recorder instead of with the clerk. San Diego Gas. Co. V. Frame, 137 Cal. 441, 70 Pac. 295. The existence of the corporation can- not be collaterally attacked on the ground that the articles were filed with the county recorder instead of in the office of the county clerk, where the clerk was ex officio recorder. San Diego Gas Co. v. Frame, 137 Cal. 441, 70 Pac. 295. That the certificate of a religious corporation is recorded in the regis- ter's office instead of in the office of the county clerk does not prevent the corporation from taking effect as such. In re Arden, 1 Connolly Surr. (N. Y.) 159, 4 N. Y. Supp. 177. 38 So where the certificate is filed and recorded in the county recorder's office instead of the articles. Hunt- ington Mfg. Co. V. Schofield, 28 Ind. App. 95, 62 N. E. 106. 614 Ck 10] Db Facto Cobpoeations [§298 articles,'* or the original articles instead of a certified copy,*" are filed or recorded. And there may also be a de facto corporation where the articles or certificate are filed for record though it does not appear that they were in fact recorded." According to the weight of authority there may he a corporation de facto though statutory provisions relative to the publication of the articles of incorporation or of a notice of incorporation have not been complied with,*^ though there are holdings to the contrary.** Failure to make the required proof of publication will not prevent the corporation from being one de facto.** 39 In Hudson v. Green Hill Semi- nary Corporation, 113 111. 618, it is held that a corporation attempted to be organized under the laws of In- diana was one de facto though a copy of the articles was filed with the sec- retary of state instead of a duplicate, as required by the Indiana statute. MSlocum V. Head, 105 Wis. 431, 50 L. E. A. 324, 81 N. W. 673. 41 Washington College v. Duke, 14 Iowa 14. So held where the certificate show- ing the organization of the corpora- tion by the meeting of the subscrib- ers and the election of officers was not recorded. Owensboro Wagon Co. v. Bliss, 132 Ala. 253, 90 Am. St. Eep. 907, 31 So. 81. In Johnson v. Okerstrom, 70 Minn. 303, 73 N. W. 147, it was held that there was a de facto corporation where the articles were filed in the office of the proper town clerk, though it did not appear that he recorded them. 42 Connecticut. See Wood v. Wiley Const. Co., 56 Conn. 87, 13 Atl. 137. Illinois. See Kettering v. City of Jacksonville, 50 111. 39, holding that the failure to publish a municipal charter as required by its terms could not be taken advantage of collater- ally. Iowa. Troutman v. Council Bluffs Street Fair & Carnival Co., 142 Iowa 140, 120 N. W. 730. See also Stokes V. Findlay, 4 MeCrary (U. S. C. C.) 205, Ted. Cas. No. 13,478. But the stockholders are person- ally liable for the corporate debts where the law relative to the publica- tion of notice is not complied with. Clegg V. Hamilton & Wright County Grange Co., 61 Iowa 121, 15 N. W. 865; Marshall v. Harris, 55 Iowa 182, 7 N". W. 509. Kentucky. Failure to publish the articles within the time prescribed can be taken advantage of only in a direct proceeding to annul the cor- porate franchise. Walton v. Riley, 85 Ky. 413, 3 S. W. 605, overruling Hei- nig V. Adams & Westlake Mfg. Co., 81 Ky. 300; and Robinson & Co. v. Harris, 5 Ky. L. Rep. 928. Nebraska. Lincoln Butter Co. v. Edwards-Bradford Lumber Co., 76 Neb. 477, 107 N. W. 797; Kleckner v. Turk, 45 Neb. 176, 63 N. W. 469. New York. Holmes v. Gillilaad, 41 Barb. 568. 43 Louisiana Nat. Bank v. Hender- son, 116 La. 413, 40 So. 779; Provident Bank & Trust Co. v. Saxon, 116 La. 408, 40 So. 778; Williams v. Hewitt, 47 La. Ann. 1076, 49 Am. St. Eep. 394, 17 So. 496. In Bigelow V. Gregory, 73 111. 197, it was held that there was not a de facto corporation under the laws of Wisconsin where the articles were never published and the required cer- tificate of incorporation was never filed. *4Hause v. Mannheimer, 67 Minn. 194, 69 N. W. 810. See also Chris- 615 §299] Pbivate Cobpoeations [Ch. 10 §299. — Payment of fees and deposit of securities. In some jurisdictions it has been held that there may be a de facto corpora- tion, the existence of which cannot be collaterally attacked, though there was no payment of the money required by the statute to be paid to the state treasurer.** But in others it is held that there is not even a corporation de facto under such circumstances, and that the non- payment may be taken advantage of collaterally.*® It has been held that the failure of a banking corporation to comply with a provision requiring it to deposit securities to a certain amount with the bank department before commencing business will not pre- vent it from being a de facto corporation.*'' § 300. — Issuance of certificate or authorization by public officer. Some courts have held that there is no corporation de facto where there has not been an issue of a certificate of incorporation** or letters patent.*® But others take a contrary view.®" And it has even been held that the fact that an association is conducting a particular business without a charter and without any shadow of right does tian V. Bowman, 49 Minn. 99, 51 N. W. 663. So held though proof of the publi- cation of the charter is not filed in the office of the secretary of state. Bond & Braswell v. Scott Lumber Co., 128 La. 818, 55 So. 468. 45 Owensboro Wagon Co. v. Bliss, 132 Ala. 253, 90 Am. St. Kep. 907, 31 So. 81; Christian & Craft Grocery Co. V. Fruitdale Lumber Co., 121 Ala. 340, 25 So. 566; McClinch v. Sturgis, 72 Me. 288; Eaton v. Aspinwall, 19 N. Y. 119; Muehlenbeok v. Babylon & N. S. E. Co., 26 N. Y. Misc. 136, 55 N. Y. Supp. 1023. 46 Union Horse Shoe "Works v. Lewis, 1 Abb. (tJ. S.) 518, Fed. Cas. No. 14,- 365; Jones v. Aspen Hardware Co., 21 Colo. 263, 29 L. E. A. 143, 52 Am. St. Eep. 220, 40 Pae. 457; National Shutter Bar Co. v. G. F. S. Zimmerman & Co., 110 Md. 313, 73 Atl. 19; Cleave- land V. Mullin, 96 Md. 598, 54 Atl. 665; Maryland Tube & Iron Works v. West End Improvement Co., 87 Md. 207, 39 L. E. A. 810, 39 Atl. 620; Slocum v. Warren, 10 E. I. 116; Slocum v. Prov- idence Steam & Gas Pipe Co., 10 E. I. 112. See also State v. Consolidated Gas, Elec. Light & Power Co., 104 Md. 364, 65 Atl. 40; Murphy v. Wheat- ley, 102 Md. 501, 63 Atl. 6h. 47 Leonardsville Bank v. Willard, 25 N. Y. 574. 48 See Daily v. Marshall, 47 Mont. 377, 133 Pac. 681. 49 Humphreys v. Drew, 59 Fla. 295, 52 So. 362. BO There may be a de facto corpo- ration though no certificate of incor- poration was issued by the secretary of state; Bank of Midland v. Harris, 114 Ark. 344, Ann. Cas. 1916 B 1255, 170 S. W. 67; Keith & Perry Coal Co. V. Bingham, 97 Mo. 196, 10 S. W. 32; or by the probate judge. Owensboro Wagon Co. v. Bliss, 132 Ala. 253, 90 Am. St. Eep. 907, 31 So. 81. Though a certificate of incorpora- tion is never issued by the judge of probate, the charter may be ratified and confirmed by a subsequent act of the legislature. State v. Webb, 110 Ala. 214, 20 So. 462. 616 Ch. 10] De Facto Cobpokations [§301 not prevent it from being a de facto corporation where such business is not without the pale of the law.*^ It has been held that there is no corporation de facto where the corporators have failed to obtain the authorization or certificate, re- quired by the statute, from the attorney general, district attorney or judge ; *2 but, on the other hand, there are holdings to the effect that failure to obtain a certificate from the state auditor authorizing com- mencement of business,^' or the failure of a bank to obtain a certificate of authority from the bank commissioner,^* or the approval of its charter by congress,^* or of a railroad company to obtain a certificate of necessity and convenience from the railroad commission,*® does not prevent it from becoming a de facto corporation. §301. — Provisions as to organization. Generally the fact that the corporation was not organized within the time limited by the charter or the general law does not prevent it from becoming a cor- 51 In Petty v. Brunswick & W. Ey. Co., 109 Ga. 666, 35 S. E. 82, it was said that, though a railway employ- ees' relief association might possibly be conducting a general mutual bene- fit insurance business without a char- ter and without the least shadow of right, this was a matter as to which the state was alone concerned. "As it is not attempting to engage in a business without the pale of the law, it stands upon the footing of a de facto corporation, at least. ' ' But else- where in the opinion the court says that it was immaterial whether it was a copartnership, a corporation or a mutual benefit association, since the plaintifE, by his demurrer, had admit- ted that he had become a member of the association, and had thereby rec- ognized its right to make a lawful contract, and was not, therefore, in a position to question its authority to transact the business in which it was engaged, especially after he had re- ceived the fruits of the contract. In Georgia Ice Co. v. Porter, 70 Ga. 637, parties were referred to as hav- ing carried on business as a corpora- tion de facto, and as having held themselves out to the world as such, before they became a corporation de jure by obtaining a charter under an- other name, and it does not appear what, if anything, had been done toward complying with the statute. But the holding in the case is that where property was purchased by such persons for the benefit of the corpora- tion and on its credit before the char- ter was obtained, the corporation took the equitable title thereto, and that such persons were estopped to deny the character and name under which they traded and obtained the credit, especially after judgment had been obtained against them covering the transaction. 52 Field V. Cooks, 16 La. Ann. 153; Richmond Factory Ass'n v. Clarke, 61 Me. 351. 63 Stokes V. Findlay, 4 MeCrary 205, Fed. Cas. No. 13,478. 64 State v. Mason, 61 Kan. 102, 58 Pae. 978. 66 Smith V. Sheeley, 12 Wall. (U. S.) 358, 20 L. Ed. 430. 66 Muehlenbeck v. Babylon & N. S. R. Co., 26 N. T. Misc. 136, 55 N. Y. Supp. 1023. 617 301] Pbivate Coepobations [Ch. 10 poration de facto, nor render its existence subject to collateral attack," nor, as a rule, will such results follow from the fact that the cor- poration was organized before the articles or certificate of incorpora- tion were acknowledged or recorded,** or that there was a failure to give the notice required by the statute of the meeting for the purpose of organization ; ^* or that there were informalities in the proceedings of such meeting,^" or that no certificate of organization B7 Dallas County v. Huidelsoper, 154 U. S. 655, 25 L. Ed. 974, 154 U. S. 654, 25 L. Ed. 974, aff'g 3 Dill. 171, Fed. Caa. No. 6,850; Ealls County v. Doug- lass, 105 U. S. 728, 26 L. Ed. 957; Ma- con County V. Shores, 97 U. S. 272, 277, 24 L. Ed. 889; Lehman v. War- ner, 61 Ala. 455; St. Louis, A. & T. H. E. Co. V. Belleville City Ey. Co., 158 111. 390, 41 N. E. 916. See also At- lanta V. Gate City Gas Light Co., 71 6a. 106; Smith v. Clark County, 54 Mo. 58, 81; Daily v. Marshall, 47 Mont. 377, 133 Pae. 681; Boyd v. Eedd, 120 N. C. 335, 58 Am. St. Eep. 792, 27 S. E. 35. The fact that by the terms of its charter the corporate powers of a cor- poration came to an end on the expira- tion of a year for failure to complete its organization is no defense to an action to enforce a statutory liability of its stockholders for its debts. Bearse v. Mabie, 198 Mass. 451, 84 N. E. 1015. But see Welsh v. Old Do- minion Min. & Ey. Co., 56 Hun (N. Y.) 650, 10 N. Y. Supp. 174, holding that under the laws of Virginia the at- tempted organization is void under such circumstances. And see chapter on Stock and Stockholders, infra. SSMerriman v. Magiveny, 12 Heisk. (Tenn.) 494. S9East Norway Lake Church v. Froislie, 37 Minn. 447, 35 N. W. 260; Diekason v. Grafton Sav. Bank Co., 6 Ohio Cir. Ct. (N. S.) 329; Eranke v. Mann, 106 Wis. 118, 48 L. E. A. 856, 81 N. W. 1014. See also Persse & Brooks Paper Works v. Willett, 24 N. Y. Super. Ct. 131, 19 Abb. Pr. (N. Y.) 416. This is true though the notice given is shorter than the statute requires,; Ossipee Hosiery & Woolen Mfg. Cq V. Canney, 54 N. H. 295; or though the form of the notice is defective. MEClinch v. Sturgis, 72 Me. 288. The fact that the notice was not given by the persons named in the cer- tificate as incorporators is not ground for questioning collaterally the va- lidity of the action of the directors who are chosen at such meeting. Chamberlain v. Painesville & H. E. Co., 15 Ohio St. 225, 250. The corporation is valid as to all persons except the state, though the notice of the first meeting was not signed by a majority of the persons named in the act of incorporation and though only one of such persons par- ticipated in the organization. Wal- worth V. Brackett, 98 Mass. 98; New- comb V. Eeed, 12 Allen (Mass.) 362. But see Smith v. Schoodoe Pond Pack- ing Co., 109 Me. 555, 84 Atl. 268, hold- ing that, as between themselves cer- tain persons conducting a business were not a corporation de facto, in view of the fact that notice of a meet- ing of stockholders at which officers were elected was not given to all the stockholders. 60 National Mut. Eire Ins. Co. v. Yeomans, 8 E. I. 25, 86 Am. Dee. 610. See also Persse & Brooks Paper Works v. Willett, 24 N. Y. Super. Ct. 131, 19 Abb. Pr. (N. Y.) 416; Vermont Min- ing & Quarrying Co. v. Wendham County Bank, 44 Vt. 489. 618 Ch. la] De Facto Cobporations [§301 was executed or filed.*^ And the same has been held to be true though no board of directors has been elected,*'' and though there were irregularities with respect to the number, term, place of resi- dence and of meeting of the board of directors,*' or some of the persons chosen as directors are not qualified.** Some courts hold that there must have been some attempt at organization, however,*^ though there is authority to the contrary.** And under the statutes of some states there ceases to be even a de facto corporation if the corporation does not organize and proceed to business within a specified time after the date of its certificate of incorporation.*'' There is a square conflict of authority as to the effect in this regard of an attempt to organize the corporation in a state other than the one under the laws of which it is incorporated. In some jurisdictions 61 In re Halsey W. Kelley & Co., 215 Fed. 155. 62 Conley v. Daughters of Repub- lic of Texas, — Tex. Civ. App. — , 151 S. W. 877. This rule has been held to apply though no provision is made for di- rectors or trustees and none are chosen, but the management and con- trol of the company is vested in cer- tain named officers. Bates v. Wilson, 14 Colo. 140, 24 Pac. 99. The mere failure to elect a board of directors does not invalidate the organization of the corporation so as to render the incorporators liable as partners. Drake v. Herndon, 122 Ky. 206, 91 S. W. 674. But see Goodale Lumber Co. v. Shaw, 41 Ore. 544, 69 Pac. 546. 63 Smith v. Cleveland, C, C. & St. L. R. Co., 170 Ind. 382, 81 N. E. 501. See also Fargason v. Oxford Mercan- tile Co., 78 Miss. 65, 27 So. 877. 64 Hackensack Water Co. v. De Kay, S6 N. J. Eq. 548. 65 A corporation which has never been organized has no capacity to sue, even though articles have been sub- scribed, and hence a contention that an action should have been brought by it cannot be sustained. Lawrie v. Silsby, 76 Vt. 240, 104 Am. St. Rep. 927, 56 Atl. 1106. The issuance of a certificate by the secretary of state to the purchaser at a judicial sale of the property and franchises of a railroad company does not ipso facto create a corporation authorized to operate the road, but organization thereunder by the elec- tion of directors, etc., is necessary, and the fact that no such organization has taken place is a good defense to an action for personal injuries against the company. Watson v. Albany & N. By. Co., Ill Ga. 10, 36 S. E. 324. See also Wechselberg v. Flour City Nat. Bank, 64 Fed. 90, 26 L. R. A. 470; Meyer v. Brunson, — S. C. — , 88 S. E. 359. 66 There may be a de facto corpo- ration though no stock certificates have been issued, no regular meetings of stockholders or directors have been called, no officers eletted and no re- ports filed. In re Cordova Shop, 216 Fed. 818. See also Katama Land Co. V. Holley, 129 Mass. 540. 67 Kurd's Rev. St. 1913, e. 32, §§4, 80; J. & A. 111[2421, 2592; African! Home Purchase & Loan Ass'n v. Car- roll, 267 111. 380, 108 N. E. 322. And see also People v. Mackey, 255 111. 144, 99 N. E. 370, which reviews the authorities, and explains and limits the holding on this subject in Mar- shall V. Keach, 227 111. 35, 118 Am. 619 § 301] Private Cgbpokations [Oh. 10 it is held that the legality of the corporation cannot be collaterally attacked on this ground,^* while in others it is held that there is not even a de facto corporation under such circumstances.®' §302. — Consolidation, reorganization and amendment. Where there is a law authorizing the consolidation of two or more corporations, a bona fide attempt to consolidate under it and user, the consoli- dated corporation is a corporation de facto, and neither irregulari- ties in the proceedings whereby the consolidation was effected,'"' nor the question whether the facts were such as to justify the consolidar St. Eep. 247, 10 Ann. Cas. 164, 81 N. E. 29. 68MeKee v. Title Insurance & Trust Co., 159 Cal. 206, 113 Pac. 140; Heath v. Silverthorn Lead Mining & Smelting Co., 39 Wis. 146. See also Ohio & M. Ey. Co. v. McPherson, 35 Mo. 13, 86 Am. Dec. 128. 69 Duke V. Taylorj^ 37 Ma. 64, 31 L. E. A. 484, 53 Am. St. Eep. 232, 19 So. 172; Taylor v. Branham, 35 Fla. 297, 39 L. E. A. 362, 48 Am. St. Eep. 249, 17 So. 552. Au attempt to organize in another state is void, and persons elected as directors under such circumstances are not even directors de facto. Miller V. Ewer, 27 Me. 509, 46 Am. Dec. 619. In Smith v. Silver Valley Min. Co., 64 Md. 85, 54 Am. St. Eep. 760, 20 Atl. 1032, a bill by a stockholder against a foreign corporation to an- nul a forfeiture of his stock was dis- missed on the ground that the cor- poration was organized and its char- ter accepted in a "state other than that by which it was created. See also Saltmarsh v. Spaulding, 147 Mass. 224, 17 N. E. 316; Welsh v. Old Dominion Min. & Ey. Co., 56 Hun (N. Y.) 650, 10 N. Y. Supp. 174. 70 United States. Leavenworth County Com'rs v. Chicago, E. I. & P. E. Co., 134 TJ. S. 688, 33 L. Ed. 1064; Pacific Eailroad Eemoval Cases, 115 IT. S. 1, 15, 29 L. Ed. 319; L. D. George Lumber Co. v. Daugherty, 214 Fed. 958. See also Leavenworth County V. Barnes, 94 TJ. S. 70, 24 L. Ed. 63. Illinois. McAuley v. Columbus, C. & L C. E. Co., 83 111. 348; Mitchell V. Deeds, 49 111. 416, 95 Am. Dee. 621 ; Eaeine & M. E. Co. v. Farmers' Loan & Trust Co., 49 111. 331, 95 Am. Dec. 595. Indiana. Smith v. Cleveland, C, C. & St. L. E. Co., 170 Ind. 382, 81 N. E. 501; Bradford v. Frankfort, St. L. & T. E. Co., 142 Ind. 383, 41 N. E. 819, 40 N. B. 741. Kansas. Atchison, T. & S. F. E. Co. v. Board Com'rs Sumner Co., 51 Kan. 617, 33 Pac. 312; Chicago, K. & W. E. Co. V. Commissioners of Stafford Co., 36 Kan. 121, 12 Pac. 593. Michigan. Swartwout v. Michigan Air Line E. Co., 24 Mich. 389. See also Mansfield, C. & L. M. E. Co. v. Drinker, 30 Mich. 124. New Jersey. Terhune v. Potts, 47 N. J. L. 218; In re Trenton St. Ey. Co. (N. J. Ch.), 47 Atl. 819. See also Coe V. New Jersey Midland Ey. Co., 31 N. J. Eq. 105, holding that the validity of the consolidation could not be raised by interveners in a suit to foreclose a mortgage given by the consolidated corporation, since the rights of per- sons claiming title to the mortgaged premises in hostility to the mortgagor cannot be litigated in such a suit. Ohio. Union Trust Co. v. New York, C. & St. L. E. Co., 9 Ohio Dec. 773. Pennsylvania. Hamilton v. Clarion, M. & P. E. Co., 144 Pa. St. 34, 13 L. 620 Ch. 10] De Facto Gobpoeations [§ 303 tion,'! or whether the consolidation was fraudulentj'^ can be inquired into in a collateral proceeding. So, where there has been an attempted consolidation of railroad corporations under such circumstances, it cannot be contended in condemnation proceedings by the consolidated company that such corporations could not be lawfully consolidated because their lines were parallel and competing.''^ And there may be a de facto consolidated corporation notwithstanding a failure to give a statutory notice to stockholders or to file a certificate of consolida- tion as required by the statute.'* Nor can the validity of the incor- poration of one of the constituent corporations be collaterally attacked.''* De facto corporations may consolidate under a statute permitting the consolidation of corporations so as to form a new corporation in all respects valid, and in such case proceedings in the nature of quo warranto against the new corporation cannot be extended to an in- quiry and determination as to the regularity of the several steps by which the original corporations were organized.''® But there cannot be a de facto consolidated corporation where there is no law author- izing the consolidation.''"' A reorganized corporation may be one de facto notwithstanding irregularities in its reorganization.''* And where there is statutory authority for the amendment of a corporate charter in the particulars in which it is sought to be amended, and an effort in good faith to amend thereunder, and the corporation transacts business as such after the amendment, it is a de facto corporation, though the pro- visions of the statute are not literally complied with.'" § 303. Assumption or user of corporate powers. To make a body of men a corporation de facto, it is not enough to show merely that R. A. 779, 23 Atl. 53; Eothsohild v. 74 Farmers' Loan & Trust Co. v. To- Eochester & P. E. Co., 1 Pa. Co. Ct. ledo, A. A. & N". M. Ey. Co., 67 Fed, 620. 49. Texas. See Whaley v. Bankers' 75Yeingst v. Philadelphia, H. & P. Union of World, 39 Tex. Civ. App. R. Co., 40 Pa. Super. Ct. 106. 385, 88 S. W. 259. 76 People v. La Eue, 67 Cal. 526, 71 Chicago & W. I. E. Co. v. Heid- 8 Pac. 84. enreieh, 254 111. 231, Ann. Cas. 1913 77 See §283, supra. 266, 98 N. E. 567. See also § 283, 78 Pittsburg, S. & N. E. Co. v. Keat- supra. ^ ing & S. E. Co., 233 Pa. 71, 81 Atl. 935. 72 See § 283, supra. 79 In re "Western Bank & Trust Co., 73 Chicago & W. I. E. Co. v. Heiden- 163 Fed. 713; Deitch v. Staub, 115 reieh, 254 111. 231, Ann. Cas. 1913 C Fed. 309. 266, 98 N. E. 567. 621 §303] Private Cobpobations [Ch. 10 there is a law under which they might be a corporation, that they have attempted in good faith to organize under it, and that they have colorably or apparently complied with its provisions, but it is also necessary to show that they have assumed the character of a cor- poration, and exercised corporate powers, or, in other words, that there was an actual user of the corporate franchise,*" that is, it must 80 United States. Tulare Irrigation Diat. V. Shepard, 185 U. S. 1, 46 L. Ed. 773; Harrill v. Davis, 168 Fed. 187, 22 L. E. A. (N. S.) 1153, rev'g 7 In- dian T. 152, 15 Ann. Cas. 1134, 104 S. W. 573; Elgin Nat. Watch Co. v Loveland, 132 Fed. 41. Alabama. Owensboro Wagon Co. v. Bliss, 132 Ala. 253, 90 Am. St. Rep. 907, 31 So. 81. Arkansas. Rainwater v. Childress, — Ark. — , 182 S. W. 280; Whipple V. Tuxworth, 81 Ark. 391, 99 S. W. 86. California. People v. Reclamation Dist. No. 556, 130 Oal. 607, 63 Pac. 27; Wall V. Mines, 130 Cal. 27, 62 Pao. 386; Hamilton v. San Diego County, 108 Cal. 273, 41 Pac. 305; Martin v. Deetz, 102 Cal. 55, 64, 41 Am. St. Rep. 151, 36 Pae. 368; People v. Volcano Canyon Toll-Road Co., 100 Cal. 87, 34 Pae. 522; McCallion v. Hibernia Sav- ings & Loan Society, 70 Cal. 163, 12 Pac. 114; Oroville & V. R. Co. v. Su- pervisors of Plumas Co., 37 Cal., 354. See also San Diego Gas Co. v. Frame, 137 Cal. 441, 70 Pac. 295. Colorado. Jones v. Aspen Hardware Co., 21 Colo. 263, 269, 29 L. R. A. 143, 52 Am. St. Rep. 220, 40 Pac. 457; Duggan V. Colorado Mortg. & Inv. Co., 11 Colo. 113, 17 Pac. 105. Connecticut. Greene v. Dennis, 6 Conn. 293, 16 Am. Dec. 58. Georgia. Brooke v. Day, 129 Ga. 694, 59 S. E. 769; Georgia Southern & P. R. Co. V. Mercantile Trust & De- posit Co., 94 6a. 306, 32 L. R. A. 208, 47 Am. St. Rep. 153, 21 S. E. 701. Illinois. Gillette v. Aurora Rys. Co., 228 111. 261, 81 N. E. 1005; Mar- shall V. Reach, 227 111. 35, 118 Am. St. Rep. 247, 10 Ann. Cas. 164, 81 N. E. 29; St. Louis, A. & T. H. R. Co. v. Belleville City R. Co., 158 111. 390, 41 N. E. 916; American Loan & Trust Co. V. Minnesota & N. W. R. Co., 157 ni. 641, 42 N. E. 153; Mitchell v. Deeds, 49 111. 416, 95 Am. Dec. 621; Woodland Social Entertainment Ass'n V. Anderson, 187 111. App. 507; Stan- wood V. Sterling Metal Co., 107 111. App. 569; Concord Apartment House Co. V. Alaska Refrigerator Co., 78 111. App. 682; Washburn v. Roesch, 13 111. App. 268. Indiana. Doty v. Patterson, 155 Ind. 60, 56 N. E. 668; Farmers' Mutual V. Reser, 43 Ind. App. 634, 88 N. E. 349. Kansas. Pape v. Capitol Bank, 20 Kan. 440, 27 Am. Rep. 183; Krutz v. Paola Town Co., 20 Kan. 397; McLen- nan V. Hopkins, 2 Kan. App. 260, 41 Pac. 1061. Michlgaji. Newcomb-Endicott Co. V. Fee, 167 Mich. 574, 133 N. W. 540; Eaton V. Walker, 76 Mich. 579, 6 L. R. A. 102, 43 N. W. 638. Minnesota. Healey v. Steele Cen- ter Creamery Ass'n, 115 Minn. 451, 133 N. W. 69; Finnegan v. Noeren- berg, 52 Minn. 239, 18 L. R. A. 778, 38 Am. St. Rep. 552, 53 N. W. 1150. Missouri. School Dist. of Agency V. Wallace, 75 Mo. App. 317. Nebraska. Abbott v. Omaha Smelt- ing & Refining Co., 4 Neb. 416. New Jersey. Stout v. Zulick, 48 N. J. L. 599, 7 Atl. 362. New York. De Witt v. Hastings, 69 N. Y. 518, afE'g 40 N. Y. Super. Ct. 463; Von Lengerke v. New York, 150 622 Ch. 10] De Facto Coepobations [§303 be shown that the corporation has exercised its particular franchise by doing business under it.*^ "In substance user consists in an enjoyment and exercise (although not rightful) of such corporate franchises and powers as would be given by the law to an association if the attempted organization had been perfected. ' ' '^ The acts relied upon as showing user must be corporate acts, as distinguished from acts which might just as well be performed by an unincorporated association,^^ or from acts of indi- App. Div. 98, 134 N. Y. Supp. 832, a corporation. Allen v. Long, 80 Tex. aff'd 211 N. Y. 558, 105 N. E. 1101; Emery v. De Peyster, 77 App. Div. 65, 78 N. Y. Supp. 1056; Card v. Moore, 68 App. Div. 327, 74 N. Y. Supp. 18, aflf'd 173 N. Y. 598, 66 N. E. 1105; Lamming v. Galusha, 81 Hun 247, 30 N. Y. Supp. 767, aff'd 151 N. Y. 648, 45 N. E. 1132; Welsh v. Old Dominion Min. & Ey. Co., 56 Hun 650, 10 N. Y. Supp. 174; Perrine v. Levin, 68 Misc. 327, 123 N. y. Supp. 1007; Bradley Fertilizer Co. v. South Pub. Co., 4 Misc. 172, 23 N. Y. Supp. 675, rev'g 1 Misc. 512, 21 N. Y. Supp. 472; id., 44 N. Y. St. Eep. 119, 17 N. Y. Supp. 587, rev'g 39 N. Y. St. Eep. 218, 14 N. Y. Supp. 917 (motion for leave to ap- peal to court of appeals denied, 6 Misc. 128, 26 N. Y. Supp. 4). Childs T. Smith, 55 Barb. 45; Holmes v. Gillilaud, 41 Barb. 568. Ohio. Society Perun v. Cleveland, 43 Ohio St. 481, 3 N. E. 357. See also Eaccoon Eiver Nav. Co. v. Eagle, 29 Ohio St. 238. Oregon. Brown v. Webb, 60 Ore. 526, Ann. Cas. 1914 A 148, 120 Pac. 387. Tennessee. Tennessee Automatic Lighting Co. v. Massey (Tenn. Ch.), 56 S. W. 35. Utah. Mitchell v. Jensen, 29 Utah 346, 81 Pac. 165. Washington. Bash v. Culver Gold Min. Co., 7 Wash. 122, 34 Pac. 462. Wisconsin. Gilman v. Druse, 111 Wis. 400, 87 N. W. 557. It must be dealt with and act as 261, 26 Am. St. Eep. 735, 16 S. W. 43. An orphan asylum is not a de facto corporation where the evidence shows "that there were no meetings of the members or trustees, no election of of- ficers, no by-laws adopted, no certifi- cates of shares or membership issued, no seal adopted or used, no records or minutes kept; in short, no corporate acts of any character performed"; and "the institution was managed after as it had been before the at- tempt to incorporate. ' ' Wall v. Mines, 130 Cal. 27, 62 Pac. 386. See also § 278, supra. 81 Duggan v. Colorado Mortg. & Inv. Co., 11 Colo. 113, 17 Pac. 105; State V. Byrne, 45 Conn. 273; Emery V. De Peyster, 77 N. Y. App. Div. 65, 78 N. Y. Supp. 1056. 82Dewitt V. Hastings, 40 N. Y. Super. Ct. 463, aff'd 69 N. Y. 518. 83 United States. Elgin Nat. Watch Co. V. Loveland, 132 Fed. 41. California. See Wall v. Mines, 130 Cal. 27, 62 Pac. 386. Connecticut. Greene v. Dennis, 6 Conn. 293, 16 Am. Dee. 58. Illinois. Stanwood v. Sterling Metal Co., 107 111. App. 569. Iowa. Kirkpatrick v. United Pres- byterian Church of Keota, 63 Iowa 372, 19 N. W. 272. Nebraska. Lincoln Butter Co. v. Edwards-Bradford Lumber Co., 76 Neb. 477, 107 N. W. 797. New York. Dewitt v. Hastings, 40 N. Y. Super. Ct. 463, aff'd 69 N. Y. 518. 623 § 303] Private Cokpoeations [Ch. 10 viduals which would not be corporate acts if there were a charter.^* If the business is such that it may be carried on "either as an unincorporated association or as a corporation, according to the elec- tion of its members, there must be some effort to act as a corporation, or a holding out as such," and the mere fact that it does business under a name which might be that of a corporation is not enough.*^ But if the business is such that it can only be carried on by a cor- poration, then the carrying on of such business is enough, since its members must of necessity act as a corporation, if they act at all.*^ And even though the business transacted in the corporate name might have been done in the same way without incorporation, a person who has prosecuted an action against the association in that corporate name, and in such action has attached their property, cannot be heard, in an action for damages growing out of such attachment, to allege that the business had not been conducted as corporate business, and that the transactions which were suitable and proper to a cor- porate existence were not had and done by the plaintiff in its corporate capacity.*'' It has been said that the degree of proof of user necessary to show de facto corporate existence depends to some extent upon the nature of the corporation, and the law under which it is organized. Where no provision is made for any permanent evidence of the fact of organization, more proof of user is necessary than where the essential .steps by which the organization is accomplished are required to be made a matter of record. If there is a valid law under which a cor- poration might exist, and the record shows a bona fide attempt to' organize under it, very slight evidence of user beyond this is neces- sary.** Generally it is sufficient to show that the corporation was "If the acts and proceedings of can exist only as a body corporate a company or association consist only Atchison v. Crawford County Farin- of such acts and proceedings as might ers' Mut. Fire Ins. Co., 192 Mo. App be performed without an incorporat- 362, 180 S. W. 438. ing act, or corporate grant or f ran- 87 Lincoln Butter Co. v. Edwards- ehise, a corporation cannot be inferred Bradford Lumber Co., 76 Neb. 477, from such acts." Abbott v. Omaha 107 N. "W. 797. Smelting & Eefining Co., 4 Neb. 416, 88 Methodist Episcopal Union Church 420. V. Pickett, 19 N. Y. 482, afC'g 23 Barb. 84Dewitt V. Hastings, 40 N. Y. (N. Y.) 436, quoted in whole or in Super. Ct. 463, aff'd 69 N. Y. 518. part and followed in Newcomb-Endi- 85 Atchison v. Crawford County cott Co. v. Fee, 167 Mich. 574, 133 N Farmers' Mut. Fire Ins. Co., 192 Mo. W. 540; Eaton v. VTalker, 76 Mich. 579, App. 362, 180 S. "W. 438. 6 L. E. A. 102, 43 N. W. 638; Kansas 86 An example of this is found in City Hotel Co. v. Hunt, 57 Mo. 126 the case of a school district, since it Emery v. De Peyster, 77 N. Y. App. 624 Ch. 10] De Facto Cobpoeations [§303 acting as a corporation and transacted business as such.^^ But there is no fixed rule for determining just how much business must be done.*" Taking subscriptions to and issuing stock, electing managers and di- rectors, adopting by-laws, buying a lot and constructing and leasing a building upon it ; ^^ electing officers and trustees, who manage the cor- porate property for years, and lease and mortgage it, and expend large sums of money ,®^ executing powers of attorney, and loaning money and taking a note and mortgage theref or,^^ have been held to be sufficient. And in the case of a railroad company it has been held that the appointment of an engineer, the location of the proposed road, and the taking of other steps towards its construction all tend to show the existence of a corporation de facto.'* But acts done relative to the formation of a corporation before taking any of the statutory steps to that end do not constitute user,®^ nor does the mere organization or attempted organization of the corporation by the election of officers, and the like,'® nor the passage of resolutions by the directors Div. 65, 78 N. Y. Supp. 1056; Dewitt V. Hastings, 40 N. Y. Super. Ct. 463, aff'd 69 N. Y. 518; Merriman v. Ma- giveny, 12 Heisk. (Tenu.) 494; Bon Aqua Improvement Co. v. Standard Fire Ins. Co., 34 "W. Va. 764, 12 S. B. 771. Slight evidence of corporate acts is suflficient. Ward v. Minnesota & N. "W. E. Co., 119 111. 287, 10 N. E. 365. See also Postal Tel. Cable Co. of Utah v. Oregon Short Line E. Co., 23 Utah 474, 90 Am. St. Eep. 705, 65 Pac. 735. And see Augusta Mfg. Co. v. Vertrees, 4 Lea' (Tenn.) 75, holding that very slight evidence of user is necessary to show acceptance of a charter granted by an act of the legislature. 89 Any acts tending to show that the corporation is doing business under its charter are admissible to show user. Brown v. Webb, 60 Ore. 526, Ann. Cas. 1914 A 148, 120 Pac. 387. General reputation is sufficient evi- dence of user, prima facie. Holmes v. Gilliland, 41 Barb. (N. Y.) 568. But the mere opinion of a witness that the owner of stolen property did busj- ness as a corporation affords no proof of user, and is incompetent. People V. Krittenbrink, 269 111. 244, 109 N. E. 1005. 90 People V. Reclamation Dist. No. 556, 130 Cal. 607, 63 Pac. 27. 91 Pinnegan v. Noerenberg, 52 Minn. 239, 18 L. E. A. 778, 38 Am. St. Rep. 552, 53 N. W. 1150. Electing officers and the transac- tion of business as a corporation is sufficient. Bushnell v. Consolidated lee Mach. Co., 138 111. 67, 27 N. E. 596. 92 Thompson v. Candor, 60 III. 244. 93 See United States Mortg. Co. v. McClure, 42 Ore. 190, 70 Pac. 543, writ of error dismissed 197 U. S. 624, 49 L. Ed. 911 (mem. dec). 94 Ward V. Minnesota & N. W. R. Co., 119 HI. 287, 10 N. B. 365, quoted with approval in Postal Tel. Cable Co.. of Utah V. Oregon Short Line R. Co., 23 Utah 474, 90 Am. St. Rep. 705, 65 Pac. 735. 95 Dewitt V. Hastings, 40 N. Y. Super. Ct. 463, aff'd 69 N. Y. 518. 96 Emery v. De Peyster, 77 N. Y. App. Div. 65, 78 N. Y. Supp. 1056; Welsh V. Old Dominion Min. & Ry. Co., 56 Hun (N. Y.) 650, 10 N. Y. Supp 174. I Priv. Corp. — 40 625 § 303] Private Coepoeations [Ch. 10 relating to contracts purely executory in their nature,^'' nor will the mere issuance of stock, at least when accompanied by acts which would justify a finding that there was a disclaimer on the part of the associates to take part in the further prosecution of the corporate business." To constitute the purchase of property by an officer of the company an act of user, it must be shown that he purchased it for the com- pany and pursuant to power conferred upon him by it to do so.'^ "Where the contest is between third parties, user will not create a de facto corporation as against one who does not take any part in the acts of user, especially where he has done all in his power to pre- vent business being done by the association.' IV. RIGHTS AND LIABILITIES OP DE FACTO CORPORATIONS AND THEIR MEMBERS § 304. In general. With respect to the application of the doctrine in relation to de facto corporations, it is safe to say that it is sufficient to show a de facto corporate existence in almost all actions or pro- ceedings in which the existence of a body of men as a corporation may be in issue, except in a direct proceeding by the state in quo warranto to question their right to be a corporation, and to oust them from the exercise of corporate powers. Such a corporation is deemed to have a substantial legal existence,* and ordinarily, in its relation with all persons except the state, has the same powers,^ and is subject to the same liabilities, duties and responsibilities,* as a corporation 97 Emery v. De Peyster, 77 N. T. Georgia. See Georgia Southern & App. Div. 65, 78 N. Y. Supp. 1056. F. E. Co. v. Mercantile Trust & De- 98 Dewitt V. Hastings, 40 N. Y. Su- posit Co., 94 Ga. 306, 32 L. K. A. 208, per. Ct. 463, aff'd 69 N. Y. 518. 47 Am. St. Eep. 153, 21 S. E. 701. 99 Dewitt V. Hastings, 40 N. T. Illinois. Gunderson v. Illinois Trust Super. Ct. 463, aff'd 69 N. Y. 518. & Savings Bank, 199 111. 422, 65 N. E. 1 Dewitt V. Hastings, 40 N. Y. Super. 326, aff'g 100 111. App. 461. Gt. 463, aff'd 69 N. Y. 518. Michigan. Shadford v. Detroit, Y. 2 See § 274, supra. & A. A. K. R., 130 Mich. 300, 89 N. 3 Roaring Springs Townsite Co. v. W. 960. Paducah Tel. Co., — Tex. Civ. App. — , Texas. Roaring Springs Townsite 164 S. W. 50. Co. V. Paducah Tel. Co., — Tex. Civ. < Alabama. Harris v. Gateway App. — , 164 S. W. 50. Land Co., 128 Ala. 652, 29 So. 611; Vermont. Searsburgh Turnpike Co. Bibb V. Hall, 101 Ala. 79, 14 So. 98; v. Cutler, 6 Vt. 315. Central Agricultural & Mechanical The conversion of a corporation do Ass'n V. Alabama Gold Life Ins. Co., facto into one de jure will not ex- 70 Ala. 120. See also Floyd v. State, empt property held by it in the lat- 177 Ala. 169, 59 So. 280. ter character from liability for 626 Ch. 10] De Facto Cobpobations [§304 de jure, and is bound by all such acts as it might rightfully perform if it were a corporation de jure.' In other words, so long as the state acquiesces in its existence and its exercise of corporate functions, it is "under the protection of the same law and governed by the same legal principles" as de jure corporations,^ and may legally do and perform every act and thing which the same entity could do or perform were it a de jure corporation. As to all the world except the paramount authority under which it acts and from which it receives its charter, it occupies the same position as though in all respects valid, and even as against the state, except in direct proceedings to arrest its usurpation of power, its acts are to be treated as efficacious.' So the property of a de facto corporation is subject to taxation in obligations incurred by it in the for- mer. Georgia Ice Co. v. Porter, 70 Ga. 637. 6 Society Perun v. Cleveland, 43 Ohio St. 481, 3 N. E. 357; Beck v. Eocky Eiver Village School Dist., 14 Ohio N. P. 312. Its acts are binding upon it if within the powers granted to a legally organized corporation. National Life Ins. Co. of Montpelier v. Board of Education City of Huron, 62 Fed. 778. 6 Alabama. Central of Georgia E. Co. V. Union Springs & N. E. Co., 144 Ala. 639, 2 L. E. A. (N. S.) 144, 39 So. 473; Owensboro Wagon Co. v. Bliss, 132 Ala. 253, 90 Am. St. Eep. 907, 31 So. 81; Snider 's Sons' Co. v. Troy, 91 Ala. 224, 230, 11 L. E. A. 515, 24 Am. St. Eep. 887, 8 So. 658. Kansas. State v. Mason, 61 Kan. 102, 58 Pac. 978. New York. Lamming v. GJalusha, 81 Hun 247, 30 N. Y. Supp. 767, aff'd 151 N. Y. 648, 45 N. E. 1132. Oklahoma. Swofford Bros. Dry Goods Co. v. Owen, 37 Okla. 616, 133 Pac. 193. ' Oregon. Brown v. Webb, 60 Ore. 526, Ann. Cas. 1914 A 148, 120 Pac. 387. Texas. Roaring Springs Townsite Co. V. Paducah Tel. Co., — Tex. Civ. App. — , 164 S. W. 50. Vermont. Searsburgh Turnpike Co. V. Cutler, 6 Vt. 315. 7 United States. Clapp v. Otoe County, 104 Fed. 473; Miller v. Fer- ris Irrigation Dist., 99 Fed. 143, 85 Fed. 693. Arkansas. Whipple v. Tuxworth, 81 Ark. 391, 99 S. W. 86. California. People v. Montecito Water Co., 97 Cal. 276, 33 Am. St. Eep. 172, 32 Pac. 236; First Baptist Church of San JoaS v. Branham, 90 Cal. 22, 27 Pac. 60; People v. La Eue, 67 Cal. 526, 530, 8 Pac. 84; Eeclama- tion Dist. No. 705 v. McPhee, 13 Cal. App. 382, 109 Pac. 1106. Kansas. Eitchie v. Mulvane, 39 Kan. 241, 17 Pac. 830; Back v. Car- penter, 29 Kan. 349; School Dist. No. 25 V. State, 29 Kan. 57. New York. Eaton v. Aspinwall, 19 N. Y. 119, aff'g 6 Duer 176; Lamming v. Galusha, 81 Hun 247, 30 N. Y. Supp. 767, afE'd 151 N. Y. 648, 45 N. E. 1132. Nortk Carolina. Claremont College V. Eiddle, 165 N. C. 211, 81 S. E. 283. Oklahoma. Mitchell v. Carter, 31 Okla. 592, 122 Pac. 691. Texas. Eoaring Springs Townsite Co. V. Paducah Tel. Co., — Tex. Civ. App. — , 164 S. W. 50. Washington. Purdin v. Washington Nat. Building, Loan & Investment Ass'n, 41 Wash. 395, 83 Pae. 723. 627 §304] Pbivate Cobpobations [Ch. 10 the same manner as though it were a de jure corporation and under the statutes relative to the taxation of corporations of the latter class * And where the question of the incorporation of a municipality arises in an action for negligence based on a violation of an ordinance, it is sufficient to show an incorporation de facto.^ And the fact that the corporation is a de facto one is sufficient to relieve the vendor of its stock from liability as to any implied warranty as to the existence of the corporation,^" and to require performance on the part of the vendee. ^^ Proof that the corporation is one de facto is also sufficient to bring a contract for the sale of its stock within the terms of a statute prohibiting the sale of corporate stock by one who is not its owner or assignee or the agent of the owner or assignee.^^ § 305. Contracts with de facto corporations. A de facto corpora- tion has the same capacity as a de jure corporation to enter into eon- tracts, and it is sufficient, therefore, to show a de facto corporate existence in order to sustain an action by or against an association as a corporation on a note, bond, or other contract,^' or in order to West Virginia. Board of Education V. Berry, 62 W. Va. 433, 125 Am. St. Eep. 975, 59 S. E. 169. "So long as the state itself does not see fit to interfere and terminate its existence by direct proceedings brought by its attorney general, a de facto municipal government may exercise upon the citizen, through of- ficers appointed by it, all the powers conferred by the legislature upon the municipality as fully and completely as if the legality of its existence was beyond question." Morris v. Fagan, 85 N. J. L. 617, 90 Atl. 267. 8 Atlanta & E. A. L. E. Co. v. State, 63 Ga. 483. 9 Louisville, N. A. & C. E. Co. v. Shires, 108 111. 617. The acts of a court held in the county seat of a de facto county are as valid and binding as if it were a county de jure. Bellevue Water Co. V. Stockslager, 4 Idaho 636, 43 Pae. 568. 10 Marshall v. Keach, 227 111. 35, 118 Am. St. Eep. 247, 10 Ann. Cas. 164, 81 N. E. 29; Harter v. Eltzroth, 111 Ind. 159, 12 N. E. 129. 11 The vendee will not be excused from performing his contract on the ground that the corporation is not one de jure, where it is one de facto, in the absence of a special guaranty. Burwash v. Ballou, 230 111. 34, 15 L. E. A. (N. S.) 409, 82 N". E. 355, afE'g 132 111. App. 71; Marshall v. Keach, 227 111. 35, 118 Am. St. Eep. 247, 10 Ann. Cas. 164, 81 N. E. 29. 12 Barrett v. Mead, 10 Allen (Mass.) 337. 13 United States. Dallas County v. Huidekoper, 154 U. S. 654, 25 L. Ed. 974; In re Halsey W. Kelley & Co., 215 Fed. 155; Campbell & Zell Co. v. American Surety Co., 129 Fed. 491, aff'd 138 Fed. 531, certiorari denied 199 TJ. S. 607, 50 L. Ed. 331 (mem. dec.) ; Lippincott v. Shaw Carriage Co., 25 Fed. 577. See also Baltimore & P. E. Co. V. Fifth Baptist Church, 137 U. S. 568, 34 L. Ed. 784. California. Pacific Banlt v. De Ro, 37 Cal. 538. 628 Ch. 10] De Facto Cobpobations [§305 defeat an action against the stockholders or members of an association as individuals on a note or other contract made by them as a cor- Oonnecticut. Lamkin v. Baldwin & Lamkiu Mfg. Co., 72 Conn. 57, 44 L. E. A. 786, 43 Atl. 593, 1042. Georgia. Georgia Southern & F. K. Co. V. Mercantile Trust & Deposit Co., 94 Ga. 306, 32 L. E. A. 208, 47 Am. St. Eep. 153, 21 S. E. 701; Pattison v. Albany Building & Loan Ass 'n, 63 Ga. 373. Idaho. Boise City Canal Co. v. Pinkham, 1 Idaho 790. Illiuois. Guuderson v. Illinois Trust & Savings Bank, 199 111. 422, 65 N. E. 326, aff'g 100 111. App. 461; Cozzens V. Chicago Hydraulic Press Brick Co., 166 111. 213, 46 N. E. 788, aff'g 64 111. App. 569; Hudson v. Green Hill Semi- nary Corporation, 113 111. 618; Osborn V. People, 103 111. 224; Willard v. Methodist Episcopal Church of Eock- ville Centre, 66 111. 55; Mitchell v. Deeds, 49 111. 416, 95 Am. Dec. 621; Goodrich v. Eeynolds, Wilder & Co., 31 111. 490, 83 Am. Dec. 240; Marsh V. Astoria Lodge No. 112; I. 0. O. ¥., 27 111. 421; American Ins. Co. of New- ark, New Jersey v. McClelland, 184 111. App. 381; Nelson Chesmau & Co. V. Singers, 183 111. App. 591; Dean & Son V. W. B. Conkey Co., 180 111. App. 162; American Sales Book Co. v. Wem- ple, 168 111. App. 639; Patton & Gib- sou Co. V. Shreve & Kelso, 134 111. App. 271; Eiemann v. Tyroler & Vor- arlberger Verein, 104 HI. App. 413; Concord Apartment House Co. v. Alaska Refrigerator Co., 78 111. App. 682; Holt v. Tennent-Stribliug Shoe Co., 69 III. App. 332; Walker Paint Co. V. Euggles, 48 111. App. 406; Mi- ami Powder Co. v. Hotchkiss, 17 HI. App. 622. Indiana. Doty v. Patterson, 155 Ind. 60, 56 N. E. 668; Heastou v. Cincin- nati & Pt. W. E. Co., 16 Ind. 275, 79 Am. Dee. 430; Huntington Mfg. Co. V. Schofleld, 28 Ind. App. 95, 62 N. E. 106. Kansas. Chicago, K. & W. R. Co. v. Commissioners of Stafford Co., 36 Kan. 121, 12 Pao. 593; Pope v. Capital Bank of Topeka, 20 Kan. 440, 27 Am. Eep. 183. Massachusetts. Butchers' & Drov- ers' Bank of St. Louis v. McDonald, 130 Mass. 264; Merchants' Nat. Bank v. Glendon Co., 120 Mass. 97; Barreft V. Mead, 10 Allen 337; Appleton Mut. Fire Ins. Co. v. Jesser, 5 Allen 446. Michigan. Schaub v. Coffin, 135 Mich. 435, 97 N. W. 968. Missouri. Smith v. Clark County, 54 Mo. 58; Eialto Co. v. Miner, 183 Mo. App. 119, 166 S. W. 629 (Illinois corporation). Nebraska. Haas v. Bank of Com- merce, 41 Neb. 754, 60 N. W. 85; Lin- coln Bldg. & Sav. Ass'n v. Graham, 7 Neb. 173. New Hampshire. Lamed v. Beal, 65 N. H. 184, 23 Atl. 149. New Jersey. Hackensaek Water Co. v. De Kay, 36 N. J. Eq. 548. New York. Buffalo & A. E. Co. v. Cary, 26 N. Y. 75; Leonardsville Bank V. Willard, 25 N. Y. 574; Methodist Episcopal Union Church v. Pickett, 19 N. Y. 482, aff'g 23 Barb. 436; Baton V. Aspinwall, 19 N. Y. 119, aff'g 6 Duer 176; Bank of Port Jefferson v. Darling, 91 Hun 236, 36 N. Y. Supp. 153; Muehlenbeck v. Babylon & N. S. E. Co., 26 Misc. 136, 55 N. Y. Supp. 1023; Jones v. Dana, 24 Barb. 395; McFarlau v. Triton Ins. Co., 4 Den. 392; Benesch v. John Hancock Mut. Life Ins. Co., 32 N. Y. St. Eep. 73, 11 N. Y. Supp. 348; Palmer v. Law- rence, 3 Sandf. 161, aff'd 5 N. Y. 389. North Carolina. New Bern Banking & Trust Co. V. Duffy, 156 N. C. 83, 72 S. B. 96; Eyan v. Martin, 91 N. C. 464. Ohio. Shawnee Commercial & Sav- 629 §305] Private Coepokatioits [Ch. 10 poration,^* or an action against the ofScers by whom such a contract ings Bank Co. v. Miller, 1 Ohio Cir. Ct. (N. S.) 569; Beck v. Eocky Eiver Village School Dist., 14 Ohio N. P. 312. Oregon. See McVicker v. Cone, 21 Ore. 353, 28 Pac. 76. Pennsylvania. Spahr v. Farmers' Bank, 94 Pa. St. 429. Bbode Island. Providence Fire & Marine Ins. Co. v. Murphy, 8 E. I. 131. .Tennessee. Greenevllle & P. E. Narrow Gauge E. Co. v. Johnson, 8 Baxt. 332; Merriman v. Magiveny, 12 Heisk. 494. Utah. Kilpatrick-Koch Dry-Goods Co. V. Box, 13 Utah 494, 45 Pao. 629. Vermont. Eeynolds v. Myers, 51 Vt. 444; Montpelier & W. E. E. Co. v. Langdon, 46 Vt. 284. Washington. Yakima Nat. Bank v. Knipe, 6 Wash. 348, 33 Pac. 834. West Virginia. Bon Aqua Improve- ment Co. V. Standard Fire Ins. Co., 34 W. Va. 764, 12 S. E. 771; Miller v. Newburg Orrel Coal Co., 31 W. Va. 836, 13 Am. St. Eep. 903, 8 S. E. 600. A de facto corporation is capable of assuming liability for money ad- vanced to it. In re Cordova Shop, 216 Fed. 818. No distinction can be made between the executed and executory contracts of a de facto corporation. Beck V. Eocky Eiver Village School Dist., 14 Ohio N. P. 312. A judgment against a de facto cor- poration in an action against it on a contract may be enforced against stockholders who have not paid their subscriptions. Sehaub v. Coffin, 135 Mich. 435, 97 N. W. 968. 14 United States. Stokes v. Find- lay, 4 McCrary 205, Fed. Cas. No. 13,478. Alabama. Owensboro Wagon Co. v. Bliss, 132 Ala. 253, 90 Am. St. Eep. 907, 31 So. 81. Colorado. Humphreys v. Mooney, 5 Colo. 282. Connecticut. See Stafford Nat, Bank v. Palmer, 47 Conn. 443. Florida. Duke v. Taylor, 37 Fla. 64, 31 L. R. A. 484, 53 Am. St. Eep. 232, 19 So. 172. Georgia. Howard v. Long, 142 Ga. 789, 83 S. E. 852; Brooke v. Day, 129 Ga. 694, 59 S. E. 769; Planters' & Miners' Bank v. Padgett, 59 Ga. 159; McEee v. Quitman Oil Co., 16 Ga. App. 12, 84 S. E. 487. Illinois. Hoyt v. MeCallum, 102 111. App. 287; Edwards v. Cleveland Dryer Co., 83 HI. App. 643. Indiana. Doty v. Patterson, 155 Ind. 60, 56 N. E. 668. Maine. McClinch v. Sturgis, 72 Me. 288. Maryland. Laflin & Eand Powder Co. V. Sinsheimer, 46 Md. 315, 24 Am. Eep. 522. Michigan. Neweomb-Endicott Co. V. Fee, 167 Mich. 574, 133 N. W. 540; Gow V. Collin & Parker Lumber Co., 109 Mich. 45,' 66 N. W. 676; American Mirror & Glass Beveling Co. v. Bulk- ley, 107 Mich. 447, 65 N. W. 291; Merchants' & Manufacturers' Bank v. Stone, 38 Mich. 779. Minnesota. Johnson v. Okerstrom, 70 Minn. 303, 73 N. W. 147. Missouri. Webb v. Eockefeller, 195 Mo. 57, 6 L. E. A. (N. S.) 872, 93 S. W. 772; First Nat. Bank of Deadwooii, South Dakota v. Eockefeller, 195 Mo. 15, 93 S. W. 761; Wasson v. Boland, 136 Mo. App. 622, 118 S. W. 663. Nebraska. Hogue v. Capital Nat. Bank of Lincoln, 47 Neb. 929, 66 N. W. 1036; Kleckner v. Turk, 45 Neb. 176, 63 N. W. 469; Globe Pub. Co. v. State Bank of Nebraska, 41 Neb. 175, 27 L. E. A. 854, 59 N. W. 683; Porter V. Sherman County Banking Co., 36 Neb. 271, 54 N. W. 424; Abbott v. 630 Ch. 10] De Facto Cobporations [§305 is made.** Proof of a de facto corporate existence is sufScient where the validity of a contract by a body of men claiming to be a corpora- tion is in issue in a suit between third persons.** Of course this rule does not permit the enforcement of a contract against a de facto corporation which it would have had no power to make had it been a corporation de jure.*'' And there is authority to Omaha Smelting & Refining Co., 4 Neb. 416. New Hampshire. Lamed v. Beal, 65 N. H. 184, 23 Atl. 149. New Jersey. Vanneman v. Young, 52 N. J. L. 403, 20 Atl. 53; Stout v. Zulick, 48 N. J. L. 599, 7 Atl. 362. New York. Whitford v. Laidler, 94 N. Y. 145, 46 Am. Eep. 131, rev'g 25 Hun 136; Merchants' Nat. Bank v. Pendleton, 55 Hun 579, 9 N. Y. Supp. 46. See also Fox v. McComb, 63 Hun 630, 17 N. Y. Supp. 783 (concurring opinion) . Ohio. Rowland v. Header Furniture Co., 38 Ohio St. 269; Bartholomew v. Bentley, 1 Ohio St. 37. Oregon. See McVicker v. Cone, 21 Ore. 353, 28 Pac. 76. Pennsylvania. Cochran v. Arnold, 58 Pa. St. 399, overruling Patterson v. Arnold, 45 Pa. St. 410. See also In re Gibb's Estate, 157 Pa. St. 59, 22 L. E. A. 276, 27 Atl. 383. South Dakota. Maaon v. Stevens, 16 S. D. 320, 92 N. W. 424. Tennessee. Merriman v. Magiveny, 12 Heisk. 494. Texas. American Salt Co. v. Hei- denheimer, 80 Tex. 344, 26 Am. St. Rep. 743, 15 S. W. 1038; Seymour Opera-House Co. v. "Wooldridge (Tex. Civ. App.), 31 8. W. 234. Vermont. Reynolds v. Myers, 51 Vt. 444. West Virginia. Miller v. Newburg Orrel Coal Co., 31 W. Va. 836, 13 Am. St. Rep. 903, 8 S. E. 600. See also Bon Aqua Improvement Co. v. Stand- ard Fire Ins. Co., 34 W. Va. 764, 12 S. E. 771. Wisconsin. Franke v. Mann, 106 Wis. 118, 48 L. R. A. 856, 81 N. W. 1014; Slocum v. Head, 105 Wis. 431, 50 L. R. A. 324, 81 N. W. 673; Har- rod V. Hamer, 32 Wis. 162. A corporation de facto "can incur obligations as a corporation which do not bind those who associated to con- stitute it, in their individual capaci- ties, * * *." Lamkin v. Baldwin & Lamkin Mfg. Co., 72 Conn. 57, 44 L. R. A. 786, 43 Atl. 593, 1042. "In the absence of a statutory pro- vision making shareholders liable iu case of failure to comply with the requirements of the charter, or with the requirements of the act under which the company is incorporated, persons who have contracted with a de facto corporation, as a corporation, cannot deny its corporate existence in order to charge its shareholders in- dividually as partners. ' ' Runyon, Ch., in Stout V. Zulick, 48 N. J. L. 599, 7 Atl. 362. In Seaton v. Grimm, 110 Iowa 145, 81 N. W. 225, it is said that the great weight of authority supports the rule stated in the text, in the absence of statute. See also § 312, infra. 15 Lamming v. Galusha, 81 Hun (N. Y.) 247, 30 N. Y. Supp. 767; id., 151 N. Y. 648, 45 N. E. 1132; Bartholomew V. Bentley, 1 Ohio St. 37. See also Scanlau v. Keith, 102 111. 634, 40 Am. Rep. 624. See also § 312, infra. 16 New Haven Wire Co. Cases, 57 Conn. 352, 394, 5 L. R. A. 300, 18 Atl. 266; Smith v. Mayfield, 163 HI. 447, 457, 45 N. E. 157. 17 So the leasing by a national bank of banking rooms before the comp- 631 § 305] Peivate Cokpoeations [Ch. 10 the effect that a consolidated corporation must be one de jure in order to succeed to the rights of the consolidating corporations." By statute in some states stockholders are made individually liable for the corporate debts where the statutory conditions precedent to incorporation are not complied with.^' But it has been held that the right to sue a de facto corporation on a contract entered into before all its stock has been subscribed is not affected by the fact that the statute makes the officers, agents and directors of the corporation personally liable for all debts and liabilities contracted by them in its name under such circumstances.^" For example, proof of a de facto corporate existence is sufficient to sustain an action by a mutual insurance company against a member to collect an assessment,^^ or against a policy holder on a premium note,''^ or an action by the indorsee of a note made payable to a corporation,^' or an action by a corporation as indorsee or assignee of a note,^* or an action against the indorser of a note made by a corporation.^* Similarly, proof of a de facto corporation is sufficient to sustain an action to foreclose a mortgage given by a corporation,^® or an action by a corporation on a policy of insurance,*'' or on a bond given to it to dissolve an at- tachment,^* or against a former stockholder and director for services rendered,*^ or an action against a corporation on a lease.'" troller has authorized it to commence 22 Farmers ' Ins. Co. v. Borders, 2G business is ultra vires, and, in so far Ind. App. 491, 60 N. E. 174; Provi- as the lease is executory, it cannot denee Fire & Marine Ins. Co. v. Mur- be enforced against it on the theory phy, 8 R. I. 131. that it is the contract of a de facto 23 Bibb v. Hall, 101 Ala. 79, 14 So. corporation. "Its acts in this regard gg. Goodrich v. Reynolds, Wilder & were not a defective use of power or q^^ 31 m 490^ 83 Am. Dec. 240. the work of a merely de facto eor- accreditors' Union v. Lundy, 16 poration, but a transaction which this ^^^ gg ^^^. p^^ g^^. ^.^ ^_ de jure and de facto corporation was j^^^j^^^j ^^^^ „f Bloomington, 91 111. specially forbidden to engage m." 20, 33 Am. Eep. 44. McOormick v. Market Nat. Bank of Chicago, 162 111. 100, 44 N. E. 381, 2= Pacific Bank v. De Eo, 37 Cal. aff'g 61 111. App, 33. ^^^• 18 Brown v. Dibble's Estate, 65 26 See § 307, infra. Mich. 520, 32 N. W. 656; Mansfield, 27 Bon Aqua Improvement Co. v. C. & L. M. E. Co. V. Drinker, 30 Mich. Standard Fire Ins. Co., 34 W. Va. 764, 124. 12 S. E. 771. 19 See chapter on Stock and Stock- 28 Campbell & Zell Co. y. American holders. Surety Co., 129 Fed. 491, aff'd 138 20 Gunderson v. Illinois Trust & Sav- Ted. 531, certiorari denied 199 TJ. S. ings Bank, 199 111. 422, 65 N. E. 326, 607, 50 L. Ed. 331 (mem. dec). sS'g 100 111. App. 461. 29 Black Eiver Improvement Co. v. 21 Appleton Mut. Fire Ins. Co. v. Holway, 85 Wis. 344, 55 N. W. 418. Jesser, 5 Allen (Mass.) 446. 3" Trapp v. St. John 's Baptist 632 Ch. 10] De Facto Corpoeations [§ 305 A de facto corporation having the right to possession of premises may recover rent against one holding under it, and payment to it will release the tenant.*^ And proof that a corporation to which property has been sold is one de facto is sufficient to warrant a recovery by a broker in an action against the vendor for commissions.^^ Bonds issued by a de facto corporation are valid and enforceable to the same extent as if the corporation were one de jure, and the legality of its incorporation cannot be questioned in an action to enforce them or to prevent their enforcement.'* So, the validity of the incorporation of an improvement corporation organized for irri- gation or drainage purposes,'* or of a city'* or school district,'* cannot be collaterally attacked in a suit by a private individual to enjoin it from issuing bonds. Similarly one who agrees to purchase bonds issued by a reclamation district on condition that they are legal and valid is liable for the purchase price if the district has a de facto existence when they are issued.''' Also proof that the company has a Church, 174 111. App. 213; Whitford v. Laidler, 94 N. Y. 145, 46 Am. Eep. 131, rev'g 25 Hun (N. Y.) 136. 31 Philippine Sugar Estates Devel- opment Co. V. United States, 39 Ct. CI. (U. S.) 225. 32 Smith V. Mayfield, 163 111. 447, 45 N. E. 157, aff'g 60 111. App. 266. 33 United States. Quinton v. Equit- able Inv. Co., 196 Eed. 314; Clapp V. Otoe County, 104 Fed. 473; Miller V. Ferris Irrigation Dist., 99 Fed. 143, 92 Fed. 263, 85 Fed. 693; Herring v. Modesto Irrigation Dist., 95 Fed. 705; Central Trust Co. of New York v. Chattanooga, E. & C. E. Co., 94 Fed. 275, aff'g 89 Fed. 388; National Life Ins. Co. of Montpelier v. Board of Edu- cation, City of Huron, 62 Fed. 778, cer- tiorari denied 159 U. S. 262, 40 L. Ed. 147 (mem. dec); Hill v. City of Ka- hoka, 35 Fed. 32. California. Metcalfe v. Merritt, 14 Cal. App. 244, 111 Pac. 505. Georgia. Georgia Southern & F. R. Co. V. Mercantile Trust & Deposit Co., 94 Ga. 306, 32 L. E. A. 208, 47 Am. St. Eep. 153, 21 S. E. 701. Illinois. Gunderson v. Illinois Trust & Savings Bank, 199 HI. 422, 65 N. E. 326, aff'g 100 HI. App. 461. Kansas. Eiley v. Garfield Tp., 58 Kan. 299, 49 Pac. 85; School Dist. No. 25 V. State, 29 Kan. 57. Minnesota. St. Paul Gaslight Co. v. "Village of Sandstone, 73 Minn. 225, 75 N. W. 1050. Missouri. Franklin Ave. German Sav. Institution v. Board of Educa- tion, 75 Mo. 408. North Dakota,. Coler v. Dwight School Tp., 3 N. D. 249, 28 L. E. A. 649, 55 N. W. 587. The same is true of township war- rants. Speer v. Board Com'rs Kear- ney Co., 88 Fed. 749. 34 Tyree v. Crystal Dist. Improve- ment Co., 64 Ore. 251, 126 Pac. 605. 35 Cohen v. City of Houston, — Tex. Civ. App. — , 176 S. W. 809. See Mc- Quillin on Municipal Corporations, §§158, 159. 36 Davis V. Parks, — Tex. Civ. App. — , 157 S. W. 449; Wilson v. Browc, — Tex. Civ. App. — , 145 S. W. 639. See Abbott on Public Securities, §266. 37 Metcalfe v. Merritt, 14 Cal. App, 244, 111 Pac. 505. 633 305] Pbivate Cokpobations [CL 10 de facto corporate existence is all that is necessary to sustain an action on bonds given by a county or municipal corporation in aid of a railroad company, whether the action is brought by the company or by an assignee,^^ or in an action to compel the county authorities to issue bonds in payment of a subscription to the company's stoek.^' § 306. Ownership of property and conveyances of same. It is well settled that a corporation de facto is just as capable of taking and holding property, real or personal, as a corporation de jure, and is just as capable of conveying or transferring property. A conveyance or transfer of property to or by a corporation de facto, therefore, is valid and binding as against all the world except the state, and even as against the state except in direct proceedings in quo warranto.*" 88 Dallas County v. Huidekoper, 155 XT. S. 655, 25 L. Ed. 974, 154 U. S. 654, 25 L. Ed. 974, aff'g 3 Dill. 171, Fed. Gas. No. G,850; Kails County v. Douglass, 105 U. S. 728, 26 L. Ed. 957; Macon County v. Shores, 97 U. S. 272, 24 L. Ed. 889; Commissioners Douglas Co. V. Bolles, 94 U. S. 104, 24 L. Ed. 46; Darlington v. La Cledo County, 4 Dill. (U. S. C. C.) 200, Fed. Cas. No. 3,577; Smith v. Clark County, 54 Mo. 58. See also Board Com'rs Kingman Co. v. Cornell University, 57 Fed. 149. In Faruham v. Benedict, 107 N. T. 159, 13 N. E. 784, it was held that where the corporation was not one de jure because conditions precedent as to subscription and payment of capi- tal had not been complied with, and because the affidavit of such compli- ance required to be filed with the ar- ticles was intentionally false, the bonds were not valid except in the hands of bona fide holders. 39 Chicago, K. & W. E. Co. v. Com- missioners Stafford Co., 36 Kan. 121, 12 Pac. 593. 40 United States. Baltimore & P. R. Co. V. Fifth Baptist Church, 137 U. S. 568, 34 L. Ed. 784; In re Jackson Brick & Tile Co., 189 Fed. 636; Doylo V. San Diego Land & Town Co., 46 Fed. 709. California. San Diego Gas Co. v. Frame, 137 Cal. 441, 70 Pac. 295; Oak- land Gas Eght Co. v. Dameron, 67 Cal. 663, 8 Pac. 595; Bakersfield Town Hall Ass'n v. Chester, 55 Cal. 98; Dannebroge Gold Quartz Min. Co. v. Ailment, 26 Cal. 286. Connecticut. New York, B. & B. E. Co. V. Motil, 81 Conn. 466, 71 Atl. 563. Florida. Booske v. Gulf lee Co., 24 Fla. 550, 5 So. 247. Illinois. Hudson v. Green Hill Semi- nary Corporation, 113 111. 618; Thomp- son V. Candor, 60 111. 244; People v. Citizens Tel. Co. of Pekin, Illinois, 186 111. App. 260; Joliet v. Frances, 85 111. App. 243. Indiana. Baker v. Neff, 73 Ind. 68; Farnsworth v. Drake, 11 Ind. 101. Maryland. Keene v. Van Eeuth, 48 Md. 184. Minnesota. East Norway Lak-e Church V. Froislie, 37 Minn. 447, 35 N. "W. 260. Missouri. Crenshaw v. TJllman, 113 Mo. 633, 20 S. W. 1077; Finch v. UU- man, 105 Mo. 255, 24 Am. St. Eep. 383, 16 S. W. 863; Catholic Church at Lex- ington V. Tobbein, 82 Mo. 418. New Hampshire. Saunders v. Far- mer, 62 N. H. 572. New Jersey. See Way v. American Grease Co., 60 N. J. Eq. 263, 47 Atl. 44. 634 Ch. 10] Db I'acto Cokporations [§ 307 And such a corporation is entitled to the possession of its property until deprived of it by a proper proceeding in a court of competent jurisdiction.*! It follows that the title to property cannot be attacked on the ground that a corporation appearing as grantee and grantor in the chain of title was a de facto corporation only.*^ If a corpora- tion has a de facto existence, the validity of an assignment of a note to or by it cannot be attacked because of defects or irregularities in its organization.*^ § 307. Mortgages. A mortgage made by or to a corporation de facto is as valid as if it were made by or to a corporation de jure, and New York. Lancaster v. Amsterdam cuted and delivered before. Dyer v, Improvement Co., 140 N. Y. 576, 24 L. E. A. 322, 35 N. E. 964. See also Stoker v. Schwab, 56 N. Y. Super. Ct. 122, 1 N. Y. Supp. 425. North Carolina. See Claremont Col- lege V. Riddle, 165 N. C. 211, 81 S. E. 283. Ohio. Society Perun v. Cleveland, 43 Ohio St. 481, 3 N. E. 357. Oregon. See Brown v. Webb, 60 Ore. 526, Ann. Cas. 1914 A 148, 120 Pac. 387; Leavengood v. McGee, 50 Ore. 233, 91 Pac. 453. Tennessee. Augusta Mfg. Co. v. Vertrees, 4 Lea 75. Utah. Tarpey v. Deseret Salt Co., 5 Utah 494, 17 Pac. 631. Wisconsin. Eicketson v. Galligan, 89 "Wis. 394, 62 N. "W. 87. The fact that the vendor of prop- erty is a corporation which is irregu- larly or illegally organized does not have the effect of causing such prop- erty to continue to be the property of the vendor. Goodwin v. Bodcaw Lum- ber Co., 109 La. 1050, 34 So. 74. A deed to a corporation executed before it has filed its articles of in- corporation, but not delivered until afterwards, is good. Sayward v. Gard- ner, 5 Wash. 247, 33 Pac. 389, 31 Pac. 761. Indeed, it has been held that, by reason of the estoppel of the grantor, a deed to a corporation is good after its organization, although both exe- Eich, 1 Mete. (Mass.) 180. But an attempted conveyance by an organ- ization as a corporation, where wholly without corporate powers, is of course void. Lafferty v. Evans, 17 Okla. 247, 21 L. E. A. (N. S.) 363, 87 Pac. 304. See also § 306, and § 308, infra. 41 State V. Superior Court Spokane Co., 15 Wash. 668, 37 L. E. A. Ill, 55 Am. St. Rep. 907, 47 Pac. 31. 42 Illinois. Thompson v. Candor, 60 111. 244. Maryland. Keene v. Van Eeuth, 48 Md. 184. Missouri. Crenshaw v. XJIlman, 113 Mo. 633, 20 S. W. 1077. New Hampshire. Saunders v. Farmer, 62 N. H. 572. New York. Stoker v. Schwab, 56 N. Y. Super. Ct. 122, 1 N. Y. Supp. 425. North Carolina. Claremont College V. Eiddle, 165 N. C. 211, 81 S. B. 283. Utah. Tarpey v. Deseret Salt Co., 5 Utah 494, 17 Pae. 631. Wisconsin. Eicketson v. Galligan, 89 Wis. 394, 62 N. W. 87. See also other cases cited in the preceding note. The title is good if it was a de facto corporation. Fairview Inv. Co. V. Lamberson, 25 Idaho 72, 136 Pac. 606. See also § 312, infra. 43Parnsworth v. Drake, 11 Ind. 101; Toledo & A. A. E. Co. v. Johnson, 55 Mich. 456, 21 N. W. 888. 635 §307] Private Coepoeations [Ch. 10 cannot be attacked on the ground of want of incorporation, either by the mortgagor or by persons claiming under him or it, or by third persons.** A mortgage given by it may be foreclosed in a suit brought for that purpose against it in its corporate name,** and it may sue in the corporate name to quiet title to the mortgaged property and to restrain a threatened interference with its possession of the same.*® It may also maintain a suit to foreclose a mortgage running to it as mortgagee.*' §308. Devises or beqnests to corporation. A corporation de facto has the same capacity as a corporation de jure *' to take prop- erty by devise or bequest, and its title . to property so acquired cannot be defeated because of the defects or irregularities in its organization preventing it from becoming a corporation de jure.*' 44 United States. Toledo, St. L. & K. C. E. Co. V. Continental Trust Co., 95 Fed. 497, modifying 86 Fed. 929; Central Trust Co. v. Chattanooga, E. & C. E. Co., 94 Fed. 275, afE'g 89 Fed. 388; Farmers' Loan & Trust Co. v. To- ledo, A. A. & N. M. E. Co., 67 Fed. 49. Califonua. First Baptist Church of San Jos6 v. Branham, 90 Cal. 22, 27 Pae. 60. Georgia. Georgia Southern & F. E. Co. V. Mercantile Trust & Deposit Co., 94 Ga. 306, 32 L. E. A. 208, 47 Am. St. Eep. 153, 21 S. B. 701. See also Georgia Southern & F. Ey. Co. v. Bar- ton, 101 Ga. 466, 28 S. E. 842. Illinois. See Forest Glen Brick & Tile Co. V. Gade, 55 111. App. 181, afe'd 165 111. 367, 46 N". E. 286. Maryland. Lord v. Essex Bldg. Ass'n, 37 Md. 320. Netiraska. Lincoln Bldg. & Sav. Ass'n V. Graham, 7 Neb. 173. New Jersey. Hackensack Water Co. V. De Kay, 36 N. J. Eq. 548, 558. Ohio. See Union Trust Co. v. New- York, C. & St. L. E. Co., 9 Ohio Dee. 773. Oklahoma. See Higbee v. .^tna Building & Loan Ass'n, 26 Okla 327, Ann. Cas. 1912 B 223, 109 Pac. 236. Oregon. See Marsters v. Umpqua Oil Co., 49 Ore. 374, 12 L. E. A. (N. S.) 825, 90 Pae. 151; Washington Nat. Building, Loan & Investment Ass'n v. Stanley, 38 Ore. 319, 58 L. E. A. 816, 84 Am. St. Eep. 793, 63 Pac. 489. Pennsylvania. See Johnston v. Elizabeth Building & Loan Ass'n, 104 Pa. St. 394. 45 Gunderson v. Illinois Trust & Sav- ings Bank, 199 111. 422, 65 N. B. 326, afE'g 100 111. App. 461. See also First Baptist Church of San Jos6 v. Bran- ham, 90 Cal. 22, 27 Pac. 60. 46 First Baptist Church of San Jos6 V. Branham, 90 Cal. 22, 27 Pac. 60. 47 Washington Nat. Building, Loan & Investment Ass'n v. Stanley, 38 Ore. 319, 84 Am. St. Eep. 793, 63 Pae. 489. 48 See § 306, supra. 49 See Quinn v. Shields, 62 Iowa 129, 49 Am. Eep. 141, 17 N. W. 437 (this case was under a statute) ; Catholic Church at Lexington v. Tobbein, 82 Mo. 418 ; In re Arden, 1 Connolly Surr. (N. Y.) 159, 4 N. Y. Supp. 177. See also In re Trustees Congregational Church & Society of Cutchogue, 131 N. Y. 1, 30 N. E. 43; Smith v. Havens Belief Fund Society, 118 N. Y. App. Div. 678, 103 N. Y. Supp. 770, afE'g 44 636 Ch. 10] Db Facto Cobpoeations [§ 309 And the same is true of a devise in trust for the benefit of a de factoi corporation.^" §309. Bight to exercise special franchises. A corporation de facto has the same capacity to exercise a franchise granted by the state or a municipality, as it has to take and hold property, — the same capacity, in other words, as a corporation de jure, — and its right to exercise a franchise cannot be questioned in a collateral pro- ceeding merely on the ground that it is only a corporation de facto.^^ Thus, a corporation de facto may construct and maintain a railroad,^^ and may sue to enjoin others from interfering with its franchise.** A de facto navigation, bridge or toll road company may take and exercise a franchise, and may take tolls and sue to collect them.** N. T. Misc. 594, 90 N. Y. Supp. 168, aff'd 190 N. Y. 557, 83 N. E. 1132; Mclntire Poor School v. Zanesville Canal & Manufacturing Co., 9 Ohio 203, 288, 34 Am. Dec. 436. BO Cruse V. Axtell, 50 Ind. 49. 61 See O'Reilly v. Noxon, 49 Colo. 362, 113 Pac. 486; New Hartford Water Co. V. Village Water Co., 87 Conn. 183, 87 Atl. 358. But see Aspen Water & Light Co. V. Aspen, 5 Colo. App. 12, 37 Pae. 728, holding that where all which was done towards the creation of a corporation was the issuance of the statutory certificate and no stock subscription was shown and no stock issued, the corporation had not such power. 62 That a railroad company cannot be enjoined or prevented from con- structing its road because of defects in its organization, if it is a de facto corporation, see Aurora & C. E. Co. v. Laurenceburgh, 56 Ind. 80; National Docks Ey. Co. v. Central E. Co., 32 N. J. Eq. 755; Attorney General v. Stev- ens, 1 N. J. Eq. 369, 22 Am. Dec. 526; Twelfth St. Market Co. v. Philadelphia & R. Terminal B. Co., 142 Pa. St. 580, 21 Atl. 902, 989. A de facto street railroad company cannot be enjoined from laying its tracks in the street, at the suit of an abutting property owner, on the ground of defects in its organization. Nichols V. Ann Arbor & Y. St. Ry. Co., 87 Mich. 361, 16 L. R. A. 371, 49 N. W. 538. And see Williams v. Citizens' Ry. Co., 130 Ind. 71, 15 L. R. A. 64, 30 Am. St. Rep. 201, 29 N. E. 408. The charter of a street railway company cannot be collaterally at- tacked in proceedings by another com- pany to enjoin it from laying tracks on a street; Thirteenth & Fifteenth Sts. Passenger Ry. Co. v. Southern Pas- senger Ey., 3 Pa. Dist. 337; Thirteenth & Eifteenth Sts. Passenger Ey. Co. v. Broad St. Eapid Transit Ey. Co., 31 Pa. Co. Ct. 99; nor in an action against it to set aside the assignment of a franchise to it and to restrain it from acting thereunder. Atkinson v. Asheville St. Ey. Co., 113 N. C. 581, 18 S. E. 254. 63 Denver & S. Ey. Co. v. Denver City Ey. Co., 2 Colo. 673. 64 Duke V. Cahawba Nav. Co., 16 Ala. 372, 10 Ala. 82, 44 Am. Dec. 472; Stockton & L. Gravel Eoad Co. v. Stockton & C. E. Co., 45 Cal. 680; Canal St. Gravel-Eoad Co. v. Paas, 95 Mich. 372, 54 N. W. 907; Pontiac & L. Plank-Eoad Co. v. Hilton, 69 Mich. 115, 36 N. W. 739. This was assumed to be the law in Grand Eapids Bridge Go. v. Prange, 35 Mich. 400, 24 Am. Eep. 585. See also Smelser v. 637 §309] Pkivate Cokpobations [Ch. 10 And such a company may also maintain an action to recover posses- sion of its road from a trespasser,** or to enjoin others from interfering with or usurping its exclusive franchise,** or for damages for breaking down and passing its toll gates,*' or to recover a statutory penalty for forcibly and illegally passing the same,** or for refusal to work on its road.*' And the question whether such a company was ever lawfully incorporated cannot be inquired into by the county authori- ties on an application to them to fix its rates of toll, or in a proceed- ing by mandamus to compel them to fix such rates.^ A de facto corporation having the exclusive franchise of furnishing a municipality and its inhabitants with water may exercise such fran- chise and sue to enjoin interference or usurpation by others.*^ And the same is true of a de facto gaslight corporation.^^ A de facto telephone company may construct and maintain its lines on a public highway,*^ and may maintain suits to protect its rights under its franchises.®* And a de facto canal company cannot be enjoined from constructing its canal merely because of its not being a corporation de jure.** Wayne & U. Straight Line Turnpike Co., 82 Ind. 417; Proprietors of Charles Eiver Bridge v. Proprietors of War- ren Bridge, 7 Pick. (Mass.) 345. In an action to recover tolls, a plea involving the forfeiture or invalidity of the plaintiff 's charter is demurrable, or may be treated as a nullity. Dyer & Co. V. Walker, 40 Pa. St. 157. 55 Stockton & L. Gravel Eoad Co. v. Stockton & C. R. Co., 45 Cal. 680. As to the right of de facto corpora- tions to maintain actions for tres- pass generally, see § 315, infra. 66 Proprietors of Charles River Bridge v. Proprietors of Warren Bridge, 7 Pick. (Mass.) 344. 57 Searsburgh Turnpike Co. v. Cut- ler, 6 Vt. 315. 68 The existence of a toll road com- pany as a corporation is not involved, in such an action. Canal Street Gravel-Road Co. v. Paas, 95 Mich. 372, 54 N. W. 907. 69 Buncombe Turnpike Co. v. Mc- Carson, 1 Dev. & B. (N. C.) 306. 60 Volcano Canon Road Co. v. Su- pervisors of Placer Co., 88 Cal. 634, 26 Pac. 513; Weaverville & M. Wagon Road Co. V. Board of Sup'rs, 64 Cal. 69, 28 Pac. 115. But see People v. Volcano Canyon Toll-Road Co., 100 Cal. 87, 34 Pac. 522. 61 Union Water Co. v. Kean, 52 N. J. Eq. Ill, 27 Atl. 1015, rev'd on other grounds 52 N. J. Eq. 813, 46 Am. St. Rep. 538, 31 Atl. 282. See also Mueller v. Egg Harbor City, 55 N. J. L. 245, 26 Atl. 89; Ashland v. Whee- ler, 88 Wis. 607, 60 N. W. 818. 62 Elizabethtown Gas Light Co. v. Green, 46 N. J. Eq. 118, 18 Atl. 844, afE'd 49 N. J. Eq. 329, 24 Atl. 560. 63 People V. Citizens Tel. Co. of Pe- kin, Illinois, 186 111. App. 260; Roar- ing Springs Townsite Co. v. Paducah Tel. Co., — Tex. Civ. App. — , 164 S. W. 50. 64 Cumberland Telegraph & Tele- phone Co. V. Louisville Home Tel. Co., 114 Ky. 892, 72 S. W. 4. 65 Society for Establishing Useful Manufacturers v. Morris Canal & Banking Co., 1 N. J. Eq. 157, 21 Am. Dec. 41. 638 Ch. 10] Db Facto Coepoeations [§ 310 This doctrine that the right of a corporation de facto to exercise corporate powers cannot be collaterally questioned applies only to the right to be and act as a corporation, and does not prevent a per- son from showing that a corporation has no right to exercise other franchises than that of being a corporation, not because it is not a corporation ■ capable of exercising such franchises, but because the right to exercise them is for some reason not vested in it. For ex- ample, a person may attack the right of a de facto bridge company to take tolls on the ground that the period for which the right to take tolls was granted to it by the county or state has expired.^® And a city may set up that the franchise of a corporation to operate a sys- tem of waterworks within its limits has expired as a defense to a suit by the corporation to enjoin the enforcement of an ordinance limit- ' ing water rates.^' § 310. Right to exercise power of eminent domain. According to the better opinion the rule that de facto corporate existence is suffi- cient as against every person but the state is as applicable in proceed- ings by a corporation to take land under the power of eminent domain as in the eases above mentioned,®' and it is not necessary in such pro- ceedings that it shall show that it is a de jure corporation, nor can 66 Grand Eapids Bridge Co. v. California. Vallejo & IST. B. Co. v. Prange, 35 Mich. 400, 24 Am. Eep. Eeed Orchard Co., 169 Cal. 545, 147 585. Pac. 238; Madera E. Co. v. Eaymond 67 Cedar Rapids Water Co. v. Cedar Granite Co., 3 Cal. App. 668, 87 Pac. Eapids, 118 Iowa 234, 91 N. W. 1081. 27. See also Spring Valley Water 68 United States. Postal Tel. Cable Works v. San Francisco, 22 Cal. 434; Co. of Montana v. Oregon Short Line In re Spring Valley Waterworks, 17 R. Co., 114 Fed. 787; Oregon Short Cal. 132, and Boca & L. E. Co. v. Line E. Co. v. Postal Tel. Cable Co. Sierra Valleys E. Co., 2 Cal. App. 546, of Idaho, 111 Fed. 842, aflf'g 104 Fed. 84 Pac. 298. 623. Colorado. Union Pac. E. Co. v. Colo- Alabama. Central of Georgia E. rado Postal Tel. Cable Co., 30 Colo. Co. V. Union Springs & N. E. Co., 144 133, 97 Am. St. Eep. 106, 69 Pae. 564; Ala. 639, 2 L. E. A. (N. S.) 144, 39 Crystal Park Co. v. Morton, 27 Colo. So. 473. App. 74, 146 Pac. 566. See also La- Arkansas. Mountain Park Termi- velle v. Town of Julesburg, 49 Colo, nal E. Co. v. field, 76 Ark. 239, 88 S. 290, 112 Pac. 774. W. 897; Niemeyer & Darragh v. Little Illinois. Chicago & W. I. E. Co. v. Eock Junction By., 43 Ark. 111. See Heidenreich, 254 111. 231, Ann. Cas. also St. Louis, I. M. & 8. E. Co. v. Ft. 1913 C 266, 98 N. E. 567; Terre Haute Smith & V. B. E. Co., 104 Ark. 344, & P. E. Co. v. Bobbins, 247 HI. 376, 148 S. W. 531; Brown v. Wyandotte 93 N. B. 398; Smith v. Claussen Park & S. E. Ey. Co., 68 Ark. 134, 56 S. W. Drainage & Levee Dist., 229 111. 155, 862. 82 N. E. 278; Gillette v. Aurora Eys. 639 §310] Peivatb Coepobations [Ch. 10 the legality of its incorporation be inquired into in such a proceeding, or in a suit to enjoin it from exercising the power. Co., 228 111. 261, 81 N. E. 1005; Eddle- raan v. Union County Traction & Power Co., 217 m. 409, 75 N. E. 510; Cleveland, C, C. & St. L. E. Co. v. Polecat Drain. Dist., 213 111. 83, 72 iM. E. 684; Illinois State Trust Co. v. St. Louis, I. M. & S. E. Co., 208 111. 419, 70 N. E. 357; Morrison v. Eor- man, 177 111. 427, 53 N. E. 73; Thomas V. St. Louis, B. & S. Ey. Co., 164 111. 634, 46 N. E. 8; East St. Louis & C. E. Co. V. Belleville City E. Co., 159 111. 544, 42 N. E. 974; St. Louis, A. & T. H. E. Co. V. Belleville City E. Co., 158 111. 390, 41 N. B. 916; Chicago & E I. E. Co. V. Wright, 153 111. 307, 38 N. E. 1062; Lake Shore & M. S. E. Co. V. Baltimore & 0. & C. E. Co., 149 m. 272, 37 N. E. 91; Brown v. Calu- met Eiver E. Co., 125 111. 600, 18 N. E. 283; Henry v. Centralia & C. E. Co., 121 111. 264, 12 N. E. 744; Ward v. Minnesota & N. W. E. Co., 119 111. 287, 10 N. E. 365; Chicago & N. W. Ey. Co. v. Chicago & E. E. Co., 112 111. 589; Peoria & P. U. Ey. Co. v. Peoria & F. Ey. Co., 105 111. 110; Mc- Auley V. Columbus, C. & I. C. Ey. Co., 83 111. 348. Indiana. Louisville & N. Ey. Co. v. Western V. Tel. Co. of Indiana, — Ind. — , 110 N. E. 70; Joliff v. Muncie Elee. Light Co., 181 Ind. 650, 105 N. E. 234; Smith v. Cleveland, C, C. & St. L. E. Co., 170 Ind. 382, 81 N. B. 501; Morrison v. Indianapolis & W. E. Co., 166 Ind. 511, 9 Ann. Cas. 587, 77 N. E. 744, 76 N. E. 961; Aurora & 0. E. Co. V. Miller, 56 Ind. 88. See also Eichland School Tp. v. Overmyer, 164 Ind., 382, 73 N. E. 811; Boyd v. Logans- port, E. & N. Traction Co., 161 Ind. 587, 69 N. E. 398; Aurora & C. E. Co. V. Lawrenoeburgh, 56 Ind. 80. Kansas. Eeisner v. Strong, 24 Kan. 410. Kentucky. Calor Oil & Gas Co. v. Tranzell, 128 Ky. 715, 36 L. E. A. (N. S.) 456, 109 S. W. 328; Portland & G. Turnpike Co. v. Bobb, 88 Ky. 226, 10 S. W. 794. Michigan. Detroit & T. S. L. E. Co. V. Ferguson, 140 Mich. 400, 103 N. W. 862; Detroit & T. S. L. E. Co. V. Campbell, 140 Mich. 384, 103 N. W. 856; Traverse City, K. & G. E. Co. v. Seymour, 81 Mich. 378, 45 N. W. 826; Shroeder v. Detroit, G. H. & N. Ey. Co., 44 Mich. 387, 6 N. W. 872. Minnesota. In re Minneapolis & St. L. Ey. Co., 36 Minn. 481, 32 N. W. 556. Missouri. In Kansas & T. Coal Ey. V. Northwestern Coal & Mining Co., 161 Mo. 288, 51 L. E. A. 936, 84 Am. St. Eep. 717, 61 S. W. 684, it is said that it would be intolerable if, in such a proceeding, "the courts should stop to inquire into the charter or regularity or legality of its organization, or into the motives of the incorporators * * *." In this ease, however, the contention was that the corporation seeking to condemn was organized solely for the benefit of a private corporation and hence was a private and not a public railroad, and that the use to which the land was to be applied was a pri- vate and not a public one. In School Dist. of Columbia v. Jones, 229 Mo. 510, 129 S. W. 705, and School Dist. No. 35 V. Hodgin, 180 Mo. 70, 79 S. W. 148, it was held that the regularity of the proceedings leading to the formation of a school district could not be raised in condemnation proceedings instituted by it. In Orrick School Dist. v. Dorton, 125 Mo. 439, 28 S. W. 765, it was held that the corporate existence of a school district may be put in issue in 640 Ch. 10] Db Facto Cobpoeations [§ 310 Some courts, however, have taken a contrary view, and have held condemnation proceedings instituted by it, the court stating that the rule of that state seems to be different from that obtaining in some of the other states where "It has been held that a de facto corporation might ex- ercise the right of eminent domain." In St. Joseph & I. R. Co. v. Sham- baugh, 106 Mo. 557, 17 S. W. 581, it was held that ' ' the corporate existence of the plaintiff is an issue which may be made in a proceeding to condemn property; for, if the plaintiff has no corporate capacity, it has no right to prosecute this suit, ' ' and that the per- formance of conditions precedent, if there are any, is necessary to cor- porate existence. The corporation in this case was incorporated by a spe- cial act, and it was contended that it had not accepted its charter, and ap- parently that there were certain conditions precedent which it had not performed. It also failed to complete its road within the time originally prescribed, and it was contended that an act extending the time was uncon- stitutional. The decision in this caso was followed in Roosa v. St. Joseph & I. R. Co., 114 Mo. 508, 21 S. W. 1124. In City of Hopkins v. Kansas City, St. J. & C. B. R. Co., 79 Mo. 98, it was held that a eity seeking to exercise the power of eminent domain must show that it has taken advantage of the privileges of the law authorizing incorporation, and has become incor- porate, and that it has no standing to maintain such a proceeding where there is no evidence of its incorpora- tion. In West End Narrow Gauge R. Co. V. Almeroth, 13 Mo. App. 91, it is held that the corporate existence of a railroad company cannot be ques- tioned on an application by it for the appointment of commissioners to as- sess the damages in condemnation proceedings. New Jersey, Twombley v. Morris R. Co., 84 N. J. L. 421, 86 Atl. 956, aff'g 82 N. J. L. 214, 81 Atl. 817; Sisters of Charity of St. Elizabeth v. Morris, R. Co., 84 N. J. L. 310, 50 L. R. A. (N. 8.) 236, 86 Atl. 954, aff'g 82 N. J. L. 214, 81 Atl. 817; Phila- delphia & C. Perry Co. v. Intercity Link R. Co., 73 N. J. L. 86, 62 Atl. 184, aff 'd 74 N. J. L. 594, 65 Atl. 1118; National Docks Ry. Co. v. Central R. Co. of New Jersey, 32 N. J. Eq. 755; In re Trenton St. Ry. Co. (N. J. Ch.), 47 Atl. 819. North Carolina. Payetteville St. Ry. V. Aberdeen & R. R. Co., 142 N. 0. 423, 9 Ann. Cas. 683, 55 S. E. 345; Holly Shelter R. Co. v. Newtoii, 133 N. C. 132, 45 S. E. 549; Kinstou & C. R. Co. v. Stroud, 132 N. C. 413, 43 S. E. 913; "Wellington & P. R. Co. v. Cashie & C. Railroad & Lumber Co., 114 N. C. 690, 19 S. E. 646. ' FeuusylTania. Burkhard v. Penn- sylvania Water Co., 234 Pa. 41, 82 Atl. 1120; Twelfth Street Market Co. V. Philadelphia & R. T. R. Co., 142 Pa. St. 580, 21 Atl, 902, 989, aff'g 10 Pa. Co. Ct. 25; Yeingst v. Philadel- phia, H. & P. R, Co., 40 Pa. Super. Ct. 106. See also Farnham v. Dela- ware & H. Canal Co., 61 Pa. St. 265. South Dakota. Sioux Falls Light & Power Co. v. Coughran, 27 S. D. 443, 131 N. W. 504. Texas. Roaring Springs Townsite Co. V. Paducah Tel. Co., — Tex. Civ. App. — , 164 S. W. 50; Chapman v. Trinity Valley & N. Ry. Co., — Tex. Civ. App. — , 138 S. W. 440. Utah. Postal Tel. Cable Co. of Utah V. Oregon Short Line R. Co., 23 Utah 474, 90 Am. St. Rep. 705, 65 Pac. 735. Virginia. Dismal Swamp R. Co. v. John L. Roper Lumber Co., 114 Va. I Priv. Corp.— 41 641 §310] Pbivate Coepokations [Ch. 10 that in such a ease a de jure corporate existence must be shown. 69 537, Ann. Cas. 1914 C 641, 77 S. E. 598. Washlng^ton. See State v. Superior Court Yakima Co., 49 Wash. 390, 95 Pac. 490, in connection with the eases there cited. That there are grounds for the for- feiture of the corporate charter cannot be taken advantage of in a proceeding to condemn nor in a suit to enjoin condemnation. Thomas v. South Side El B. Co., 218 111. 571, 75 N. E. 1058; Cluthe v. Evansville, Mt. C. & N. E. Co., 176 Ind. 162, Ann. Cas. 1914 A 935, 95 N. E. 543; Ulmer v. Lime Eock E. Co., 98 Me. 579, 66 L. E. A. 387, 57 Atl. 1001; New Central Coal Co. V. George's Creek Coal & Iron Co., 37 Md. 537; Hamilton v. Annapolis & E. E. E. Co., 1 Md. Ch. 107; Briggs v. Cape Cod Ship Canal Co., 137 Mass. 71; Oregon Cascade E. Co. V. Baily, 3 Ore. 164; In re Phila- delphia & M. Ey. Company's Petition, 87 Pa. St. 123, 40 Atl. 967; Dismal Swamp E. Co. v. Roper Lumber Co., 114 Va. 537, Ann. Cas. 1914 C 641, 77 S. E. 598. Nor as a ground for main- taining ejectment to recover the land condemned. New York & N. E. E. Co. V. New York, N. H. & H. E. Co., 52 Conn. 274. Nor can the fact that the charter of the corporation has ex- pired by limitation be interposed as a defense in such a proceeding. People V. Wayman, 256 111. 151, 99 N. E. 941. That a consolidation of two rail- road companies violated a provision prohibiting the consolidation of rail- road corporations owning competing lines is no defense to proceedings to condemn instituted by the consoli- dated corporation. Oregon-Washing- ton E. & Nav. Co. V. Wilkinson, 188 Fed. 363; Tibby Bros. Glass Co. v. Pennsylvania E. Co., 219 Pa. 430, 68 Atl. 975. The legality of the incorporation of a street railway company cannot be questioned in a suit by abutting owners to enjoin it from construct- ing its line in a highway without com- pensation to them. Nichols v. Ann Arbor & Y. St. Ey. Co., 87 Mich. 361, 16 L. E. A. 371, 49 N. W. 538. 89 United States. See Tulare Irri- gation Dist. V. Shepard, 185 U. S. 1, 17, 46 L. Ed. 773, where there is a statement by way of dictum to this effect. Louisiana. Act No. 78 of 1904, which in effect prohibits collateral at- tack on the existence of de facto cor- porations, expressly excepts from its provisions corporalions which may ex- ercise the power of eminent domain. The fact that the plaintiff corpora- tion was formed for two incompatible purposes, in violation of the statute, is a good defense to an expropriation proceeding. Bayou Cook Navigation & Fisheries Co. v. Doullut, 111 La. 517, 35 So. 729. It is also a good defense to such a proceeding by a foreign consolidated corporation that it has not complied with conditions precedent to consoli- dation imposed by the constitution of the state where the consolidation took place. Cumberland Telephone & Tele- graph Co. V. Morgan's Louisiana & T. E. & 8. S. Co., 112 La. 287, 36 So. 352. See also Cumberland Telephone & Telegraph Co. v. St. Louis, I. M. & S. E. Co., 117 La. 199, 41 So. 492, where it is held that a foreign corpora- tion seeking to expropriate a right of way must meet objection raised on the ground of illegality of its organi- zation by proving the regularity of its organization. New York. In re New York, W. & B. E. Co., 193 N. Y. 72, 85 N. E. 1014; In re Union El. R. Co. of Brooklyn, 642 Ch. 10] De Facto Cokpokations [§310 In Kentucky it is held that when the corporation is organized as the statute requires, neither its purpose nor its validity can be in- quired into in such a proceeding,'"' but that the owner of land sought to be condemned by a railroad corporation organized under the general law may deny its incorporation where it is not shown that the statutory conditions precedent to its right to do business have been complied with.''! The introduction of a duly certified copy of the articles of incorporation will make out a prima facie case as to incorporation, however.'^ 112 N. Y. 61, 2 L. E. A. 359, 19 N. E. 664; New York Cable Co. v. New York, 104 N. Y. 1, 43, 10 N. E. 332; In re New York, L. & W. Ry. Co., 99 N. Y. 12, 1 N. B. 27, aff'g 35 Hun 220; In re Broadway & S. A. E. Co., 73 Hun 7, 25 N. Y. Supp. 1080. But "where the power is conferred upon a corporation duly formed, it will not be defeated simpjy because the corporation has done or omitted some act which may be a cause of forfeiture of its rights and franchises, for it rests with the state to determine whether such for- feiture win be enforced. Judicial pro- ceedings are necessary to enforce such a forfeiture, and it may be waived." New York Cable Co. v. New York, 104 N. Y. 1, 43, 10 N. B. 332. To the same effect are In re Brooklyn El. E. Co., 125 N. Y. 434, 26 N. E. 474, and' In re Brooklyn, W. & N. E. Co., 72 N. Y. 245, 75 N. Y. 335. If, however, under the terms of its charter, the cor- porate life and franchises ipso facto terminate, without the intervention of the courts or the legislature, on fail- ure to perform certain conditions sub- sequent, then the power to condemn is lost, and the fact of such forfeiture may be set up as a defense in the con- demnation proceedings. In re Brook- lyn El. E. Co., 125 N. Y. 434, 26 N. E. 474; Brooklyn Steam Transit Co. v. Brooklyn, 78 N. Y. 524; In re Brooklyn, W. & N. E. Co., 75 N. Y. 335, 72 N. Y. 245. If the charter has been forfeited under a provision of the latter char- acter, an attempt by the legislature to waive such forfeiture by a special act is in effect a, grant of a special charter in violation of the constitu- tional provision prohibiting such grants, and this fact may be taken advantage of as a defense to the pro- ceeding to condemn. In re Brooklyn, "W. & N. E. Co., 75 N. Y. 335. Ohio. Queen City Tel. Co. v. City of Cincinnati, 73 Ohio St. 64, 76 N. E. 392; Powers v. Hazelton & L. Ey. Co., 33 Ohio St. 429; Atkinson v. Marietta & C. E. Co., 15 Ohio St. 21; Atlantic & O. E. Co. V. Sullivant, 5 Ohio St. 276. See also Society Perun v. Cleve- land, 43 Ohio St. 481, 3 N. E. 357. West Virginia. See Miller v. New- burg Orrel Coal Co., 31 W. Va. 836, 13 Am. St. Eep. 903, 8 S. E. 600. Wisconsin. See Miller v. Prairie du Chien & M. Ey. Co., 34 Wis. 533, where it is said that the corporate character of a railroad company seeking to condemn lands ' ' can only be raised be- fore the court or judge when the appli- cation is made for the appointment of commissioners, or in the supervisory court to which the proceedings may be removed by certiorari, or in some other direct proceeding to the same end, authorized by law." 70Calor Oil & Gas Co. v. Franzell, 128 Ky. 715, 36 L. E. A. (N. S.) 456, 109 S. W. 328. 71 Warden v. Madisonville, H. & E. E. Co., 125 Ky. 644, 101 S. W. 914. 72Calor Oil & Gas Co. v. Franzell, 128 Ky. 715, 36 L. E. A. (N. S.) 456, 643 § 310] Private Cobporations [Gh. 10 As in other cases,''* the de facto existence of the corporation may always be inquired into at the instance of the owner of the land sought to be condemned,''* and it has been held that where the articles of incorporation or charter are void on the face, the proceeding may not be maintained.''* The question whether there is any law under which the corporation can exercise the power assumed is also open to question at all times when it attempts to exercise such power. '"^ So a corporation may not maintain that it is such de facto and therefore qualified to maintain condemnation proceedings, where such proceedings could not be maintained were it a corporation de jure, and therefore a railroad cannot ex;ercise the power to condemn land for a line included in its ariticies of incorporation as a corporation de jure and at the same time exercise a like power as a de facto corporation in respect to lines not ^o included.'''' There is a conflict of authority as to the right to raise the conten- tion that the corporation was fraudulently organized for the purpose of enabling the corporators to exercise the power for private pur- poses.'" 109 S. W. 328; Warden v. Madison- ville, H. & E. R. Co., 125 Ky. 644, 101 S. W. 914. 73 See § 277, supra. 74 Sisters of Charity of St. Eliza- beth V. Morris E. Co., 84 N. J. L. 310, 50 L. R. A. (N. S.) 236, 86 Atl. 954, aff'g 82 N. J. L. 214, 81 Atl. 817; Hampton v. Clinton Water & Water Supply Co., 65 N. J. L. 158, 46 Atl, 650. See Bridwell v. Gate City Ter- minal Co., 127 Ga. 520, 10 L. R, A. (N. S.) 909, 56 S. E. 624. On motion to dismiss the petition the petitioner must produce some evi- dence of its existence as a de facto or de jure corporation. Proof of cor- porate acts done by it tends to show that it is a corporation de facto, Lake Shore & M. S. E. Co. v. Baltimore & O. & C. R. Co., 149 111. 272, 37 N. E. 91. The fact that the statute does not authorize the formation of a railroad corporation for the carriage of pas- sengers only, is a good defense to con- demnation proceedings instituted by a corporation attempted to be organ- ized for that purpose. Chicago & N. W. R. Co. V. Oshkosh, A. & B. W. R. Co., 107 Wis. 192, 83 N. W. 294. 76 Holly Shelter R. Co. v. Newton, 133 N. C. 132, 45 S. E. 549; Kinston & C. R. Co. V. Stroud, 132 N. C. 413, 43 S. E. 913. 76 Gillette V. Aurora Rys. Co., 228 111. 261, 81 N. E. 1005. A foreign railroad corporation which has purchased a parallel and competing line in violation of the ex- press provisions of the law of the state where the latter line runs, can- not claim the right to condemn land in such state on the theory that it is a de facto corporation. Illinois State Trust Co. V. St. Louis, I. M. & S. R. Co., 208 111. 419, 70 N. E. 357. 77 Boca & L. R. Co. v. Sierra Val- leys R. Co., 2 Cal. App. 546, 84 Pac. 298. 78 See § 288, supra. 644 Ch. 10] De Facto .Cobpobations [§ 311 When open to consideration, the question whether or not an organ- ization seeking to condemn land has existence as a corporation is one of law to be determined by the court.'" §311. Right to exercise taxing power. There is a conflict of opinion as to whether it is sufficient to show a de facto corporate ex- istence when a corporation seeks, under statutory authority, to col- lect assessments or taxes against property for benefits resulting from the construction of its works, as in the case of incorporated drainage and reclamation districts or companies, turnpike companies and the like. Some courts hold that it is necessary to show that the cor- poration has complied with all conditions precedent in its organiza- tion, and is a corporation de jurCj^** while others hold that it need only show that it is a corporation de facto.*' And the latter rule has also 79 Chicago, St. L. & N. O. R. Co. v. Liebel, 27 Ky. L. Eep. 716, 86 S. W. 549. 80 Knight V. Flatroek & W. Turn- pike Co., 45 Ind. 134; Newton County Draining Co. v. Nofsinger, 43 Ind. 566; Busenback v. Attica & B. Gravel Road Co., 43 Ind. 265; Mclntire v. Mo- Lain Ditching Ass'n, 40 Ind. 104; O'Reiley v. Kankakee Valley Drain- ing Co., 32 Ind. 169; Piper v. Rhodes, 30 Ind. 309. "There is no hardship or injustice in requiring those who seek to be clothed with the power of imposing taxes upon the property and burdens upon the shoulders of others to com- ply with the plain, unambiguous, and undoubted requirements of the stat- ute which confers the power. The leg- islature has prescribed the conditions upon which these corporate and ex- traordinary powers may be exercised, and it is but reasonable and just that just those who accept the benefits conferred should comply with the con- ditions imposed." Busenback v. At- tica & B. Gravel Road Co., 43 Ind. 265. But see Cicero Hygiene Drain- ing Co. V. Craighead, 28 Ind. 274. , 81 United States. Miller v. Perris Irrigation Dist., 99 Fed. 143, 92 Fed! 263, 85 .'^ed. 693. See also Tulare Ir- rigation Dist. V. Shepard, 185 TJ. S. 1, 46 L. Ed. 773. Arkansas. Whipple v. Tuxworth, 81 Ark. 391, 99 S. W. 86. California. McPhee v. Reclamation Dist. No. 765, 161 Cal. 566, 119 Pac. 1077 (overruling statements to the contrary in Reclamation Dist. No. 537 of Yolo Co. v. Burger, 122 Cal. 442, 55 Pac. 156) ; Reclamation Dist. No. 542 v. ' Turner, 104 Cal. 334, 37 Pac. 1038; Quint v. Hoffman, 103 Cal. 506, 37 Pac. 514, 777; Swamp Land Dist. No. 150 V. Silver, 98 Cal. 51, 32 Pac. 866; Reclamation Dist. No. 124 v. Gray, 95 Cal. 601, 30 Pac. 779; Dean V. Davis, 51 Cal. 406; Reclamation Dist. No. 765 v. McPhee, 13 Cal. App. 382, 109 Pac. 1106. See also Barnes V. Board Sup'rs Colusa Co., 13 Cal. App. 760, 110 Pac. 820. Illinoi?. People v. Dyer, 205 III. 575, 69 iSf. E. 70; Evans v. Lewis, iSi 111. 478, 13 N. E. 246; Keigwin v! ' Drainage Com 'rs Hamilton Tp., 115 111. 347, 5 N. E. 575; Blake v. People,' 109 111'. 504^; Osborn v. People, 103 ill. 224. Missouri. State v. Young, 255 Mo. 627, 164 S. W, 579; State v. Blair, 245 Mo. 680, 151 S. W. 148; State v. Wil- son, 216 Mo. 215, ^74, 115 S. W. 549! Texas. Parker v. Harris Co. Drain. 645 §311] Pbivate Coepobations [Ch. 10 been applied in mandamus proceedings to compel the payment of a warrant issued by a protection district to an individual.'* And a de facto municipal or quasi municipal corporation may levy and col- lect taxes notwithstanding defects in the proceedings for its incor- poration.'^ Dist. No. 2, — Tex. Civ. App. — , 148 S. W. 351. Washinston. Purdin v. Washing- ton Nat. Building, Loan & Investment Ass 'n, 41 Wash. 395, 83 Pac. 723. «2Keeeh v. Joplin, 157 Cal. 1, 106 Pac. 222. 83 CaJifornia. Hamilton v. San Diego County, 108 Cal. 273, 41 Pae. 305. Illinois. People v. Pederson, 220 111. 554, 77 N. E. 251; Gale v. Knopf, 193 111. 245, 62 N. E. 229; Aldis v. South Park Com'rs, 171 111. 424, 49 N. E. 565; School Directors Union School Dist. V. School Directors New Union School Dist., 135 111. 464, 28 N. E. 49; People V. Trustees of Newberry's Es- tate, 87 111. 41; Trumbo v. People, 75 111. 561; Geneva v. Cole, 61 HI. 397. See also Eenwick v. Hall, 84 111. 162. Indiana. Hullikin v. Bloomington, 72 Ind. 161. Kansas. School Dist. No. 2 v. School Dist. No. 1, 45 Kan. 543, 26 Pac. 43; Ritchie v. Mulvane, 39 Kan. 241, 17 Pac. 830; Atchison, T. & S. F. E. Co. v. Wilson, 33 Kan. 223, 6 Pac. 281; Voss v. Union School Dist. No. 11, 18 Kan. 467; Kansas Town & Land Co. v. City of Kensington, 6 Kan. App. 247, 51 Pac. 804. * Michigan. Coe v. Gregory, 53 Mich. 19, 18 N. W. 541; Bird v. Perkins, 33 Mich. 28; Clement v. Everest, 29 Mich. 19. IkUssourt State v. Center Creek Min. Co., 262 Mo. 490, 171 S. W. 356; Black V. Early, 208 Mo. 281, 106 S. W. 1014; Burnham v. Rogers, 167 Mo. 17, 66 S. W. 970; Stamper v. Roberts, 90 Mo. 683, 3 S. W. 214; Kayser v. Trus- tees of Bremen, 16 Mo. 88. New Jersey. Walsh v. Thompson, 87 N. J. L. 49, 93 Atl. 857; Rellstab V. Borough of Belmar, 58 N. J. L. 489, 34 Atl. 885. Oregon. Splonskofsky v. Minto, 62 Ore. 560, 126 Pac. 15. Texas. Crabb v. Celeste Independ- ent School Dist., 105 Tex. 194, 39 L. E. A. (N. S.) 601, Ann. Cas. 1915 B 1146, 146 S. W. 528; El Paso v. Euck- man, 92 Tex. 86, 46 S. W. 25; Gra- ham V. Greenville, 67 Tex. 62, 2 S. W. 742; Davis v. Parks, — Tex. Civ. App. — , 157 S. W. 449; Wilson v. Brown, — Tex. Civ. App. — , 145 S. W. 639; McCrary v. Comanche (Tex. Civ. App.), 34 S. W. 679; Troutman v. McClesky, 7 Tex. Civ. App. 561, 27 S. W. 173. Tax deeds of a de facto city are val- id. Back V. Carpenter, 29 Kau. 349. It is sufSeient to show "a de facto corporation or a de facto extension of the city limits of a municipal cor- poration" in an action against a landowner on a special tax bill for a municipal improvement. Salem v. Young, 142 Mo. App. 160, 125 S. W. 857. A municipal corporation cannot question the legal existence of an- other municipal corporation de facto in a suit involving the right to tax private property. Eiverton & Pal- myra Water Co. v. Haig, 58 N. J. L. 295, 33 Atl. 215. The legal existence of a town can- not be questioned in mandamus pro- ceedings by its school trustees to compel a township trustee to pay over school funds in his hands. Hon v. State, 89 Ind. 249. 646 Ch. 10] De Facto Cobpoeations [§312 §312. Actions by and against — ^In general. A corporation de facto may sue '* and be sued '* in the corporate name. So it may sue or be sued on causes of action arising ex contractu.'® And as a rule, it may maintain an action against anyone who has done it a wrong,*'' and may be held liable in damages for torts committed by 84 United States. Baltimore & P. E. Co. V. Fifth Baptist Ohureh, 137 U. S. 568, 34 L. Ed. 784. Atkanaaa. Whipple v. Tuxworth, 81 Ark. 391, 99. S. W. 86. Calif oraia. First Baptist Ohuroh of San Joa6 v. Branham, 90 Cal. 22, 27 Pae. 60; People's Ditch Co. v. '76 Land & Watei* Co. (Cal.), 44 Pae. 176. Georgia. Georgia Southern & F. R. Qo. V. Mercantile Trust & Deposit Co., 94 Ga. 306, 32 L. R. A. 208, 47 Am St. Eep. 153, 21 S. E. 701. Tninois. School Directors Union School DJst. V. School Directors New Union School Dist., 135 111. 464, 28 N. E. 49; Osborn v. People, 103 111. 224; Willard v. Methodist Episcopal Church of Rockville Centre, 66 111. 55. Indiana. Cicero Hygiene Draining Co. V. Ol-aighead, 28 Ind. 274; Heaston V. Cincinnati & Ft. W. B. Co., 16 Ind. 275, 79 Am. Dec. 430. Michigan. Swartwout v. Michigan Air Line E. Co., 24, Mich. 389. New York. Eaton v. Aspinwall, 19 N. Y. 119, aff'g6Duer 176. North Carolina. See Atlantic, T. & O. E. Co. V. Johnston, 70 N. C. 348. Ohio. Shawnee Commercial & Sav- ings Bank Co. v. Miller, 1 Ohio Cir. Ct. (N. S.) 569. Oregon. Washington Nat. Building, Loan & Investment Ass'n v. Stanley, 38 Ore. 319, 58 L. B. A. 816, 84 Am. St. Rep. 793, 63 Pae. 489. Pennsylvania. Centre & K. Turn- pike Eoad Co. V, McOonaby, 16 Berg. & E. 140. West Virginia. Miller v. Newburg Orrel Coal Co., 31 W. Va. 836, 13 Am. St. Eep. 903, 8 S. E. 600. "Wlether it is a corporation de facto or de jure, does not matter when it sues to enforce a right." OSborn V. People, 103 III. 224. See also oases cited in the follow- ing notes, and in § 304, supra. 86 Arkansas. Whipple v. Tuxworth, 81 Ark. 391, 99 S. W. 86. Georgia. Georgia Southern & F. E. Co. V. Mercantile Trust & Deposit Co., 94 Ga. 306, 32 L. E. A. 208, 47 Am.. St. Eep. 153, 21 S. E. 701. Illinois. School Directors Union School Dist. V. School Directors New Union School Dist., 135 111. 464, 28 N. E. 49. Indiaua, Heaston v. Cincinnati & Ft. W. E. Co., 16 Ind. 275, 79 Am. Dee. 430. West Virginia. Miller v. Newburg Orrel Coal Co., 31 W. Va. 836, 13 Am. St. Eep. 903, 8 S. E. 600. 86 See § 305, supra. 87 Baltimore & P. E. Co. v. Fifth Bapt. Church, 137 U. S. 568, 34 L. Ed. 784. See also: Shawnee Commer- cial & Savings Bank Co. V. Miller, 1 Ohio Cir. Ct. (N. S.) 569, 24 Ohio Cir. Ct. 198; Miller v. Newburg Orrel Coal Co., 31 W. Va. 836, 13 Am, St. Eep. 903, 8 S. E. 600 (dictum). And see cases cited in the following notes. But in American Ball Bearing Co. V. Adams, 222 Fed. 967, the court says that the de facto doctrine applies only "where the parties to be charged have contracted with the claimed cor- poration, or where it acts as a con- duit for a title to real estate, * • » or where the alleged corporation is made defendant in an action of tort, ' ' and that "it is believed the well-con- sidered cases do not go beyond the limits thus stated." 647 § -612] Pbivatb Coepobations [Ch. 10 it.'* And since such a corporation may take and hold property,"^ it may assert its property rights in the courts.®" And has the same right as a corporation de jure to maintain actions to recover or pro. tect its property, or to recover damages for injuries by trespass or otherwise. Thus it may maintain an action of ejectment,®^ or a writ of entry ,®2 or a suit to quiet title,'* or a.n action of unlawful entry and detainer,** or a suit to enjoin wrongful interference with its property or franchises,®* or to enjoin a sale on an execution against another.®^ It may also maintain an action to recover damages for a trespass *'' or, in a proper case, an action will lie to recover damages It is also stated that the statement in Baltimore & P. R. Co. v. Fifth Bap- tist Church, 137 U. S. 568, 34 L. Ed. 784, that a de facto corporation may maintain an action against any one "who has done it a wrong," was merely dictum. 88 See § 314, infra. 88 See § 306, supra. 80 Utah Light & Traction Co. v. United States, 230 Fed. 343. 81 California. Oakland Gas Light Co. V. Dameron, 67 Cal. 663, 8 Pac. 595; Bakersfield Town Hall Asa'n v. Chester, 55 Cal. 98. Illinois. Chiniquy v. Catholic Bish- op of Chicago, 41 111. 148. MJnnesota. East Norway Lake Church V. Froislie, 37 Minn. 447, 35 N. W.' 260. Oregon. Brown v. ■WeT)b, 60 Ore. 526, Ann. C^s. 1914 A 148, 120 Pae. 387; Washington Nat. Building, Loan & Investment Asa'n v. Stanley, 38 Ore. 319, 58 L. E. A. 816, 84 Am. St. Eep. 793, 63 Pae. 489. Tennessee. Augusta Mfg. Co. v. Vertrees, 4 Lea 75. 82 Saunders v. Farmer, 62 N. H.,572. 83 First Baptist Church of San Jose V. Branham, 90 Cal. 22, 27 Pac. 60; Proprietors of Jeffries Neck Pasture V, Inhabitants of Ipswich, 153 Mass. 42, 26 N. E. 239. 94 Board of Education v. Berry, 62 W. Va. 433, 125 Am. St. Eep. 975, 59 S, E. 169. 86 First Baptist Church of San Jose V. Branham, 90 Cal. 22, 27 Pae. 60; Denver & S. Ey. Co. v. Denver City Ey. Co., 2 Colo. 673; Cincin- nati, L. F. & C E. Co. V. Danvillo & V. Ey. Co., 75 111. 113; Franke v. Mann, 106 Wis. 118, 48 L. E. A. 856, 81 N. W. 1014. The regularity of its existence- can- not be inquired into in such an action. Cumberland Telegraph & Telephone Co. V. Louisville Home Tel. Co., 114 Ky. 892, 72 S. W. 4. It may maintain a suit to enjoin the removal of an alleged fixture from its land. State Security Bank v. Hos- kins, 130 Iowa 339, 8 L. E. A. (N. S.) 376, 106 N. W. 764. The lessees of a de facto ditch com- pany may sue to enjoin a city from interfering with the flow of water in the ditch. Denver v. Mullen, 7 Oolo. 345, 3 Pae. 693. A de facto water company may sue to enjoin a diversion of water from a river which" will interfere with its prior appropriation. People's Ditch Co. V, '76 Land & Water Co. (Cal.), 44 Pac. 176. i 96 Dannebroge Gold Quartz Min. Co. V. Aliment, 26 Cal. 286. 97 Golden Gate Mill & Mining Co. V. Joshua Hendy Mach. Works, 82 Cal. 184, 23 Pac. 45; Stockton & L. Gravel Eoad Co. v. Stockton & C. E. Co., 45 Cal. 680; Eondell v. Fay, 32 Cal. 354; Alderman v. School Direct- 648 Ch. 10] De Facto Coepoeations [§312 for conversion,88 qj. ^q enjoin or recover damages for a nuisance,^' or to enjoin or recover damages for infringement of a patent, trade- mark or copyright,^ or for damages for breaking down and passing a toll gate belonging to it,^ or to recover funds wrongfully withdrawn from its treasury by one of its former officers,' or to protect or obtain redress for .the violation of any other right* A de facto corporation which purchases land subject to the ap- parent lien of a void judgment by confession may apply to have such judgment set aside, and the validity of the corporation cannot be questioned in such a proceeding.^ And it is entitled to a writ of ors, 91 111. 179. See Atlantic, T. & O. E. Co. V. Johnston, 70 N. C. 348; Searsburgh Turnpike Co. v. Cutler, 6 Vt. 315, 322. A trespasser sued for ■wrongfully taking property from the possession of a corporation, cannot take advan- tage of defects in its organization. Persse & Brooks Paper Works v. Wil- lett, 24 N. Y. Super. Ct. 131. But in Doboy & Union Island Tel. Co. V. De Magathias, 25 Ped. 697, it was held that, where the constitution gave to the legislature the exclusive power to charter telegraph companies, such a company having only a charter granted by the court could not main- tain an action for damages for injury to one of its cable lines. 98 Remington Paper Co. v. O 'Dough- erty, 65 N. Y. 570; Persse & Brooks Paper Works v. Willett, 19 Abb. Pr. (N. Y.) 416. See also Elizabeth City Academy v. Lindsey, 28 N. C. 476, 45 Am. Dec. 500. 89 Baltimore & P. E. Co. v. Fifth Baptist Church, 137 U. S. 568, 34 L. Ed. 784 (noise and smoke from opera- tions of a railroad). 1 Young Eeversible Lock-Nut Co. v. Young Lock-Nut Co., 72 Fed. 62; American Cable Ey. Co. v. New York, 68 Fed. 227, rev'd on other grounds 70 Fed. 853. See Dental Vulcanite Co. V. Wetherbee, 2 Cliff. 555, 3 Fish Pat. Cas. 87, Fed. Cas. No. 3,810. In American Ball Bearing Co. v. Adams, 222 Fed. 967, it was held that a company which had attempted to incorporate under the laws of Ohio, could not maintain an action for in- fringement of a patent on the theory that it was a de facto corporation, where it was organized entirely by other corporations, which was not au- thorized by the statute, and the statu- tory, requirements as to subscriptions and payment for stock had not been complied with, there being no consid- erations of estoppel or public policy involved. 8 Searsburgh Turnpike Co. v. Cut- ler, 6 Vt. 315. 3 Kwapil V. Bell Tower Co., 55 Wash. 583, 104 Pae. 824. 4 Where a corporation has been chartered by the legislature, and there has been a de facto organization thereof, it may sue to restrain per- sons from acting under an invalid organization attempted to be made thereafter by some of the original in- corporators, acting without authority. Union Water Co. v. Kean, 52 N. J. Eq. Ill, 27 Atl. 1015, rev'd on other grounds 52 N. J. Eq. 813, 46 Am. St. Bep. 538, 31 Atl. 282. A showing that an alleged owner of attached property is a de facto cor- poration is suflScient to entitle it to intervene in the attachment proceed- ings. Petty V. Hayden, 115 Iowa 212, 88 N. W. 339. fiKeyes v. Smith, 67 N. J. L. 190, 51 Atl. 122. 649 § 312] Peivate Cokpokations [Ch. 10 prohibition to restrain a court from appointing a receiver to take possession of its property, where such action is in excess of the court 's jurisdiction.* And proof of a de facto corporation is sufficient where it is sought to set aside a conveyance to it as being in fraud of creditors.' A de facto corporation may remove a case from a state to a federal court on the ground that a federal question is involved.* But it has been held that in order to make a corporation a citizen of the state where it is attempted to be created, so as to give a federal court jurisdiction of an action by or against it on the ground of diverse citizenship, it must be a corporation de jure as distinguished from one de facto.® And a suit brought by a corporation in the federal court on the ground of diverse citizenship will be dismissed, where it appears that the complainant was coUusively organized under the laws of another state, by a corporation which was a citizen of the same state as the defendant, for the sole purpose of creating a case cognizable by the federal courts.^" § 313. — Actions by and against state. All the courts agree that in a direct proceeding by the state to question the right of an asso- ciation to be a corporation, and to oust it from the exercise of cor- porate powers, it is necessary for the association to show that it is a corporation de jure; and to show this, it must show not only that there is a valid law under which it might be a corporation, and that there has been an attempt to organize as a corporation under the law, but also that all the requirements of the law intended as conditions precedent have been substantially complied with.^^ It is not neces- sary, however, to show a de jure corporate existence, even as against the state, when the existence of a corporation is collaterally attacked, as in a suit against the state on a claim in favor of the corporation,^^ or in a criminal prosecution of the corporation by the state.^^ 6 state V. Superior Court Spokane 10 Southern Realty Inv. Co. v. Co., 15 "Wash. 668, 37 L. E. A. Ill, 55 "Walker, 211 U. S. 603, 53 L. Ed. 346; Am. St. Eep. 907, 47 Pae. 31. Miller & Lux v. East Side Canal & 7Lusk V. Eiggs, 70 Neb. 718, 102 Irrigation Co., 211 U. S. 293, 53 Z,. Ed. jj -^ gg 189; Lehigh Min. & Mfg. Co. v. Kelly, ■ ■ .^' ., , „ , ^ 160 U. S. 327, 40 L. Ed. 444. 8 Pacific Railroad Eemoval Cases, .^ g^^ ^^ ^^ Forfeiture, Disso- 115 U. S. 1, 15, 29 L. Ed. 319. ,^,,^^^ ^^^_^ ^^^^^ 9 Gastonia Cotton Mfg. Co. v. "W. L. 12 People v. La Eue, 67 Cal. 526, 8 "Wells Co., 128 Fed. 369, rev'g 118 Fed. Pae. 84; North v. State, 107 Ind. 356, 190. This ease was reversed by the Su- 8 N. E. 159; Coxe v. State, 144 N. Y. preme Court (198 U. S. 177, 49 L. Ed. 396, 39 N. E. 400. See also cases cited 1003), on the ground that the corpora- § 312, supra. tion in question was one de jure. 13 See § 316, infra. 650 Ch. 10] De Facto Cobpobations [§315 § 314. Torts by and against — Torts by. A de facto corporation is as fully liable in an action for damages for wrongs committed by it as a corporation de jure would be, and therefore it is only necessary to show a de facto corporate existence to sustain an action against a corporation for a tort committed by it,^* as an action for negligence causing personal injury or death,^* or for injury to property.^^ §315. — Torts a^fainst. As was shown in a previous section, a corporation de facto, being capable of taking and holding property as against all the world but the state, may maintain, to the same extent as a corporation de jure, an* action for a tort affecting its property, as an action for trespass, or conversion, or nuisance, or infringement of a patent, trade-mark or copyright, and in such an action by a corporation it is no defense to show that for some reason it is not a de jure corporation.^'' Statutes in a number of states specifically provide that one who is sued for an injury to the property of a corporation, or for a wrong done to its interests, shall not be permitted to set up want of its legal organization as a defense.*' And such a provision has been held to 14 See American Ball Bearing Co. v. Adams, 222 Fed. 967. 16 Missouri. Pierce v. Lutesville, 33 Mo. App. 317. New York. See Demarest v. Flack, 16 Daly 337, 11 N. Y. Supp. 83, aff'd 128 N. Y. 205, 13 L. E. A. 854, 28 N. E. 645. Pennsylvania. Pinkerton v. Penn- sylvania Traction Co., 193 Pa. St. 229, 44 Atl. 284. Texas. Oriental Inv. Co. v. Sline, 17 Tex. Civ. App. 692, 41 S. W. 130; The Oriental v. Barclay, 16 Tex. Civ. App. 193, 41 S. "W. 117. West Virginia. Miller v. Newburg Orrel Coal Co., 31 W. Va. 836, 13 Am. St. Eep. 903, 8 S. E. 600. 18 A de facto railroad corporation may be held liable in damages for kill- ing stock. Cincinnati, H. & I. E. Co. V. McDougall, 108 Ind. 179, 8 N. B. 571. 17 See § 312, supra. 18 Florida. Gen. St. 1906, §2687. Iowa. Code 1897, § 1636; State Se- curity Bank v. Hoskins, 130 Iowa 339, 8 L. E. A. (N. S.) 376, 106 N. "W. 764; Quinn v. Shields, 62 Iowa 129, 49 Am. Eep. 141, 17 N. "W. 437. Kentucky. Stat. 1909, §566; Gen. St. 1873, c. 56, §18; Fruin-Colnon Contracting Co. v. Chatterson, 146 Ky. 504, 40 L. E. A. (N. S.) 857, 143 S. W. 6; Warden v. Madi- sonville, H. & E. E. Co., 125 Ky. 644, 101 S. W. 914; Com. v. Licking Valley Bldg. Ass'n No. 3, 118 Ky. 791, 82 S. W. 435; Johnson v. Mason Lodge No. 33, L O. O. F., 106 Ky. 838, 51 S. W. 620; Wood v. Friendship Lodge No. 5, I. O. O. F. of Lexington, 106 Ky. 424, 50 S. W. 836; Walton v. Eiley, 85 Ky. 413, 3 S. W. 605, over- ruling Heinig v. Adams & Westlake Mfg. Co., 81 Ky. 300, 5 Ky. L. Eep. 281, and, by implication, Eobinson & Co. V. Harris, 5 Ky. L. Eep. 928 (ab- stract); Handley v. Stutz, 139 U. S. 417, 35 L. Ed. 227 rev'g on other grounds 41 Fed. 531 (construing Ken- tucky statute). Maryland. Acts 1908, c. 240, § 6, provides that "no certificate of incor- 651 §316] Private Ooepobations [Ch. 10 apply in action brought by a corporation to protect its property from the wrongful acts of the defendant." § 316. Criminal proceedings — Criminal responsibility. A de facto corporation is liable for its infractions of the criminal law, and in a criminal prosecution against a corporation it is only necessary to show its de facto existence.*** And such a showing is generally re- garded as sufficient in criminal prosecutions for making false entries in the books of a banking corporation with intent to defraud,*^ or false statements and reports to the bank commissioner in respect to the poration shall be declared void for formal defects merely; and where an effort has been made in good faith to form under the laws of this state a corporation formable thereunder, neither party to any transaction with it shall deny the legality of its incor- poration or organization in any suit, or proceeding growing out of such trans- action, and 'transaction' shall include any wrong to person or property giv- ing rise to a cause of action or equi- table relief against such corporation." This provision does not apply in an action by an alleged corporation for libel, where the def endajit 's plea does not deny the legality of the plain- tiff's incorporation or its right to sue or be sued when the action was brought, but merely alleges that, by reason of its failure to pay the fee or bonus tax required by statute, it had not yet become incorporated or come into existence at the time of the pub- lication of the alleged libel, and hence was not injured by it. National Shut- ter Bar Co. v. G. F. S. Zimmerman & Co., 110 Md. 313, 73 Atl. 19. It does not apply to cases where there has been no attempt at all to comply with conditions precedent, as, for example, where there has been a failure to pay the bonus tax required by statute. National Shutter Bar Co. V. G. F. S. Zimmerman & Co., 110 Md. 313, 73 Atl. 19. Nebraska. Comp. St. 1911, §2102; Lincoln Butter Co. v. Edwards-Brad- ford Lumber Co., 76 Neb. 477, 107 N. "W. 797. Tennessee. Shannon's Code, § 2064; Pope V. Merchants' Trust Co., 118 Tenn. 506, 103 S. W. 792. 19 It was held to apply in an action to enjoin the removal from a farm owned by a corporation of a gasoline engine set up there by a former owner and claimed by the defendant under a bill of sale of the personal property on the farm executed to him by said former owner. State Security Bank v. Hoskins, 130 Iowa 339, 8 L. E. A. (N. S.) 376, 106 N. W. 764. 20 This rule has been applied to prosecutions on the following charges: violation of local option law; George H. Goodman Co. v. Com., 30 Ky. li. Rep. 519, 99 S. W. 252; selling oil without license; Standard Oil Co. v. Com., 122 Ky. 440, 91 S. W. 1128; failure of railway company to block a frog. Louisville & N. E. Co. v. Com., 154 Ky. 293, 157 S. W. 369. Likewise the validity of its existence cannot be inquired into in such a pro- ceeding. Com. V. Philadelphia, H. & P. E. Co., 23 Pa. Super. Ct. 235. See also Morse v. Com., 129 Ky. 294, 111 8. W. 714; State v. "Western North Carolina E. Co., 95 N. C. 602. ZlMears v. State, 84 Ark. 136, 104 S. W. 1095; State v. Mason, 61 Kan. 102, 58 Pac. 978. 652 Ch. 10] Db Facto Cobpoeations [§ 317 financial condition of a bank/^ or for receiving deposits in an in- solvent bank,'^^ or for the embezzlement or stealing of corporate funds or property by its officers or agents.^* § 317. — Crimes ai^ainst de facto corporations. Criminal offenses may be committed against corporations de facto the same extent as they may be committed against corporations de jure. It is settled, therefore, that it. is only necessary to show a de facto corporate existence in a criminal prosecution for an offense against a corpora- tion,^^ as in a prosecution for destroying a vessel ^^ or burning prop- erty *'' with intent to defraud an insurance company, or for conspiring to defraud life insurance companies,''* or for forgery with intent to defraud a corporation,^' as for forging a check,^" or for passing a raised check on a bank,^^ or for forging or counterfeiting a note of a banking company,^^ or for obstructing the road of a railroad com- 22 State V. M-ason, 61 Kan. 102, 58 Pac. 978. "23 state V. Stevens, 16 S. D. 309, 92 N. W. 420. 24 See §318, infra. 26 Under the Illinois statute, user is prima facie evidence of the legal ex- istence of a corporation in all criminal cases involving such existence, and sufficiently supports the allegations where there is no countervailing proof. People V. Fryer, 266 111. 216, 107 N. E. 134; Graff v. People, 208 111. 312, 70 N". E. 299, aff'g 108 111. App. 168; Waller v. People, 175 HI. 221, 51 N. E. 900; Kiucaid v. People, 139 111. 213, 28 N. E. 1060; Sykes v. People, 132 111. 32, 23 N. E. 391; "Whiteman v. People, 83 111. App. 369. The statute applies as well in the case of foreign as domestic corpora- tions. Graff V. People, 208 111. 312, 70 K. E. 299, aff'g 108 111. App. i68; Kin- caid v. People, 139 111. 213, 28 N. E. 1060. But the mere opinion of a witness that the owner of stolen property did business as a corporation is incom- petent and affords no proof of ; user. People V. Krittenbrink, 269 111. 244, 109 N. E. 1005. 26 United States v. Amedy, 11 Wheat. (U. S.) 392, 6 L. Ed. 502. 27 People V. Schwartz, 32 Cal. 160 People V. Hughes, 29 Cal. 257; Peo pie V. Morley, 8 Gal. App. 372, 97 Pac 84; State v. Byrne, 45 Conn. 273 Graff V. People, 208 111. 312, 70 N. E 299, aff'g 108 111. App. 168. See Jhons V. People, 25 Mich. 499. 28 See State v. Turner, 119 N. C. 841, 25 S. E. 810, holding that it is sufficient to show that the corporation carried on business under the corpo- rate name set forth in the indictment. 29 People V. Prank, 28 Cal. 507; State V. Jackson,- 90 Mo. 156, 2 S. W. 128; State v. Shaw, 92 N. C. 768. SO See State v. Cleavland, 6 Nev. 181. 31 People V. Dole, 122 Cal. 486, 68 Am. St. Rep. 50, 55 Pac. 581. 32 California. People v. Ah Sam, 41 Cal. 645. Georgia. State v. Calvin, E. M. Charlt. 151. New Hampshire. State v. Carr, 5 N. H. 367. New York. People v. Chadwick, 2 Park. Cr. 163. But see Debow v. Peo- ple, 1 Den. 9. 653 §3171 Pbivate Cobpoeations [Ch. 10 pany,'^ or burning a railroad bridge,'* or for injuring a toll gate of a turnpike company,'^ or, generally, for burglary,^* or larceny,*' or robbery,** or embezzlement ** of the property or money of a corpora- OUo. Beed v. State, 15 Ohio 217. See also Sasser v. State, 13 Ohio 453. Wisconsin. State v. Cole, 19 Wis. 129, 88 Am. Dec. 678. But see State v. Newland, 7 Iowa 242, 71 Am. Dec. 444, holding that where the indictment charged that the bank was "a corporation duly author- ized for that purpose by the state of Massachusetts," it was incumbent on the state to prove the fact as al- leged. And see State v. Murphy, 17 E. I. 698, 16 L. E. A. 550, 24 Atl. 473, liolding that it is not enough to show that an act had been passed incor- porating the company,, and that it was doing business under the corporate name, but that it was necessary for the state to prove the organization of the company under said act. In Tennessee it has been held that on a prosecution for passing counter- feit bank notes, or for fraudulently having them in possession, it is not necessary to allege and prove that the bank is a chartered institution where it' is a domestic bank. Owen V. State, 5 Sneed (Tenn.) 493. But the contrary is true in the case of extraterritorial banks, and where the existence of such a banking corpora- tion is alleged, it can be proved only by the production of its charter. Owen v. State, 5 Sneed (Tenn.) 493; Jones v. State, 5 Sneed (Tenn.) 346. Parol evidence cannot be received, if objected to, to show the organiza- tion and existence of a domestic bank, but the memorandum of incorporation, or a certified copy thereof, must be produced. Trice v. State, 2 Head (Tenn.) 591. S3 Com. V. Bakeman, 105 Ma^s. 53. 34 Duncan v. State, 29 Fla. 439, 10 So. 815. 36 Franklin v. State, 85 Ind. 99. 36 Coloradoi Tollif son v. People, 49 Colo. 219, 112 Pac. 794; Perry v. People, 38 Colo. 23, 87 Pac. 796. Illinois. Kincaid v. People, 139 111. 213, 28 N. E. 1060. Indiana. Norton v. State, 74 Ind. 337. Kansas. State v. Thompson, 23 Kan. 338, 33 Am. Eep. 165. Ohio. Burke v. State, 34 Ohio St. 79. South Carolina. State v. Sowell, 85 S. C. 278, 67 S. E. 316. 37 Arkansas. Brown v. State, 108 Ark. 336, 157 S. W. 934. See also Turner v. State, 109 Ark. 332, 158 S. W. 1072. California. People v. Barric, 49 Cal. 342. Colorado. Tollifsou v. People, 49 Colo. 219, 112 Pac. 794; Perry v. People, 38 Colo. 23, 87 Pac. 796. Indiana. Smith v. State, 28 Ind. 321. Hlchigan. See People v. Parsons, 105 Mich. 177, 63 N. "W. 69. Nebraska. Sharp v. State, 61 Neb. 187, 85 N. W. 3,8; Braithwaite v. State. 28 Neb. 832, 45 N. W. 247. North Carolina.. See State v. Grant, 104 N. C. 908, 10 S. E. 554. Oregon. State v. Savage, 36 Ore. 191, 61 Pac. 1128, 60 Pac. 610. Virginia. Shinn v. Com., 32 Gratt. 899. Wisconsin, See Golonbieski v. State, 101 Wis. 333, 77 N. W. 189. 38 People V. Oldham, 111 Cal. 648, 44 Pac. 312. 39 Arkansas. Fleener v. State, 58 Ark. 98, 23 S. W. 1. OaUfomia. People v. Ward, 134 Cal. 301, 66 Pac. 372; People v. Leon- ard, 106 Cal. 302, 39 Pac. 617, 654 Ch. 10] De Facto Coeporations [§318 tion, or for receiving property stolen from it,**" or obtaining money from it by false pretenses,*^ or for trespass upon its property.*^ And the same has been held to be true in a criminal prosecution against a receiver of a corporation for embezzling money coming into hia hands in that capacity,*^ or for stealing bank bills from persons other than the bank issuing them.** § 318. Rights and liabilities of members and officere — In general. The officers and directors of a de facto corporation are subject to all the liabilities and penalties attending to officers and directors duly chosen by a corporation de jure,** including liability under the crimi- nal law,*® and statutory liability for- corporate debts,*'' and their acts are binding when such acts would be within the power of such officers if the corporation were one de jure.*' Directors are not personally liable for acts done by them in the performance of their duties as such, provided they would not be liable if the corporation were one de jure.*' Of course officers and members of a de facto corporation who par- Florida. Thalheim v. State, 38 Fla. 169, 200, 20 So. 938. Georgia. Carson v. State, 16 Ga. . App. 820, 86 S. B. 644. Kentucky. Morse v. Com., 129 Ky. 294, 111 8. "W. 714. Louisiana. State v. CoUens, 37 La. Ann. 607. Michigan. People v. Carter, 122 Mich. 668, 81 N. W. 924. Minnesota. State v. Eue, 72 Minn. 296, 75 N. "W. 235. Mlfisonrl. State v. Cheek, 6-3 Mo. 364. Nebraska. Higbee v. State, 74 Neb. 331, 104 N. "W. 748. Ohio. Calkins v. State, 18 Ohio St. 366, 98 Am. Dec. 121. Washington. State v. Pittam, 32 Wash. 137, 72 Pac. 1042. Wyoming. Edelhoff v. State, 5 Wyo. 19, 36 Pac. 627. 40 Colorado. Miller v. People, 13 Colo. 166, 21 Pac. 1025. Florida. Butler v. State, 35 Fla. 246, 17 So. 551. Nebraska. Bloom v. State, 95 Neb. 710, 146 N. W. 965. Oregon. State v. Adler, 71 Ore. 70, 142 Pac. 344. Rhode Island. State v. Habib, 18 K. I. 558, 30 Atl. 462. Tennessee. State v. Missio, 105 Tenn. 218, 58 S. W. 216. 41 Cowan V. State, 22 Neb. 519, 35 N. W. 405. It is sufficient to show that the com- pany carried on business as such. Queen v. Langton, 2 Q. B. D. 296. 42 Such as cutting a tree belonging to it. White v. State, 69 Ind. 273. 43 Fields V. United States, 27 App. Cas. (D. C.) 433. 44 Johnson v. People, 4 Den. (N. T.) 364; People v. Caryl, 12 Wend. (N. Y.) 547. 46 People V. Leonard, 106 Cal. 302, 39 Pac. 617. 46 See § 317, supra. 47 See § 321, infra. 48 People V. Pederson, 220 111. 554, 77 N. E. 251. 49 An action cannot be maintained against the directors of a de facto railroad company individually to re- strain them from maintaining and op- 6!)5 § 318] Pbivate Coepoeations [Ch. 10 ticipate in wrongful acts by the corporation are personally liable, as well as the corporation, but this is true also in the case of a de jure corporation.^" It has been held in Louisiana that the members of an association claiming to be a corporation must show full compliance with the statutory requirements, or, in other words, a de jure corporate exist- ence, when they seek to defeat an action against them as individuals for wrongful acts, on the ground that such acts were corporate acts.*^ § 319. — Controversies between members or members and officers. It is sufScient to show a de tacto corporate existence when the legal existence of a corporation is in issue in controversies between the members, or between the members and officers, as in a suit in equity by a minority of the stockholders against the corporation and the directors to hold them liable for and to enjoin mismanagement,*^ or in a suit by directors, in the name of the company to compel an ac- counting by an officer,*^ or in a suit by officers or stockholders to wind up the corporation,** or in an action by a stockholder who has been held individually liable for a debt of the corporation by reason of noncompliance with a statute requiring the recording of a certificate showing that the capital stock has been paid in, against the other stockholders for contribution.** Nor can a stockholder and former officer of a de facto corporation maintain a suit to have it declared a partnership and to compel the other members to account to him as copartners.** An officer of a de facto corporation is entitled to be reimbursed for material furnished and money advanced by him in carrying on the business of the corporation.*'' § 320. — Liability on subscriptions to capital stock. The doctrine that a corporation de facto has the same capacity to contract and to erating the road and for damages on B2 Merchants ' & Planters' Line v. the ground that the plaintiff's prop- Waganer, 71 Ala. 581, 585. erty is thereby unlawfully invaded. *3 Grand Eiver. Bridge Co. .y. Eol- Lamming v. Galiisha, 81 Hun (N. Y.) ""S, 13 Colo. 4, 21 Pac. 897. l, 247, 30 N. Y. Supp. 767, aff'd 151 ^l'- S^Ti-outman y. Council Bluffs Street V fi^a ^>; -NT -p iiqp ^^^^ ^ Carnival Co., 142 Iowa 140, Y. 648, 45 N. E. 1132. ^^^ ^ ^ ^^^_ Eaisbeck y. Oester- 50 See chapters on Directors, on OflS- ^j^j^^^.^ ^ ^^^ jj_ q^^ ^j^ Y.) 444. cers and Agents and on Stock and 55 Aspinwall v; Sacchi, 57 N. Y. 331. Stockholders. 56 Bushnell y. Consolidated Ice 51 Vredenburg v. Behan, 33 La. Ann. Maeh. Co., 138 111. 67, 27 N. E. 596. 635 (in this case the action was for 57 Grand Eiver Bridge Co. v. Eol- keeping a vicious animal) . lins, 13 Colo. 4, 21 Pac. 897. 656 Ch. 10] De Facto Cokpobations [§ 321 enforce its contracts as a corporation de jure applies to the subscrip- tions to the capital stock of a corporation after its organization and assumption of corporate powers. If a person subscribes for stock in a corporation after it is organized and not preliminary to organization, and on condition, express or implied, that he shall not be liable until complete organization and de jure incorporation, it is sufQcient to show de facto corporate existence to support an action on the sub- scription. But the contrary is true where the subscription is pre- liminary to organization, and under such circumstances a corporation de jure must be shown unless the subscriber has waived the express or implied condition to this effect, or has estopped himself from main- taining that it has not been performed.^* §321. — Statutory liability for corporate debts. A de facto corporate existence is all that need be shown in order to sustain an action by a creditor of the corporation against a stockholder to en- force his statutory liability for the debts of the corporation,^' as, for example, a statutory liability resulting from a failure of the president and directors to make and record a certificate that the capital stock has been paid,^" or a statutory liability of stockholders in a bank for public funds deposited therein which the bank has failed to pay over on demand.®^ On the other hand, proof of a corporation de facto will not relieve directors and officers from a statutory liability imposed upon them individually for debts and liabilities incurred by them in the name 58 See Chap. 17, infra. The fact that by the terms of the 59 CaJifomia. Eobinson v. Blood, statute the corporate powers of the 151 Cal. 504, 91 Pac. 258. corporation came to an end at the ex- Illinois. Wheeloek v. Kost, 77 111. piration of a year, for failure to com- 296. plete its organization, is no defense to Minnesota. See Gardner v. Minne- such an action. Bearse v. Mabie, 198 apolis & St. L. By. Co., 73 Minn. 517, Mass. 451, 84 N. E. 1015. 76 N. W. 282, afE'd 177 U. S. 332, 44 60 Aspinwall v. Sacchi, 57 N. Y. 331. L. Ed. 793. Proof of a de facto corporation is Nebraska. Porter v. Sherman also sufficient in an action by a stock- County Banking Co., 36 Neb. 271, 54 holder who has been held liable un- N. W. 424. der the statute for a debt of the New York. Eaton v. Aspinwall, 19 corporation to enforce contribution by N. Y. 119, aff'g 6 Duer 176. the other stockholders. Aspinwall v. Ohio. Bowland v. Meader Furni- Sacchi, 57 N. Y. 331. ture Co., "38 Ohio St. 269; Dickason 61 Bank of Midland v. Harris, 114 V. Gi-afton Sav. Bank Co.. 6 Ohio Ch-. Ark. 344. Ann. Cas. 1916 B 1255, 170 Ct. (N. S.) 329. S. W. 61. 657 I Priv. Corp.— 42 § 321] Peivate Cobpobations [Ch. 10 of the corporation before its incorporation or organization is com- pleted, but to escape that liability a corporation de jure must be shown.®* 62 0. S. Richardson Fueling Co. v. derson v. Illinois Trust & Savings Seymour, 235 111. 319, 85 N. E. 496; Bank, 199 111. 422, 65 N. B. 326, aff'g J. W. Butler Paper Co. v. Cleveland, 100 111. App. 461; Loverin v. MeLaugh- 820 111. 128, 110 Am. St. Eep. 230, 77 lin, 161 111. 417, 44 N. E. 99, aff'g 46 N. E. 99, aff'g 121 111. App. 491; Gun- III. App. 373. «9ft CHAPTER 11 Corporations by Estoppel I. GENERAL CONSIDERATIONS i 322. Nature of corporations by estoppel. II. ESSENTIAL REQUISITES OP ESTOPPEL § 323. Necessity for recognition or holding out of pretended corporation. § 324. Necessity for equitable grounds of estoppel and effect of fraud. § 325. Good faith, knowledge, notice and reliance. § 326. Necessity for de facto corporate existence. § 327. Necessity for lawful authority. § 328. Corporations prohibited by statute or public policy. § 329. Organization outside of the state. § 330. Effect of dissolution of corporation — Dissolution before acts constituting estoppel. § 331. — Dissolution after acts constituting estoppel. III. ACTS CONSTITUTING ESTOPPEL AND PERSONS ESTOPPED § 332. General nature of acts constituting estoppel — General considerations as to recognition. § 333. — General considerations as to holding out. § 334. Estoppel of persons contracting or dealing with corporation — ^In general § 335. — Statutory provisions. § 336. — Contracting in name implying corporate existence. § 337. — Conveyances, mortgages and leases. §338. —Bonds. § 339. — Further illustrations. § 340. — Eight to sue menlbers or officers as individuals. § 341. — Estoppel in cases other than actions on contract. § 342. — Limitations upon and exceptions to the rule. § 343. Estoppel of pretended corporation — In general. § 344. — Statutory provisions. § 345. — Use of name importing corporate existence. § 346. — Applications of the rule. §347. — Estoppel in actions other than on contract. § 348. Estoppel of promoters, members and officers of pretended corporation — Estoppel of promoters and members. § 349. — Estoppel of officers. § 350. — Estoppel of members and officers as between themselves or as against the corporation. 659 § 322] Pbivate Coepokations [Ch. 11 § 351. Estoppel of sureties or guarantors for corporation. § 352. Estoppel arising from actions by or against pretended corporation — ^Estop- pel of persons suing or sued by corporation. § 353. — Actions and proceedings by the state. § 354. — Estoppel of corporation. § 355. Estoppel by judgment. § 356. Estoppel as affected by privity of contract or estate — Estoppel resulting from privity. § 357. — Estoppel in favor of persons in privity with corporation or its members. I. GENEEAI, CONSIDERATIONS § 322. Nature of corporations by estoppel. "While as against the state a corporation cannot be created by the mere agreement or other act or omission of private persons, yet as between private liti- gants they may, by their agreements, admissions, or conduct, place themselves where they would not be permitted to deny the fact of the existence of the corporation."^ The corporation, under such circumstances, is often designated a corporation by estoppel.^ There is authority to the effect that the fact that a corporation, or those dealing with it, may be estopped to deny its corporate existence does not make it a citizen of the state in which it was attempted to be created so as to give a federal court jurisdiction of an action by or against it on the ground of diverse citizenship, but in order to make it a citizen of a state it must be a corporation de jure under its laws.^ On the other hand, it has been held that a corporation which holds itself out as being chartered by the laws of a particular state, and recites and shows the charter granted by the legislature of that state and its laws in bonds and mortgages given to secure them as part of its authority to issue them, will not be permitted to deny its exist- ence as a corporation of that state for the purpose of ousting the federal court of that state of jurisdiction oyer a suit to foreclose such a mortgage on the ground that it is not a citizen of the district in which the suit is brought.* 1 Ingle System Co. v. Norris & Hall, S Gastonia Cotton Mfg. Co. v. W. 132 Tenn. 472, 178 S. "W. 1113. See, L. Wells Co., 128 Fed. 369, rev'g 118 to the same effect, Harris v. Inde- Fed. 190. This case was reversed by pendence Gas Co., 76. Kan. 750, 13 L. the Supreme Court, 198 TT. S. 177, 49 E. A. (N. S.) 1171, 92 Pac. 1123. L. Ed. 1003, on the ground that the 2 Brown v. Atlanta Railway & corporation in question was one de Power Co., 113 Ga. 462, 39 S. E. 71; jure. Cason v. State, 16 Ga. App. 820, 86 4 Blackburn v. Selma, M. & M. R. S. E. 644. Co., 2 Flip. 525, Fed. Cas. No. 1,467. 660 Ch. 11] COEPOBATIONS BY EsTOPPEL [§ 323 II. ESSENTIAL REQUISITES OF ESTOPPEL § 323, Necessity for recognition or holding out of pretended cor- poration. The doctrine in relation to estoppel to deny the corporate existence of an association is always based upon some conduct show- ing either recognition of the association as a corporation, or an ex- press or implied representation that it is a corporation, and it cannot apply, therefore, to one who has not dealt with the association, or in any way recognized it as having a corporate existence, or in any way participated in holding it out as a corporation.* Aijd hence there is no estoppel where the association never assumed to be a corporation and the person dealing with it did not deal with it as such.^ For the same reason, a person claiming title to land by adverse possession cannot be estopped to attack a conveyance of the land to a pretended corporation, which he has in no way recognized ; '' and a person who draws a bill of exchange for the accommodation of the B United States. Baxter y. Jones, Fenusylvanla. Tonge v. Item Pub. 185 Fed. 900. Alabama. Christian & Craft Gro- cery Co. V. Fruitdale Lumber Co., 121 Ala. 840, 25 So. 566; Schlosa v. Mont- gomery Trade Co., 87 Ala. 411, 13 Am. St. Eep. 51, 6 So. 360; Marion Sav. Bank v. Dunkin, 54 Ala. 471. Dakota. Dartmouth Sav. Bank v. School Dists. Nos. 6 & 31, 6 Dak. 832, 43 N. W. 822. Illinois. Lawrence v. Nyberg Auto- mobile Works, 162 111 App. 348. Indiana. Farmers ' Mutual v. Eeser, 43 Ind. App. 634, 88 N. E. 349. Missouri. Bradley v. Eeppell, 133 Mo. 545, 54 Am. St. Eep. 685, 34 S. W. 841, 32 S. W. 645; Atchison v. Crawford County Farmers' Mut. Fire Ins. Co., 192 Mo. App. 362, 180 S. W. 438. New York. Bradley Fertilizer Co. V. South Pub. Co., 4 Misc. 172, 23 N. Y. Supp. 675, rev'g 1 Misc. 512, 21 N. Y. Supp. 472, 17 N. Y. Supp. 587, rev'g 14 N. Y. Supp. 917; petition for leave to appeal to court of appeals denied, 6 Misc. 128, 26 N. Y. Supp. 4. Oregon. See MeVicker v. Cone, 21 Ore. 353, 28 Pae. 76. Co., 244 Pa. 417, 91 Atl. 229; Guckert V. Haeke, 159 Pa. St. 303, 28 Atl. 249. Utah. Mitchell v. Jensen, 29 Utah 346, 81 Pac. 165. Washington. Bash v. Culver Gold Min. Co., 7 Wash. 122, 34 Pac. 462. Persons who are not shareholders in a gravel road company and who have never contracted with it as a corporation or otherwise recognized it as such are not estopped to deny its corporate existence in a proceeding instituted by them to enjoin the col- lection of assessments for the con- struction of the road. Piper v. Ehodes, 30 Ind. 309. The owner of a bank which has never pretended to possess or exer- cise corporate powers and has never held itself out as a corporation is not precluded from asserting the truth. Longfellow v. Barnard, 58 Neb. 612, 76 Am. St. Eep. 117, 79 N. W. 255. As to what constitutes recognition or holding out, see §§ 332, 355, infra, 8 Farmers ' Mutual v. Eeser, 43 Ind. App. 634, 88 N. B. 349. 7 Bradley v. Eeppell, 133 Mo. 545, 54 Am. St. Eep. 685, 34 S. W. 841, 32 S. W. 645. 661 § 323] Pkivate Cohpokations [Ch. 11 acceptor is not estopped to deny the corporate existence of a bank by which the bill is discounted without his participation, consent or knowledge.* Nor is the maker of a note estopped to deny the cor- porate existence of an indorsee thereof to whom it is not made payable by name ; ^ nor, at least in the absence of recognition or holding out, is there any estoppel to deny the corporate existence of an associa- tion to defeat its attempt to condemn land under the power of eminent domain, or to collect assessment for benefits to land from the con- struction of its works ; ^^ nor does the doctrine of estoppel apply to a ease where it is sought to hold a corporation liable for goods sold to one of its incorporators long before there was any attempted in- corporation and while he was doing business individually under the name subsequently adopted by the corporation on its formation, and where neither the goods nor their proceeds came into its possession and it never derived any benefit from them.'* §324. Necessity for equitable grounds of estoppel and effect of fraud. The doctrine in relation to estoppel to deny corporate exist- ence by reason of recognition of a pretended corporation by dealing with it rests upon the ground that such dealing creates relations and encourages conduct which there may be difficulty in undoing, or which it would be inequitable to undo.^^ It originates in equitable principles, and therefore it does not apply when it would be in- equitable to apply it, or where equitable principles do not require its application.'^ So it does not apply in the case of fraud,'* as where 8 Marion Sav. Bank v. Dunkin, 54 Ann. Cas. 1913 A 1065, 119 Pae. 229. Ala. 471. If there are any excepticns to the 9 Johnson v. Hanover Nat. Bank, 88 general rule that a persoi. dealing Ala. 271, 6 So. 909. with a body of men assuming to be a lO'Piper V. Ehodes, 30 Ind. 309; Bu- corporation is estopped to deny its senback v. Attiea & B. Gravel Eoad corporate existence, it is only where Co., 43 Ind. 265. there are no facts which make it le- 11 Bradley Fertilizer Co. v. South gaily unjust to forbid its denial. Es- Pub. Co., 4 N. Y. Misc. 172, 23 N. Y. tey Mfg. Co. v. Eunnels, 5-5 Mich. Supp. 675, rev'g 1 N. Y. Misc. 512, 21 130, 20 N. W. 823. N. Y. Supp. 472, 17 N. Y. Supp. 587, "The fact that a creditor has con- rev 'g 14 N. Y. Supp. 917; petition for tracted with a company holding itself leave to appeal to court of appeals out as a corporation does not neces- denied, 6 N. Y. Misc. 128, 26 N. Y. sarily work an estoppel to deny Supp. 4. its corporate existence." Provident 12 Doyle v. Mizner, 42 Mich. 332, Bank & Trust Co. v. Saxon, 116 La. 3 N. W. 968. And see Montgomery v. 408, 40 So. 778. To the same effect, Forbes, 148 Mass. 249, 19 N. E. 342; see Louisiana Nat. Bank v. Hender- Estey Mfg. Co. v. Runnels, 55 Mich. son, 116 La. 413, 40 So. 779. 130, 20 N. W. 823. 14Judah v. American Live Stock 13 Lynch v. Ferryman, 29 Okla. 615, Ins. Co., 4 Ind. 333; Kr»tz v. Paola 862 Ck 11] COEPOBATIONS BY ESTOPPEL [§3^4 the recognition of a pretended corporation is itself brought about by false representations that it is incorporated,^* or by fraudulent dealings carried on for the very purpose of entrapping the party into the action on which such recognition is based.^* But to render it inequitable to hold a person who has dealt with an association as a corporation estopped to set up fraud in its organ- ization, or in obtaining its charter, the fraud must affect him. Thus, the fraudulent organization of a corporation, or fraud in obtaining its charter, cannot be set up as a defense against an action on an acceptance in favor of the corporation,^' nor by a stockholder as a defense to a suit by the trustee of bondholders to foreclose a mort- gage securing their bonds ; ^' nor by parties who contract with the corporation with knowledge of the fraud ; ^' nor by a stockholder who has participated in the formation of the corporation or otherwise recognized its existence as a defense to an action to enforce his sub- scription.^" And a subscriber who participates in obtaining a charter by means of false, feigned and fraudulent subscription lists cannot defend an action by the corporation on his subscription on the ground that it was a party to the fraud.^^ Nor can one who signs as surety Town Co., 20 Kan. 403; Williams v. Hewitt, 47 La. Ann. 1076, 49 Am. St. Eep. 394, 17 So. 496; Nichols v. Buell, 157 Mich. 609, 122 N. "W. 217; Chicago & G. T. R. Co. V. Miller, 91 Mich. 166, 51 N. "W. 981; Doyle v. Mizner, 42 Mich. 332, 3 N. W. 968. 15 Not where one is induced to make conveyances to a company by false representations that it is duly organ- ized and incorporated. Provost v. Morgan 's L. & T. E. Co., 42 La. Ann. 809, 8 So. 584. If a person selling goods to a sup- posed corporation is informed that a certificate of incorporation has been issued, when in fact it is not issued until after the sale, and if he knows nothing to the contrary, he may re- plevin them on discovering the truth after the corporation has made an as- signment for the benefit of its credi- tors. Whiting & Sons Co. v. Barton, 204 Mass. 169, 90 N. E. 528. 16 "If there was no corporation in fact, and if there are no facts which make it legally unjust to forbid its denial, it is difficult to understand what room there is for estoppel." Doyle V. Mizner, 42 Mich. 332, 3 N. W. 968. IT Southern Bank of Georgia v. Wil- liams, 25 Ga. 534. And see Pattison V. Albany Building & Loan Ass'n, 63 Ga. 373; State v. Bailey, 16 Ind. 46, 79 Am. Dec. 405; Jones v. Dana, 24 Barb. (N. Y.) 395. 18 Gunderson v. Illinois Trust & Sav- ings Bank, 100 111. App. 461, aflE 'd 199 111. 422. 19 Cochran v. Arnold, 58 Pa. St. 399, overruling Paterson v. Arnold, 45 Pa. St. 410. 20 Smith V. Heidecker, 39 Mo. 157; Palmer v. Lawrence, 3 Sandf. (N. Y.) 161, afE'd 5 N. Y. 389. See Chap. 17, infra. 21 Graff V. Pittsburgh & S. R. Co., 31 Pa. St. 489. 663 § 324] Pkivatb Cokpoeations [Ch. 11 a note given by a subscriber to tbe stock of a bank in lieu of the cash payment required by the statute set up the illegality of the transac- tion as a defense to an action on a note.** Similarly, fraud in the incorporation is no defense to an action by the holders of corporate bonds to foreclose a mortgage given to secure them.*' And one who intervenes in a suit to foreclose a mort- gage given by a consolidated corporation, on the ground that he has a prior lien, cannot contend that the consolidation was fraudulent because the stock was subscribed by persons who were neither able nor expected to pay their subscriptions.** § 325. Good faith, knowledge, notice and reliance. The estoppel of a person who has dealt with a body as a corporation to deny its eoiporate existence does not depend upon any question of knowledge on his part of its want of incorporation. A person is so estopped by contracting with a pretended corporation, although he may at the time have believed that it was a corporation,** or though he did not know whether it was a corporation or a partnership,*® provided he knew, or was chargeable with knowledge, that it claimed to be a cor- poration.*'' If the incorporation papers are on file, or have been recorded in the proper public office, he has constructive notice of what has been done towards its incorporation, and therefore is chargeable with knowledge that it is not a corporation de jure,** and that it is at least a corporation de facto,*^ when such is the case, and hence cannot hold its officers individually liable or its members or stockholders liable as partners. And he is also estopped, even though such papers have not been filed or recorded, if he has actual knowledge of the attempted incorporation and deals with the association as a corporation.'" But 22 Pine Eiver Bank v. Hodsdon, 46 of knowledge or means of knowledge N. H. 114. was taken into consideration. 23 Gunderson v. Illinois Trust & Sav- 27 See § 332, infra. ings Bank, 100 III. App. 461, aflE 'd 199 28 This for the reason that they 111. 422. have the power to ascertain its char- 24'Venner v. Farmers' Loan & Trust aeter and are presumed to know the Co., 90 Fed. 348, certiorari denied 173 law. Love v. Eamsey, 139 Mich. 47, XJ. S. 704, 43 L. Ed. 1185 (mem. dec). 102 N. W. 279. 25 Booske V. Gulf Ice Co., 24 Fla. 29 Owensboro Wagon Co. v. Bliss, 550; Eansom v. Priam Lodge No. 145, 132 Ala. 253, 90 Am. St. Eep. 907, 31 F. & A. Masons, 51 Ind. 60. So. 81. 26 Toledo Computing Scale Co. v. SOPinkerton v. Pennsylvania Trac- Young, 16 Idaho 187, 101 Pac. 257. tion Co., 193 Pa. St. 229, 44 Atl. 284; But see Field v. Cooks, 16 La. Ann. Guckert v. Hacke, 159 Pa. St. 303, 153, where the absence of a showing 28 Atl. 249. 664 ,Ch. 11] COBPOBATIONS BY EsTOPPEL [§325 if the papers have not been recorded so as to give him constructive notice, and he has no knowledge of the attempted incorporation, and there is nothing to put him on inquiry, then he is not estopped to hold the persons with whom he deals liable individually.'^ To give rise to an estoppel against stockholders or members par- ticipating in holding out a pretended corporation as having a legal existence, it is not necessary that there shall be either bad faith, wil- ful wrong or gross carelessness.*^ Nor is an estoppel prevented by the fact that they act in entire good faith, and in the belief that the corporation is legally organized, since they have the means of knowing the truth which the general public has not.** As in other cases; there must be ignorance of the truth and absence of equal means of knowl- edge of it by the party who claims the benefit of the estoppel,** and he must have relied on and have been induced to act to his prejudice by the misrepresentations of the party against whom the estoppel is invoked.** So it has been held that persons who actively engage in business for profit under the name and pretense of a corporation 31 Tonge V. Item Publishing. Co., 244 Pa. 417, 91 Atl. 229; Pinkerton V. Pennsylvania Traction Co., 193 Pa. St. 229, 44 Atl. 284; New York Nat. Exeh. Bank City of New York v. Crowell, 177 Pa. St. 313, 35 Atl. 613; Guckert v. Haeke, 159 Pa. St. 303, 28 Atl. 249. See also Pittsburg Sheet Mfg. Co. V. Beale, 204 Pa. 85, 53 Atl. 540. 32Canfield v. Gregory, 66 Conn. 9, 33 Atl. 536; Callender v. Painesville & H. E. Co., 11 Ohio St. 516. 33 "It is not his intent, so much as the result of his conduct, which determines his liability." Canfield v. Gregory, 66 Conn. 9, 33 Atl. 536. 84 United States. Harrill v. Davis, 168 Ped. 187, 22 L. E. A. (N. S.) 1153, rev'g 7 Indian T. 152, 15 Ann. Cas. 1134, 104 S. W. 573. Illinois. Kohlsaat v. Gay, 126 111. App. 4, aff'd 223 111. 260. Louisiana. Provost v. Morgan's L. & T. E. Co., 42 La. Ann. 809, 8 So. 584. New York. Card v. Moore, 68 App. Div. 327, 74 N. Y. Supp. 18, aff'd 173 N. Y. 598, 66 N. E. 1105. Pennsylvania. Tonge v. Item Pub. Co., 244 Pa. 417, 91 Atl. 229. Texas. Gordon v. American Patri- ots of Springfield, Illinois, — Tex. Civ. App. — , 141 S. W. 331. If he knows that the representa- tion is false, it cannot be contended that it was calculated to mislead him or that it actually did so. Card v. Moore, 68 N. Y. App. Div. 327, 74 N. Y. Supp. 18, aff'd 173 N. Y. 598, 66 N. E. 1105; Kohlsaat v. Gay, 126 111. App. 4, aff'd 223 111. 260. 36 Harrill v. Davis, 168 Fed. 187, 22 L. E. A. (N. S.) 1153, rev'g 7 In- dian T. 152, 15 Ann. Cas. 1134, 104 S. W. 573. And see Griffin v. Clinton Line Extensioit' E. Co., Fed. Cas. No. 5,816; National Shutter Bar Co. v. G. F. S. Zimmerman & Co., 110 Md. 313, 73 Atl. 19; Tonge v. Item Pub. Co., 244 Pa. 417, 91 Atl. 229. "One who deals with a corporation in such manner as to recognize its existence, and thereby causes it to change its condition to its detriment, is estopped from denying as against it that it has been legally organized. ' ' Spreyne v. Garfield Lodge No. 1 665 § 325] Private Cobpobations [Ch. 11 which they know neither exists nor has any color of existence may not escape individual liability because strangers are led by their pretense to contract with their pretended entity as a corporation.^^ The view is taken that under such circumstances the false repre- sentation is made by the persons who so engage in business rather than by the persons who deal with them, because they have better means of knowledge as to the status of the pretended corporation than the persons who deal with them, and know that it is not a corporation, and because they are not induced to act by any representation of the persons dealing with them that it is a corporation, or by their treat- ment of it as such.''' Nor are they in any way misled by the fact that the contract is made in the corporate name.'* It has also been held that where members of an organization do not actively induce a person dealing with them to believe that they are incorporated, they are not estopped to deny their incorporation, and may escape liability on their preliminary subscriptions to stock as against him on the ground that the certificate of incorporation has not been filed, since the person so dealing with them had the means of ascertaining the truth of the matter by consulting the records, which it was his duty to do for his own protection.'* And it has been held that the filing of a claim for a mechanic's lien against a company in which it is stated under oath that it is a corporation will not estop the claimant from thereafter suing its members on the same demand as partners, where the latter have not been induced thereby to take any action from which they can suffer any injury by proof of the truth.*" United Slavonian Benev. Society, 117 not participate in the conduct of the 111. App. 253. business or the making of the debt 36 Harrill v. Davis, 168 Fed. 187, sued on, or who did not know of the 22 L. E. A. (N. S.) 1153, rev'g 7 In- failure to do anything necessary to dian T. 152, 15 Ann. Gas. 1134, 104 S. perfect the incorporation. Magnolia W. 573; Cottentin v. Meyer, 80 N. J. Shingle Co. v. J. Zimmem's Co., 3 L. 52, 76 Atl. 341. Ala. App. 578, 58 So. 90. See also The benefit of an estoppel cannot be Harrill v. Davis, 168 Fed. 187, 22 L. claimed by one who actively partiei- E. A. (-N. S.) 1153, rev'g 7 Indian T. pates in contracting the debt sued on 152, 15 Ann. Cas. 1134, 104 S. W. 573. in the name of the pretended corpora- 37 Harrill v. Davis, 168 Fed. 187, tion, in which he claims to be merely 22 L. E. A. (N. S.) 1153, rev'g 7 In- a stockholder, if he knew at the time dian T. 152, 15 Ann. Cas. 1134, 104 that the company had no real exist- S. W. 573. ence as a corporation. Magnolia Shin- 38 Cottentin v. Meyer, 80 N. J. L. gle Co. V. J. Zimmern 's Co., 3 Ala. 52, 76 Atl. 341. App. 578, 58 So. 90. 39 Tonge v. Item Pub. Co., 244 Pa. There is no individual liability, 417, 91 Atl. 229. however, as to stockholders who did 40 Harrill v. Davis, 168 Fed. 187 666 Oh. 11] COBPOKATIONS BY ESTOPPBL [§ 325 On the other hand, it has been held that every person contracting with the corporation is conclusively presumed to do so in view of the statements in the recorded certificate of incorporation, and that a promoter and stockholder who signs such a certificate containing a statement that a certain per cent, of the stock has been paid in is estopped to contend that there was no valid incorporation because such payment had not in fact been made, in a suit against him by a trustee in insolvency to recover assessments upon his stock. Under such circumstances it is immaterial whether his acts and representa- tions were ever in fact known to or relied on by the creditors repre- sented by the trustee.*^ The principle of estoppel cannot be invoked in favor of a person who is himself a member of the association and therefore must be presumed to know that it is no corporation, in a case where the con- tract in question does not purport to be made by a corporation or in a corporate name.*^ And where partners agree to carry on the part- nership business under a corporate name, and do not intend to form a corporation but rather to stop short of doing so, they are not estopped to deny incorporation as between themselves though some of the statutory steps to incorporate have been taken.*^ Nor can one of the promoters of a company, who is cognisant of all the facts, and who knows that the necessary legal steps have not been taken, con- tend that such company is estopped, as against him, to deny its cor- porate existence by the use of a corporate name in its dealings with him.** Similarly, the general attorney of a corporation cannot in- voke the principle of estoppel for the purpose of holding it liable on a contract made with him before payment of the franchise fee, since it must be presumed that he knew that the fee had not been paid and therefore that the contract was unlawful.*^ "Where suit is brought against a partnership as a corporation, and the only service of process is made upon one of the members of the firm as an officer of the alleged corporation, the partners are under no obligation to inform the plaintiff of his mistake, and the fact that they fail to do so will not estop them from enjoining a sale of partnership property under the levy of an execution issued on a 22 L. E. A. (N. 8.) 1153, rev'g 7 In- 43 Card v. Moore, 68 N. Y. App. dian T. 152, 15 Ann. Cas. 1134, 104 S. Div. 327, 74 N. Y. Supp. 18, aff'd 173 W. 573. N. Y. 598, 66 N. E. 1105. 41 Canfield v. Gregory, 66 Conn. 9, 44 Bash v. Culver Gold Min. Co., 7 33 Atl. 536. Wash. 122, 34 Pac. 462. 42 White V. Belief ontaine Lodge, I. 45 Wright v. St. Louis Sugar Co., O. O. F., 30 Mo. App. 682. 146 Mich. 555, 109 N. W. 1062. 667 §325] Peivate Coepoeations [Ch. 11 default judgment in such action against the supposed corporation. In such ease there is no duty on the part of the partners to speak and no right on the part of their adversary to rely on their silence, and hence the essential elements of an estoppel by silence are lacking.*® The fact that a company which is sued as a corporation does not plead nul tiel corporation, or otherwise disclose the fact that it is a partnership, is not ground for permitting the plaintiff, after re- covering judgment against it as a corporation, to enforce the same against its members as partners, since the statute requires the cer- tificate of incorporation to be recorded, and therefore he could have discovered the truth by examining the records.*'' § 326. Necessity for de facto corporate existence. The authorities are in conflict as to whether there may be an estoppel to deny the legal incorporation of an association which is not a corporation de facto. Some courts hold that there may be an estoppel even under such circumstances.*' 46 Baxter v. Jones, 185 Fed. 900. 47 Pittsburg Sheet Mfg. Co. v. Beale, 204 Pa. 85, 53 Atl. 540. 48 United States. In re Western Bank & Trust Co., 163 Fed. 713. Alabama. This appears to be the rule in Alabama, though there are ex- pressions in some of the cases which might lead to a contrary conclusion. Thus, in Christian & Craft Lumber Co. V. Fruitdale Lumber Co., 121 Ala. 340, 25 So. 566, it is held that where there is no bona fide purpose and effort to organize a real corporation, but the purpose is to put forward a mere sham, the pretended existence of a corporation is open to collateral at- tack as a mere fraudulent device, and that "the pretended corporate entity is to be taken as nonexistent except as to persons who have contracted with it as a corporation in such way as to estop themselves to show the fraud." In Schloss & Kahn v. Mont- gomery Trade Co., 87 Ala. 411, 13 Am. St. Eep. 51, 6 So. 360, it is held that the interposing of a plea of nul tiel corporation in an action by a corpora- tion imposes upon it the necessity of proving that it is a corporation de jure or de facto, "or else to show an estoppel which would operate to pre- clude the defendant from denying the plaintiff's corporate existence." In McDonnell v. Alabama Gold Life Ins. Co., 85 Ala. 401, 5 So. 120, it was held that stockholders were estopped to deny the constitutionality of the statute under which the corporation was organized and had carried on business as a de facto corporation for eighteen years, in an action by credi- tors to enforce their personal liabil- ity. In City of Greenville v. Greenville Water Works Co., 125 Ala. 625, 27 So. 764 and First Nat. Bank of Decatur v. Henry, 159 Ala. 367, 49 So. 97, the rule as to the estoppel of one who has dealt with a corpora- tion is stated generally, and is not limited in its application to de facto corporations. In Owensboro Wagon Co. V. Bliss, 132 Ala. 253, 90 Am. St Eep. 907, 31 So. 81; Harris v. Gate way Xiand Co., 128 Ala. 652, 29 So 611; Bibb v. Hall, 101 Ala. 79, 14 So 98; Cory v. Lee, 93 Ala. 468, 8 So. 6! Snider 's Sons' Co. v. Troy, 91 Ala 668 Ch. 11] COEPOEATIONS BY EsTOPPEL [§326 On the other hand, in a number of jurisdictions it has been held, or at least intimated or assumed, that the doctrine of estoppel can- not be invoked unless the corporation has at least a de facto exist- 224, 11 L. E. A. 515, 24 Am. St. Eep. 887, 8 So. 658, and Central Agr. & Mech. Ass'n v. Alabama Gold Life Ins. Co., 70 Ala. 120, the rule is stated to be that persons who contract with a de facto corporation are estopped to deny the legality of its existence. But it is to be noted that in all of these cases a de facto corporation was shown, and in none of them is it stated that there can be no estoppel unless there is a de facto corporation. Moreover most, if not all of them, treat the rule of estoppel as being separate and distinct from that pro- hibiting a collateral attack upon the existence of a corporation de facto. See also, in this connection, Lehman, Durr & Co. v. Warner, 61 Ala. 455. Callfoniia. Fresno Canal & Irri- gation Co. V. Warner, 72 Cal. 379, 14 Pac. 37. Louisiana. Tulane Improvement Co. V. S. A. Chapman & Co., 129 La. 562, 56 So. 509. And see Bond & Bras- well V. Scott Lumber Co., 128 La. 818, 55 So. 468; Weil v. Leopold Weil Building & Improvement Co., 126 La. 938, 955, 53 So. 56. Minnesota. Gardner v. Minneapo- lis & St. L. Ey. Co., 73 Minn. 517, 76 N. W. 282, aff'd 177 U. S. 332, 44 L. Ed. 793; Minnesota Gas-Light Econo- mizer Co. v. Denslow, 46 Minn. 171, 48 N. W. 771. IMissouri. Eeinhard v. Virginia Lead Min. Co., 107 Mo. 616, 28 Am. St. Eep. 441, 18 S. W. 17; Camp v. Byrne, 41 Mo. 525, 535. But see Dou- thitt v. Stinson, 63 Mo. 268. A fraternal benefit association is not estopped to deny its liability on a benefit certificate issued by another society, previously dissolved, by reason of the fact that before the secretary of state issued a certified copy of its articles it assumed the payment of such certificate and accepted dues from the beneficiary. Sloan v. Loyal Fraternal Home Ass'n, 139 Mo. App. 443, 123 S. W. 57. South Dakota. Building & Loan Ass'n of Dakota v. Chamberlain, 4 S. D. 271, 56 N. W. 897, holds that a member of a building and loan asso- ciation cannot set up that the stat- ute under which it is organized is unconstitutional as a defense to an action on a note and to foreclose a mortgage given by him for money borrowed from it. The court refers to the doctrine of estoppel but says that in so far as the question arises in that jurisdiction, it is settled by the statute providing that the due incorporation of any company claim- ing in good faith to be a corporation and doing business as such shall not be inquired into collaterally in any private suit to which such de facto corporation may be a party, thus ap- parently holding that such a corpo- ration is one de facto. * Vermont. Corey v. Morrill, 61 Vt. 598, 17 Atl. 840. "One who deals with a corporation as existing in fact," said Mr. Justice Gray, in the Supreme Court of the United States, "is estopped to deny as against the corporation that it has been legally organized." Close v. Glenwood Cemetery, 107 TJ. S. 466, 477, 27 L. Ed. 408. And see, to the same effect, McGowau v. American Pressed Tan Bark Co., 121 U. S. 575, 593, 30 L. Ed. 1027. Here there is clearly no requirement that the cor- poration shall have a de facto exist- ence as such. And certainly a de facto corporate existence is not nec- essary in order that a stockholder in a pretended corporation may be es- 669 § 326j Pbivate Coepoeations [Ch. 11 ence.** And there are also numerous holdings to the effect that per- sons contracting with an association as a corporation may hold its topped to deny its existence in a suit by a receiver or assignee in bank- ruptcy to enforce his statutory lia- bility. It was said by Mr. Justice Swayne, in such a ease in the Su- preme Court of the United States: "Where a shareholder of a corpora- tion is called upon to respond to a liability as such, and where a party has contracted with a corporation, and is sued upon the contract, neither is permitted to deny the existence or the legal validity of such corporation. To hold otherwise would be contrary to the plainest principles of reason and of good faith, and involve a mockery of justice. Parties must take the consequences of the position they assume. They are estopped to deny the reality of the state of things which they have made appear to ex- ist, and upon which others have been led to rely. Sound ethics require that the apparent, in its effects and conse- quences, should be as if it were real, and the law properly so regards it." Casey v. Galli, 94 U. S. 673, 680, 24 L. Ed. 168. As to the necessity for a valid law authorizing incorporation for the pur- poses in question, see § 327, infra. 49 United States. In re Menden- hall. Fed. Gas. No. 9,425; Griffin v. Clinton Line Extension E. Co., Fed. Cas. No. 5,816. Colorado. Jones v. Aspen Hard- ware Co., 21 Colo. 263, 29 L. E. A. 143, 52 Am. St. Eep. 220, 40 Pae. 457. See also Humphreys v. Mooney, 5 Colo. 282. In Bates v. Wilson, 14 Colo. 140, 24 Pac. 99, the court in speaking of persons who participated in the or- ganization of a corporation, acted as its officers, ar.d made conveyances to it, said: "Are they not estopped from denying the existence of the body corporate as a corporation de facto? This question must be answered in the afELrmative. " From this language it perhaps might be inferred that they were estopped though there was not even a corporation de facto, but the court goes on to hold that there was a corporation de facto. Illinois. Imperial Bldg. Co. v. Chi- cago Open Board of Trade, 238 111. 100, 136 111. App. 606; American Loan & Trust Co. V. Minnesota & N. W. E. Co., 157 ni. 641, 42 N. E. 153; Bushnell v. Consolidated lee Maeh. Co., 138 III. 67, 74, 27 N. E. 596; Win- get V. Quincy Building & Homestead Ass'n, 128 111. 67, 84, 21 N. E. 12, aff'g 29 111. App. 173; Wheelock v. Kost, 77 111. 296; Illinois Grand Trunk E. Co. V. Cook, 29 111. 237. In Pe- true V. Wakem & McLaughlin, 99 111. App. 463, it was held that the plain- tiff was not estopped to deny the cor- porate existence of a company under the name of which the defendant did business and to hold him individually liable because he did business with him under that name, where nothing had been done towards incorporating except to take out a license to open books for stock subscriptions. Indiana. Snyder v. Studebaker, 19 Ind. 462, 81 Am. Dec. 415; Gilles- pie V. Ft. Wayne & S. E. Co., 17 Ind. 243; Heaston v. Cincinnati & Ft. W. E. Co., 16 Ind. 275, 79 Am. Dec. 430; Harriman v. Southam, 16 Ind. 190. Maryland. National Shutter Bar Co. V. G. F. S. Zimmerman & Co., 110 Md. 313, 73 Atl. 19; Maryland Tube & Iron Works v. West End Improve- ment Co., 87 Md. 207, 39 L. E. A. 810, 39 Atl. 620. Michigan. Baton v. Walker, 76 Mich. 579, 6 L. E. A. 102, 43 N. W. 638; Merchants' & Manufacturers' Bank v. Stone, 38 Mich. 779; Swart- 670 Ch. 11] COEPOBATIONS BY EsTOPPEL [§327 members individually liable where it is not even a corporation de facto.50 § 327. Necessity for lawful authority. Some courts have held, on the theory that the doctrine of estoppel is limited to de facto cor- porations, that there is no estoppel to deny the existence of a pre- tended corporation, where there is no law under which it might exist, or, what amounts to the same thing, if the statute under which it claims to exist is unconstitutional.*^ wout V. Michigan Air Line R. Co., 24 Mich. 389. Ifebraska. Abbott v. Omaha Smelt- ing & Refining Co., 4 Neb. 416. New Jersey. "A person who en- ters into a written contract which purports to be made with a corpora- tion is not thereby estopped in a case where there is no colorable organiza- tion of a de facto corporation, from showing that the corporate name was a name under which the individuals with whom he dealt, were acting." Cottentin v. Meyer, 80 N. J. L. 52, 76 Atl. 341. See also Stout v. Zulick, 48 ]Sr. J. L. 599, 7 Atl. 362. New York. See Whitford v. Laid- ler, 94 N. Y. 145, 151, 46 Am. Eep. 131, rev'g 25 Hun 136. Ohio. In Shawnee Commercial & Savings Bank Co. v. Miller, 24 Ohio Cir. Ct. 198, 1 Ohio Cir. Ct. (N. S.) 569, it is said by way of dictum that: "Estoppel as to corporate existence seems to be that the corporation is obliged to prove only a de facto ex- istence, and need not prove the details of incorporation," citing LeonardsvUle Bank v. Willard, 25 N. Y. 574. Oregon. See Jones v. Hale, 32 Ore. 465, 52 Pac. 311. Tennessee. In Euohs v. Athens, 91 Tenn. 20, 20 Am. St. Hep. 858, 18 S. W. 400, it was held that bonds is- sued by a municipality which was not even a corporation de facto were void in the hands of bona fide holders. Texas. See Empire Mills v. Alston Grocery Co., 4 Willson Civ. Cas. Ct. App. §221, 12 L. B. A. 366, 15 S. W. 200. 60 This has been held to be true by some of the courts which have held that a person dealing with an as- sociation as a corporation may be estopped to deny its legal existence even though it is not a corporation de facto. See § 327, infra. 61 United States, In re Menden- hall, Fed. Cas. No. 9,425. California. In Brandenstein v. Hoke, 101 Cal. 131, 35 Pac. 562, it was held that the board of reclama- tion fund commissioners of a levee district were not estopped to set up, as a defense to mandamus proceed- ings to compel them to levy a tax to pay the bonds of such district, that such bonds were void because such district was organized under an un- constitutional statute, though they had retained the benefit derived from the proceeds of their sale and had paid interest upon them for several years. Colorado. Humphreys v. Mooney, 5 Colo. 282. See also Jones v. Aspen Hardware Co., 21 Colo. 263, 29 L. E. A. 143, 52 Am. St. Eep. 220, 40 Pac. 457. But see Cowell v. Colorado Springs Co., 3 Colo. 82, aff'd 100 U. S. 55, 25 L. Ed. 547. Illinois. In Imperial Bldg. Co. v. Chicago Open Board of Trade, 238 111. 100, 87 N. E. 167, 136 111. App. 606, 671 § 327] Pbivate Coepoeations [Ch. 11 It has been said that this rule "is based on the principle that the law will not recognize nor lend its aid to the organization as a de facto corporation where the law does not authorize or where it for- bids such corporation," and that it is "analogous to ultra vires acts it was held that a lessee of a corpo- ration, against whom a judgment for rent had been entered by confession on a warrant of attorney in the lease, was not estopped to defend against it on the ground that the corporation was organized for the purpose of ac- quiring and holding real estate, and that the organization of corporations for that purpose was forbidden by statute. The court does not draw any distinction between corporations or- ganized for a forbidden purpose and cases where there is no law authoriz- ing the corporation, and lays down the broad rule that there is no estop- pel where there is no law authorizing the incorporation. There was no ques- tion of the constitutionality of the statute involved, but the court quotes approvingly from Heaston v. Cincin- nati & Tt. W. E. Co., 16 Ind. 275, 79 Am. Dec. 430, which holds that there is no estoppel where the corporation is organized under an unconstitutional statute. And in Hossack v. Ottawa Development Ass'n, 244 111. 274, 91 N. E. 439, the court says that the Im- perial Bldg. Co. case, supra, and the authorities therein reviewed, hold that "if there is no law authorizing such organization there is no corpo- ration de facto and no estoppel to deny the corporate existence." But in Winget v. Quincy Building & Home- stead Ass'n, 128 111. 67, 21 N. E. 12, afe'g 29 111. App. 173, it was held that a member of a building associ- ation, in a suit to enjoin a sale under a trust deed given by him to secure notes for money loaned to him by the association, was estopped to con- tend that the statute under which the aasociation was organized was uncon- stitutional. And in Dows v. Naper, 91 111. 44, and McCarthy v. Lavasche, 89 111. 270, 31 Am. Eep. 83, it was held that even though the provisions of a charter are unconstitutional, if a stockholder has acted under it, and thereby induced or contributed to the loss of a creditor, he is estopped to deny his liability under its provisions. These cases are not referred to in Im- perial Bldg. Co. v. Chicago Open Board of Trade, supra, though they are ap- parently in conflict with it. The court does, however, distinguish Pat- terson V. Northern Trust Co., 230 111. 334, 82 N. B. 837, aff'g 132 111. App. 208, on the ground that the estoppel in that case was predicated on the complainant's previous attitude in the litigation, and that he would not be permitted to assume an attitude incon- sistent with that previously assumed therein. In Lincoln Park Chapter No. 177, R. A. M. v. Swatek, 204 111. 228, 68 N. E. 429, aff'g 105 111. App. 604, it was held that a stockholder who had participated in a dividend could not thereafter maintain a bill to have the association declared a partnership and to have the same dis- solved, on the ground that the statute did not permit incorporation for the purposes set forth in its charter. In this case, however, the purpose of the corporation, as stated in its articles, was not unlawful, but it was con- tended that its real purpose was to deal in real estate. See also "Walker V. Taylor, 252 111. 424, 96 N. E. 1055; Eoby V. Title Guarantee & Trust Co., 166 HI. 336, 46 N. E. 1110. Indiana. Snyder v. Studsbaker, 19 Ind. 462, 81 Am. Dec. 415, overruling Evansville, I. & Q, Straight Line E. 672 Ch. 11] COBPOBATIONS BY EsTOPPEL [§327 and contracts of the corporation wholly beyond and outside the general scope of its corporate powers and entirely foreign to the objects and purposes of its creation," and which "are held void as against public policy and incapable of being validated and enforced Co. V. Evansville, 15 Ind. 395; Gilles- pie V. Ft. Wayne & S. E. Co., 17 Ind. 243; Heaston v. Cincinnati & Ft. W. E. Co., 16 Ind. 275, 79 Am. Dec. 430; Harriman v. Southam, 16 Ind. 190; Indiana Bond Co. v. Ogle, 22 Ind. App. 593, 72 Am. St. Eep. 326, 54 N. E. 407. See also Jennings v. Dark, 175 Ind. 332, 33 L. E. A. (N. S.) 123, 92 N. E. 778; Williams v. Franklin Town- ship Academical Ass'u, 26 Ind. 310; Jones V. Cincinnati Type Foundry Co., 14 Ind. 89; Farmers' Ins. Co. v. Bor- ders, 26 Ind. App. 491, 60 N. E. 174. Kentucky. See Bryan v. Board of Education of Kentucky Annual Con- ference, 90 Ky. 322, 16 S. W. 276. Michigan. This rule is apparently adopted by the court in Eaton v. Walker, 76 Mich. 579, 6 L. E. A. 102, 43 N. W. 638, where the court quotes from Heaston v. Cincinnati & Ft. W. E. Co., 16 Ind. 275, 79 Am. Dec. 430, and says that the same rule was laid down by implication in Swart- wout V. Michigan Air Line E. Co., 24 Mich. 389. In Burton v. Schildbach, 45 Mich. 504, 8 N. W. 497, it was held that a corporation organized under an unconstitutional statute could not enforce a mortgage given to it. And in Skinner v. Wilhelm, 63 Mich. 568, 30 N. W. 311, that the receiver of a mutual insurance company incorpo- rated under an unconstitutional stat- ute could not recover on a premium note. In Hurlbut v. Britain & Whee- ler, 2 Doug. 191, it was held that the assignee of a mortgage executed by a bank, which was organized under an unconstitutional statute, could not maintain an action to foreclose it; and in Green v. Graves, 1 Doug. 351, that the receiver of a bank organized under such a statute could not recover on a note executed to it. But see Niles V. Benton Harbor-St. Joe Eail- way & Light Co. 154 Mich. 378, 117 N. W. 937, holding that a consolidated corporation cannot assert that there was no law authorizing the consoli- dation in an action against it to en- force a liability of one of the consolidating companies. Nor will a consolidated corporation be permitted to assert that the consolidation was illegal and void because not author- ized by the laws under which the con- solidating companies were organized for the jpurpose of avoiding a liability of one of the latter companies. Shad- ford V. Detroit, Y. & A. A. E. Co., 130 Mich. 300, 89 K. W. 960. And in Wyandotte Elec. Light Co. v. Wyan- dotte, 124 Mich. 43, 82 N. W. 821, it was held that a city granting a fran- chise to a corporation is estopped to deny its legality on the ground that it was organized under a general stat- ute instead of under a statute speci- fically providing for the incorporation of companies of the kind in question. Missouri. As to the trend of the decisions in this state see note 55, infra, this section. Ohio. The question does not ap- pear to have been squarely decided in this state. In Gaff v. Flesher, 33 Ohio St. 107, 453, the court held that if it were admitted that there could be no estoppel under such circumstances, there was a valid law under which the corporation in question could have been formed. Eaccoon Eiver Nav. Co. V. Eagle, 29 Ohio St. 328, was an action to recover upon a stock subscription. The plaintiff claimed to be incorporated under an act to au- I Priv. Corp.— 43 673 §327] Pkivate Cobpoeations [Ch. 11 by having acted under them. ' ' ^^ And another reason sometimes given for so holding is that "the estoppel arises upon matter of fact only, and not upon matter of law, ' ' ^^ or, in other words, ' ' goes to the mere de facto organization, not to the question of legal authority to make an organization. ' ' ^* This view, however, cannot be sustained on principle, and is con- trary to the weight of authority. The doctrine of estoppel to deny incorporation does not depend at all on the right to be a corporation, nor on the existence of a corporation de facto, and there'fore persons who hold themselves out as a corporation, or who deal with a pre- tended corporation, may be estopped to deny incorporation, whether there is any valid law authorizing such a corporation or not.^* For thorize incorporation for the purpose of improving any stream which had been declared navigable by any law of the state. There was no law de- claring the particular river which the plaintiff was incorporated to improve to be navigable, and it was held that the defendant was not estopped to deny the legality of its incorporation on this ground. The holding in this case is explained in Society Perun v. Cleveland, 43 Ohio St. 481, 3 N. E. 357, and in Gaff v. Flesher, 33 Ohio St. 107. In Mansfield, C. & L. M. E. Co. v. Stout, 26 Ohio St. 241, it is held that a subscriber to the stock of a railway company, who had no knowl- edge of the progress of proceedings for its consolidation with another com- pany, and who had not recognized the legal existence of the consolidated company, might deny such existence, in an action brought by it to recover on his subscription, on the ground that the consolidation was unauthor- ized because the road of the consoli- dating company was not made or in process of construction. But of course, under such circumstances, the essential elements of an estoppel were wanting. 52 Imperial Bldg. Co. v. Chicago Open Board of Trade, 238 111. 100, 87 N. E. 167, 136 111. App. 606. 53 Suydjer v. Studebaker, 19 Ind. 462, 81 Am. Dec. 415, quoted with ap- proval and followed in Imperial Bldg. Co. V. Chicago Open Board of Trade, 238 111. 100, 87 N. B. 167, 136 111. App. 606. B4Heaston v. Cincinnati & Ft. W. E. Co., 16 Ind. 275, 79 Am. Dec. 430, quoted with approval in Eaton v. Walker, 76 Mich. 579, 6 L. E. A. 102, 43 N. W. 638. See also Humphreys v. Mooney, 5 Colo. 282; Jones v. Cincin- nati Type Foundry Co., 14 Ind. 89. 6B United States. See In re West- ern Bank & Trust Co., 163 Fed. 713. Alabama. National Commercial Bank v. McDonnell, 92 Ala. 387, 9 So. 149; McDonnell v. Alabama Gold Life Ins. Co., 85 Ala. 401, 5 So. 120. G-eorgia. Brown v. Atlanta Railway & Power Co., 113 Ga. 462, 39 S. E. 71. See Georgia Southern & F. E. Co. v. Mercantile Trust & Deposit Co., 94 Ga. 306, 32 L. R. A. 208, 47 Am. St. Eep. 153, 21 S. E. 701. Louisiana. This rule applies in ac- tions by the corporation against its stockholders. American Homestead Co. V. Linigan, 46 La. Ann. 1118, 15 So. 369; East Pascagoula Hotel Co. v. West, 13 La. Ann. 545. But in Work- ingmen's Accommodation Bank v. Converse, 29 La. Ann. 369, it is held that there is no estoppel in actions against third persons, as in an action by the corporation on a bond given by 674 Ch. 11] COBPOEATIONS BY EsTOPPEL [§327 example, a stockholder in a pretended corporatipn is estopped to set up the unconstitutionality of the statute under which corporate exist- ence has been claimed, for the purpose of escaping constitutional or one of its employees for the faithful performance of his duties. This hold- ing is followed in Workingmen 's Bank v. Converse, 33 La. Ann. 963, and Hincks v. Converse, 37 La. Ann. 484, but is criticised in American Homestead Co. v. Linigan, supra. Maine. See McClinch v. Sturgis, 72 Me. 288. Minnesota. Gardner v. Minneapo- lis & St. L. Ey. Co., 73 Minn. 517, 76 N. W. 282, afl'd 177 U. S. 332, 44 L. Ed. 793. IMississippi. See dictum in Parga- son V. Oxford Mercantile Co., 78 Miss. 65, 27 So. 877, to the effect that ' ' even if a concern should be carried on ap- parently as a corporation, without any charter at all, it cannot be that its creditors would be powerless to collect from it, or that it could not pay its debts." Missouri. St. Louis v. Shields, 62 Mo. 247. In Atchison v. Crawford County Farmers' Mut. Pire Ins. Co., 192 Mo. App. 362, 180 S. "W. 438, it was held that a mutual fire insurance company was not estopped to deny its corporate existence in an action on a policy issued by it, where at the time of its organization there was no law authorizing its incorporation, and there was no showing that after the passage of such a law it ever attempted to incorporate or held itself out to be a corporation. In Douthitt V. Stinson, 63 Mo. 268, it was held that a deed to a pretended corporation was a nullity and could not give rise to an estoppel, where there was no spe- cial charter or general law authorizing the incorporation. In Farmers Bank v. Garten, 34 Mo. 119, the question of the constitutionality of the act chartering a bank was considered in aii action brought by it on a bill of exchange, but the right of the defend- ant to raise the question was not dis- cussed and apparently was not raised. See Eeinhard v. Virginia Lead Min, Co., 107 Mo. 616, 28 Am. St. Rep. 441, 18 S. W. 17, where it is said by way of dictum that "estoppel applies to the regularity of the organization of the corporation, and can only apply when there is authority of law to or- ganize." In Eialto Co. v. Miner, 183 Mo. App. 119, 166 S. W. 629, it was said that it hardly lay in the mouth of one who had taken a lease from a foreign corporation to challenge its corporate existence on the ground that it was organized for an unlawful pur- pose. A corporation which has accepted an act recognizing its existence cannot thereafter question its validity. St. Louis E. Co. v. Northwestern St. L. Ey. Co., 2 Mo. App. 69, rev'd on other grounds 69 Mo. 65. Oklahoma. In Lynch v. Perry- man, 29 Okla. 615, Ann. Cas. 1913 A 1065, 119 Pac. 229, it is held that the doctrine of estoppel will apply under such circumstances where there are no facts which will render it unjust to follow the general rule, and the court distinguishes LafiFerty v. Evans, infra, on this ground. So one who conveys property to a corporation, and those claiming under him, are estopped to deny its corporate existence on this ground. Lynch v. Ferryman, 29 Okla. 615, Ann. Cas. 1913 A 1065, 119 Pac. 229; Myatt v. Ponca City Land &; Im- provement Co., 14 Okla. 189, 68 L. E. A. 810, 78 Pac. 185. For example, one who sells property to a corporation and takes a lease from it is estopped from defending against an action for rent on the ground that there was no law under which a corporation for its 675 §327] Private Coepobations [Ch. 11 statutory liability for its debts,^® nor will he be permitted to set up that the law under which the corporation was attempted to be organ- ized did not authorize incorporation for the contemplated purposes, in order to escape liability on his subscription.^''' And a creditor who has dealt with a corporation is estopped to contend that its stock- holders are liable as partners because of the unconstitutionality of a statute under which it amended its articles so as to change its name and place of business.^' And one who gives a mortgage to a cor- poration will not be permitted to defend an action to foreclose it on the ground that the statute under which it was incorporated is un- constitutional.^* declared purpose could be organized. Lynch v. Ferryman 29 Okla. 615, Ann. Gas. 1913 A 1065, 119 Pac. 229. But in an action for damages brought by the plaintiff as a domestic corpora- tion against a telegraph company for failure to correctly transmit a mes- sage and for delay in delivering a message, tBe defendant is not estopped to deny the corporate existence of the plaintiff on the ground that there was no law authorizing its incorporation for the purposes for which it was organized. Western Union Tel. Co. v. Mexican Agr. Land Co., 31 Okla. 528, Ann. Cas. 1914 C 1244, 122 Pac. 505. And where a foreign corporation at- tempts to acquire the title to prop- erty vested in an individual, the latter may deny its corporate capacity on the ground that it was organized for an unauthorized purpose. Myatt v. Ponca City Land & Improvement Co., 14 Okla. 189, 68 L. B. A. 810, 78 Pac. 185. And where a corporation is or- ganized in one state for the sole purpose of buying and selling land in another, for which purpose it could not have been organized in the latter, a conveyance by it in the latter state is void, and the grantee may defend an action on a note and mortgage given for the purchase price on the ground of want of consideration. Laf - ferty v. Evans, 17 Okla. 247, 21 L. E. A. (N. 8.) 363, 87 Pac. 304. Pennsylvania. Weinman v. Wilkins- burg & E. L. P. By. Co., 118 Pa. St. 192, 12 Atl. 288; Freeland v. Pennsyl- vania Cent. Ins. Co., 94 Pa. St. 504. South Dakota. Beach v. Co-opera- tive Savings & Loan Ass'n, 10 S. D. 549, 74 N. W. 889; Building & Loan Ass'n of Dakota v. Chamberlain, 4 S. D. 271, 56 N. W. 897. Wisconsin. Black Eiver Improve- ment Co. V. Holway, 85 Wis. 344, 55 N. W. 418. England. In Cromford & H. P. B. Co. V. Lacey, 3 Y. & J. 79, it was held that a subscriber who, wjth knowledge of misrecitals in the act incorporat- ing the company, had acted as a pro- prietor and had paid previous calls, could not defend an action for calls on the ground that the act was in- valid because of such recitals. 56 National Commercial Bank v. Mc- Donnell, 92 Ala. 387, 9 So. 149; Mc- Donnell V. Alabama Gold Life Ins. Co., 85 Ala. 401, 5 So. 120; Gardner V. Minneapolis & St. L. By. Co., 73 Minn. 517, 79 N. W. 282, aff'd 177 U. S. 332, 44 L. Ed. 793. 67 American Homestead Co. v. Lini- gan, 46 La. Ann. 1118, 15 So. 369. 58 Eichards v. Minnesota Sav. Bank, 75 Minn. 196, 77 N. W. 822. 69 Crete Building & Loan Ass'n v. Patz, 1 Neb. (Unof.) 768, 95 N. W. 793. 676 Ch. 11] COBPOBATIONS BY EsTOPPEL [§ 328 It has also been held that one may be estopped to deny the exist- ence of a corporation, though its existence has been claimed under a territorial act which is void because it has not been approved by congress,^" or because it is in violation of an act of congress.^^ And it has also been held that one who has been a stockholder and director of a corporation and who sold his stock after the extension of its corporate charter took effect is estopped to deny its existence on the ground that the statute making such extension was unconstitutional, in an action against him by the corporation for services rendered.^* A creditor of a consolidated corporation is estopped to deny the legality of its organization on the ground that the law did not permit the consolidation of domestic and foreign corporations, for the pur- pose of defeating bonds of the consolidated corporation.®* §328. Corporations prohibited by statute or public policy. Ac- cording to the weight of authority, the doctrine in relation to estoppel to deny corporate existence does not apply where" a pretended cor- poration is expressly prohibited by statute, or where it is contrary to public policy.®* For example, a stockholder in a pretended cor- poration is not estopped to set up the fact that its existence is in violation of an express constitutional prohibition, in order^ to avoid liability on his subscription.®^ And where it is attempted to organize and do business as a banking corporation in violation of an express statutory prohibition, an employee of the pretended corporation and the sureties on his bond are not estopped in an action by the pretended corporation on the bond.®® Nor is one who leases property from a corporation estopped to deny its legal existence on the ground that it was organized for the purpose of acquiring real estate and hold- ing it for investment, in violation of the statute and public policy of the state prohibiting corporations from holding and acquiring real 60 Smith V. Sheeley, 12 Wall. (U. S.) Ass'n, 244 111. 274; Imperial Bldg. Go. 358, 20 L. Ed. 430. v. Chicago Open Board of Trade, 238 61 Cowell V. Colorado Springs Co., 111. 100, 136 111. App. 606; Working- 3 Colo. 82, aff'd 100 U. S. 55, 25 L. Ed. men's Accommodation Bank v. Con- 547; Platte Valley Bank v. Harding, verse, 29 La. Ann. 369; St. Louis 1 Neb. 461. Colonization Ass'n v. Hennessy, 11 62 Black Eiver Improvement Co. v. Mo. App. 555. Holway, 85 Wis. 344, 55 N. W. 418. 65 St. Louis Colonization Ass 'n v. 63 Louisville Trust Co. v. Louisville, Hennessy, 11 Mo. App. 555. See also N. A. & C. Ey. Co., 84 Ted. 539, rev'd § 350, infra. on other grounds 174 U. S. 674, 43 66 Workingmen 's Accommodation L. Ed. 1130. Bank v. Converse, 29 La. Ann. 369. 64Hossack v. Ottawa Development 677 § 328] Pkivate Cokpobations [Ch. 11 estate as an investment." And it has also been held that where an association is incorporated in one state for the sole purpose of carry- ing on business in another state, whose laws prohibit the organization of such corporations, a person dealing with it as a corporation in the latter state is not thereby estopped to deny its corporate existence.*' On the other hand, the Supreme Court of the United States has held that one who has dealt with and purchased goods from a cor- poration as an existing concern having capacity to sell, cannot assert in an action by the corporation to recover the purchase price of the' goods that it had no legal existence because it was an unlawful com- bination in violation of the antitrust act.®' It has also been held that one who has dealt with an investment company as a corporation, with full knowledge of its affairs and of the business it intended to do, cannot deny its corporate existence, on the ground that it was organ- ized for the purpose of issuing contracts which were illegal and con- trary to public policy, for the purpose of holding its members liable as partners on a valid contract made by him with it.'"' There are also holdings to the effect that one who sells real prop- erty to a concern acting as and denominated in the deed as a cor- poration cannot, when sued for rent, set up that the corporation was a nullity because organized in another state for the sole purpose of transacting business in the state of the forum.'^ Nor can a stoek- 67 Hossack V. Ottawa Development Cas. Ct. App. (Tex.) § 221, 12 L. E. Ass'n, 244 111. 274; Imperial Bldg. Co. A. 366, 15 S. W. 200. V. Chicago Open Board of Trade, 238 Where a corporation is organized in 111. 100, 136 111. App. 606. In Walker one state for the sole purpose of buy- V. Taylor, 252 111. 424, 96 N. E. 1055, ing and selling land in another state, it is held that the fact that one has for which purpose it could not be conveyed land to a corporation will organized under the laws of the lat- not estop him from asserting that it ter, a conveyance by it in the latter was organized for an unlawful pur- state is void, and the grantee, when pose, and therefore that such convey- sued on a note and mortgage given ance was ineffective, in a suit brought by him for the purchase price, may by him as a stockholder after the defend on the ground of want of eon- dissolution of the corporation for par- sideration. Lafferty v. Evans, 17 tition of the unsold land of the corpo- Okla. 247, 21 L. E. A. (N. S.) 363, 87 ration among the stockholders, where Pae. 304. he seeks no advantage that would 69 D. E. Wilder Mfg. Co. v. Corn not have accrued to him had the bill Products Eefining Co., 236 U. S. 165, been filed by any other stockholder. 59 L. Ed. 520, Ann. Cas. 1916 A 118, 68 A creditor dealing with a mor- aff'g 11 Ga. App. 588, 75 S. E. 918. cantile corporation is not estopped un- 10 Ivy Press v. McKechnie, 88 Wash. der such circumstances. Empire Mills 643, 153 Pae. 1067. V. Alston Grocery Co., 4 Willson Civ. 71 Especially where, in the lease, he 678 :h. 11] COEPORATIONS BY ESTOPPEL [§330 holder set up, as a defense to an action by the corporation on notes given by him for the purchase price of stock, that the corporation was organized to carry on business solely and exclusively in another state, and that the legislature could not authorize its incorporation for that purpose.'^ § 329. Organization outside of the state. The doctrine in relation to estoppel operates to prevent a person who has contracted or dealt with a corporation,'* or a corporation which has contracted as such,'* from denying the legality of its incorporation on the ground that it was organized in a state other than that under the laws of which its corporate existence is claimed. §330. Effect of dissolution of oorporation — Dissolution before acts constituting estoppel. A corporation sued on a contract made by it will not be heard to say that its charter had expired by limita- tion when the contract was made.'^ And the same rule has been ap- agrees that he will never claim or contest the rights of the lessor in the property. Lynch v. Ferryman, 29 Okla. 615, Ann. Cas. 1913 A 1065, 119 Pac. 229. 72 East Pascagoula Hotel Co. v. West, 13 La. Ann. 545. 73 Camp V. Byrne, 41 Mo. 525; Ohio & M. R. Co. V. McPherson, 3:: Mo. 13, 86 Am. Dee. 128; Tuckasegee Min. Co. V. Goodhue, 118 N". C. 981, 24 S. E. 797. One who has given a note to the corporation for the amount of his stock subscription cannot set up this defense when sued thereon by a bona fide holder. Camp v. Byrne, 41 Mo. 525. So he cannot question the cor- porate existence on the ground that the first organization meeting was held in a state other than that issu- ing the charter. Hasbrouek v. Rich, 113 Mo. App. 389, 88 S. "W. 131. In Smith v. Silver Valley Min. Co., 64 Md. 85, 54 Am. Eep. 760, 20 Atl. 1032, a bill by a stockholder against a foreign corporation to annul a for- feiture of its franchise was dismissed on the ground that the corporation was organized and its charter ac- cepted in a state other than that by which it was created. 74 It cannot escape liability on its contracts on the ground that its first meeting for the purpose of organizing and electing officers and all subse- quent meetings were held outside of the state. Heath v. Silverthorn Lead Mining & Smelting Co., 39 "Wis. 146. 75 Brady v. Delaware Mut. Life Ins. Co., 2 Pennew. (Del.) 237, 45 Atl. 345; Chadwiek v. Dicke Tool Co., 186 111. App. 376. See Merges v. Altenbrand, 45 Mont. 355, 123 Pac. 21. Even if the act of those who were directors of a corporation at the time of the expiration of its charter in thereafter deferidiug an action pend- ing against it would estop them from questioning its validity in a credi- tor's suit to enforce the judgment recovered in such action, the estoppel will not extend to a former director who had sold his stock and severed his connection with the corporation long before its dissolution. Sturges V. Vanderbilt, 73 N. T. 384. 679 §330] Pbivate Cobpokations [Ch. 11 plied in suits by stockholders to set aside corporate eontracts,'* or to recover damages for a sale of corporate property in fraud of the cor- poration.'''' Nor can the corporation or those claiming under it assert that the corporation was dormant because having only two trustees when the contract in question was made.''* A similar rule applies against persons who have contracted with the pretended corporation as such, and they are estopped to show that its charter had expired,'" or had been declared forfeited by the secretary of state,*" before the contract was made, or that proceedings for the dissolution of the corporation were pending at the time when the contract was entered into, where no decree of dissolution had been entered.*^ Nor can creditors, and a receiver who represenis them, insist that the corporation did not have a de facto existence at the time when their claims arose and an alleged prior mortgage was executed, because there were but two persons legally qualified to act as trustees, while the statute required three trustees.*^ But there is authority to the effect that while one dealing with the corporation after the expiration of its charter may be estopped to deny his responsibility for property which he has received from it. 76 As where the holders of stock issued by a railroad company to pay for the line of another company pur- chased by it sought to have the sale set aside on the ground that the char- ter of the latter company had expired before it executed the final deed to said line. Branch v. Jesup, 106 TJ. S. 468, 27 L. Ed. 279. 77 Hoag V. Edwards, 69 N. T. Mise. 237, 124 N. T. Supp. 1035. 78 Castle V. Lewis, 78 N. T. 131, aff'g 13 Hun (N. Y.) 298. 79 West Missouri Land Co. v. Kan- sas City Suburban Belt R. Co., 161 Mo. 595, 61 S. W. 84/; St. Louis Gas Light Co. V. City of St. Louis, 11 Mo. App. 55, affi'd 84 Mo. 202. See also Bradley v. Eeppell, 133 Mo. 545, 54 Am. St. Rep. 685, 34 S. W. 841, 32 S. W. 645; Citizens Bank of Clinton V. Jones, 117 "Wis. 446, 94 N. W. 329. In White v. Campbell, 24 Tenn. (5 Humph.) 38, a deed of trust executed to a corporation whose charter had expired was set aside at the suit of a creditor of the grantor, who subse- quently recovered judgment against him, on the ground that the deed and the note secured by it were in- operative and void for want of a cestui que trust and a payee respec- tively. They will not be permitted to show that proceedings for the extension of the corporate existence were taken under a statute which did not apply to corporations of the character of the one in question, and hence were void. Campbell v. Perth Amboy Ship- building & Engineering Co., 70 N. J. Eq. 40, 62 Atl. 319, afe'd 71 N. J. Eq. 302, 71 Atl. 1133. 80 Gilmer Creamery Ass 'n v. Quen- tin, 142 111. App. 448. 81 Saunders v. Bank of Mecklen- burg, 112 Va. 443, Ann. Cas. 1913 B 982, 71 S. E. 714. 82 Welch v. Importers' & Traders' Nat. Bank, 122 N. Y. 177, 25 N. E. 269. 680 Ch. 11] COKPOBATIONS BY EsTOPPEL [§ 331 he is not estopped to deny that the company is a corporation and to claim that for that reason it has no capacity to sue him for the pro- ceeds of such property.8^ And that the defendant in ejectment may object to the deed of a corporation offered by the plaintiff as a link in his chain of title, on the ground that the corporate existence had expired by limitation before such deed was executed.** And it has also been held that if, after the expiration of the charter, the members continue business under the same name pursuant to an a^eement which makes them liable as partners to third persons, one contracting with them in such name may hold them individually liable though he did not know of the dissolution and supposed that he was dealing with the corporation.*^ Though the capital stock of a corporation has passed entirely into the hands of a single person, and for that reason it is in abeyance and its functions for the time being have cea.sed, persons who make use of it for their own purposes are estopped to deny its corporate capacity, though they act in good faith.'^ This rule does not apply, however, in controversies growing out of dealings of the ostensible officers with the sole owner of the stock, though he deals in the name of the corporation, but, under such circumstances, the corporate entity will be ignored, and the contract liabilities of the company to them will be treated as those of the owner of the. stock.*'' § 331. — Dissolution after acts constituting estoppel. A corpora- tion when sued on a contract made by it ** or its stockholders, when they are sought to be held individually liable for its debts, *^ may show the cessation of its corporate functions, either by expiration of its charter, or by judgment of dissolution, after the making of the eon- tract, and before the commencement of the action thereon. Nor will 83 Krutz V. Paola Town Co., 20 Kan. its existing debts, sues such directors 397. on their contract of guaranty. Barnes 84 Marysville Inv. Co. v. Munson, v. Smith, 48 Mont. 309, 137 Pae. 541. 44 Kan. 491, 24 Pac. 977. 88 Dobson v. Simonton, 86 N. C. 85 National Union Bank v. Landon, 492. See also Greeley v. Smith, 3 45 N. Y. 410. Story 657, Fed. Gas. No. 5,748; 86 Barnes v. Smith, 48 Mont. 309, "West v. Carolina Life Ins. Co., 31 137 Pae. 541. Ark. 476; Grossman v. Vivienda Water 87 As, for example, where the owner Co., 150 Gal. 575, 89 Pac. 335. of the stock induces two of the direc- 89 They may show that the corpora- tors of the company to indorse its tion was voluntarily dissolved after note as guarantors, and, after he has the indebtedness was incurred and be- sold the stock and has paid the note fore the commencement of the ac- under an agreement with the vendee tion. Grossman v. Vivienda Water to save the corporation harmless from Co., 150 Gal. 575, 89 Pac. 335. 681 §331] Peivate Cokpokations [Ch. 11 the fact that the sole owners of the stock of a corporation, whose charter expires pending an action against it, continue to defend the action make the dead corporation a corporation by estoppel so as to authorize the plaintiff to proceed to judgment against it.'" Similarly, a person who is sued on a contract made by him with a pretended corporation is not estopped to show that such corporation has ceased to exist since the contract was entered into,'^ and hence may show that its charter has since expired,*^ or may set up a judg- SOVenable Bros. v. Southern Gran- ite Co., 135 Ga. 508, 32 L. E. A. (N. S.) 446, 69 S. E. 822. 91 Clark V. American Cannel Coal Co., 165 Ind. 213, 112 Am. St. Rep. 217, 73 N. E. 1083; afC'g 35 Ind. App. 65, 73 N. E. 727; Hartsville University V. Hamilton, 34 Ind. 506; Meikel v. German Savings Fund Society, 16 Ind. 181; Ft. Wayne & B. Turnpike Co. v. Deam, 10 Ind. 563; Brookville & G. Turnpike Co. v. McCarty, 8 Ind. 392, 65 Am. Dec. 768; Morgan v. Law- renceburgh Ins. Co., 3 Ind. 285; Guaga Iron Co. V. Dawsoi}, 4 Blaekf. (Ind.) 202; John v. Farmers' & Mechanics' Bank, 2 Blaekf. (Ind.) 367, 20 Am. Dec. 119. See also Barren Creek Ditching Co. v. Beck, 99 Ind. 247; Latiolais v. Citizens' Bank, 33 La. Ann. 1444; Boston Glass Manufactory V. Langdon, 24 Pick. (Mass.) 49, 35 Am. Dee. 292. "The estoppel, if any, relates to the time of entering into the contract, and does not admit that there cannot be a dissolution." Vernon Society V. Hills, 6 Cow. (N. Y.) 23, 16 Am. Dec. 429. But where the plea or an- swer admits that the plaintiff had been a corporation, it will be presumed that it has continued to be, and still is one, unless it is alleged and shown that its existence has terminated in some way known to the law. Dar- rell V. Hilligoss, M., M. & E. Gravel Eoad Co., 90 Ind. 264; Beaver v. Hartsville University, 34 Ind. 245. In such ease the answer must aver facts showing how the corporate powers came to a termination. Eansom v. Priam Lodge No. 145, F. & A. Masons, 51 Ind. 60; Sutherland v. Lagro & M. Plank Eoad Co., 19 Ind. 192; Hubbard V. Chappel, 14 Ind. 601; Ft. Wayne & B. Turnpike Co. v. Deam, 10 Ind. 563; Ensey v. Cleveland & St. L. E. Co., 10 Ind. 178; Brookville & G. Turn- pike Co. V. MeCarty, 8 Ind. 392, 65 Am. Dec. 768; Harris v. Muskingum Mfg. Co., 4 Blaekf. (Ind.) 267, 29 Am. Dec. 372; John v. Farmers' & Mechan- ics' Bank, 2 Blaekf. (Ind.) 367, 20 Am. Dec. 119; Wood v. Friendship Lodge No. 5, I. O. O. F. of Lexing- ton, 106 Ky. 424, 50 S. W. 836; Jones V. Bank of Tennessee, 8 B. Mon. (Ky.) 122, 46 Am. Dee. 540. 92 Bank of United States v. Mc- Laughlin 's Adm'r, 2 Cranch C. C. (U. S.) 20; Clark v. American Cannel Coal Co., 165 Ind. 213, 73 N. E. 1083; 35 Ind. App. 65, 73 N. E. 727; Bank of Galliopolis v. Trimble, 6 B. Mon. (Ky.) 599. If after the rendition of a judg- ment against a corporation it is dis- solved under the terms of a statute by the surrender of its charter to an- other corporation and the acceptance of the surrender by the latter, a scire facias to revive such judgment cannot thereafter be maintained. Mumma V. Potomac Co., 8 Pet. (U. S.) 281, 8 L. Ed. 945. If the charter expires pending the suit and that fact is properly brought to the attention of the court, the ac- tion must terminate, and if it expires 682 Ch. 11] COEPOEATIONS BY EsTOPPEL [§ 332 ment of forfeiture or ouster rendered in proceedings by the state after that time.'* The question of the forfeiture of the charter cannot be tried col- laterally in such an action, however,'* and to warrant such a defense it must appear that the corporation has come to an end by some legal process.'® m. ACTS CONSTITUTING ESTOPPEL AND PERSONS ESTOPPED § 332. General nature of acts constituting estoppel — General con- siderations as to recognition. Recognition of an association as a corporation which will give rise to an estoppel may consist in any statements, conduct or course of dealing whereby a person expressly or impliedly admits its corporate existence. So an estoppel may arise from written statements or admissions having that tendency,'® or from the fact that one contracts or deals with the association as a corporation,''' especially where the latter uses a name which implies or imports a corporate body ; " or from the fact that a person sues an association as a corporation, or fails to put its corporate existence in issue when sued by it." But to give rise to an estoppel on the ground of recognition by dealing with a pretended corporation, it must have been dealt with or treated as a corporation, and no estoppel will result from conduct which is just as consistent with the existence of an unincorporated after judgment in favor of the corpo- 94 See chapter on Forfeitures, Disso- ration, execution cannot issue on such lution and Winding Up. judgment. May v. State Bank of 96 Hartsville University v. Hamil- North Carolina, 2 Eob. (Va.) 56, 60, to^^ 34 j^^ gog. John v. Farmers' & 40 Am. Deo. 726. Mechanics' Bank, 2 Blackf. (Ind.) See chapter on Forfeiture, Dissolu- „g,, gn Am Dec 110 tion, etc., infra. bh-d ^ 2.1. 1.' i_ '-,, ' . . -, J „ , 96 Proof that one has m writing 93 Clark V. American Cannel Coal ^ ,, . , . , Co., 165 Ind. 213, 112 Am. St. Eep. ^«P«^t«^ly recognized the corporate 217, 73 N. E. 1083, 35 Ind. App. 65, existence of the plaintiff m reference 78 N. E. 727; Hartesville University *° ^^^ transaction in question, accom- V. Hamilton, 34 Ind. 506; Brookville V^^^^d by proof of facts sufficient to & G. Turnpike Co. v. MeCarty, 8 Ind. show a de facto corporation, is enough 392, 65 Am. Dec. 768; Morgan v. Law- to overcome a plea of nul tiel corpo- renceburgh Ins. Co., 3 Ind. 285; Guaga ration in an action to recover a bal- Iron Co. V. Dawson, 4 Blackf. (Ind.) ance due for goods sold. Walker 202; John v. Farmers' & Mechanics' Paint Co. v. Euggles, 48 HI. App. 406; Bank, 2 Blackf. (Ind.) 367, 20 Am. Holt v. Tennent-Stribling Shoe Co., Dec. 119; Jones v. Bank of Tennessee, 69 111. App. 332; 8 B. Mon. (Ky.) 122, 46 Am. Dee. 97 See § 334, infra. 540. 9* See § 336, infra. See chapter on Forfeiture, Dissolu- 99 See § 355, infra, tion, etc., infra. 683 §332] Pkivate Cokpokations [Ch. 11 association as with the existence of a corporation.^ So the mere fact that one contracts or otherwise deals with an association or its agent will not estop him from denying that it is a corporation, where he does not deal or contract with it as a corporation,® especially if he 1 Alaljama. Christian & Craft Gro- cery Co. V. Fruitdale Lumber Co., 121 Ala. 340, 25 So. 566; Schloss v. Montgomery Trade Co., 87 Ala. 411, 13 Am. St. Eep. 51, 6 So. 360. Arkansas. Garnett v. Eichardson, 35 Ark. 144. Florida. Duke v. Taylor, 37 Fla. 64, 31 L. E. A. 484, 49 Am. St. Eep. 394, 19 So. 172. Louisiana. Williams v. Hewitt, 47 La. Ann. 1076, 17 So. 496; Field v. Cooks, 16 La. Ann. 153. Michigan. Eaton v. Walker, 76 Mich. 579, 6 L. E. A. 102, 43 N. W. 638; Trustees, etc., of M. E. Church V. Clark, 41 Mich. 730, 3 N. W. 207; Eredenburg v. Lyon Lake M. E. Church, 37 Mich. 476. Oregon. McVicker v. Cone, 21 Ore. 353, 28 Pac. 76. Pennsylvania. Guckert v. Haeke, 159 Pa. St. 303, 28 Atl. 249. The fact that a testator for a con- sideration had deeded land to an as- sociation in his lifetime was held not to estop his next of kin from claiming that it was a voluntary unincorpo- rated association, and hence incapable of taking a legacy under his will. Lutheran Eeformed Church v. Mook, 1 Eedf. Surr. (N. T.) 513. The fact that the plaintiff in a for- mer suit recognized the defendants as forming a company, without any reference to their having been regu- larly incorporated, is not such an admission as will estop him from show- ing that they have no legal existence as a corporation, for, "in order to estop * * * there should, at least, be an admission that the company was entitled to exercise corporate rights and privileges." Eield v. Cooks, 16 La. Ann. 153. In an Alabama case it was held that in an action by a corporation, suing as such, against a subscriber to its capital stock before incorporation, the payment by the defendant of former instalments as called for, and an aver- ment that the instalment sued for was "duly and regularly called in by plaintiff, and demand therefor made upon defendant," did not, without more, show an estoppel against the de- fendant to deny the organization and corporate existence of the plaintiff, as it did not appear that the call was made even under color of corporate organization or capacity, and the pay- ment made did not imply a recogni- tion of corporate existence, and was not inconsistent with a payment pre- liminary to, or in anticipation of, organization. Schloss v. Montgomery Trade Co., 87 Ala. 411, 13 Am. St. Eep. 51, 6 So. 360. 2 Farmers' Mutual v. Eeser, 43 Ind. App. 634, 88 N. E. 349. One who takes a note signed with the name of a company is not estop- ped to hold its members liable as part- ners where he did not deal with them as a corporation but as individuals, using that name solely as a trade name. Brooke v. Day, 129 Ga. 694, 59 S. E. 769. Where a dispatch line is without corporate entity, its name having been assumed merely for convenience by several lines of railroad in han- dling freight, one who has dealt with it in making a shipment of goods is not estopped to deny its corporate ex- istence in a suit which it brings against him, where he has never dealt with it as a corporation and there is no inconsistency between his dealings with it and the relation which existed 684 Ch. 11] Corporations by Estoppel [§332 does not know that it claims to be a corporation, and is not chargeable witl^ knowledge of that fact, but rather supposes that it is doing business as an unincorporated association.^ Nor does the fact that the business of a company is transacted or its contracts executed by officers, such as a president, or secretary, or treasurer, give rise to a presumption that it is a corporation sro as to preclude a person dealing, with it from denying knowledge that it claimed to be a cor- in fact between the dispatch line and the railroads. The action, in such ease, should have been brought by the component railroad companies, they being the real parties in interest. Kanawha Dispatch v. Fish, 219 III. 236, 76 N. E. 352, rev'g on other grounds 118 111. App. 284. "Where a party contracts with an- other, but not as a corporation, he ia not as to such contract estopped to deny the corporate existence of such other party, or to show that the entity with which he dealt was an individual or partnership." Christian & Craft Grocery Co. v. Fruitdale Lumber Co., 121 Ala. 340, 25 So. 566. It follows, therefore, that in an ac- tion on such a contract, in which it is sought to charge the defendants as partners or individuals, and in which they defend on the ground that they were only stockholders or officers of a de facto corporation, with which l.hey claim the plaintiff dealt as a cor- poration, it is competent and mate- rial for the plaintiff to show that he did not deal with the defendants as a corporation, but as individuals com- posing a partnership. And to this end he may show that one of the de- fendants purchased the goods in question for the company on the repre- sentation that it was a partnership composed of himself and the other de- fendants. Christian & Craft Grocery Co. V. Fruitdale Lumber Co., 121 Ala. 340, 25 So. 566. In Ward-Truitt Co. v. Bryan & Lamb, 144 Ga. 769, 87 S. E. 1037, it was held that mere uncontradicted testimony that the payee of notes had dealt with a corporation, which the members of a partnership had at- tempted to form to succeed to the partnership business, as a corporation, would not prevent the enforcement of the notes against the firm whose names were signed to it. 3 Eaton V. Walker, 76 Mich. 579, 6 L. E. A. 102, 43 N. W. 638; Martin V. Fewell, 79 Mo. 401; Eust-Oweu Lumber Co. v. Wellman, 10 S. D. 122, 72 N. W. 89. Compare Stoflet v. Strome, 101 Mich. 197, 59 N. W. 411. There is no estoppel where there is nothing to indicate that the party ever supposed he was dealing with a corporation. Lawrence v. Nyberg Automobile Works, 162 111. App. 348. One is not estopped to hold the mem- bers of an alleged corporation individually liable where he has no knowledge of the existence of the cor- poration, and there is nothing, either in the name under which they do busi- ness, or in their conduct, to put him on inquiry, and the certificate of in- corporation has not been recorded so as to charge him with notice. Tonge V. Item Pub. Co., 244 Pa. 417, 91 Atl. 229; Guckert v. Hacke, 159 Pa. St. 303, 28 Atl. 249. See also Pittsburg Sheet Mfg. Co. v. Beale, 204 Pa. 85, 53 Atl. 540; Mandeville v. Courtright, 142 Fed. 97, 6 L. E. A. (N. S.) 1003, rev'g 126 Fed. 1007. Evidence that a company published a notice in the papers that it was a. corporation and had mailed circulars and letterheads showing that fact to the plaintiff, which it is not shown 685 §332] Pkivate Cobpoeations [Ch. 11 poration, or from holding its members liable as partners.* Moreover, the fact that persons are members of a corporation does not prevent them from doing business and contracting as individuals or co- partners, and if they so conduct their business as to induce a person who contracts with them to believe that they are conducting it as individuals and not as a corporation, and he contracts and gives credit to them as individuals or copartners and not as a corporation, he may hold them personally liable on the contract.* And it has also been held that if one is not estopped to hold the incorporators indi- vidually liable on a contract made with them, the acceptance by him of a note of the corporation for the amount due him, after he has fully performed, will not, in the absence of an express agreement, he ever received, will not support a which formed the consideration there- finding that the plaintiff knew that there was a corporation and did busi- ness on that supposition. In such case it is error to exclude evidence offered by the plaintiff that he did not know that there was a corpora- tion, and did not deal with it as such, but was informed by one of their number that they were a copartner- ship and that he dealt with them in the belief that they were. Easton v. Walker, 76 Mich. 579, 6 L. E. A. 102, 43 N. "W. 638. But one who contracts with a de facto corporation in its corpoiate name and capacity and on its credit as a corporation cannot thereafter hold its stockholders or officers in- dividually liable on the ground that he had no notice or knowledge of the attempted incorporation, or that it ever claimed to be doing business as a corporation. And an averment that the plaintiff had no knowledge or notice that the persons composing the company ever had attempted to in- corporate, or ever claimed to be doing business as a corporation, is inconsistent with averments showing that it was a de facto corporation, and that the bill of exchange sued on was drawn by the plaintiff on, and ac- cepted by, the company in its cor- porate name, and that the material for was sold to the company in its corporate name. Cory v. Lee, 93 Ala. 468, 8 So. 694. 4 "No presumption of incorpora- tion arises from the fact that the busi- ness of the company was transacted by a president and secretary" so as to preclude a person dealing with it from holding its members liable as partners. Clark v. Jones, 87 Ala. 474, 6 So. 362, quoted in Baxter v. Jones, 185 Fed. 900. So no such presumption arises from the fact that a note or other contract is executed by persons as president and secretary of a company. Duke v. Taylor, 37 Fla. 64, 31 L. E. A. 484, 53 Am. St. Hep. 232, 19 So. 172. One tO' whom a note is indorsed is not put on inquiry as to the corporate character of the maker company so as to preclude him from holding its mem- bers liable as partners by reason of the fact that it is signed and indorsed in the name of the company by an in- dividual as treasurer. New York Nat. Exch. Bank City of New York v. Crowell, 177 Pa. St. 313, 35 Atl. 613. See also Longfellow v. Barnard, 58 Neb. 612, 76 Am. St. Eep. 117, 79 N. W. 255. B Eust-Owen Lumber Co. v. Well- man, 10 S. D. 122, 72 N. W. 89. 686 Ch. 11] CoKPOEATiONS BY Estoppel [§333 operate by way of election or estoppel to prevent him from thereafter holding them so liable, but the note will be regarded as additional security rather than as a satisfaction of the debt.® The mere fact that one indorses a bill to a bank,' or deposits money in a bank,* does not estop him from denying its corporate existence. Nor does the fact that one sued on a note by an officer of a bank interposes the defense that the plaintiff is president of the bank, and, as such, could not acquire notes coming to his hands as presi- dent, and that the note belongs to the bank, estop him to deny after- wards that the bank is incorporated, for this might just as well be said of an unincorporated bank and its president.^ So, too, the mere fact that one admits that an account made out in the name of the plaintiff as a corporation is correct, and that he owes the money, is not an admission that the plaintiff is in fact a corporation, and does not estop him from denying that such is the case.^"* And an agree- ment with individuals that when they become incorporated they will give the plaintiff a certain amount of paid up stock as part of the consideration for property sold to them individually is not a dealing with the corporation and does not prevent the plaintiff from suing them individually for the value of the property.^' § 333. — General considerations as to holding out. Persons who have expressly represented that they were a corporation,^^ or who have contracted as a corporation,^* or who have taken part in the organization of a pretended corporation, or acted as members or officers of the same,^* may be estopped to deny the corporate existence on the ground that they have thereby held themselves out as being incorporated. e Guckert v. Haeke, 159 Pa. St. 303, 10 Florsheim & Co. v. Fry, 109 Mo. 28 Atl. 249. App. 487, 84 S. W. 1023. 7 Such an indorsement merely ad- 11 Carmody v. Powers, 60 Mich. 26, mits that the person to whom it is in- 26 N. W. 801. doTsed has assumed the corporate 12 A representation that it was a name. Hargrave v. Bank of Illinois, corporation made in a letter written Breese (1 111.) 122. by the purchaser of goods to the seller 8 He is not estopped from asserting is sufficient proof of its corporate that it is not a corporation but a part- character in an action by the seller nership doing business as a private to recover the purchase price. Marx bank, and hence subject to be adjudi- v. Raley & Co., 6 Cal. App. 479, 92 cated a bankrupt as a private bank. Pac. 519. Davis V. Stevens, 104 Fed. 235. 13 See § 386, infra. 9 Williams v. Hewitt, 47 La. Ann. 14 See § 349, infra. 1076, 1084, 49 Am. St. Rep. 394, 17 So. 496. 687 333] Pkivate Ooepokations [Ch. 11 But in order that members or agents of an association may be estopped to deny that it is a corporation on this ground, the acts relied upon must be equivalent to a representation or admisfsion of corporate existence,^^ and therefore will not operate as an estoppel if they are just as consistent with the existence of an unincorporated association or a partnership as with the existence of a corporation.^^ In other words, they must be clearly and unmistakably corporate acts,^'' which distinctly pertain to corporate powers,^* and which show distinctly and unequivocally an attempt to exercise such powers ; ^' for estoppels never arise from ambiguous facts, but must be estab- lisl^ed by those which are unequivocal, and not susceptible of two constructions.^" An attempt to incorporate is not an exercise of assumed corporate powers, so as to create an estoppel to deny corporate existence.^^ In accordance with this rule, the mere fact that the associates have passed by-laws, held business meetings, acquired property, received and paid out money, appointed agents and made contracts will not operate as an estoppel, as these acts may be done as well by an unin- corporated association as by a corporation.^^ Nor will the fact that 15 Baxter v. Jones, 185 Fed. 900; Methodist Episcopal Church of New- ark V. Clark, 41 Mich. 730, 3 N. W. 207. 16 United States. Baxter v. Jones, 185 Fed. 900. Alaliama. Schloss v. Montgomery Trade Co., 87 Ala. 411, 13 Am. St. Eep. 51, 6 So. 360. Iowa. Kirkpatrick v. ITnited Presb. Church of Keota, 63 Iowa 372, 19 N. W. 272. Michigan. Fredenburg v. Lyon Lake M. E. Church, 37 Mich. 476. See also Methodist Episcopal Church of Newark v. Clark, 41 Mich. 730, 3 N. W. 207. Nebraska. See Lincoln Butter Co. V. Edwards-Bradford Lumber Co., 76 Neb. 477, 107 N. W. 797; Abbott v. Omaha Smelting & Eefining Co., 4 Neb. 416. Pennsylvania. Tonge v. Item Pub. Co., 244 Pa. 417, 91 Atl. 229. Washington. Bash v. Culver Gold Min. Co., 7 Wash. L22, 34 Pac. 462. 17 Schloss V. Montgomery Trade Co., 87 Ala. 411, 13 Am. St. Eep. 51, 6 So. 360; Predenburg v. Lyon Lake M. E. Church, 37 Mich. 476. 18 Kirkpatrick v. United Presbyte- rian Church of Keota, 63 Iowa 372, 19 N. W. 272. See also Methodist Epis- copal Church of Newark v. Clark, 41 Mich. 730, 3 N. "W. 207. 19 Kirkpatrick v. United Presbyte- rian Church of Keota, 63 Iowa 372, 19 N. W. 272. 20 Baxter v. Jones, 185 Fed. 900; Fredenburg v. Lyon Lake M. E. Church, 37 Mich. 476. 21 Kirkpatrick v. United Presbyte- rian Church of Keota, 63 Iowa 372, 19 N. W. 272. 22 Kirkpatrick v. United Presbyte- rian Church of Keota, 63 Iowa 372, 19 N. W. 272. A claim of corporate existence on the part of a church is not shown by proof that its members held the ordi- nary meetings of a religious society and elected ofScers. Fredenburg v. Lyon Lake M. E. Church, 37 Mich. 476. 688 Ch. 11] COEPOEATIONS BY ESTOPPEL [§334 the attorney for a partnership, in an answer to a proposition to compromise a claim against it, inadvertently uses language implying that it has a board of directors estop the partners from denying that it is a corporation, where they have no actual knowledge that he has done so.^' It has been intimated that the fact that a contract is executed under the seal of an association may be sufficient to show prima facie that it is a corporation.'^* § 334. Estoppel of persons contracting or dealing with corporation — In general. According to the great weight of authority, a person who contracts or otherwise deals with a body of men as a corporation thereby admits that they are a corporation, and is estopped to deny their incorporation in an action against him based upon or arising out of such contract or course of dealing.^^ 23 Baxter v. Jones, 185 Fed. 900. 24 Grand Lodge Brotherhood of Locomotive Firemen v. Cramer, 60 111 App. 212, aff'd 164 111. 9, on the ground that the plea in abatement set ting up want of incorporation was in sufficient. See also Fitzpatriek v. Eutter, 160 III. 282, aff'g 58 111. App. 532. 26 United States. Wilder Mfg. Co. V. Corn Products Refining Co., 236 U. S. 165, 59 L. Ed. 520, Ann. Cas. 1916 A 118, aflE'g 11 Ga. App. 588, 75 S. E. 918; Andes v. Ely, 158 V. S. 312, 39 L. Ed. 996; Close v. Glenwood Ceme- tery, 107 U. S. 466, 27 L. Ed. 408; Chubb V. Upton, 95 .U. S. 665, 24 L. Ed. 523; Casey v. Galli, 94 U. S. 673, 24 L. Ed. 168; Leavenworth County v. Barnes, 94 U. S. 70, 24 L. Ed. 63; Smith V. Sheeley, 12 Wall. 358, 20 L. Ed. 430; Frost's Lessee v. Frostburg Coal Co., 24 How. 278, 16 L. Ed. 637; Old Colony Trust Co. v. Wichita, 123 Fed. 762, aff'd 132 Fed. 641; American Alkali Co. v. Campbell, 113 Fed. 398; Manship v. New South Building & Loan Ass'n, 110 Fed. 845; Toledo, St. L. & K. C. E. Co. V. Continental Trust Co., 95 Fed. 497, aff'g 86 Fed. 929, 82 I Priv. Corp. — 44 689 Fed. 642, application for certiorari denied 176 U. S. 219, 44 L. Ed. 442; Venner v. Farmers' Loan & Trust Co., 90 Fed. 348, certiorari denied 173 IT. S. 704, 43 L. Ed. 1185 (mem. dec); Automatic Phonograph Exhibition Co. V. North American Phonograph Co., 45 Fed. 1; Oregonian Ey Co., Ltd. v. Oregon Ey. & Nav. Co., 27 Fed. 277, rev'd on other grounds 145 IT. S. 52, 36 L. Ed. 620; Young v. Township of Clarendon, 26 Fed. 805; Dundee Mort- gage & Trust Inv. Co., Ltd. v. Cooper, 26 Fed. 665; Oregonian Ey. Co., Ltd. v. Oregon Ey. & Nav. Co., 23 Fed. 232, 22 Fed. 245, rev'd on other grounds 130 U. S. 1, 32 L. Ed. 837; Gartside Coal Co. V. Maxwell, 22 Fed. 197; Lewis V. Clarendon, 5 Dill. 329, Fed. Cas. No. 8,320. See also Allen' v. Ehodes, 230 Fed. 321; In re Sharood Shoe Corporation, 192 Fed. 945, 955; Gastonia Cotton Mfg. Co. v. W. L. Wells Co., 128 Fed. 369, rev'g on other grounds 118 Fed. 190, rev'd on other grounds 198 IT. S. 177, 49 L. Ed. 1003; Cunningham v. Cleveland, 98 Fed. 657. Alabama. First Nat. Bank of De- catur V. Henry, 159 Ala. 367, 49 So. 97; Owensboro Wagon Co. v. Bliss, §334] Peivate Cokpobations [Oh. 11 In some of the decisions it is said that the courts in this class of 132 Ala. 253, 90 Am. St. Eep. 907, 31 So. 81; Harris v. Gateway Land Co., 128 Ala. 652, 29 So. 611; Greenville v. Greenville Water Works Co., 125 Ala. 625, 27 So. 764; Christian & Craft Grocery Co. v. Pruitdale Lumber Co., 121 Ala. 340, 25 So. 566; Bibb v. Hall, 101 Ala. 79, 14 So. 98; Snider 's Sons' Co. V. Troy, 91 Ala. 224, 11 L. E. A. 515, 24 Am. St. Eep. 887, 8 So. 658; Schloss & Kahn v. Montgomery Trade Co., 87 Ala. 411, 13 Am. St. Eep. 51, 6 So. 360; Sherwood v. Alvis, 83 Ala. 115, 3 Am. St. Eep. 695, 3 So. 307; Central Agr. & Mech. Ass'n v. Ala- bama Gold Life Ins. Co., 70 Ala. 120; Lehman, Durr & Co. v. Warner, 61 Ala. 455; Cahall v. Citizens' Mut. Bldg. Ass'n, 61 Ala. 232; Marion Sav. Bank v. Dunkin, 54 Ala. 471; Eppes V. Mississippi, G. & T. E. Co., 35 Ala. 33; Selma & T. E. Co. v. Tipton, 5 Ala. 787, 39 Am. Dee. 344. See also Lucas V. Bank of Georgia, 2 Stew. 147. Arkansas. Jones v. Dodge, 97 Ark. 248, L. E. A. 1915 A 472, 133 S. W. 828; Town of Searcy v. Yarnell, 47 Ark. 269, 1 S. W. 319. See also Steele v. Hughes, 104 Ark. 517, 149 S. W. 336; rieener v. State, 58 Ark. 98, 23 S. W. 1; Gaines v. Bank, 12 Ark. 769. California. California Fruit Ex- change V. Buck, 163 Cal. 223, 124 Pac. 824; California Cured Fruit Ass'n V. Stelling, 141 Cal. 713, 75 Pac. 320; Eaphael Weill & Co. v. Crittenden, 139 Cal. 488, 73 Pae. 238; Tustin Fruit Ass'n V. Earl Fruit Co., 53 Pac. 693; Bank of Shasta v. Boyd, 99 Cal. 604, 34 Pac. 337; Fresno Canal & Irrigation Co. V. Warner, 72 Cal. 379, 14 Pac. 37; Grangers' Business Ass'n v. Clark, 67 Cal. 634, 8 Pac. 445; Pacific Bank V. De Eo, 37 Cal. 538; Argenti v. San Francisco, 16 Cal. 256, 264; Francis V. Western Screen Co., 22 Cal. App. 32, 1.13 Pac. 327; Sjerra Land & Cattle Co. V. Bricker, 3 Cal. App. 190, 85 Pac, 665. Colorado. Young v. Plattner Imple- ment Co., 41 Colo. 65, 91 Pac. 1109; Holmes Fuel & Feed Co. v. Commer- cial Nat. Bank, 23 Colo. 210, 47 Pae. 289; Plummer v. Struby-Estabrooke Mercantile Co., 23 Colo. 190, 47 Pac. 294; Stuyvesant v. Western Mortg. Co., 22 Colo. 28, 43 Pac. 144; Co well v. Colorado Springs Co., 3 Colo. 82, aff'd 100 TJ. S. 55, 25 L. Ed. 547; Union Gold Min. Co. v. Eocky Moun- tain Nat. Bank, 1 Colo. 531; Thompson V. Commercial Union Assur. Co. of London, England, 20 Colo. App. 331, 78 Pac. 1073; First Congregational Church of Cripple Creek v. Grand Eap- ids School Furniture Co., 15 Colo. App. 46, 60 Pac. 948; Grande Eonde Lum- ber Co. V. Cotton, 12 Colo. App. 375, 55 Pac. 610. Connecticut. West Winsted Sav. Bank & Bldg. Ass 'n v. Ford, 27 Conn. 282, 71 Am. Dec. 66. Dakota. School Dist. No. 61 v. Alderson, 6 Dak. 145, 41 N. W. 466. District of Columbia. Ohio Nat. Bank v. Central Const. Co., 17 App. Cas. 524. Florida. Duke v. Taylor, 37 Fla. 64, 31 L. E. A. 484, 53 Am. St. Eep. 232, 19 So. 172; Booske v. Gulf Ice Co., 24 Fla. 550, 5 So. 247; Jackson Sharp Co. v. Holland, 14 Fla. 384. See also § 335, infra. Georgia. Brown v. Atlanta Eailway 6 Power Co., 113 Ga. 462, 39 S. E. 71; Petty V. Brunswick & W. Ey. Co., 109 Ga. 666, 35 S. E. 82; Imboden v. Etowah & B. B. Hydraulic Hose Min. Co., 70 Ga. 86, 107; Wood v. Coosa & C. E. Co., 32 Ga. 273; Southern Bant of Georgia v. Williams, 25 Ga. 534; Cason V. State, 16 Ga. App. 820, 86 S. E. 644; Edenfield v. Bank of Millen, 7 Ga. App. 645, 67 S. E. 896. See also §335, infra. 690 Ch. 11] COEPOEATIONS BY EsTOPPEL [§334 eases really proceed upon a rule of evidence rather than upon the Idaho. Henry Gold Min. Co. v. Henry, 25 Idaho 333, 137 Pac. 523; Toledo Computing Scale Co. v. Young, 16 Idaho 187, 101 Pac. 257. UUnois. Winget v. Quincy Building & Homestead Ass'n, 128 111. 67, 84, 21 N. E. 12, aff'g 29 111. App. 173; Brown V. Scottish American Mortg. Co., 110 111. 235; Lombard v. Chicago Sinai Congregation, 64 111. 477; Eamsey v. Peoria Marine & Fire Ins. Co., 55 lU. 311; Mitchell v. Deeds, 49 HI. 416, 95 Am. Dec. 621; United States Exp. Co. V. Bedbury, 34 HI. 459; Hlinois Grand Trunk R. Co. v. Cook, 29 HI. 237; Tarbell v. Page, 24 111. 46; Ameri- can Sales Book Co. v. Wemple, 168 111. App. 639; Gilmer Creamery Ass'n v. Quentin, 142 111. App. 448; Chicago City Ey. Employees' Mut. Aid Ass'n V. Hogan, 124 HI. App. 447; Spreyne V. Garfield Lodge No. 1 of United Slavonian Benev. Society, 117 HI. App. 253; Eiemann v. Tyroler & Vorarl- berger Verein, 104 111. App. 413; Gay V. Kohlsaat, 80 HI. App. 178; Hickox & Eead Pub. Co. v. Dawes Mfg. Co., 64 111. App. 630; Payette v. Free Home Building, Loan & Homestead Ass'n, 27 111. App. 307; Miami Powder Co. v. Hotchkiss, 17 HI. App. 622. Indiana. Brickley v. Edwards, J 31 Ind. 3, 30 N. E. 708; Cravens v. Eagle Cotton Mills Co., 120 Ind. 6, 16 Am. St. Eep. 298, 21 N. E. 981; Smelser v. Wayne & U. Straight Line Turnpike Co., 82 Ind. 413; Jones v. Kokomo Bldg. Ass'n, 77 Ind. 340; Beatty v. Bartholomew County Agricultural So- ciety, 76 Ind. 91; Baker v. Neff, 73 Ind. 68; Mackenzie v. Board of School Trustees, 72 Ind. 189; Mullen v. Beech Grove Driving Park, 64 Ind. 202; Mc- Laughlin V. Citizens' Building, Loan & Savings Ass'n, 62 Ind. 264; Eansom V. Priam Lodge No. 145, F. & A. Masons, 51 Ind. 60; Eay v. Indianapo- lis Ins. Co., 39 Ind. 290; Vater v. Lewis, 36 Ind. 288, 10 Am. Eep. 29; Hartsville University v. Hamilton, 34 Ind. 506; Beaver v. Hartsville Uni- versity, 34 Ind. 245; McBrown v. Cor- poration of Lebanon, 31 Ind. 268; Williams v. Franklin Tp. Academical Ass'n, 26 Ind. 310; Snyder v. Stude- baker, 19 Ind. 462, 81 Am. Deo. 415; Board Com'rs Bartholomew Co. v. Bright, 18 Ind. 93; Brownlee v. Ohio, L & I. E. Co., 18 Ind. 68; Meikel v. German Sav. Fund Society, 16 Ind. 181; State v. Bailey, 16 Ind. 46, 51, 79 Am. Dec. 405; Evansville, I. & C. Straight Line R. Co. v. Evansville, 15 Ind. 395; Hubbard v. Chappel, 14 Ind. 601; Jones v. Cincinnati Type Foundry Co., 14 Ind. 89; Anderson v. Newcastle & E. E. Co., 12 Ind. 376, 74 Am. Dec. 218; Ft. Wayne & B. Turnpike Co. v. Deam, 10 Ind. 563; Ensey v. Cleveland & St. L. E. Co., 10 Ind. 178; Stoops v. Greensburgh & B. Plank-Eoad Co., 10 Ind. 47; Brookville & G. Turnpike Co. V. McCarty, 8 Ind. 392, 65 Am. Dec. 768; Eyan v. Vanlandingham, 7 Ind. 416; Judah v. American Live Stock Ins. Co., 4 Ind. 333; John v. Farmers' & Mechanics' Bank, 2 Blackf. 367, 20 Am. Dec. 119; Clark v. American Can- nel Coal Co., 35 Ind. App. 65, 73 N. E. 727, 165 Ind. 213, 112 Am. St. Eep. 217, 73 N. E. 1083. Iowa. Howe Mach. Co. v. Snow, 32 Iowa 433; Brown v. Phillips, 16 Iowa 210; Washington College v. Duke, 14 Iowa 14. See also Cedar Eapids Water Co. V. Cedar Eapids, 118 Iowa 234, 91 N. W. 1081, and § 335, infra. Kansas, Harris v. Independence Gas Co., 76 Kan. 750, 13 L. E. A. (N. S.) 1171, 92 Pac. 1123; MeCune Min. Co. v. Adams, 35 Kan. 193, 10 Pac. 468; Massey v. Citizens Bldg. & Sav. Ass'n, 22 Kan. 624; Pape v. Capitol Bank of Topeka, 20 Kan. 440, 27 Am. Eep. 183; McLennan v. Hopkins, 2 Kan. App. 260, 41 Pac. 1061. 691 334] Private Coepoeations [Ch. 11 strict doctrine of estoppel, as it would appear that they have treated Kentucky. Faulkner v. Farmers' Produce & Mercantile Co., 170 Ky. 22, 185 S. W. 151; Fruin-Colnon Contract- ing Co. V. Chatterson, 146 Ky. 504, 40 L. E. A. (N. S.) 857, 143 S. "W.6; Johnson v. Mason Lodge No. 33, I. O. O. F., 106 Ky. 838, 51 S. W. 620; "Wood V. Friendship Lodge No. 5, I. O. O. F. of Lexington, 106 Ky. 424, 50 S. W. 836; Henderson & N. E. Co. v. Leavell, 16 B. Mon. 358; Jones v. Bank of Ten- nessee, 8 B. Mon. 122, 46 Am. Dee. 540; Bank of Galliopolis v. Trimble, 6 B. Mon. 599; Depew v. Bank of Limestone, 1 J. J. Marsh. 378; Hughes V. Bank of Somerset, 5 Litt. 45. See also Hallam v. Ashford, 24 Ky. L. Eep. 870, 20 S. "W. 197, and §335, infra. Louisiana. American Homestead Co. V. Linigan, 46 La. Ann. 1118, 15 So. 369; Latiolais v. Citizens' Bank of Louisiana, 33 La. Ann. 1444; East Paseagoula Hotel Co. v. West, 13 La. Ann. 545; Liverpool & L. Fire & Life Ins. Co. V. Hunt, 11 La. Ann. 623. Maine. Seven Star Grange No. 73, Patrons of Husbandry v. Ferguson, 98 Me. 176; Simpson v. Garland, 76 Me. 203; South Bay Medow Dam Co. v. Gray, 30 Me. 547. Massachusetts. Butchers ' & Drovers' Bank of St. Louis v. Mc- Donald, 130 Mass. 264; Worcester Medical Inst. v. Harding, 11 Cush. 285. IWichlgan. Newcomb-Eudieott Co. V. Fee, 167 Mich. 574, 133 N. W. 540; Calkins v. Bump, 120 Mich. 335, 79 N. W. 491; Stofflet v. Strome, 101 Mich. 197, 59 N. W. 411; Eaton v. Walker, 76 Mich. 579, 6 L. E. A. 102, 43 N. W. 638; Estey Mfg. Co. v. Eunnels, 55 Mich. 130, 20 N. W. 823; Chapman v. Colby, 47 Mich. 46, 10 N. W. 74; Mer- chants' & Manufacturers' Bank v. Stone, 38 Mich. 779; Monroe v. Ft. Wayne, J. & S. E. Co., 28 Mich. 272; Swartwout v. Michigan Air Line E. Co., 24 Mich. 389; Cahill v. Kala- mazoo Mut. Ins. Co., 2 Doug. 124, 43 Am. Dec. 457. See also Chicago & G. T. E. Co. V. Miller, 91 Mich. 166, 51 N. W. 981. Minnesota. Richards v. Minnesota Sav. Bank, 75 Minn. 196, 77 N. W. 822; Continental Ins. Co. v. Eichardson, 69 Minn. 433, 72 N. W. 458; Ferine v. Grand Lodge A. O. IT. W., 48 Minn. 82, 50 N. W. 1022; Columbia Elec. Co. V. Dixon, 46 Minn. 463, 49 N. W. 244; Minnesota Gas Light Economizer Co. V. Denslow, 46 Minn. 171, 48 N. W. 771; St. Paul Land Co. v. Dayton, 39 Minn. 315, 40 N.' W. 66; French v. Donohue, 29 Minn. Ill, 12 N, W. 354. Mississippi. Smith v. Mississippi & A. E. Co., 6 Smedes & M. 179; John- son v. Grumble, 19 So. 100. Missouri. ClifEord Banking Co. v. Donovan Commission Co., 195 Mo. 262, 94 S. W. 527; West Missouri Land Co. V. Kansas City Suburban Belt E. Co., 161 Mo. 595, 61 S. W. 847; Bradley v. Eeppell, 133 Mo. 545, 54 Am. St. Eep. 685, 34 S. W. 841, 32 S. W. 645; Eein- hard v. Virginia Lead Min. Co., 107 Mo. 616, 28 Am. St. Eep. 441, 18 8. W. 17; Broadwell v. Merritt, 87 Mo. 95; Studebaker Bros. Mfg. Co. v. Montgomery, 74 Mo. 101; Stoutimore V. Clarke, 70 Mo. 471; St. Louis v. Shields, 62 Mo. 247; National Ins. Co. V. Bowman, 60 Mo. 252; Farmers' & Merchants' Ins. Co. v. Needles, 52 Mo. 17; Camp v. Byrne, 41 Mo. 525; Ohio & M. E. Co. V. McPherson, 35 Mo. 13, 86 Am. Dec. 128; Hamtramck V. Bank of Edwardsville 2 Mo. 169; Eialto Co. v. Miner, 183 Mo. App. 119, 166 S. W. 629; Lemp Hunting & Fish- ing Club v. Hackmann, 172 Mo. App. 549, 156 S. W. 791; Elliot v. Sullivan, 156 Mo. App. 496, 137 S. W. 287; White v. Bellefontaine Lodge, I. O. O. F., 30 Mo. App. 682; Father Matthew Young Men's Total Abstinence & 692 Ch. 11] COKPOBATIONS BY EsTOPPEL [§334 the contract with a party by a name implying a corporation really Benev. Society v. Pitzwilliam, 12 Mo. App. 445, aff'd 84 Mo. 406; St. Louis Gas Light Co. v. St. Louis, 11 Mo. App. 55, aff'd 84 Mo. 202; Lucas Market Sav. Bank V. Goldsoll, 8 Mo. App. 596; Occidental Ins. Co. v. Ganzhorn, 2 Mo. App. 205. See also Kansas City Hotel Co. V. Hunt, 57 Mo. 126. Nebraska. Equitable Building & Loan Ass'n v. Bidwell, 60 Neb. 169, 82 N. W. 384; Livingston Loan & Building Ass'n v. Drummond, 49 Neb. 200, 68 N. "W. 375; Nebraska Nat. Bank of York v. Ferguson, 49 Neb. 109, 59 Am. St. Eep. 522, 68 N. W. 370; Glob€j Pub. Co. V. State Bank of Ne- braska, 41 Neb. 175, 27 L. E. A. 854, 59 N. W. 683; Exchange Nat. Bank v. Capps, 32 Neb. 242, 29 Am. St. Eep. 433,49 N. W. 223; Holland v. Commer- cial Bank, 22 Neb. 571, 36 N. W. 113; Platte Valley Bank v. Harding, 1 Neb. 461; Crete Building & Loan Ass'n v. Patz, 1 Neb. (Unof.) 768, 95 N. "W. 793; Otoe County Pair & Driving Park Ass'n V. Doman, 1 Neb. (Unof.) 179, 95 N. "W. 327. See also § 335, infra. New Hampshire. Nashua Eire Ins. Co. V. Moore, 55 N. H. 48; Congrega- tional Society in Troy v. Perry, 6 N. H. 164, 25 Am. Dec. 455. New Jersey. Stout v. Zuliek, 48 N. J. L. 599, 7 AtL 362; Den v. Van Houten, 10 N. J. L. 270; Campbell v. Perth Amboy Shipbuilding & Engi- neering Co., 70 N. J. Eq. 40, 62 Atl. 319, aff'd 71 N. J. Eq. 302, 71 Atl. 1133; St. John the Baptist Greek Catholic Church v. Baron (N. J. Ch.), 73 Atl. 422. New Mexico. Palatine Ins. Co. v. Santa Pe Mercantile Co., 13 N. M. 241, 82 Pac. 363. New York. Commercial Bank of Keokuk v. Pfeiffer, 108 N. Y. 242, 15 N. E. 311, aff'g 22 Hun 327; Whitford V. Laidler, 94 N. Y. 145, 46 Am. Eep. 131, rev'g 25 Hun 136; Black Eiver & U. E. Co. V. Clarke, 25 N. Y. 208, aff'g 31 Barb. 258; Methodist Episco- pal Union Church v. Pickett, 19 N. Y. 482, aff'g 23 Barb. 436; Green v. Grigg, 98 App. Div. 445, 90 N. Y. Supp. 565; Eagle Savings & Loan Co. v. Samuels, 43 App. Div. 386, 60 N. Y. Supp. 91; National Bank v. Phcp.nix Warehousing Co., 6 Hun 71; National Society of United States Daughters of 1812 V. American Surety Co. of New York, 56 Misc. 627, 107 N. Y. Supp. 820; Wliite v. Eoss, 15 Abb. Pr. 66; Erie County Sav. Bank v. Baldwin, 22 Alb. L. J. 134; Sands v. Hill, 42 Barb. 651, rev'd on other grounds 55 N. Y. 18; Hyatt v. Esmond, 37 Barb. 601; White v. Cov- entry, 29 Barb. 305; Steam Nav. Co. V. Weed, 17 Barb. 378, .aff'd 7 Abb. Pr. 220, 28 Barb. 228; Gorton Steamer Co. V. Spofford, 5 Civ. Proc. Eep. 116; Dutchess Cotton Manufactory v. Davis, 14 Johns. 238, 7 Am. Dec. 459; Kuypers v. Eeformed Dutch Church, 6 Paige 570; Palmer v. Lawrence, 3 Sandf. 161, aff'd 5 N. Y. 389; Weed Sewing Mach. Co. v. Kaulback, 3 Su- per. Ct. (3 Thomps. & C.) 304; All Saints Church v. Lovett, 1 Super. Ct. 213. See also Holmes v. Gilliland, 41 Barb. 568; Caryl v. McElrath, 5 Super. Ct. (3 Sandf.) 176. But see Welland Canal Co. v. Hathaway, 8 Wend. 480, 24 Am. Dec. 51. North Carolina. Payetteville Water- works Co. V. Tillinghast, 119 N. C. 343, 25 S. E. 960; Tuckasegee Min. Co. v. Goodhue, 118 N. C. 981, 24 S. B. 797; Wadesboro Cotton Mills Co. v. Burns, 114 N. C. 353, 19 S. E. 238; Eyan v. Martin, 91 N. C. 464; Wilmington, C. & E. E. Co. V. Thompson, 52 N. C. 387; Wilmington & M. E. Co. v. Saunders, 48 N. C. 126; Tar Eiver Nav. Co. v. Neal, 10 N. C. 520. Ohio. Newburg Petroleum Co. v. Weare, 27 Ohio St. 343; Hagerman v, 693 §334] Peivate Cobpoeations [Ch. 11 as evidence of the existence of a corporation, more than as an estoppel Ohio Bldg. & Sav. Ass'n, 25 Ohio St. 186; Lucas v. Greenville Bldg. & Sav. Ass'n, 22 Ohio St. 339; Shawnee Com- mercial & Savings Bank v. Miller, 1 Ohio Cir. Ct. (N. S.) 569; Durrell v. Belding, 9 Ohio Cir. Ct. 74; Mansfield V. Woods, Jenks & Co., 11 Ohio Dee. 761. Oklahoma. Lynch v. Ferryman, 29 Okla. 615, Ann. Cas. 1913 A 1065, 119 Pac. 229. Oregon. Washington Nat. Building, Loan & Investment Ass'n v. Stanley, 38 Ore. 319, 58 L. E. A. 816, 84 Am. St. Eep. 793, 63 Pac. 489; Jones v. Hale, 32 Ore. 465, 52 Pac. 311. See also Law Guarantee & Trust Society v. Hogue, 37 Ore. 544, 63 Pac. 690, 62 Pac. 380. Pennsylvania. Hassinger v. Am- mon, 160 Pa. St. 245, 28 Atl. 679; Johnston v. Elizabeth Building & Loan Ass'n, 104 Pa. St. 394; Preeland v. Pennsylvania Cent. Ins. Co., 94 Pa. St. 504; Spahr v. Farmers Bank, 94 Pa. St. 429; Grant v. Henry Clay Coal Co., 80 Pa. St. 208; Cochran v. Arnold, 58 Pa. St. 399; Dyer v. Walker, 40 Pa. St. 157; Mechanics' Building & Loan Ass'n v. Minnich, 1 Luz. Leg. Reg. 513. Philippines. Chinese Chamber of Commerce v. Pua Te Ching, 14 Philip- pine Rep. 222. Rhode Island. Slocum v. Warren, 10 E. I. 116; Slocum v. Providence Steam & Gas Pipe Co., 10 E. L 112. South Carolina. Spartanburg & A. E. Co. V. Ezell, 14 S. C. 281. South Dakota. Building & Loan Ass'n of Dakota v. Chamberlain, 4 S. D. 271, 56 N. W. 897. See also Wright v. Lee, 2 S. D. 596, 51 N. W. 706. Tennessee. Ingle System Co. v. Norris & Hall, 132 Tenn. 472, 178 S. W. 1113; Greeneville & P. E. Narrow Gauge E. Co. v. Johnson, 8 Baxt. 332; Merriman v. Magiveny, 12 Heisk. 494; East Tennessee Iron Mfg. Co. v. Gas- kell, 2 Lea 742. See also § 335, infra. Texas. Keller v. Mitchell, 1 White & W. Cir. Cas. Ct. App. § 97. See also § 335, infra. Utah. Jackson v. Crown Point Min. Co., 21 Utah 1, 81 Am. St. Eep. 651, 59 Pac. 238; Marsh v. Mathias, 19 Utah 350, 56 Pac. 1074; Kilpatrick- Koch Dry-Goods Co. v. Box, 13 Utah 494, 45 Pac. 629; McCord & Nave Mer- cantile Co. V. Glenn, 6 Utah 139, 21 Pac. 500. Vermont. Bank of Manchester v. Allen, 11 Vt. 302. Washington. Carroll v. Pacific Nat. Bank, 19 Wash. 639, 54 Pac. 32; Wash- ington Mill Co. V. Craig, 7 Wash. 556, 35 Pac. 413. West Virginia. Marmet Co. v. Archibald, 37 W. Va. 778, 17 S. E. 299; Bon Aqua Imp. Co. v. Standard Fire Ins. Co., 34 W. Va. 764, 12 S. E. 771; Singer Mfg. Co. v. Bennett, 28 W. Va. 16. Wisconsin. Citizens Bank of Clin- ton V. Jones, 117 Wis. 446, 94 N. W. 329; Whitney v. Eobinson, 53 Wis. 309, 10 N. W. 512; Mason v. Nichols, 22 Wis. 376. See also Farmers' & Mill- ers' Bank v. Detroit & M. E. Co., 17 Wis. 372. Canada. Manitoba Mortg. & Inv. Co. V. Daly, 10 Man. L. Eep. 425. This is especially true in the case of a note which recites that the payee is a corporation duly organized under the laws of the state. Young v. Platt- ner Implement Co., 41 Colo. 65, 91 Pac. 1109. In Law Guarantee & Trust Society v. Hogue, 37 Ore. 544, 63 Pac. 690, 62 Pae. 380, it was held that the es- toppel, if any existed, was waived by the failure of the plaintiff to demur to the answer and plea denying its "corporate existence. 694 Ch. 11] COBPOEATIONS BY EsTOPPEL [§334 to disprove such fact,^^ and that it is more correct to say that the party contracting with the corporation will be considered as having admitted its corporate existence rather than that he cannot deny it.^' And a number of courts have held that the making of the contract with the corporation as such is prima facie evidence of the existence of the eorporation,^^ and that no further proof of that fact is necessary in an action thereon until such proof is rebutted,^' 26 Brown v. Scottish-American Mortg. Co., 110 111. 235; Jones v. Cincinnati Type Foundry Co., 14 Ind. 89; Eyan v. Martin, 91 N. C. 464. See also § 336, infra. ZVHoereth v. Franklin Mill Co., 30 111. 151. In the following eases the making of the contract is said to be an ad- mission of the incorporation of the association : Illinois. West Side Auction House Co. V. Connecticut Mut. Life Ins. Co., 186 111. 156, 57 N. E. 839, aff'g 85 111. App. 497; Mitchell v. Deeds, 49 111. 416, 95 Am. Dec. 621. Indlaaia. Blake v. HoUey, 14 Ind. 383. Missouri. Owens, Lane & Dyer Mach. Co. V. Pierce, 5 Mo. App. 576. New Hampsliire. Nashua Fire Ins. Co. V. Moore, 55 N. H. 48. New Jersey. Den v. Van Houten, 10 N. J. L. 270. North Carolina. New Bern Bank- ing & Trust Co. V. DufCy, 156 N. C. 83, 72 S. E. 96. 28Alat)ama. Montgomery E. Co. v. Hurst, 9 Ala. 513. Illiuois. West Side Auction House Co. V. Connecticut Mut. Life Ins. Co., 186 111. 156, 57 N. B. 839, aff'g 85 111. App. 497; Hudson v. Green Hill Semi- nary Corporation, 113 111. 618; Brown V. Scottish-American Mortgage Co., 110 111. 235; American Ins. Co. v. Mc- Clelland, 184 HI. App. 381; Nelson Chesman & Co. v. Singers, 183 111. App. 591; American Sales Book Co. V. Wemple, 168 111. App- 639; Trog- don V. Cleveland Stone Co., 53 III. App. 206. Massachusetts. Williamsburg City Fire Ins. Co. v. Frothingham, 122 Mass. 391; Topping v. Bickford, 4 Allen 120; Williams v. Cheney, 3 Gray 215. IVlissourl. Owens, Lane & Dyer Mach. Co. V. Pierce, 5 Mo. App. 576. North Carolina. New Bern Bank- ing & Trust Co. V. Duffy, 156 N. C. 83, 72 8. E. 96; Eyan v. Martin, 91 N. C. 464. The making of a note payable to a corporation by name is sufficient evi- dence of its existence by that name in an action thereon. Woodson v. Bank of Gallipolis, 4 B. Mon. (Ky.) 203. "The reason for the rule, where the instrument itself does not disclose a corporate existence, is that the bur- den of proving corporate existence when there is a plea of nul tiel corpo- ration is on the plaintiff, since the plea denies the averment of the dec- laration." American Ins. Co. v. Mc- Clelland, 184 HI. App. 381. In Woods v. Kingston Coal Co., 48 111. 356, 95 Am. Dec. 554, which was an action by a corporation on a cove- nant in a deed executed to it by the defendant, it was held that by selling ' and conveying the laud to the plain- tiff the defendant recognized its cor- porate existence, and that this, of itself, was sufficient evidence from which the jury might infer that it was acting as a corporate body. See also § 336, infra. 29 West Side Auction House Co. v. Connecticut Mut. Life Ins. Co.. 186 695 §334] Pbivate Coepokations [Ck 11 although the contrary has been held to be true where there is nothing in an instrument executed to a company which describes or refers to it as a corporation or in any way intimates that it is one.^" The making of the contract has also been held to be "estoppel evidence" of the allegation of incorporation.^^ In at least one state the, doctrine under discussion has been entirely repudiated, and it has been held that a corporation cannot be actually or virtually created by estoppel, and that a person dealing with an association as a corporation is not thereby estopped to deny its corporate existence.'* § 335. — Statutory provisions. In some jurisdictions the rule that a person dealing with an association as a corporation is estopped to deny its corporate existence has been prescribed .by statute. So it has been variously provided that no person who has transacted business with a corporation,^' or -who is sued on a contract with a corpora- Ill. 156, 57 N. E. 839, aff'g 85 111. App. 497; Hudson v. Green Hill Seminary Corporation, 113 111. 618; Brown v. Scottish-American Mortg. Co., 110 111. 235; Nelson Chesman & Co. v. Singers, 183 111. App. 591. See also §336, infra. 30 American Ins. Co. v. McClelland, 184 HI. App. 381; American Sales Book Co. V. "Wemple, 168 111. App. 639. In Hudson v. Green Hill Seminary- Corporation, 113 111. 618, the court states that the execution of a note promising to pay a certain sum to the treasurer of the "Green Hill Semi- nary" was sufficient prima facie evi- dence of incorporation as against a plea of nul tiel corporation. But in American Ins. Co. v. McClelland, 184 111. App. 381, it is said that this hold- ing was not necessary for the decision of that case because there was other proof of the existence of a de facto corporation, and attention is also called to the fact that in that case the trial court found for the plaintiff, and its judgment was affirmed. 31 The signing of a note payable to a corporation "is estoppel evidence of the allegation of its incorpora- tion." Eyan V. Martin, 91 N. C. '464. 32 National Shutter Bar Co. v. 6. R S. Zimmerman & Co., 110 Md. 313, 73 Atl. 19; Maryland Tube & Iron Works V. West End Improvement Co., 87 Md. 207, 39 L. E. A. 810, 39 Atl. 620; Bonaparte v. Baltimore, H. & L. E. E. Co., 75 Md. 340, 23 Atl. 784; Boyce v. Towsontown Station of M. E. Church, 46 Md. 359. Compare, however, Bartlett v. Wilbur, 53 Md. 485; Pranz v. Teutonia Bldg. Ass'n, 24 Md. 259, Hager v. Cleveland & Bas- sett, 36 Md. 476, in which a contrary rule appears to have been adopted. See also § 341, infra. 33 Kentucky. St. 1909, §566; Fruin- Colnon Contracting Co. v. Chat- terson, 146 Ky. 504, 40 L. E. A. (N. S.) 857, 143 S. W. 6; Warden v. Madi- sonville, H. & E. E. Co., 125 Ky. 644, 101 S. W. 914; Drake v. Herndon, 122 Ky. 206, 28 Ky. L. Eep. 1106, 91 S. W. 674; Com. v. Licking Valley Bldg. Ass'n No. 3, 118 Ky. 791, 82 S. W. 435; Johnson v. Mason Lodge No. 33, L O. O. F., 106 Ky. 838, 51 S. W. 620; Wood V. Friendship Lodge No. 5, I. O. 0. F. of Lexington, 106 Ky. 424, 50 S. W. 836; Walton v. Eiley, 85 Ky. 413, 3 S. W. 605, overruling Heinig v. Adams & Westlake Mfg. Co., 81 Ky. 696 Ch. 11] COEPOKATIONS BY EsTOPPEL [§335 tion,^* shall set up or be permitted to rely upon its want of legal incor- poration as a defense, or that all who have dealt with a corporation as such are estopped from denying its corporate existence ; ^^ or that no person who assumes an obligation to a corporation as such shall resist the enforcement of such obligation on the ground that there was in fact no such corporation, until that fact has been adjudged in a direct proceeding had for that purpose.'® It has been held that such a provision applies in the case of in- effective attempts to amend the corporate charter or articles as well as to the want of an original legal organization, and that "no defense * * * which a party contracting with the corporation would be disqualified to set up, can be made available in connection with an amendment to the original articles. ' ' ''' 300, 5 Ky. L. Eep. 281, and, by im- plication, Eobinson v. Harris, 5 Ky. L. Eep. 928. Handley v. Stutz, 139 TJ. S. 417, 35 L. Ed. 227, rev'g on other grounds 41 Fed. 531. Gen. St. 1873, c. 56, § 18, provided that no person sued on a contract made with a cor- poration should be permitted to rely upon its legal organization in his de- fense. Walton V. Riley, 85 Ky. 413, 3 S. W. 605, overruling Heinig v. Adams & Westlake Mfg. Co., 81 Ky. 300, 5 Ky. L. Eep. 281, and, by im- plication, Eobinson v. Harris, 5 Ky. L. Eep. 928. 34 Florida. Gen. St. 1906, §2687. Iowa. Code 1897, § 1636; Quinn v. Shields, 62 Iowa 129, 49 Am. Eep. 141, 17 N. "W. 437; Carrothers v. New- ton Mineral Spring Co., 61 Iowa 681, 17 N. W. 43; Courtright v. Deeds, 37 Iowa 503; Howe Mach. Co. v. Snow, 32 Iowa 433; Washington College v. Duke, 14 Iowa 14; Iowa Lillovet Gold Min. Co. V. United States Fidelity & Guaranty Co., 146 Fed. 437. In Quinn V. Shields, 62 Iowa 129, 49 Am. Eep. 141, 17 N. W. 437, it was held that a bequest is a "contract," within the meaning of this provision, and that, where a corporation seeks to enforce a bequest to it in a will duly pro- bated, its claim cannot be resisted on the ground that it has not been legally organized. Nebraska. Comp. St. 1911, § 2102; Lincoln Butter Co. v. Edwards-Brad- ford Lumber Co., 76 Neb. 477, 107 N., W. 797; Livingston Loan & Build- ing Ass'n V. Drummond, 49 Neb. 200, 68 N. W. 375; Holland v. Commercial Bank, 22 Neb. 571, 36 N. W. 113. Tennessee. Shannon's Code, § 20C4; Pope V. Merchants' Trust Co., 118 Tenn. 506, 103 S. W. 792; Bon Aqua Improvement Co. v. Standard Fire Ins. Co., 34 W. Va. 764, 12 S. E. 771 (construing the Tennessee act). 35 Georgia. Code 1911, §2226; Col- lins v. Citizens ' Bank & Trust Co., 121 Ga. 513, 39 S. E. 594. 36 Montana. Eev. Codes, §3810; Daily v. Marshall, 47 Mont. 377, 133 Pac. 681. Texas. Penner v. Britton (Tex. Civ. App.), 34 S. W. 301. Under this pro- vision, a person who has taken a lease from a corporation cannot deny its corporate existence in an action against him to recover rents and for the possession of the leased premises. Lamb v. Beaumont Temperance Hall Co., 2 Tex. Civ. App. 289, 21 S. W, 713. 37 Handley v. Stutz, 139 U. S. 417, 35 L. Ed. 227, construing the Ken- 697 § 335 J Private Coeporations [Ch. 11 On the other hand, it has heen held that the effect of such pro- visions is to permit persons other than those named therein to rely upon the want of legal organization as a defense to an action brought by the corporation.^' And it has also been held that where the statute provides that where an effort has been made in good faith to form, under the laws of the state, a corporation capable of being formed thereunder, neither party, to any transaction with it shall deny the legality of its incorporation, the obvious intent and spirit of the provision being "to save the incorporation of persons who have in good faith made an effort to comply with the requisites of the cor- poration laws of the state, but whose compliance turns out to have been in some respects irregular or informal," and that "it was not intended to cover eases where, through indifference or neglect, there has been no attempt at all to comply with important requirements of the law, which by its express terms are made conditions precedent to the possession or use of any corporate franchises."'' And also that it applies only where the legality of the incorporation is denied, and not where it is merely claimed that the association had not yet become incorporated at the 'time of the transaction in question.*" Under a statute providing that corporations unauthorized by law cannot appear in court in their corporate names, one sued on a contract made ^dth an ostensible corporation may set up that it has not complied with the statutory conditions precedent to a valid in- corporation.*^ tucky statute, and rev'g on other may set up as a defense to an action grounds 41 Fed. 531. thereon, brought in the name of the 38 One whose property is sought to bank, that it has not complied with be condemned may rely on the want the conditions precedent to a valid of legal incorporation, since he has not incorporation under the banking act. transacted business with the corpora- Workingmeu's Accommodation Bank tion and is not sued for an injury to v. Converse, 29 La. Ann. 369, followed his property. Warden v. Madison- in Workingmen's Bank v. Converse,, ville, H. & E. E. Co., 125 Ky. 644, 33 La. Ann. 963; Hincks v. Converse, 101 S. W. 914. 37 La. Ann. 484. But in American 39 As, for example, where there has Homestead Co. v. Linigan, 46 La. been a failure to pay the bonus tax. Ann. 1118, 15 So. 369, the foregoing National Shutter Bar Co. v. 6. F. S. decisions were said not to be abso- Zimmerman & Co., 110 Md. 313, 73 lutely in line with other decisions on Atl. 19 (construing Acts 1908, c. 240, the subject, and the rule laid down § 6). by them was held not to apply in ac- 40 National Shutter Bar Co. v. G. tions against stockholders to recover F. S. Zimmerman & Co., 110 Md. 313, on stock subscriptions, or against a 73 Atl. 19. stockholder in a building association 41 So the principal and sureties on to recover the amount of a loan to the bond of an employee of a bank him. 698 Ck 11] COKPOEATIONS BY EsTOPPEL [§336 §336. — Oontractingf in name implying corporate existence. In some of the eases it has been held that making a note to an association, or taking one from it, or entering into otheri contracts with it, in a name which is ordinarily, though not necessarilj-, taken as implying a corporation, does not even prima facie estop one from denying that the association is a corporation, where there is no recital in the contract that it is a corporation, since an unincorporated association may thus do business in a name which would be appropriate to a eorporation,*^ and contracting with it under such a name merely 42 United States Bank v. Stearns, 15 Wend. (N. Y.) 314; Welland Canal Co. V. Hathaway, 8 "Wend. (N. Y.) 480, 24 Am. Dec. 51; Williams v. Bank of Michigan, 7 Wend. (N. Y.) 539; HoUoway v. Memphis, E. P. & P. E. Co., 23 Tex. 465, 76 Am. Dec. 68; Bank of Alabama v. Simonton, 2 Tex. 531. The court in Welland Canal Co. v. Hathaway, 8 Wend. (N. Y.) 480, 24 Am. Dec. 51, points out that the state- ment to the contrary in Dutchess Cot- ton Manufactory v. Davis, 14 Johns. (N. Y.) 238, 7 Am. Dec. 459, was merely dictum, and this fact is also referred to in Bank of Alabama v. Simonton, 2 Tex. 531. So it was held that a person was not estopped by selling goods to "The Hot Springs Ice Company." (Garnett v. Richard- son, 35 Ark. 144.) The same was held of a person contracting with "The Bone Black Company ' ' (Field v. Cook, 16 La. Ann. 153); and of a person depositing in a bank doing business under the name of "Traders' Bank" (Williams v. Hewitt, 47 La. Ann. 1076, 49 Am. St. Eep. 394, 17 So. 496) ; and of a person contracting with "Hughes & Gawthorp Co." (Guckert V. Hacke, 159 Pa. St. 303, 28 Atl. 249). In Gaines v. Bank, 12 Ark. 769, which was a suit on a note payable to the "Bank of Mississippi," in which defendant pleaded nul tiel corporation, it was held that even if the execution of the note was an estoppel, the plain- tiff should have pleaded it in reply. and that, not having done so, it was error to instruct the jury that the defendant could not deny, the exist- ence of the bank. It was further held that the note was competent evidence of user. The mere fact that a contract is made in the name of the "Pierre & Ft. Pierre Bridge Company" is not notice to the other party that such company was conducting the business in question as a corporation so as to preclude him from holding its mem- bers liable as partners on the contract, since they could have as- sumed that name by which to transact business as a partnership. Eust-Oweu Lumber Co. v. Wellman, 10 S. D. 122, 72 N. W. 89. The name "Walker,, Hopkins & Co." does not indicate that such com- pany is a corporation so as to pre- clude one contracting with it in that name from contending that he be- lieved it to be a copartnership. Eaton V. Walker, 76 Mich. 579, 6 L. E. A. 102, 43 N. W. 638. The name "Crowell Glass & Cold Storage Company" signed to a note is not sufficient to put the indorsee upon inquiry as to the incorporation of the maker so as to prevent him from holding its members liable there- on as partners. New York Nat. Exch. Bank of City of New York v. Crowell, 177 Pa. St. 313, 35 Atl. 613. In Cunyus v. Guenther, 96 Ala. 564, 11 So. 649, it was held that the name 699 336] Private Coeporations [Ck 11 admits the existence of an association acting under that name,** and that its members had capacity to transact business as a company.** On the other hand, a number of courts have held that there is at least a prima facie admission and estoppel, if the name used is one which is generally considered as importing a corporation, rather than a mere unincorporated association.*^ In such eases, "the form of "The Penn Mutual Life Insurance Company of Philadelphia" did not give rise to an inference that such company was incorporated so as to make its failure to comply with the statute relative to foreign insurance companies, a defense to an action by it on a premium note. An,d in Clark V. Jones, 87 Ala. 474, 6 So. 362, that the name "Wetumpka Lumber Com- pany" might import either a corpo- ration, an unincorporated association, or a partnership, and that no presump- tion arose from the mere name that it was the one or the other. In this case it was sought to hold the defend- ant individually liable as a partner for goods sold to a company. But in Montgomery E. Co. v. Hurst, 9 Ala. 513, it was held that the making of notes payable to a corporation by its corporate name is an admission by the maker of its incorporation, and prima facie evidence of the existence of the charter of the company and user under it. And see Magnolia Shin- gle Co. V. J. Zimmern 's Co., 3 Ala. App. 578, 58 So. 90. See also McVicker v. Cone, 21 Ore. 353, 28 Pac. 76; Jack- son's Adm'x V. Bank of Marietta, 9 Leigh (Va.) 240. 43 Welland Canal Co. v. Hathaway, 8 Wend. (N. T.) 480, 24 Am. Dec. 51; HoUoway v. Memphis, E. P. & P. E. Co., 23 Tex. 465, 76 Am. Dec. 68; Bank of Alabama v. Simonton, 2 Tex. 531. Where a note is made payable to the "Bank of the State of Alabama," all presumption is in favor of its legal and true character being such as was acknowledged by the maker in con- tracting with the corporation. Eey- nolds v. Skelton, 2 Tex. 516. 44 United States Bank v. Stearns, 15 Wend. (N. Y.) 314. 46 Williams v. Franklin Tp. Aca- demical Ass'n, 26 Ind. 310; Blake v. HoUey, 14 Ind. 383; Gainesville & Ala- chua County Hospital Ass'n v. Atlan- tic Coast Line E. Co., 157 N. C. 460, 73 S. E. 242; Eyan v. Martin, 91 N. C. 464. The giving of a note to a corpora- tion in its corporate name is an ad- mission of its due incorporation so far, at least, as to render proof of that fact unnecessary in the first instance in an action on the note. Williams v. Cheney, 3 Gray (Mass.) 215; New Bern Banking & Trust Co. v. Duffy, 156 N. C. 83, 72 S. E. 96. "The execution and delivery of a promissory note to the payee by its corporate name is such an admission of the incorporation of the payee as to make out a prima facie case on that point, although the note does not state that the payee was incorporated." Owens, Lane & Dyer Mach. Co. v. Pierce, 5 Mo. App. 576. It is more correct to say that a party contracting with a corporation by name will be considered as having admitted its incorporation rather than that he cannot deny it. Hoereth v. Franklin Mill Co., 30 111. 151. "If the style by which a party is contracted with is such as is usual in creating corporations; viz., nam- ing an ideality, but disclosing that of no individual, as is usual in the case of simple partnerships, it has been treated as prima facie, at least, 700 Ch. 11] COBPOEATIONS BY EsTOPPEL [§336 name which would be assumed to be a corporation is said to imply- that it is a corporation, and the mere introduction of the obligation indicating a corporate existence. And such seems to have been the rule at common law." Jones v. Cincinnati Type Foundry Co., 14 Ind. 89, quoted in Williams v. Franklin Tp. Aeademi- eal Ass'n 26 Ind. 310; Eyan v. Martin, 91 N. C. 464. ' ' But, in this class of cases, it would seem, after all, that the courts have proceeded upon a rule of evidence, rather than the strict doctrine of es- toppel. They have treated the con- tract with a party by a name implying a corporation, really as evidence of the existence of a corporation, more than as an estoppel to disprove such fact." Jones v. Cincinnati Type Foundry Co., 14 Ind. 89, quoted in part in Brown v. Scottish-American Mortg. Co., 110 111. 235. "The doctrine of conclusive estop- pel seems more properly applied to cases involving the question of legal- ity of organization, where the fact of an existing statute, authorizing, in the given ease, such corporation, is known to the court, either by judicial notice or actual evidence in the cause." Jones V. Cincinnati Type Foundry Co., 14 Ind. 89. This rule of estoppel "is subject however to the qualification that if the plaintiff assumes to be a corpora- tion organized in this state, the name must be such as to imply such a cor- poration as some law of the state au- thorizes." Williams v. Franklin Tp. Academical Ass'n, 26 Ind. 310. In Johnston Harvester Co. v. Clark, 30 Minn. 308, 15 N. W. 252, it is said that by contracting with a company by name "the defendant recognized the existence of some legal entity by that name, and having capacity to contract; and the contract was itself sufficient prima facie proof against the defendant, in the nature of an admission on his part of the right of the person or being represented by that name to enforce the contract by action." And this language was quoted, in substance, and the rule laid down followed in Continental Ins. Co. V. Richardson, 69 Minn. 433, 72 N. W. 458. The rule stated in the text has been applied in the case of notes made to "The Commercial National Bank" (Joseph Holmes Fuel & Feed Co. v. Commercial Nat. Bank, 23 Colo. 210, 47 Pac. 289) ; or to " The Platte Val ley Bank" (Platte Valley Bank v, Harding, 1 Neb. 461); or to the "Con- tinental Insurance Company" (Top- ping V. Bickford, 4 Allen [Mass.] 120: Continental Ins. Co. v. Richardson, 69 Minn. 433, 72 N. W. 458); or to "the President, Directors and company of the bank of Galliopolis" (Bank of Galliopolis v. Trimble, 6 B. Mon. [Ky.] 599); or to "The German Sav- ings Fund Society of Indianapolis" (Meikel v. German Sav. Fund Society, 16 Ind. 181); or to the "Miami Pow- der Co." (Miami Powder Co. v. Hotehkiss, 17 111. App. 622) ; or to the "Missouri City Savings Bank" (Stoutimore v. Clark, 70 Mo. 471); or to "Studebaker Brothers' Manufac- turing Co." (Studebaker Bros. Mfg. Co. V. Montgomery, 74 Mo. 101); or to "The Johnston Harvester Company" (Johnston Harvester Co. v. Clark, 30 Minn. 308, 15 N. W. 252); or to a railroad company (Montgomery E. Co. V. Hurst, 9 Ala. 513; Mitchell v. Deeds, 49 111. 416, 95 Am. Dec. 621); and of bonds executed to "The Den- ver Music Company" (Kelleher v. Denver Music Co., 48 Colo. 212, 109 Pac. 860); or to the "Cleveland Stone Company" (Trogden v. Cleveland Stone Co., 53 111. App. 206). The description of the trustee in a 701 §336] Peivate Coepobations [Ch. 11 as evidence will make out a prima facie ease that the contract is with a corporation."*^ deed of trust as "The Nebraska Loan & Trust Company," and recitals that the trustee was a corporation in a deed and the acknowledgment thereof executed by the trustee pursuant to the trust, were held to be sufficient prima facie proof in an action to quiet title. Lougee v. Wilson, 24 Colo. App. 70, 131 Pae. 777. A bond running to "the Williams- burg City Mre Insurance Company of Brooklyn, New York," and its "successors and assigns," is sufficient prima facie evidence of the incor- poration of such company in an action by it thereon. Williamsburg City Fire Ins. Co. V. Prothingham, 122 Mass. 391. "The name 'Ingle System Com- pany' does not indicate that it is a firm of individuals. While it is not a conclusive fact, yet it may be fairly assumed as a presumption from the name of the company that it is a corporation, especially at this time, when corporations form such a large part of the concerns engaged in busi- ness, and especially among those doing an interstate business * * *." In- gle System Co. v. Norria & Hall, 132 Tenn. 472, 178 S. W. 1113. The name "Tindle Cotton Com- pany" is prima facie that of a cor- poration and not a, firm, and will be so treated by way of presumption in the absence of proof when the basic inquiry is whether notice was im- parted thereby to those who in deal- ing with it took exchange issued by the bank in its behalf under that name. Pemiscot County Bank v. Cen- tral State Nat. Bank, — Tenn. — , 185 S. W. 702. In Hudson v. Green Hill Seminary Corporation, 113 111. 618, the court states that the execution of a note promising to pay a certain sum to the treasurer of the "Green Hill Semi- nary" was sufficient prima facie evi- dence of incorporation as against a plea of nul tiel corporation. But in American Ins. Co. v. McClelland, 184 111. App. 381, it is said that this hold- ing was not necessary for the deci- sion of that case because there was other proof of the existence of a de facto corporation, and attention is also called to the fact that in that case the trial court found for the plaintiff and that its judgment was affirmed. In Mclntire v. Preston, 10 111. (5 Gilm.) 48, 48 Am. Dec. 321, it is said that the note in suit "being payable to the Ocean Insurance Company in its corporate capacity, prima facie no other evidence of user was neces- sary. ' ' A finding that persons dealt with an association as a corporation is sustained, in the absence of evidence to the contrary, by evidence that they dealt with it as the "M. Savings Bank," where there is a statute for- bidding any unincorporated bank to solicit deposits as a "savings bank." Eichards v. Minnesota Sav. Bank, 75 Minn. 196, 77 N. W. 822. See also Grande Eonde Lumber Co. v. Cotton, 12 Colo. App. 375, 55 Pac. 610; Mcln- tire V. Preston, 10 111. (5 Gilm.) 48, 48 Am. Dec. 321; Vater v. Lewis, 36 Ind. 288, 10 Am. Eep. 29; Bank of Galliopolis v. Trimble, 6 B. Mon. (Ky.) 599; Estey Mfg. Co. v. Eunnels, 55 Mich. 130, 20 N. W. 823; Minnesota Gas-light Economizer Co. v. Denslow, 46 Minn. 171, 48 N. W. 771; Exchange Nat. Bank v. Capps, 32 Neb. 242, 29 Am. St. Eep. 433, 49 N. W. 223. 46 Ingle System Co. v. Norris & Hall, 132 Tenn. 472, 178 S. W. 1113. 702 Ch. 11] COEPORATIONS BY EsTOPPEL [§337 The use of such a name is not conclusive, however,*'' and will not preclude one contracting with the persons assuming it from showing that he dealt with them as individuals composing a partnership and not as a corporation ; ** or that they were not in fact assuming to be a corporation, but only a partnership.*^ The word "company" is equally applicable to a partnership, and its use does not imply a claim of corporate existence so as to estop a person contracting with it.*' It has also been held that merely mentioning a bank by its cor- porate name in a note as the place where such note is payable is not such a recognition of the bank as a corporation as to estop the maker to deny its corporate existence, where it afterwards acquires title to the note and brings an action upon it."^ § 337. — Conveyances, mortgages and leases. As a general rule, the taking of a conveyance of land from an association which assumes to execute the conveyance as a corporation will estop the grantee'''' *7 Ingle System Co. v. Norris & Hall, 132 Tenn. 472, 178 S. "W. 1113. 48 Though it is more appropriate to a corporation than to a partnership. Christian & Craft Grocery Co. v. Fruit- dale Lumber Co., 121 Ala. 340, 25 So. 566. One who takes a note signed with the name of a company is not es- topped to hold its members liable as partners, where he did not deal with them as a corporation, but as indi- viduals using that name solely as a trade name. Brooke v. Day, 129 Ga. 694, 59 S. E. 769. 49 Hubbard v. Chappel, 14 Ind. 601. 60 American Ins. Co. v. McClelland, 184 111. App. 381; American Sales Book Co. V. Wemple, 168 111. App. 639. Sl.So held of a note made payable at the "Hungerford National Bank," which became the property of such bank, and was sued upon by it. Hun- gerford Nat. Bank v. Van Nostrand, 106 Mass. 559. See also Lucas v. Bank of Georgia, 2 Stew. (Ala.) 147; Mix V. National Bank, 91 HI. 20, 33 Am. Eep. 44; Hall v. Harris, 16 Ind. 180. In a Kentucky case, however, it was held that one who had accepted, as payee, a note made payable at a bank which was styled by the parties to the note a "national bank," and who sold the note to the bank, could not put the organization of the bank as a corporation in issue by merely averring want of knowledge or infor- mation suf&cient to form a belief as to its corporate existence. Huffaker V. National Bank of Monticello, 12 Bush (Ky.) 287. BSDooley v. Wolcott, 4 Allen (Mass.) 406; Daniels v. Boanoke Eail- road & Lumber Co., 158 N. C. 418, 74 S. E. 331; Lynch v. Ferryman, 29 Okla. 615, Ann. Cas. 1913 A 1065, 119 Pae. 229. The grantee is estopped to deny the corporate existence of the grantor in an action of ejectment to recover the property on breach of a condition. Cowell V. Colorado Springs Co., 100 U. S. 55, 25 L. Ed. 547, aff'g 3 Colo. 82. But where a corporation is or- ganized in one state for the sole pur- pose of buying and selling land in another state, for which purpose it could not be organized under the laws of the latter, a conveyance by it in 703 §337] Private Coepoeations [Ch. 11 and those claiming under him ^^ from attacking the titie of the association at the time of the conveyance ^* on the ground that it was not legally inborporated. So one who has taken, a conveyance from a corporation cannot attack its existence as a corporation for the purpose of defeating a mortgage previously executed by it.*^ In like manner a person who conveys real property to an associa- tion as a corporation cannot avoid the conveyance by denying the corporate existence of the grantee,*^ and this estoppel also extends the latter state is void, and the gran- tee, when sued on a note and mort- gage given for the purchase price, may defend on the ground of want of consideration. LafEerty v. Evans, 17 Okla. 247, 21 L. E. A. (N. S.) 363, 87 Pae. 304. S3 See § 356, infra. 64 He may show that the corpora- tion has since legally ceased to exist. See § 331, supra. 65 Cowell V. Colorado Springs Co., 100 U. S. 55, 25 L. Ed. 547, aff'g 3 Colo. 82; Beekman v. Hudson Eiver West Shore E. Co., 35 Fed. 3. 66 United States. Myers v. Croft, 13 Wall. 291, 20 L. Ed. 562; Smith v. Sheeley, 12 Wall., 358, 20 L. Ed. 430; Frost's Lessee v. Frostburg Coal Co., 24 How. 278, 16 L. Ed. 637; Eannels v. Eowe, 145 Fed. 296, certiorari de- nied 207 U. S. 591, 52 L. Ed. 355 (mem. dec). Colorado. Bates v. Wilson, 14 Colo. 140, 24 Pac. 99. Indiana. Baker v. NefE, 73 Ind. 68; Snyder v. Studebaker, 19 Ind. 462, 81 Am. Dec. 415. Iowa. See Brown v. Phillips, 16 Iowa 210. Massachusetts. See Packard v. Old Colony E. Co., 168 Mass. 92, 46 N. E. 433. Missouri. White Oak Grove Benev. Society v. Murray, 145 Mo. 622, 47 S. W. 501; Eeinhard v. Virginia Lead Min. Co., 107 Mo. 616, 28 Am. St. Eep. 441, 18 S. W. 17; Broadwell v. Merritt, 87 Mo. 95. Montana. See Morrison v. Clark, 24 Mont. 515, 63 Pac. 98. New York. Stoker v. Schwab, 1 N. T. Supp. 425. North Carolina. Daniels v. Eoanoke Eailroad & Lumber Co., 158 N. C. 418, 74 S. E. 331. Oklahoma. Lynch v. Perryman, 29 Okla. 615, Ann. Cas. 1913 A 1065, 119 Pac. 229; Myatt v. Ponca City Land & Improvement Co., 14 Okla. 189, 68 L. E. A. 810, 78 Pac. 185. Oregon. Jones v. Hale, 32 Ore. 465, 52 Pae. 311. Wisconsin. Eicketson v. Galligan, 89 Wis. 394, 62 N. W. 87; Whitney v. Eobinson, 53 Wis. 309, 10 N. W. 512. This rule was applied in a suit to reform the deed. Otoe County Fair & Driving Park Ass'n v. Doman, 1 Neb. (Unof.) 179, 95 N. W. 327. Also, where the deed recited that the grantee was a corporation, and contained covenants of warranty. Eagan v. McElroy, 98 Mo. 349, 11 S. W. 735. One who sells and conveys land to a corporation thereby recognizes its corporate existence, and the fact that euch conveyance was made is of itself sufficient evidence to warrant, a iind- ing that the grantee was acting as a corporation, as against a plea of nul tiel corporation in an action by it on the covenant of warranty in the deed. Wood V. Kingston Coal Co., 48 HI. 356, 95 Am. Dec. 554. A deed made to a corporation before its organization inures to its use, after 704 Ch. 11] COEPOBATIONS BY EsTOPPEL [§337 to persons who are in privity with the grantor.^'' Similarly, one who has contracted to purchase land from a corporation as such is estopped to deny its corporate existence in a suit by him for a specific per- formance,** and one who takes property in trust for a corporation, and agrees to convey the same to it, is estopped to allege that the corporation has not been legally organized in order to avoid the trust." The rule of estoppel also extends to persons who execute mortgages or deeds of trust to the pretended corporation, or who take mort- gages or trust deeds from it. So one who gives a mortgage to a corporation cannot deny its corporate existence to defeat the fore- closure of the same,^" or an action to recover the property by one who its organizatioh, by way of estoppel against the grantor. Dyer v. Eich, 1 Mete. (Mass.) 180. See also White Oak Grove Benev. Society v. Murray, 145 Mo. 622, 47 S. W. 501; Broadwell V. Merritt, 87 Mo. 95. One who signs and acknowledges the charter of a corporation thereby admits the truthfulness of the facts therein recited, and cannot avoid a conveyance made by him to the cor- poration on the ground that the statu- tory requirements as to incorporation were not complied with, where the recitals show compliance. Sword v. Wickersham, 29 Kan. 746. 57 See § 356, infra. 58 Lombard v. Chicago Sinai Con- gregation, 64 111. 477. 59 Friedman v. Janssen, 23 Ky. L. Eep. 2151, 66 S. W. 752; Tuckasegee Min. Co. V. Goodhue, 118 N. C. 981, 24 8. E. 797. 60 United States. Deitch v. Staub, 115 Fed. 309; Manship v. New South Building & Loan Ass'n, 110 Fed. 845; Andrews v. National Foundry & Pipe "Works, 77 Fed. 774, 36 L. R. A. 139, rev'g 68 Fed. 1006, certiorari denied 166 U. S. 721, 41 L. Ed. 1188 (mem. dec.) ; Dundee Mortgage & Trust In v. Co., Ltd. v. Cooper, 26 Fed. 665. Alabama. Montgomery E. Co. v. Hurst, 9 Ala. 513. California. California Fruit Ex- change V. Buck, 163 Cal. 223, 124 Pac. 824; Bank of Shasta v. Boyd, 99 Cal. 604, 34 Pac. 337; Grangers' Busi- ness Ass'n V. Clark, 67 Cal. 634, 8 Pac. 445. Colorado. First Congregational Church of Cripple Creek v. Grand Eap- ids School Furniture Co., 15 Colo. App. 46, 60 Pac. 948. Connecticut. West Winsted Sav. Bank & Bldg. Ass 'n v. Ford, 27 Conn. 282, 71 Am. Dec. 66; People's Sav. Bank & Bldg. Ass'n v. Collins, 27 Conn. 142. Dakota. School Dist. No. 61 v. Al- derson, 6 Dak. 145, 41 N. W. 466. Georgia. ' Pattisou v. Albany Build- ing & Loan Ass'n, 63 Ga. 373. Illinois. Brown v. Scottish-Ameri- can Mortg. Co., 110 111. 235; Illinois Grand Trunk E. Co. v. Cook, 29 111. 237; Snyder v. State Bank of Illi- nois, Breese (1 111.) 161. Indiana. Jones v. Kokomo Bldg. Ass'n, 77 Ind. 340; McLaughlin v. Cit- izens ' Building, Loan & Savings Ass 'n, 62 Ind. 265; Eay v. Indianapolis Ins. Co., 39 Ind. 290; Beaver v. Hartsville University, 34 Ind. 245; Hubbard v. Chappel, 14 Ind. 601; John v. Farm- ers ' & Mechanics ' Bank, 2 Blaekf . 367, 20 Am. Dec. 119. Iowa. Franklin v. Twogood, 18 Iowa 515. I Priv. Corp. — 45 705 §337] Peivate Coepobations [Ch. 11 purchases it at the foreclosure sale.** And the same rule applies to the grantor of a trust deed given to a corporation to secure an indebted- ness to it.'^, One who has taken a conveyance of land on which there is a mort- gage to a pretended corporation and has assumed the mortgage debt cannot avoid the mortgage on the ground that the mortgagee is not legally a corporation.®^ Nor can a junior mortgagee, or one who Kansas. Massey v. Citizens' BIdg. & Sav. Ass'n, 22 Kan. 624. Kentucky. See Hallam v. Ashford, 24 Kj. L. Eep. 870, 20 S. "W. 197; Bank of Galliopolis v. Trimble, 6 B. Mon. 599. Louisiana. American Homestead Co. V. Linigan, 46 La. Ann. 1118, 15 So. 369. Maryland. Franz v. Teutonia Bldg. Ass'n No. 2, 24 Md. 259. Missouri. Father Matthew Young Men's Total Abstinence & Benev. So- ciety V. Fitzwilliams, 84 Mo. 406; Stoutimore v. Clark, 70 Ho. 471; Holmes v. Eoyal Loan Ass'n, 128 Mo. App. 329, 107 S. W. 1005. Nebraska. Equitable Building & Loan Ass'n v. Bidwell, 60 Neb. 169, 82 N. W. 384; Exchange Nat. Bank v. Capps, 32 Neb. 242, 29 Am. St. Eep. 433, 49 N. "W. 223; Platte Valley Bank V. Harding, 1 Neb. 461; Crete Build- ing & Loan Ass'n v. Patz, 1 Neb. (TJnof.) 768, 95 N. W. 793. New Jersey. Den v. Van Houten, 10 N. J. L. 270; Campbell v. Perth Araboy Shipbuilding & Engineering Co., 70 N. J. Eq. 40, 62 Atl. 319, aff'd 71 N. J. Eq. 302, 71 Atl. 1133. New York. Eagle Savings & Loan Co. V. Samuels, 43 App. Div. 386, 60 N. Y. Supp. 91; Erie County Sav. Bank v. Baldwin, 22 Alb. L. J. 134; Mechanics' Bldg. Ass'n v. Stevens, 5 Duer 76. Ohio. Hagerman v. Ohio Bldg. & Sav. Ass'n, 25 Ohio St. 186; Lucas v. Greenville Bldg. & Sav. Ass'n, 22 Ohio St. 339; Union Trust Co. v. New York, C. & St. L. R. E. Co., 9 Ohio Dec 773. Oregon. Washington Nat. Building, Loan & Investment Ass'n v. Stanley, 38 Ore. 319, 58 L. E. A. 816, 84 Am. St. Eep. 793, 63 Pac. 489. See also Law Guarantee & Urust Society v. Hogue, 37 Ore. 544, 63 Pac. 690, 62 Pac. 380. Pennsylvania. Johnston v. Eliza- beth Building & Loan Ass'n, 104 Pa. St. 394; German Ins. Co. v. Strahl, 13 Phila. 512. South Dakota. Building & Loan Ass'n of Dakota v. Chamberlain, 4 S. D. 271, 56 N. W. 897. Wisconsin. Citizens' Bank of Clin- ton V. Jones, 117 Wis. 446, 94 N. W. 329. Canada. Manitoba Mtg. & Inv. Co. V. Daly, 10 Man. L. Eep. 425. 81 Sherwood v. Alvis, 83 Ala. 115, 3 Am. St. Eep. 695, 3 So. 307; Jones v. Kokomo Bldg. Ass'n, 77 Ind. 340. 62 Camp v. Land, 122 Cal. 167, 54 Pac. 839; Winget v. Quincy Building & Homestead Ass'n, 128 111. 67, 21 N. E. 12, aff'g 29 111. App. 173; Payette v. Free Home Building, Loan & Home- stead Ass'n, 27 111. App. 307. Where a deed of trust contains an admission that the beneficiary is a corporation, and the latter purchases the property at a sale by the trustee thereunder, proof of its incorporation is not necessary in an action by it against the grantor to recover posses- sion of the property. German Bank V. Stumpf , 6 Mo. App. 17, a£E 'd 73 Mo. 311. 63 See § 356, infra. 706 Ch. 11] CoEPOKATioNS BY Estoppel [§337 acquires title through the foreclosure of a junior mortgage, attack the legal existence of the corporate mortgagor,** nor of a senior cor- porate mortgagee,^* in order to defeat a senior mortgage. And one to whom a corporation as such has assigned notes and mortgages exe- cuted to it as such is estopped to contend that the corporation had been abandoned when the assignment was made and that he was dealing with a voluntary association which succeeded it.** Nor can one who assigns a bond and mortgage to a corporation recover the same back from the assignee of the latter on the ground that such corporation was not legally incorporated and hence title did not pass to it.6' The rule also applies to persons who lease land from a corporation or execute leases to it. So a person taking a lease from a corporation, or using its property under circumstances raising an implied obliga- tion, cannot deny its existence in an action for rent or to recover the premises,** or to recover compensation for use and occupation.*' Similarly, one who executes a lease to a corporation as such cannot recover the premises on the ground that the lessee had no corporate existence.'"* Nor can the regularity of the incorporation of a company which at one time held title to a ground rent be inquired into in an action against a subsequent owner thereof to recover arrears.''^ An estoppel may also arise from recitals in deeds or mortgages that a certain association, not a party to the instrument, is a corporation.'^ filHasaelman v. United States Missouri. Eialto Co. v. Miner, 183 Mortg. Co., 97 Ind. 365. Mo. App. 119, 166 S. W. 629. 65 See § 356, infra. North Carolina. Fayetteville Water- 66 This principle was applied in a works Co. v. Tillinghast, 119 N. C. suit to cancel the assignments by the 343, 25 S. E. 960. corporation of such notes and mort- Oklahoma. Lynch v. Ferryman, 29 gages. Calkins v. Bump, 120 Mich. Okla. 615, Ann. Cas. 1913 A 1065, 119 335, 79 N. W. 491. Pac. 229. 67 Green v. Grigg, 98 N". T. App. Texas. Lamb v. Beaumont Temper- Div. 445, 90 N. Y. Supp. 565. ance Hall Co., 2 Tex. Civ. App. 289, 68 United States. Oregonian Ey. 21 S. W. 713. Co., Ltd. V. Oregon Ey. & Nav. Co., 27 West Virginia. Marmet Co. v. Arehi- Fed. 277, ^ev'd on other grounds bald, 37 W. Va. 778, 17 S. E. 299. 145 U. S. 52, 36 L. Ed. 620; Oregonian 69 Proprietors of Quiney Canal v. Ey. Co., Ltd. V. Oregon Ey. & Nav. Newcomb, 7 Mete. (Mass.) 276, 39 Co., 22 Fed. 245, rev'd on other Am. Dec. 778. grounds 130 V. S. 1, 32 L. Ed. 837. 70 Whitney v. Eobinson, 53 Wis. lUinois. West Side Auction House 309, 10 N; W. 512. Co. V. Connecticut Mut. Life Ins. Co., 71 McConnell v. Gates, 4 Pennyp. 186 111. 156, 57 N. E. 839, aff'g 85 111. (Pa.) 377. App. 497; Gilmer Creamery Ass'n v. 72 Hasenritter v. Kirehhoffer, 79 Mo. Quentin, 142 111. App. 448. 239. See also Altschul v. Casey, 45 707 1 337] Pbivate Cobpoeations [Ch. 11 So, where a conveyance or mortgage of land recites the existence of a mortgage in favor of a corporation, the grantee, or any other person claiming through the deed, is estopped to attack the mortgage on the ground that the mortgagee is not a corporation.''^ § 338. — Bonds. The estoppel to deny legal incorporation also operates against a person who, as principal or surety, executes and delivers a bond or recognizance payable to a corporation,''* including a forthcoming bond in an action of replevin,''^ or an attachment 'bond,''® or a bond for dissolution of an attachment,''"'' or an appeal bo'nd,''^ or an injunction bond,'" or a bond to secure the performance of a contract,*" or to secure the faithful performance of his duties by a corporate officer,'^ or agent.*^ Ore. 182, 76 Pae. 1083. And see In- dependent Order of Mutual Aid v. Paine, 122 111. 625, 14 N. E. 42, aff'g 23 111. App. 171, applying this rule to recitals in a benefit certificate un- der seal. 73 Hasenritter v. Kirchhoffer, 79 Mo. 239. 74 Father. Matthew Young Men's Total Abstinence & Benev. Society v. Pitzwilliam, 12 Mo. App. 445, aff'd 84 Mo. 406. The giving of such a bond is prima facie evidence of incorporation. Wil- liamsburg City Fire Ins. Co. v. Froth- ingham, 122 Mass. 391. Persons executing a recognizance as bail for the defendant in an action on the, case for money lent are so estopped. Henriques v. Dutch West India Co., 2 Ld. Raym. 1532. See also Williams v. Bank of Michigan, 7 Wend. (N. T.) 539. 7B Kelleher v. Denver Music Co., 48 Colo. 212, 109 Pac. 860; Loaners' Bank of City of New York v. Jacoby, 10 Hun (N. Y.) 143. 76 Seattle Crockery Co. v. Haley, 6 Wash. 302, 36 Am. St. Rep. 156, 33 Pae. 650. 77 Smith v. Burlington & M. R. R. Co., 55 Mo. 526. Where the bond sued on describes the obligee as a corporation, its intro- duction in evidence makes out a prima facie case on the issue of corporate existence. Campbell & Zell Co. v. American Surety Co., 129 Fed. 491, aff'd 138 Fed. 531, certiorari denied 199 U. S. 607, 50 L. Ed. 331 (mem. dec). 78 Auburn Cycle Co. v. Foote, 69 111. App. 644; Trogdon v. Cleveland Stone Co., 53 111. App. 206; L. Gerlinger Co. V. Labadie, 41 111. App. 283. 79 National Society of United States Daughters of 1812 v. American Surety Co. of New York, 56 N. Y. Misc. 627, 107 N. Y. Supp. 820. SOBooske V. Gulf Ice Co., 24 Fla. 550, 5 So. 247; Weed Sewing Mach. Co. V. Kaulback, 3 N. Y. Super. Ct. (3 Thomps. & C.) 304; Singer Mfg. Co. V. Bennett, 28 W. Va. 16. 8X Riemann v. Tyroler & Vorarl- berger Verein, 104 111. App. 413. Where the bond recites that the obligee is a corporation. Spreyne v. Garfield Lodge No. 1 of United Sla- vonian Benev. Society, 117 111. App. 253. 82 So where the bond of an insurance agent conditioned that he will pay over to the company money received by him on its account. Thompson v. Commercial Union Assur. Co. of Lon- don, England, 20 Colo. App. 331, 78 Pac. 1073. 708 Ch. 11] COEPOEATIONS BY EsTOPPEL [§ 339 §339. — Further illustrations. I>Teitlier the indorser of a note purporting to be made by a corporation,** nor a banking partnership which has discounted such a note,** can question its corporate existence. Nor can the maker of a note question the corporate existence of the payee in an action thereon by an assignee of the latter.** "Where the name of the payee and indorser of checks indicates that it is a corporation, a bank which receives and collects them in that name is estopped to deny the corporate character of the payee in an action by it to recover the proceeds.** One to whom a corporation has, as a corporation, made a pledge of property cannot deny the existence of the corporation as such in a suit for the recovery of the property,*'' or in a suit by the pledgor for an accounting as to the sale of the pledged property and the cancel- lation of the notes which it was pledged to secure.** A person effecting insurance in a mutual insurance company as a corporation, and thereby becoming a member, is estopped to deny its incorporation in an action against him on a premium note, or for an assessment.*^ Nor can an insurance company deny the legal existence of a corporation whose property it has insured, in an action on the policy.*" A municipality or quasi-municipality which issues bonds in pay- ment of a subscription to the stock of a railroad company caiinot avoid liability thereon on the ground that such company was not a corporation de jure, or because of irregularities in its organization.*^ 83 Pacific Bank v. De Eo, 37 Gal. an employer 's liability indemnity pol- 538. icy to a subordinate lodge of a 84Lockwood V. Wynkoop, 178 Mich. fraternal beneficial association is es- 388, 144 N. W. 846. topped to deny the legal capacity of 85 Francis v. Western Screen Co., such lodge to sue thereon/ Union Pac. 22 Cal. App. 32, 133 Pac. 327. Lodge No. 17, A. O. U. W. v. Bankers' 86 Craig Medicine Co. v. Merchants ' Surety Co., 79 Neb. 801, 113 N. W. Bank, 59 Hun (N. Y.) 561, 14 N. Y. 263. Supp. 16. 91 Andes v. Ely, 158 TJ. S. 312, 39 87 Blanc v. Germania Nat. Bank, L. Ed. 996; Commissioners of Doug; 114 La. 739, 38 So. 537. las Co. v. Bolles, 94 IT. S. 104, 24 L: 88 Ohio Nat. Bank v. Central Const. Ed. 46; Leavenworth County, v.. Co., 17 App. Cas. (D. C.) 524. Barnes, 94 V. 8. 70, 24 L. Ed. 63; 89 See § 350, infra. Young v. Township of Clarendon, 26 90 Palatine Ins. Co. v. Santa Fe Mer- Fed. 805; Lewis v. Clarendon, 5 Dill, eantile Co., 13 N. M. 241, 82 Pao. 329, Fed. Cas. No. 8,320; Darlington 363; Bon Aqua Improvement Co. v. v. La Clede County, 4 Dill. 200, Fed. Standard Fire Ins. Co., 34 "W. Va. 764, Cas. No. 3,577. See also State v. 12 S. E. 771. Trustees of Union Tp., 8 Ohio St. 394. An insurance company which issues 709 §339] Pbivate Cobpoeations [Ch. 11 And, as a general rule, a city which has treated a public service com- pany as a corporation and has granted it a franchise,®^ or otherwise eontraeted with it by ordinance, cannot question its corporate ex- istence or object to irregularities in its incorporation in actions in- volving rights arising under such franchise or ordinance,*' though there is authority to the contrary.'* The rule also prevents a person who has contracted with a corpora- tion attempted to be formed by the consolidation of existing corpora- tions from denying the validity of the consolidation ; '^ or a person who has contracted with a corporation in a name conferred upon it by an amended charter from denying acceptance of the amendment or compliance with its provisions ; '* or one who has contracted with it after an attempted amendment under a general statute, from ques- tioning its existence because of irregularities in the adoption of such amendment.''' § 340. — Right to sue members or officers as individuals. By the weight of authority, the rule that one who has contracted with an association as a corporation is estopped to deny its corporate existence 92 Thus a city which has granted a franchise to a telephone company can- not question the validity of its in- corporation in a suit to enjoin the city from interfering with the exercise of the rights so granted. Old Colony Trust Co. V. Wichita, 123 Fed. 762, aff'd 132 Fed. 641. Nor can a city which has treated a gas company as a corporation in fact, and has granted to it a franchise under which it has operated and expended a large sum of money, object to any irregularity in its organization. Kalamazoo v. Kalamazoo Heat, Light & Power Co., 124 Mich. 74, 82 N. W. 811. 93 A city which has contracted by ordinance with a waterworks com- pany, as a corporation, to rent hy- drants, and has used the same, is estopped to question the corporate existence of the company in a suit by it to recover rentals. Greenville v. Greenville Water Works Co., 125 Ala. 625, 27 So. 764. 94 Aspen Water & Light Co. v. As- pen, 5 Colo. App. 12, 37 Pac. 728^ holds that where the breach of contract al- leged is the repeal by the legislative body of a municipality of a grant of privileges or franchises to a cor- poration, the doctrine of estoppel can- not be invoked to prevent the municipality from contesting the cor- porate existence of the company bringing the suit. 9B Venner v. Farmers ' Loan & Trust Co., 90 Fed. 348, certiorari denied 173 U. S. 704, 43 L. Ed. 1185 (mem. dec.) ; Louisville Trust Co. v. Louisville, N. A. & C. E. Co., 84 Fed. 539, rev'd on other grounds 174 XT. S. 674, 43 L. Ed. 1130; Young v. Township of Clar- endon, 26 Fed. 805; Lewis v. Claren- don, 5 Dill. 329, Fed. Cas. No. 8,320. See also Mitchell v. Deeds, 49 111. 416, 95 Am. Dee. 621. 96Eppes V. Mississippi, G. & T. E. Co., 35 Ala. 33; Pell v. McHenry, 42 Pa. St. 41. 97Deitch V. Staub, 115 Fed. 309. See also In re Western Bank & Trust Co., 163 Fed. 713. 710 Ch. 11] COBPOEATIONS BY EsTOPPBL [§340 applies so as to prevent him from maintaining an action on the con- tract against the associates, or against the officers making the contract, as individuals or partners. Having contracted with the association as a corporate body, he must sue the associates, if at all, as a cor- poration, unless there has been some fraud on their part rendering the doctrine of equitable estoppel inapplicable." In this connection 88 United States. Whitney v. Wy- man, 101 V. S. 392, 25 L. Ed. 1050; Harrill v. Davis, 168 Ted. 187, 22 L. E. A. (N. 8.) 1153, rev'g 7 Indian T. 152, 15 Ann. Cas. 1134, 104 S. W. 573; In re Western Bank & Trust Co., 163 Fed. 713; Gartside Coal Co. v. Maxwell, 22 Fed. 197. Alabama. Owensboro Wagon Co. v. Bliss, 132 Ala. 253, 90 Am. St. Eep. 907, 31 So. 81; Cory v. Lee, 93 Ala. 468, 8 So. 694; Snider 's Sons' Co. v. Troy, 91 Ala. 224, 11 L. E. A. 515, 24 Am. St. Eep. 887, 8 So. 658; Mag- nolia Shingle Co. v. J. Zimmern's Co., 3 Ala. App. 578, 58 So. 90. Colorado. Jones v. Aspen Hardware Co., 21 Colo. 263, 29 L. E. A. 143, 52 Am. St. Eep. 220, 40 Pac. 457; Hum- phreys V. Mooney, 5 Colo. 282. Connecticut. Canfield v. Gregory, 66 Conn. 9, 33 Atl. 536; Stafford Bank V. Palmer, 47 Conn. 443. Georgia. Brooke v. Day, 129 Ga. 694, 59 S. E. 769; Planters' & Miners' Bank v. Padgett, 69 Ga. 159; Eozar v. Eoseuheim Shoe Co., 14 Ga. App. 13, 80 S. E. 24; Orr v. McLeay, 6 Ga. App. 417, 65 S. E. 164. Illinois. Bushnell v. Consolidated Ice Mach. Co., 138 111. 67, 27 N. E. 596; Tarbell v. Page, 24 111. 46; Brown V. Melick, 185 111. App. 3; Clinton Co. V. Schwartz, 175 111. App. 577; Hoyt V. McCallum, 102 111. App. 287; Edwards v. Cleveland Dryer Co., 83 111. App. 643. Indiana. Jennings v. Dark, 175 Ifid. 332, 33 L. E. A. (N. S.) 123, 92 N. E. 778; Bradford v. Frankfort, St. L. & T. E. Co., 142 Ind. 383, 41 N. E. 819, 40 N. E. 741. Louisiana. Tulane Improvement Co. V. S. A. Chapman & Co., 129 La. 562, 56 So. 509; Bond & Braswell v. Scott Lumber Co., 128 La. 818, 55 So. 468. See also Sentell v. Hewitt, 50 La. Ann. 3, 22 So. 970. Massachusetts. See First Nat. Bank v. Almy, 117 Mass. 476; Wal- worth V. Brackett, 98 Mass. 98. Michigan. Lockwood v. Wynkoop, 178 Mich. 388, 144 N. W. 846; New- eomb-Endieott Co. v. Fee, 167 Mich. 574, 133 N. W. 54; Love v. Eamsey, 139 Mich. 47, 102 N. W. 279; Gow v. Collin & Parker Lumber Co., 109 Mich. 45, 66 N. W. 676; American Mirror & Glass-Beveling Co. v. Bulckley, 107 Mich. 447, 65 N. W. 291; Eaton v. Walker, 76 Mich. 579, 6 L. E. A.. 102, 43 N. W. 638; Merchants' & Manufacturers' Bank v. Stone, 38 Mich. 779. Minnesota. Eichards v. Minnesota Sav. Bank, 75 Minn. 196, 77 N. W. 822. See also Christian v. Bowman, 49 Minn. 99, 51 N. W. 663. Nebraska. ISTebraska Nat. Bank of York v. Ferguson, 49 Neb. 109, 59 Am. St. Eep. 522, 68 N. W. 370; Hogue v. Capital Nat. Bank of Lincoln, 47 Neb. 929, 66 N. W. 1036; Kleckner v. Turk, 45 Neb. 176, 63 N. W. 469. New Hampshire. Lamed v. Beal, 65 N. H. 184, 23 Atl. 149. New Jersey. Stout v. Zulick, 48 N. J. L. 599, 7 Atl. 362. New York. Whitf ord v. Laidler, 94 N. Y. 145, 46 Am. Eep. 131, rev'g 25 Hun 136; Merchants' Nat. Bank v. Pendleton, 55 Hun 579, 9 N. Y. Supp. 46. 711 §340] Peivate Cobpokations [Ch, 11 it has been said that, "Where a person deals with what he supposes is a corporation, with what all parties think is a corporation, where he gives his credit to that supposed corporation, he cannot afterwards, when it turns out that it is not validly incorporated, turn round and say, 'Well, I dealt with this supposed corporation; I trusted it as a corporation ; I sold goods to it as a corporation ; but it seems when it first attempted to become incorporated that there was some defect or irregularity in its proceedings, so that it did not become legally incorporated, and therefore you who are stockholders will be held personally liable. ' " 99 In response to the contention that the stockholders may be held liable as partners upon the principle that one unknowingly dealing with an agent may hold the principal when discovered, it has been Ohio. Second Nat. Bank v. Hall, 35 Ohio St. 158; Medill v. Collier, 16 Ohio St. 599; Beebe v. Thomas, 7 Ohio Dee. 319. Oklahoma. Swofford Bros. Dry Goods Co. V. Owen, 37 Okla. 616, 133 Pac. 193. Pennsylvania. Guckert v. Hacke, 159 Pa. St. 303, 28 Atl. 249; Cochran v. Arnold, 58 Pa. St. 399, overruling .Paterson v. Arnold, 45 Pa. St. 410; Pierce v. Hacke, 1 Pa. Dist. 517. And see Pinkerton v. Pennsylvania Trac- tion Co., 193 Pa. St. 229, 44 Atl. 284; Wentz V. Lowe (Pa.), 3 Atl. 878. South Dakota. See Mason v. Stev- ens, 16 S. D. 320, 92 N. W. 424. Tennessee. Shields v. Clifton Hill Land Co., 94 Tenn. 123, 26 L. E. A. 509, 45 Am. St. Eep. 700, 28 S. W. 668; Shouu v. Armstrong (Tenn. Ch.), 59 S. W. 790; Tennessee Automatic Lighting Co. v. Massey (Tenn. Ch.), 56 S. "W. 35. Texas. American Salt Co. v. Hei- denheimer, 80 Tex. 344, 26 Am. St. Eep. 743, 15 S. W. 1038; Seymour Opera-House Co. v. Wooldridge (Tex. Civ. App.), 31 S. W. 234. Utah. Mitchell v. Jensen, 29 Utah 346, 81 Pac. 165. Washington. Ivy Press v. McKech- nie, 88 Wash. 643, 153 Pac. 1067; American Eadiator Co. v. Kinnear, 56 Wash. 210, 35 L. R. A. (N. S.) 453, 105 Pac. 630. West Virginia. See Bon Aqua Im- provement Co. V. Standard Fire Ins. Co., 34 W. Va. 764, 12 S. E. 771. Wisconsin. Clausen v. Head, 110 Wis. 405, 84 Am. St. Eep. 933, 85 N. W. 1028; Black Eiver Implement Co. V. Holway, 85 Wis. 344, 55 N. W. 418. Persons who deal with an asso- ciation as a corporation are estopped to deny the legal existence of the corporation, or to hold its members in- dividually liable on the contract, be- cause of mere irregularities in its organization, or its failure to elect officers, hold meetings, etc. Elliott V. Sullivan, 156 Mo. App. 496, 137 S. W. 287. See also Queen City Fur- niture & Carpet Co. v. Crawford, 127 Mo. 356, 30 S. W. 163. A bank which advises and assists in the organization of a limited part- nership cannot hold its members liable as general partners on bonds issued by it on the ground that it was not or- ganized in the manner prescribed by law. Allegheny Nat. Bank v. Bailey, 147 Pa. St. Ill, 23 Atl. 439. 99 Mr. Justice Brewer, in Gartside Coal Co. V. Maxwell, 22 Fed. 197, 198, quoted with approval in In re Western Bank & Trust Co., 163 Fed. 713. 712 Ch. 11] COBPOBATIONS BY EsTOPPEL [§ 340 said that the corporators, under such circumstances, "have never authorized any of the agents or members of the de facto corporation to bind them personally or transact any business for them as such, but have merely given authority to deal with and bind their interest in an organization believed to be incapable of fastening a personal liability upon any stockholder; there has in such case neither been represented to be, nor secretly known to be, an agency of or for any principal save the artificial de facto corporation. " ^ To render this rule applicable, however, the contracting party must have actual or constructive knowledge that the persons with whom he is dealing claim to be a corporation.* Nor can the benefits of the rule be claimed by one who actively participated in contracting the debt sued on in the name of the pretended corporation, in which he claimed to be merely a stockholder, if he knew at the time that the company had no real existence as a corporation.' A number of courts have held that one who has contracted or other- wise dealt with a body of men believing it to be a corporation, when in fact it is not, is not estopped to deny the existence of the corpora- tion, and may proceed against such persons as individuals, at least where the supposed corporation has not even a de facto corporate existence.* Reasons given for so holding are that the true meaning and legal effect of the rule of estoppel is that the contracting party is estopped from denying the existence of the corporation on the ground that it IHoyt V. McCallum, 102 111. App. 49 Mo. App. 345; Glenn v. Bergmann, 287. 20 Mo. App. 343. See also Martin v. 2 See §325, supra. Fewell, 79 Mo. 401. 3 See § 325, supra. New York. Fuller v. Rowe, 57 N. 4 United States. Harrill v. Davis, Y. 23, rev'g on other grounds 59 168 Fed. 187, 22 L. R. A. (N. S.) 1153, Barb. 344. rev'g 7 Indian T. 152, 15 Ann. Cas. Persons who purchase at sheriff's 1134, 104 S. W. 573. sale the rights, property and fran- lowa. Kaiser v. Lawrence Sav. chises of a corporation do not thereby Bank, 56 Iowa 104, 41 Am. Rep. 85, 8 become a corporation, and, where N. W. 772. they take no steps to incorporate, Louisiana. Lehman & Co. v. Knapp, are individually liable on a note exe- 48 La. Ann. 1148,.20 So. 674; Williams cuted by them in the corporate name. V. Hewitt, 47 La. Ann. 1076, 49 Am. Chaffe & Bro. v. Ludeling, 27 La. St. Rep. 394, 17 So. 496. Ann. 607. Minnesota. Johnson v. Corser, 34 As to the necessity for the existence Minn. 355, 25 N. W. 799. of a de facto corporation as the basis IVIissouri. Hurt v. Salisbury, 55 Mo. of an estoppel, see generally § 326, 310; Elliott V. Sullivan, 156 Mo. App. supra. 496, 137 S. W. 287; Cleaton v. Emery, 713 § 340] Pbivate Cokpoeations [Ch. 11 was not legally incorporated,^ and that it is limited in its application to irregularities in the formation of the corporation.^ "Parties who actively engage in business for profit under the name and pretense of a corporation which they know neither exists nor has any color of existence may not escape individual liability because strangers are led by their pretense to contract with their pretended entity as a corporation. In such cases they act as the agents of a principal that they know does not exist, and they are liable, under a familiar rule, because there is no responsible principal. "'' So it has been held that persons contracting in the name of a purported cor- poration before its articles have been filed with the secretary of state,* or before a certificate of incorporation or charter has been issued by him,3 are individually liable on the contract. And it has also been held that there is no estoppel where the incorporation was procured by a legal fraud, as, for example, where it was organized under the statutes of one state for the sole purpose of doing business in another, and with intent to evade the laws of the latter relative to incorpora- tion.^" Nor is one who sells goods on credit of an individual who represents that he is a member of a corporation estopped to set up that there is in fact no such corporation in an action against such person for the purchase priee.^^ Of course there is no estoppel where personal liability is imposed by statute in ease of defective or incom- plete organization.''' And persons who have been members of a part- nership may be precluded by their conduct from escaping partnership liability on the ground that they had become incorporated before the liability in question was incurred. So, "when partners have dealt as such with a seller, and after becoming incorporated, continue to deal BHarrill v. Davis, 168 Fed. 187, 22 Mo. 310; Glenn v. Bergmann, 20 Mo. L. E. A. (N. S.) 1153, rev'g 7 Indian App. 343. T. 152, 15 Ann. Cas. 1134, 104 S. W. SEyland v: HoUinger, 117 Fed. 216; 573. Farmers' State Bank v. Kuchs, 163 6Elliott V. Sullivan, 156 Mo. App. ^"^ ^PP- ^06, 147 S. W. 862; Elliott 406 1^7 ^ W 287 ^- Sullivan, 156 Mo. App. 496, 137 ' ■^^' ^- "• ="• ^yj 287. THarrill v. Davis, 168 Fed. 187, 22 lo cieaton v. Emery, 49 Mo. App. L. B. A. (N. S.) 1153, rev'g 7 Indian g^g T. 152, 15 Ann. Cas. 1134, 104 S. W. li jj^han Bros. Boiler Mfg. Co. v. 573. Richmond, 14 Mo. App. 595. SHarrill v. Davis, 168 Fed. 187, 22 IZLoverin v. McLaughlin, 161 111. L. E. A. (N. S.) 1153, rev'g 7 Indian 417, 44 N. B. 99, afE'g 46 111. App. 373; T. 152, 15 Ann. Cas. 1134, 104 S. W. Liebold v. Green, 69 111. App. 627; 573; Johnson v. Corser, 34 Minn. 355, Eagland v. Doolittle, 100 Miss. 498, 25 N. "W. 799; Hurt v. Salisbury, 55 56 So. 445. 714 Ch. 11] COEPOEATIONS BY EsTOPPEL [§341 [with him] as before, having their bills made in the same way, without giving any notice of their altered condition, they will continue to be liable as partners, unless the seller have knowledge thereof derived from some other source." ^^ §341. — Estoppel in cases other than actions on contract. The estoppel of one who has dealt with a corporation is not necessarily limited in its operation to eases in which an action is brought against him or by him on the contract, but applies in many other cases.^* Thus it has been held that one who has dealt with a pretended cor- poration and become its creditor is estopped to deny its incorporation for the purpose of attacking an assignment made by it for the benefit of its creditors,^* or for the purpose of attacking bonds and mortgages previously given by it.^* Similarly, one who intervenes in a suit to 13 Martin v. Fewell, 79 Mo. 401. To the same efEeet: McGowan v. American Tan Bark Co., 121 U. S. 575, 30 L. Ed. 1027; Bice v. Patter- son, 92 Miss. 666, 46 So. 255; Perkins V. Eouss, 78 Miss. 343, 29 So. 92. See Chap. 12, infra. 11 The corporate integrity of a bank, organized to take the place of one whose charter has expired, and to which the assets of the old bank have been transferred, cannot be as- sailed by one who is sued by the new bank to recover the proceeds of forged drafts issued by an employee of the old bank. Clifford Banking Co. v. Donovan Commission Co., 195 Mo. 262, 94 S. "W. 527. A corporation which has issued stock in payment for property trans- ferred to it by a corporation de facto cannot contend as against the holders of such stock that it is invalid and should be canceled on the ground that the vendor corporation was not legally incorporated and hence had no power to make the sale. Way v. American Grease Co., 60 N. J. Eq. 263, 47 Atl. 44. See also Pinkerton V. Pennsylvania Traction Co., 193 Pa. St. 229, 44 Atl. 284. IB Johnston v. Gumbel (Miss.), 19 So. 100. Where a corporation has had busi- ness dealings with another associa- tion, treating it as a corporation, for a considerable length of time, it is estopped to deny its existence as a corporation for the purpose of as- serting that assets in its hands belong to the stockholders individually. It is estopped to allege, in an action by a receiver of such corporation or as- sociation, that it was illegally organ- ized. Eafferty v. Bank of Jersey City, 33 N. J. L. 368. See also Estey Mfg. Co. V. Runnels, 55 Mich. 130, 20 N. W. 823; Carroll v. Pacific Nat. Bank, 19 Wash. 639, 54 Pac. 32. One who does business with a bank as a corporation, and recognizes its existence in receiving its funds, can- not question the legality of its organ- ization in a suit against him by its receivers. Bank of Circleville v. Ee- nick, 15 Ohio 322. 16 Andrews v. National Foundry & Pipe Works, 77 Fed. 744, 36 L. E. A. 139, rev'g 68 Fed. 1006, certiorari denied 166 U. S. 721, 41 L. Ed. 1188 (mem. dec). Toledo, St. L. & K. C. E. Co. V. Continental Trust Co., 95 Fed. 497, modifying and affirming 86 Fed. 929, 82 Fed. 642, application for certiorari denied 176 XT. S. 219, 44 L. Ed. 442; Louisville Trust Co. v. Louis- 715 § 341] Peivate Coepoeations [Ch. 11 foreclose a mortgage given by a corporation and claims a prior lien cannot question the incorporation.^'' And one who has' attached the property of a corporation on a claim growing out of dealings with it is estopped to deny its corporate existence for the purpose of defeating a prior mortgage.^* A person is estopped to deny the existence of a corporation when, by being a holder of its bonds, he acquires a locus standi in a suit brought to foreclose a mortgage made to secure their payment.^' Also one who becomes surety for the performance of a contract with a corporation is estopped to deny its corporate existence in a suit by it to set aside a conveyance by him as in fraud of its rights and to charge him as such surety for moneys due it under the contract.^' Nor can a person who takes a lease from an association as a cor- poration deny its legal incorporation in an action by it to recover the premises.^^ This rule applies also where a person has effected in- surance with an association as: a corporation, and has received from it payments made under the supposed obligation growing out of that contract, and he will not be permitted to deny that the association is a corporation, when sued by it for the restitution of the money thus paid.^^ And where a member of a subordinate lodge of a fraternal benefit association names such lodge as the beneficiary to whom the proceeds of a certificate or policy of insurance issued by the associa- tion shaU be paid, his heirs cannot question its legal existence.^' One to whom a corporation has sold property is estopped to deny its corporate existence in a proceeding involving the validity of the sale as against corporate creditors,^* as, for example, in an action against him by a receiver of the corporation to recover the property on the ground that it was transferred when the corporation was ville, N. A. & C. E. Co., 84 Fed. 539, ville & Y. Ey. Co., 1 Ohio Cir. Ct. rev'd on other grounds 174 TJ. S. 426. 674, 43 L. Ed. 1130; Hasselman v. 19 Wallace v. Loomis, 97 U. S. 146, United States Mortg. Co., 97 Ind. 365; 24 L. Ed. 895. Hasbrouck v. Eich, 113 Mo. App. 389, 20 Singer Mfg. Co. v. Bennett, 28 88 S. W. 131. See Powell Bros. v. w. Va. 16. McMullan Lumber Co., 153 N. C. 52, 21 See § 337, supra. 68 S. E. 926. 22 Liverpool & L. Tire & Life Ins. 17 Tenner v. Farmers ' Loan & Trust Co. v. Hunt, 11 La. Ann. 623. Co. of New York, 90 Fed. 348, certi- 23 Bacon v. Brotherhood of Railroad orari denied 173 TJ. S. 704, 43 L. Ed. Brakemen, 46 Minn. 303, 48 N. "W. 1185 (mem. dec). 1127. 18 Lattimer v. Mosaic Glass Co., 24 Eggert v. Cleveland, 138 111. App. 13 Ohio Cir. Ct. 163; Hatry v. Paines- 434. 716 Ch. 11] COEPOBATIONS BY EsTOPPEL [§ 341 iiisolvent.25 Similarly, persons who have obtained property from a corporation as its agents, and have otherwise dealt with and recog- nized it as a corporation, are estopped to deny its corporate existence in an action for the conversion of the property so obtained.^® And an individual who has received the property of a de facto corporation under a contract made with it in the corporate name is estopped from disputing its incorporation in an action to compel him to account for such property." Nor will one who has negotiated with a corporation for the purchase from it of personal property in his possession be permitted to question its corporate existence in an action against him by the corporation to recover the possession of such property.^* The levy and collection of taxes against a corporation, as such, estops a municipality from denying its corporate existence in an action to recover back the taxes paid.®® An employee who enters into an agreement with an association whereby he is to receive certain pecuniary and other benefits in case he is injured, and which provides that his voluntary acceptance of any such benefits in case of injury shall release the master from all liability on account thereof, and who accept such benefits, is estopped to deny the legality of the existence of the association as a de facto corporation in an action brought by him against his employer to recover damages for personal injuries in which such contract is inter- posed as a defense.'" Statutes in a number of states specifically provide that a person who is sued for an injury to the property of a corporation or for a wrong done to its interests shall not be permitted to set up want of its legal organization as a defense.'^ In Maryland it is held that a corporation cannot be created by estoppel, and hence that one is not estopped to deny the corporate existence of a purported corporation in a suit by it against him for libel by reason of the fact that he has previously directed letters to it as a corporation and has sued it as such.'® The rule of estoppel has also been applied by some courts in 25 Caxroll V. Pacific Nat. Bank, 19 29 Monroe Water Co. v. Frenchtown Wash. 639, 54 Pac. 32. Tp., 98 Mich. 431, 57 N. W. 268. 26Peckham Iron Co. v. Harper, 41 30 Petty v. Brunswick & W. E. Co., Ohio St. 100. 109 Ga. 666, 35 S. E. 82. 27 Commercial Bank of Keokuk v. 31 See § 335, supra. Pf eifeer, 108 N. Y. 242, 15 N. E. 311, 32 National Shutter Bar Co. v. G. F. aff'g 22 Hun (N. Y.) 327. g. Zimmerman & Co., 110 Md. 313, 73 28 Kelleher v. Denver Music Co., 48 Atl. 19. Colo. 212, 109 Pac. 860. 717 § 341] Pkivate Cobpobations [Ch. 11 criminal prosecutions for offenses committed against corporations.^^ So it has been held that in a criminal prosecution for burning in- sured property with intent to defraud the insurer, it is sufficient to show that the insurer would be estopped to deny its corporate ex- istence in an action on the insurance policy.^* And that in a prose- cution for obtaining money by false pretenses from a bank, a note and mortgage given by the accused to the bank for the money so ob- tained is sufficient proof as against him of the de facto existence of the bank.^* Nor can a person who has been appointed receiver for a corporation in an equity suit, which recognized the corporation as one de facto, at least, and under a decree declaring its ownership of certain money for the purposes of the suit, deny its de facto existence in a criminal prosecution against him for embezzling the said money.'* § 342. — Limitations upon and exceptions to the rule. The rule prohibiting one who has dealt with a pretended corporation from denying its corporate existence will not prevent him from denying the existence of powers or privileges which are not necessarily implied from corporate existence, but which depend upon the franchises actu- ally conferred, or in other words, from contending that its acts and contracts are ultra vires ; ''' the distinction between the two cases being "between an entire absence of authority in the organic law itself and a failure to comply with some prerequisite which the law has made a condition precedent to the exercise of corporate functions. In the one case, there is a want of power to act; in the other, only an abuse of power conferred."®' Nor will the fact that one con- tracts or deals with an association as a corporation estop him from enforcing an individual liability for corporate debts imposed by statute upon stockholders'^ or corporate officers in case of a failure 33 In Cason v. State, 16 6a. App. 37 Sherwood y. Alvis, 83 Ala. 115, 820, -86 S. E. 644, the court passes 3 Am. St. Rep. 695, 3 So. 307; Chap- upon the question whether the cash- man v. Colby, 47 Mich. 46, 10 N. W. ier of a bank would be estopped to 74. question the legality of its incorpora- See chapter on Ultra Vires, infra, tion in a criminal action against him 38 Sherwood v. Alvis, 83 Ala. 115, for embezzling its funds. 3 Am. St. Rep. 695, 3 So. 307. 34Jhons V. People, 25 Mich. 499. 39 Stivers v. Carmiehael, 83 Iowa See also People v. Jones, 24 Mich. 759, 49 N. W. 983; Heuer v. Car- 215. michael, 82 Iowa 288, 47 N. "W. 1034. 3B Cowan V. State, 22 Neb. 519, 35 See also Kleckner v. Turk, 45 Neb. N. W. 405. 176, 63 N. W. 469. 36 Fields V. United States, 87 App. This is true even though he sues Cas. (D. C.) 433. and recovers judgment against the 718 Ch. 11] CORPOEATIONS BY EsTOPPEL [§343 to comply with the statutory requirements as to incorporation and organization,*" since such action on his part does not involve any denial of the existence of the corporation. Moreover the estoppel only extends to matters arising out of the contract.*^ Nor, as a rule, does it preclude a showing that the corporation has legally ceased to exist since the contract was entered into.** As we have seen, there is a conflict of authority as to whether it applies when there is no valid law authorizing the existence of the corporation in question,*^ or when, for any reason, it is not even a corporation de facto,** and as to whether and how far it prevents one contracting with an association as a corporation from holding its members individually liable on the contract.** § 343. Estoppel of pretended corporation— In gfeneral. The doc- trine in relation to estoppel to deny corporate existence operates not only as against persons dealing with a corporation, or pretended cor- poration, and as against members and officers individually, but also as against the members collectively, or, in other words, against the pretended corporation itself.*® corporation on such contract. Stivers V. Carmichael, 83 Iowa 759, 49 N. W. 983; Heuer v. Carmichael, 82 Iowa 288, 47 N. "W. 1034. See chapter on Stock and Stock- holders, infra. He is not thereby estopped to en- force a statutory liability for corpo- rate debts imposed on stockholders where the corporation commences business before its letters patent and charter and an aflSdavit that ten per cent, of its capital stock has been subscribed and paid are filed and re- corded. Humphreys v. Drew, 59 Fla. 295, 52 So. 362; Heinberg Bros. v. Thompson, 47 Fla. 163, 37 So. 71. 40 Dealing with a corporation or proving a claim against it does not estop one to enforce against its offi- cers a statutory liability for debts contracted before recording the cer- tificate of incorporation. Gunderscn V. Illinois Trust & Savings Bank, 199 111. 422, 65 N. E. 326, aflf'g 100 HI. App. 461; Loverin v. McLaughlin, 161 111. 417, 44 N. E. 99, afC'g 46 111. App. 373. 41 For this reason a contract be- tween two railway companies whereby the first company agrees not to extend its lines into a certain city will not estop the second company from deny- ing the corporate existence of the first in a suit to enjoin the first company from entering such city, based on an alleged exclusive franchise of the sec- ond company. Wilmington City Ey. Co. V. Wilmington & B. S. Ey. Co. (Del. Ch.), 46 Atl. 12. 42 See §331, supra. 43 See § 327, supra. 44 See §326, supra. 45 See § 334, supra. 46 Eozar v. Eosenheim Shoe Co., 14 Ga. App. 13, 80 S. E. 24; Forest Glen Brick & Tile Co. v. Gade, 55 111. App. 181, appeal dismissed 158 111. 39, 42 N. E. 65, aff'd 165 111. 367, 46 N. E. 286; Brennan v. Weatherford, 53 Tex. 330, 37 Am. Eep. 758. See also Smith V. Schoodoc Pond Packing Co., 109 Me. 555, 84 Atl. 268. Though the statute provides that a corporation cannot do business until its capital stock has been subscribed 719 343] Pbivate Cobpokations [Ch. 11 If a body of men assume to act as a corporation, and enter into a contract as such, they cannot deny their legal existence as a cor- poration in an action against them, as such, on the contract.*'' in good faith, where it has in fact done business, the fact that the stock was not subscribed cannot be taken advantage of collaterally by the cor- poration or by one dealing with it, to the injury or loss of other parties. Spokane v. Amsterdamsch Trustees Kantoor, 22 Wash. 172, 60 Pac. 141; Carroll v. Pacific Nat. Bank, 19 Wash. 639, 54 Pac. 32. 47 United States. Allen v. Bhodes, •230 Ped. 321; L. D. George Lumber Co. V. Daugherty, 214 Fed. 958; Toledo, St. L. & K. 0. E. Co. v. Continental Trust Co., 95 Fed. 497, afE'g 86 Fed. 929, 82 Fed. 642, cer- tiorari denied 176 U. S. 219, 44 L. Ed. 442; Louisville Trust Co. v. Louisville, N. A. & C. E. Co., 84 Fed. 539, rev'd on other grounds 174 U. S. 674, 43 L. Ed. 1130; Farmers' Loan & Trust Co. V. Toledo, A. A. & N. M. Ey. Co., 67 Fed. 49; Phinizy v. Augusta & K. E. Co., 62 Fed. 678; tlpton v. Hans- brough, 3 Biss. 417, Fed. Gas. No. 16,801; Blackburn v. Selma, M. & M. E. Co., 2 Flip. 525, Fed. Cas. No. 1,467; Aller v. Town of Cameron, 3 Dill. 198, Fed. Cas. No. 243. Alabama. McCuUough v. Talla- dega Ins. Co., 46 Ala. 376. Colorado. Grand Eiver Bridge Co. v. EoUins, 13 Colo. 4, 21 Pac. 897. Delaware. Brady v. Delaware Mut. Life Ins. Co., 2 Pennew. 237, 45 Atl. 345. Georgia. Petty v. Brunswick & W. E. Co., 109 Ga. 666, 35 S. B. 82; Stew- art Paper Mfg. Co. v. Eau, 92 6a. 511, 17 S. E. 748; Georgia Ice Co. v. Porter, 70 6a. 637; Southern Bank of Georgia V. Williams, 25 Ga. 534; McDougald v. Lane, 18 Ga. 444; McDougald v. Bel- lamy, 18 Ga. 411. niinols. Fitzpatrick v. Butter, 160 111. 282, 43 N. E. 392, aff'g 58 111. App. 532; Independent Order of Mutual 720 Aid V. Paine, 122 111. 625, 14 N. E. 42, aflE'g 23 HI. App. 171; Eacine & M. E. Co. V. Farmers' Loan & Trust Co., 49 111. 331, 95 Am. Dee. 595; United States Exp. Co. v. Bedbury, 34 111. 459; Chadwick v. Dieke Tool Co., 186 111. App. 376; Eggert v. Cleveland, 138 lU. App. 434; Gunderson v. Illinois Trust & Savings Bank, 100 HI. App. 461, aflE'd 199 HI. 422, 65 N. E. 326; Crystal White Soap Co. v. Eoseboom,91 111. App. 551; Fields v. United Broth- erhood of Carpenters & Joiners, 60 111. App. 258; Grand Lodge Brother- hood of Locomotive Firemen v. Cra- mer, 60 111. App. 212, aff'd 164 111. 9, 45 N. E. 165; Clarkson v. Erie & N. S. Dispatch, 6 111. App. 284. Where it is shown that the corpo- ration holds itself out as such by deal- ing and purchasing goods as such, this makes out a prima facie case of in- corporation in an action against it. Auburn Cycle Co. v. Poote, 69 111. App. 644. Indiana. Cravens v. Eagle Cotton Mills Co., 120 Ind. 6, 16 Am. St. Eep. 298, 21 N. E. 981; Ewing v. Eobeson, 15 Ind. 26. Iowa. Quinn v. Shields, 62 Iowa 129, 49 Am. Eep. 141, 17 N. W. 437; Hum- phrey v. Patrons' Mercantile Ass'n, 50 Iowa 607. See also § 344, infra. Maine. Beal v. Bass, 86 Me. 325, 29 Atl. 1088. Mstssachusetts. Kelley v. Newbury- port & A. H. E. E., 141 Mass. 496, 6 N. E. 745; First Nat. Bank v. Almy, 117 Mass. 476; Merrick v. Eeynolds Engine & Governor Co., 101 Mass. 381; Dooley v. Cheshire Glass Co., 15 Gray 494; Narragansett Bank v. Atlantic Silk Co., 3 Mete. 282, 288. MicMgan. Galvin v. Detroit Steer- ing Wheel & Windshield Co., 176 Mich. 569, 142 N. W. 742; Empire Mfg. Co. v. Stuart, 46 Mich. 482, 9 N. W. 527; Ch. 11] COBPOBATIONS BY ESTOPPEL [§343 This doctrine of estoppel has not, however, found favor in Maryland, Jhons V. People, 25 Mich. 499; Swart- wout V. Michigan Air Line E. Co., 24 Mich. 389. ItUnnesota. Scheufler v. Grand Lodge, A. O. U. W. of Minnesota, 45 Minn. 256, 47 N. W. 799; Jewell v. Grand Lodge, A. O. U. W., 41 Minn. 405, 43 N. W. 88. Missouri. EoU v. St. Louis & 0. Smelting & Mining Co., 52 Mo. App. 60; White v. Belief ontaine Lodge, 1. O. O. F., 30 Mo. App. 682; Barbaro v. Occidental Grove No. 16, 4 Mo. App. 429. Montana. Daily v. Marshall, 47 Mont. 377, 133 Pac. 681. New York. Whitf ord v. Laidler, 94 N. Y. 145, 46 Am. Eep. 131, rev'g 25 Hun 136; Muehlenbeck v. Babylon & N. S. R. Co., 26 Misc. 136, 55 N. Y. Supp. 1023; Abbott v. Aspinwall, 26 Barb. 202; Stoddard v. Onondaga An- nual Conference of Methodist Prot- estant Church, 12 Barb. 573; Kuypers V. Reformed Dutch Church, 6 Paige 570. North Carolina.. Dobson v. Simon- ton, 86 N. C. 492; Bank of States ville v. Simonton, 86 N. C. 187; Rush v. Hal- cyon Steamboat Co., 84 N. C. 702; State v. Simonton, 78 N. C. 57. North Dakota. Coler & Co. v. Dwight School Tp., 3 N. D. 249, 28 L. E. A. 649, 55 N. W. 587. Ohio. Callender v. Painesville & H. E. Co., 11 Ohio St. 516; Trumbull County Mut. Tire Ins. Co. v. Horner, 17 Ohio 407; Adelbert College v. To- ledo, W. & W. R. Co., 3 Ohio N. P. 15. Pennsylvania. Hamilton v. Clarion, M. & P. R. Co., 144 Pa. St. 34, 13 L. E. A. 779, 23 Atl 53. See also In re Gibbs' Estate, 157 Pa. St. 59, 22 L. E. A. 276, 27 Atl. 383. Bhode Island. Slocum v. Warren, 10 E. L 116. South Carolina. Johnston v. South Western Eailroad Bank, 3 Strobh. Eq. 263. Utah. Liter v. Ozokerite Min. Co., 7 Utah 487, 27 Pac. 690. Vermont. Reynolds v. Myers, 51 Vt. 444; Stone v. East Berkshire Con- gregational Society, 14 Vt. 86. Virginia. Martin v. South Salem Land Co., 94 Va. 28, 26 S. E. 591. West Virginia. Bon Aqua Improve- ment Co. V. Standard Fire Ins. Co., 34 W. Va. 764, 12 S. E. 771; Anderson v. Kanawha Coal Co., 12 W. Va. 526. Wisconsin. WiUiams v. Stevens' Point Lumber Co., 72 Wis. 487, 40 N. W. 154; Heath v. Silverthorn Lead Mining & Smelting Co., 39 Wis. 146. In Callender v. Painesville & H. R. Co., 11 Ohio St. 516, it was held that neither the members of an association who had acted as a corporation, even though under a belief that they were incorporated, and entered into a written contract as such, nor its offi- cers, could deny that it was regularly incorporated, to defeat an action against it as a corporation on the con- tract. "Under such circumstances," said Judge SutlifE, "the members of the company, and especially the offi- cers of the company, are estopped to deny its existence as a corporation. However mistaken in fact, no person, whether artificial or natural, is per- mitted to so conduct and represent himself as to induce reasonable men, at his instance, to act upon the truth of his representations in their con- tracts and dealings with him, and to then deny the truth of such repre- sentation^ to the prejudice of the party so having relied upon them. * * * To suffer the defendants to repudiate their conduct and deny the truth of their representations, by which the plaintiffs had been induced to contract with them, and upon which both parties had acted, would be in contravention of those princi- ples of equity upon which the doctrine I Priv. Corp. — 46 721 § 344] Pkivate Cokpobations [Ch. 11 and it appears to have been repudiated by the courts of that state.** § 344. — Statutory provisions. Statutes in some states expressly provide that "it shall not be a defense to any suit against a corpora- tion that there was a defect or informality in its organization," *' or that no body of men acting as a corporation shall be permitted to set of estoppel rests, and its operative ing with the association to inform effect to prevent fraud depends." 48 It was there held that an associa- tion which held itself out as a cor- poration, and contracted as such, was not estopped, in an action against it on the contract, to deny its corpo- rate existence on the ground that it had failed to comply with the re- quirements of the law in organizing. "We think," said the court, "it would be extending the doctrine of estoppel to an extent not justified by the principles of public policy to allow it to operate through the conduct of the parties concerned, to create sub- stantially a de facto corporation, with just such powers as the parties may by their acts give to it. This would be substituting the dealings of the parties for compliance with the requirements of the law, and giving to them the same effect through the aid of tbe courts. Thus, virtually, through the courts, recognizing the existence of the corporation, in manifest dis- regard of the written law." Boyer v. Towsontown Station of M. E. Church, 46 Md. 359. Compare, however, Grape Sugar & Vinegar Mfg. Co. v. Small, 40 Md. 395. In this case, the court clearly takes a wrong view of the requirelnents of public policy. It is much the better policy to apply the doctrine of estop- pel in such cases, and thus prevent fraud upon the part of persons assum- ing to act as a corporation, when they have failed to comply with the statu- tory requirements in their organiza- tion, — a circumstance of which it is not reasonable to require persons deal- themselves, and a circumstance of which most persons, if they knew of it, would not appreciate the legal effect. In the above case, the defect con- sisted merely in the fact that the cer- tificate or agreement of incorporation was acknowledged before one justice of the peace, instead of two justices or a judge, as required by the statute. Public policy clearly requires that the members of an association shall be estopped to set up such a defect in organization as a corporation as against persons contracting with it in good faith, especially in view of the fact that the attorney general may at any time institute proceedings to oust them from the exercise of corporate powers. In Franklin Fire Ins. Co. v. Hart, 31 Md. 59, it was held that the sub- scription and payment of a certain amount of stock was a condition pre- cedent to the existence of a corpora- tion under a special charter and that a person appointed secretary of the company could not recover against the corporation for services rendered in that capacity prior to the perform- ance of said condition. In Hammond v. Straus, 53 Md. 1, it was held that the failure to observe statutory requirements which are not conditions precedent cannot be set up by the stockholders or the corporation as a defense to an action to enforce their liabilities. And see Lord v. Essex Bldg. Ass'n No. 4, 37 Md. 320. 49 Mississippi Code 1906, § 906; Per- kins V. Eouss, 78 Miss. 343, 29 So. 92. 722 Ch. 11] COEPOEATIONS BY EsTOPPEL, [§345 up the want of a legal organization as a defense to an action against them as a corporation.^" As in other cases, such provisions apply- only where the evidence shows distinctly and unequivocally an at- tempt to exercise corporate powers.*^ § 345. — Use of name importing corporate existence. Some of the eases lay down the rule that when an association of persons assumes a name which implies or imports a corporate body, and exercises corporate powers, they will not be heard to deny that they are a corporation.*^ So a number of courts have held that if they contract 50 Florida. Gen. St. 1906, § 2687. Iowa. .Code 1897, §1636; Kirkpat- riek v. United Presbyterian Church of Keota, 63 Iowa 372, 19 N. W. 272; Quinn v. Shields, 62 Iowa 129, 49 Am. Eep. 141, 17 N. W. 437; Court- right V. Deeds, 37 Iowa 503. The estoppel provided for applies only to a body of men acting as a corporation. The evidence must show distinctly and unequivocally an at- tempt to exercise corporate powers, and it is not enough to show acts which might just as well have been those of a partnership or unincor- porated association. Kirkpatrick v. United Presbyterian Church of Ke- ota, 63 Iowa 372, 19 N. "W. 272. Kentucky. Stat. 1909, § 566; Eruin- Colnon Contracting Co. v. Chatterson, 146 Ky. 504, 40 L. E. A. (N. S.) 857, 143 S. W. 6; Warden v. Madison ville, H. & E. E. Co., 125 Ky. 644, 101 S. W. 914; Drake v Herndon, 122 Ky. 206, 28 Ky. L. Eep. 1106, 91 S. W. 674; Com. V. Licking Valley Bldg. Ass'n No. 3, 118 Ky. 791, 82 S. "W. 435; Johnson v. Mason Lodge No. 33, I. O. O. F., 106 Ky. 838, 51 S. W. 620; Wood V. Friendship Lodge No. 5, I. O. O. F. of Lexington, 106 Ky. 424, 50 S. W. 836; Gen. St. 1873, c. 56, §18; Walton v. Eiley, 85 Ky. 413, 3 S. W. 605 (overruling Heinig v. Adams & Westlake Mfg. Co., 81 Ky. 300, 5 Ky. L. Eep. 281, and, by implication, Eob- inson v. Harris, 5 Ky. L. Eep. 928) ; Friedman v. Janssen, 23 Ky. L. Eep. 2151, 66 S. W. 752; Handley v. Stutz, 139 U. S. 417, 35 L. Ed. 227, rev'g on other grounds 41 Fed. 531 (con- struing Kentucky statute). The statute applies in an action by the commonwealth against a corpora- tion to collect its organization tax, and hence the petition in such an action need not allege facts showing compli- ance by the corporation with the statu- tory requirements as to organization. Com. V. Licking Valley Bldg. Ass'n No. 3, 118 Ky. 791, 82 S. W. 435. Nebraska. Comp. St. 1911, §2102; Gilligau V. John Gilligan Co., 94 Neb. 437, 143 N. W. 457; Lincoln Butter Co. V. Edwards-Bradford Lumber Co., 76 Neb. 477, 107 N. W. 797; Livings- ton Loan & Building Ass'n v. Drum- mond, 49 Neb. 200, 68 N. W. 375. Tennessee. Shannon's Code, § 2064; Pope V. Merchants'. Trust Co., 118 Tenn. 506, 103 S. W. 792. 61 See § 333, supra. 62 Fitzpatriek v. Eutter, 160 111. 282, 43 N. E. 392, aff'g 58 111. App. 532; United States Express Co. v. Bedbury, 34 111. 459; Chicago City Eailway Em- ployees Mut. Aid Ass'n v. Hogan, 124 111. App. 447; Fields v. United Brotherhood of Carpenters & Join- ers, 60 111. App. 258. This rule was adopted in Barbaro V. Occidental Grove No. 16, 4 Mo. App. 429. But in Atchison v. Crawford County Farmers' Mut. Fire Ins. Co., 723 § 345] Pbivate Coepoeations [Ch. 11 in such a name they will be estopped to deny their incorporation in Ian action upon or growing out of the contract, or that their action in so doing will at least be regarded as prima facie evidence that they are incorporated.^' Other courts, however, have held that the use of such a name will not work an estoppel,** or at least that no absolute estoppel will 192 Mo. App. 362, 180 S. W. 438, it is said that this holding was not neces- sary to the decision of that case. 63 Chicago City Eailway Employees Mut. Aid Ass 'n v. Hogan, 124 HI. App. 447; Fields v. United Brotherhood of Carpenters & Joiners, 60 HI. App. 258; Clarkson v. Erie & N. S. Dis- patch, 6 111. App. 284. "The Switchmen's Mutual Aid As- sociation of North America" implies a corporation. Fitzpatriek v. Butter, 160 111. 282, 48 N. E. 392, aff'g 58 111. App. 532. The name "United States Express Company" imports a corporation. United States Express Co. v. Bedbury, 34 111. 459. A benefit association that issues a benefit certificate, sealed with the com- pany 's seal, and signed by its proper officers, which declares the person to whom it is issued to be a member of the order in a certain subordinate lodge, is estopped to deny its cor- porate existence in an action on such certificate. Grand Lodge Brotherhood of Locomotive Firemen v. Cramer, 60 111. App. 212. In Indiana Millers' Mut. Fire Ins. Co. V. People, 65 111. App. 355, it was held that the name "Indiana Millers' Mutual Fire Insurance Company," under which a foreign insurance com- pany issued policies, imported a corpo- ration, and hence that it could not contend, in an action against it for a penalty for doing business in the state without a license, that there was no proof that it was incorporated un- der the laws of the foreign state. In Allen v. Hopkins, 62 Kan. 175, 61 Pac. 750, it is held that, where a bond was executed by "The Boyden Ab- stract Company" as principal, and was signed with that name and with the names of two individuals as presi- dent and secretary, respectively, its character as the bond of a c.orporation was represented so strongly on its face as to amount to a recital of that fact, and that the sureties were there- fore estopped to deny such incorpora- tion in an action on the bond, though the principal was in fact a copartner- ship. "The execution of a written con- tract by a corporation in its corporate name is such an admission of incor- poration as will, in an action by the other party to the contract, make out a prima facie case on that point." Eeal Estate Sav. Inst. v. Fisher, 9 Mo. App. 593. And the same is true where a corporation accepts a note payable to it in its corporate name. Knapp, Stout & Co. V. Joy, 9 Mo. App. 575. Where they contract in such a name, they are estopped to deny their cor- porate liability. Barbaro v. Occiden- tal Grove No. 16, 4 Mo. App. 429. But see Atchison v. Crawford County Farmers' Mut. Fire Ins. Co., 192 Mo. App. 362, 180 S. W. 438, where it is said that the holding to this effect in the case last cited was not necessary to the decisioii. For further examples of particular names which have been held to imply or not to imply corpo- rate existence, see § 336, supra. 64 The fact that the Item newspaper contained a notice that all communi- cations should be addressed to "The Item Publishing Company," was held 724 Ch. 11] COBPOEATIONS BY ESTOPPEL [§346 result.^^ And it has also been held that if the business of a company is such that it might be conducted either as a corporation or as an unincorporated association, according to the election of its members, then the mere fact that it assumes a name which might indicate that it was la corporation and does business under it is not enough to work an estoppel, but ihere must be some effort on its part to act as a corporation or a holding out as such.^* The absence of the word "incorporated" after the name of a com- pany advises persons dealing with it that it does not claim to be a corporation, where the statute requires that word to follow the name of every corporation on its signs and printed matter.*'' § 346. — Applications of the rule. A purported corporation can- not defeat recovery on a note and mortgage,** nor on an insurance policy,*' nor on an appeal bond ^^ executed by it, on the ground that it was not legally incorporated. And recitals in a deed executed by it to the effect that it is incorporated will estop it from denying that fact in an action thereon, and will be prima facie evidence of that fact when the deed is collateral to the purpose of the action.®^ not to estop its stockholders to deny 68 Quinn v. Shields, 62 Iowa 129, 49 its corporate existence in a suit by a judgment creditor to enforce payment of stock subscriptions. Tonge v. Item Pub. Co., 244 Pa. 417, 91 Atl. 229. In Bash v. Culver Gold Min. Co., 7 Wash. 122, 34 Pac. 462, it was held that the mere use of the name "Cul- ver Gold Mining Co.," would not op- erate as an estoppel where no articles had been filed and no legal steps taken to incorporate, especially in favor of one of the chief promoters of the company, who was cognizant of all the facts. See also § 343, supra. 55 The mere fact that a partnership does business under the name of the "Newport Pressed Brick Company," does not work an absolute estoppel on the part of the partners to deny that the partnership is a corporation. Bax- ter V. Jones, 185 Fed. 900. 56 Atchison v. Crawford County Farmers' Mu't. Fire Ins. Co., 192 Mo. App. 362, 180 S. W. 438. 57 Baxter v. Jones, 185 Fed. 900 (construing Ky. St. § 576). Am. Eep. 141, 17 N. W. 437. 69 Brady v. Delaware Mut. Life Ins. Co., 2 Pennew. (Del.) 237; Bon Aqua Improvement Co. v. Standard Fire Ins. Co., 34 "W. Va. 764, 12 S. E. 771. In an action on an insurance certifi- cate issued by a fraternal benefit as- sociation signed by the proper officers, sealed with the company's seal, and reciting that the deceased is a mem- ber of the order in a specified lodge, the association is estopped by the recitals in its deed from alleging that such subordinate lodge was not prop- erly organized. Order of Mutual Aid V. Paine, 122 111. 625, 14 N. E. 42, aflf'g 23 111. App. 171. 60 So an association is estopped to deny its corporate existence to defeat an action on an appeal bond given by it as a corporation. East Tennessee & G. R. Co. v. Evans, 6 Heisk. (Tenn.) 607. 61 Anderson v. Kanawha Coal Co., 12 "W. Va. 526. 725 §346] Pbivate Coepobations [Ch. 11 The rule of estoppel operates to prevent a municipal or quasi municipal corporation from denying that it is a corporation for the purpose of escaping liability on its bonds in the hands of bona fide holders.^2 For this reason, also, it has been held that a corporation which has fully perfected its organization, and acquired a legal ex- istence, cannot avoid contracts made by it as a corporation before its organization.*^ A de facto consolidated corporation and its stockholders are estopped to deny the validity of the consolidation for the purpose of avoiding a debt incurred by it in the actual exercise of corporate franchises and the doing of corporate business,** as, for example, in a suit to foreclose a mortgage given to secure its bonds,** or in order to escape liability for the obligations of one of the consolidating cor- porations.** And the consolidating corporations are also estopped to deny the validity of the consolidation.*'' Similarly, a corporation 62 Tulare Irrigation Dist. v. Shep- ard, 185 U. 8. 1, 46 L. Ed. 773; Clapp V. Otoe County, Nebraska, 104 Fed. 473; Aller v. Cameron, 3 Dill. 198, Fed. Cas. No. 243; Color & Co. v. Dwighfc School Tp., 3 N. D. 249, 28 L. E. A. 649, 55 N. "W. 587. See McQuillin on Municipal Corpo- rations, § 2354. 63 Grand River Bridge Co. v. Rol- lins, 13 Colo. 4, 21 Pac. 897; Georgia Ice Co. v. Porter, 70 Ga. 637, 641; Me- Dougald V. Bellamy, 18 Ga. 411; In- dependent Order of Mutual Aid v. Paine, 122 HI. 625, 14 N. E. 42, aff'g 23 111. App. 171; Empire Mfg. Co. v. Stuart, 46 Mich. 482. Where a pretended corporation had carried on business, and held itself out to the public as a corporation, before it was organized according to law, it was held that its assets should be held liable for its debts incurred prior to organization, and that judgments for such debts prior to its organization were superior to mortgages executed by it after organization. Bergen v. Porpoise Fishing Co., 41 N. J. Eq. 238, 3 Atl. 404. 64 Farmers ' Loan & Trust Co. v. To- ledo, A. A. & N. M. Ey. Co., 67 Fed. 49. 65 Louisville Trust Co. v. Louisville, N. A. & C. By. Co., 84 Fed. 539, rev \l on other grounds 174 U. S. 674, 43 L. Ed. 1130; Farmers' Loan & Trust Co. V. Toledo, A. A. & N. M. Ey. Co., 67 Fed. 49; Phinizy v. Augusta & K. E. Co., 62 Fed. 678; Eacine & M. E. Co. V. Farmers' Loan & Trust Co., 49 111. 331, 95 Am. Deo. 595. See also Dimp- fel V. Ohio & M. Ey. Co., 9 Biss. 127, Fed. Cas. No. 3,918, aff'd 110 TJ. S. 209, 28 L. Ed. 121; Bissell v. Michigan Southern & N. I. E. Co., 22 N. T. 258. 66 Chicago, S. F. & C. E. Co. v. Ash- ling, 160 111. 373, 43 N. E. 373, aff'g 56 111. App. 327; Miles v. Benton Har- bor-St. Joe Eailway & Light Co., 154 Mich. 378, 117 N. W. 937; Shadford v. Detroit, Y. & A. A. E. E., 130 Mich. 300, 89 N. W. 960. 67 Bradford v. Frankfort, St. L. & T. E. Co., 142 Ind. 383, 41 N. E. 819, 40 N. E. 349. They cannot do so in order to ex- empt their assets from liability for tho debts of the consolidated corpora- tion. L. D. George Lumber Co. v. Daugherty, 214 Fed. 958. 726 Ch. 11] COBPOBATIONS BY EsTOPPEL [§ 347 which has assumed to make a, contract authorized by an amendment to its articles, and has received the consideration, will not be per. mitted to escape the obligation of the contract by setting up a wani of record of the amended articles.*' § 347. — Estoppel in actions other than on contract. The estoppel is not confined to cases where an action is brought directly against the corporation by the persons with whom it has contracted or dealt. For example, it also extends to a case where the corporation is gar- nished as a debtor of the plaintiff's debtor,*^ and the rule has been applied in mandamus proceedings brought against the corporation by an expelled member to compel his restoration to membership,'"' and in actions against it for torts.'^ Nor can the local lodges of a fraternal benefit association question its due incorporation in pro- ceedings to compel a judge to punish their officers for contempt for refusal to obey an order requiring them to turn over certain property to a receiver of the association.''^ So, too, an association which has assumed to act as a corporation, and has acquired property, cannot escape liability for taxes on the ground that it has no legal existence as a corporate body.''' Thus, in an action against a county treasurer to recover property seized for taxes assessed against a bank, brought by one claiming title as vendee of the latter, it is only necessary for the defendant to show that the bank assumed to organize under the general banking law and was acting under such organization.''* And in an action by the state against a corporation to recover its organ- ization tax, it will not be permitted to plead as a defense, a statute providing that no corporation shall exercise corporate powers until such tax is paid, and that, not having paid the tax, it does not exist as a corporation.''* 68 Humphrey v. Patrons ' Mercantile trol. ' ' Pattison v. Gulf Bag Co., 116 Ass'n, 50 Iowa 607. La. 963, 114 Am. St. Eep. 570, 41 So. 69 United States Express Co. v. Bed- 224. bury, 34 111. 459. 72 Baldwin v. Hosmer, 101 Mich. 70 Meurer v. Detroit Musicians ' Be- 119, 133, 25 L. E. A. 739, 59 N. W. nevolent & Protective Ass'n, 95 Mich. 432. 451, 54 N. W. 954. 73 Atlanta & R. Air-Line R. Co. v. 71 ' ' Where the stockholders of a State, 63 6a. 483 ; Ewing v. Robeson, corporation permit its name to be used 15 Ind. 26. in the conduct of the same business, 74 Ewing v. Robeson, 15 Ind. 26. in the same place, and under the same 76 Cora. v. Licking Valley Bldg. manager, they are estopped to deny Ass'n No. 3, 118 Ky. 791, 82 8. W. its continued existence as to the pub- 435. See also Standard Oil Co. v. lie and employees not aware of any Com., 29 Ky. L. Rep. 5, 91 S. W. 1128. change in corporate ownership or con- 727 §348J Pbivate Cobpoeatiows [Ch. 11 § 348. Estoppel of promoters, members and officers of pretended corporation — Estoppel of promoters and members. A person who has participated in promoting, or who has become a stockholder or member of a pretended corporation, and thus participated in holding it out to the world as a corporation, is estopped to deny its corporate existence as against its creditors for the purpose of escaping statutory- liability for its debts ; '^ as, for example, a statutory individual lia- bility for failure to file required certificates or reports,''' or individual liability imposed upon stockholders in a bank for the payment of bills issued by it,'"* or for public funds deposited therein which are not paid over on demand,''® or the liability imposed upon members of a ditch company for labor performed in constructing the ditch.*" Such a person is also estopped to deny the existence of the corporation as 76 United States. Casey v. Galli, 94 U. S. 673, 24 L. Ed. 168; Wallace v. Hood, 89 Fed. 11. Alabama. National Commercial Bank v. McDonnell, 92 Ala. 387, 9 So. 149; McDonnell v. Alabama Gold Lii'e Ins. Co., 85 Ala. 401, 5 So. 120. District of Columbia. Keyser v. Hitz, 2 Maokey 473. Illinois. Dows v. Naper, 91 111. 44; McCarthy v.' Lavasche, 89 111. 270, 31 Am. Eep. 83; Wheelock v. Kost, 77 111. 296; Corwith v. Culver, 69 111. 502. lo-wa. Seaton v. Grimm, 110 Iowa 145, 81 N. W. 225. Kansas. Aultman v. Waddle, 40 Kan. 195, 19 Pae. 730. Maine. Maine Trust & Banking Co. V. Southern Loan & Trust Co., 92 Me. 444, 43 Atl. 24. Maryland. Garling v. Baechtel, 41 Md. 305; Hager v. Cleveland & Bas- sett, 36 Md. 476. Minnesota. Gardner v. Minneapo- lis & St. L. Ry. Co., 73 Minn. 517, 79 N. W. 282, aff'd 177 U. S. 332, 44 L. Ed. 793. Nebraska. Davis' Estate v. Watkins, 56 Neb. 288, 76 N., W. 575. New Hampshire. Ossipee Hosiery & Woolen Mfg. Co. v. Canney, 54 N. H. 295; Haynes v. Brown, 36 N. H. 545. New York. Mead v. Keeler, 24 Barb. 20. Ohio. Dickason v. Grafton Sav. Bank Co., 6 Ohio Cir. Ct. (N. S.) 329; Eyan v. Miami Valley E. W. Co., 6 Ohio Dee. 1071. Pennsylvania. McHose & Co. v. Wheeler, 45 Pa. St. 32. Bhode Island. Slocum v. Warren, 10 E. I. 116; Slocum v. Providence Steam & Gas Pipe Co., 10 E. I. 112. The members of a corporation de- fectively organized cannot insist that because of such defective incorpora- tion they are partners only, for the purpose of escaping double liability imposed by a statute on stockhold- ers in banks. Elson v. Wright, 134 Iowa 634, 112 N. W. 105. See also chapter on Stock and Stockholders, infra. 77 This applies as to their statutory individual liability on failure to file annual certificates as to the amount of assessments voted by the company and actually paid in and the amount «f its existing debts. Slocum v. War- ren, 10 E. I. 116; Slocum v. Providence Steam & Gas Pipe Co., 10 E. I. 112. 78MeDougald v. Lane, 18 6a. 444; McDougald v. Bellamy, 18 Ga. 411. 79 Bank of Midland v. Harris, 114 Ark. 344, 170 S. W. 67. 80 Shafer v. Moriarty, 46 Ind, S. 738 Ch. 11] COBPOEATIONS BY EsTOPPEL [§ 348 against the holder of bonds of the corporation secured by a mortgage given by it ; '^ or in controversies arising between himself and the corporation or its other stockholders or members.*'^ And stockholders who participate in the action of a corporation in giving a note, and who execute a bond to secure the same, are estopped to deny the existence of the corporation in an action on the bond.*' And, as we have seen, the members collectively are estopped in an action against them as a corporation.^* The promoters of a eorporation are estopped to question the legality of its organization in an action by it to recover illegal profits made by them in the sale of property to it.^^ And railroads which are members of a dispatch line and receive its earnings are estopped £0 deny its corporate existence in a suit against them by a judgment -ireditor of such line, with whom it has contracted as a corporation, to charge them as trustees in respect to the earnings so received.'^ But one cannot be estopped on the ground that he is»a stockholder where he never subscribed for nor owned any stock.*'' Nor will the fact that one takes part in preliminary proceedings for the formation of a corporation estop him from denying its corporate existence when sued by it after the incorporation is completed, provided he severs his connection with the association before the incorporation takes place, and takes no further part in the proceedings.** 81 Farmers ' Loan & Trust Co. v. To- liminary proceedings, and is elected a ledo, A. A. & N. M. Ey. Co., 67 Fed. director before the articles are filed, 49; Phinizy v. Augusta & K. E. Co., is not estopped, where, before the ar- 62 Fed. 678. tides were filed, he refused to act fur- They cannot set up fraud in the ther and another person took his organization of the corporation as a place on the board and he had noth- defense to a suit to foreclose such a ing further to do with the company mortgage. Gunderson v. Illinois Trust and never thereafter pretended to be & Savings Bank, 100 111. App. 461, a member or accepted any privileges or aff'd 199 111. 422, 65 N. E. 326. benefits as such. Middle Branch Mut. 82 See § 350, infra. Tel. Co. v. Jones, 137 Iowa 396, 115 83 See Fourth Nat. Bank of Grand N. W. 3. Eapids v. Olney, 63 Mich. 58, 29 N. The fact that one signs an agree- W. 513. ment looking to the organization of a 84 See § 343, supra. corporation and participates in the 85 Pittsburg Min. Co. v. Spooner, 74 first proceedings with reference to its Wis, 307, 17 Am. St. Eep. 149, 42 N. organization, does not estop him from W. 259. denying that the corporation formed 86 Clarkson v. Erie & N. S. Dispatch, pursuant to such agreement is one de 6 111. App. 284. jure in an action by it against him 87 Byronville Creamery Ass 'n v. Iv- for breach of a contract made by him ers, 93 Minn. 8, 100 IST. W. 387. with the other promoters for its bene- 88 One who takes part in the pre- fit, where he entirely severed his eon- 729 §348] Private Cobpoeations [Ch. 11 The estoppel of subscribers to stock to deny the legality of the incorporation in actions to enforce their subscription contracts will be fully treated in another chapter.*' § 349. — Estoppel of officers. A person who has acted as an officer of a pretended corporation, either as director or as president, or in any other capacity, and has thus participated in holding out the corporation as having a legal existence, is estopped to deny such existence.'" Thus, one who has made a contract as an officer of a corporation is estopped to deny the legal existence of the corporation in an action to enforce a right growing out of such contract.'^ Nor can a person who has made a conveyance of land as officer of a pre- tended corporation set up want of incorporation for the purpose of nection with the association before it was completed and ready for busi- ness, and was in no other way personally connected with or responsi- ble for its conduct in attempting to organize. Byronville Creamery Ass 'n V. Ivors, 93 Minn. 8, 100 N. W. 387. Nor will the fact that a person takes part in a preliminary meeting look- ing to incorporation at which he is chosen a trustee, and that stock is subsequently issued to and accepted by him, estop him to deny the corpo- rate existence in an action to hold him personally liable for a debt of the corporation as trustee because of a failure to publish and file the reports required by the statute, where the or- ganization was never completed and he withdrew from the association and surrendered his stock on discovering that the patent which the proposed cor- poration was to be organized to buy had been sold to others. Dewitt v. Hastings, 40 N. Y. Super. Ct. 463, afE'd 69 N. Y. 518. 89 See Chap. 17, infra. 90 United States. Close v. Glenwood Cemetery, 107 U. S. 466, 27 L. Ed. 408. Colorado. Bates v. Wilson, 14 Colo. 140, 24 Pac. 99. Illinois. Curtis v. Tracy, 169 111. 233, 61 Am. St. Eep. 168, 48 N. E. 399, aff 'g 62 HI. App. 49; Forest Glen Brick & Tile Co. V. Gade, 55 111. App. 181, appeal dismissed 158 111. 39, aff'd 165 111. 367, 46 N. E. 286; Joliet v. Fran- ces, 85 111. App. 243. Iowa. Seaton v. Grimm, 110 Iowa 145, 81 N". W. 225. Kentucky. Tanner v. Nichols, 25 Ky. L. Eep. 2191, 80 S. W. 225. Maine. Beal v. Bass, 86 Me. 325. Missouri. Smith v. Heidecker, 39 Mo. 157. Nebraska. Macf arland v. West Side Improvement Ass'n, 53 Neb. 417, 73 N. W. 736. New Hampsbire. Haynes v. Brown, 36 N. H. 545, 561. New York. See Georgeson v. Caf- frey, 71 Hun 472, 24 N. Y. Supp. 971. Pennsylvania. Weinman v. Wil- kinsburg & E. L. P. Ey. Co., 118 Pa. St. 192, 12 Atl. 288. 91 Fairbanks-Morse Co. v. Coulson Stock Food Co., 151 Mo. App. 260, 131 S. W. 894. Persons who have held themselves out as officers and directors of a cor- poration and have executed a note in its name for money borrowed in its name, are estopped to claim that it was not duly incorporated. Central Nat. Bank of Junction City v. Shel- don, 86 Kan. 460, 121 Pac. 340. 730 Ch. 11] COEPOKATIONS BY EsTOPPEL [§349 attacking the title of the grantee or those claiming under him.^^ And a person who has acted as an officer of a pretended corporation cannot deny its corporate existence for the purpose of escaping liability on his subscription to its capital stock,®* or a liability imposed by statute upon him as officer or stockholder,®* as, for example, a liability im- posed upon officers for failure to file statements, certificates or reports as to the condition of the corporation,®^ or a personal liability imposed upon the president and directors for debts contracted before com- pliance with statutory conditions precedent to the commencement of business.®^ Nor can an officer who helped to organize a bank and has been connected with it continuously for a series of years set up irregularities and defects in its organization as a defense to a crim- inal prosecution against him for making false entries in its books and false statements and reports to the bank commissioner in respect to its condition.®'' The rule of estoppel under discussion is especially applicable to prevent an officer from denying the existence of the corporation as against the corporation itself or its members,®^ or in actions against 92 Close V. Glenwood Cemetery, 107 V. S. 466, 27 L. Ed. 408. 93 United States. Eoekville & W. Turnpike Eoad v. Van Ness, 2 Cranch C. C. 449. Ulinois. Corwith v. Culver, 69 HI. 502. Kentucky. Tanner v. Nichols, 25 Ky. L. Bep. 2191, 80 S. W. 225. Maine. See Seven Star Grange No. 73, Patrons of Husbandry v. Ferguson, 98 Me. 176, 56 Atl. 648. Maiyland. Musgrave v. Morrison, 54 Md. 161. Missouri. Smith v. Heideeker, 39 Mo. 157. Nebraska. Macfarland v. West Side Improvement Ass'n, 56 Neb. 277, 76 N. "W. 584, 53 Neb. 417, 73 N. W. 736. New York. Euggles v. Broek, 6 Hun 164. This rule applies to one who partici- pated in the organization of the cor- poration and became and acted as a director. Hunt v. Kansas & M. Bridge Co., 11 Kan. 412. 91 Corwith V. Culver, 69 111. 502; Gay V. Kohlsaat, 126 111. App. 4, aff'd 223 111. 260; Priest v. Essex Hat Mfg. Co., 115 Mass. 380. 95 See Jenet v. Mims, 7 Colo. App. 88, 43 Pac. 147; Newcomb v. Eeed, 12 Allen (Mass.) 362; Daily v. Marshall, 47 Mont. 377, 133 Pac. 681; Emery v. De Peyster, 77 N. T. App. Div. 65, 78 N. Y. Supp. 1056; Meriden Tool Co. V. Morgan, 1 Abb. N. Cas. (N. Y.) 125, note; Squires v. Brown, 22 How. Pr. (N. Y.) 35. 96 So one who represents that a pro- jected corporation has been legally organized and that he is a director in it, is estopped from denying the truth of such representation in order to es- cape liability under such a statute upon notes given for goods sold upon the faith of such representations. Corey v. Morrill, 61 Vt. 598, 17 Atl. 840. 97 State V. Maaon, 61 Kan. 102, 58 Pac. 978. 98 See § 350, infra. 731 §349] Private Cokpokations [Ch. 11 him by the corporation or its creditors to enforce his subscription to corporate stock.** One is not estopped as an officer, however, though elected to an office, -where he does not accept the office or act as an officer.^ Nor does the estoppel extend to an officer or director who has severed his connection with the corporation before the acts relied on to constitute the estoppel oecur.^ § 350. — Estoppel of members and officers a,s between themselves or as against the corporation. The estoppel to deny corporate ex- istence by reason of recognition, or of participation in holding out a pretended corporation, may operate as between the members, or be- tween the members and officers of the pretended corporation, or the members or officers and the pretended corporation itself.* So it has been held that directors or officers of a pretended corporation cannot deny its corporate existence for the purpose of holding its stock- holders or members liable to contribution as partners,* or for the purpose of holding them personally liable on contracts made by such officers with the corporation,* or for the purpose of holding their fellow officers and directors to a statutory individual liability on 99 See Chap. 17, infra. 1 Under such circumstances he may deny that it is a corporation in an action by it for breach of a contract made by him with the promoters for the benefit of the corporation when it should be organized. Byronville Creamery Ass'n v. Ivers, 93 Minn. 8, 100 N. W. 387. ZSturges V. Vanderbilt, 73 N. Y. 384. 3 In an action against a corporation and its ofScers and corporators by persons claiming to be members to establish their rights as such and to prevent the misappropriation of cor- porate property, the corporate exist- ence is sufficiently established by proof that the corporation had acted as such for many years, and that the individual defendants had acted -as corporators, and had assumed and rec- ognized the corporate existence. Tip- ton Fire Co. V. Barnheisel, 92 Ind. The application of one who pur- chased stock in a corporation from the original stockholders for leave to file an information in the nature of quo warranto to procure a dissolution of the corporation will be denied, where he knew the facts on which the dis- solution was sought when he purchased the stock, and thereafter voted at the election of directors. Cole v. Dyer, 29 Ga. 434. 4 Bushnell v. Consolidated lee Mach. Co., 138 111. 67, 27 N. E. 596; Heald V. Owen, 79 Iowa 23, 44 N. W. 210. The contrary has been held to be true in Missouri, however, in a case where, by reason of a failure to be- come incorporated, the managing mem- bers, who incurred the debts, were personally liable therefor. Richard- son v. Pitts, 71 Mo. 128. As to the right of creditors to hold the members personally liable under such circumstances, see § 340, supra. 6 An officer who loans money to a corporation and takes its note there- for, is estopped. Second Nat. Bank v. Lovell, 13 Ohio Dec. 972, 2 Cine. Super. Ct. (Ohio) 397. 732 Ch. 11] C0BPOBATIO2SS BY JiiSTOPPEL [§350 such contract on the ground that it was made before the final cer- tificate of incorporation was filed.® Similarly a stockholder who has assisted in the organization of a pretended corporation, or who has dealt with it as a corporation after its organization, is estopped to deny its corporate existence for the purpose, of imposing individual liability upon the other stockholders,' or the corporate officers.* And for the same reason he cannot maintain a suit to annul the corporate charter,^ or to have it adjudged that the association is not a corpora- tion and that its members are the owners of its property as tenants in common,^" or to have it declared to be a partnership and to have the same dissolved,^^ or to compel the other stockholders to account 6 Curtis V. Tracy, 169 111. 233, 61 Am. St. Eep. 168, 48 N. E. 399, aff'g Curtis V. Meeker, 62 111. App. 49. 7 A member of a benevolent asso- ciation pretending to be a corporation cannot deny its corporate existence for the purpose of holding the other members liable as individuals on a contract made by him with the asso- ciation. Foster v. Moulton, 35 Minn. 458, 29 N. W. 155. Persons who wera among the origi- nal stockholders and incorporators, and as such joined in executing and filing the articles of incorporation, and who have dealt with the corpora- tion and accepted notes and mortgages signed by it as such, are estopped to deny the legality of the corporation, on the ground that proper notice of incorporation was not published, for the purpose of imposing individual lia- bility upon the other stockholders, since they are at least equally respon- sible with the latter for such failure, and to hold otherwise would result in permitting them to profit by their own wrong. Seaton v. Grimm, 110 Iowa 145, 81 N. W. 225. See also Egbert V. Kimberly, 146 Pa. St. 96, 23 Atl. 437, where it is held that members of a limited partnership who contract with it, and those claiming under them, cannot hold the other members liable on such contract as general part- ners, on the ground that the organ- ization was defective. 8 One who purchases stock from a corporation, paying part of the pur- chase price in cash and agreeing that the balance is to be paid by applying the dividends on the stock to that purpose, is estopped to deny the le- gality of the organization of the corporation, and cannot recover the amount of the cash payment so made, and of the dividends so declared and applied from the officers of the com- pany as individuals, in an action on an account for money had and re- ceived, on the theory that the cor- poration was never legally organized and that the scheme to incorporate was abandoned and that he received nothing for his money. Orr v. Me- Leay, 6 Ga. App. 417, 65 S. E. 164. 9 A stockholder who was one of the original incorporators, and who has voted his stock for a number of years, cannot maintain such a suit.' Weil v. Leopold Weil Building & Improvement Co., 126 La. 938, 53 So. 56. 10 Stockholders who have dealt with the corporation since its organization, and have recognized and acquiesced in the exercise of its powers for a number of years, cannot maintain such an action. Marsh v. Mathias, 19 Utah 350, 56 Pac. 1074. 11 A stockholder in a de facto cor- poration who has participated in a 733 350] Peivate Cobpoeations [Ch. 11 to him as his eopartners,^^ on the ground that it was not legally- organized. Stockholders who participate in proeeedingsi looking to the consolidation of the corporation with other corporations are also estopped to deny the validity of the consolidation, and cannot main- tain a suit to have it declared invalid.^' One who has accepted a corporate office and has performed the functions thereof is estopped to deny the validity of the creation of the corporation where suit is brought against him for money or other property coming into his hands as such officer,^* or in mandamus proceedings to compel him to turn the same over to his successor in office,^* or when criminally prosecuted for larceny or embezzlement of the same,^* or in proceedings to compel a judge to punish him for contempt for refusal to obey an order requiring him to turn over property to a receiver.^" dividend, cannot maintain a bill against it for this purpose. Lincoln Park Chapter No. 177, E. A. M. v. Swatek, 204 Dl. 228, 68 N. B. 429, aff'g 105 111. App. 604. Nor can a promoter and organizer of the corpo- ration, who also acted as its presi- dent, maintain such a suit. Anderson V. Thompson, 51 La. Ann. 727, 25 So. 399. Stockholders who accepted the char- ter and assisted in putting it into op- eration, and who have made payments and given notes to it, are estopped to contend that it is a partnership, and to demand an accounting on that ba- sis. Benninger v. Gall, 13 Ohio Dec. 581, 1 Cine. Super. Ct. (Ohio) 831. 12 A stockholder in a de facto cor- poration who assisted in its incorpora- tion, acted as its general agent and secretary, and otherwise recognized its continued existence, cannot maintain such a suit. Bushnell v. Consolidated Ice Mach. Co., 138 111. 67, 27 N. E. 596. 13 Bradford v. Frankfort, St. L. & T. E. Co., 142 Ind. 383, 41 N. B. 819, 40 N. E. 349. "Seven Star Grange No. 73, Pa- trons of Husbandry v. Ferguson, 98 Me. 176, 56 Atl. 648; Haacke v. Knights of Liberty Social & Literary Club, 76 Md. 429, 25 AU. 422; All Saints' Church v. Lovett, 1 N. Y. Super. Ct. 213. But he is not estopped to show that the association suing him as a corpo- ration never had a corporate existence and hence has no right to sue as a corporation, where none of the acts of the associates were unmistakably cor- porate acts, but all of them were just as consistent with the existence of an unincorporated association as a cor- poration. Fredenburg v. Lyon Lake M. E. Church, 37 Mich. 476. 15 A stockholder who has acted as secretary of the corporation will not be permitted to deny its corporate existence in mandamus proceedings, brought against him after his resigna- tion, to compel him to surrender the books, papers and records of the com- pany to his successor. Coldwater Cop- per Min. Co. V. Gillis, 170 Mich. 126, Ann. Cas. 1915 A 410, 135 N. W. 901. leShinn v. Com., 32 Gratt. (Va.) 899. See also People v. Leonard, 106 Cal. 302, 39 Pac. 617. 17 The officers of local lodges of a fraternal benefit association cannot question its due incorporation in such a proceeding. Baldwin v. Ilosmer, 101 734 Ch. 11] COBPOKATIONS BY EsTOPPEL [§ 350 The same rule of estoppel also applies in an action against an officer by the corporation to enforce a trust in lands claimed to have been purchased by him in his own name for its benefit,^' or in an action by its receiver to recover the amount of an indebtedness in- curred by the officer to the corporation by withdrawing funds de- posited as part of its capital, and to charge lands' purchased with the money so withdrawn,^^ or in an action of replevin brought by the corporation against the sheriff to recover property levied on as the property of a third person to satisfy an ereeution against the latter in favor of such officer,^* or in an action brought by stock- holders against the officer for fraudulently wasting and converting the corporate assets.^^ Nor can one who assisted in the organization of a corporation, and has to some extent, at least, directed and eon- trolled its affairs, and has repeatedly recognized it as a corporation, deny its corporate existence in an action by it to recover property alleged to belong to it and of which it is alleged he has wrongfully taken possession.^^ A member of a corporation who has contracted with it or incurred an obligation to it cannot plead as a defense to its enforcement the invalidity of the organization of the corporation.*' So a member of a building and loan association is estopped to deny its corporate ex- istence in a suit on a note and mortgage or other obligation executed by him to it as security for a loan.** And a person effecting insurance Mich. 119, 133, 25 L. E. A. 739, 59 23 One who has been instrumental N. W. 432. in the formation of a corporation, and 18 Neither a stockholder and offi- who has contracted with it with full cer nor those claiming under him can knowledge of its transactions, will not deny the corporate existence in such he permitted to contest the legality of an action. Tuckasegee Min. Co. v. its formation in an action against him Goodhue, 118 N. C. 981, 24 S. E. 797. on the contract. Henry Gold Min. Co. 19 Bank of Statesville v. Simonton, v. Henry, 25 Idaho 333, 137 Pac. 523. 86 N. C. 187. One who signs and acknowledges the 20 The officer cannot deny the ex- charter of a corporation, thereby ad- istence of the corporation in such an mits the truthfulness of the facts action. Joliet v. Frances, 85 111. App. therein recited, and cannot avoid a 243. conveyance by him to the corporation 21 Trustees of a corporation, who on the ground that the statutory re- signed the certificate of incorpora- quirements as to incorporation were tion, are estopped to deny the legality not complied with, where the recitals of the incorporation in such an action. show compliance. Sword v. Wicker- Parrott v. Byers, 40 Cal. 614. sham, 29 Kan. 746. 22 Geneva Mineral Spring Co. v. 24 United States. Deitch v. Staub, Coursey, 45 N. Y. App. Div. 268, 61 N. 115 Fed. 309; Manship v. New South Y. Supp. 98. Building & Loan Ass'n, 110 Fed. 845. 735 §350] Private Cobpoeations [Oh. 11 in a mutual insurance company as a corporation, and thereby becom- ing a member, is estopped to deny its incorporation in an action against him on a premium note, or for an assessment.^^ And a stock- Cotmecticut. West Winsted Sav. Bank & Bldg. Ass'n v. Ford, 27 Conn. 282, 71 Am. Dec. 66. Georgia. Pattison v. Albany Build- ing &, Loan Ass 'n, 63 Ga. 373,. Ulinqis. Winget v. Quincy Build- ing & Homestead Ass'n, 128 ill. 67, 21 N. E. 12, aff'g 29 111. App. 178; Payette v. Free Home Building, Loan & Homestead Ass'n 27 111. App. 307. Indiana. Jones v. Kokomo Bldg. Ass'n, 77 Ind. 340; McLaughlin v. dlitizens' Building, Loan & Savings Ass'n;' 62 Ind. 264. Kansas. Massey v. Citizens Bldg. & Sav. Ass'n, 22 Kan. 624. Maryland. Franz v. Teutonia Bldg. Ass'n No. 2, 24 Md. 259. Missouri. Holmes v. Royal Loan Ass'n, 128 Mo. App. 329, 107 S. W. 1005. Ifebra^a. Equitable Building & Loan Ass'n v. Bidwell, 60 Neb. 169, 82 N. W. 384; Crete Building & Loan Ass'n V. Patz, 1 Neb. (TJnof.) 768, 95 N. W. 793. New York. Eagle Savings & Loan Co. V. Samuels," 43 App. Div. 386, 60 N. Y. Supp. 91; Erie County Sav. Bank v. Baldwin, 22 Alb. L. J. 134; Mechanics' Bldg. Ass'n v. Stevens, 5 Duer 676. Ohio. Hagerman v. Ohio Bldg. & ^av. Ass'n, 25 Ohio St. 186; Lucas v. Greenville Bldg. & Sav. Ass 'n, 22 Ohio St. 339. Oregon. Washington Nat. Building, Loan & Investment Ass'n v. Stanley, 38 Ore. 319, 58 L. E. A. 816, 84 Am. St. Bep. 793, 63 Pac. 489. Pennsylvania. Johnston v. Eliza- beth Building & Loan Ass'n, 104 Pa. St. 394; Mechanics' Building,& Loan Ass'n v. Minnich, 1 Luz. Leg. Eeg. 513, South Dakota. Building & Loan Ass'n of Dakota v. Chamberlain, 4 S. D. 271, 56 N. W. 897. 25 Michigan. Cahill v. Kalamazoo Mut. Ins. Co., 2 Dougl. 124, 43 Am. Dec. 457. New Hampshire. Nashua Fire Ins. Co. V. Moore, 55 N. H. 48. Unity Ins. Co. v. Cram, 43 N. H. 636, apparently holds to the contrary, but the court in Ossipee Hosiery & Woolen Mfg. Co. v. Canney, 54 N. H. 295, points out that the question of estoppel was not there involved or passed upon. New York. Eaegener v. Hubbard, 167 N. Y. 301, 60 N. E. 633, aff'g 40 App. Div. 359, 57 N. Y. Supp. 1018, which affirms 56 N. Y. Supp. 173; Eockland & H. Town Fire Ins. Co. V. Buasey, 48 App. Div. 359, 63 N. Y. Supp. 86; Eaegener v. Willard, 44 App. Div. 41, 60 N. Y. Supp. 478; Eaegener v. McDougall, 33 App. Div. 231, 53 N. Y. Supp. 484; Eegener V. Warner, 56 N. Y. Supp. 310; Eege- ner V. Phillips, 26 Misc. 311, 56 N. Y. Supp. 174; White v. Eoss, 15 Abb. Pr. 66; Sands v. Hill, 42 Barb. 651, rev'd on other grounds 55 N. Y. 18; Cooper v. Shaver, 41 Barb. 151; Hyatt V. Esmond, 37 Barb. 601; Hyatt V. Whipple, 37 Barb. 595; White v. Coventry, 29 Barb. 305; Hill v. Eeed, 16 Barb. 280. See also Jones v. Dana, 24 Barb. 395. Ohio. Trumbull County Mut. Fire Ins. Co. V. Horner, 17 Ohio 407; Mans- field & Hahn v. Woods, Jenks & Co., 11 Ohio Dec. 761. Pennsylvania. Freeland v. Penn- sylvania Cent. Ins. Co., 94 Pa. St. 504. See also Pennsylvania Milk Pro- ducers ' Ass'n V. First Nat. Bank, 20 Pa. Co. Ct. 540. 736 Ch. 11] COEPOBATIONS BY ESTOPPEL [§352 holder who participates in a meeting of stockholders at whicli it is voted to extend the life of the corporation, and in a subsequent meet- ing at which assessments are levied, and who pays subsequent assess- ments, is estopped to deny the existence of thie corporation under its certificate extending its corporate life in an action to collect assess- ments upon his stock.*^ But one cannot be estopped on the ground that he is a stockholder where he never subscribed for or owned any stock, or where, though taking part in the preliminary proceedings looking toward incor- poration, he vdthdrew before th6 incorporation actually, took place, and took no further part in the proceedings.*'' The estoppel of sub- scribers to stock to question the legal existence of the corporation in actions by it on the contract of subscription will be fully treated in a subsequent chapter.** §351. Estoppel of sureties or giiarantorfl for corporation. One who executes, as surety, a bond purporting to be made by a corporation as principal,*^ or who executes a bond or makes & contract guarantying the obligation of an association purportipg to b« a corporation,^" is estopped to deny its legal incorporation in an action thereon. § 352. Estoppel arising from actions by or agaii»5t pretended cor- poration — Estoppel of persons suing or sued by corporation. A per- son who sues a corporation as such thereby admits th''. legality of its incorporation, and is estopped from denying it in tha^^. «ruit.'^ And Ithode Island. Providence Pire & 30 City of ^t. Louis v. Shields, 62 Marine Ins. Co. v. Murphy, 8 R. I. Mo. 247; Hassinger v. Amnari| 160 Pa. 131. See also National Mut. Fire Ins. St. 245, 28 Atl. 679; Mason v- Nichols, Co. V. Yeomana, 8 R. I. 25, 86 Am. 22 Wis. 376. See also Peopj- v. Mc- Dec. 610. Cumber, 18 N. Y. 315, 72 Am. Dee. Wisconsin. Oilman v. Druse, 111 515, afE'g 27 Barb. 632. Wis. 400, 87 N. W. 557. 31 United States. Howard v. La 26 Callahan v. Chilcoot Ditch Co., Crosae & M. R. Co., Woolw. 49, Ped. 37 Colo. 331, 86 Pac. 123. Cas. No. 6,760. 27 See § 348, supra. Colorado. Eaehea v. Johnston, ie 28 See Chap. 17, infra. Colo. 457, 104 Pac. 940. 29 So where a bond is executed un- Georgia. Richmond County v. Rich- der the provisions of the mechanics' mond County Reformatory Inst., 141 lien law, reciting that the principal 6a. 457, 81 S. E. 232; Etowah Milling is a corporation; Jeflferson v. Mc- Co. v. Crenshaw, 116 Ga. 406, 42. S. Carthy, 44 Minn. 26, 46 N. W. 140; E. 709; Lester v. Georgia, 0. & N. Ry. or where the bond in effect recites Co., 90 Ga. 802, 17 S. E. 113. that the principal is a corporation. Illinois. Ward v. Minnesota & N. Allen V. Hopkins, 62 Kan. 175, 61 W. E. Co., 119 111. 287, 10 N. E.' 365; Pae. 750. Lombard v. Chicago Sinai Congrega- 737' I Priv. Corp, — 47 §352] Peivate Cokpoeations [Ch. 11 the same is true where a person files a cross-bill or petition, or a counterclaim, against a corporation.^* A stockholder who sues in the right of the corporation to recover damages for a sale of corporate property by the corporate directors tion, 64 111. 477; Patterson v. North- ern Trust Co., 132 111. App. 208, aff'd 230 111. 334, 82 N. B. 837; Nimmo v. Jackman, 21 111. App. 607; Lincoln Coal Min. Co. v. MeNally, 15 111. App. 181. Indiana. First Nat. Bank of Craw- fordsville v. Dovetail Body & Gear Co., 143 Ind. 534, 42 N. B. 924. Kansas. Compton v. People's Gas Co., 75 Kan. 572, 10 L. E. A. (N. S.) 787, 89 Pae. 1039. Louisiana.. Poehelu v. Kemper, 14 La. Ann. 308, 74 Am. Dee. 433. Maine. McClinch v. Sturgis, 72 Me. 288, 297; Kennebec & P. B. Co. v. Portland & K. E. Co., 59 Me. 9. See also Taylor v. Portsmouth, K. & Y. St. Ey., 91 Me. 193, 64 Am. St. Eep. 216, 39 Atl. 560. Massachusetts. Hinsdale v. Lamed, 16 Mass. 65. Nebraska. Nebraska Nat. Bank of York V. Ferguson, 49 Neb. 109, 59 Am. St. Eep. 522, 68 N. W. 370. New Jersey. Society for Establish- ing Useful Manufactures v. Morris Canal & Banking Co., 1 N. J. Eq. 157, 21 Am. Dee. 41. New York. People v. Eavenswood, H. C. & W. Turnpike & Bridge Co., 20 Barb. 518; Kuypers v. Eeformed Dutch Church, 6 Paige 570. Norti Carolina. See Powell Bros. V. McMuUan Lumber Co., 153 N. C, 52, 68 S. B. 926. Ohio. Chapman v. Mad Eiver ft Lake Erie E. Co., 1 Ohio Dec. 565, modifying 1 Ohio Dec. 559. Oklahoma. Swoflford Bros. Dry Goods Co. V. Owen, 37 Okla. 616, 133 Pae. 193. Tennessee. Shoun v. Armstrong (Tenn. Ch.), 59 S. W. 790. So by seeking to sustain a suit as a proceeding to foreclose a mortgage given by a corporation, the complain- ant affirms the corporate existence of the mortgagor. Gow v. Collin & Parker Lumber Co., 109 Mich. 45, 66 N. W. 676. In accordance with this rule, a beneficiary under a deed of trust who joins in filing a bill against a pur- ported corporation, which has leased the trust property, to foreclose a land- lord's lien for rent, cannot thereafter question the legality of the lessee's incorporation. Patterson v. Northern Trust Co., 132 111. App. 208, afE'd 230 .111. 334. By appealing from the award of damages by commissioners in condem- nation proceedings instituted by a railroad company, the landowner ad- mits that the company is lawfully or- ganized. Miller v. Prairie du Chien & M. Ey. Co., 34 "Wis. 533. 32 Illinois. Ward v. Minnesota & N. W. E. Co., 119 111. 287, 10 N. E. 365. Missouri Eialto Co. v. Miner, 183 Mo. App. 119, 166 S. W. 629; St. Louis Gas-Light Co. v. St. Louis, 11 Mo. App. 55, aff'd 84 Mo. 202. Oklahoma. See Swofford Bros. Dry Goods Co. v. Owen, 37 Okla. 616, 133 Pae. 193. Washington. See Washington Mill Co. V. Craig, 7 Wash. 556, 35 Pae. 413. Wisconsin. Black Eiver Improve- ment Co. V. Holway, 85 Wis. 344, 55 N. W. 418; MoKnight v. Town of Min- eral Point, 1 Pinney 99. The rule stated in the text applies where he interposes an affirmative de- fense which recognizes the corporate 738 Ch. 11] COBPOBATIONS BY ESIOPPEL [§ 352 in fraud of the corporation, is estopped to question its corporate acts on the ground that its existence had expired by limitation when they took place.*' But it has been held that the institution of a suit against a supposed corporation does not work an estoppel where it is abandoned on learning that there is no sUch corporation in exist- ence,3* and that the plaintiff may amend his petition before answer so as to allege that the defendant company is a copartnership.^' There is also authority to the effect that one who is about to be damaged by the acts of a pretended corporation may maintain a suit to enjoin such acts against the corporation as such, on the ground that it was defectively organized,'^ this for the reason that if the suit were brought against those claiming to act under the authority of the corporation and an injunction obtained, other persons claiming to act as the ofiScers or agents of the corporation might proceed to do the same acts, while if the pretended corporation is restrained be- cause of its defective organization, no one acting iu its behalf can do such acts.*'' So it has been held that a property owner may main- tain a suit against a draining company in its corporate name to enjoin it from collecting assessments of benefits to his lands resulting from the construction of its drainage ditch, and from issuing bonds and proceeding with the construction of the ditch on the ground that it has never been legally incorporated and is not a corporation de jure." And it has also been held that there is no real inconsistency in mak- ing a de facto turnpike company a party defendant in its corporate name to a suit to enjoin the coimty treasurer from collecting a tax assessed to aid in the construction of the turnpike, on the ground that such company was never legally organized in the manner pre- scribed by the statute. The reason for this view is that such a suit does not involve an attack on the existence of the corporation any existence of the plaintiff and demands 36 Newton County Draining Co. v. affirmative relief. See Stanford Land Nofsinger, 43 Ind. 566. Co. V. Steidle, 28 Wash. 72, 68 Pac. 37 Newton County Draining Co. v. 178. Nofsinger, 43 Ind. 566. 33 Hoag V. Edwards, 69 N. T. Mise. 38 Newton County Draining Co. v. 237, 124 N. Y. Supp. 1035. Nofsinger, 43 Ind. 566. See also Skel- 34 Under such circumstances it does ton Creek Draining Co. v. Mauck, 43 not prevent one who has sold goods Ind. 300; Seyberger v. Calumet Drain- on the credit of a person representing ing Co.", 33 Ind. 330; and O'Beiley v. himself as a member of a corporation Kankakee Valley Draining Co., 32 from thereafter recoverijig against Ind. 169, where similar actions were him. Bohan Bros. Boiler Mfg. Co. v. brought in this form and sustained, Eichmond, 14 Mo. App. 595. though in none of them was the ques- 35 Bell V. Dowdy, 13 Ky. L. Bep. 543 tion specifically raised, (abstract). 739 352] Pbivaie Cobpoeations [Ch.ll further than to show that the tax which the treasurer is threatening to cQlleet is illegal because the company had no authority to have it levied for the purpose of constructing its road.*^ One who e;xpressly alleges the existence of a corporation in his deplaration bill or complaint cannot thereafter question its existence in that case ; **• and the same is true where he expressly admits it in an agreed statement of faets,*i or where he expressly** or impliedly admits it in his answer.** He admits its corporate existence by going 39 Knight v. Flatrock & W. Turn- pike Co.; 45 Ind. 134. 40 Comptou V. People 's Gas Co., 75 Kan. 572, 10 L. B. A. (N. S.) 787, 89 Pac. 1039; National Mut. Building & iioan Ass'n v. Ashworth, 91 Va. 706, 22 8. E. 521; Grand Eapids Furniture Co. V. Grand Hotel & Opera House Co., 11 Wye. 128, 70 Pae. 838, 72 Pao. 687. Thus where the d,eclaration in an action against the directors and offi- cers of a corporation expressly alleges that the defendants and others were incorporated, the plaintiff is estopped to claim that they had no charter, for the purpose of holding them liable as private associates. Hinsdale v. Lar- ned', 16 Mass.- 65. Where the plaintiff alleged the in- corporation of the intervener in the complaint and in his answer to the intervention, but subsequently amended the latter so as to deny such incorporation, and the case was tried under the amended pleadings by di- rection of the court that the answer to the iuteryention sjiould be deemed denied by both the plaintiff and the intervener, and the issue pf incorpora- tion was immaterial as between the plaintiff and the defendant, it was held that the failure to amend the answer did not, preclude a finding that the intervener was not a corporation. Wall V. Mines, 130 Cal. 27, 62 Pae. 386. 41, National Mut. Building & Loan Ass'n V. Ashworth, 91 Va. 706, 22 S. B. 521; Grand Eapids Furniture Co. V. Grand Hotel & Opera House Co., 11 Wyo. 128, 70 Pac. 838, 72 Pac. 687. See also Eikhoff v. Brown's Eotary Shuttle Sewing Mach. Co., 68 Ind. 388, holding that an agreement at the trial as to the existence of certain facts involved an admission of the full and complete organization of the plaintiff corporation, and therefore of every fact necessary to such organi- zation. 42 Bristol Bank & Trust Co. v. Jones- boro Banking Trust Co., 101 Tenn. 545, 48 S. W. 228; Lillard v. Porter, 2 Bead (Tenn.) 177; Milwaukee Brick & Ce- ment Co. v. Schokneeht, 108 Wis. 457, 84 N. W. 838. See also Swofford Bros. Dry Goods Co. v. Owen, 37 Okla. 616, 133 Pac. 193. Where the plea or answer admits that the plaintiff had been a corpora- tion, it will be presumed that it has continued to be and still is one, in the absence of any showing to the con- trary. Darrell v. Hilligoss, M., M. & E. Gravel Eoad Co., 90 Ind. 264. Such an admission is conclusive, and^ cannot be controverted either by the evidence or the findings. McKee V. Title Insurance & Trust Co., 159 Cal. 206, 113 Pac. 140. Such an admission under oath in an answer stricken out is admissible in evidence. Peckham Iron Co. v. Har- per, 41 Ohio St. 100. 43 Denial of indebtedness xo a cor- poration admits, by implication, its corporate existence. Saflfo^d v. Barnes, 39 Miss. 399.. Where the answer sets up a contract 740 Ch. 11] COEPORATIONS BY EsTOPPEL [§ 352 to trial on the merits or pleading to the merits, instead of pleading want of incorporation,** as, for example, by pleading the general with the plaintiff corporation, the de- fendant is estopped to deny its cor- porate existence, and a denial thereof is a sham. Washington Mill do. v. Craig, 7 Wash. 556, 35 Pac. 413. An admission of the execution of the notes in suit to the plaintiff bank in its corporate name is an admission of its corporate existence and power to enter into the contract. Holmes Fuel & Feed Co. v. Commercial Nat. Bank, 23 Colo. 210, 47 Pac. 289. Where the answer is amended the original answer containing what amounts to an admission of the plain- tiff's corporate existence is admissible in evidence. Kilpatrick-Koch Dry- Goods Co. V. Box, 13 Utah 494, 45 Pac. 629. 44 United States. United States v. Insurance Companies, 22 Wall. 99, 22 li. Ed. 816; Society for Propagation of Gospel V. Pawlet, 4 Pet. 480, 7 L. Ed. 927; Conard v. Atlantic Ins. Co., 1 Pet. 386, 450, 7 L. Ed. 189; Dental Vulcanite Co. v. Wetherbee, 2 Cliff. 555, 3 Fish Pat. Cas. 87, Fed. Cas. No. 3,810; Hebrew Congregation Benai Berith Jacob v. United States, 6 Ct. CI. 241. Alabama. Prince v. Commercial Bank of Columbus, 1 Ala. 241, 34 Am. Dec. 773. California. Oroville & V. R. Co. v. Supervisors of Plumas Co., 37 Oal. 354. Connecticut. West Winsted Sav. Bank & Building Ass'n v. Ford, 27 Conn. 282, 71 Am. Dec. 66. District of Columbia. Tyler v. Mu- tual Dist. Messenger Co., 17 App. Cas. 85. Georgia. Beaty & Co. v. Atlanta & W. P. R. Co., 100 Ga. 123, 28 S. E. 32. Indiana. Hubbard v. Chappel, 14 Ind. 601; Harris v. Muskingum Mfg. Co., 4 Blackf. 267, 29 Am. Dee. 372; Guaga Iron Co. v. Dawson, 4 Blackf. 202. Kentucky. Woodson v. Bank of Gallipolis, 4 B. Mon." 2()3. Maine. Penobscot Boom Corpora- tion V. L^mson, 16 Me. 224, 33 Am. Dec. 656. , Massachusetts. First Parish in Sut- ton V. Cole, 3 Pick. 232. IMissouii. West Missouri Land Co. V. Kansas City Suburban Belt R. Co., 161 Mo. 595, 61 S. W. 847. New Jersey. Bennington Iron Co. V. Rutherford, 18 N. J. L. 105,, 35 Am. Dec. 5^8. ' . New York. Loaners' Bank City of New Tork v. Jacoby, 10 Hun 14?. North Carolina. See Stanly v. Rich- mond & D. R. Co., 89 N. C. 331. Oklahoma. Leader Printing Co. v. Lowry, 9 Okla. 89, 59 Pac. 242. See also Swofford Bros. Dry Goods Co. v. Owen, 37 Okla. 616, 133 Pae. 193. Oregon. See Oregon Cent. R. Co. v. Scoggin, 3, Ore. 161; Oregon Cent. B. Co. V. Wait,. 3 Ore. 91. Pennsylvania. Lehigh Bridge', Co. V. Lehigh Coal & Navigation Co., 4 Rawle 9. South Carolina. Liberian Sxodus Joint Stock S. S. Co. v. Bodgers, 21 S. C. 27. West Virginia. See McDonald v^ Cole, 46 W. Va. 186, 32 S. E. 1033, Where, in a suit by a corporation on a bond, the defendant pleads condi- tions performed, the plaintiff is not bound to prove its corporate existenc,e. Central Land Co. v. Camoun, 16 W. Va. 36L In an action against an insurance company on a policy of insurance, where the defendant pleaded to the merits, and the case was then arbi- trated with an award in favor of the plaintiff, from which the defendant 741 352] Pbivate Corpokations [Ch. 11 issue or a general denial.** In like manner, one who demurs to a com- appealed, it was held that a plea in abatement questioning the plaintiff's corporate existence filed after a jury- had been called, came too late. Union Type Foundry v. Kittanning Ins. Co., 138 Pa. St. 137, 20 Atl. 841. Though in condemnation proceed- ings no formal answer is required to be made to the petition, the land- owner waives the making of proof as to the corporate existence of the peti- tioner by going to trial on the merits without objection, and thereby admits the capacity in which the petitioner sues. Ward v. Minnesota & N. W. R. Co., 119 111. 287, 10 N. E. 365. 46 United States. Pullman v. Upton, 96 U. S. 328, 24 L. Ed. 818; United States V. Insurance Companies, 22 Wall. 99, 22 L. Ed. 816; Society for Propagation of Gospel v. Pawlet', 4 Pet. 480, 7 L. Ed. 927; Union Cement Co. V. Noble, 15 Fed. 502; Dental Vul- canite Co. V. Wetherbee, 2 Cliff. 555, 3 Fish Pat. Cas. 87, Fed. Cas. No. 3,810. Alabama. Montgomery B. Co. v. Hurst, 9 Ala. 513; Prince v. Commer- cial Bank of Columbus, 1 Ala. 241, 34 Am. Dec. 773. Arkansas, Mississippi, O. & B. B. E. Co. V. Cross, 20 Ark. 443. OaUfomla. Oroville & V. B. Co. V. Supervisors of Plumas Co., 37 Cal. 354. See also Bank of Shasta v. Boyd, 99 Cal. 604, 34 Pac. 337. Connecticut. Northrop v. Bushnell, 38 Conn. 498; Litchfield Bank v. Church, 29 Conn. 137; West Winsted Sav. Bank & Building Ass'n v. Ford, 27 Conn. 282, 71 Am. Dee. 66. District of Columbia. Tyler v. Mu- tual Dist. Messenger Co., 17 App. Cas. 85. ;] Illinois. Bjdley v. Valley Nat. Bank, 127 111. 332, 19 N. E. 695, afC'g 21 111. App. 642; Eamsey v. Peoria Marine & Fire Ins. Co., 55 HI. 311; Mclntire V. Preston, 10 111. 48, 48 Am. Dec. 321. But see Hargrave v. Bank of Illinois, Breese (1 111.) 122. Indiana. Beatty v. Bartholomew County Agricultural Society, 76 Ind. 91; Wiles v. Trustees of Philippi Church, 63 Ind. 206; Indianapolis Fur- nace & Mining Co. v. Herkimer, 46 Ind. 142; Cicero Hygiene Draining Co. V. Craighead, 28 Ind. 274; Board Com'rs Bartholomew Co. v. Bright, 18 Ind. 93; Dunning v. New Albany & S. B. Co., 2 Ind. 437. Kentucky. Taylor v. Bank of Illi- nois, 7 T. B. Mon. 576. Maine. Penobscot Boom Corpora- tion v. Lamson, 16 Me. 224, 33 Am. Dec. 656. Massachusetts. By statute (St. 1881, c. 113), it is provided that when it appears from the pleadings that the plaintiff or defendant sues or is sued as a corporation, that fact shall be taken as admitted unless a special demand for its proof is filed within a specified time. Goodwin Invalid Bed- stead Co. V. Darling, 133 Mass. 358. Under the statute in force prior thereto, a general denial put in is- sue the incorporation of the plaintiff where the declaration described it as a corporation. Goodwin Invalid Bed- stead Co. V. Darling, 133 Mass. 358; Williamsburg City Fire Ins. Co. v. Frothingham, 122 Mass. 391; Mosler, Bahmann & Co. v. Potter, 121 Mass. 89 ; Hungerf ord Nat. Bank v. Van Nos- trand, 106 Mass. 559. And before the adoption of the latter statute the gen- eral issue was held to admit the plain- tiff's corporate existence. Proprietors of Kennebeck Purchase v. Call, 1 Mass. 483; Proprietors of Monumoi Great Beach v. Eogers,. 1 Mass. 159; Christian Society v. Macomber, 3 Mete. 235. Michigan. Garton v. Union City Nat. Bank, 34 Mich. 279. But see Owen V. Farmers' Bank, 2 Dougl. 134. 742 Cli. 11] COBPOEATIONS BY ESTOPPEL [§352 plaint on the ground that it does not state a cause of action must be Minnesota. Finch, Van Slyck & Hc- Conville v. Le Sueur County Co-opera- tive Creamery Co., 128 Minn. 73, 150 N. W. 226; Crow Eiver Valley Cream- ery Co. V. Strande, 104 Minn. 46, 115 N. W. 1038. Montana. Willoburn Banch Co. v. Yegen, 49 Mont. 101, 140 Pae. 231. Nebraska. Dietrichs v. Lincoln & N. W. E. E., 13 Neb. 43, 13 N. W. 13; National Life Ins. Co. v. Eobinaon, 8 Neb. 452, 1 N. W. 124. New Hampshire. Nashua Fire Ins. Co. V. Moore, 55 N. H. 48; Concord v. Mclntyre, 6 N. H. 527; School Dist. No. 1 V. Blaisdell, 6. N. H. 197. New York. Under Code Civ. Proc. § 1776, the plaintiff is not obliged to prove its corporate existence unless the answer is verified and contains an afSrmative allegation that the plaintiff is not a corporation. Lam- son Consol. Stone Service Co, v. Con- yngham, 11 Mise. 428, 32 N. Y. Supp. 129. Formerly the rule was otherwise, and a general denial put in issue the corporate existence of the plaintiff where it was alleged to be or described as a corporation in the complaint. Kennedy v. Cotton, 28 Barb. 59; Bank of TJtica V. Smalley, 2 Cow. 770, 14 Am. Dec. 526, aff'd 8 Cow. 398; Bank of Auburn v. Weed, 19 Johns. 300. South Carolina. Montgomery v. Seaboard Air Line By., 73 S. C. 503, 53 S. E. 987; Eembert v. South Caro- lina E. Co., 31 S. C. 309, 9 S. E. 968; Palmetto Lumber Co. v. Eisley, 25 S. C. 309; Commercial Insurance & Bank- ing Co. V. Turner, 8 S. C. 107. Vermont. Aetna Ins. Co. v. Wires, 28 Vt. 93. V/ashlngton. Garneau v. Port Blakely Mill Co., 8 Wash. 467, 36 Pac. 463. West Virginia. See dictum in Mc- Donald V. Cole, 46 W. Va. 186, 32 S. Ti. 1033. But see Anderson v. Kana- wha Coal Co., 12 W. Va. 526, and Hart V. Baltimore & O. E. Co., 6 W. Va. 336, and cases there cited. Wyoming. See Hecht v. Acme Coal Co., 19 Wyo. 10, 113 Pae. 786. By putting in a general denial the defendant waives the right to assail the plaintiff's charter, and the plain- tiff is not obliged to prove its incor- poration. Liberian Exodus Joint Stock S. S. Co. V. Eodgers, 21 S. C. 27, The general denial admits the plain- tiff's capacity to sue, and a subse- quent paragraph of the answer denying such capacity on the ground that the plaintiff is not a. corporation is inconsistent therewith and bad. Jones V. Cincinnati Type Foundry Co., 14 Ind. 89. Where the complaint alleges that the defendant is a corporation, a gen- eral denial in the answer is qualified by subsequent allegations as to acts done by the defendant without show- ing that they were .done otherwise than as a corporation, and the de- fendant's corporate character stands admitted. St. Anthony Falls Water Power Co. v. King Wrought Iron Bridge Co., 23 Minn. 186, 23 Am. Dee. 682. Exceptions to the rule have been recognized in the ease of foreign cor- porations; School Dist. V. Blaisdell, 6 N. H. 197; Holloway v. Memphis, E. P. & P. E. Co., 23 Tex. 465, 76 Am. Dec. 68; Bank of Alabama v. Simonton, 2 Tex. 531; or a domestic corpo- ration created by a private act. Hol- loway V. Memphis, E. P. & P. E. Co., 23 Tex. 465, 76 Am. Dec. 68. And in- stances have also occurred in which a corporation has been compelled to show a charter under the general issue in order to show a title to maintain the action. School Dist. No. 1 v. Blaisdell, 6 N. H. 197. 743 § 352] Private Coepobations [Cla. 11 held to admit the plaintiff's corporate existence.** In some jurisdic- tions, however, a general denial will put in issue the corporate ex- istence of the plaintiff where it is alleged to be or is described as a corporation in the declaration or complaint.*' Statutes in many states now prescribe the manner in which the plaintiff's corporate existence may be put in issue, and when such is the case the provisions of the statute must be followed.** If the defendant files an affidavit that the plaintiff corporation is a nonresident and thereby obtains security for costs, he cajinot deny its corporate existence in a subsequent action on his appeal bond given in the same action.*' Where the plaintiff introduces evidence tending to show that an alleged corporation, as agents for which the defendants claim to have done the acts complained of, is a de facto corporation, he cannot thereafter inquire into or dispute its corporate character.^"* An allegation of incorporation in one action will not estop the pleader in a subsequent action in which the parties and issues are different.*^ Nor will the mere fact that the plaintiff in one suit recognizes that the defendants are members of a company, which is administered as such, preclude him from showing in a subsequent suit that such company has no legal existence as a corporation. In order to work an estoppel under such circumstances there should, at least, be an admission that the company was entitled to exercise cor- porate rights and privileges.^^ 46 Wiles V. Trustees of Philippi plea to the merits and not in bar, Church, 63 Ind. 206; State v. Stout, and hence is not waived by joining it 61 Ind. 143. with a plea to the merits. Law Quar- Where the suit is brought in a name antee & Trust Society v. Hogue, 37 denoting an ideality, this is equiva- Ore. 544, 63 Pac. 690, 62 Pac. 380. lent to an averment of the de facto TJnde? Act of 1887, Pub. L. 272, this existence of the corporation, and a defense will be admitted under the general demurrer admits its de facto general issue, but notice thereof must existence, and hence its capacity to be given to the other party if required, maintain some suits. Cicero Hygiene Susquehanna Mut. Fire Ins. Co. .v. Draining Co. v. Craighead, 28 Ind. EemoeM & Meily, 4 Pa. Co. Ct. 161. 874. 48 See Chap. 14 and the chapter on 47 Hartford Fire Ins. Co. v. Central Actions Against Corporations, infra. E. E. of Oregon, 74 Ore. 144, 144 49Trogdon v. Cleveland Stone Co., Pac. 417; Goodale Lumber Co. v. 53 111. App. 206. Shaw, 41 Ore. 544, 69 Pac. 546; Jack- BOBondell v. Fay, 32 Cal. 354. son's Adm'x v. Bank of Marietta, 9 Bl Wall v. Mines, 130 Cal. 27, 62 Leigh (Va.) 240; Henriques v. Dutch Pac. 386. West India Co., 2 Ld. Eaym. 1532. B2 Spencer Field & Co. v. Cooks, 16 The plea of nul tiel corporation is a La. Ann. 153. 744 Ch.ll] COBPOBATIONS BY EsTOPPEL [§353 § 353. — Actions and proceedings by the state. The state may not sue a corporation as such, and, at the same time, deny its existence as a corporation, though it may be heard as to the rights and immuni- ties claimed and set up by the corporation.^' It has been intimated that an allegation in an indictment that the defendant is an existing corporation, duly chartered by the state, is such an admission as will preclude the state from attacking the legality of its incorporation.^* By the weight of authority, iiling an information in the nature of quo warranto against an association in its corporate name, either for the purpose of requiring it to show by what authority it is exercis- ing corporate franchises, or of forfeiting its charter, or for the pur- pose of ousting it from the exercise of certain powers, is an admission of its corporate existence, and will estop the state from afterwards claiming that it had not been legally incorporated.** Some courts, however, hold that such a proceeding may properly be brought against the pretended corporation itself, and that the individual SS state V. Mercantile Bank, 95 Tenn. 212, 31 S. W. 989. 64 Com. V. Philadelphia, H. & P. E. Co., 23 Pa. Super. Ct. 235. B6 Illinois. People v. Larsen, 265 111. 406, 106 N. E. 947; People v. Cen- tral U. Tel. Co., 192 111. 307, 85 Am. St. Eep. 338, 61 N. E. 428; People v. Peoria, 166 111. 517, 46 N. E. 1075; Distilling & Cattle-Feeding Co. v. Peo- ple, 156 111. 448, 47 Am. St. Eep. 200, 41 N. E. 188; North & South Eolling- Stock Co. V. People, 147 111. 234, 24 L. E. A. 462, 35 N. E. 608; People v. Spring Valley, 129 111. 169, 21 N. E. 843; Chesshire v. People, 116 111. 493, 6 N. E. 486; People v. Citizens Tel. Co. of Pekin, 186 111. App. 260. See also People v. Anderson, 239 111. 266, 87 N. E. 1019. Indiana. Newton County Draining Co. V. Nof singer, 43 Ind. 566; Mud Creek Draining Co. v. State, 43 Ind. 236. See also Knight v. Platroek & W. Turnpike Co., 45 Ind. 134. Massachusetts. See Com. v. Tenth Massachusetts Turnpike Corporation, 5 Cush. 509. Michigan. People v. Board of Sup'rs, 41 Mich. 647, 2 N. W. 904. Mississippi. State v. Commercial Bank, 33 Miss. 474. Missouri. See State v. Polar Wave Ice & Fuel Co., 259 Mo. 578, 169 S. W. 126. New Hampshire. State v. Barron, 57 N. H. 498. New York. People v. Eavenswood, H. C. & W. Turnpike & Bridge Co., 20 Barb. 518; People v. Eensselaer & S. E. Co., 15 Wend. 113, 30 Am. Dec. 33. Ohio. State v. Cincinnati Gas Light & Coke Co., 18 Ohio St. 262. The rule of estoppel applies where the information states that the de- fendant is a corporation organized un- der specified laws. State v. Central Ohio Mut. Belief Ass'n, 29 Ohio St. 399. Texas. See Ewing v. State, 81 Tex. 172, 16 S. W. 872. But the corporation must be made a party to a proceeding to forfeit its charter for misuser or nonuser. State V. Taylor, 25 Ohio St. 279. See also chapter on Forfeiture, Dissolu- tion, etc., infra. 745 §353] Pbivate Coepobations [Ch. 11 incorporators are not even necessary parties, at least where the cor- poration is one de facto.** Eeasons given in support cf this rule are the inconvenience and practical impossibility of serving all of the stockholders,*'' and that B6 Kansas. In State v. Inner Belt E. Co., -74 Kan. 413, 87 Pac. 696, a proceeding in quo warranto, the court held it unnecessary to make the offi- cers and members of a purported corporation defendants, -where pro- ceedings were brought by the state to restrain the organization from act- ing as a corporation on the ground that its incorporation was a nullity. Upon rendering the decree, however, the court stated such order as might be necessary would be made to re- strain the officers and members from exercising corporate powers. See also State v. Ford County, 12 Kan. 441, where the defendant was a county. Louisiana. New Orleans Deben- ture Redemption Co. v. Louisiana, 180 U. S. 320, 45 L. Ed. 550, afE'g 51 La. Ann. 1824, 26 So. 1038; State v. De- benture Guarantee & Loan Co., 51 La. Ann. 1874, 26 So. 600. In the above case it is said that it is better to make the original incorporators parties, though it is held that it is not neces- sary to do so. In the course of the opinion the court also says, "There is no more inconsistency in bringing defendant into court as a corporation, to have it declared to be not such, than there would be to allege in a pleading the existence of a judgment and to pray that it be decreed to have been and to be an absolute nullity, nor to bring into court a party as a husband to have his marriage with the plaintiff decreed never to have legally existed. The existing status is rec- ognized temporarily solely for the very avowed purpose of having it declared to be without foundation." niinnesota. This is true in the case of municipal corporations. State V. Board Com'rs Crow Wing Co., 66 Minn. 519, 529, 35 L. E. A. 745; 73 N. "W. 631, 69 N. W. 925, 68 N. W. 767; State v. Traey, 48 Minn. 497, 51 N. W. 613. See also State v. Vil- lage of Pridley Park, 61 Minn. 146, 63 N. W. 613; State v. Minnetonka Village, 57 Minn. 526, 59 N. W. 972. New Jersey. This rule has been ap- plied in the case of municipal corpo- rations. State V. Vickera, 51 N. J. L. 180, 14 Am. St. Eep. 675, 17 Atl. 153; State v. Atlantic Highlands, 50 N. J. L. 457, 14 Atl. 560. See also State V. Eiordan, 75 N. J. L. 16, 69 Atl. 494. Pennsylvania. In re Consolidated Stock Exchange of Philadelphia, 31 Pa. Co. Ct. 226 (opinion of attorney general on application for writ of quo warranto); Com. v. Gray's Mineral Fountain Co., 8 Dauph. Co. Eep. 47; But in Com. v. New York, L. E. & "W. C. & E. Co., 10 Pa. Co. Ct. 129, the court lays down the contrary rule. Vermont. In State v. Bradford, 32 Vt. 50, leave was granted to the at- torney general to file an information praying for a writ of quo warranto against a de facto municipal corpora- tion on the ground that the election to determine whether the charter should be accepted was fraudulently conducted, and the corporation was dissolved. England. Eex v. Ogden, 10 B. & C. 230, 109 Eng. Eeprint 436; Eex V. Corporation of Carmarthen, 3 Burr. 869, 97 Eng. Eeprint 607. 67 State V. Debenture Guarantee & Loan Co., 51 La. Ann. 1874, 26 So. 600; Com. v. Gray's Mineral Foun- tain Co., 8 Dauph. Co. Eep. (Pa.) 47. 746 Ch. 11] COEPOBAIIONS BY ESTOPPEL [§ 354 if the corporation is made defendant the rights of all parties are represented, since the corporation represents its stockholders as well as itself,** while if the stockholders or incorporators alone are made defendants, the corporation itself is not represented," and therefore a judgment declaring it never to have existed would not be res adjudicata as against it,*" or, if so, its de facto character would be taken away in proceedings to which it was not a party.*^ In Alabama the statute expressly provides that the corporation may be joined £is a party defendant, and that such joinder does not admit its corporate existence, or otherwise prejudice the case of the plaintiff.*^ In California it has been held that while there is an estoppel where it is alleged that the corporation never has been a corporation of any character,*^ there is no estoppel where the complaint alleges that the defendant is a corporation de facto, but that it did not become one de jure because of its failure to comply with the statutory conditions precedent to incorporation.** § 354. — Estoppel of corporation. A defendant sued as a corpora- tion cannot deny its own existence, either in abatement or in bar. If it is not a corporation, it cannot, as such, appear and plead.** If 58 Com. V. Gray 'b Mineral Fountain brought against the corporation, and Co., 8 Dauph. Co. Eep. (Pa.) 47. the court said that while it was ques- 69 Com. V. Gray 's Mineral Fountain tionable whether the action could be Co., 8 Dauph. Co. Rep. (Pa.) 47. maintained, they would not consider When the incorporators sign the act the question because no objection had of incorporation, they cease to have been made. authority to represent individually the In People v. Stockton & V. E. Co., rights or obligations of the corpora- 45 Cal. 306, 13 Am. Eep. 178, the tion. State v. Debenture Guarantee question was not decided, the court & Loan Co., 51 La. Ann. 1874, 26 So. holding that the corporation was val- 600. idly organized. 60 State v. Debenture Guarantee & 64 People v. Montecito Water Co., Loan Co., 51 La. Ann. 1874, 26 So. 600. 97 Cal. 276, 33 Am. St. Eep. 172, 32 61 Com. V. Gray 'a Mineral Fountain Pae. 236. See People v. Flint, 64 Co., 8 Dauph. Co. Eep. (Pa.) 47. Cal. 49, holding that the corporation 62 Ala. Civ. Code 1907, §5456; Floyd is a necessary party under such cir- V. State, 177 Ala. 169, 59 So. 280. cumstances. And see also People v. 63 People V. Montecito Water Co., Gunn, 85 Cal. 238, 24 Pac. 718. 97 Cal. 276, 33 Am. St. Rep. 172, 33 6B Alabama. McCuUough v. Talla- Pac. 236; People v. Stanford, 77 Cal. dega Ins. Co., 46 Ala. 376. 360, 2 L. E. A. 92, 19 Pac. 693, 18 Colorado. Western U. Tel. Co. v. Pac. 85. See also People v. Eeclama- Eyser, 2 Colo. 141, rey'd on other tion Dist. No. 551, 117 Cal. 114, 48 grounds 91 V. S. 495, 23 L. Ed. 377. Pac. 1016, where the proceeding waA Indiana. Adams Exp. Co. v. Hill, 747 §354] Peivate Cobpokations [Ch. 11 therefore, an association, sued as a corporation, appears and defends the action on the merits, it thereby admits of record its corporate existence, and cannot thereafter deny it in that action.®^ And the 43 Ind. 157; Pilliod v. Angola Railway & Power Co., 46 Ind. App. 719, 91 N. E; 829. Kansas. Missouri Eiver, Ft. S. & G. E. Co. V. Shirley, 20 Kan. 660. Nebraska. Gilligan v. John Gilli- gan Co., 94 Neb. 437, 143 N. W. 457; Livingston Loan & Building Ass'n v. Drummond, 49 Neb. 200, 68 N. "W. 375.- "If a corporation appears to a suit, it cannot deny its own existence. It either exists or is a nonentity, and if it be a nonentity the whole pro- ceedings would be coram, non judioe and utterly void." Seaton v. Chi- cago, R. I. & P. R. Co., 55 Mo. 416. 66 United States. Perris Irrigating Dist. V. Thompson, 116 Fed. 832. Alabama. McCullough v. Talladega Ins. Co., 46 Ala. 376; Oxford Iron Co. V. Spradley, 46 Ala. 98. Colorado. Western U. Tel. Co-, v. Eyser, 2 Colo. 141, rev'd on other grounds 91 U. S; 495, 23 L. Ed. 377; Baldwin Coal Co. v. Davis, 15 Colo. App. 371, 62 Pac. 1041; A. Gau- thier Decorating Co. v. Ham, 8 Colo. App. 559, 34 Pac. 684. Illinois. People v. Strawn, 265 111. 292, 106 N. E. 840; Chicago & A. R. Co. V. Glenny, 175 111. 238, 51 N. E. 896, aff'g 70 111. App. 510; United States Exp. Co. v. Bedbury, 34 HI. 459; Auburn Cycle Co. v. Foote, 69 111. App. 644; Fields v. United Broth- erhood of Carpenters & Joiners, 60 111. App. 258; Legnard v. Crane Co., 54 111. App. 149; Supreme Lodge A. O. U. W. V. Zuhlke, 30 El. App. 98, aff'd 129 111. 298, 21 N. E. 789. Indiana. Pittsburgh, C, C. & St. L. E. Co. V. Lightheiser, 168 Ind. 438, 78 N. E. 1033; Adams Exp. Co. v. Hill, 43 Ind. 157; United Brotherhood of Carpenters & Joiners of America v. Dinkle, 32 Ind. App. 273, 69 N. E. 707. See also Ohio Oil Co. v. Deta- more, 165 Ind. 243, 73 N. E. 906. Kansas. Missouri River, Ft. S. & G. E. Co. V. Shirley, 20 Kan. 660. Louisiana. Jones v. Trustees of Mt. Zion Congregation, 30 La. Ann. 711. Missouri. Flynu v. Neosho, 114 Mo. 567, 21 S. W. 903; Witthouse v. Atlan- tic & P. E. Co., 64 Mo. 523; Smith v. Burlington & M. E. E. Co., 55 Mo. 526; Seaton v. Chicago, E. I. & P. E. Co., 55 Mo. 416; Hudson v. St. Louis, K. C. & N. Ey. Co., 53 Mo. 525; Meyer Bros. V. Insurance Co. of North Ameri- ca, 73 Mo. App. 166; Ludowiski v. Polish Roman Catholic St. Stanislaus Kostka Benev. Society, 29 Mo. App. 337; Sappington v. Missouri Pae. R. Co., 14 Mo. App. 86. New York. Derrenbacker v. Lehigh Valley R. Co., 21 Hun 612, rev'd on other grounds 87 N. Y. 636; Root v. Great Western R. Co., 65 Barb. 619, aflE'd 55 N. Y. 636; Kuypers v. Re- formed Dutch Church, 6 Paige 570. See also Sturges v. Vanderbilt, 73 N. Y. 384. North Carolina. Stanly v. Rich- mond & D. R. Co., 89 N. C. 331; Rush V. Halcyon Steamboat Co., 84 N. C. 702. See also GrifSn v. Asheville Light Co., Ill N. C. 434, 16 S. E. 423. Oklahoma. Herald Shoe Co. v. Okla- homa Pub. Co., 15 Okla. 29, 79 Pac. 111. Pennsylvania. Pittsburg Sheet Mfg. Co. V. Beale, 204 Pa. 85, 53 Atl. 540. South Carolina. Faust v. Southern R. Co., 74 S. C. 360, 54 S. E. 566; Eembert v. South Carolina E. Co., 31 8. C. 309, 9 S. E. 968. Vermont. Stone v. Congregational Society, 14 Vt. 86. 748 Ch. 11] COBPOBATIONS BY EsTOPPEL t§354 siame is true where it executes an appeal bond and prosecutes an appeal,®'' or where it expressly or impliedly admits its corporate ex- istence in its pleas or answer,®* or admits that it entered into the con- will not be deemed to have been made. Stork V. Supreme Lodge Knights of Pythias of the World, 113 Iowa 724, 84 N. W. 721. A foreign corporation which appears after leave granted cannot deny its corporate existence, since it must be an existiiig corporation to be entitled to apply for leave. Boot v. Great Western E. Co., 65 Barb. (N. Y.) 619, aff'd 55 N. Y. 636. "A general denial by a defendant sued as a corporation and answering to the merits as such, without specific denial of corporate capacity, must be regarded as a substantial admission of the character in which it was sued, and as not putting defendant's exist- ence as a corporation in issue." Montgomery v. Seaboard Air Line By., 73 S. G. 503, 53 S. E. 987. If a defendant sued as a corporation pleads the general issue and payment, with a notice of recoupment and set- off, it thereby admits its corporate ex- istence, and the plaintiff is not obliged to prove it. Bennett v. Millville Improvement Co., 67 N. J. L. 320, 51 Atl. 706. But see Anderson v. Kana- wha Coal Co., 12 W. Va. 526. For a full discussion of the effect of a gen- eral denial or a plea of the general issue under such circumstances, see the chapter on Actions Against Cor- porations, infra. 67 Auburn Cycle Co. v. Foote, 69 111. App. 644; Meyer Bros. v. Insurance Co. of North America, 73 Mo. App. 166; East Tennessee & G. B. Co. v. Evans, 6 Heisk. (Tenn.) 607. 68 Indiana Millers' Mut. Fire Ins. Co. V. People, 65 111. App. 355; Wheat- ley, Buck & Co. V. Chicago Trust & Savings Bank, 64 111. App. 612, aff'd 167 111. 480, 47 N. E. 711. - Washington. Garneau v. Port Blakely Mill Co., 8 Wash. 467, 36 Pae. 463; Sengf elder v. Mutual Life Ins. Co., 5 Wash. 121, 31 Pac. 428; Frost V. Ainslie Lumber Co., 3 Wash. 241. As against the corporation itself, the fact that it appears and answers is conclusive evidence of its legal existence for the purposes of the pending case, and it cannot prove that it was dissolved before the action was commenced. Hammar v. St. Louis Motor Carriage Co., 155 Mo. App. 441, 134 S. W. 1060. A corporation which has been dis- solved before the commencement of the action is legally dead. It cannot appear and cannot admit anything or authorize any one else to do so for it, and its stockholders are not bound by any unauthorized appearance or ad- missions attempted to be made on its behalf, and may collaterally attack a default judgment rendered against it. Crossman v. Vivienda Water Co., 150 Cal. 575, 89 Pac. 335. Where a consolidated corporation sued as such appears and by its an- swer makes defense, this puts the fact of consolidation beyond dispute as against the stockholders of the con- solidating companies. Blackburn v. Selma, M. & M. B. Co., 2 Flip. (U. S.) 525, Fed. Cas. No. 1,467. Under a statute providing that if it be alleged that defendant is a cor- poration and the allegation be denied, the facts relied on must be specifically stated, where allegation is made that defendant is a life insurance company duly incorporated, and defendant makes a general denial setting forth that the certificate held by plaintiff was obtained by'' fraudulent means, allegations sufficient to place in issue the corporate existence of defendant 749 \ § 354] Pbivate Cobpobations [Ch. 11 tract sued on.*^ Similarly some courts hold where a corporation indicted for a crime appears and pleads not guilty, it thereby admits its corporate exisrtence and relieves the state from the necessity of proving it,"* though in other jurisdictions a plea of not guilty puts in issue the defendant's corporate existence.''^ Nor can a corporation assume its corporate entity for one purpose and deny it for another in the same suit. So it cannot assume its existence for the purpose of thwarting the action and at the same time deny it when being sued, and hence if a corporation defendant makes a counter attack upon the existence of the corporation plaintiff, it admits its own corporate existence and relieves the plaintiff of the necessity of proving it."' But the fact that an association is sued in a name which imports a legal entity and that it appears and answers does not estop it, where the complaint expressly alleges that it is a copartnership.'" Statutes in a number of states now prescribe the manner in which the defendant's corporate existence must be put in issue, and when such is the case, it is not put in issue unless such provisions are com- plied with.'* § 355. Estoppel by judgment. Estoppel to deny the existence of a pretended corporation may arise from a judgment either for or against a corporation.'* So a person who has sued and recovered By statute the existence of the cor- 75 United States. Andrews v. Na- poration is to be assumed unless it is tional Foundry & Pipe Works, Ltd., put in issue by the pleadings, and this 77 Fed. 774, certiorari denied 166 U. S. is especially true of a corporation de- 721, 41 L. Ed. 1188 (mem. dec.) ; How- fendant which appears at the hear- ard v. La Crosse & M. E. Co., Woolw. ing. Barton v. National Exp. Co., 9 49, Fed. Gas. No. 6,760. Luz. Leg. Eeg. (Pa.) 212. Georgia. Georgia Ice Co. v. Porter, 69 Williams v. Stevens Point Lum- 70 Ga. 637. ber Co., 72 Wis. 487, 40 N. W. 154. Illinois. Trogdon v. Cleveland 70 State V. Glucose Sugar Eefining Stone Co., 53 111. App. 206. Co., 117 Iowa 524, 91 N. W. 794; State Louisiaiia. Pochelu v. Kemper, 14 V. Western North Carolina E. Co., 95 La. Ann. 308, 74 Am. Dec. 433. N. C. 602. Maine. McClinch v. Sturgis, 72 Me. 71 Standard Oil Co. v. Com., 122 Ky. 288, 297. 440, 91 S. W. 1128. Michigan. Estey Mfg. Co. v. Bun- 72 Hartford Fire Ins. Co. v. Central nels, 55 Mich. 130, 20 N. W. 823. E. of Oregon, 74 Ore. 144, 144 Pac. Iilissouri. Stoutimore ▼. Clark, 70 417. Mo. 471. 78 Farmers ' Mutual v. Eeser, 43 Ind. New York. See Loaners ' Bank App. 634, 88 N. E. 349. City of New York v. Jacoby, 10 Hun 74 See the chapter on Actions 143; Williams v. Bank of Michigan, 7 Against Corporations, infra. See also Wend. 539. Chap. 14, infra. 750 Ch. 11] COEPOBATIONS BY EsTOPPEL [§355 judgment against a company as a corporation cannot thereafter maintain a second suit against its members individually or as part- Pennsylvania. Pittsburg Sheet Mfg. Co. V. Beale, 204 Pa. 85, 53 Atl. 540; Becket v. Uniontown Building & Loan Ass'n, 88Pa. St. 211. Tennessee. Shields v. Clifton Hill Land Co., 94 Tenn. 123, 26 L. B. A. 509, 45 Am. St. Bep. 700, 28 S. W. 668. A creditor who is a party defendant to a suit to foreclose a mortgage in which a decree of foreclosure is ren- dered, cannot thereafter attack the corporate existence of the mortgagor. Pilliod v. Angola Railway & Power Co., 46 Ind. App. 719, 91 N. E. 829. A corporation is estopped by a de- cree pro confesso taken against it on its failure to answer the bill in a suit against it and its stockholders to sub- ject unpaid subscriptions to the pay- ment of claims against it. Hamilton V. Clarion, M. & P. E. Co., 144 Pa. St. 34, 13 L. E. A. 779, 23 Atl. 53. In Singer & Talcott Stone Co. v. Hutchinson, 72 111. App. 366, it is held that under a statute permitting actions to be maintained against corpora- tions after their dissolution for liabili- ties incurred before dissolution with- out limitation as to time, it is not essential in order to maintain an action against a corporation and to recover judgment against it in its corporate name that it be a corpora- tion de jure for the purposes of its organization, but only that it have corporate capacity to be sued, and hence that the recovery of such a judgment will not estop the plaintiff from pleading nul tiel corporation to a writ of error prosecuted to reverse such judgment, such plea being based on the fact that the corporate exist- ence and the two years allowed by statute to corporations in which to collect debts due them, had expired before the, writ of error, which is re- garded as the commencement of a new suit, was sued out. The judgment of the appellate court in this case sus- taining such plea and dismissing the writ of error was reversed by the supreme court (176 HI. 48, 51 N. E. 622) without passing on the question of estoppel. A decree in favor of a de facto cor- poration cannot be attacked in a sub- sequent suit on the ground that the corporation was defectively organ- ized. Whipple V. Tuxworth, 81 Ark. 391, 99 S. "W. 86. In an action for damages for the continuance of a nuisance it was held that the plaintiff's certificate of in- corporation, together with evidence of user, and the record of a former action growing out of the same nui- sance, in which the plaintiff as a cor- poration recovered judgment against the same defendant without any ob- jection being taken as to its capacity to sue, was sufficient, as between them, to show that the plaintiff was a de facto corporation and hence entitled to maintain the action. Baltimore & P. E. Co. V. Pifth Baptist Church, 137 U. S. 568, 34 L. Ed. 784. An original judgment in favor of a corporation estops the defendant to deny the existence of the corporation at the time when the judgment was rendered, and hence, on motion to quash an execution issued on such a judgment, he cannot show that the corporate charter expired by limita- tion before the judgment was ren- dered. But this rule does not apply where judgment against a corporation is reversed and judgment is rendered in its favor by an appellate court, and an execution issued on such judgment will be quashed on motion, where it is shown that the corporate charter expired pending the appeal, 751 §355] Private Coepoeations [Ch. 11 ners on the same cause of action ; '* nor can he maintain a suit to charge its memhers as partners with the amount of the judgment,''"' or for damages for falsely representing that they were a corpora- tion.'* Nor can persons deny the corporate existence of a de facto corporation in a proceeding in which they have a standing in court only upon the assertion that they have recovered and hold unsatis- fied judgments or decrees against the corporation on contracts made by them with it.''* Similarly, where a corporation has answered and judgment has been rendered against it, it cannot deny its corporate existence on motion for leave to issue execution against it.'" A judgment recovered by a corporation in its corporate name estops the judgment defendant from denying its corporate existence on habeas corpus to procure his release from imprisonment under a body execution issued thereon,*' or in an action on an appeal bond given for such expiration eould not operate to arrest the proceedings in the ap- pellate court and hence could not pre- vent its judgment in favor of the corporation, and therefore such judg- ment cannot operate as an estoppel. May V. State Bank of North Carolina, 2 Rob. (Va.) 56, 60, 40 Am. Dec. 726. A judgment was recovered by the ' ' Webb-Preyschlag Mercantile Com- pany. " The record indicated that the judgment was obtained by the concern as a corporation although there was no disclosure that the con- cern was a corporation by the index of the judgment. The court held that the failure to make a statement there- of in the index was not fatal. Bradley V. Janssen (Tex. Civ. App.), 93 S. W. 506. venunois. Cresswell v. Oberly, 17 ni. App. 281. Louisiana. Pochelu v. Kemper, 14 La. Ann. 308, 74 Am. Dec. 433. Nebraska. Nebraska Nat. Bank of York V. Ferguson, 49 Neb. 109, 59 Am. St. Eep. 522, 68 N. W. 370. Ohio. Beebe v. Thomas, 7 Ohio Dee. 319. Tennessee. Shoun v. Armstrong (Tenn. Ch.), 59 S. W. 790. After a party has recovered a judg- ment against an association as a cor- poration, and obtained the appoint- ment of a receiver, he cannot in the same suit deny its corporate existence for the purpose of holding the stock- holders liable as partners. First Nat. Bank of Crawfordsville v. Dovetail Body & Gear Co., 143 Ind. 534, 42 N. E. 924. One who has sold land to a corpo- ration is estopped to assert personal liability of the incorporaitors upon the ground that the charter was originally invalid, where, after an attempted validation thereof by the legislature, he recovered judgment against the corporation on notes given by it for the purchase price, and bid in the land at a sale thereunder. Shields v. Clif- ton Hill Land Co., 94 Tenn. 123, 26 L. E. A. 509, 45 Am. St. Eep. 700, 28 S. W. 668. 77 Pittsburg Sheet Mfg. Co. v. Beale, 204 Pa. 85, 53 Atl. 540. 78EOSSOW V. Burke, 52 N. T. Misc. 118, 101 N. Y. Supp. 608. 79 Andrews v. National Foundry & Pipe Works, 77 Fed. 774, 36 L. E. A. 139, rev'g 68 Fed. 1006, certiorari de- nied 166 IT. S. 721, 41 L. Ed. 1188 (mem. dec). 80 Bush V. Halcyon Steamboat Co., 84 N. C. 702. 81 Ex parte Sargea!nt, 17 Vt. 425. 752 Ch. 11] CoBPOBATiONS BY Estoppel [§355 by him on appeal from a judgment in favor of the oorporation.^^ Property owners who fail to avail themselves of the opportunity given them to question the legal existence of a corporation seeking to acquire a right of way for the construction of an elevated railroad in proceedings before commissioners to determine whether the road ought to be constructed cannot, after a report favoring its construction has been confirmed by the court, raise such question in subsequent proceedings for the appointment of commissioners to determine the compensation to be paid.'' One who intervenes- in a proceeding for the dissolution of a corpora- tion after the entry of a decree directing a dissolution and appoint- ing a receiver can do so only on the theory that the proceedings and decree were regular and valid, and hence cannot be heard to attack the legality of the organization of the corporation.'* And one who is a party to a proceeding in which there is a decree appointing a corporation as receiver, and who afterwards consents to an order pro- viding for the advancement of money by it to protect the estate in its possession as receiver, is estopped to claim that the appointment was illegal because the statute under which the corporation was- organ- ized was unconstitutional.'^ "Where an association of persons assumes to be a corporation, and, as such, makes an assignment for the benefit of its creditors, a creditor who files his claim against it in such proceedings, which is disallowed by a judgment of the court, cannot thereafter enforce the same against the members of the association as partners, and this is true though the association is thereafter adjudged to be a partnership, and though the creditor, before filing his claim, was not estopped to deny that the association was a partnership, and though the claim which he files recites that he does not admit that it is a corporation or waive his right to sue its members as partners.'^ Similarly a creditor who files a claim against a bankrupt corporation, which is allowed, and who receives and accepts dividends on account thereof, cannot thereafter maintain an action against its stockholders on the same indebtedness for the purpose of holding them liable as part- 82 Trogdon v. Cleveland Stone Co., 86 Clausen v. Head, 110 Wis. 405, 84 53 111. App. 206. Am. St. Eep. 933, 85 N. W. 1028. See 83 In re Union El. E. Co. of Brook- also Swofford Bros. Dry Goods Co. v. lyn, 112 N. Y. 61, 2 L. R. A. 359, 19 N. Owen, 37 Okla. 616, 133 Pac. 193, E. 664. where the court quotes with approval 84 Stefan v. Brennan, 92 HI. App. a part of the opinion in the foregoing 291. case. 8B Eoby V. Title Guarantee & Trust Co., 166 111. 336, 46 N. E. 1110. 753 I Priv. Corp.— 48 1 355] Pbivatb Cobporations [Ch. 11 ners.*' And other creditors who become parties to a suit by a creditor against the corporation in its corporate capacity to have its assets applied to the payment of its debts, cannot attack the validity of the corporation on distribution of the proceeds of a sale of corporate property by a receiver appointed in such suit." On the other hand, it has been held that the mere filing of a claim for a mechanic's lien against a company, in which it is asserted under oath that it is a corporation, will not prevent the claimant from sub- sequently enforcing the same demand against its members as part- ners, if the latter were not induced by such statement to take any action from which they could suffer any injury by proof of the truth, because, to constitute an estoppel, the person claiming it must have been induced to act to his injury by the representations of the party against whom it is claimed, and, furthermore, because one is not estopped from pursuing his true legal remedy by a mistaken attempt to pursue a supposed remedy that does not exist.'^ Suing and recovering a judgment against a corporation does not estop the creditor from enforcing a liability imposed by statute upon officers or stockholders for debts contracted before the incorporation is completed, for this is not inconsistent with the existence of the corporation."* Nor is the holder of a note executed in the name of a pretended corporation, by one who assumed to act as president thereof before the corporation was completed, estopped to hold the incorporators individually liable thereon by reason of having procured an adjudication by the referee in bankruptcy proceedings against the individual signing the note as president, that it was not the note of the latter, but of the president, since the action to hold the incor- porators is not on the note but is based upon their fraudulent acts.®^ And the state is not estopped to maintain a suit for the purpose of having it determined that a street railroad company had no legal existence as a corporation by reason of the fact that in a former action, brought by it against the company, but in which the cor- porate existence of the latter was not in issue, it obtained a judgment enjoining it from operating a part of its line on the ground that it was a nuisance and requiring the abatement of the same.'^ flVgwofiford Bros. Dry Goods Co. r. 90Loverin v. McLaughlin, 161 HI. Owen, 37 Okla. 616, 133 Pac. 193. 417, 44 N. E. 99, aflf'g 46 111. App. 373. 88 Hooven Mercantile Co. v. Evana 91 Central Nat. Bank of Junction Min. Co., 193 Pa. St. 28, 44 Atl. 277. City v. Sheldon, 86 Kan. 460, 121 Pac. 89 Harrill v. Davis, 168 Fed. 187, 22 340. L. B. A. (N. S.) 1153, rev'g 7 Indian 92 People v. Stanford, 77 Cal. 360, T. 152, 15 Ann, Cas. 1134, 104 S. W. 22 L. E. A. 92, 19 Pac. 693, 18 Pac, 85. 573. 754 Ckll] COBPOEATIONS BY EsTOPPEL [§356 A judgment recovered against a corporation which has been dis- solved prior to the commencement of the action is a nullity, and its stockholders, unless estopped by their own acts or omissions, cannot be held bound by any unauthorized appearance or admission at- tempted to be made on its behalf, or by an attempted entry of a default against it, and may attack the validity of such judgment when it is sought to be enforced against them.^' Persons who have themselves denied the corporate character of an ostensible corporation and have provoked a judicial determination sustaining their denial, cannot thereafter assert that its members are estopped to deny its corporate existence.'* § 356. Estoppel as affected by privity of contract or estate — Estop- pel resulting from privity. The estoppel of a person dealing with a pretended corporation to deny its legal incorporation also operates against persons who stand in his shoes, or, in other words, who are in privity with him.'* Thus, it clearly operates as against his ex- ecutor or administrator,'^ or his heirs,''' and against one to whom he assigns his contract with the pretended corporation," or to whom 93 Grossman v. Vivienda Water Co., 150 Cal. 575, 89 Pac. 335. BiHineks v. Converse, 37 La. Ann. 484. 96 United States. Eannels v. Eowe, 145 Fed. 296, certiorari denied 207 U. S. 591, 52 L. Ed. 355 (mem. dec). Colorado. Stuyvesant v. Western Mortgage Co., 22 Colo. 28, 43 Pac. 144. Kentucky, See Friedman v. Jans- sen, 23 Ky. L. Eep. 2151, 66 S. W. 752. Missouri. West Missouri Land Co. V. Kansas City Suburban Belt E. Co., 161 Mo. 595, 61 S. W. 847; Bradley v. Eeppell, 133 Mo. 545, 54 Am. St. Eep. 685, 34 S. W. 841, 32 S. W. 645; Broad- well V. Merritt, 87 Mo. 95; Stoutimore V. Clark, 70 Mo. 471. Nebraska, Equitable Building & Loan Ass 'n v. Bidwell, 60 Neb. 169, 82 N. W. 384. New York. Erie County Sav. Bank V. Baldwin, 22 Alb. L. J. 134; Palmer V. Lawrence, 3 Sandf. 161, aff'd 5 N. Y. 389. North CaroliiUL Bank of States- ville V. Simonton, 86 N. C. 187. Oregon. Law Guarantee & Trust Society v. Hogue, 37 Ore. 544, 63 Pac. 690, 62 Pac. 380. 96 Illinois. Curtis v. Meeker, 62 HI. App. 49, aff'd sub nom. Curtis v. Tracy, 169 111. 233, 61 Am. St. Eep. 168, 48 N. E. 399. Louisiana. Latiolias v. Citizens' Bank of Louisiana, 33 La. Ann. 1444. Nebraska. Davis' Estate v. Wat- kins, 56 Neb. 288, 76 N. W. 575. New York. Merideu Tool Co. v. Morgan, 1 Abb. N. C. 125, note; Kuy- pers V. Eeformed Dutch Church, 6 Paige 570. North Carolina. Bank of Statesville V. Simonton, 86 N. C. 187. 97 Weil V. Leopold Weil Building & Improvement Co., 126 La. 938, 53 So. 56; Bacon v. Brotherhood of Eail- road Brakemen, 46 Minn. 303, 48 N. W. 1127; Eagan v. MeElroy, 98 Mo. 349, 11 S. W. 735; Tuckasegee Min. Co. V. Goodhue, 118 N. C. 981, 24 S. E. 797. 98 So the assignee of bonds of a pretended corporation is bound. Wal- 755 § 356] Private Corpobations [Ch. 11 he sells and conveys property purchased by him from the corpora- tion,89 or one to whom he conveys property mortgaged to a corporation, and who assumes and agrees to pay the mortgage debt,^ or to whom he conveys property which he has previously conveyed to a corpora- tion.'' A junior mortgagee cannot defeat a senior mortgage by attacking the corporate existence of the senior mortgagee,* or of the mortgagor.* When a person takes the title to land in trust for a pretended cor- poration under an agreement to convey to it, the estoppel to deny the existence of the corporation for the purpose of avoiding the trust operates against his heirs at law or devisees.^ Nor can the beneficiary in a deed of trust deny the corporate existence of a judgment creditor of the grantor where the latter is estopped to do so.^ Nor can one who purchases property at a sale on execution against a person who has purchased it from a pretended corporation under a conditional contract of sale deny the existence of the corporation for the purpose of attacking its retention of the title in the contract.' So too, the estoppel of a lessor of land to deny the corporate existence of his lessee extends to a subsequent mortgagee with notice who has acquired title to the leased premises through foreclosure proceedings.' Persons claiming under a deed which recites the existence of a mortgage in favor of a corporation are estopped to question the cor- porate existence of the mortgagee.^ laee v. Loomis, 97 TJ. S. 146, 24 L. Ed. County Sav. Bank v. Baldwin, 22 Alb. 895. See also Egbert v. Kimberly, 146 L. J. (N. Y.) 134. Pa. St. 96, 23 Atl. 437. 4 See § 387, supra. 99 Jackson Sharp Co. v. Holland, 14 B Tuckasegee Min. Co. v. Goodhue, Fla. 384. 118 N. C. 981, 24 S. E. 797. IDeiteh v. Staub, 115 Fed. 309; 6 Stoutimore v. Clark, 70 Mo. 471. Dundee Mortgage & Trust Inv. Co., V Jackson Sharp Co. v. Holland, 14 Ltd. V. Cooper, 26 Fed. 665; Stuy- Fla. 384. vesant v. Western Mortgage Co., 22 And a holder of land by assign- Colo. 28, 43 Pae. 144; People's Sav. ment of a sheriff's certificate of sale Bank & Building Ass'n v. Collins, 27 under a mortgage by a corporation is Conn. 142; Palmer v. Lawrence, 3 estopped to deny the existence of the Sandf. (N. Y.) 161, aff 'd 5 N. Y. 389. corporation in order to defeat a prior 2Eeinhard v. Virginia Lead Min. mortgage by the same corporation. Co., 107 Mo. 616, 28 Am. St. Eep. 441, Hasselman v. United States Mortg. 18 S. W. 17; Broadwell v. Merritt, Co., 97 Ind. 365. 87 Mo. 95. See also Packard v. Old 8 Whitney v. Eobinson, 53 Wis. 309, Colony E. Co., 168 Mass. 92, 46 N. E. 10 N. W. 512. 433. 9 Hasenritter v. Korchhoffer, 79 Mo. 3 Williamson v. Kokomo Building & 239. Loan Fund Ass'n, 89 Ind. 389; Erie 756 Ch. 11] COEPOBATIONS BY EsTOPPEL [§ 357 The estoppel of a person dealing with another in the name of a corporation to deny the legal existence of the corporation in an action to enforce some right growing out of that deialing also extends to such persons as are in privity with him.^" So it extends to a mort- gagee of personal property bought in the name of a corporation, and he cannot deny the legalexistence of the corporation in an action by the vendor to recover the purchase price in which it attaches the property.^i On the other hand, the estoppel does not extend to persons or cor- porations not in privity with the person who has dealt with the corporation.^^ So it does not extend to one who claims title by ad- verse possesion to property conveyed by a corporation so as to pre- vent him from attacking the deed, to which he is not a party or privy, on the ground that the charter of the corporate grantor had expired when it was executed.^' And except where there is some privity, as in the eases above mentioned, a person who has in no way dealt with a pretended corporation, as a corporation, cannot be estopped to deny its corporate existence;^* though he may be pre- vented from doing so by the doctrine in relation to de facto corpora- tions.^* § 357. — Estoppel in favor of persons in privity with corporation or its members. The estoppel of persons who have dealt with a pre- tended corporation to deny its corporate existence operates also in favor of persons who stand in the shoes of the corporation or its members, stockholders or oflScera. Thus, the existence of the corpora- tion cannot be denied as against one to whom it indorses or assigns a note, bond, or other contract made to or with it,^® nor against the 10 Fairbanks-Morse Co. v. Coulson endon, 5 Dill. 329, Fed. Cas. No. 8,320; Stock Food Co., 151 Mo. App. 260, 131 Darlington v. La Olede County, 4 Dill. S. W. 894. ' 200, Fed. Cas. No. 3,577; AUer v. Cam- 11 Fairbanks-Morse Co. v. C9ulson eron, 3 Dill. 198, Fed. Cas. No. 243. Stock Food Co., 151 Mo. App. 260, 131 OaJifomia. Francis v. Western S. W. 894. Screen Co., 22 Cal. App. 32, 133 Pae. 12 Dartmouth Sav. Bank v. School 327. Dists. Nos. 6 & 31, 6 Dak. 332, 43 N. Florida. Booske v. Gulf Ice Co., 24 W. 822. Fla. 550, 5 So. 247. 13 Bradley v. Eeppell, 133 Mo. 545, Illinois. Goodrich v. Eeynolds, 31 54 Am. St. Eep. 685, 34 S. W. 841, 32 HI. 490, 83 Am. Dec. 240. S. W. 645. Indiana^ Briekley v. Edwards, 181 14 See I 323, supra. Ind. 3, 30 N. E. 708. IB See §.274, supra. Iowa. Courtright v. Deeds, 37 Iowa 16 United States. Andes v. Ely, 158 503; Franklin v. Twogood, 18 Iowa U. 8. 312, 39 L. Ed. 996; Lewis v. Clar- 515. 757 §357] Fbivate Cobpoeations [Ch. 11 assignee of a mortgage,^' or lease,'-' running to the corporation, nor against one to whom it sells and conveys or mortgages land or goods sold or conveyed to it,^' nor against its assignee in bankruptcy, or its assignee for the benefit of creditors, or receiver.^" Nor may the grantee of a corporation deny its corporate existence as against per- sons who have acquired prior liens.*^ But one who mortgages prop- erty to a corporation may deny the corporate existence of the lat- ter 's assignee.*^ Missouil. West Missouri Land Co. V. Kansas City Suburban Belt E. Co., 161 Mo. 595, 61 S. W. 847; Camp v. Byrne, 41 Mo. 525; Hamtramck v. Banlc of Edwardsville, 2 Mo. 169. New Jersey. Den v. Van Houten, 10 N. J. L. 321. Ohio. Durrell v. Belding, 9 Ohio Cir. Ct. 74. In an action on a note by one to whom it has been indorsed and trans- ferred by the duly authorized agent of a corporation to which it was transferred by the corporation payee, proof of the corporate existence of such corporations is unnecessary. Ca- yuga County Nat. Bank v. Dunklin, 29 Mo. App. 442. 17 Hubbard v. Chappel, 14 Ind. 601. The rule applies in favor of the bona fide transferee of a bond and mortgage. Green v. Grigg, 98 N. Y. App. Div. 445, 90 N. Y. Supp. 565. 18 Lynch v. Ferryman, 29 Okla. 615, Ann. Cas. 1913 A 1065, 119 Pac. 229. 19 See § 337, supra. 20 Chubb V. Upton, 95 U. S. 665, 24 L. Ed. 523; Casey v. Galli, 94 U. S. 673, 24 L. Ed. 168; Sanger v. Upton, 91 U. S. 56, 23 L. Ed. 220; Johnston v. Gumbel (Miss.), 19 So. 100; Bank of Statesville v.Simonton, 86 N. C.187; Carroll v. Pacific Nat. Bank, 19 Wash. 639, 54 Pac. 32. 21 One who has taken and still re- lies upon a conveyance of land from a corporation, which, in executing the same, assumed to act as a corporation, cannot deny its legal existence as a corporation in gja action against him to recover possession of the land, brought by one who has attached the same in an action against the com- pany, as a corporation, prior to the recording of the deed, and has sub- sequently levied his execution thereon. Dooley v. Wolcott, 4 Allen (Mass.) 406. 22 Dundee Mortgage & Trust Inv. Co., Ltd. v. Cooper, 26 Fed. 665. 758 CHAPTER 12 Incorporation of Partnerships, Associations and Tenants in Common § 358. General considerations. § 359. Agreement of members to incorporate. § 360. Statutory provisions and compliance therewith. § 361. Name of corporation. § 362. Effect of formation of corporation on existence of partnership or asso- ciation. § 363. Notice of change from partnership to corporation. § 364. Conveyance of firm or association property to corporation — In general. § 365. — Transfer of title by charter or articles of incorporation. § 366. — Effect of charter restrictions on power. §367. — Title acquired by corporation. i 368. — Equitable title. § 369. — Conveyance to corporation not organized. § 370. — Incorporation of association after devise or bequest to it. § 371. — Statute of frauds. § 372. — Estoppel and ratification. § 373. — Praud and fraudulent conveyances. § 374. Rights of corporation as to contracts of and debts due to partnership or association. § 375. Liability of corporation on debts or contracts of partnership or association — In general. § 376. — Express assumption of debts. § 377. — Assumption either express or implied. § 378. — Presumption where others become stockholders. § 379. — Presumption from receipt of assets of partnership. §380. — Running accounts; mechanic's lien. § 381. — Statute of frauds. § 382. — Effect of assumption of debts by corporation. § 383. — Priorities of creditors. § 384. Liability of partners or members on contracts and for debts. § 385. Rights of partners or members of associations inter se and against the corporation. § 386. Incorporation of tenants in common. §358. General considerations. When a corporation succeeds a partnership, as where members of a partnership organize a corpora- tion to continue the business of the firm, the corporation and the 759 § 358] Pbivate Coepokations [Ch. 12 former partnership are distinct in law, and the rights and liabilities of the one are not the rights and liabilities of the other, even though the members of the corporation and those of the partnership are the same.^ This necessarily follows from the nature of a corporation, it being an entity or legal body separate and distinct from the mem- bers or individuals composing it, and obviously distinct from the partnership, which may be considered as another entity.^ The same general rule as to the corporation being distinct applies when any other unincorporated association becomes incorporated.* §359. Agreement of members to incorporate. Frequently con- tracts or arrangements are entered into contemplating the future creation of a corporation, and the nature of the relation in such cases must be determined from the contract existing. Thus where two per- sons entered into a contract providing for the formation of a corpora- tion after the debts of a business had been paid, and one person contributed a certain sum of money and both agreed to work faith- fully and diligently for the success of the venture, it was held that a partnership relation existed. In such ease the court stated that it could not be held that the contract failed to fix the relation of the partners during their association together and before the time for the creation of the corporation arrived.* Where the organization of the corporation is in the interest of the partnership, a partner is bound by an agreement of the other part- ners, within the scope of the partnership business, that the detail work and expense of forming the corporation will be assumed by the partnership.^ "Where a voluntary association is formed, and a law exists provid- ing for the incorporation of such association, it has been held that members joining such society must be conclusively presumed to have impliedly agreed that such incorporation might take place, according to the statutes regulating the matter.^ It must be remem- bered, however, that members of voluntary organizations have the right to participate in the affairs of the association, and to have the 1 Georgia Co. v. Castleberry, 43 Ga. 4 Brooke v. Tucker, 149 Ala. 96, 43 187; Schneider v. Sellers, — Tex. Civ. So. 141. App. — , 81 S. W. 126. And see the 6 Tanner v. Sinaloa Land & Fruit other eases more specifically cited in Co., 43 Utah 14, Ann. Cas. 1916 C 100, notes following. 134 Pac. 586. 2 See § 1 6, supra. 8 Spiritual & Philosophieal Temple 3 See Frank v. Drenkhahu, 76 Mo. v. Vincent, 127 Wis. 93, 105 N. W. 508, 1026. 760 Ch. 12] Incokpoeation of Paktnebships, etc. [§359 property controlled and administered according to the organic plan. This is a right which the courts will protect.'' Members cannot appro- priate to themselves the property of an association, contrary to the desires of other members, by creating a corporation.* It should appear that the incorporation is the action of the asso- ciation,' and in general such important action as the creation of a cor- poration should be undertaken only after due notice to all members, at a meeting duly convened. ^° An agency to incorporate and deliver the imineorp orated associa- tion over bodily, membership and assets, to the corporation, will not be implied. Nor will general words be broadly construed to uphold such action by the officers of the unincorporated association. The direction of the constitution and by-laws must be clear and express.^^ To charge members as corporators, there must be some act or ex- pression on their part as individuals, to signify acceptance of the corporate charter,^^ and the acceptance must be in accordance with the by-laws of the association.^^ But if a committee is empowered 7 Spiritual & Philosophical Temple V. Vincent, 127 Wis. 93, 105 N. W. 1026. 8 See § 364, infra. 9 Where a certificate of incorpora- tion did not state that the signers of the certificate and the other members of the association associated to form the corporation, but it only appeared that three individual members of the association formed such corporation, there was no merger of the associa- tion in the corporation. First Russian Nat. Organization of New England States V. Zuraw, 89 Conn. 616, 94 Atl. 976. Each member should be allowed to participate in bringing about the change if he so desires. Spiritual & Philosophical Temple v. Vincent, 127 Wig. 93, 105 N. W. 1026. See also Mills V. Hurd, 29 Eed. 410. 10 Notice should be given in such a way as to furnish facilities to all concerned to receive information of the meeting to take action under the statute. Spiritual & Philosophical Temple v. Vincent, 127 Wis. 93, 105 N. W. 1026. In another Wisconsin ease there was a double giving of notice, there being a factional divi- sion of the society, one faction hold- ing its meetings at a church and the other at a neighboring schoolhouse. The notice given at the church was what the case turned on however, there being no particular significance given to the notice at the school. See West Eoshkonong Congregation v. Ottesen, 80 Wis. 62, 49 N. W. 24. In the later case it was held that no dou- ble giving of notice was required by the statute. Spiritual & Philosophical Temple v. Vincent, 127 Wis. 93, 105 N. W. 1026. 11 Koprucki v. Wojoiechowski, 73 N. Y. Misc. 46, 130 N. Y. Supp. 736. The constitution and by-laws of a voluntary association held not to con- fer power to the executive board or committee to convert the association into a corporation. Eudolph v. South- ern Beneficial League, 23 Abb. N. Cas. (N. Y.) 199, 7 N. Y. Supp. 135. IZHaslett's Bx'rs v. Wotherspoon, 1 Strobh. Eq. (8. C.) 209. 13 Where by-laws of an association provided that local branches could 761 § 359] Peivate Cokpokations [Cli. 12 to secure incorporation by a resolution adopted hy a unanimous vote, and members do not complain or question the action taken, such committee may proceed with the creation of the corporation.^* If the corporation is created without authority, it must necessarily remain a new and separate organization distinct from the associa- tion.^* Where certain parties agreed to form an association to build and run a steamboat, and afterwards a corporation was formed by some of the members, it was held that the original members who did not join in the agreement to form the corporation were not bound by the original agreement.^® The ratification of the action of an executive committee in procur- ing incorporation must be established by the clearest evidence that the society duly convened, with full knowledge of the object for which the meeting is called, baa given its assent to the action of the com- mittee.^'' § 360. Statutory provisions and compliance therewilkh. Not only is a statute authorizing incorporation necessary to authorize mem- bers of a firm or association to incorporate,^* but the plain intent, terms and meaning of the law must be such as to permit the creation of the corporation.^' Accordingly it has been held that members of. a rifle club were not authorized to incorporate when a statute provided only legislate for themselvea, and the IB Mason v. Finch, 28 Mich. 282. supreme legislative authority of the 16 Southern Steam-Packet Co. v. Ma- organization was vested in a conven- grath, McMull. Eq. (S. C.) 93, holding tion consisting of officers of the su- that such members could not be com- preme assembly and delegates from pelled by a court of equity to pay for the branches, acceptance of the char- stock subscribed to by them under the ter of a corporation by a majority of original agreement, the branches separately was not an iTEudolph v. Southern Beneficial acceptance by the voluntary associa- League, 23 Abb. N. Gas. (N". Y.) 199, tion whereby the association became 7 N. T. Supp. 135. merged in the corporation. First Bus- 18 Pettis v. Atkins, 60 111. 454. sion Nat. Organization of New Eng- No corporation can exist except by land States v. Zuraw, 89 Conn.. 616, 94 force of express law. Schuetzen Bund Atl. 976. V. Agitations Verein, 44 Mich. 313, 38 14 Associate Alumni General Theo- Am. Eep. 270, 6 N. W. 675. See also logical Seminary of Protestant Epis- § 167, supra. copal Church v. General Theological 19 Vredenburg v. Behan, 33 La. Ann. Seminary, 26 N. Y. App. Div. 144, 49 627. N. Y. Supp. 745, aff'd 163 N. Y. 417, 57 N. E. 626. See § 364, infra. 762 Cli. 12] Incokporation of Pabtnekships, etc. [§ 360 for the creation of corporations for "literary, scientific and charitable purposes, ' ' since rifle shooting could not be termed a science.^" In the same connection it may be mentioned that the organization of a corporation to resist the enforcement of particular statutes is without authority. So a society organized to work against statutes enacted to regulate the sale of liquors cannot sue in its society name for the collection of a debt.*^ The rule which prevents a denial of corporate liability, when a name is assumed implying corporate powers, does not apply, when an association is organized at a time when there was no law authoriz- ing incorporation, and where there was no attempt to organize after such law became effeetive.^^ Elsewhere in this work are discussed the effect of a failure to comply with statutory regulations as to the creation and organiza- tion of corporations and the liability resulting atherefrom. The same principles apply in regard to these matters to corporations succeed- ing partnerships and associations as to the formation of other cor- porations, and it is not deemed necessary that they be repeated here.''^ It has been held that where there is an ineffectual attempt to incor- porate a partnership, the partnership relation continues,** and simi- larly the somewhat analogous liability of members of associations also continues where the corporate existence is not perfected.** But if the statutes are complied with, the formation of the company as a body politic is complete and its validity as such cannot thereafter be col- laterally assailed.*^ It may be stated as a general rule that a substantial compliance , with the material provisions of an enabling statute is essential to the creation of a corporation.*'' It has also been held that members of an 20 Vredenburg v. Behan, 33 La. Ann. 27 See §§ 182-185, supra. 627. Where several parties carry on busi- 21 Schuetzen Bund v. Agitations ness of a oommereial partnership in Verein, 44 Mich. 313, 38 Am. Eep. 270, the name of a limited corporation 6 N. W. 675. which has never had the capital re- 22 Atchison v. Crawford County quired to give existence to such Farmers' Mut. Fire Ins. Co., 192 Mo. corporation, its liquidator, who was App. 362, 180 S. W. 438. one of the partners, has no grounds to 23 See §§290-302, supra. complain of a judgment on final liqui- 24 Whipple V. Parker, 29 Mich. 369. dation which merely enforces his lia- 25 See § 385, infra. bility as partner. In re Browne & 26 Shields v. Clifton Hill Land Co., Jenkins Co., 106 La. 486, 31 So. 67. 94 Tenn. 123, 26 L. E. A. 509, 45 Am. Where two partners made a sale of St. Rep. 700, 28 S. W. 668. their business to a third person and 763 § 360] Private Coepoeations [Ch. 12 unincorporated association claiming exemption from liability because of incorporation were bound to show compliance with statutory pro- visions requiring a statement of the number of shares held by stock- holders in the act of incorporation, and publication of the act in the mode prescribed by law.^* A partner cannot be heard to say that the corporation organized is not the corporation contemplated by the paitnership articles, in that there are five incorporators instead of three, i since such a partner who signed the articles of incorporation must be held to have assented to the alteration.^^ § 361. Name of corporation. The legal principles relative to the name of a corporation formed from a partnership, association or tenants in common do not differ, in the main, from those applicable to the name of other corporations, and are considered in another chapter.^" When a voluntary association is converted into a corporation, it is not material, whether the name chosen is precisely the same as that borne by the society. Such name may be chcsen as the parties con- trolling the matter see fit to select.'^ But dissatisfied members can- not by incorporating themselves deprive the voluntary association of the right of using its own name,*^ and an action will lie on behalf of an unincorporated association to enjoin a part of its members from procuring the incorporation of a society under the name used by the association.^^ sn arrangemeBt was entered into by v. Vincent, 127 Wis. 93, 105 N. W. which the third parties were to form 1026. a corporation, but the statute as to the 32 Eudolph v. Southern Beneficial payment of fees for incorporation was League, 23 Abb. N. Caa. (N. T.) not complied with, and the taking of 199, 7 N. Y. Supp. 135; Black Rabbit title to the property was an exercise Ass'n v. Munday, 21 Abb. N. Cas. (N. of corporate power prohibited by the T.) 99. statute, the company organized was 33 Eudolph v. Southern Beneficial neither a de jure nor a de facto cor- League, 23 Abb. N. Caa. (N. Y.) 199, poration, but simply a voluntary asso- 7 N. Y. Supp. 135; McGlynn v. Post, ciation of individuals in the nature of 21 Abb. N. Cas. (N. Y.) 97. a partnership. Jones v. Aspen Hard- Where a voluntary association ia ware Co., 21 Colo. 263, 29 L. R. A. 143, incorporated by unanimous assent, and 52 Am. St. Rep. 220, 40 Pae. 457. the corporation acquires the name of 28 Williams v. Hewitt, 47 La. Ann. such association, it may protect the use 1076, 49 Am. St. Rep. 394, 17 So. 496. of such name, when assumed by 29 Hennessy v. Griggs, 1 N. D. 52, another corporation. Red Polled Cat- 44 N. W. 1010. tie Club of America v. Red Polled 30 See Chap. 18, infra. Cattle Club of America, 108 Iowa 105, 31 Spiritual & Philosophical Temple 78 N. W. 803. 764 Ch. 12] Incoepokation of Pabtneeships, etc. [§362 § 362. Effect of formation of corporation on existence of partner- ship or association. The formation of a corporation by the members of a partnership does not necessarily operate as a dissolution of the partnership ; ^* nor does the organization of a corporation by the mem- bers of a partnership to engage in the same business as the partnership operate as a dissolution of the latter, in the absence of proof of such dissolution and the assumption of the partnership business by the corporation,^^ but. whether the partnership is actually dissolved depends on the circumstances of the case. If a corporation is organized, and the whole of the real estate and the partnership stock and property are transferred to the corporation, such fact standing alone would be strong evidence of the intention of the partners, as between themselves, to dissolve the partnership.^* Indeed, it has been held that such acts constitute dissolution, and that partners who have assisted and acquiesced in the formation of the corporation cannot be heard to say that it is "not in accordance 34Pearee v. Sutherland, 164 Fed. 609; First Nat. Bank of Wausau v. Conway, 67 Wis. 210, 30 N. "W. 215. In. Monmouth Inv. Co. v. Means, 151 Fed. 159, the court recognized the ex- istence of a partnership to deal in real estate, aided by a corporation organized merely to be a holding com- pany for the partnership adventures. 3B Goodwin v. Smith, 23 Ky. L. Eep. 1810, 66 S. "W. 179. In the above case there was no showing that the partnership had ceased to exist, nor that its business was settled nor that an inventory was taken of the property of the corpo- ration, nor that the stock of the cor- poration had been paid for. The only evidence in regard to the succession of the corporation was that the part- ners had determined to merge the partnership with its assets and lia- bilities and the partners ' holdings into a corporation, with the same relative positions among themselves, and that a corporation, of the same name as the partnership, had been formed to engage in business of the same kind. SBGoddard v. Pratt, 16 Pick. (Mass.) 412. Where a corporation is organized for the purpose of discontinuing a partnership, the conveyance of the partnership property to it in ex- change for stock in the corporation, is a step in the dissolution of the part- nership and settlement of its affairs as between the partners. Coggswell & Boulter Co. v. Coggswell (N. J. Ch.), 40 Atl. 213. When partners agree to form a cor- poration, and that all the assets of the partnership shall be assigned to the corporation, and that the capital stock of the corporation shall be divided among them in the same proportion as the capital of the partnership, the organization of the corporation, as agreed, dissolves the partnership. Hennessy v. Griggs, 1 N. D. 52, 44 N. W. 1010. It is not essential in an instruction upon the question as to whether a partnership or a corporation which has succeeded thereto is liable for goods sold and delivered, to point out specifically the issue of partnership dissolution involved in the case. Weise v. Gray's Harbor Commercial Co., Ill 111. App. 647. 765 '§362] Private CoKPOEATioNS [Ch. 12 with the agreement.*'' But where a by-law is adopted by the corpora- tion at the same time to transact business in the name of the already existing partnership, and the by-law is agreed to, impliedly or ex- pressly by the members of the firm, this action is strong evidence of the continuance of the partnership, not only as between the partners themselves, but also as to the community.'* The question of notice of the dissolution of the copartnership may also become of importance in connection with questions arising where a corporation succeeds to the rights and property of a partnership.*' If there is no formal dissolution and notice thereof, and no apparent change in the name or place of business of the firm, the liability as partners must be held to continue as to persons dealing with them without notice of the incorporation.*" Statutory provisions requiring notice of dissolution have been held to apply where a corporation succeeds a partnership.*^ Usually the formation of a corporation by members of a voluntary association operates to dissolve the society and substitute the cor- porate entity in its plaee.*^ Where members of an association attempted to dissolve the same by the formation of a corporation, and the minority members brought an action for an accounting and to recover the property of the asso- ciation, alleging that the other members had withdrawn therefrom and organized the corporation, which allegation was denied, it was held that the question whether the members had withdrawn was one of fact depending on the intention of the parties, and that the burden 37 Hennessy v. Griggs, 1 N. D. 52, 41 When a mining copartnership 44 N. W. 1010. See also Hutchinson conveys all its property to a corpora- V. Sperry, 158 N. Y. App. Div. 704, tion, such partnership is necessarily 143 N. Y. Supp. 876, rev'g 79 N. Y. dissolved in the sense of ceasing to Misc. 523, 140 N. Y. Supp. 220. exist, wherefore notice of dissolution Where all the assets of a partner- should be given as required by stat- ship are transferred to a corporation, ute (Cal. Civ. Code § 2453), in order the partnership is dissolved. Parry to terminate the liability of general V. Parry, 92 N. Y. Misc. 490, 155 N. partners for the acts of copartners. Y. Supp. 1072. Dellapizza v. Foley, 112 Cal. 380, 44 38 Goddard v. Pratt, 16 Pick. Pac. 727. (Mass.) 412. 48 Trustees v. Ely, 73 N. Y. 323; 39 See § 363, infra. Spiritual & Philosophical Temple v. 40Weise v. Gray's Harbor Commer- Vincent, 127 Wis. 93, 105 N. W. 1026; cial Co., Ill 111. App. 647; Goddard v. Holm v. Holm, 81 Wis. 374, 51 N. W. Pratt, 16 Pick. (Mass.) 413. See also 579; West Koshkonong Congregation Metz V. Commercial Bank, 45 S. C. v. Ottesen, 80 Wis. 62, 49 N. W. 24. 216, 23 S. E. 13. 766 Ch. 12] Incoeporation of Paetneeships, etc. [§363 of proof was on the complainants to establish their allegation of with- drawal.** §363. Notice of change from partnership to corporation. Fre- quently a change from a partnership to a corporation is attended with such change of name and such other changes as not to require personal notice to persons dealing with the firm, of the organization of the corporation.** But if there is no change of name, or place of business, or other change which might reasonably be presumed to impart notice, some kind of notice reasonably adapted for that pur- pose should be given. *^ This is akin to the principle requiring notice in the case of dissolution of a partnership,*® as dissolution of the partnership usually results when the corporation is created,*'' and is also similar to the rule requiring notice where there is a change in membership of a partnership, and a retiring partner seeks to be relieved from future debts of the partnership.*^ If no notice is given, the members of a firm cannot avoid their partnership liability. A principle similar to equitable estoppel applies,*^ and the partners must be held liable for debts incurred by the partnership, or cor- 43 strong V. Los Nietos & Eanchito "Walnut Growers' Ass'n, 137 Cal. 607, 70 Pac. 734. 44 Overlock v. Hazzard, 12 Ariz. 142, 100 Pac. 447. 45 Overlock v. Hazzard, 12 Ariz. 142, 100 Pac. 447; Vandyke v. Brown, 8 N. J. Eq. 657; Bynum v. Clark, 125 N. C. 352, 34 S. E. 438. Actual notice of dissolution of tlie partnership is necessary to affect per- sons dealing with it. Frankel v. Wa- then, 58 Hun (N. Y.) 543, 12 N. Y. Supp. 591. If an existing partnership becomes incorporated, but continues dealing in the old way, the members are liable as partners where the change of name does not convey information. Tobiaa V. "Wierck, 21 N. Y. Misc. 763, 48 N. Y. Supp. 146. 46 Overlock v. Hazzard, 12 Ariz. 142, 100 Pac. 447; Bynum v. Clark, 125 N. C. 352, 34 S. E. 438. Whatever may be the intention and the agreement of partners, to effect a dissolution as between themselves, if notice of that fact is not given, it cannot be legally deemed to be dis- solved, as regards others. Goddard v. Pratt, 16 Pick. (Mass.) 412. 47 See § 362, supra. 48 Overlock v. Hazzard, 12 Ariz. 142, 100 Pac. 447. There is no difference in principle between the case where a corporation succeeds to the business of a part- nership, and the case where a change has been made in the membership of a partnership, with regard to the duty of imparting notice of such chango. Overlock v. Hazzard, 12 Ariz. 142, 100 Pac. 447. 49McGowan v. American Pressed Tan Bark Co., 121 U. S. 575, 30 L. Ed. 1027; Overlock v. Hazzard, 12 Ariz. 142, 100 Pac. 447. See also Bank of Monongahela Valley v. Weston, 159 N. Y. 201, 45 L. B. A. 547, 54 N. E. 40. This principle differs, however, in that no specific intent to mislead need be shown to exist. Overlock v. Haz- zard, 12 Ariz. 142, 100 Pac. 447. 767 §363] Pbivate Cobpokations [Ch. 12 poratJQn, as the case may be, when incurred by reason oi credit hav- ing been extended through a belief, induced by the conduct of the partners, that they are still interested in, or carrying on, the busi- ness.*" The sufficiency of notice, and the question whether personal notice is reasonably required, must be determined from the circumstances of each case.®^ It would seem that the mere addition of the word "incorporated" to the partnership sign on its storehouse is not sufficient to charge an employee of the partnership with notice.®^ The obliteration of the symbol "&" from a business sign and labels, used upon bottles in a drug store, printed in small letters, has been held to not be notice that a copartnership had become a corpora- tion, there being no change in the place of business.*' It has been held also that published notices by parties who previously conducted 50 Overloek v. Hazzard, 12 Ariz. 142, 100 Pac. ,447; Guckert v. Hacke, 159 Pa. St. 303, 28 Atl. 249. "Where a corporation is formed from a partnership and continues doing business for an extended period after incorporation with one with whom business had been done as a partner- ship, no notice of incorporation being given and the charter not having been recorded, the members may be held to a partnership liability to such party. Goddard v. Pratt, 16 Pick. (Mass.) 412; Perkins v. Eouss, 78 Miss. 343, 29 So. 92. See also Robinson v. First Nat. Bank, 98 Tex. 184, 82 S. W. 505. When partners have dealt as such with a seller of goods, and, after be- coming incorporated, continue to deal as before, having their bills made in the same way without giving any no- tice of their altered condition, they will continue to be liable as partners, unless the seller has actual knowledge thereof derived from some other source. Martin v. Fewell, 79 Mo. 401. See also Weise v. Gray's Har- bor Commercial Co., Ill 111. App. 647; Goddard v. Pratt, 16 Pick. (Mass.) 412; Johns v. Brown, 1 White & W. Civ. Oas. Ct. App. (Tex.) § 1016. Where articles of association were framed with a view to eventual incor- poration, but this provision was not known to the plaintiffs who contracted with such association, and after in- corporation, the officers were the same, the members of the association were personally liable on the contract and the receipt of money from the officers of the corporation did not prejudice the plaintiffs. Witmer v. Schlatter, 2 Eawle (Pa.) 359. If an existing partnership becomes incorporated without any formal dis- solution and notice thereof and con- tinues dealing in the old way, the individuals composing such partner- ship continue liable as partners where the change of name does not convey information of the incorporation and the persons dealing with them had no notice of such incorporation. Weise V. Gray's Harbor Commercial Co., Ill 111. App. 647. 61 Overlook v. Hazzard, 12 Ariz. 142, 100 Pac. 447. B2 Goodwin v. Smith, 23 Ky. L. Bep. 1810, 66 S. W. 179. 63 Roof V. Morrisson, Plummer & Co., 37 111. App. 87. 768 Ch. 12] Incokpoeation of Partnerships, etc. [§ 364 their business as a partnership which refer to the formation of a cor- poration, are not competent evidence where they do not set forth the dissolution of the firm, and there is no proof that they are published as the acts and declarations of the partners and that there had been an actual dissolution.^* Evidence of witnesses as to the general reputation of the signature of the firm being that of the corporation, and that one defendant had ceased to be a partner, is inadmissible.^* Communications between the partnership and its customers con- cerning the status of the former are admissible on the question of notice.*^ The acceptance of a charter and the organization of the company has no tendency to give notice to the mercantile community of the dissolution of a firm.*'' § 364. Conveyance of firm or association property to corporation — In general. There is no valid reason why a corporation may not be organized for the purpose of buying specific property, such as that of a partnership, where it is useful, convenient and suitable for its pur- poses, and such purposes are legal,** and partners may convey or assign the assets of a firm to the corporation,*' provided the convey- BlWeise v. Gray's Harbor Com- it recorded and gave no notice to mercial Co., Ill 111. App. 647. creditors of the change from a part- 85 Coddard v. Pratt, 16 Pick. nership to a corporation, they were (Mass.) 412. liable as partners. Perkins v. Eouss, 66 In an action for goods sold and 78 Miss. 343, 29 So. 92. delivered, where it appeared that the A bill in equity which states that defendants, as a partnership, estab- defendants were partners, but which lished a branch office and were sub- states that the suit is against a cor- sequently incorporated, and an issue poration which succeeded the partner- was tendered as to the dissolu- ship, and that the plaintiff was tion of the partnership and notice to informed that defendants were really the plaintiff company of such disso- doing business as a corporation, is lution, exhibits consisting of letters insufficient where the statute provides and telegrams concerning the various that the charter be recorded, and the orders and shipments, and involving plaintiff could by this means ascer- an inquiry as to whether the part- tain the status of the defendants, nership had been dissolved and the Pittsburg Sheet Mfg. Co. v. Beale, 204 reply thereto were improperly ex- Pa. 85, 53 Atl. 540. eluded. Hooper v. Hartwell, 12 Colo. 58 In re Wlaterman's Appejal, -26 App. 161, 54 Pac. 864. Conn. 96; Bristol Bank & Trust Co. 57Goddard v. Pratt, 16 Pick. v. Jonesboro Banking & Trust Co., (Mass.) 412. 101 Tenn. 545, 48 S. W. 228. Where members of a partnership 69 Thorpe v. Peilnoek Mercantile Co., procured a charter but did not have 99 Minn. 22, 9 Ann. Cas. 229, 108 N. 769 I Priv. Corp. — 49 §364] Pkivate Cokpoeations [Ch. 12 anee is not a fraud upon the firm creditors.^" But the property of a partnership, real or personal, does not become the property of a cor- poration merely because of the fact that the members of the corpora- tion and the partnership are the same, or because the corporation is formed for the purpose of carrying on the business of the partner- ship.*^ The facts may be such as to be consistent with the continu- ance of the existence of the partnership,®^ since, as is stated elsewhere, dissolution of the partnership does not necessarily result from the creation of a corporation.®* Some action is necessary on the part of the partners in divesting W. 940; Shufeldt v. Smith, 139 Mo. 367. 40 S. W. 887; Williams v. Colby, 24 N. Y. St. Eep. 793, 6 N. Y. Supp. 459; Coaldale Coal Co. v. State Bank, 142 Pa. St. 2S8, 21 Atl. 811, and cases cited in notes following. Where the three members of a firm agree that a corporation shall he formed, and that the firm property shall be conveyed to it, and stock is- sued to them in proportion to their respective contributions, they are all necessary parties to a transfer of the firm's property to the corporation when formed, but neither of them can avoid a transfer by the others, in which he has wrongfully refused to join. Hennessy v. Griggs, 1 N. D. 52, 44 N. W. 1010. 60 See § 373, infra. fil Georgia. Rau v. Union Paper Mill Co., 95 Ga. 208, 22 S. E. 146. Massacliusetts. Manahan v. Var- num, 11 Gray 405. IVUssourl. Frank v. Drenkhahn, 76 Mo. 508. North Dakota. Ruettell v. Green- wich Ins. Co., 16 N. D. 54:6, 113 N. W. 1029; Hennessy v. Griggs, 1 N. D. 52, 44 N. W. 1010. Texas. McLeary v. Dawson, 87 Tex. 524, 29 S. W. 1044; Carothers v. Alexander, 74 Tex. 327, 12 S. W. 4; Schneider v. Sellers (Tex. Civ. App.), 81 S. W. 126. See also Lane & B. Co. v. Locke, 150 U. S. 193, 37 L. Ed. 1049; Holland v. Cruft, 2 Gray (Mass.) 161, 61 Am. Dec. 448; Leffingwell v. Elliott, 8 Pick. (Mass.) 455, 19 Am. Dec. 343. In Prank v. Drenkhahn, 76 Mo. 508, a conveyance was made to certain persons as directors of an unincor- porated joint stock company, and their successors in oflB.ce, in special trust for the use of the shareholders in the company, and afterwards the company was incorporated under the same name. It was held, in the ab- sence of any conveyance from the individuals to whom the property had been conveyed, that the corporation took no title to the property, and that it could not maintain ejectment therefor. 62 In an action for an accounting of a partnership agreement to buy a railroad, the conduct of the parties was consistent with the continuance of the partnership and irreconcilable with the claim that it was merged in the corporation, the corporation being a mere paper affair, and its issue of stocks and bonds nominal. Watkins v. Delahunty, 133 N. Y. App. Div. 422, 117 N. Y. Supp. 885. Where a corporation is formed in aid of, and not a substitute for an association, there is no merger of the association in the corporation. Mc- Padden v. Murphy, 149 Mass. 341, 21 N. E. 868. 63 See § 362, supra, 770 Ch. 12] Incokporation of Paetneeships, etc. [§364 themselves of title and on the part of the corporation in receiving title,®* unless the terms of the act or articles of incorporation are such as to transfer the title without any formal transfer by the parties.^* Of course a partnership may be terminated by agreement, and there may be a merger in the corporation by the distribution of stock and bonds according to the respective interests of the parties, and in pursuance of the agreement.®® Members who form a corporation and convey the partnership's assets to it have the right to agree upon the price each shall be al- lowed for his share. Such an agreement does not encroach upon the rights of third persons and may be valid though the corporation sub- sequently becomes insolvent.®' The burden of proving a merger is necessarily on those who seek to establish it.®* In the case of voluntary associations, it has also been held that incorporation does not of itself constitute the corporation the owner of the property of its predecessor.®^ The transfer of property rights in such cases is an important ele- ment of the transaction, and this has been recognized by the enactment of statutes prescribing due formalities which must be complied with.'" 64 Euettell V. Greenwich Ins. Co., 16 N. D. 546, 113 N. W. 1029; Schnei- der V. Sellers (Tex. Civ. App.), 81 S. W. 126. Where partners intended to form a corporation and such corporation was in fact formed and stock issued to one partner, but the property and busi- ness of the partnership were never transferred to the corporation, such property and business remained the property of the partnership. Whit- ley V. Bradley, 13 Cal. App. 720, 110 Pae. 596. A formal conveyance of real prop- erty is necessary to a transmission of title, unless the owner thereof so deal with it as to vest an equitable inter- est in another and raise an estoppel against the assertion of title upon his part. Rau v. TJnion Paper Mill Co., 95 Ga. 208, 22 S. E. 146. 65 See § 365, infra. 66Watkins v. Delahunty, 33 N. Y. App. Div. 422, 117 N. Y. Supp. 885. 67 See Pennsylvania Tack Works v. Sowers, 2 Walk. (Pa.) 416; Lottman Bros. Mfg. Co. V. Kouaton Water- works Co. (Tex. Civ. App.), 38 S. W. 357. 68 Mason v. Finch, 28 Mich. 282; Watkins v. Delahunty, 133 N. Y. App. Div. 422, 117 N. Y. Supp. 885. 69Manahan v. Varnum, 11 Gray (Mass.) 405; McLeary v. Dawson, 87 Tex. 537, 29 S. W. 1044; Carothers v. Alexander, 74 Tex. 319, 12 S. W. 4; Edwards v. Old Settlers' Ass'n, — Tex. Civ. App. — , 166 S. W. 423. Parties lawfully associated in a com- mon enterprise or purpose have a right to continue it until something is done to destroy it. Mason v. Pinch, 28 Mich. 282. 70 To transfer the property of an unincorporated association to the same association, incorporated, requires the unanimous vote of the members pres- ent at a meeting duly called for that purpose, under the New York Mem- 771 I 364] Private Cokpoeations [Ch. 12 Even an absolute identity of membership will not of itself lead to a merger of an association in a corporation. The same persons may be members in the same or different proportionate interests of as many distinct bodies, incorporated or unincorporated, as they choose to organize.'^ Of course the facts may be such that incorporation is fully author- ized, and the corporation eo instanti comes into existence with its status and membership fully fixed, there being a complete substitu- tioA of the corporate entity for the association,'"' but the members of the association cannot be deprived of their property rights without their consent, and when an association is claimed to have become incorporated, some action must appear whereby such result has been fully authorized.'" If the association's membership is not confined to one state, but extends throughout several states, and the oflScers of such organiza- tion organize a corporation in one state, it cannot be held that such corporation succeeds to the property rights of the entire society. And this would also be the case even though the constitution granted general powers to the officers which could be interpreted as authoriz- ing incorporation. In such case acceptance of the incorporation is necessary.''* § 365. — Transfer of title by charter or articles of Incorporation. A formal transfer or conveyance of partnership property to a cor- bership Corporation Law, § 5 (Laws N'^w England States v. Zuraw, 89 1909, c. 40). Koprueki v. Wojcie- Conn. 616, 94 Atl. 976. chowski, 73 N. Y. Misc. 46, 130 N. Y. TS See § 359, supra. Supp. 736. See also Mason v. Finch, 28 Mich. 71 Mason v. Finch, 28 Mich. 282. 282; Spiritual & Philosophical Temple See also First Russian Nat. Organiza- v. Vincent, 127 Wis. 93, 105 N. W. tion New England States v. Zuraw, 1026. 89 Conn. 616, 94 Atl. 976, and eases Where a lot of ground was conveyed cited in note 61, supra, this section. in trust for the use of the neighbor- 72 Spiritual & Philosophical Temple hood for a school, and a schoolhouse V. Vincent, 127 Wis. 93, 105 N. W. was buUt, and the property managed 1026. by trustees selected by the neighbors, Where a voluntary association be- a minority could not by the organiza- comes incorporated under a special tion of a corporation appropriate to charter or general laws, it becomes it the property of the association merged in the corporation, its mem- against the will of the majority. Com. bers become the constituent members v. Jarret, 7 Serg. & R. (Pa.) 460. of the corporation, and its property 74 Koprueki v. Wojciechowski, 73 becomes the property of the corpora- N. Y. Misc. 46, 130 N. Y. Supp. 736. tion. First Russian Nat. Organization 772 Ch. 12] Incorporation of Partnerships, etc. [§365 poration which succeeds it is not necessary when the act of incorpora- tion operates to vest title in the corporate body and such charter is accepted by the members.'^ A franchise may also vest in the corporation, immediately when it is organized, by operation of law, as where it is granted on the express condition that a corporation be organized.''® But usually title does not vest in the corporation, even though created by an act of the legis- lature, unless such legislative body expressly declares such purpose,'"'' and the company cannot as such obtain title to property until it comes into being as a legal entity. ''^ Property cannot be transferred to the corporation as against sub- sequent bona fide purchasers from the partners, unless the description is sufficiently definite and certain to show what particular property is transferred.''* 7B Colquitt V. Howard, 11 Ga. 556, as to which see also § 364, supra. Where the members of a partnership and others obtained a charter of in- corporation providing that the prop- erty of the partnership was thereby declared to be the property of the corporation upon the partnership exe- cuting to the corporation proper re- leases, it was held that the charter did not transfer title to the corpora- tion without the execution of such releases. McLeary v. Dawson, 87 Tex. 524, 29 S. "W. 1044. Where a corporation was organized to continue the business of a part- nership, it appearing that a member of the firm had died, and the pre- amble to the act of the legislature granting a charter recited such facts, and provided for incorporation for the purpose of carrying on the business of the late firm, and it appeared that the partnership prior to that time had been engaged in the business of making toys, and had entered intO' an agreement with another partner- ship for the sale of their goods in another city, it was held that the act of ijicorporation transferred to the corporation the property belonging to the firm and authorized the corpora- tion to continue the business as it was then conducted and to continue in the partnership agreement which had formerly been entered into. But- ler V. American Toy Co., 46 Conn. 136. 76 Spring Valley Water Works v. San Francisco, 22 Cal. 434. 77 McCandless v. Inland Acid Co., 112 Ga. 291, 37 S. E. 419. Under the Illinois act (Act of April 18, 1872; J. & A. 112459) the title to church property held, conveyed, or devised to trustees, vests in the cor- poration when formed. Zion Church V. Mensch, 178 111. 225, 52 N. E. 858, aff'g 74 111. App. 115; Dubs v. Egli, 167 111. 514, 47 N. E. 766; Andrews v. Andrews, 110 111. 223; Happy v. Mor- ton, 33 111. 398. Mass. St. of 1854, e. 454, does not' transfer title of voluntary loan fund association to corporation unless there is a legal formal conveyance or assign- ment. Manahan v. Varnum, 11 Gray (Mass.) 405. 78McCandless v. Inland Acid Co., 112 Ga. 291, 37 S. E. 419, 79Bau V. Union Paper Mill Co., 95 Ga. 208, 22 S. E. 146. In this case, a partnership obtained a charter incor- porating it under the same name, 773 §365] Pbivate Cobpoeations [Ch. 12 If statutory enactments exist requiring a formal conveyance to pass title to real property, it would seem clear that partnership property cannot be vested in the corporation by the mere articles or certificate of incorporation, or by a charter from the court, as distinguished from a special act of the legislature.*" §366. — Effect of charter restrictions on power. "Restrictions imposed by the charter of a corporation upon the amoimt of property that it may hold cannot be taken advantage of collaterally by private persons, but only in direct proceedings by the state which created it. " '' It has also been held that where a corporation succeeded a partnership, and it was not authorized by its charter to purchase land, it could not invoke the defense that it was an innocent pur- chaser of such land.*^ § 367. — Title acquired by corporation. A corporation organized to take over the partnership assets does not acquire any better title to the property than that possessed by the partnership,*^ but when the business and property are transferred to the corporation, it takes such property free from partnership equities.** The partners become and the petition for the charter re- ferred to the property of the firm as capital stock, describing it generally as land, machinery, etc. It was held that a, sale by a member of the firm of a portion of the land passed the title, and that it could not be sub- jected to the debts of the corpora- tion. 80 See Eau v. Union Paper Mill Co., 95 Ga. 208, 22 S. E. 146. 81 Jones V. Habersham, 107 U. S. 174, 27 L. Ed. 401; Schneider v. Sellers (Tex. Civ. App.), 81 S. W. 126. See also §§ 274-277, supra. 82 Schneider v. Sellers (Tex. Civ. App.), 81 S. W. 126. 83 Woodward v. San Antonio Trac- tion Co. (Tex. Civ. App.), 95 S. W. 76. See Baker Furniture Co. v. Hall, 76 Neb. 88, 113 N. W. 267, 111 N. W. 129, 107 N. "W. 117. 84 In re Miller Pure Eye Distilling Co. of Pennsylvania, 214 Fed. 189; Pearce v. Sutherland, 3 Alaska 303; Thorpe v. Pennock Mercantile Co., 99 Minn. 22, 9 Ann. Cas. 229, 108 N. W. 940. "The argument that the corpora- tion, being the creature of the part- ners, was not a bona fide purchaser, and must be considered as having taken the property subject to all part- nership equities against it, is not a sound one. The constitution of the corporation, and the transfer to it of the property, were authorized by law, and were intended to settle and ex- tinguish these equities, and to place the concern on a new footing; and the very parties entitled to equities were the ones who organized the cor- poration, and made the conveyance to it. Besides, it is not the corporation alone which is concerned in the trans- fer, but the creditors who trusted it after it was formed. They, or at least the great mass of them, certainly stand in the position of bona fide claimants against its property and 774 Ch. 12] Incokpobation of Pabtneeships, etc. [§368 stockholders and the property ceases to be partnership property." In fact the conveyance of the partnership property in exchange for stock is a step in the dissolution of the partnership and settlement of its affairs as between the partners.^* § 368. — Equitable title. The corporation which succeeds a part- nership or association may acquire an equitable title or right to the property of its predecessor. Thus, an equitable title to partnership property may be vested in the corporation, where the specific prop- erty agreed to be conveyed is peculiarly valuable by reason of its adaptation to the uses of the corporation.*' And a similar title may be obtained where a corporation takes possession and makes improve- ments of property but receives no deed from the partners.** And in the case of incorporation by members of an association, where property is paid for with money derived from the sale of stock and is held in trust for the contemplated corporation, delivery of posses- sion to the corporation when formed vests it at least with equitable title to the property.*® If the property is held in trust for an association which becomes assets. They may not be able to claim any precedency over the former part- ners having debts due to them, but they stand on an equal footing with them." Francklyn v. Sprague, 121 V. S. 215, 30 L. Ed. 936. 86 McGowan v. American Pressed Tan Bark Co., 121 U. S. 575, 30 L. Ed. 1027; Francklyn v. Sprague, 121 TJ. S. 215, 30 L. Ed. 936; In re Miller Pure Eye Distilling Co. of Pennsylvania, 214 Fed. 189; Singer, Nimick & Co. v. Carpenter, 125 111. 117, 17 N. E. 761, aff'g 26 111. App. 28. 86 Coggswell & Boulter Co. v, Coggs- well (N. J. Ch.), 40 Atl. 213. 87 So where the members of a manu- facturing company, which was not incorporated, formed a corporation with other parties, and agreed to transfer to the corporation the part- nership property, consisting in part of real estate and partly of personal property, the latter having a peculiar value by reason of its adaptation to use, in connection with the use of the realty, for manufacturing purposes, it vras held that while the contract did not vest a present legal title in the corporation, it vested in it an equita- ble right to the specific property, which a court of equity would specifi- cally enforce at the instance of the corporation, it not being in default. Singer, Nimick & Co. v. Carpenter, 125 III. 117, 17 N. E. 761. 88 Cooke V. Watson, 30 N. J. Eq. 345, holding that where a firm became in- corporated, the partners becoming the principal stockholders, and the corpo- ration purchased the firm property, paid the purchase price, took posses- sion, and made improvements, but re- ceived no deed from the partners, it acquired an equitable title, and a mortgage by it was effectual, as be- tween it and the mortgagee, to charge such title. 89 Edwards v. Old Settlers' Ass'n, — • Tex. Civ. App, — , 166 S. W. 423. 775 §369] Private Cobpoeations [Ch. 12 incorporated, sueli corporation has the right to demand and receive the title to the land.^" § 369. — Conveyance to corporation not organized. It is apparent that a corporate existence is essential to the acquirement of real estate. Title cannot by any possibility pass until the corporation by organiza- tion has attained an actual entity. Accordingly, if the incorporation of a partnership is never completed and the land owned by the part- ners is sold and conveyed to a bona fide purchaser, such land is not subject to a judgment obtained by a creditor of the alleged corpora- tion for goods sold.®^ §370. — Incorporation of association after devise or bequest to it. As a general rule there must be a person, either natural or arti- 80 Organized Labor Hall v. Gebert, 48 N. J. Eq. 393, 22 Atl. 578. In an action for an accounting be- tween subordinate members of a fra- ternal mutual benefit association, it appeared that the subordinate lodges had been divided by the supreme lodge and placed in control of certain ter- ritory, and that the plaintiff associ- ation had been incorporated. It was alleged that the new corporation be- came the representative of the mem- bers of the unincorporated association and succeeded to the rights of such association, and it was held that it could not be urged by the defendant on demurrer that the plaintiff corpo- ration was not identical with the vol- untary corporation which existed prior thereto. Other allegations of the com- plaint showed that all the funds and property gathered together by the de- fendant prior to the separation of the lodges were trust funds in which every member had an interest and the plain- tiff was held entitled to establish the equitable ownership of the property. Grand Lodge A. O. U. W. of Connecti- cut V. Grand Lodge A. O. TJ. W. of Massachusetts, 81 Conn. 189, 70 Atl. 617. Where lands were purchased for the benefit of an association, and the deed recorded, but before the incorporation of the society a judgment was recov- ered against the vendor, it was held that a trust existed in favor of the members of the association, and that when the corporation was organized it succeeded to the rights of the indi- vidual members, and the judgment ob- tained was subject to the trust in favor of the association. The view was taken that the purchase wae made for the common benefit of all the persons composing the voluntary association, and when they were trans- formed, by due form of law, from a mere voluntary assembly into a body corporate, the corporation, as to these lands, took the place of the individual members, and, although the vendor had already made a deed to the corpo- rate name, if he had been requested to execute another at the expense of the corporation, and refused, equity would have compelled him to do so, because such act, on his part, was nec- essary to give legal effect to the in- tention of the parties. African Methodist Church v. Conover, 27 N. J. Eq. 157. 91 Eau V. Union Paper Mill Co., 95 6a. 208, 22 S. E. 146. See also § 404, infra. 776 Ch. 12] Incokpokation of Partnerships, etc. [§ 370 ficial, in esse to receive a conveyance of an immediate estate in land, and an unincorporated association is not competent to purchase or to take title to land by deed.'^ Aeeording-ly, a devise to an unincor- porated society is void, and it has been expressly held that such a device cannot be rendered valid by subsequent incorporation of the association.'* It is only by virtue of the peculiar jurisdiction exercised by courts of equity in regard to charitable uses that such bequests have ever been sustained.'* In a leading case on this subject the bequest was to a religious association, which was subsequently incorporated. It was a gift in praesenti, to take effect immediately on the death of the testator, the individuals composing the society being numerous and uncertain and there being no executory bequest over to the association, if it should become incorporated. The court, therefore, considered the bequest void for uncertainty as to devisees, and the property vested in the next of kin, if not otherwise disposed of by the will. The decision of the court was unanimous, and Chief Justice Marshall, who delivered the opinion, stated that "a body corporate afterwards created, had it even fitted the description of the will, cannot divest this interest and claim it for their corporation.®^ Similar bequests have been held void because of a violation of the statute against perpetuities.'® The same rule applies to a devise pro- viding for incorporation and for conveyance of title to the corpora- tion which does not prescribe the time for the performance of such acts.'''. But the validity of a devise or bequest is not impaired by the fact that the will provides that an act of incorporation be obtained,'* 92 African M. E. Church v. Conover, Hart, 4 Wheat. (IT. S.) 1, 4 L. Ed. 27 N. J. Eq. 157. See generally § 404, 499. infra. SSBascom v. Albertson, 24 N. Y. 59; 93 Philadelphia Baptist Ass'n v. Phelps v. Pond, 23 N. T. 77; Leonard Hart, 4 "Wheat. (U. 8.) 1, 4 L. Ed. v. Burr, 18 N. Y. 96, 108. 499; White v. Howard, 46 N. Y. 144, Where a devise to trustees was aff'g 52 Barb. (N. Y.) 294; Burrill v. void, and the trustees took no title, Boardman, 43 N. Y. 254, 3 Am. Hep. they could not represent a corporation 694; Beekman v. Bonsor, 23 N. Y. 298, to be created and to take at the de- 80 Am. Dec. 269; Owens v. Missionary cease of the longest lived of two Soc. of Methodist Episcopal Church, trustees named, and by the failure of 14 N. Y. 380, 67 Am. Dec. 160; Chit- devises no effect could be given to the tenden v. Chittenden, 1 Am. L. Reg. testator's will. Holmes v. Mead, 52 (O. S. N. Y.) 538; Lutheran Eeformed N. Y. 332. Church V. Mook, 4 Redf. Surr. (N. 97 Leonard v. Bell, 1 Thomps. & C. Y.) 513. (N. Y.) 608, aff'd 58 N. Y. 676. 94 State V. Warren, 28 Md. 338. 98 Jones v. Habersham, 107 IJ. S. 95 Philadelphia Baptist Ass'n v. 174, 27 L. Ed. 401, citing Russell v. 777 370] Private Corporations [Ch. 12 and bequests have been sustained where there was no bequest in praesenti, but a future bequest ®® limited to a corporation to be estab- lished within the period allowed for the vesting of future estates.^ The rule that a devise for a public charitable purpose shall not fail of effect for want of a devisee then capable of taking the legal estate, and that to protect such charity, the legal estate will be considered either as remaining in abeyance or as vesting in the heirs of the trust for the persons beneficially interested, has also been applied, and gifts to unincorporated voluntary religious associations have been sustained though such associations were not incorporated until some time after the execution of the will.® Allen, 107 U. S. 163, 27 L. Ed. 397; Ould V. Washington Hospital, 95 TJ. S. 303, 24 L. Ed. 450; Ingles v. Sailor's Snug Harbor, 3 Pet. (U. S.) 99, 7 L. Ed. 617; Field v. Drew Theological Seminary, 41 Fed. 371. "A devise to a corporation to be created by the legislature is good as an executory devise." Ould v. Wash- ington Hospital, 95 U. S. 303, 24 L. Ed. 450. A devise to an association for re- ligious purposes is good, and a re- ligious society may take and hold a bequest or devise for charitable pur- poses, though unincorporated at the time of the testator's death. Zimmer- man V. Anders, 6 Watts & S. (Pa.) 218, 40 Am. Dee. 552, 99 Sanderson v. White, 18 Pick. (Mass.) 328, 29 Am. Dec. 591; Burrill V. Boardman, 43 N. Y. 254, 3 Am. Eep. 694. See also Inglis v. Sailor's Snug Harbor, 3 Pet. (IT. S.) 99, 7 L. Ed. 617. A legacy was held to vest in the legatees on the death of the testator 's widow, when the beneficiary associa- tions were incorporated and author- ized to take, wherefore the bequest was valid. Shipman v. Rollins, 33 Hun (N. Y.) 89, rev'd 98 N. Y. 311. 1 A limitation contingent upon the competent exercise of legislative power within the period of the law- ful suspension of the ownership of property cannot be said to be unlaw- ful, although the contemplated action of the legislature may not be in ac- cordance with any existing law. Bur- rill v. Boardman, 43 N. Y. 254, 3 Am. Eep. 694. See also Kinnaird v. Mil- ler's Ex'r, 25 Gratt. (Va.) 107. In Literary Fund v. Dawson, 10 Leigh (Va.) 147, and Literary Fund v. Dawson's Ex'r, 1 Eob. (Va.) 402, the principle is maintained that wherever a devise or bequest is made to a cor- poration to be afterwards, within a period not too remote, created by law for the purpose of carrying into ef- fect a charitable intention of the tes- tator expressed in his will, the same may be good and valid as an execu- tory devise or bequest, and will be- come absolute and executed, if and when such a corporation shall be cre- ated accordingly. It must of neces- sity be created, if at all, within the period prescribed by law in regard to perpetuities, that is, within the terra of a life or lives in being and twenty-one years thereafter. 2 American Bible Society v. Wet- more, 17 Conn. 181. A court of equity will not permit a trust to fail for want of a trustee. Grants, devises, or dedications to pub- lic, pious, or religious uses, from the necessity of the case, form exceptions to the rule, applicable to private grants, requiring a grantee as well as 778 Ch. 12] Incobpokation of Partnebships, etc. [§ 372 Next of kin are not estopped from claiming that a society was not regularly incorporated by the fact that the testator has dealt with such society as a corporation and has deeded property to it for a con- sideration.^ § 371. — Statute of frauds. Creditors of a firm cannot interpose the statute of frauds to defeat a contract of sale of partnership prop- erty, when a corporation is organized by the partners, if the mem- bers of the firm themselves do not choose to interpose such statute.* § 372. — Estoppel and ratificatian. In some cases the corporation has been held entitled to property of a partnership to which it suc- ceeded by virtue of the doctrine of estoppel. Thus, if partners by the terms of their articles of incorporation or of their application to the court for a charter, so far commit their property as assets of the corporation that the corporation takes possession and control upon organization, and incurs debts upon the faith and credit thereof, the courts will treat the property, as to such debts, as the property of the corporation, upon the theory that the corporators are estopped to set up title in themselves as against a bona fide creditor upon the faith of their apparent dealings with the property.* This cannot be, how- ever, where the contest is not between the corporators themselves and a person claiming to be a creditor of the corporation, but between a creditor of the corporation and a bona fide purchaser, without notice, from the corporators, since as against him there is no estoppel.® The question of ratification may be involved, but nothing can tend a grantor. It is not necessary in such these principles, a grant may be up- case, that the beneficiary should, at held, and the intention of the grantor the time of the grant, be clothed with carried out. Miller v. Chittenden, 2 the power or capacity of taking the Iowa 315. benefit of the donor's bounty; but 3 Lutheran Reformed Church v. the intention of the donor will be exe- Mook, 4 Redf. Surr. (N. Y.) 513. cuted, if this capacity arises within a 4 Singer, Nimick & Co. v. Carpenter, reasonable time thereafter. In the 125 111. 117, 17 N. E. 761, afif'g 26 111. meantime, where the property is in App. 28. the hands of a trustee, and the object 6 Rau v. Union Paper Mill Co., 95 and purpose of the grant look to a 6a. 208, 213, 22 S. E. 146; Stewart Pa- future grantee, it will be held in abey- per Mfg. Co. v. Rau, 92 6a. 511, 17 ance. It is not necessary that the S. E. 748; Georgia Ice Co. v. Porter, trustee shall have the power to create 70 6a. 637. See also Pearce v. Suther- the beneficiary, or proceed with the land, 3 Alaska 303. execution of the trust before such 6 Eau v. Union Paper Mill Co., 95 creation in order to sustain and up- 6a. 208, 213, 22 S. E. 146. hold such a grant or devise. Upon 779 § 372] Pbivate Corporations [Ch. 12 to prove an acquiescence in a corporate merger whieh does not show a complete cessation of the unincorporated society's action. If the corporation is created without authority, the acquiescence of the association is that of an existing society in the claims of an existing corporation. The two bodies are distinct and so remain, at least luitil an estoppel should arise out of the acquiescence, and the con- tinued existence of the association would operate as a standing denial of its nonexistence.'' Furthermore the ratification would have to be of equal dignity with that of the original authority.' § 373. — Fraud and fraudulent conveyances. Where an arrange- ment is entered into providing for the transfer of the partnership property to a corporation, and a partner who has charge of the con- veyancing fraudulently reserves some of the property for his own benefit, the corporation may obtain the property reserved.® The sale of partnership property to a coi^joration is voidable, where the effect of such sale which is' procured by a surviving partner who is also administrator of the estate of the deceased partner, is to transfer the partnership property to a corporation controlled by the surviving partner. In such case the sale is voidable at the election of those for whom the partner acts as fiduciary, whether or not there was a conscious purpose to wrong or defraud them.^" Where some of the partners incorporate the partnership without the knowledge of one partner and transfer the partnership assets to it, such partner may bring an action for an accounting, or if the transfer to the corporation is fraudulent, he can follow the assets into the hands of the fraudulent transferees.^^ Similar facts may justify the appointment of a receiver.^^ 1' Mason v. Finch, 28 Mich. 282. 11 Parry v. Parry, 92 N. Y. Mise. 8 Mason v. Finch, 28 Mich. 282. 490, 155 N. Y. Supp. 1072. 9 Coggswell & Boulter Co. v. Coggs- Complaint held insufficient to show- well (N. J. Ch.), 40 Atl. 213. knowledge of corporation of wrong- Where a corporation was organ- doing of two partners who formed ized and partners conveyed all their corporation and took over assets of property to the corporation in fee, partnership, without providing for but the partner who prepared the stock for plaintiff partner. Parry v. deed reserved one lot, adjoining his Parry, 92 N. Y. Misc. 490, 155 N. Y. individual property, such conduct was Supp. 1072. a fraud upon the other partner who 12 A receiver is properly appointed joined perfunctorily in the execution where a surviving partner formed a of the deed. Coggswell & Boulter Co. corporation to which assets of the v. Coggswell (N. J. Ch.), 40 Atl. 213. partnership were transferred, for an 10 Eowell V. Eowell, 122 Wis. 1, 99 extremely low price, shortly after the N. W. 473. taking out of letters of administra- 780 Ch. 12] Inoorpobation of Paktneeships, etc. [§373 The principle that the fiction of corporate entity will be disre- garded by the courts and looked beyond when the ends of justice require it will be applied when the partners seek to evade and avoid their individual obligations,^* and this has been held so although some of the shareholders had not originally incurred the obligation sought to be enforced.^* In a like manner members of an asBoeiation cannot organize a corporation so as fraudulently to deprive other members of their rights.^^ A corporation composed of the same individuals as a firm cannot seize upon the assets of sueh firm and withdraw them from the creditors. ^^ Fraud in the formation of a corporation to which the assets of a firm are transferred for the purpose of hindering, delaying and de- frauding creditors vitiates the entire transaction.^'' tion, by the widow of the deceased feated by the fact that there was a partner, and it appeared that a wast- ing of the partnership assets would result. Miller v. Miller, 80 N. J. Eq. 47, 82 Atl. 513. 13 In the case of a mere ' ' paper cor- poration, " to cover a joint venture in which the corporators are partners in intention, and have resorted to this form for the purpose of evading and avoiding obligations which they had taken upon themselves as individuals, or for the purpose of evading a prom- ise relied on, the corporation will be held answerable for the individual obligation. Moore & Handley Hard- ware Co. V. Towers Hardware Co., 87 Ala. 206, 13 Am. St. Eep. 23, 6 So. 41. 14 Moore & Handley Hardware Co. V. Towers Hardware Co., 87 Ala. 206, 13 Am. St. Eep. 23, 6 So. 41. IB Spiritual & Philosophical Temple V. Vincent, 127 "Wis. 93, 105 N. W. 1026. 16 Williams v. Colby, 53 Hun (N. Y.) 637, 6 N. T. Supp. 459. See also Beal V. Chase, 31 Mich. 490. Thus, where the corporation adopts a resolution , to assume the liabilities of the partiiership, the claim of a partnership creditor cannot be de- secret understanding between the trus- tees adopting the resolution that his claim was not to be included. Wil- liams V. Colby, 53 Hun (N. Y.) 637, 6 IsT. Y. Supp. 459. 17 Alabama. Metcalf v. Arnold, 110 Ala. 180, 55 Am. St. Eep. 24, 32 So. 763. Colorado. Colorado Trading & Transfer Co. v. Acres Commission Co., 18 Colo. App. 253, 70 Pac. 954. District of Columbia. Clark v. Bradley Co., 6 App. Cas. 437. Illinois. Sammis v. Poole, 188 111. 396, 58 N. E. 934, afC'g 89 111. App. 118. Michigan. Johnson v. Cook, 179 Mich. 117, 146 N. W. 343. New Jersey. Mulford v. Doremus, 60 N". J. Eq. 80, 45 Atl. 688. New York. Sheffield v. Mitchell, 31 N. Y. App.' Div.-266, 52 N. Y. Supp. 925; Buell v. Eope, 6 N. Y. App. Div. 113, 39 N. Y. Supp. 475. A partnership, being insolvent, ob- tained new capital from outside par- ties, with the understanding that a corporation would be organized and the business continued. A corporate form and name were adopted, stock ce#tificates were issued to the part- 781 §373] Peivate Coepoeations [Ch. 12 The fact that the conveyance is fraudulent is not established by the fact that the name of the corporation is similar to that of the partnership,^* or that no provision is made for the payment of the partnership debts, when the firm is solvent,^^ or that stock subscribed is not actually paid in when the corporation is being formed,^" or that nera and parties furnishing the new capital in proportion to their respec- tive interests, and for a short time the business was carried on under the form of a corporation. Thereafter in- corporation was legally effected, and the stock already issued was treated as the stock of the corporation. The property of the partnership was trans- ferred to the corporation without com- pliance with chapter 291, p. 357, Minn. Gen. Laws 1899, making sales of mer- chandise without compliance therewith presumptively fraudulent as to credi- tors. The corporation purchased ad- ditional merchandise, incurred new debts, and carried on business until it became insolvent. The assets were by agreement transferred to trustees who reduced them to cash. In an ac- tion to determine the respective rights of the partnership and corporation creditors, it was held that the credi- tors of the corporation were entitled to full payment of their claims before the creditors of the partnership are entitled to participate in the fund. Thorpe v. Pennock Mercantile Co., 99 Minn. 22, 9 Ann. Cas. 229, 108 N. "W. 940. The legal presumption of fraud, aris- ing under the Wisconsin statute in favor of a creditor of a vendor out of the mere fact that such vendor has sold property to another and there- after retained possession of the same, is rebutted by proof of the payment of a full consideration for such prop- erty to the vendor by such other. Densmore Commission Co. v. Shong, 98 Wis. 380, 74 N. W. 114. Evidence of the act of the assignor of property, who continues in acti»l possession of it after the transfer, re- specting his manner of using or dis- posing of it, tending to show that he is using and disposing of it as if it were his own, is admissible upon the question of the bona fides of the trans- fer. Persse & Brooks Paper Works, v. Willett, 19 Abb. Pr. (N. Y.) 416, 24 N. Y. Super. Ct. 131. Where evidence would have required the submission to the jury whether the plaintiffs had been incorporated as a cover and shield to defraud, hin- der or delay the creditors of the firm, the question whether this was done, and the property transferred, with a fraudulent intent, was one proper to be put on a cross-examination. Persse & Brooks Paper Works v. Willett, 19 Abb. Pr. (N. Y.) 416, 24 N. Y. Super. Ct. 131. iSMcGowan v. American Pressed Tan Bark Co., 121 U. S. 575, 30 L. Ed. 1027; Bristol Bank & Trust Co. v. Jonesboro Banking Trust Co., 101 Tenn. 545, 48 S. W. 228. 19 Densmore Commission Co. v. Shong, 98 Wis. 380, 74 N. W. 114. The transfer by an insolvent firm of all their tangible property to a corporation formed by the members of the partnership for the purpose of acquiring such firm assets, with- out giving any consideration save the issue of stock therefor, and without assuming any of the debts of the firm, is a suspicious circumstance and in- dicative of an intent to hinder the firm creditors. Buell v. Rope, 6 N. Y. App. Div. 113, 39 N. Y. Supp. 475. 20 Foster v. Hip Lung Ying Kee & Co., 243 111. 163, 90 N. E. 375. 782 Ch. 12] Incoepoeation of Paetneeships, etc. [§373 the transfer was made to a corporation which was organized by the partners for the purpose of carrying on the partnership business,*^ or that the former members of the partnership ^^ received the stock against existing creditors. To this proposition we do not assent. The creation of the corporation was au- thorized by law, and, upon its forma- tion, it became an artificial being distinct from its incorporators. Its stock was a valuable consideration for property transferred to it, and such transfer was not therefore per se fraudulent, as against existing credi- tors, even though it had been shown that the partnership did not retain sufficient property to satisfy its debts. The stock received by them was not placed beyond the reach of creditors." Where a bankrupt conveyed his goods, in fraud of his creditors, to a partnership having knowledge of the fraud and which transferred the goods to a corporation thereafter formed, consisting of the same mem- bers as the partnership and taking over the latter 's assets and liabilities and continuing its business, the cor- poration is liable to the trustee for the value of the goods and is not entitled to be credited with the amount paid the bankrupt for the goods nor with the amount of his in- debtedness to the partnership. Hollo- way & McEaney v. Brame, 83 Miss. 335, 36 So. 1. A scheme by which partnership property is transferred to a corpora- tion, the stock therein being divided between the partners and their wives with the intention of hindering, de- laying and defrauding creditors, is fraudulent as to such creditors. Met- calf V. Arnold, 132 Ala. 74, 32 So. 763. 22 Bristol Bank & Trust Co. v. Jones- boro Banking Trust Co., 101 Tenn. 545, 48 S. W. 228; Sayers v. Texas Land & Mortgage Co., 78 Tex. 244, 14 S. W. 578. 21 United States. In re Eobertshaw Mfg. Co., 133 Fed. 556. Illinois. Kingsman v. Mowry, 182 111. 256, 74 Am. St. Eep. 169, 55 N. E. 330. Iowa. Shumaker v. Davidson, 116 Iowa 569, 87 N. W. 441. Minnesota. Thorpe v. Pennock Mer- cantile Co., 99 Minn. 22, 108 N. W. 940. Pennsylvania. Coaldale Coal Co. v. State Bank, 142 'Pa. St. 288, -21 Atl. 811. Tennessee. Bristol Bank & Trust Co. V. Jonesboro Banking Trust Co., 101 Tenn. 545, 48 S. W. 228. Wisconsin. Densmore Commission Co. V. Shong, 98 Wis. 380, 74 N. W. 114. Such a transaction may be fraudu- lent, but each must be judged by its own facts. Hinkley v. Eeed, 182 111. 440, 55 N. E. 337, rev'g 82 IIV. App. 60; iilleu v. French, 178 Mass. 539, 60 N. E. 125; Thorpe v. Pennock Mer- cantile Co., 99 Minn. 22, 108 N. W. 940; Benton v. Minneapolis Tailoring Co., 73 Minn. 498, 76 N. W. 265. In Sayers v. Texas Land & Mort- gage Co., 78 Tex. 244, 14 S. W. 578, the firm conveyed all their properties to a corporation under an agreement among the partners that each should hold stock in the corporation in proportion to his interest in the part- nership. There were no other stock- holders, and only one partner ever received a certificate of stock. The court said: "The contention of appellant is that because this was a mere conversion of the partnership into a corporation, and because nothing was paid except the stock in the corporation, the conveyance of the land is to be deemed voluntary and fraudulent in law as 783 §373] Peivate Coepobations [Ch. 12 of the corporation, or that such stock later decreases in value,^^ or that the corporation subsequently becomes insolvent.** The question of insolvency has an important bearing on the issue of fraud,*^ and the intent of the parties is the controlling element in determining the fraud.*^ The determination of whether such intent exists may be either a question for the court, or, as is usually the case, a question for the jury.*'' A device to hinder, delay or defraud creditors appears where partnership property ia transferred to a person un- der the control of one of the partners and is subsequently transferred to the corporation composed of members of the partnership, the property in the meantime being in control of the part- ners. Vilas Nat. Bank of Plattsburgh V. Newton, 25 N. Y. App. Div. 62, 48 N. Y. Supp. 1009. 23 Where a corporation was organ- ized by partners, and they offered the stock received to firm creditors either as payment or collateral security, but the offer was refused, such creditors could not subsequently contend that the change was fraudulent because such stock decreased in value and the evidence was insufficient to show fraud. Kessler v. Levy, 11 N. Y. Misc. 275, 32 N. Y. Supp. 260. 24 Bristol Bank & Trust Co. v. Jones- boro Banking Trust Co., 101 Tenn. 545, 48 S. W. 228. 25 ' ' The fact that the partnership was insolvent at the time of the trans- fer has an important bearing upon the issue of fraud. It is not, however, conclusive, and it does not deprive the parties of the right to show, if they are able to do so, that the transfer was made for a good and adequate consideration. Nor does it create in itself, a lien for the partnership credi- tors independently of the equity of the partners to have the partnership prop- erty applied." Thorpe v. Pennock Mercantile Co., 99 Minn. 22, 9 Ann. Cas. 229, 108 N. W. 940. Where an attempted transfer of the property of a partnership commission company to a corporation was with- out consideration and voluntary, the commission company being at the time insolvent, such transfer was a fraud upon its creditors. Colorado Trading & Transfer Co. v. Acres Commission Co., 18 Colo. App. 253, 70 Pac. 954. 26 The contention that a conveyance of partnership lands to a foreign cor- poration organized by the partners was colorable and collusive and for the purpose of bringing suit in a fed- eral court concerning certain of the land, was held not sustainable, where the evidence showed that the partners conveyed all of the partnership prop- erty to the corporation, which assumed all of the partnership indebtedness, and that the conveyance was uncon- ditional and for the purpose of facili- tating the handling of the partnership assets, and not with intention to reconvey, and the validity of the transaction was upheld. Slaughter v. Mallet Land & Cattle Co., 141 Fed. 282. See also Irvine Co. v. Bond, 74 Fed. 849, in which, though the cor- poration was formed to hold the prop- erty of an individual, somewhat similar principles were involved. The organization of a corporation is not in fraud of creditors where there is no effort or purpose shown by the evidence to simulate a compliance with the law or to create a fictitious or deceptive corporation for any fraudulent or dishonest purpose. Pos- ter V. Staar, 148 111. App. 485, aff'd 243 111. 163, 90 N. E. 375. 27 "An insolvent owner of property 784 Ch. 12] Incoepoeation of Paetnbeships, etc. [§373 If a conveyance by partners to a corporation formed by them is fraudulent as to creditors, they may sue in equity to set the same aside, or treat the conveyance as a nullity. The transfer is governed by the same rules as other fraudulent conveyances.^^ Creditors who are alleged to have been parties to an agreement under which partnership property was conveyed to a corporation are necessary parties to a suit to set aside the conveyance as fraudulent.*^ And the corporation to which the partnership assets have been trans- ferred is also properly made a defendant to a bill by creditors.^" ' But has the same right as one ■who is sol- vent to dispose of it by a sale or conveyance to secure a present in- debtedness, in the absence of an operating bankrupt act, when done bona fide and not with the covinous purpose of hindering or defrauding creditors, and the presence of such purpose alike vitiates and avoids the conveyance made by either. When the vitiating intent appears in the instrument itself, the court ascertains and adjudges the fact and no jury finding is necessary. But when the fraud is to be inferred from surround- ing circumstances, and is not an ele- ment in the transaction, it must be found by a jury, and upon a proper issue framed to raise the inquiry." National Bank of Maryland v. Hol- lingsworth, 135 N. C. 556, 47 S. E. 618. In a leading New York case the members of an embarrassed partner- ship united in forming a corporation under the general law, and then trans- ferred to it all the property of the partnership. Afterwards a judgment creditor of the partnership issued an execution on his judgment, and levied the same upon the property as the property of the firm, becoming the purchaser at the sale under the execu- tion, and a judgment creditor of. the corporation afterwards levied his exe- cution upon the property as the prop- erty of the corporation. In an action by the partnership creditor against the corporation creditor for taking the property, it was held that the ques- tion whether the corporation was formed by the members of the part- nership, and the partnership property transferred to it, to hinder, delay, and defraud the partnership creditors, might be raised and submitted to the jury upon proper evidence, and that, if such was the ease, the property was liable to be taken on execu1;ion as the property of the partnership. Booth v. Bunco, 33 N. Y. 139, 88 Am. Dec. 372. 28 Skinner v. Southern Grocery Co., 174 Ala. 359, 56 So. 916; Booth v. Bunco, 33 N. Y. 139, 88 Am. Dec. 372. "Where an ■ insolvent partnership makes a transfer of all of its assets and good-will to a corporation created by the partners for that purpose, takes its pay in stock of such corporation, assumes control as officers of such cor- poration, and enters into the manage- ment of its business, creditors of the firm may levy an attachment or execu- tion on the property, or reach the stock, or file a bill in equity to set the transfer aside. Hinkley v. Eeed, 82 111. App. 60. 29 National Broadway Bank v. Yuengling, 58 Hun (N. Y.) 474, 12 N. Y. Supp. 762. 30 Thus a corporation into which a partnership had been merged is a proper party defendant to a bill by a trustee in bankruptcy to reach the value of certain goods alleged to have been transferred by the bank- rupt to the partnership in fraud of I Priv. Corp. — 50 785 §374] Peivate Cobpokations [Ch. 12 the corporate existence of a de facto corporation cannot be attacked when it is sought to set aside such a conveyance as fraudulent.'^ § 374. Bights of corporation as to contracts of and debts due to partnership or association. As a general rule a corporation does not acquire any right to enforce contracts made with a partnership or association, or to sue upon debts due to it, because of the mere fact that the members of such partnership or association organize the corporation.'^ There must be a consummated transfer of the partnership assets to the corporation,'' and the only exception to the rule which exists, if it may be termed an exception, is where equitable principles, or the rule of estoppel, operate to give rise to the presumption of an assign- ment.'* his creditors and, upon the merger of the partnership and the corpora- tion, to have been transferred by the partnership to the corporation, which ■was composed of the same persons as the partnership and took over the as- sets and liabilities of the latter. Hol- loway & McEaney v. Brame, 83 Miss. 335, 36 So. 1. SI Foster V. Hip Lung Ying Kee & Co., 248 111. 163, 90 N. E. 375, aff'g 148 111. App. 485. A bill filed by judgment creditors, alleging the formation of a corpora- tion to hinder, delay and defraud credi- tors, and stating that assets of a firm were assigned to said corporation, the stock of which was parceled out to the debtors and their wives, and pray- ing that the formation of such cor- poration be declared fraudulent and void and that a receiver be appointed to sell and dispose of the assets, is not demurrable as assailing the corporate organization, since such relief would be ancillary to the divestiture of the title to the property liable to the debts of the complainants. Metcalf v. Arnold, 110 Ala. 180, 55 Am. St. Eep. 24, 20 So. 301. 82 See Werner v. Finley, 144 Mo. App. 554, 129 S. W. 73, and cases cited in notes to this section. A corporation cannot recover on an agreement made by a partnership where it is not alleged or proved that it succeeded to the business of such partnership. Candee & Smith v. Ford- ham Stone Renovating Co., 126 N. Y. App. Div. 15, 110 N. Y. Supp. 355. 33 Werner v. Finley, 144 Mo. App. 554, 129 S. W. 73. Evidence held not to show that le- gal title to a claim for breach of con- tract was vested in a corporation, since, although there was evidence of an intention to transfer the partner- ship assets to pay up the capital stock of the corporation, there was no evi- dence that such intention to transfer was actually consummated. Werner V. Fiuley, 144 Mo. App. 554, 129 S. W. 73. 34 Thus it was held that where a corporation formed from the members of a lessee partnership for the pur- pose of carrying on the partnership business brought suit in equity on the lease, the presumption might be in- dulged in that an assignment of the lease had been made to the corpora- tion. It appeared, though, that the corporation had been treated as hav- ing acquired all the rights of the firm, and while no express assignment, 786 Ch. 12] Incoepoeation of Paetneeships, etc. [§374 If claims or rights of an assignable nature are properly transferred, the corporation may then sue thereon like any other assignee ; ^^ if a contract is acquired by a corporation which succeeds a partnership, it is authorized to transfer such contract.^* The general rules per- taining to assignments apply, and the corporation stands in no better position than its assignor.*'' If a corporation succeeds to a partnership contract whereby an inventor is obligated to transfer all patents owned and afterwards made by him, to the company, such contract is enforceable by the cor- either written or verbal, was shown conditional sale, combine to create a in this ease, it was an equitable pro- ceeding, and the intention of the origt- nal lessees to make an assignment was sufficiently shown. B. Roth Tool Co. V. Champ Spring Co., 93 Mo. App. 530, 67 S. W. 967. 35 The partnership or association may assign its rights and claims to the corporation, if they are of an assignable nature, and the corporation may then sue thereon, like any other assignee, at common law in the name of the assignors, or in equity in its own name, or at law in its own name, where there is a statute allowing suits to be brought in his own name by the assignee of a chose in action. Grif- fin's Ex'r V. Maeaulay's Adm'rs, 7 Gratt. (Va.) 476. Members of a firm who incorporate for the purpose of continuing a busi- ness can assign a chose in action to such corporation. Lottman Bros. Mfg. Co. V. Houston Waterworks Co. (Tex. Civ. App.), 38 S. W. 357. Where a corporation succeeded a partnership, and such corporation brought suit on a cause of action as- signed to it, the suit was properly abated as to individuals joined as plaintiffs who formerly composed the partnership. Lottman Bros. Mfg. Co. V. Houston Waterworks Co. (Tex. Civ. App.), 38 S. W. 357. 86 Brooks V. Bonner, — Tex. Civ. App. — , 149 S. W. 564. 37 Thus where associates, who hold property subject to a lien or under a corporation to hold the property, and to which they transfer it, such asso- ciates being the only persons who have any substantial interest in the corporation, the corporation stands in no better position than that in which the associates stood. York Mfg. Co. V. Brewster, 74 Fed. 566, citing Davis Improved Wrought Iron Wagon Wheel Co. V. Davis Wrought Iron Wagon Co., 20 Fed. 699. And if a corporation adopts an agreement of a partnership by which mortgage loans are to be collected without charge, it cannot subsequently assert a right to compensation for such services. North American Loan & Trust Co. V. Colonial & United States Mortgage Co., 83 Fed. 796. Where a corporation formed by and composed of the members of a part- nership takes a transfer of a note from the partnership, it is not in the position of a bona fide purchaser, and the debtor, in an action thereon by the corporation, may interpose any defense or claim which he might have interposed in an action by the part- nership. McElwee Mfg. Co. v. Trow- bridge, 62 Hun (N. Y.) 471, 17 N. Y. Supp. 3. Where partners engaged in negoti- ating loans formed a corporation to continue the business, and transferred to it a note given in renewal of a note given by a borrower for a loan procured by the partnership, it was held, in an action by the corporation 787 §374] Peivate Coepoeations [Ch. 12 poration,^* and when a corporation succeeds a partnership which is the bailee of personalty, it has been held that such corporation is en- titled to recover reasonable storage charges.^^ The fact that the partnership which was merged in a corporation which took over by assignment all the property and rights of the corporation had failed to comply with a state statute regulating the use of fictitious names by partnerships, does not defeat the right of the corporation to bring an action for the breach of one of the part- nership contracts so assigned to it.*" The obligations of third persons arising under a contract with a partnership are not terminated or changed by the incorporation of the partnership any more than would be the case if the contract had been assigned to another person.*^ In regard to associations, if the action taken by the association to create the corporation is sufficient to transfer the rights of members to the corporation, it may enforce such rights, but not otherwise.** Under a statute incorporating a voluntary association, and author- izing the corporation to receive moneys due, and to receipt therefor, on the note, that it was liable for usurious interest and commissions col- lected on the note by the partnership. Texas Loan Agency v. Hunter, 13 Tex. Civ. App. 402, 35 S. W. 399. 38 Bates V. Bates Maeh. Co., 120 111., App. 563, rev'd 230 111. 619, 12 Ann. Cas. 174, 82 N. E. 911. A contract by which a stockholder in a corporation becomes an officer thereof by which he agrees to serve as such officer and to assign to it all inventions made by him in the future, all for a single consideration, is not terminated by the voluntary resigna- tion of such stockholder as such of- ficer, in the absence of a provision in the contract providing that such re- sult should be accomplished by a resig- nation. Bates V. Bates Mach. Co., 120 111. App. 563, rev'd 230 111. 619, 12 Ann. Cas. 174, 82 N. E. 911. 39 Woodward v. San Antonio Trac- tion Co. (Tex. Civ. App.), 95 S. "W. 76. 40 Standard Sewing Maoh. Co. v. New State Shirt & Overall Mfg. Co., 42 Okla. 554, 141 Pac. 1111. 41 This principle may be fittingly illustrated by the case where a part- nership purchased a going business to- gether with the good-will, it being agreed by the sellers that they would not engage in the same business in the same city for three years. Before that period elapsed, a corporation was organized and succeeded to the busi- ness of the purchasing partnership, the majority of the stock being held by the former partners. The sellers then entered into the prohibited busi- ness, and, when an action was brought, contended that they were released from their obligations because of the organization of the corporation. It was held, however, that such conten- tion was untenable, and that they were liable for a breach of the con. tract. Bradford & Carson v. Monfc gomery Eurniture Co., 115 Tenn. 610, 9 L. E. A. (N. S.) 979, 92 S. W. 1104, 42 Associate Alumni ■ General Theo- logical Seminary of Protestant Epis- copal Church V. General Theological Seminary, 26 N. Y. App. Div. 144, 49 N. Y. Supp. 745, aff'd 163 N. Y. 417, 57 N. E. 626. 788 Ch. 12] Incoeporation of Paetneeships, etc. [§ 375 and providing that such receipts might be given in evidence- in any action to recover the debt, it was held that the receipts given were valid discharges of such debts. It was not held, however, that the corporation could maintain actions against the debtors of the asso- ciation, or that the corporation was not liable to the members of the association for 'the money collected by it, but the contrary was inti- mated.*^ Where trustees of an academy erected by subscriptions are incor- porated under an act providing that all land, money or property subscribed shall be held in trust by the trustees and their successors in office for the benefit of the academy, the corporation cannot main- tain an action on the original subscription paper, since it was not the promisee recognized by the subscribers, the promise was not ne- gotiable, and had not been assigned to the corporation.** § 375. Liability of corporation on debts or contracts of partner- ship or association — In general. Considerable diversity of opinion exists in the reported cases as to the liability of a corporation on the debts or contracts of the partnership or association to which it suc- ceeds. The lines of decision may be divided into three classes : Ac- cording to one view, there must be an express assumption of the debts or contracts. A second line of deciaons holds that the assump- tion may be either express or implied. The doctrine of the third class is that a presumption exists that the debts and contracts are assumed, because of the receipt of the partnership assets.*' This di- versity of opinion probably arises from a number of circumstances, among which may be mentioned the difference of opinion as to whether a dissolution of the partnership results from the creation of the corporation,*® the differences arising out of the facts in the cases involved, as where third persons unite with partners in organizing a corporation ; and it is not improper to state that general propositions found both in textbooks and adjudicated cases have also tended to confusion. Thus, there are to be found in the reports and textbooks expressions apparently sustaining the proposition that a corporation which upon its organization succeeds to the business and property of a partnership is from that fact alone chargeable with the liabilities or indebtedness of the latter.*'' The strict accuracy of such state- 43 Scots Charitable Society v. Shaw, 46 See § 362, supra. 8 Mass. 532. 47 Eeed Bros. Co. v. First Nat. Bank 44 Phillips Limerick Academy v. of Weeping Water, 46 Neb. 168, 64 N. Davis, 11 Mass. 113, 6 Am. Dec^ 162. W. 701. 46 See §§376-379, infra. 789 §375] Pkivate Cokpoeations [Ch. 12 ment may, however, be doubted, and, without attempting an exhaust- ive review of the cases, it may be stated that the cases referred to deal either with a state of facts in which liability was imposed from the contract relation existing, or where the circumstances were such as to warrant the finding that the corporation was a mere continuation of the former firm.** § 376. — Express assumption of debts. According to one line of authority it is held that since the corporation which succeeds a former partnership is a distinct legal entity ,*8 the debts and contracts of the 48 See Eeed Bros. Co. v. First Nat. Bank of Weeping Water, 46 Neb. 168, 64 N. W. 701. ' ' We "have not overlooked the class of cases, including Reed Bros. Co. v. First Nat. Bank of Weeping Water, 46 Neb. 168, 64 N. W. 701, holding newly-organized corporations liable at common law for the debts of estab- lished corporations or firms to whose business, property, and franchises they have succeeded. There are to be found in the reports and textbooks expressions apparently sustaining the proposition that a corporation which, upon its organization, succeeds to the business and property of another cor- poration or firm, is, from that fact alone, chargeable with the indebted- ness of the latter. It is, for instance, said by Mr. Beach, in his excellent work on the Law of Private Corpora- tions (section 360), that 'where an old established corporation sells out to a newly-organized one, and turns over all of its property, the new com- pany becomes liable upon the debts and contracts of the old.' The strict accuracy of that statement may, we think, be doubted, in view of the omission therefrom of any reference to the purpose or character of the transaction contemplated, or the con- sideration therefor. We shall not at- tempt a review of the cases cited in the note accompanying the foregoing text, or in the briefs submitted here- with. It is suflSeient that they may, in our judgment, be thus classified: (1) Cases in which the liability of the new corporation results, not from the operation of law, but from its con- tract relation with {he old; (2) cases, like Hibernia Ins. Co. v. St. Louis & New Orleans Transp. Co., 13 Fed. 516, in which the transfer of the property and franchise amount to a fraud upon the creditors of the old corporation; (3) cases where, as in Eeed v. Bank, supra, the circumstances attending the creation of the new corporation, and its succession to the business, fran- chise, and property of the old, are such as to raise the presumption or warrant the finding that it is a mere continuation of the former, — that it is, in short, the same corporate body under a different name. And the facts upon which such finding or pre- sumption depends will not be pre- sumed, but should affirmatively appear from the pleadings and proofs." Aus- tin v. Tecumseh Nat. Bank, 49 Neb. 412, 35 L. E. A. 444, 59 Am. St. Rep. 543, 68 N. W. 628, quoted in part in Curtis, Jones & Co. v. Smelter Nat. Bank, 43 Colo. 391, 96 Pac. 172. 49 Moore & Handley Hardware Co. V. Towers Hardware Co., 87 Ala. 206, 13 Am. St. Rep. 23, 6 So. 41; Pearce V. Sutherland, 3 Alaska 303; Georgia Co. V. Castleberry, 43 Ga. 187; Hait Pioneer Nurseries v. Coryell, 8 Kan. App. 496, 55 Pac. 514. 790 Ch, 12] Incokpobation of Pabtneeships, etc. [§376 partnership unless they To make there must assumption there must do not become the debts and contracts of the corporation, are expressly assumed by it.'" the corporation liable for the debts of the partnership be an assumption thereof by the corporation, and such must be based upon a sufficient consideration, just as be a consideration for any other promise by one person A corporation though of the same name as a partnership transacting the same business prior to the act of incorporation is not the same person. Bludwine Bottling Co. v. Crown Cork & Seal Co., 14 Ga. App. 285, 80 S. B. 853; Schufeldt v. Smith, 139 Mo. 367, 40 S. W. 887. 60 United States. Lane & Bodley Co. V. Locke, 150 U. S. 193, 37 L. Ed. 1049. AlaiSka. Pearce v. Sutherland, 3 Alaska 303. Georgia. Greenberg-Miller Co. v. Everett Shoe Co., 138 Ga. 729, 75 S. E. 1120; Culberson v. Alabama Const. Co., 127 Ga. 599, 9 L. R. A. (N. S.) 411, 9 Ann. Cas. 507, 56 S. E. 765. Kansas. Hart Pioneer Nurseries v. Coryell, 8 Kan. App. 496, 55 Pac. 514. Michigan. McLellan v. Detroit Pile Works, 56 Mich. 579, 23 N. W. 321. Minnesota. Church v. Church Cementico Co., 75 Minn. 85, 77 N. W. 548. Nebraska. Austin v. Tecumaeh Nat. Bank, 49 Neb. 412, 35 L. E. A. 444, 59 Am. St. Eep. 543, 68 N. W. 628. Nevada. Paxton v. Bacon Mill & Mining Co., 2 Nev. 257, 260. Wyoming. Durlacher v. Prazer, 8 Wyo. 58, 80 Am. St. Rep. 918, 55 Pac. 306. The great weight of authority holds that parties who undertake to organ- ize a corporation cannot bind the cor- poration by their contracts and agreements made before the company is incorporated. Tanner v. Sinola Land & Fruit Co., 43 Utah 14, Ann. Cas. 1916 100, 134 Pae. 586. There are instances in which a cor- poration has been held liable for debts contracted before the date of the char- ter, but it will, we think, be found that these are all cases where the debts were contracted in the course of the organization, as debts forming part of the expenses, or for the payment of the costs arising in procuring the charter, or where the company has, in fact, received the consideration. Georgia Co. v. Castleberry, 43 Ga. 187. No contract made with individuals, exclusively upon individual credit, will become the contract of any future corporation that may be formed for the more convenient management and use of the benefits of it, in the ab- sence of bad faith in the creation of the corporation. Moore & Handley Hardware Co. v. Towers Hardware Co., 87 Ala. 206, 13 Am. St. Eep. 23, 6 So. 41. Under an arrangement by which a corporation succeeds to a partnership, which provides that the creditors re- nounce their claims against the part- ners and allow the property to pass into the hands of the corporation, and expressly states that the debts of the partnership are assumed, it also ap- pearing that the corporation by its express vote passed in good faith un- dertakes to apply the earnings to such debts, the corporation is liable for the debts of the partnership. In re Waterman 'a Appeal, 26 Conn. 96. See also Dingeldein v. Third Ave. E. Co., 9 Bosw. (N. T.) 79; National Bank of Maryland v. Hollingsworth, 135 N. C. 556, 47 S. E. 618. 791 376] Pkivate Coepobations [Ch. 12 to answer for the debt of another.*^ The fact that some of the obliga- tions of the partnership are assumed does not tend to establish the assumption of other debts,^^ and the corporation cannot be held liable for torts, such as the negligence of the partners.^* The cor- poration is not bound by the promise of its promoters,** and the acts of its agents in assuming liability must be expressly authorized,** although liability may be imposed to the extent of the property so received, if it appears that the transaction is fraudulent as to creditors.*® Bl Georgia Co. v. Castleberry, 43 Ga. 187; London v. Bynum, 136 N. C. 411, 48 S. B. 764. See also National Bank of Maryland v. Hollingsworth, 135 N. C. 556, 47 S. B. 618. In Culberson v. Alabama Const. Co., 127 Ga. 599, 56 S. E. 765, the court, quoting in part from Lindley on Part- nership, said: "A corporation which lawfully acquires the property of a partnership does not thereby become liable for the partnership's -debts. Partners own the firm property just as individuals own their property, and, 'as the ordinary creditors of an in- dividual have no lien on his property, and cannot prevent him from dispos- ing of it as he pleases, so the ordinary creditors of a firm have no lien on the property of the firm so as to be able to prevent it from parting with that property to whomsoever it chooses.' " To make the company liable for the debts of the partnership, the same formalities are required as to make any individual liable for the debt of another. Georgia Co. v. Castleberry, 43 Ga. 187. B2 Church v. Church Cementico Co., 75 Minn. 85, 77 N. W. 548. B3 Where a person was injured on a skating rink conducted by a partner- ship, and subsequently a corporation was formed to which the property of the partnership was transferred, the corporation was not liable for the in- jury, and in an action for negligence. a directed verdict in favor of the corporation was proper. Stewart v. Mynatt, 135 Ga. 637, 70 S. B. 325. B4See §§150-156, supra. 65 Where a voluntary company is incorporated, an agent of such cor- poration cannot make a promise or substitute a note of the corporation for the note of the voluntary com- pany, unless expressly authorized by the vote of the corporation. White V. Westport Cotton Mfg. Co., 1 Pick. (Mass.) 215, 11 Am. Dec. 168. Bvidence held not to indicate previ- ous authority or subsequent ratifica- tion of payment by an ofiicer of a note after a corporation assumed the liabilities of a partnership. Hart Pioneer Nurseries v. Coryell, 8 Kan. App. 496, 55 Pac. 514. Evidence held to warrant conclu- sion that oflScer.of corporation was not authorized to pay all debts of part- nership out of earnings and assets of corporation, and was obligated to re- turn excess paid without right. Lee V. K. W. Steinhart Lumber Co., 66 Wash. 572, 119 Pac. 1117. B8 Baker Furniture Co. v. Hall, 76 Neb. 88, 113 N. W. 267, 111 N. W. 129, 107 N. W. 117; Austin v. Teeum- seh Nat. Bank, 49 Neb. 412, 35 L. E. A. 444, 59 Am. St. Eep. 543, 68 N. W. 628; National Bank of Maryland v. Hollingsworth, 135 N. C. 556, 47 S. E. 618. Where a corporation, organized by the members of a partnership, passes 792 Ch. 12] Incokpoeation of Paetneeships, etc. [§376 The corporation may assume the contracts and debts of the partner- ship,*'' and there is no legal objection to such a contract.*^ When the corporation purchases the business and assets of a firm and agrees to assume its debts and liabilities, the promise to pay such debts is founded on a sufBeient consideration.*^ It should be noted, however, that if the corporation does not assume the partnership debts as part a resolution to purchase the assets of the partnership and assumes its in- debtedness, it cannot, by a secret un- derstanding between the trustees that certain claims are not included, pre- vent the creditor from following the firm 's assets into the hands of the corporation. 'Williams v. Colby, 24 N, Y. St. Eep. 793, 6 N. Y. Supp. 459. No title passes by a fraudulent sale of property to a partnership, where the vendor is adjudged bankrupt, and a corporation which succeeded to the partnership and was composed of the same persons, taking the assets with full knowledge and assuming the liabilities of the firm, was liable to creditors of the bankrupt for the goods received. HoUoway & McEaney Co. V. Brame, 83 Miss. 335, 36 So. 1. B7Schufeldt V. Smith, 139 Mo. 367, 40 S. W. 887; Burke v. Lincoln-Val- entine Co., 28 N. Y. Misc. 202, 58 N. Y. Supp. 1124. S8 Where a corporation is organized and takes over real and personal prop- erty belonging to a partnership in payment of subscriptions to its capital stock, part of the consideration being an undertaking to pay certain of the partnership debts, there is no legal objection to such a contract. Lamkin v. Baldwin & Lamkin Mfg. Co., 72 Conn. 57, 44 L. E. A. 786, 43 Atl. 593. 59 In re Waterman's Appeal, 26 Conn. 96. See also Schufeldt v. Smith, 139 Mo. 367, 40 S. W. 887; Bremen Sav. Bank v. Branch-Crookes Saw Co., 104 Mo. 425, 16 S. W. 209; Hall v. Herter Bros., 90 Hun (N. Y.) 280, 35 N. Y. Supp. 769, afe'd 157 N. Y. 694, 51 N. E. 1091; Williams v. Colby, 53 Hun (N. Y.) 637, 6 N. Y. Supp. 459, and cases cited in notes following. Where a corporation is formed, and purchases the business and assets of a firm, the members of which compose the corporation in part, which busi- ness is conducted as before the disso- lution of the partnership, and the corporation, as a part of the considera- tion for the property and assets of the firm, assumes its debts and liabil- ities, the promise to pay such debts is founded on a suflicient considera- tion, and a creditor of the firm may maintain an action for his debt against such corporation, especially when it still continues him in the same employment out of which the debt has arisen. Shober & Carque- ville Lithographing Co. v. Kerting, 107 111. 344. Where a corporation assumed liabil- ities of a partnership and signed the corporate name to renewals of notes instead of the partnership name, its assumption of the partnership liability on the original notes was a considera- tion for its undertaking to become a party to the renewals. Johnson v. Johnson Bros., 108 Me. 272, Ann. Cas. 1913 A 1303, 80 Atl. 741. In In re Waterman's Appeal, 26 Conn. 96, a firm which was largely in- debted proposed to convey all their as- sets, which exceeded their liabilities, to a corporation to be formed, which should assume their indebtedness, and pay the same from the earnings of the property after paying certain preferred stock for new capital. A corporation was formed and the property transferred, and at its first 793 377] Pbivate Cobpoeations [CL 12 of the purchase of the assets, such an assumption made subsequently is a mere voluntary act, and is without consideration.^" §377. — Assumption either express or implied. In some states the rule has been established that if a solvent going business is trans formed into a corporation, to which the partnership property i;; transferred in exchange for shares of stock, there may be either an express or implied assumption by the corporation of the prior debts ; ^^ and such agreement may be proven like any other fact by any com- petent evidence which will establish the agreement.*^ Under this rule the corporation has been held liable on the contracts of the partnership meeting the corporation passed a vote accepting the property and assuming the debts of the firm, in accordance with the agreement with the firm's creditors. It was held that the cor- poration, having the power to as- sume, on a valid consideration, the debts of the firm, did so by its votes and the acceptance of the property, and was liable for their payment. 60 Smith V. Bowker Torrey Co., 207 Fed. 967. 61 Brantigam v. Dean & Co., 85 N. J. L. 549, 89 Atl. 760; Hall v. Herter Bros., 90 Hun (N. Y.) 280, 35 N. Y. Supp. 769, aff'd 157 N. Y. 694, 51 N. E. 1091; id., 83 Hun (N. Y.) 19, 31 N. Y. Supp. 692; Burke v. Lincoln- Valentine Co., 28 N. Y. Misc. 202, 58 N. Y. Supp. 1077; Ziemer v. C. G. Bretting Mfg. Co., 147 Wis. 252, Ann. Cas. 1912 D 1275, 135 N. W. 139; Pratt V. Oshkosh Match Co., 89 Wis. 406, 62 N. W. 84. In Hall V. Herter Bros., 83 Hun (N. Y.) 19, 31 N. Y. Supp. 692, a corpora- tion succeeded a copartnership of the same name, the parties interested and the nature and methods of conducting the business being substantially iden- tical before and after incorporation. In reversing a dismissal of the com- plaint, the court held that under the circumstances of the case a contract made with the copartnership was en- forceable against the corporation, as there was evidence of intention on the part of both parties that the contract should be assumed, and that no formal resolution or vote was required to make it a binding obligation. But see Dingeldein v. Third Ave. E. Co., 9 Bosw. (N. Y.) 79, rev'd 37 N. Y. 575. 82 Hall v. Herter Bros., 90 Hun (N. Y.) 280, 35 N. Y. Supp. 769, aff'd 157 N. Y. 694, 51 N. E. 1091; Ziemer v. C. G. Bretting Mfg. Co., 147 Wis. 252, Ann. Cas. 1912 D 1275, 135 N. W. 139; Pratt V. Oshkosh Match Co., 89 Wis. 406, 62 N. W. 84. In Schufeldt v. Smith, 139 Mo. 367, 40 S. W. 887, a partnership of three members converted the partnership into a corporation. Later the cor- poration made a deed of trust prefer- ring certain creditors of the former partnership. In a suit by creditors of the corporation to have this deed set aside, the deed was upheld, but upon the ground that the evidence, estab- lished an agreement by the corpora- tion to take the firm property and assume its liabilities. The fact that the corporation is distinct from the partnership to the business of which it succeeds was recognized however. The question is a mixed question of law and fact. Brantigam v. Dean & Co., 85 N. J. L. 549, 89 Atl. 760. 794 Ch. 12] Incorpoeation of Partnerships, etc. [§378 with its employees,^' even where such corporation subsequently passed into the hands of a receiver,^* and the rule has also been held applicable where a corporation succeeds a voluntary association.®* § 378. — Presumption where others become stockholders. Where the circumstances are such that the corporation is not a mere eqn- tinuation of the partnership, and where there are other bona fide stockholders than the original partners, there is no implied or pre- sumptive assumption of the partnership debts.®® The general rule that equity will not permit a corporation to receive all of the assets eSBrantigam v. Dean & Co., 85 N. J. L. 549, 89 Atl. 760. Where a corporation succeeded a partnership, but no notice was given to an employee, he could recover for services rendered the corporation. Frankel v. Wathen, 58 Hun (N. Y.) 543, 12 N. Y. Supp. 591. Evidence held to show assumption of contract with employee by corporation. Hall v. Herter Bros., 90 Hun (N. Y.) 280, 35 N. Y. Supp. 769, aff'd 157 N. Y. 694, 51 N. E. 1091. See also Burke v. Lin- coln-Valentine Co., 28 N. Y. Misc. 202, 58 N. Y. Supp. 1076. Where one employed by a firm to so- licit orders continued in the employ- ment until the firm ceased and was organized as a corporation and after- wards continued in the same busi- ness for it without any new special contract, and there was evidence tend- ing to show that the corporation, in consideration of the business and as- sets of the firm being transferred to it, assumed the debts of the firm, and promised the employee to pay him for his services rendered to the firm, it was held, in an action by the em- ployee against the corporation, that a motion to strike out all the items in his bill of particulars for services rendered before the organization of the corporation was properly over- ruled, as he had a right to submit the question of the liability of the cor- poration for those services to a jury, upon the evidence. Shober & Car- queville Lithographing Co. v. Kerting, 107 111. 344. 84 Where a corporation succeeding a partnership passed into the hands of a receiver who discharged an em- ployee, the corporation was chargeable with knowledge of the contract made by a partner with the employee, and the corporation being substituted for the firm under the agreement entered into was bound by the contract with the employee. Baker v. D. Appleton & Co., 107 N. Y. App. Div. 358, 95 N. Y. Supp. 125. 6B In an action for coal sold and delivered, where the defendant, a cor- poration, had succeeded a charitable society, the formality of a resolution by the defendant to pay the bills was unnecessary, the parties to the cor- poration being practically the same parties to the negotiations which led to its formation. Thorn v. Volunteer St. Gregory Hospital, 59 N. Y. Mise. 442, 110 N. Y. Supp. 931. 66 Byrne & Hammer Dry Goods Co. V. Willis-Dunn Co., 23 S. D. 221, 229, 29 L. R. A. (N. S.) 589, 121 N. W. 620; Swing v. Taylor & Crate, 68 W. Va. 621, 70 S. E. 373. Paxton V. Bacon Mill & Mining Co., 2 Nev. 257. In this case, the pro- prietors of a mine contracted an in- debtedness for the purpose of devel- oping it. Afterwards, with others, they formed a corporation in which they owned three-fourths of the stock, and conveyed the mine to it for a 795 378] Peivate Coepoeations [Ch. 12 of an insolvent partnership in consideration of the corporate stock, and hold such assets free from the claims of the partnership creditors, does not apply where a corporation is formed by such partners, and a third person, who, in good faith and in the well-grounded belief that the partnership debts are satisfied, invests a large sum of money in such reorganization and receives corporate stock therefor; but the creditors will be permitted to seize only the partners' interest in said corporation to satisfy such debts.^'' § 379. — Fresumpjiion from receipt of assets of partnership. Ac- cording to another line of cases, no express agreejnent need be shown, but a corporation formed by and consisting of the members of a partnership, which takes a conveyance or assignment of all the assets of the partnership for the purpose of continuing the business, is presumed to have assumed the partnership debts and is prima facie liable therefor.^' Thus, the corporation is liable for the debts, if it appears that it succeeds to a partnership which is in failing cireum- valuable consideration. It was held by Co., 199 Fed. 344; York Mfg. Co. that the corporation was not liable for the indebtedness without a prom- ise to pay it. See also Durlacher v. Frazer, 8 Wyo. 58, 80 Am. St. Eep. 918, 55 Pac. 306. In Dingeldein v. Third Avenue E. Co., 9 Bosw. (N. Y.) 79, rev'd 37 N. Y. 575, a corporation was created to op- erate a railroad which had been car- ried on by an unincorporated associa- tion, and received a conveyance of the property of the association which was subject to a payment which the association had agreed to make to plaintiff for building a sewer, but which contained no covenant to pay it. The plaintiff continued the work with the knowledge of the corpora- tion, and without any objection on its part. It was held that this was not alone enough to make the corporation liable for the work, but that there must have been a novation of the contract, or a new promise by the corporation. See cases cited in §§375, 377, supra, 67 Hall V. Baker Furniture Co., 86 Neb. 389, 125 N. W. 628. 88 United States. In re A. G. Cros- V. Brewster, 174 Fed. 566; Du Vivier & Co. v. Galilee, 149 Fed. 118. Colorado. Curtis, Jones & Co. v. Smelter Nat. Bank, 43 Colo. 391, 96 Pac. 172. Missouri. Bremen Sav. Bank v. Branch-Crookes Saw Co., 104 Mo. 425, 16 S. "W. 209. Nebraska. Baker Furniture Co. v. Hall, 76 Neb. 88, 113 N. "W. 267, 111 N. W. 129, 107 N. W. 117; Reed Bros. Co. V. First Nat. Bank of Weeping Water, 46 Neb. 168, 64 N. W. 701. North Dakota. Hennessy v. Griggs, 1 N. r>. 52, 44 N. W. 1010. Ohio. Andres v. Morgan, 62 Ohio St. 236, 243, 78 Am. St. Eep. 712, 56 N. E. 875. South Carolina. Haslett's Ex'rs v. Wotherspoon, 1 Strobh. Eq. 209. South Dakota. Byrne & Hammer Dry Goods Co. v. Willis-Dunn Co., 23 S. D. 221, 29 L. E. A. (N. S.) 589, 121 N. W. 620. Texas. Modern Dairy & Creamery Co. V. Blanke & Hauk Supply Co. (Tex. Civ. App.), 116 S. W. 153; Texas Loan Agency v. Hunter, 13 Tex. Civ. App. 402, 35 S. W. 399. 796 Ch. 12] Incokpokation of Pabtnekships, etc. [§379 stances,^^ or where the facts are such as to justify a finding that it is a mere continuation of the partnership,'''* but the facts upon which such finding depends will not be presumed, but should afSrmatively appear from the pleadings and proof.''^ The rule is in accordance West Virginia. Swing v. Taylor & Crate, 68 W. Va. 621, 70 S. E. 373. "A partnership is a quasi legal en- tity. It owns property and has liabili- ties as such. Its creditors have a right to the payment of their claims from the partnership assets in prefer- ence to individual creditors, and have in equity a lien on the assets of the firm, that may be worked out through the partners. So that, when the part- ners transferred all the property of the firm to the company, the partner- ship was dissolved, and the rights of its creditors followed the partners and the property into the corporation, and it was bound, to discharge the debts of the partnership, having re- ceived the property of the partner- ship on which it had obtained credit. It could not retain the property and repudiate the liability." Andres v. Morgan, 62 Ohio St. 236, 78 Am. St. Rep. 712, 56 N. B. 875. It should be noted in the case of Andres v. Morgan, 62 Ohio St. 236, 78 Am. St. Eep. 712, 56 N. E. 875, that the facts found were only consistent with an express understanding that the debts of the partnership were to be assumed and paid by the corpora- tion. Where a corporation succeeded a partnership and had the same name, the partners being the principal stock- holders and managers of the corpora- tion, it was chargeable with interest and commissions collected by the part- ners on a usurious note. Texas Loan Agency v. Hunter, 13 Tex. Civ. App. 402, 35 S. W. 399. A voluntary association engaged in the life insurance business became in- corporated, but nothing was done to show that there had been an aban- donment of its voluntary character. The of&cers, membership, name, seal, by-laws and constitution remained the same, but all the funds, books, records and other assets were taken over by the corporation. The corporation then sought to escape liability for all death claims which had matured at the time of the change, but it was held that such a position was not founded in equity and fair dealing, and was not a defense to be allowed, unless the strict rules of the law com- pelled its allowance. Chicago City Ey. Employees' Mut. Aid Ass'n v. Hogan, 124 111. App. 447. 69 Eeed Bros Co. v. First Nat. Bank of Weeping Water, 46 Neb. 168, 64 N. W. 701. 70 Curtis, Jones & Co. v. Smelter Nat. Bank, 43 Colo. 391, 96 Pac. 172; Hall v. Baker Furniture Co., 86 Neb. 389, 125 N. W. 628; id., 76 Neb. 88, 93, 113 N. W. 267, 111 N. W. 129, 107 N. W, 117; Austin v. Tecumseh Nat. Bank, 49 Neb. 412, 35 L. E. A. 444, 59 Am. St. Eep. 543, 68 N. W. 628; Eeed Bros. Co. v. First Nat. Bank of Weeping Water, 46 Neb. 168, 64 N. W. 701. In Austin v. Tecumseh Nat. Bank, 49 Neb. 412, 35 L. E. A. 444, 59 Am. St. Rep. 543, 68 N. W. 628, a creditor failed to recover judgment against the new corporation, but the decision was based upon the ground that the petition failed to state a cause of action, there being a failure to recite certain necessary allegations as to the interests acquired by the new cor- poration. 71 Curtis, Jones & Co. v. Smelter Nat. Bank, 43 Colo. 391, 96 Pac. 172; 797 §379] Peivate Coepoeations [Ch. 12 with the tendency of decisions to disregard the mental conception that a corporation is an entity separate from its corporators, as in many instances it is simply a "stumbling block" in the way of doing justice between real persons.'* In some of the decisions which sustain the doctrine that the assump- tion of liability by the corporation will be presumed from the receipt of the partnership assets, it is pointed out that in a strict sense a sale of the partnership assets does not take place,'^ and that if there is a purchase in fact by a new company from an old one, there is no lia- bility of the new corporation for the debts of its predecessor unless assumed as part of the consideration.''* The rule of conclusive presumption of liability has been held not to obtain where the purchase of the partnership assets does not in- clude all but only a part of the assets, even though the partners formed the corporation to continue the partnership business.'* In Austin V. Teeumseh Nat. Bank, 49 Neb. 412, 35 L. R. A. 444, 59 Am. St. Eep. 543, 68 N. W. 628; Reed Bros. Co. V. First Nat. Bank of Weeping Water, 46 Neb. 168, 64 N. W. 701. 72 Andres v. Morgan, 62 Ohio St. 236, 78 Am. St. Rep. 712, 56 N. E. 875; Swing V. Taylor & Crate, 68 W. Va. 621, 70 S. B. 373. 73 Andres v. Morgan, 62 Ohio St. 236, 78 Am. St. Rep. 712, 56 N. E. 875; Swing v. Taylor & Crate, 68 W. Va. 621, 70 S. E. 373. "Where a mere transformation is had, — parties remaining the same, — and the property is transferred by the members of the old company transferring their interest in it for an equal interest in it as property of the new, the transaction does not constitute a sale by the one and a purchase by the other. It is simply a change in the manner and form of carrying on the same business by the same persons; and, brushing aside the fiction of a legal entity, it is seen that no real change has taken place, and that, in looking to the new formation for payment, the creditor looks to the same persons, possessed of the same property and rights, he con- tracted with in the first instance; and to construe the transaction, as to creditors, as a purchase, tends to operate a fraud on their rights. Every purchase implies tw^ distinct per- sons, — a buyer and [a] seller. It is a moral impossibility for one person to buy of, or sell to himself." Andres V. Morgan, 62 Ohio St. 236, 78 Am. St. Eep. 712, 56 N. E. 875. 74 Andres v. Morgan, 62 Ohio St. 236, 78 Am. St. Eep. 712, 56 N. E. 875; Swing v. Taylor & Crate, 68 W. Va. 621, 70 S. E. 373. 7B Campbell v. Farmers ' & Mer- chants ' Nat. Bank, 49 Neb. 143, 68 N. W. 344, in which case the court said: "There are authorities which hold that where the stockholders of a corporation organize a new one, and appropriate all the assets of the old corporation, and continue its business, such acts afford conclusive evidence that the new corporation, by its con- duct, assumed the liabilities of the old one. Such are Hibernia Ins. Co. V. St. Louis & New Orleans Transp. Co., 13 Fed. 516; Brum v. Merchants' Mut. Ins. Co., 16 Fed. 140; Slattery 798 Ch. 12] iNCOBPOKATIOlf OF PaBTNEESHIPS, ETC. [§380 such case, the facts at most merely raise a rebuttable presumption that the new corporation assumed the liabilities.''^ § 380. — Running accounts ; mechanic's lien. Under the rule that there must be an express assumption of partnership debts to render a corporation liable, the mere introduction of books of account of the corporation, which were also used by the partnership prior to the act of incorporation, showing the partnership account continued therein without more, is not sufficient proof of the account to render the corporation liable for that part of the account which was contracted prior to incorporation.''"'' The question of dissolution of the partner- ship and notice to firm creditors arises in this connection. Thus, if the corporation uses the books of the partnership, and bills are made out to it as before, and no notice of the changed relation is given, the corporation will be estopped from denying its liability.''* But there V. St. Louis & New Orleans Trahsp. Co., 91 Mo. 217, 4 S. W. 79. But we have not been cited to any authority, nor have we been able to find a case, which holds that the purchase of part of the assets of a copartnership or corporation by a new corporation or- ganized by the members of the old corporation or copartnership raises a conclusive presumption against the new corporation that by its purchase it assumed, and became liable for, the debts of the old corporation or co- partnership, notwithstanding the fact that the new corporation engaged in, and continued to carry on, the busi- ness in which the old corporation or copartnership had been engaged." 76 Campbell v. Farmers ' & Mer- chants ' Bank, 49 Neb. 143, 68 N. "W. 344, citing Eeed Bros. Co. v. First Nat. Bank of Weeping Water, 46 Neb. 168, 64 N. W. 701. In this case the tes- timony was overwhelming that only a portion of the liabilities of an old bank was assumed by the new cor- poration. 77Bludwine Bottling Co. v. Crown Cork & Seal Co., 14 Ga. App. 285, 80 S. B. 853. 78 In an action for goods sold, where it appears that a corporation took the assets of a partnership and continued to pay the debts of the latter and to conduct the business just as before, using the books of the partnership and continuing the various running accounts without a break, such cor- poration was estopped from setting up a defense founded on the change from a partnership to a corporation. Beid V. F. W. Kreling's Sons' Co., 125 Cal. 117, 57 Pac. 773. When partners have dealt as such with a seller, and, after becoming in- corporated, continue to deal as before, having their bills made in the same way, without giving any notice of their altered condition, they will con- tinue to be liable as partners, unless the seller have knowledge of the change derived from some other source. Whether the plaintiff had such notice or knowledge is a question of fact for the jury. Martin v. Fewell, 79 Mo. 401. In an action for goods sold and de,- livered, where it appeared that a part- nership established a branch ofllce, and such partnership was subsequent- ly incorporated, and the corporation sought to escape liability on the 799 § 380] Peivate Cobpobations [Ch. 12 is no corporate liability where there is no plea or proof of an estoppel, even though the accounts stated refer to the indebtedness of the partnership, when there is nothing in such accounts as rendered nor in the manner in which they are rendered to call the corporation's attention to any claim against if' When a corporation formed by the members of a partnership as- sumes liability under a contract made by the partnership, under which work has been done or materials furnished to the partnership and under which work is continued or further materials furnished to the corporation, and makes a general payment on account, the creditor may apply the payment to such items as he may choose; and it can make no difference that a person who was not a member of the firm is a stockholder in the corporation."* It has been held, however, that in such a case there is not a continuing account beginning with the firm and ending with the corporation, so as to allow the creditor to file a single statement for a mechanic's lien, but that separate liens must be filed.*^ Where a corporation is the assignee of a lease and has possession of a building when improvements are made by a sub- contractor who claims a mechanic's lien, such corporation must be made a party to the lien proceedings. If there is no holding out as a partnership, or deception, the subcontractor is not excT:ised from making the corporation a party by the fact that there was no apparent change of possession or ownership of the property.'^ §381. — Statute of frauds. According to some authorities, the promise by the corporation to pay the debts of a partnership, to which it succeeds, is a promise to answer for the debts of another, and under the statute of frauds a memorandum thereof must be in writing and signed by the party to be charged, or by its agent expressly authorized, or it must be shown that the corporation has received the considera- tion for which the indebtedness was incurred.*^ The vote of the ground that a partner having charge 79 Stimson Mill Co. v. Hughes Mfg. of a branch office was alone respon- Co., 8 Cal. App. 559, 97 Pac. 322. sible, it was proper to show the history 80 Allen v. Frumet Mining & Smelt- of the entire accounts, the transfer ing Co., 73 Mo. 688. to the corporation, and whether there 81 Allen v. Frumet Mining & Smelt- waa any agreement which would re- ing Co., 73 Mo. 688. lease the partnership for debts in- 82 Eees v. Wilson, 50 Wash. 339, 97 curred. In such ease, an inquiry to Pae. 245. a' witness who was familiar with the 83 Georgia Co. v. Castleberry, 43 Ga. business which concerned to whom 187; Bludwine Bottling Co. v. Crown the goods were sold, was proper. Hoop- Cork & Seal Co., 14 6a. App. 285, 80 er V. Hartwell, 12 Colo. App. 161, 54 S. E. 853. Pac. 864. 800 Ch. 12] Incoepokation of Paetneeships, etc. t§382 directors duly recorded is a sufficient memorandum, and the signature of the recording officer in attestation of the minutes is a sufficient signing by the party to be charged,^* precluding the use of the statute as a defense.** Other authorities hold that the promise of the cor- poration is not a promise to pay the debt of another within the statute, but is a promise to pay its own debt to the partnership, by assuming to pay the debts of the partnership owed to others.*® It has also been held that the statute does not apply where there is a novation and the liability of the original debtor is extinguished,*'' or where the promisor receives property of the original debtor out of which to pay the debt, since in such case the promise is original, based upon the receipt of the property. This rule has been held to apply where a corporation assumes the payment of all the debts of a partnership, ajid has received its property.** The matter of the applicability of the statute of frauds is, however, a subject somewhat without the scope of this work, and need not be further discussed.** § 382. — Effect of assumption of debts by corporation. The as- sumption of the partnership debts operates to make the corporation the debtor, subject to an action by creditors,*" and if the corporation !4Lamkin v. Baldwin & Lamkin Mfg. Co., 72 Conn. 57, 44 L. E. A. 786, 43 Atl. 593. 85 Where a corporation succeeds a partnership and by a vote in writing agrees to pay the debts of the part- nership, such debts being assumed up- on a new and original consideration, the statute of frauds cannot be urged by the corporation as an objection to the assumption of the debts. In re Waterman's Appeal, 26 Conn. 96. 86Schufeldt V. Smith, 139 Mo. 367, 40 S. W. 887; Leckie v. Bennett, 160 Mo. App. 145, 141 S. W. 706. 87 Curtis V. Brown, 5 Cush. (Mass.) 488; Meriden Britannia Co. v. Zingsen, 48 N. Y. 247, 8 Am. Eep. 549; Teeters V. Lamborn, 43 Ohio St. 144, 1 N. E. 513; Goodman v. Chase, 1 Barn. & Aid. 297. 88 Calumet Paper Co. v. Stotts In- vestment Co., 96 Iowa 147, 59 Am. St. Eep. 362, 64 N. W. 782. See Bludwine Bottling Co. V. Crown Cork & Seal Co., 14 Ga. App. 285, 80 S. E. 853; Mc- Craith v. National Mohawk Valley Bank, 104 N. Y. 414, 10 N. E. 862; Ackley v. Parmenter, 98 N. Y. 425, 50 Am. Rep. 693; Wait v. Wait's Ex'r, 28 Vt. 350. In a suit for damages against a partnership and the corporation which succeeded it, where such partnership was guilty of fraud in selling goods for the plaintiff, and the corporation had expressly assumed all liabilities of the partners, the statute of frauds was not available as a defense, since the corporation accepted and held the property, conveyed upon condition. Forbes v. Thorpe, 209 Mass. 570, 95 N. E. 955. 89 See works on contracts, and on the statute of frauds. 90 Leckie v. Bennett, 160 Mo. App. 145, 41 S. W. 706; Paxton v. Bacon Mill & Mining Co., 2 Nev. 257. Where a conveyance of property to a corporation was upon the express I Priv. Corp. — 51 801 §382] Pbivate Corporations [Ch. 12 assumes the payment of partnership debts when it is organized, it cannot thereafter repudiate its agreement.'^ The obligations of the corporation in this regard must be fulfilled, even when it passes into the hands of a receiver.'^ § 383, — Priorities of creditors. A creditor of a partnership, as such, has no lien on the partnership assets, nor any equity therein independent of the equity of the partners,^^ and the transfer of part- nership property to the corporation operates to terminate the interests of the partners.'* It follows that the right of firm creditors to have the property or the proceeds of the sale applied first to the payment of their demands is also terminated, and the proceeds will be the individual property of the partners.®* Where the members of a part- nership entered into an agreement to transfer the firm property to a corporation for shares of stock to be issued to the partners in certain proportions, but before the contract was fully consummiited one of the partners died and a debt of the firm was proved against his estate, it was held that the stock issued to the deceased partner was not partnership property, and the creditor of the firm was not entitled condition that it assume and pay all liabilities incurred by partners, and it appeared that such partners had de- frauded another, the contract being for the benefit of creditors, the lat- ter might enforce in equity the rights of the partners to compel the cor- poration to perform its agreement. Forbes v. Thorpe, 209 Mass. 570, 95 N. E. 955. 91 Schuf eldt V. Smith, 139 Mo. 367, 40 S. W. 887. A corporation which has agreed to pay the partnership debts and which has received the partnership property cannot avoid payment because the amount of debts was misrepresented. Forbes v. Thorpe, 209 Mass. 570, 95 N. E. 955. 92 A receiver of a corporation which took over property of a partnership in payment of subscription to its capi- tal stock, part of the consideration being an undertaking to pay certain of the partnership debts, is bound to fulfil the obligations of the corpora- tion so far as he has assets which are equitably applicable to the purpose. Lamkin v. Baldwin & Lamkin Mfg. Co., 72 Conn. 57, 44 L. K. A. 786, 43 Atl. 593. 93 Culberson v. Alabama Const. Co., 127 Ga. 599, 9 L. E. A. (N. S.) 411, 9 Ann. Cas. 507, 56 S. E. 765; Deusmore Commission Co. v. Shong, 98 Wis. 380, 74 N. W. 114. 94McGowan v. American Pressed Tan Bark Co., 121 U. S. 575, 30 L. Ed. 1027. A transfer of the partnership prop- erty free from fraud cuts off such equity of the partners, and the equity of the creditors, which depends upon it, falls at the same time by the same act. Densmore Commission Co. v. Shong, 98 Wis. 380, 74 N. W. 114. See §367, supra. 9B Singer, Nimick & Co. v. Carpen- ter, 125 111. 117, 17 N. B. 761, aff'g 26 111. App. 28. 802 Ch. 12] Incobpokation of Paetnebships, etc. [§ 384 to \\&\e the proceeds of such stock applied in payment of his claim, to the exclusion of individual creditors of the deceased partner." It has been held that where partnership debts are assumed upon sufficient consideration, upon corporate insolvency the corporate debts are not entitled to preference over debts of the partnership ; *'' but in another case it was held that the corporate debts should be paid before the partnership debts, since the transfer of the partnership property created no specific charge in terms upon the property con- veyed.^^ And if the corporation has not agreed to pay the partner- ship debts, creditors of such corporation are entitled to full payment of their claims before creditors of the partnership can be paid." Where a corporation assumes the debts of a partnership theretofore carrying on the business, the fact that the partners afterwards give their notes for the indebtedness does not relieve the corporation from liability, so as to prevent a preference thereof by the corporation.^ Where a corporation succeeds a partnership, and subsequently an assignment for the benefit of creditors is made by the partnership, and the result of the proceedings is such as to place the entire prop- erty of the firm in the hands of a receiver for equal distribution, it has been held that the court will not disturb the arrangement in order to work out a preference for a judgment creditor, the trans- action not being fraudulent.^ § 384. Liability of partners or members on contracts and for debts. Members of a partnership which becomes incorporated remain liable as 96 Singer, Nimick & Co. v. Carpen- 99 Thorpe v. Pennock Mercantile ter, 125 111. 117, 17 N. E. 761, aff'g 26 Co., 99 Min. 22, 9 Ann. Cas. 229, 108 111. App. 28. . N. W. 940. 97 London v. Bynum, 136 N. C. 411, 1 Johnston v. Gumbel (Miss.), 19 48 S. E. 764. So. 100. 98 Where a corporation took over Under a statute authorizing pref- the property of a partnership in pay- erence to creditors on the part of a ment of subscriptions to its capital debtor, it has been held competent for stock, also undertaking to pay certain one who owed debts to organize a of its partnership debts, and such cor- corporation and transfer to it his poration afterwards contracted debts property in exchange for the stock, of its own, such debts were to be satis- and then liquidate a^ particular claim fied in full before anything could be by transfer of stock of the corpora- paid on the partnership debts, it ap- tion, the transaction being in good pearing that the transfer created no faith. Gardner v. Haines, 19 S. D. specific charge in terms upon the prop- 514, 104 N. W. 244. erty conveyed. Lamkin v. Baldwin & 2 Tradesmen 's Nat. Bank of City of Lamkin Mfg. Co., 72 Conn. 57, 44 h. New York v. Young, 15 N. Y. App. B. A. 786, 43 Atl- 593. Div. 109, 44 N. Y. Supp. 297. 803 §384] Pkivate Coepobations [Oh. 12 partners on all contracts and for all debts made or incurred by them while they were doing business as partners, unless they are released from liability,^ and this is true although the other party to the con- tract may have known that the partnership articles provided for incor- poration.* If third persons associate in good faith with partners and invest money in the corporation which is being organized, believ- ing that the partnership debts are paid, creditors will not be per- mitted to seize the interests of such third persons, but will be limited to the partners' interests.'* By the weight of authority, partners who, intending to form a corporation, subscribe for stocTi, establish the business and appoint a superintendent, are liable as partners on a contract made by him before they signed articles of association,^ unless the other party is estopped by reason of contracting with them as a corporation.' If there is a bona fide transfer of the partnership property to the cor- poration and a merger of such partnership in the corporation, and all parties concerned act on the faith of such merger, the creditors cannot subsequently revive their claim against the partners.* Where partners guaranty a promissory note transferred as part SMcLellan v. Detroit File Works, 56 Mich. 579, 23 N. W. 321; Schufeldt V. Smith, 139 Mo. 367, 40 S. "W. 887; Haslett's Ex'rs v. Wotherspoon, 2 Eich. Eq. (S. C.) 395; Broyles v. McCoy, 5 Sneed (Tenn.) 602. "It does not change the case, that the members of the company had it in view to procure a future act of in- corporation, when it was first formed." Broyles v. McCoy, 5 Sneed (Tenn.) 602. See also Baker Furni- ture Co. V. Hall, 76 Neb. 88, 113 N. W. 267, 111 N. "W. 129, 107 N. "W. 117; Paxton V. Bacon Mill & Mining Co., 2 Nev. 257. After the assumption by the corpo- ration of the partnership indebtedness, a creditor can hold the corporation as well as the members of the partner- ship and enforce his debt against either of them, unless a contract of novation has been formed. Leckie v. Bennett, 160 Mo. App. 145, 141 S. "W. 706. If the debt is assumed by the cor- poration and the partners released, the latter cannot afterwards be held liable. See Whitwell v. Warner, 20 Vt. 425, where a creditor of a part- nership allowed his account to be transferred to the corporation, and then continued a long running account with the corporation. 4 Witmer v. Schlatter, 2 Eawle (Pa.) 359. «Hall V. Baker Furniture Co., 86 Neb. 389, 125 N. W. 628. 6 Martin v. Fewellj 79 Mo. 401. 7 See § 334, supra. 8 Whitwell v. Warner, 20 Vt. 425, in which case the court said: "It is claimed, that the defendants are liable for the balance, which was due from the old partnership, which was pro- fessedly merged in the corporation. If this be so, it is confessedly con- trary to the expectation of all parties concerned, for many years, during which time the members of the old firm, some of whom never became members of the corporation in any other sense than by having been mem- bers of the former partnership, con- 804 Ch. 12] Incoepoeation of Paetnerships, etc. [§ 384 of the partnership assets, they remain liable even though the note has been renewed by the corporation.^ In such case, a compromise and settlement of the liability of the partnership by the managing officers of the corporation who were formerly the partners would not be binding upon the corporation so as to discharge the guaranty, unless the settlement was authorized or ratified by the other stock- holders, or unless under the settlement the guarantors paid the full amount due the corporation under the guaranty.^" Excessive amounts paid to partners by the corporation, or withdrawn by them, may be recovered by a receiver for the corporation for the benefit of creditors.^^ A person who seeks relief from liability as a member of an associa- tion on the ground that such association is a corporation has the burden of showing the existence of the corporation.^'' Members of an incorporated religious society are not personally liable on an execution against the society itself,^* and when an ecclesi- astical corporation is formed by a voluntary association of individuals, the property of members of the voluntary incorporated company is not liable for the debts of the corporation.^* Elsewhere in this work is discussed the difference as to the effect of irregularities and omissions between the case where a corporation is created by special charter, and there have been acts of user, and the case where individuals seek to form themselves into a corporation under the provisions of a general law.^* tinued to act in the faith of the lOLeonhardt v. Citizens' Bank of merger of all their property and lia- Ulysses, 56 Neb. 38, 76 N. W. 452. billties in the corporation, and of the 11 Hoey v. Fechtenberg, 56 N. T. utter extinction of the partnership Misc. 576, 106 N. Y. Supp. 1090. and the final settlement of all its con- 12 Abbott v. Omaha Smelting & Ee- cerns. This was in fact known to the fining Co., 4 Neb. 416. plaintiffs, or might have been aseer- Defendants who act together for tained upon the slightest inquiry; and, the benefit of a society cannot con- in addition, there is not the most re- tend that they are a corporation, mote ground of belief, that the plain- where such fact does not appear from tiffs have ever acted upon the faith the declaration or pleadings, and of any such balance against the part- where the covenant sued on has their nership still remaining unpaid. Their private seals affixed to it. Ernst v. whole conduct, from the first to the Bartle, 1 Johns. Cas. (N. Y.) 319. last, gives a positive denial to the See generally Chap. 14, infra, belief in the existence of any such 13 Eichardson v. Butterfield, 6 Cush. liability on the part of the defendants, (Mass.) 191. as partners, as is now claimed. ' ' 14 Jewett v. Thames Bank, 16 Conn. 9Leonhardt v. Citizens' Bant of 511. Ulysses, 56 Neb. 38, 76 N. W. 452. IB See Chap. 10, supra. 805 §385] Pbivate Cobpobations [Ch. 12 § 385. Rights of partners or members of associations inter se and against the corporation. It is fundamental that the corporation is a separate and distinct entity from the partnership.'* No mere intention on the part of the members of an unincorporated association, to be a corporation, will suffice to restrict their individual liability to that imposed by the stat- ute upon corporation shareholders. Martin v. Fewell, 79 Mo. 401. If they were already a partnership before the attempt to form a corpora- tion, they would not, by the failure of this attempt, cease to be a partner- ship; but the attempt failing, the partnership continued; and, so far at least as any question of the owner- ship of property acquired is involved, they must still be considered as part- ners without the additional rights which an act of incorporation would give. Whipple v. Parker, 29 Mich. 369. 18 Sternberg v. Wolff, 56 N. J. Eq. 389, 39 L. R. A. 762, 67 Am. St. Eep. 494, 39 Atl. 397; Einstein v. Eosen- feld, 38 N. J. Eq. 309. Thus in Jack- son V. Hooper, 76 N. J. Eq. 592, 27 L. E. A. (N. S.) 658, 75 Atl. 568, it was said: "It is claimed, however, that these owners of all the stock were really copartners, doing business in corporate form for their own conven- ience, and that a court of equity has the power to control the property and affairs of the companies even to the extent of eliminating the corporate functions and powers as mere inci- dents, and wholly disregarding the substantive law governing the crea- tion, supervision, and dissolution of corporations. We cannot subscribe to any such doctrine. An agreement or course of dealing by which corpora- tions are organized for the purpose of using them merely as agencies or instrumentalities or forms in the con- duet of a copartnership or joint busi- ness, and by the consent of the parties in interest to be independent of statu- tory control, cannot be recognized, enforced, or perpetuated by the court of chancery in this state. It is funda- mental that, no matter how the shares of stock are held, the corporation itself is an entity wholly separate and dis- tinct from the individuals who com- pose and control it. The complainant and the defendant, though owning the entire capital stock of the two cor- porations, are not, as expressed by Chief Justice Waite in the leading case of Pullman's Palace Car Co. v. Missouri Pacific Ey. Co., 115 U. S. 587, 6 Sup. Ct. 194, 29 L. Ed. 499, 'the cor- poration, in the sense of that term as applied to the management of the corporate business or the control of the corporate property.' The law never contemplated that persons en- gaged in business as partners may incorporate, with intent to obtain the advantages and immunities of a cor- porate form, and then, Proteus-like, become at will a copartnership or a corporation, as the exigencies or pur- poses of their joint enterprise may from time to time require. The policy of the law is to the contrary. If the parties have the rights of partners, they have the duties and liabilities imposed by law, and are responsible in solido to all creditors. If they adopt the corporate form, with the corporate shield extended over them to protect them against personal lia- bility, they cease to be partners, and have only the rights, duties, and obli- gations of stockholders. They cannot be partners inter sese and a corpora- tion as to the rest of the world. Furthermore, upon grounds of public policy, the doctrine contended for can- not be tolerated, as it renders nuga- tory and void the authority of the 806 Ch. 12] Incoepokation of Paktneeships, etc. [§385 When tlie organization of a corporation operates as a dissolution of the partnership, there no longer exist any rights or obligations legislature — a co-ordinate branch of the government — established by the constitution, in respect to the crea- tion, supervision, and winding up of corporations. ' ' In Eussell v. McLellan, 14 Pick. (Mass.) 63, where it appeared that plaintiff and defendant, who were partners, purchased in equal portions the entire stock of a manufacturing company, pursuant to a written agree- ment that they should thereby become partners in the business thus carried on, the court said: "The question is, whether corporators in a manufactur- ing corporation are partners, joint tenants or tenants in common, within the meaning of the St. 1823, c. 140. The same question was considered and determined in the negative, in the case of Pratt v. Bacon, 10 Pick. 123. We have, after hearing the ingenious argument of the counsel for the plain- tiff, revised the former decision, and cannot perceive any fallacy in the reasoning or conclusion. In many things there is a similarity between corporators and partners. Corporators are interested in the profit and loss of the business, and so are partners. * * * The differences are very ob- vious. Partners may change the name of the firm when they please; the name of the corporation remains until the legislature, upon the appli- cation of the corporators, shall alter it. Suits in favor of or against a partnership, must be carried on in the names of the partners; the cor- porators are not named in suits for or against the corporation. There is no such joint and several liability be- tween corporators as between part- ners. The responsibility created by St. 1808, e. 65, subjecting the prop- erty of corporators to the payment of the debts of the corporationj is rather an awkward approximation to, than an exact copy of the well-known lia- bility of partners. The corporator may transfer his shares at his pleas- ure, and the purchaser becomes a member; partners cannot introduce new members into the firm, without the consent of all concerned. Cor- porators have no legal interest in the corporate property. It could not be levied on or taken by execution for the particular debt of the corporator. The real and the personal estate of partners is held by themselves. * * * It was argued that the pro- posal of the defendant to the plaintiff to become jointly interested in this concern, each taking eight shares, made them partners or joint tenants or tenants in common ipso facto, upon its adoption. But we cannot perceive that inference; for the corporation continued. The parties did not, by the new arrangement, acquire a legal title to the corporate property. They had indeed joint and equal control over it, but their acts and doings must appear through the proceedings of the corporation in the due forms of the law. The legal title in the corporation remains, notwithstanding the indi- vidual members change. The stock, if every individual member should decease at same moment, would be distributed according to the statute of distributions or according to the wills of the individuals deceased. The legal representatives of the deceased mem- bers would have authority, by law, to manage the corporation, and no dis- solution would in such case take place. It is said that the parties held for two years without doing any cor- porate act. If it were so, we cannot perceive that they would become part- ners instead of corporators. If the shares of the corporation should all 807 §385] Private Coepoeations [Ch. 12 which the partners as such can enforce, the one against the other.'' But where the owners of a partnership business form a corporation and transfer to it the partnership, the former partners being prac- tically the only stockholders therein and the business being conducted in practically the same way as during the partnership, the relation of confidence which existed between them as partners is presumed prima facie to continue.^' The fact that an agreement to form a corporation and turn over to it partnership property was improvident on the part of one of the parties is not, in the absence of fraud, ground for relieving him from the agreement, where it has been executed and acted under for several years. '^ The partner as a stockholder is still entitled to exercise control of the business in proportion to his interestj^" and the facts may be such that a corporation apparently under the control of an existing part- nership does not represent the interests of the partners.^' center in one person, and the forms of proceeding or by-laws should pre- scribe acts to be done by two or more, we do not perceive any dif&culty in the sole owner 's making sale of shares, so as to conform to the letter of the rule. There is, we think, no evidence of a dissolution of this corporation. Upon the whole, we are of opinion that these parties are not partners, tenants in Qommon or joint tenants, and that the bill must be dismissed." See § 16, supra. 17 Hennessy v. Griggs, 1 N. D. 52, 44 N. W. 1010. See McGowan v. American Pressed Tan Bark Co., 121 U. S. 575, SO L. Ed. 1027. Where a firm discontinued doing business as partners, and transferred to a corporation their brands, trade marks and good-will, and agreed to give to the company their labor, skill and knowledge in the conduct and management of the business of manu- facturing fertilizers, in consideration of which they were to receive a pro- portion of the net profits of the business and were to bear their pro- portion of losses sustained in the purchase of real estate, a partnership inter sese did not exist, especially where one of the partners testified there had been no partnership trans- actions for a period of ten years. Waring v. National Marine Bank of Baltimore, 74 Md. 278, 22 Atl. 140. 18 Sullivan v. Pierce, 125 Fed. 104, in which the court held, however, that the evidence was not sufficient to war- rant the rescission of the sale by one partner to the other of his stock in the corporation on the ground that the sale had been induced by false state- ments and representations of the buy- er, but that it showed that in the transaction the parties dealt at arm's length. See also Monmouth Invest- ment Co. V. Means, 151 Fed. 159. 19 Bowker v. Torrey, 211 Mass. 282, 97 N. E. 770. 20 Hennessy v. Griggs, 1 N. D. 52, 44 N. W. 1010. 21 A corporation organized as a hold- ing company for the enterprises of a partnership of two persons was deemed not to represent the interests of the two persons where one of the two manipulated the affairs of the cor- poration through a subservient board 808 Ch. 12] Inookpokation of Pabtneeships, etc. [§385 Of course there may be rights and remedies of the partners inter se and against the corporation, depending upon the terms of the agree- ment entered into in forming the corporation. A partner who per- forms his agreement in such case is entitled to his proportionate share of the corporate stock,''^ and if the corporation excludes a mem- ber from any share in its management in violation of his rights, after having received his share of the partnership assets, he may maintain an action against it for damages or for an accounting.^* But an action for an accounting does not lie where partner.? acquiesce in the formation of a corporation and receive dividends and stated accounts for several years without objection. In such case, the acquiescence operates to bar a bill in equity for an accounting.^* The right to an accounting is not an "asset" of the partnership.^* of directors. Monmouth Investment Co. V. Means, 151 Fed. 159. ZZBowker v. Torrey, 211 Mass. 218; Hennessy v. Griggs, 1 N". D. 52, 44 N. W. 1010; Bannen v. Kindling, 142 Wis. 613. 23 In Crosby Lumber Co. v. Smith, 51 Fed. 63, the plaintiff and others formed a partnership, to which the plaintiff contributed a large part of the capital in the form of real and personal property. Afterwards it was agreed to form a corporation, the part- ners to take stock therein to the full amount of their interest in the firm, as such_ interest should appear on a certain date. A dispute afterwards arose as to the amount of the plain- tiff's interest, and the corporation declared his interest in the concern forfeited, and excluded him from any share in its management. He then brought an action for damages, which, on the trial, took the form of an accounting as to his interest. It was held that he was entitled to recover the value of his interest at the time it was taken from him, and that, in computing the same, there should be included, not only the technical profits, but also the increase in value of the assets of -the concern. An accounting is proper where a cor- poration is organized by one partner, after another partner has absconded, the object of the transfer to the cor- poration being to defraud the plain- tiff, who has loaned money to the partners under an agreement by which partnership assets were to be trans- ferred to the plaintiff after dissolu- tion. Lovejoy v. Bailey, 214 Mass. 134, 101 N. E. 63. 24Hoyt V. Sprague, 103 U. S. 613, 26 L. Ed. 585. In this case minors were interested in a manufacturing establishment as beneficiaries under a deceased partner, and allowed the business to be conducted by the sur- viving partners, and subsequently a corporation was created and the min- ors made no objection to the change for more than seven years, in one case nearly nine years, after becoming sui juris, and the transactions were in good faith and knowledge was given of the affairs of the firm. It was held that tl^eir plea for relief was too late. 25McMahon v. Brown, 219 Mass. 23, 106 N. E. 26. The "assets" of a partnership or- dinarily mean the property of the partnership originally contributed or which has been subsequently acquired on account of the firm for the pur- poses of their business. McMahon v. Brown, 219 Mass. 23, 106 N. E. 26, 809 §385] Peivate Cokpoeations [Ch. 12 There is no equitable right to reimbursement at the expense of the creditors of the corporation, if a partner pays a debt of the part- nership.**^ In such case the doctrine of subrogation cannot be in- voked,^'' and the payment made must be presumed to have been made with knowledge of all the facts relating to the transaction.^* Where a partnership became incorporated but continued doing business in the partnership name, there being no notice of dissolution, and a judgment was recovered by a creditor and was paid by a sur- viving partner, it was held that such judgment was conclusive evi- dence that the estate of the other partner was equally liable, but the claim of the surviving partner against the estate of the deceased partner could not be allowed, since there had been an assignment for the benefit of creditors, and the amount paid should have been charged to a trust fund which had been provided and which was ample.^' 86 Smith V. Bowker Torrey Co., 207 Fed. 967. Where the real intention of the co- partners was to set aside their real estate, to go on in business under a corporate form with their personal estate as capital, and to satisfy the creditors out of that personal estate or from the profits of the business, and the transaction was not in fraud of creditors, since sufSeient assets were withheld for the full payment of the copartnership debts, there was nothing in the division by the copart- ners of their property into two parts, real and personal, and their agreement to pay these debts out of their person- al assets, which gave them an equity, to resort to the corporate funds for re- imbursement at the expense of credi- tors of the corporation. Smith v. Bowker Torrey Co., 207 Ted. 967. Where there is no agreement on the part of the corporation to pay the debts of a partnership, and such cor- poration is organized after the dissolu- tion of the partnership, a partner who pays a debt cannot recover the amount paid from the corporation. Adams v. Empire Laundry Machinery Co., 52 Fun (N. Y.) 610, 4 N. Y. Supp. 738. 27 Where a partnership was incor- porated and one of the partners be- came a stockholder in the corporation, receiving nearly half of the paid up stock, and the corporation assumed the debts of the partnership, which under the circumstances amounted to a drawing out of nearly the same sum as had been paid by the partners, to pay the individual debts, such part- ner or stockholder could not invoke the doctrine of subrogation so as to stand in the place of a bank which had been paid by the foreclosure of a mortgage given by such stockholder or partner on his private property for the benefit of the corporation, since the capital stock of the corporation constituted a trust fund for the benefit of its creditors, and the corporation being insolvent, other creditors would be defrauded. In re Warner, 82 Mich. 624, 47 N. W. 102. 28 Adams v. Empire Laundry Ma- chinery Co., 52 Hun (N. Y.) 610, 4 N. Y. Supp. 738. Z9Winey V. Thompson, 9 Mete. (Mass.) 329. His authority as surviving partner was to pay only the debts of- the firm, and he had no authority to speculate upon the chance of escaping some 810 Ch. 12] Incokpobation of Paetneeships, etc. [§ 385 The mere fact that a partner proposes to form a corporation to take over the partnership properties at an agreed price does not make him the agent or trustee of his partners to the extent of rendering him liable for the compensation which he received from the corpora- tion for his services as a promoter thereof.^" It has been held that if the corporation becomes insolvent, the equities of the partners should be respected.*^ As a partnership cannot exist except in pursuance of an express or implied agreement to which the minds of the parties have assented, a corporation formed under and by virtue of a state statute and set going cannot be changed into a copartnership by a court of equity at the suit of any of the incorporators.'^ So where partners owning the entire stock of a corporation sought its dissolution in the same manner as if the corporation did not exist, it being, claimed that the stockholders were virtually partners, doing business in a corporate form for their own convenience, it was held that a bill for dissolution of the copartnership would not lie, as the corporate existence cannot be ignored and it cannot be held that the persons are either partners, tenants in common or joint tenants.'' Where a voluntary association is incorporated and the association merged in the corporation, a member of the association who united in the application for a charter cannot restrain the operation of possible liability by charging the firm Shorb v. Beaudry, 56 Gal. 446, on the with a debt for which it appears that ground that in the latter decision the another ample fund was provided and corporation was organized as a mere in his power. Willey v. Thompson, 9 agency to carry out agreements into Mete. (Mass.) 329. which three of the corporators had 30 Carter v. Tucker, 138 Ky. 34, entered. It also appeared, as a fur- 127 S. W. 498. See § 133, supra. ther ground of distinction, that the 31 London v. Bynum, 136 N. C. 411, corporation paid nothing, incurred 48 S. B. 764. no liability and was .3 receive no part 32 Nightingale v. Milwaukee Fur- of the proceeds of the land held by niture Co., 71 Fed. 234, in which case it, except for the purpose of improv- it was held that an agreement to ing and developing the property; that form a partnership was not shown by no certificates of stock were issued or the fact that the books of the cor- contemplated; that all the profits were poration, which were kept under the to be distributed among the three direction and supervision of the com- principal incorporators in the propor- plainant, were kept as though the con- tion fixed by their contract. oern were a partnership, nor by the 33 Eussell v. McLellan, 14 Pick, fact that the members of the corpora- (Mass.) 63; Jackson v. Hooper, 76 N tion signed individually an instrument J. Eq. 592, 27 L. E. A. (N. S.) 658, 75 guarantying notes of the concern in Atl. 568; Einstein v. Eosenfeld, 38 which they referred to it as a firm. N. J. Bq. (11 Stew.) 309. The above decision distinguished 811 § 386] Pbivate Cokpokations [Ch. 12 the corporation or have the affairs wound up, except upon some of the grounds specified Oy statute.** §386. Incorporation of tenants in common. The matter of the incorporation of tenants in common arises most frequently in Massa- chusetts and other of the original thirteen states where grants were made for the purposes of settlement to "commoners." The word "commoners," as generally used in the real estate law of the colonial and provincial period, has been held to refer to persons who owned undivided tracts of land as tenants in common by virtue of a grant from the government.'^ From early times, such commoners have been enabled to act as cor- porations.*® This is a species of corporation different from corporations in general, and the relation between the tenants and the corporation is peculiar. The statutes have been held not to take away any of the rights of the individuals forming the corporation, but on the contrary to give them new powers. The corporation exists for the benefit of all and cannot act adversely to any of the tenants in common, being bound to protect the interests of all. In many respects the incor- porators continue as tenants in common and the parties do not act at arm's length and independently of each other.*'' While the tenants have the right to organize themselves as a cor- poration,** the mere act of incorporation does not vest the title to the individual property in the corporation.*' The title must be conveyed 34 Ferris v. Strong, 3 Edw. Ch. (N. is difficult to infer from equivocal acts T.) 127, 128. a purpose to violate the duties arising 35 Inhabitants of Ipswich v. Pro- out of that relationship and to disseise prietors of Jeffries Neck Pasture, 218 or oust the right owner." See also Mass. 487, 106 N. E. 169. See also Monumoi Great Beach v. Rogers, 1 Attorney General v. Tarr, 148 Mass. Mass. 159. 309, 2 L. E. A. 87, 19 N. E. 358; Hig- 38 Monumoi Great Beach v. Eogers, bee V. Eice, 5 Mass. 344, 4 Am. Dec. 63. j Mass. 159 36 Inhabitants of Ipswich v. Pro- Owners in common of a meeting- prietors of Jeffries Neck Pasture, 218 jj^^gg j^^^g ^^^ ,.j , ^ ^o organize them- Mass. 487, 106 N. E. 169. ^^^^^^ ^^ ^ corporation under the 37 Inhabitants of Ipswich V. Pro- ^^^^^^_ ^^^^^^ ^_ Hayward, 10 prietors of Jeffries Neck Pasture, 218 ,, . ,-. . ,.^. „ , „ Xr ,c^ ,n/,-NT T, non T ii,- Mete. (Mass.) 408; Second Cong. Soc. Mass. 487, 106 N. E. 169. In this case .„.,„., ,„ it was said: "The relation of the ^'^. ^"'^^ Bridgewater v. Waring, 24 corporation, known as the proprietors, ■^^''^^- (^^^s.) 304. to the owners in common of the land, *' Holland v. Cruf t, 3 Gray (Mass.) if not that of trustee to cestui que 162; Leffingwell v. Elliott, 8 Pick. trust, is akin to that relation and it (Mass.) 455, 19 Am. Dec. 343. And 812 Ch. 12] Incoepoeation of Pabtneeships, etc. [§386 by proper deeds from the individuals to the corporation,*" and the corporation may then convey title by proper vote of the members.*^ The terms of the act may be such, however, as to vest the property in the corporation without any formal transfer from the corporators.*'' Thus it has been held that where persons owning lands as tenants in common were incorporated by a special act for the express purpose of improving and selling the lands, and the charter was accepted, the title to the lands vested in the corporation by virtue of the charter and its acceptance. As the corporation was created for the purpose of selling the lands, and was authorized by the act to sell the same, and as it could not do so without title thereto, it was considered that the intention was to vest the title in it without any other transfer.*^ In such case, where a corporation has succeeded to the title to land by virtue of the granting of a charter and its acceptance, it alone can sue for injuries to the property, such as a trespass,** and the indi- viduals who have formed the corporation cannot obstruct its regular proceedings as to the management and improvement of the common property.** see Manahan v. Varnum, 11 Gray (Mass.) 405. 40Leffingwell v. Elliott, 8 Pick. (Mass.) 455, 19 Am. Dec. 343. 41 Inhabitants of Ipswich v. Pro- prietors of Jeffries Neck Pasture, 218 Mass. 487, 106 N. E. 169. Deed from proprietors held void as not authorized by two-thirds of right owners. Inhabitants of Ipswich v. Proprietors of Jeffries Neck Pasture, 218 Mass. 487, 106 N. E. 169. See also Rogers v. Goodwin, 2 Mass. 475; Lef- fingwell V. Elliott, 8 Pick. (Mass.) 455, 19 Am. Dec. 343. 42 Colquitt V. Howard, 11 Ga. 556; Monumoi Great Beach v. Eogers, 1 Mass. 159; Second Congregational Soe. in North Bridgewater v. Waring, 24 Pick. (Mass.) 304. 43 Colquitt V. Howard, 11 6a. 556. In Colquitt v. Howard, 11 Ga. 556, the court distinguished the case of Leffingwell v. Elliott, 8 Pick. (Mass.) 455, 457, 19 Am. Dec. 343, because of the fact that the corporation formed was for manufacturing pur- poses. It should be noted, however, that other Massachusetts cases hold- ing similarly to the Georgia court call attention to the fact that the Leffingwell case (as well as the eases of Mitchell v. Starbuok, 10 Mass. 5, and Holland v. Cruft, 2 Gray [Mass.] 161, 61 Am. Dec. 448) was decided under a different statute. See Pro- prietors of Jeffries Neck Pasture v. Inhabitants of Ipswich, 153 Mass. 42, 26 N. E. 239. 44 Colquitt V. Howard, 11 Ga. 556; Second Congregational Soc. in North Bridgewater v. Waring, 24 Pick. (Mass.) 304. One of the original tenants in com- mon who has covenanted to build and keep a dam across the river, the prop- erty being made liable for the re- sult of the breach of the covenant, is not personally chargeable on his covenant, but the property is charge- able in the hands of the corporation. Colquitt v. Howard, 11 Ga. 556. 45 Second Congregational Soc. in North Bridgewater v. Waring, 24 Pick. (Mass.) 304. 813 § 386] Pbivate Coepobations [Ch. 12 When a long period of time has elapsed since the act of incorpora- tion, neither the individual proprietors nor their heirs or assigns, nor strangers can attack the validity of the organization.** 46 Proprietors of Jeffries Neck Pas- loff v. Hardy, 26 Me. 228; Chamber- ture V. Inhabitants of Ipswich, 153 lain v. Bussey, 5 Greenl. (Me.) 164. Mass. 42, 26 N. E. 239. See also Col- 814 CHAPTER 13 Citizenship, Domicile, Residence and Habitanct § 387. In general. § 388. Clause of Fourteenth Amendment of Federal Constitution defining citizen- ship. § 389. Equal privileges and immunities clause of Federal Constitution. § 390. For purposes of federal jurisdiction — Diversity of citizenship. § 391. — Suits for infringement of patents, and for wrongful use of trade- marks. § 392. — Court of Claims. § 393. For purpose of holding corporate meetings and transacting corporate business. § 394. Within acknowledging and recording statutes. § 395. For purposes of taxation. § 396. For purposes of venue — Suits in federal courts. § 397. — Suits in state courts. § 398. Within statutes of limitations. § 399. For purposes of attachment and garnishment. § 400. Statute relating to judgment on filing afBdavit of claim. § 401. Corporations created by congress — In general. S 402. — National banks. §403. "Principal place of business" and "residence" within bankruptcy acts. § 387. In general. The present chapter deals with the question of the citizenship, domicile, residence and habitancy of corporations and not those of corporators, such being discussed elsewhere.^ Except that "citizenship," "domicile," "residence"^ and "habi- tancy"^ are commonly associated only with naturjil persons, there would seem to be no good reason at this late day for denying that, 1 See § 104, supra. residents or nonresidents of a state. ' ' 2 ' ' Eesidenee is an attribute of a 3 " A corporation is a mere ideal ex- natural person and can be predicated istence, subsisting only in contempla- of an artificial being only by a more or tion of law; an invisible being, which less imperfect analogy." Kimmerle v. can have, in fact, no locality, and can Topeka, 88 Kan. 370, 43 L. E. A. (N. occupy no space; and therefore, can- S.) 272, 128 Pae. 367. not have a dwelling place." Wood v. See, however, Marshall v. R. M. Hartford Fire Ins. Co., 13 Conn. 202, Owen & Co., 171 Mich. 232, 137 N. W. 209, 33 Am. Dec. 395. See also Kim- 204, in which the court said: "Cor- merle v. Topeka, 88 Kan. 370, 43 L. porations, like individuals, are either E. A. (N. S.) 272, 128 Pac. 367. 815 §387] Peivate Cokpokations [Ch. 13 for certain purposes, any one or all of the four may be imputed to a corporation. More than a century ago, Chief Justice Marshall established the rule, M'hich has ever since been followed,* that a cor- poration is to be regarded as a "citizen" for purposes of suit in the federal courts on the ground of diversity of citizenship.^ While this greatest of American jurists took the view that "that invisible, intangible, and artificial being, that mere legal entity, a corporation aggregate, is certainly not a citizen; and, consequently, cannot sue or be sued in the courts of the United States, unless the rights of the members in this respect can be exercised in their cor- porate name," and that "if the corporation be considered as a mere faculty, and not as a company of individuals, who, in transacting their joint concerns, may use a legal name, they must be excluded from the courts of the Union," he held it proper to look beyond the corporation to the individuals who compose it, and, so doing, to attach to the incorporeal being necessary corporeal qualities, among them — and for purposes of jurisdiction — the one of citizenship, which citizenship would be that of its members.® 4 See § 390, infra. 6 Bank of United States v. Deveaux, 5 Granch (U. S.) 61, 3 L. Ed. 38. That a corporation cannot be deemed a "citizen" within the mean- ing of the Federal Constitution when testing the sufficiency of jurisdictional averments, see Muller v. Dows, 94 U. S. 444, 24 L. Ed. .207; Ohio & M. E. Co. V. Wheeler, 66 TJ. S. 286, 17 L. Ed. 130; Lafayette Ins. Co. v. French, 18 How. (U. S.) 404, 15 L. Ed. 451; Mar- shall V. Baltimore & O. E. Co., 16 How. (U. S.) 314, 14 L. Ed. 953; Winkler v. Chicago & E. I. E. Co., 108 Fed. 305. The conclusion, in an indictment returned against a corporation for maintaining a public nuisance, that the alleged acts were to the damage of divers "other citizens" of the state, was held unauthorized, a corporation not being a "citizen" in the ordinary meaning of the term. United States Board & Paper Co. v. State, 174 Ind. 460, 91 N. E. 953. 6 ' ' That [corporate] name, indeed, cannot be an alien or a citizen; but the persons whom it represents may be the one or the other; and the con- troversy is, in fact and in law, be- tween those persons suing in their corporate character, by their corporate name, for a corporate right, and the individual against whom the suit may be instituted. Substantially and es- sentially, the parties in such a case, where the members of the corporation are aliens, or citizens of a different state from the opposite party, come within the spirit and terms of the jurisdiction conferred by the consti- tution on the national tribunals. Such has been the universal understanding on the subject. Eepeatedly has this court decided causes between a cor- poration and an individual without feeling a doubt respecting its juris- diction. Those decisions are not cited as authority; for they were made with- out considering this particular point; but they have much weight, as they show that this point neither occurred to the bar nor the bench; and that the common understanding of intelli- gent men is in favor of the right of incorporated aliens, or citizens of a 816 Ch. 13] Citizenship, Domicile and Eesidence [§387 Chief Justice Marshall's rule that a corporation is to be deemed a "citizen" for purposes of federal jurisdiction stands to-day undis- puted, although the reasoning which resulted in its formulation and his rule for determining where the imputed citizenship, lay have been supplanted. In a case decided by the Supreme Court of the United States some thirty-five years later, the court said: "A corporation created by a state to perform its functions under the authority of that state, and only suable there, though it may have members out of the state, seems to us to be a person, though an artificial one, in- habiting and belonging to that state, and therefore entitled, for the purpose of suing and being sued, to be deemed a citizen of that state."'' It may be true, as has been said, that "corporate personality and existence are themselves fictions, and the citizenship or locality of a corporation is the fiction of a fiction"* but the fact remains that this "fiction of a fiction" will be indulged when necessary to the different state from the defendant, to sue in the national courts. It is by a course of acute, metaphysical and abstruse reasoning, 'which has been most ably employed on this occasion, that this opinion is shaken. As our ideas of a corporation, its privileges and its disabilities, are derived en- tirely from the English books, we re- sort to them for aid in ascertaining its character. It is defined as a mer© creature of the law, invisible, intangi- ble and incorporeal. Yet, when we examine the subject further, we find that corporations have been included within terms of description appro- priated to real persons. * * » These opinions [Coke's Insts. pt. 2, vol. 2 (1797) p. 703, and Eex v. Gard- ner, 1 Cowp. 79, infra] are not pre- cisely in point; but they serve to show that, for the general purposes and objects of a law, this invisible, incor- poreal creature of the law may be con- sidered as having corporeal qualities. ' ' Bank of United States v. Deveaux, 5 Cranch (U. S.) 61, 3 L. Ed. 38. 7 Louisville, G. & C. E. Co. v. Letson, 2 How. (U. S.) 497, 11 L. Ed. 353. Con- tinuing, the court said: "We remark, too, that the cases of Strawbridge v. Curtis, [3 Cranch (IT. S.) 267, 2 L. Ed. 435 (not in point)] and The Bank V. Deveaux [supra] have never been satisfactory to the bar, and that they were not, especially the last, entirely satisfactory to the court that made them. They have been followed always most reluctantly and with dis- satisfaction. By no one was the cor- rectness of them more questioned than by the late Chief Justice who gave them. It is within the knowledge of several of us, that he repeatedly ex- pressed regret that those decisions had been made, adding, whenever the sub- ject was mentioned, that if the point of jurisdiction was an Original one, the conclusion would be different. We think we may safely assert, that a ma- jority of the members of this court have at all times partaken of the same regret, and that whenever a case has occurred on the circuit, involving the application of the case of The Bank V. Deveaux, it was yielded to, because the decision had been made, and- not because it was thought to be right." See also St. Louis & S. F. E. Co. v. James, 161 U. S. 545, 40 L. Ed. 802. 8 Goodwin v. New York, N. H. & H, E. Co., 124 Fed. 358. I Priv. Corp. — 52 817 387] Private Coepoeations [Ch. 13 maintenance of the rights or the enforcement of the liabilities of corporations.^ In England, it has been held that a corporation of Great Britain ■was a British subject, within the meaning of a statute permitting the registry of a vessel when owned by a British subject, and, further, that it made no difference in this connection that some or even all of the stockholders were foreigners.^" According to Lord Coke "every corporation and body politicke residing in any county, riding, citie, or towne corporate, or having lands or tenements in any shire, riding, city, or town corporate, quae propriis manihus et sumptibus possident et habent, are said to be 9 See §§22-41, supra. Citizenship is possible only as the corporation has a de jure existence, a de facto existence is not suflScient. Gastonia Cotton Mfg. Co. v. W. L. "Wells Co., 128 Fed. 369. 10 Beg. V. Arnaud, 16 L. J. Q. B. (N. S.) 50. In this case, the customhouse of- ficers refused to register a vessel be- longing to a British corporation, on the ground that some of the members of the corporation were foreigners, and the statute allowed the registry of such vessels only as belonging whol- ly to British subjects. On mandamus proceedings to compel the officers to register the vessel, it was held that, as it belonged to a British corpora- tion, and, not the members thereof, it was entitled to registry. "The in- dividual members of a corporation, no doubt," said Lord Denman, "are in- terested in one sense in the property of the corporation, as they may de- rive individual benefit from its in- crease, or loss from its destruction; but in no legal sense are the indi- vidual members the owners. ' ' Beg. v. Arnaud, 16 L. J. Q. B. (N. S.) 50. See also Janson v. Driefontein Consol. Mines, [1902] A. C. 484. In Continental Tyre & Bubber Co., Ltd. V. Daimler Co., Ltd., [1915] 1 K. B. 893, it was held that an English corporation did not change its char- acter as such, because on the outbreak of war all of its shareholders (except one) and directors were residing in and were subjects of the enemy coun- try and therefore became alien ene- mies, and hence that payment to the corporation was not illegal as pay- ment to an alien enemy. This judg- ment was concurJed in by all of the members of the court except Buckley, L. J. In the course of the dissenting judgment of the latter, he said: "The corporation, if it be a British cor- poration, stands in the same position for most purposes as a British sub- ject. For instance, as regards rights of ownership of property and the right to protection and assistance by the law. But while it stands for most purposes in the position of a British subject, it cannot, I think, be cor- rectly described as a British subject. A subject must, I conceive, be one who can owe and pay allegiance to the King, who can serve the King physi- cally; for instance, if he be a male, by wearing weapons and serving in the wars, who has a mind and can be either loyal or disloyal to the King. None of these can be predicated of the abstract legal entity. It has no existence at all except in contempla- tion of law." See also Fritz Schulz, Jr., Co. V. Raines & Co., 164 N. Y. Supp. 454. 818 Ch. 13] Citizenship, Domicile and Residence [§387 inhabitants there within the purview of" the statute of Henry VIII (22 Hen. VIII, c. 5) concerning the repair of bridges.^^ Not only is the fact of the citizenship, habitancy and residence of a corporation settled beyond the point of refutation, but the courts, with but few dissenting voices, assent to the proposition, only occa- sionally attempted to be qualified, that such citizenship, domicile, residence, or habitancy as the case may be, can be only of or in the state or country by which the corporation was created.^^ The Supreme Court of the United States said, in an early ease: "A corporation can have no legal existence out of the boundaries of the sovereignty by which it is created. It exists only in contempla- tion of law, and by force of the law; and where that law ceases to operate, and is no longer obligatory, the corporation can have no existence. It must dwell in the place of its creation, and cannot migrate to another sovereignty. ' ' ^' This statement has been fre- quently repeated by the supreme court in slightly different phrase- ology perhaps, but always to the point that the legal existence, the home, the domicile, the habitat, the residence, the citizenship of the corporation can only be in the state by which it was created not- withstanding it may lawfully do business in other states.^* Other courts, federal and state, of vddely separated jurisdictions have, time and again, approvingly quoted such statement or at least enunciated, in different words, the same doctrine and cited thereto the case in which the statement was originally made. It is therefore safe to say that the law on the subject, as it is generally accepted to-day, is laid down in the words quoted.^" n Coke's Insts. pt. 2, vol. 2 (1797) (U. S.) 227, 15 L. Ed. 896; Marshall p. 703. V. Baltimore & O. E. Co., 16 How. (U. In Rex V. Gardner, 1 Cowp. 79, a S.) 314, 14 L. Ed. 953. college corporation seised of lands in 18 "The law of the state creating a fee for its own profit was held to lie corporation is the breath of its life, the "inhabitant" and "occupier" of Such I understand to be the doctrine such lands within the meaning of a announced in the cases cited * » * statute providing for poor rates or and it has generally been laid down assessments. with reference to the citizenship of 12 See §§ 390-392, infra. corporations. The supreme court have, 13 Bank of Augusta v. Earle, 13 Pet. we know, by a legal fiction, endowed (TJ. S.) 519, 10 L. Ed. 274. corporations with citizenship in the 14 Shaw v. Quincy Min. Co., 145 U. states by which they are created, and S. 444, 36 Ii. Ed. 768. See also Ger- they cannot transfer this citizenship mania Fire Ins. Co. v. Francis, 11 from a state where the law alone gives Wall. (IT. S.) 210, 20 L. Ed. 77; Ohio them life to a state in which no law & M. E. Co. V. Wheeler, 1 Black (XJ. exists to keep them alive. As a natu- S.) 286, 17 L. Ed. 130; Covington ral person passing from vital air into Drawbridge Co. v. Shepherd, 20 How. vacuum dies, so a corporation trans- 819 387] Pkivate Cobpoeations [Ch. 13 A corporation is incapable of passing personally beyond the juris- diction of the sovereignty which created it.^® It may do business and maintain agencies in another state ; ^'' its officers, directors and ferred from its state of life giving law to a place where it has no law ceases to live." McCabe v. Illinois Cent. R. Co., 13 Fed. 827. tinder a statute requiring one claim- ing a lien on funds due a public con- tractor to state his residence, the residence of a corporation lienor is sufficiently stated where the state of incorporation of the claimant is given, the residence of a corporation, strictly speaking, being the state in which it was incorporated. National Fire Proofing Co. v. Daly, 76 N. J. Eq. 35, 74 Atl. 152; Hall Incorporated Co. v. Jersey City, 62 N. J. Eq. 489, 50 Atl. 603. 16 Plimpton v. Bigelow, 93 N. Y. 592, 598. The fact that a railroad corporation is by its charter authorized to own and manage property in a state other than that of its creation confers no authority upon it to change its domi- cile to such state. Aspinwall v. Ohio & M. E. Co., 20 Ind. 492, 83 Am. Dec. 329. 17 "A corporation created and or- ganized under the laws of a particular state has its legal residence in that state, and * * * cannot change its citizenship by doing business in an- other state." Eailroad v. Barnhillj 91 Tenn. 395, 397, 30 Am. St. Eep. 889, 19 S. W. 21. This applies also to the residence of a corporation allowed to do business, through its officers and agents, in other jurisdictions. Chafee V. Fourth Nat. Bank, 71 Me. 514, 36 Am. Eep. 345; Ireland v. Globe Milling & Eeduction Co., 19 E. I. 180, 29 L. E. A. 429, 61 Am. St. Eep. 756, 32 Atl. 921. Unlike a natural person, a corpora- tion cannot change its domicile at will, and although it may be permitted to transact business where its charter does not operate, it does not on that account acquire a residence there. Germauia Fire Ins. Co. v. Francis, 11 Wall. (IT. 8.) 210, 20 L. Ed. 77; Block V. Standard Distilling & Distributing Co., 95 Fed. 978. A cqrporation obtains a residence not by its own act but by legal au- thority which fixes the requisites of residence. Newport & C. Bridge Co. V. Woolley, 78 Ky. 523, 525. A corporation does not become a nonresident of the state by which it was created merely because it has its real and active place of business else- where than in such state during cer- tain seasons of the year. Hastings v. Anacortes Packing Co., 29 Wash. 224, 69 Pac. 776. The domicile of a corporation with respect to debts due by it is in the state of its creation. Equitable Life Assur. Society v. Vogel 'a Ex 'r, 76 Ala. 441, 52 Am. Eep. 344. The fact that an insurance company, organized under the laws of New York, appointed an agent in another state on whom service of process might be made, so as to enable it to do business in such other state under it's laws, in no sense changed the domi- cile of the corporation, so as to make a debt owing by it to a resident of New York for a loss under a policy, occurring in the other state, an in- debtedness existing in that state. Douglass V. Phenix Ins. Co. of Brook- lyn, 138 N. Y. 209, 20 L. E. A. 118, 34 Am. St. Eep. 448, 33 N. E. 938, afif'g 63 Hun (N. Y.) 393, 18 N. Y. Supp. 259. A corporation created by the laws of a certain state for purposes to be carried on and executed within its jurisdiction is not a nonresident withia 820 Ch. 13 ] Citizenship, Domicile and Residence [§387 stockholders may reside therein ; *' it may be denominated a domestic corporation, be vested with citizenship and be given a local residence by the statutes of such state, yet it continues to be a citizen, inhabitant and resident only of the state by which it was created except so far as the operation of local laws requires that it be regarded as having a local citizenship, habitancy, or residence, as the case may be.^^ "While this additional fiction, if it be so regarded, must be acknowl- edged to have first been indulged in cases involving the question of the jurisdiction of the federal courts, the occasions upon and the cir- cumstances under which it has since been invoked have been so many and so varied that it must be recognized as existing generally for ordi- nary purposes 20 the meaning of the statute relating to security for costs. Pennsylvania & N. J. Steamboat Co. v. Andrews, 8 N. J. L. 177. "A corporation is deemed to be a resident of that state by the laws of which it was created; but, as the ar- tificial being may send agents into other states to transact any business that is not ultra vires, the state to which such representatives are dis- patched may by proper legislation make the corporation liable to its citi- zens in actions and suits." Cunning- ham V. Klamath Lake E. Co., 54 Ore. 13, 101 Pac. 213, rehearing denied 101 Pac. 1099. 18 A corporation is regarded as hav- ing a legal residence in the state of its creation although it may do no business within such state and all of its ofScers, agents, and stockholders may reside without its borders. Mc- Kendrick v. Western Zinc Min. Co., 165 Cal. 24, 130 Pac. 865. "It is true that corporations can- not migrate from one sovereignty into another, so as to become legal local existences within the latter sov- ereignty; but it is also true that the migration of the directors of a cor- poration from one sovereignty into another does not terminate the exist- ence of such corporation within the sovereignty which created it," where by statute the stockholders are the corporation and the directors merely the corporation's agents. "Wright v. Bundy, 11 Ind. 398. See also Merrick V. Van Santvoord, 34 N. Y. 208, 220. But a domestic corporation may "depart from the state" by the re- moval therefrom of all of its officers and managing agents within the mean- ing of a statute providing for service of process by publication, when the person against whom suit is brought has departed from the' state, a cor- poration being a "person" within the meaning of such statute. McKendriok V. "Western Zinc Min. Co., 165 Cal. 24, 130 Pac. 865. 19 "Whether a corporation can be con- sidered a resident of a particular place by reason of its doing business there depends wholly on the connection in which the question arises. Kimmerle V. Topeka, 88 Kan. 370, 43 L. E. A. (N. S.) 272, 128 Pac. 367. And see §§ 396-399, infra. 20 In a bankruptcy proceeding, the court remarked, arguendo, and refer- ring to the state in which the bank- rupt company was incorporated, that it could not "have inhabitancy or residence elsewhere." Eoszell Bros, v. Continental Coal Corporation, 235 Fed. 343. "While it has been said that "it is not true without qualification that a 821 § 387] Peivate Cokpobations [Ch. 13 "In the jurisprudence of the United States a corporation is re- garded as in effect a citizen of the state which created it. It has no faculty to emigrate. It can exercise its franchises extraterritorially only so far as may he permitted hy the policy or comity of other sovereignties. By the consent, express or implied, of the local gov- ernment, it may transact there any business not ultra vires, and, 'like a natural person, may have a special or constructive residence, so as to be charged with taxes and duties or be subjected to a special juris- diction.' "^i Justice Holmes of the Supreme Court of the United States said, on one occasion, while a member of the Supreme Court of Massachusetts, that "there are even greater objections to a double domicile than there are to double citizenship. Under the law as it has been, a man might find himself owning a double allegiance without any choice of his own. But domicile, at least for any given purpose, is single by its essence * * *. A corporation does not differ from a natural person in this respect. If any person, natural or artificial, as a result of choice, or on technical grounds of birth or creation, has a domicile in one place, it cannot have one elsewhere, because what the law means by domicile is the one technically pre-eminent headquarters, which, as a result either of fact or fiction, every person is compelled to have in order that by aid of it certain rights and duties which have been attached to it by the law may be determined. It is settled that a corporation has its domicile in the jurisdiction of the state which created it, and as a consequence, that it has not a domicile any- where else. ' ' ^^ "While a corporation must dwell in the state by which it was created, corporation created by one state has its property may be located or its no existence outside that state," the business may be transacted, but on court's illustration, namely, that the theory that, as a corporation must "corporations created outside Massa- act by agents, it may through its ehusetts sue and are sued in the state agents subject itself to the jurisdic- and federal courts of Massachusetts tion of a foreign tribunal. Plimpton every day, and their existence is thus v. Bigelow, 93 N. Y. 592, 598. recognized ' ' (Goodwin v. New Tort, See also Douglass v. Pheuix Ins. Co., N. H. & H. R. Co., 124 Fed. 358), does 138 N. Y. 209, 20 L. E. A. 118, 34 Am. not bear out the point made, since St. Eep. 448, 33 N. E. 938, aff'g 63 suits by or against foreign corpora- Hun (N. Y.) 393; Gibbs v. Queen Ins. tions are not maintained on the theory Co., 63 N. Y. 114, 20 Am. Rep. 513. that the corporation litigant is present 21 St. Louis v. Wiggins Ferry Co., in person, or that the corporate entity 11 Wall. (IT. S.) 423, 20 L. Ed. 192. attends the corporate oflicers in their 22Bergner & Engel Brewing Co. v. migrations from one state to another, Dreyfus, 172 Mass. 154, 70 Am. St. or that it is itself present wherever Rep. 251, 51 N. B. 531. 822 Ck. 13] Citizenship, Domicile and Residence [§ 388 and cannot migrate to another sovereignty, "yet different flharters for the same general business may be granted by different states to the same incorporators, and when that is done and organization is properly effected under each charter, in succession, the corporation becomes a citizen of each state, and as such has the protection of and is amenable to her laws."*' §388. Clause of Fourteenth Amendment of Federal Constitution defining citizenship. A railroad company, incorporated under acts of congress, whose activities and operations were not intended to be, and, in fact, are not confined to a single state hut are carried on in dif- ferent states, is a citizen of the United States in the same sense that a corporation organized under the laws of a particular state is a citi- zen of such state, but it is not within that clause of section 1 of the Fourteenth Amendment to the Federal Constitution which provides that "all persons born or naturalized in the United States, and subject 23 Mobile & O. E. Co. v. BarnMll, 91 Tenn. 395, 30 Am. St. Eep. 889, 19 S. W. 21, citing Memphis & 0. E. Co. V. Alabama, 107 U. S. 581, 27 L, Ed. 518. In considering the status of a consolidated corporation, authorized by the laws of the states creating the constituent corporations, against which an information in the nature of a quo warranto had been filed, the Su- preme Court of Illinois has said: "The new corporation will, as was said in Minot v. Philadelphia, Wil- mington and Baltimore Eailroad Co., 18 Wall. 206, become vested with 'the rights and privileges which the origi- nal companies had previously pos- sessed under their respective charters, — the rights and privileges in Mary- land which the Maryland company had enjoyed, and the rights and privileges in Delaware which the Delaware com- pany had there enjoyed, — not to transfer to either state, and enforce therein the legislation of the other. * * * The new company stood, in each state, as the original company had previously stood in that state, in- vested with the same rights and sub- ject to the same liabilities.' Unlike a corporation created by a single state, which cannot migrate or legally exist outside of the territorial limits of the state of its creation, the consolidated corporation, having a, capital stock which is a unit, and only one set of stockholders who have an interest, by virtue of their ownership of shares of such stock, in all of its property everywhere, and a single board of di- rectors, will have its domicile in each state, and the stockholders, directors and officers can, in the absence of any statutory provision to the contrary, hold meetings and transact corporate business in either of the states, though in its relation to either state the con- solidated company will be a sepa- rate corporation, governed by the laws of that state as to its property therein, and subject to taxation in conformity with the laws of such state, and to all the police power of the state in respect to its property and franchise within such state. Gra- ham v. Boston, H. & E. E. Co., 118 IT. S. 161, 30 L. Ed. 196; Covington & Cincinnati Bridge Co. v. Mayer, 31 Ohio St. 317; Sprag^ue v. Hartford, Providence and Pishkill Eailroad Co., 5 E. I. 233; Pierce on Eailways, 20; 823 §389] Pbivate Coepoeations [Ch. 13 to the jurisidietion thereof, are citizens of the United States and of the state wherein they reside. ' ' ^* § 389. Equal privilegfes and immunities clause of Federal Consti- tution. That a corporation is not a "citizen" of any state within the meaning of section 2 of article 4 of the Federal Constitution which provides that "the citizens of each state shall be entitled to all priv- ileges and immunities of citizens in the several states" is a proposition that has long been established.^^ Indeed, it is by reason of this being Minot V. Philadelphia, Wilmington and Baltimore Eailroad Co., supra. And the same rule, as to domicile, seems to apply to a case where two corporations are created by adjoining states for the improvement of a river forming the common state boundary." Ohio & M. E. Co. V. People, 123 111. 467, 14 N. E. 874, citing Culbertson v. Wabash Nav. Co., 4 McLean 544, Fed. Cas. No. 3,464. See also § 390, infra. 24 Bankers ' Trust Co. v. Texas & P. E. Co., 241 U. 8. 295, 60 L. Ed. 1010. "It is claimed in argument that, before the adoption of the 14th amendment, to be a citizen of the United States, it was necessary to be- come a citizen of one of the states, but that since the 14th amendment this is reversed, and that citizenship in a state is the result and consequence of the condition of citizenship of the United States. Admitting this view to be correct, we do not see its bear- ing upon the question in issue. Who are citizens of the United States, within the meaning of the 14th amend- ment, we think is clearly settled by the terms of the amendment itself. 'AH persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the state wherein they reside.' No words could make it clearer that citizens of the United States, within the meaning of this article, must be natural, and not artificial persons; for a corporation cannot be said to be born, nor can it be naturalized. I am clear, therefore, that a corporate body is not a citizen of the United States as that term is used in the 14th amendment. ' ' Insur- ance Co. V. New Orleans, Fed. Cas. No. 7,052. 26 United States. Western Turf Ass'n V. Greenberg, 204 U. S. 359, 51 L. Ed. 520; Orient Ins. Co. v. Daggs, 172 U. S. 557, 561, 43 L. Ed. 552; Blake V. McOlung, 172 U. S. 2?9, 43 L. Ed. 432; Pembina Consol. Silver Mining & Milling Co. v. Commonwealth of Penn- sylvania, 125 U. S. 181, 31 L. Ed. 650; Philadelphia Fire Ass'n v. New York, 119 U. S. 110, 117, 30 L. Ed. 342; Liverpool Ins. Co. v. Massachusetts, 10 Wall. 566, 573, 19 L. Ed. 1029; Ducat V. Chicago, 10 Wall. 410, 414, 19 L. Ed. 972; Paul v. Commonwealth of Virginia, 8 Wall. 168, 19 L. Ed. 357; Insurance Co. v. New Orleans, Fed. Cas. No. 7,052. Maine. Chafee v. Fourth Nat. Bank, 71 Me. 514, 526, 36 Am. Eep. 345. [Massachusetts. Attorney General V. Electric Storage Battery Co., 188 Mass. 239, 3 Ann. Cas. 631, 74 N. E. 467. New Jersey. Tatem v. Wright, 23 N. J. L. 429, 441. New York. See Fire Department of City of New York v. Stanton, 28 N. Y. App. Div. 334, 51 N. Y. Supp. 242. Ohio. Humphreys v. State, 70 Ohio St. 67, 70 N. E. 957. West Virginia. Floyd v. National 824 Ch. 13] Citizenship, Domicile akd Residence [§389 true that a state may prescribe the conditions on which a foreign corporation may do business within its borders or may exclude it Loan & Investment Co., 49 W. Va. 327, 54 L. E. A. 536, 87 Am. St. Eep. 805, 38 S. E. 653. The quaere by Petitt, C. J., in his note to Western U. Tel. Co. v. Dickin- son, 40 Ind. 444, 13 Am. Eep. 295, ' ' as a corporation is a citizen of the state in which it is created, why is it not en- titled to all the privileges and im- munities of the citizens of the several states to trade and transact busi- ness?", is answered by Bank of Au- gusta V. Earle, 13 Pet. (U. S.) 519, 10 L. Ed. 274, in which the court said: "On the part of the plaintiff in error, it has been contended that a corpora- tion composed of citizens of other states is entitled to the benefit of that provision in the Constitution of the United States which declares that 'The citizens of each state shall be entitled to all privileges and immuni- ties of citizens in the several states; ' that the court should look behind the act of incorporation, and see who are the members of it; and, if in this case it should appear that the corporation of the Bank of Augusta consists al- together of citizens of the state of Georgia, that such citizens are entitled to the privileges and immunities of citizens in the state of Alabama; and as the citizens of Alabama may un- questionably purchase bills of ex- change in that state, it is insisted that the members of this corporation are entitled to the same privilege, and cannot be deprived of it even by ex- press provisions in the constitution or laws of the state. The case of The Bank of the United States v. Deveaux, 5 Cranch 61, 3 L. Ed. 194, is relied on to support this position. It is true, that in the case referred to, this court decided that in a question of jurisdic- tion they might look to the character of the person composing a cor- poration; and if it appeared that they were citizens of another state, and the fact was set forth by proper aver- ments, the corporation might sue in its corporate name in the courts of the United States. But in that case the court confined its decision, in express terms, to a question of jurisdiction; to a right to sue; and evidently went even so far with some hesitation. We fully assent to the propriety of that decision, and it has ever since been recognized as authority in this court. But the principle has never been ex- tended any farther than it was car- ried in that case, and has never been supposed to extend to contracts made by a corporation, especially in another sovereignty. If it were held to embrace contracts, and that the members of a corporation were to be regarded as individuals carrying on busi- ness in their corporate name, and therefore entitled to the privileges of citizens in matters of contract, it is very clear that they must at the same time take upon themselves the liabili- ties of citizens, and be bound by their contracts in like manner. The result of this would be to make a cor- poration a mere partnership in busi- ness, in which each stockholder would be liable to the whole extent of his property for the debts of the corpora- tion; and he might be sued for them in any state in which he might hap- pen to be found. The clause of the Constitution referred to certainly never intended to give to the citizens of each state the privileges of citizens in the several states, and at the same time to exempt them from the liabili- ties which the exercise of such privi- leges would bring upon individuals who were citizens of the state. This would be to give the citizens of other states far higher and greater privi- 825 §390] Private Cobporations [Ch. 13 altogether therefrom ** when it is not engaged in interstate or foreign commerce and is not in the employ of the federal government.^' § 390. For purposes of federal jurisdiction — Diversity of citizen- ship. A corporation, for purposes of federal jurisdiction on the ground of diversity of citizenship, is a citizen of the state or country which created it, only, although, by comity, it may be allowed to do business through its agents elsewhere.*' leges than are enjoyed by the citizens of the state itself. Besides, it would deprive every state of all control over the extent of corporate franchises proper to be granted in the state; and corporations would be chartered in one, to carry on their operations in an- other. It is impossible upon any sound principle to give such a construction to the article in question. Whenever a corporation makes a contract it is the contract of the legal entity; of the artificial being created by the charter; and not the contract of the individual members. The only rights it can claim are the rights which are given to it in that character, and not the rights which belong to its mem- bers as citizens of a state." 26 See chapter ori Foreign Corpora- tions, infra. 27 "Only two exceptions [to] or qualifications [of the doctrine that a state may prescribe the conditions on which foreign corporations may do business within its borders] have been attached to it in all the numerous ad- judications in which the subject has been considered, since the judgment of this court was announced more than a half century ago in Bank of Augusta V. Earl, 13 Pet. (N. S.) 519, 10 L. Ed. 274. One of these qualifica- tions is that the state cannot exclude from its limits a corporation engaged in interstate or foreign commerce, es- tablished by the decision in Pensacola Tel. Co. V. W. U. Tel. Co., 96 U. S. 1, 12 [24 L. Ed. 708, implied recognition of which qualification the court found even in Paul v. Commonwealth, supra]. The other limitation on the power of the state is, where the corporation is in the employ of the general govern- ment, an obvious exception, first stated, we think by the late Mr. Justice Bradley in Stockton v. Baltimore & N. Y. E. Co., 32 Fed. 9, 14. As that learned Justice said: 'If congress should employ a corporation of ship- builders to construct a man-of-war, they would have the right to purchase the necessary timber and iron in any state of the Union.' And this court, in citing this passage, added, ' without the permission and against the pro- hibition of the state.' Pembina Con. S. Min. & Mill Co. v. Pennsylvania," supra. Horn Silver Min. Co. v. New York, 143 U. S. 305, 36 L. Ed. 164. See al^o Cooper Mfg. Co. v. Fergu- son, 113 U. S. 727, 734, 28 L. Ed. 1137; Huflfman v. Western Mortgage & In- vestment Co., 13 Tex. Civ. App. 169, 36 S. W. 306; Floyd v. National Loan & Investment Co., 49 W. Va. 327, 54 L. E. A. 536, 87 Am. St. Eep. 805, 38 S. E. 653. 28 See St. Louis & S. F. R. Co. v. James, 161 V. S. 545, 40 L. Ed. 802; In re Keasbey & Mattison Co., 160 U. S. 221, 40 L. Ed. 402; In re Hohorst, 150 U. S. 653, 37 L. Ed. 1211; South- ern Pac. Co. V. Denton, 146 U. S. 202, 36 L. Ed. 943; Shaw v. Quincy Min. Co., 145 U. S. 444, 36 L. Ed. 768; Can. Southern E. Co. v. Gebhard, 109 XJ. S. 527, 537,' 27 L. Ed. 1020; Eailroad Co. V. Koontz, 104 II. S. 5, 26 L. Ed. 643; Ex parte Schollenberger, 96 TJ. S. 369, 24 L. Ed. 853; Tioga E. Co. v. Bloss- 826 Ch. 13] Citizenship, Domicile and Residence [§390 "By doing business away from their legal residence they do not change their citizenship, but simply extend the field of their opera- tions. They reside at home, but do business abroad. ' ' ^' burg & C. E. Co., 20 Wall. (U. S.) 137, 22 L. Ed. 331 (by Hunt, J., concurring in judgment) ; Baltimore & O. E. Co. V. Harris, 12 Wall. (U. S.) 65, 20 L. Ed. 265; Paul v. Virginia, 8 Wall. (U. S.) 168, 181, 19 L. Ed. 357; Ohio & M. R. Co. V. Wheeler, 1 Black (U. S.) 286, 17 L. Ed. 130; Lafayette Ins. Co. V. French, 18 How. (TJ. S.) 404, 15 L. Ed. 451; Tombigbee E. Co. v. Kneelaud, 4 How. (U. S.) 16, 1 L. Ed. 855; Euuyau v. Coster, 14 Pet. (TJ. S.) 122, 10 L. Ed. 382; Bank of Augusta V. Earle, 13 Pet. (XT. S.) 519, 10 L. Ed. 274; Baumgarten v. Alliance Assur. Co., Ltd., of London, England, 153 Fed. 301; United States v. Northern Pac. E. Co., 134 Fed. 715, rev'g 120 Fed. 546; A. L. Wolff & Co. v. Choc- taw, O. & G. E. Co., 133 Fed. 601; Olson V. Buffalo Hump Min. Co., 130 Fed. 1017; Eust v. United Waterworks Co., 70 Fed. 129; Missouri Pac. Ey. Co. V. Meeh, 69 Fed. 753, 30 L. E. A. 250; American Sugar-Eefining Co. v. Johnson, 60 Fed. 503; St. Louis, L M. & S. Ey. Co. V. Newcom, 56 Fed. 951; Fales Adm'x v. Chicago, M. & St. P. Ey. Co., 32 Fed. 673; Oregonian Ey. Co., Ltd. V. Oregon Ey. & Nav. Co., 27 Fed. 277; Pacific E. E. v. Missouri Pac. E. Co., 23 Fed. 565; Day v. Newark India-Eubber Mfg. Co., 1 Blatchf. 628, Fed. Cas. No. 3,685. "Although a corporation is not a citizen of a state within the meaning of many provisions of the national Constitution, it is settled that where rights of property or of action are sought to be enforced, it will be treat- ed as a citizen of the state where created within the clause extending the judicial power of the United States to controversies between citi- zens of different states." Nashua & L. E. Corporation v. Boston & L. E. Corporation, 136 U. S. 356, 34 L. Ed. 363. A corporation created and organ- ized under the laws of a particular state and having its principal ofBee there, is, for the purpose of suing and being sued, a citizen of that state, and although it may transact business wherever its charter allows, unless pro- hibited by local laws, it cannot mi- grate or change its residence without the consent, express or implied, of its state. Baltimore & O. E. Co. v. Koontz, 104 U. S. 5, 26 L. Ed. 643. See also § 387, supra. For purposes of jurisdiction, state as well as federal, a corporation is regarded as a resident of the state by which it was created and as a non- resident of other states. Boyer v. Northern Pac. E. Co., 8 Idaho 74, 70 L. E. A. 691, 66 Pac. 826. Eule applied to joint-stock company. Fargo V. Louisville, etc., Ey. Co., 6 Fed. 787. 29 Baltimore & O. E. Co. v. Koontz, 104 U. S. 5, 26 L. Ed. 643. A corporation created by the laws of a foreign country does not become a citizen or resident of a state of the United States for purposes of fed- eral jurisdiction by doing business in such state and having an office there- in. Notwithstanding such acts, its residence and citizenship remain in the country by the laws of which it was created. Baumgarten v. Alliance Assur. Co., Ltd. of London, England, 153 Fed. 301, disapproving Miller v. Eastern Oregon Gold Min. Co., 45 Fed. 345, 348, and Gilbert v. New Zealand Ins. Co., 49 Fed. 884, 15 L. E. A. 125; Howard v. Gold Eeefs of Georgia, 102 Fed. 657; Shattuck v. North Brit- ish & Mercantile Ins. Co. of London & Edinburgh, 58 Fed. 609. 827 §390] Pkivate Cobpoeations [Ch. 13 Originally, the holding that a corporation is a citizen, for purposes of federal jurisdiction on this ground, followed upon allegation and proof that all of its stockholders were citizens of a certain state.^" Subsequently, however, there was established the rule, which obtains to-day, that a suit by or against a corporation in its corporate name will, for such purposes, be conclusively presumed to be a suit by or against citizens of the state which created the corporation, and that neither averment nor evidence tending to show that one or more of the corporators are not citizens of such state will be permitted.'^ "A corporation created lay the laws 24 Ore. 32, 41 Am. St. Eep. 831, 32 of a foreign country does not become a citizen or resident of a state of this Union by merely opening an ofSoe in the state, and transacting business there; and a petition for removal which shows that the defendant is a corporation chartered by the laws of another state or a foreign country does not have to allege negatively that it is not a citizen or resident of the state in which suit is brought against it, because in legal contemplation its residence and citizenship can only be in the state or country by the laws of which it was created, although it may have an office and do business in other states whose laws permit it." Shattuck V. North British & Mercan- tile Ins Co. of London & Edinburgh, 58 Fed. 609. See also Baumgarten v. Alliance Assur. Co., 153 Fed. 301. In the absence of any statute regu- lating the matter, a corporation main- taining an agency in a state other than that of its creation and doing business therein, is deemed a resident thereof, and subject to the jurisdiction of its courts in all matters growing out of contracts made in such state, or causes of action arising therein, and service of process can be made on it in the same manner as in case of a domestic corporation. Cunning- ham V. Klamath Lake E. Co., 54 Ore. 13, 101 Pac. 213, rehearing denied 101 Pac. 1099; Farrell v. Oregon Gold Co., 31 Ore. 463, 49 Pac. 876; Aldrich V. Anchor Coal & Development Co., Pac. 756. 30 Bank of United States v. De- veaux, 5 Cranch (U. S.) 61, 3 L. Ed. 38; Hope Ins. Co. v. Boardman, 5 Cranch (U. S.) 57, 3 L. Ed. 36. See also § 387, supra. 31 Louisville, C. & C. E. Co. v. Let- son, 2 How. (U. S.) 497, 11 L. Ed. 353. That for purposes of federal juris- diction the members of a corporation are conclusively presumed to be citi- zens of the state by which the cor- poration was created is a proposition "so firmly established that further discussion of" it "would be both use- less and inappropriate." Thomas v. Ohio State University, 195 U. S. 207, 49 L. Ed. 160. See also Barrow Steamship Co. v. Kane, 170 U. S. 100, 42 L. Ed. 964; United States v. Northwestern Ex- press, Stage & Transportation Co., 164 U. S. 686, 689, 41 L. Ed. 599; St. Louis & S. F. E. Co. v. James, 161 U. S. 545, 40 L. Ed. 802; National Steam- ship Co. V. Tugman, 106 U. S. 118, 27 L. Ed. 87; MuUer v. Dows, 94 U. S. 444, 24 L. Ed. 207; Baltimore & O. E. Co. V. Harris, 12 Wall. (U. S.) 65, 20 L. Ed. 354; Ohio & M. E. Co. v. Whee- ler, 1 Black (U. S.) 286, 17 L. Ed. 130; Smith v. New York, N. H. & H. E. Co., 96 Fed. 504; Taylor v. Illinois Cent. E. Co., 89 Fed. 119; Hollings- worth V. Southern Ey. Co., 86 Fed. 353; Philippine Sugar Estates Devel- opment Co. V. United States, 39 Ct. CI. (U. S.) 225, 241; Thorn v. Central 828 Ch. 13] Citizenship, Domicile and Eesidence [§390 A corporation is a citizen of a particular state for purposes of R. Co., 26 N. J. L. 121j Eeee v. New- port News & M. v. Co., 32 W. Va. 164, 171, 3 L. E. A. 572, 9 g. E. 212. ' ' Strictly speaking, corporations cannot be citizens; and therefore, in order to hold them amenable to the federal jurisdiction on the ground of citizenship, it has been found neces- sary to assume, often contrary to the fact, that all the stockholders are citi- zens of the state by which the cor- poration was eieated. It is only by virtue of this assumption that a corporation can be said to be a citi- zen of any state. The presumption that all the stockholders are citizens of the state under whose laws they incorporate is a conclusive presump- tion, and the fact will not be inquired into. The fact may be that not one of the stockholders is a citizen of such state; but if so, it cannot be made to appear. The place of transacting business cuts no figure. The corpora- tion, for judicial purposes, is a citizen of the state by which it was created, even if all its business is transacted elsewhere, and all of its offices and places of business are outside of the state. ' ' Pacific R. E. v. Missouri Pac. Ey. Co., 23 Fed. 565. The legal presumption that a cor- poration is composed of citizens of the state accompanies it when it does business in another state. St. Louis & S. F. K. Co. v. James, 161 U. S. 545, 40 L. Ed. 802. The members of an alien corpora- tion will, for purposes of federal jur- isdiction, be conclusively presumed to be citizens or subjects of the coun- try or government by whose laws the corporation was created, and the cor- poration itself is for such purposes to be deemed constructively a citizen or subject of such country or gov- ernment. National Steamship Co. v. Tugman, 106 U. S. 118, 27 L. Ed. 87. The legal presumptions, for pur- poses of federal jurisdiction, that the members of a corporation are citizens of the state which created it and that a suit by or against a corporation in its corporate name is a suit by or against citizens of the state which brought the corporation into being, will not defeat federal jurisdiction, on the ground of diversity of citizen- ship, of a suit against a corporation by a stockholder therein, there being no legal presumption in such a case that the complainant by reason of his re- lation to the corporation is a citizen of the same state as the latter. Han- chett v. Blair, 100 Fed. 817. See also TJtah-Nevada Co. v. De Lamar, 133 Fed. 113. Since the provisions of the Consti- tution of the United States cannot be nullified by presumptions of law or legal fictions, the jurisdiction of the federal courts, on the ground of di- versity of citizenship, of a suit against a corporation, created by one state, by certain of its stockholders, who are citizens of another state, cannot be defeated by invoking the presump- tion that the stockholders of a corpo- ration are citizens of the state by which the corporation was created. Doctor V. Harrington, 196 IT. S. 579, 49 L. Ed. 606, wherein Mr. Justice McKenna said: "The reason of the presumption (we will so denominate it) was to establish the citizenship of the legal entity for the purpose of jurisdiction in the federal' courts. Be- fore its adoption difficulties had been encountered on account of the condi- tions under which jurisdiction was given to those courts. A corporation is constituted, it is true, of all its stockholders, but it has a legal exist- ence separate from them — rights and obligations separate from them; and may have obligations to them. It can sue and be sued. At first this could 829 §390] Peivate Cobpoeations [Ch. 1!. federal jurisdiction only when it is created out of natural persons,^'' and hence the fact that one state licenses or permits a corporation created by another state to operate and transact business within its borders, and adopts or naturalizes it and makes it a domestic cor- poration for local purposes does not make it a citizen of the latter state for the purpose of suing or being sued in the courts of the United States.^s be done in the Circuit Court of the ITnited States only when the corpora- tion was composed of citizens of the State which created it. Bank of United States v. Deveaux, 5 Cranch (U. S.) 61; Hope Ins. Co. v. Board- man, 5 Cranch (U. S.) 57. But the limitation came to be seen as almost a denial of jurisdiction to or against corporations in the federal courts, and in Louisville, C. & C. E. Co. v. Letson, 2 How. (U. S.) 497, prior cases were reviewed; and this doctrine laid down: 'That a corporation created by and doing business in a particular State ia to be deemed to all intents and purposes as a person, although an arti- ficial person, * * * capable of be- ing treated as a citizen of that State, as much as a natural person.' And 'when the corporation exercises its powers in the State which chartered it, that is its residence, and such an averment is sufficient to give the cir- cuit courts jurisdiction.' The pre- sumption that the citizenship of the corporators should be that of the domi- cile of the corporation was not then formulated. That came afterwards, and overcame the difficulty and objec- tion that the legal creation, the cor- poration, could not be a citizen within the meaning of the Constitution. Mar- shall V. Baltimore & O. E. Co., 16 How. (TJ. S.) 314. This, then, was its purpose, and to stretch beyond this is to stretch it to wrong. It is one thing to give to a corporation a sta- tus, and another thing to take from a citizen the right given him by the Constitution of the United States." 32 St. Louis & S. F. R. Co. v. James, 161 U. S. 545, 40 L. Ed. 802. S3 Domestication of a corporation by a foreign state for local purposes does not make it a citizen of such state for the purpose of removing to the federal courts a suit brought against it in the courts of such state; South- ern Ey. Co. V. Allison, 190 U. S. 326, 47 L. Ed. 1078, rev'g 129 N. C. 336, 40 S. E. 91; Louisville, N. A. & C. R. Co. V. Louisville Trust Co., 174 V. S. 552, 43 L. Ed. 1081; nor for the purpose of defeating the jurisdiction of the federal court in which the ac- tion was originally brought. See Mis- souri Pac. E. Co. v. Castle, 224 U. S. 541, 56 L. Ed. 875. Although a railroad company own- ing and operating a line of road through several states may for many purposes be regarded as a corporation of each, the enabling legislation of such states does not make it a citizen of each so as to permit it to sue a citizen of one of such states in a fed- eral court on the ground of diversity of citizenship. St. Joseph & G. I. R. Co. V. Steele, 167 U. S. 659, 42 L. Ed. 315. Nor does a mere license granted by a state to a foreign railroad company to do business within its borders make such company a citizen of the state granting the license, so as to prevent the removal to the federal courts by the company on the ground of diversity of citizenship, of a suit brought against it by a citi- zen of the state in the courts thereof Gerling v. Baltimore & O. E. Co., 151 830 Ch. 13] Citizenship, Domioilk and Residence [§ 390 In this connection it may be stated that the application and opera- XT. S. 673, 38 L. Ed. 311. In this case, in holding that the Baltimore & Ohio Railroad Company was not a citizen of West Virginia so far as federal jurisdiction was concerned, the court said: "There does not appear, there- fore, to be such a settled course of adjudication in the courts of West Virginia that the Baltimore & Ohio Eailroad Company has been made by the statutes of Virginia a corporation of that state and of the state of West Virginia, as should induce this court, when the question arises under an act of congress defining the jurisdic- tion of the courts of the United States, to surrender its own opinion, and to reverse the conclusion at which it deliberately arrived in Baltimore & O. E. Co. V. Harris [12 Wall. (U. S.) 65, 20 L. Ed. 354], and which it has since repeatedly approved." See also Willson v. Winchester & P. E. Co., 99 Fed. 642, aff'g 82 Fed. 15; County Court of Taylor County, V. Baltimore & O. E. Co., 35 Fed. 161. In Baltimore & O. E. Co. v. Harris, 12 Wall. (IT. S.) 65, 20 L. Ed. 354, it was held that the Baltimore & Ohio Eailroad Company, created by the laws of Maryland, was not a citizen or resident of Virginia by reason of a statute of the latter state which provided that "the same rights and privileges shall be, and are hereby, granted to the aforesaid company within the territory of Virginia, and the said company shall be subject to the same pains, penalties, and obli- gations as are imposed by said act [the act of Maryland], and the same rights, privileges, and immunities which are reserved to the state of Maryland or to the citizens thereof are hereby reserved to the state of Virginia and her citizens," as this was not the creation of a new cor- poration, but a mere license to the Maryland corporation. A railroad company granted a right of way, etc., in a foreign state, does not in consequence become a domestic corporation and hence a citizen of such state so as to prevent its removal to the federal courts of a suit brought against it in the state courts by a citizen of the state. Hubble v. Nash- ville, C. & St. L. Ey. Co., 185 Fed. 535. A corporation transacting business in a foreign state, the statutes of which in terms fix its domicile within the state by the very fact of its de- ing business therein, remains a foreign corporation nevertheless as far as the jurisdiction of the federal courts on the ground of diversity of citizenship is concerned. St. Louis & S. F. E. Co. V. Cross, 171 Fed. 480. A railroad company chartered by a foreign state as a domestic corpora- tion for local purposes does not there- by become a citizen of such state for purposes of federal jurisdiction. Atlantic Coast Line E. Co. v. Dun- ning, 166 Fed. 850. (This case ia notable because it was not the com- pany as such that was created a cor- poration, but merely individuals designated by its stockholders upon its having "merged, united and con- solidated" with a company in such foreign state.) The fact that a corporation is trans- acting business in a foreign state under the laws thereof does not make it a citizen of such state so as to prevent one who is a citizen from suing it in a federal court of the state. Haight & Freese Co. v. Weiss, 156 Fed. 328, in which the court said that "after the Supreme Court has rendered decision on decision that a corporation cannot migrate, and that the fact that it is doing business in 831 ;§390j Private Cobpokations [Ch. 13 tion of this rule are the same, regardless of whether tne suit be a state other than that of its organ- ization does not create it a citizen thereof, it seems quite inconceivable that a proposition of this character [namely, one to the contrary of that stated above] should be urged on us." An insurance company doing busi- ness in a foreign state under a permit from such state is not on that account a citizen thereof for purposes of fed- eral jurisdiction on the ground of diversity of citizenship. Koshland v. National Tire Ins. Co. of Hartford, 31 Ore. 597, 49 Pac. 850; id., 31 Ore. 205, 49 Pac. 845. The leasing by a foreign railroad company of the line of road of a domestic company does not ipso facto make the lessee a domestic company so far as federal jurisdiction, on the ground of diversity of citizenship, of a ^uit against it is concerned. Hyder V. Southern E. Co., 167 N. C. 584, 83 S. E. 689. A corporation becoming under the statutes of a foreign state a "citizen and resident" of the latter for local purposes does not thereby lose its citi- zenship in the state by which it was created so as to prevent its removal to the federal courts of a suit brought against it by a citizen of the foreign state in the courts thereof, on the ground of diversity of citizenship. Davis' Adm'r v. Chesapeake & O. R. Co., 116 Ky. 144, 75 S. W. 275 (opin- ion 24 Ky. L. Eep. 1125, 70 S. W. 857, withdrawn). See also Lewis v. Maysville & B. S. E. Co., 25 Ky. L. Rep. 948, 76 S. "W. 526; Swice's Adm'x v. Maysville & B. S. R. Co., 25 Ky. L. Rep. 436, 75 S. "W. 278; Illinois Cent. E. Co. v. Hibbs, 25 Ky. L. Eep. 1899, 78 S. W. 1116. A railroad corporation, although it is domesticated by a foreign state for local purposes, is still a citizen for purposes of federal jurisdiction, on the ground of diversity of citizenship, of a suit brought against it by a citizen of such foreign state in the courts thereof, only of the state by which it was created. Wilson v. Southern R. Co., 64 S. 0. 162, 36 S. E. 701 (over- ruling Mathis V. Southern Ey. Co., 53 S. C. 246, 257, 31 S. E. 240), aff'd on rehearing 64 S. C. 162, 41 S. E. 971; Calvert v. Southern R. Co., 64 S. C. 139, 41 S. E. 963, aff 'g on rehearing 64 S. 0. 139, 36 S. E. 750. A statute by which a foreign cor- poration is adopted or naturalized without its being chartered or required to obtain a charter and organize un- der the general law, does not make it a domestic corporation so far as the jurisdiction of the federal courts is concerned. Rece v. Newport News & M. Val. Co., 32 W. Va. 164, 172, 3 L. E. A. 572, 9 S. E. 212. The constitutional privilege of a corporation which is a citizen of one state to sue a citizen of another state in the federal courts cannot be taken away by the simple declaration of the latter state that the corporation is one of its citizens. Eece v. New- port News & M. Val. Co., 32 W. Va. 164, 171, 3 L. E. A. 572, 9 S. E. 212. See also St. Louis & S. E. E. Co. V. Cross, 171 Fed. 480, aff'd Harrison V. St. Louis & S. E. E. Co., 232 U. S. 318, 58 L. Ed. 621, distinguished in Cox V. Atlantic Coast Line E. Co., 166 N. C. 652, 82 S. E. 979, which in- volved an act of the legislature, au- thorizing the consolidation of railroad companies but providing that "this act shall not have the effect of oust- ing the jurisdiction of the courts of this state over causes of action aris- ing within this state, ' ' and ' ' that any and all corporations consolidated, leased or organized under the provi- 832 Ch. 13] Citizenship, Domicile and Eesidenoe [§ 390 originally brought in a federal or a state eourt.^* Thus although a corporation of one state is authorized by another state to do busi- ness within its borders, and is endowed, for local purposes, with all of the powers aJid privileges of a domestic corporation, it will not be deemed to be composed of citizens of the adopting state. sions of this act shall be domestic corporations of * * * [the state] and shall be subject to the laws and jurisdiction thereof. ' ' The evident purpose of a statute declaring that a foreign railroad cor- poration operating in the state shall be a domestic corporation "and so held and treated in all suits and legal proceedings which may be commenced or carried on by or against it," being to prevent such a corporation from removing to the federal courts suits brought by or against it in the state courts, such statute is in conflict with the Constitution and laws of the United States and hence inoperative imd void. Rece v. Newport News & M. Val. Co., 32 W. Va. 164, 173, 3 L. E. A. 572, 9 S. E. 212, on the author- ity of Insurance Co. v. Morse, 20 Wall. (U. S.) 445, 22 L. Ed. 365. But compare Memphis & C. E. Co. v. Ala- bama, 107 U. S. 581, 27 L. Ed. 518. (The defendant in this case was origi- nally incorporated in Tennessee and was subsequently granted a right of way, etc., in Alabama by an act of the legislature of the latter state which, although not specific on the subject, was held to make it an Ala- bama corporation.) See also, in con- nection with the casQ last cited, Thompson v. Southern Ey. Co., 130 N. C. 140, 41 S. E. 9; Mowery v. Southern Ey. Co., 129 N. C. 351, 40 S. E. 88; Allison V. Southern Ey. Co., 129 N. C. 336, 40 S. E. 91, rev'd 190 TJ. S. 326, 47 L. Ed. 1078; Lay den v. Endowment Eank K. P. of World, 128 N. C. 546, 39 S. E. 47; Debnam v. Southern Bell Telephone & Telegraph Co., 126 N. C. 831, 86 S. E. 269. A railroad company, incorporated by one state, which purchases, at fore- closure sale, the property of a rail- road company incorporated by another state, cannot remove to the fe^^ eral courts, on the ground of diversity of citizenship, a suit brought against it in the courts of the latter state by a citizen of such st^te, when the stat' utes thereof provide that upon a con- veyance at a foreclosure sale being made to a corporation, such "corpora- tion shall ipso facto be dissolved and the said purchaser shall forthwith be a new corporation, by any name which may be set forth in the conveyance," etc. Hurst v. Southern E. Co., 162 N. C. 368, 78 S. E. 434, following Caro- lina Coal & Ice Co. v. Southern E. Co., 144 N. C. 732, 57 S. E. 444. 34 ' ' We do not subscribe to the doe- trine that, if a corporation files its charter in one state, after having been first chartered in another state, and is sued by a citizen of the state in which it filed its charter^ in the state courts of that state, the right of re- moval to the federal courts will be denied, while, at the same time, if such a corporation is sued by a citizen of the state in which it filed its char- ter, in the United States courts, the , jurisdiction of the United States courts will be sustained upon the ground that in the federal courts the corporation is domestic in the state where it was originally created and where its original incorporators are citizens, and it will be conclusively presumed, as a matter of law, that they are citizens of the state origi- nally chartering it. If there be jur- isdiction in the United States courts 1 Priv. Corp.— 53 833 §390] Peivate Cobpoeations [Ch. 13 and hence a federal court of the latter state has no jurisdiction of a suit against it by a citizen of the state of its original creation,'* but does have jurisdiction of a suit against it by a citizen of the state adopting it.'^ A statute providing that every foreign railroad corporation which has leased or purchased any railroad in the state shall file a certified copy of its articles of incorporation or charter with the secretary of state and shall thereupon become a corporation of the state, anything in its articles of incorporation or charter to the contrary notwith- standing, does not make a corporation, coming within the purview of the statute and complying therewith, a citizen of the state in such a sense that a suit against it by a citizen of the state of its origin may be brought in the federal court of the state of its adoption on the ground of diversity of citizenship.*'' So also, it has been held that in the latter case, on the ground that it is A corporation and citizen of the state in which it was created, that fact gives jurisdiction to the federal court to remove the case from the state court when the corporation is sued by a citizen of the state in which it filed its charter, because such cor- poration is a citizen of another state, namely, the state in which it was origi- nally created. The citizenship of the corporation is not changed be- cause of the particular court in which the action is commenced. If it be a citizen of another state in the ono case, it is ^uch citizen also in the other, and, if the other party to the action be a citizen of a state other than the one which created the cor- poration, the jurisdiction of the fed- eral courts exists, and the right of the corporation (upon complying with the statute) to remove the case from the state court when it is sued by a citizen of the state where its charter may have been subsequently filed, is granted by the laws of the United States." Southern R. Co. v. Allison, 190 U. S. 326, 47 L. Ed. 1078, rev'g 129 N. C. 336, 40 S. E. 91. The courts will not "extend the doctrine that the corporators of a corporation are indisputably citizens of the state creating it, so as to pre- sume in like manner that corporators of an adopted corporation are citizens of the state adopting it." Hollings- worth V. Southern Ey. Co., 86 Fed. 353. 86 St. Louis & S. F. R. Co. v. James, 161 U. S. 545, 40 L. Ed. 802. 36 Goodlett V. Louisville & N. E. Co., 122 U. S. 391, 30 L. Ed. 1230. 37 St. Louia & S. F. E. Co. v. James, 161 U. S. 545, 40 L. Ed. 802. In Louisville Trust Co. v. Louis- ville, N. A. & C. E. Co., 75 Fed. 433, it was held that the Louisville, New Albany & Chicago E. Co., which was organized under the laws of Indiana, might sue a citizen of Kentucky in the federal court of the latter state notwithstanding an act of the Ken- tucky legislature providing that such company was thereby constituted a corporation, ptc. This holding the court based on St. Louis & S. F. E. Co. V. James, supra, considering which it said: "The St. Louis & San Francisco Eailway Company was a corporation organized under the laws of Missouri. It owned and operated a railway in Arkansas. By virtue of the laws of the latter state, it was required to file a copy of its charter and a cer- tificate of its incorporation with the 834 Ch. 13] Citizenship, Domicile and Residence [§390 diversity of citizenship exists between a railroad company incor- porated in one state and a citizen of another state in which the company operates a line of road, although such company has com- plied with the statutes of the latter state which provide that no foreign company shall operate any railway in the state imtil by incor- poration under the laws of the state it shall have become a citizen thereof; that a violation of this provision shall constitute a misde- meanor and be punishable by a fine, and that a foreign company may become a corporation and citizen of the state by filing in the office secretary of state. It was declared to become thereby a domestic corpora- tion of the state of Arkansas. The action was for a personal injury in- flicted in Missouri. The plaintiff was a citizen of Missouri, and sued the corporation in the federal court in Arkansas as a corporation of Arkan- sas. The Supreme Court decided that the indisputable presumption that the incorporators of the company were citizens of the state granting incor- poration, applied only when the i -cor- porators were individuals, and that, when the act of incorporation pur- ported to create a new corporation out of the corporation of another state, the new corporation, for purposes of federal jurisdiction, must be regarded as a citizen of the same state as that of the constituent corporation. It was therefore held that though the St. Louis & San Francisco Eailway Com- pany might be a corporation of Ar- kansas, by virtue of the statute making it such, nevertheless, because the law professed to make the new corporation out of a corporation of Missouri, the citizenship of the new corporation must be the same as that of the old, and there was conse- quently no jurisdiction. So, in the case at bar, as the Kentucky acts professed to incorporate a corporation of Indiana, there is no presumption that the corporators are citizens of Kentucky, which will make, for pur- poses of federal jurisdiction, the new Kentucky corporation a citizen of that state. It follows that, whether the complainant in the bill below must be regarded as a corporation of In- diana or a corporation created by the acts of the Kentucky legislature » • » in either case it was a citizen of Indiana for the purposes of federal jurisdiction. The cause was therefore one arising between citizens of dif- ferent states, and the court below had full jurisdiction." See also Walters v. Chicago, B. & Q. E. Co., 104 Fed. 377, afl'd 186 U. S. 479, 46 L. Ed. 1266; Smith v. New York, N. H. & H. E. Co., 96 Fed. 504. In Baltimore & O. E. Co. v. Koontz, 104 XJ. S. 5, 26 L. Ed. 643, it was held that the Baltimore & Ohio Eailroad Company, created under the laws of Maryland, had the right to remove into the federal court, on the ground of diverse citizenship, a suit brought against it in a Virginia court by a citizen of Virginia, although it had leased and was operating a railroad in Virginia. A railroad corporation created by one state does not become a citizen of another state for purposes of fed- eral jurisdiction, by reason of the fact that a railway corporation cre- ated by the latter state becomes merged in it under legal authority, notwithstanding it subsequently is domesticated for local purposes. Lee V. Atlantic Coast Line E. Co., 150 Fed. 775. See also Morgan v. East Ten- nessee & V. E. Co., 48 Fed. 705. A railroad company purchasing the 835 § 390] Pbivate Coepoeations [Ch. 13 of the secretary of state and in the office of the railroad commission, a copy of its charter or articles of incorporation, etc," A constitutional provision that no railroad company organized under the laws of a foreign state shall be entitled to exercise the right of eminent domain or have the power to acquire a right of way or real estate for depot or other purposes until it shall have become a body corporate pursuant to and in accordance with the laws of the state, requires such a company to become a domestic corporation in order to act in the particulars referred to, but does not affect the citizenship, so far as federal jurisdiction on the ground of diversity of citizenship is concerned, of a foreign corporation becoming a domestic one as required.'^ . -A' consolidated railroad company, one of the component companies of which was incorporated under the laws of the state in which suit is brought against the consolidated company by a citizen of such state, will, for purposes of federal jurisdiction, be deemed a citizen of the same state, without regard to its corporate existence elsewhere.*" "Whenever a corporation of one state, by legislative sanction, be- comes also a corporation of another state, either by the process of consolidation or otherwise, whatever acts it subsequently does or per- forms in the latter state it does and performs as a domestic, and not as a foreign corporation. It derives all of its powers to act as a cor- property and franchises and operat- R. Co., 127 Fed. 986; Goodwin v. New ing the line of a railroad company York, N. H. & H. R. Co., 124 Fed. 358 located in a foreign state does not (reviewing a large number of cases thereby become a citizen of such state bearing on the subject), so far as federal jurisdiction of a suit A railroad company created out of against it is concerned, and it is im- natural persons has its citizenship^ for material that the constitution of such purposes of federal jurisdiction on the state provides that no domestic rail- ground of diversity of citizenship, in road company shall become a foreign the state by which it was created, corporation through consolidation notwithstanding its purpose was to with or by sale to a railroad com- take over among others, railroad prop- pany of a foreign state. Cummins v. erties belonging to foreign corpora- Chicago, B. & Q. R. Co., 193 Fed. 238. tions and lying in foreign states, 38 Taylor v. Illinois Cent. R. Co., 89 under an authorized consolidation Fed. 119. agi-eement entered into by all of the 39 Walters v. Chicago, B. & Q. R. corporations interested. Westheider Co., 104 Fed. 377, afE'd 186 IT. S. 479, v. Wabash R. Co., 115 Fed. 840. Com- 46 L. Ed. 1266. pare, however, Winn v. Wabash R. Co., 40 Case V. Atlanta & C. A. R. Co., 118 Fed. 55, wherein the same trans- 225 Fed. 862; Baldwin v. Chicago & N. actions were involved, but a different W. Ry. Co., 86 Fed. 167. See also state of facts was found and a differ- Wasley V. Chicago, R. I. & P. Ry. Co., ent conclusion on such state of facts 147 Fed. 608; Goodwin v. Boston & M. was reached. 836 Ch. 13] Citizenship, Domicile and Eesidence [^ 390 poration in the state of its adoption from local laws. If it is there sued for an act done within the state, it is sued and must answer as a domestic, and not as a foreign, corporation."*^ A citizen of one state, however, may sue a consolidated railway and bridge corpora- tion in the federal court of the state in which one of its component companies was incorporated, notwithstanding the fact that its other component company was incorporated in the plaintiff 's own state.*^ Moreover, a consolidated railroad company may sue a citizen of the 41 Missouri Pac. Ey. Co. v. Meeh, 69 Fed. 753, 758, 30 L. R. A. 250, in which it was held tha-t the circuit court of the United States for the dis- trict of Kansas had no jurisdiction, on the ground of diversity of citizenship, of an action by a citizen of Kansas against the Missouri Pacific Kailway Company which was made up of com- panies incorporated under the laws of the states of Kansas, Nebraska, and Missouri. See also Bradley v. Ohio, E. & C. Ey. Co., 78 Fed. 387; Cox v. Atlantic Coast Line E. Co., 166 N. C. 652, 82 S. E. 979; Staton v. Atlantic Coast Line E. Co., 144 N. C. 135, 56 S. B. 794, distinguishing Southern E. Co. V. Allison, 190 V. S. 326, 47 L. Ed. 1078. 42 Williamson v. Krohn, 66 Fed. 655. See also Chicago & N. W. Ey. Co. v. Whitton, 13 Wall. (TJ. S.) 270, 20 L. Ed. 571, followed in Muller v. Dows, 94 U. S. 444, 24 L. Ed. 207. "Although for some purposes a body incorporated in several states may be regarded as an entity, it is not so for all. It is likely to have different attributes in each state aris- ing from different laws which affect it. It might acquire franchise in one state which it does not possess in oth- ers. An incorporation by one state of the same individuals is not the adop- tion of the corporation of another state. These considerations furnish a reason why it is that, where a corpora- tion of a state is sued in its own courts, regard is had to it only as a creation of that state for all purposes of jurisdiction. Business enterprises in which a combination of such corpo- ration may engage, create common rights, and entail joint liabilities. These, however, concern the activities of the corporations, and not their es- sential character. When the idea is grasped that whenever a corporation is sued in a state by whose laws it has been created and the question of its citizenship is involved, the court will regard the corporation intended as defendant as the one created and existing by the laws of that state, we have the key to the solution of the inquiry. The laws of the state are the mould in which the corporation is east and continues to exist. It de- rives its faculties from those laws; and the fact that it may be allowed to exercise those faculties in another state, however freely or with what- ever limitations, does not alter its es- sential character in the state of its creation. It is a citizen of that state and of no other, whatever privi- leges it may there be permitted td enjoy, even though they be identical with those it enjoys at its home." Lake Shore & M. S. Ey. Co. v. Eder, 174 Fed. '944. "^ A corporation "incorporated by the concurrent action" of different states may be sued in the federal circuit court of one of such states by a citi- zen of another on the ground of 'di- versity of citizenship. Boston f; M. E. Co. V. Kurd, 108 Fed. 116, 56 L. E. A. 193. 837 §390] Peivate Cokpokations [Ch, 13 state in which one of its component companies was incorporated in the federal court in such state, its other component company being incorporated under the laws of a foreign state.*^ But corporations of the same name, composed of the same natural persons, and intended to accomplish the same purposes, but chartered by different states cannot, as a single corporation "created by the laws of the states" named, sue a citizen of one of such states in the 43 Nashua & L. B. Corporation v. Boston & L. E. Corporation, 136 U. S. 356, 34 L. Ed. 363. See also St. Louis, A. & T. H. E. Co. V. Indianapolis, St. L. E. Co., 9 Bias. 144, Fed. Cas. No. 12,237 (afE'd Pennsylvania E. Co. v. St. Louis, A. & T. H. E. Co., 118 U. S. 290, 30 L. Ed. 83), wherein it was said: "The state of the law upon this subject, as decided by the Supreme Court of the United States, appears to be this: that the fact that there are railroad corporations created by dif- ferent states, which have been con- solidated under the laws of those states, and the railroad operated by virtue of that consolidation as one entire line of road, will not prevent the corporation from being sued in one of those states as a corporation created by the laws of that state, pro- vided the plaintiff is a citizen of a state other than that of the state which cre- ates the corporation. The only law that operates upon it is the law of its own state. If the corporation is a defend- ant, that is expressly decided by the court in the two cases last cited [Chi- cago & N. W. Ey. Co. v. Whitton, 13 Wall. (TJ. S.) 270, 20 L. Ed. 571, and MuUer v. Dows, 94 TJ. S. 444, 24 L. Ed. 207]. Now, if that is so as to the defendant, why is there any difference where the plaintiff as a corporation brings the suit? If the defendant cor- poration, though consolidated with another of a different state, can be sued in the federal court, in the state of its creation, as a citizen thereofj why can it not sue as a citizen of the etate which created it? I can see no difference in principle. It seems to me that when the plaintiff comes into the federal court, if a corporation of an- other state, it is clothed with all the attributes of citizenship which the laws of that state confer, and the shareholders of that corporation must be conclusively regarded as citizens of the state which created the corpora- tion, precisely the same as if it were a defendant. ' ' "Identity of name, powers and pur- poses does not create an identity of origin or existence, any more than any other statutes, alike in language, passed by different legislative bodies, can properly be said to owe their ex- istence to both. To each statute and to the corporation created by it there can be but one legislative paternity." Nashua & L. E. Corporation v. Boston & L. E. Corporation, 136 XJ. S. 356, 34 L. Ed. 363. A corporation can neither divest it- self of its paternity nor ever lose it, nor can the subsequent act of any state or sovereign change it. Hol- lingsworth v. Southern Ey. Co., 86 Fed. 353. For dictum that a railroad corpora- tion created by one state and consoli- dated with a like corporation cre- ated by an adjoining state — a continuous line of road being operated by the two corporations — ^may sue the latter in a federal court on the ground of diversity of citizenship, see Rt. Louis, A. & T. H. E. Co. v. Indian- apolis & St. L. E. Co., 9 Hiss. 144, 156, Fed. Cas. No. 12,237. 838 Ch. 13] Citizenship, Domicile and Residence [§390 federal courts thereof on the ground of diversity of citizenship.** Moreover, a railroad company incorporated in more than one state 44 "It follows that this corporate existence in the other, nor suit in the corporate name is, in con- templation of law, the suit of the individual persons who compose it, and must, therefore, be regarded and treated as a suit in which citizens of Ohio and Indiana are joined as plaintiffs in an action against a citi- zen of the last mentioned state. Such an action cannot be maintained in a court of the United States, where jurisdiction of the case depends al- together on the citizenship of the parties. And in such a suit it can make no difference whether the plain- tiffs sue in their own proper name3, or by the corporate name and style by which they are described. The aver- ments in the declaration would seem to imply that the plaintiffs claim to have been created a corporate body, and to have been endued with the capacities and faculties it possesses by the co-operating legislation of the two states, and to be one and the same legal being in both states. If this were the case, it would not affect the question of jurisdiction in this suit. But such a corporation can have no legal existence upon the principles of the common law, or under the deci- sion of this court in the case of The Bank of Augusta v. Earle, 13 Pet. 519 * * *. It is true, that a cor- poration by the name and style of the plaintiffs appears to have been char- tered by the states of Indiana and Ohio, clothed with the same capacities and powers, and intended to accom- plish the same objects, and it is spo- ken of in the laws of the states as one corporate body, exercising the same powers and fulfilling the same duties in both states. Yet it has no legal existence in either state, ex- cept by the law of the state. And neither state could confer on it a add to or diminish the powers to be there exercised. It may, indeed, be composed of and represent, under the corporate name, the same natural per- sons. But the legal entity or person, which ixists by force of law, can have no existence beyond the limits of the statt or sovereignty which brings it into Me and endues it with its facul- ties anO powers. The President and Directors of the Ohio and Mississippi Eailroad Company is, therefore a dis- tinct and separate corporate body in Indiana from the corporate body of the same name in Ohio, and they can- not be joined in a suit as one and the same plaintiff, nor maintain a suit in that character against a citizen of Ohio or Indiana in a circuit court of the United States. ' ' Ohio & M. R. Co. V. Wheeler, 1 Black (U. S.) 286, 17 L. Ed. 130. See also St. Joseph & G. I. E. Co. V. Steele, 167 U. S. 659, 42 L. Ed. 315 (one of the jurisdictional points in which was decided on the authority of Ohio '& M. B. Co. v. Wheeler, supra) ; Missouri Pao. Ey. Co. v. Meeh, 69 Fed. 753, 30 L. E. A. 250. In Baltimore & 0. E. Co. v. Harris, 12 Wall. (U. S.) 65, 20 L. Ed. 354, which involved the question of the venue of an action against a corpo- ration, the court said, however, that it saw "no reason why several states cannot, by competent legislation, unite in creating the same corporation or in combining several pre-existing cor- porations into a single one," and, further, that "so far as there is any- thing in the language of the court in the case of O. & M. E. Co. v. Wheeler I supra] in conflict with what has been here said, it is intended to be re- strained and qualified by this opin- ion," adding "that as the case [Ohio 839 390] Pbivate Coepobations [Ch. 13 cannot remove to the federal courts a suit brought against it in the courts of one of the states in which it was incorporated by a citizen of such state, on the ground that it is a citizen of another state.*" § 391. — Suits for infringement of patents, and for wrongful use of trade-marks. By a federal statute, it is provided "that in suits brought for the infringement of letters patent the circuit courts of the United States shall have jurisdiction, in law or in equity, in .the district of which the defendant is an inhabitant, or in any district in which the defendant, whether a person, partnership, or corporation, shall have committed acts of infringement and have a regular and established place of business."** Applying this provision, it has been held that a corporation is not an inhabitant of a district located in a state in which it is not incorporated,*^ and it has been stated & M. E. Co. V. Wheeler, supra] ap- pears in the report, we think the judg- ment of the court was correctly given." And see, in connection with this ease just quoted, St. Louis, A. & T. H. E. Co. V. Indianapolis & St. L. E. Co., 9 Biss. 144, 149, Fed. Cas. No. 12,237 (afC'd Pennsylvania E. Co. v. St. Louis, A. & T. H. E. Co., 118 XJ. S. 290, 30 L. Ed. 83) wherein it is said: "It must be conceded I think, that in principle, at least, this case [Ohio & M. E. Co. V. Wheeler, supra] has not been strictly followed in subse- quent decisions of the Supreme Court of the United States, and so it is not the duty of the court to follow it unless in a case within its terms." A corporation created by one state may be sued as a nonresident in the courts of a state creating a corpora- tion by the same name and for the same purpose, namely, the building of a bridge across the river which con- stituted the boundary between the two states. Newport & C. Bridge Co. v. Wooley, 78 Ky. 523. « Patch V. Wabash E. Co., 207 IT. S. 277, 12 Ann. Cas. 518, 52 L. Ed. 204. When a railroad company chartered in several states is sued in one of them by a citizen thereof, it cannot set up its citizenship in another for the purpose of removing the cause to the federal courts on the ground of diversity of citizenship. Home v. Boston & M. E. E., 18 Fed. 50. A railroad company sued by a citi- zen of the state in which it was first incorporated and in which it has its principal business will, for purposes of federal jurisdiction, be deemed a citi- zen of such state although it has also been incorporated in another state. Fairfield v. Great Falls Mfg. Co., 175 Fed. 305. 46 Act of March 3, 1897, 5 Fed. St. Ann. p. 566. The provision of the Judiciary Act of 1911 (Act of March 3, 1911, § 48) is identical with the above provision in the Patent Act of 1897, except for the substitution of the word "district" for "circuit" before the word "courts." (The circuit courts of the United States were abolished by § 289 of the Act of 1911.) iTWeller v. Pennsylvania E. Co., 113 Fed. 502. A corporation, manufacturing the articles claimed to infringe letters patent and controlling and participat- ing in sales made by its corporate Bales agent for a certain territory, in which territory such agent maintains offices, held to have had a "regular 840 Ch. 13] Citizenship, Domicile and Residence [§ 391 that "what is meant by a regular and established place of business is one in which some substantial part of the business of the company or corporation shall be carried on ; and this, in the case of any kind of business, would seem to me to be, in a general way, the sale of the commodities which the defendant may offer to the public. In the case of a manufacturer it would be the sale of the product of his works. In the case cf a railroad company I suppose it would be the sale of something which the defendant does for the public. Its business is to carry freight and passengers, and the making of contracts for that purpose would be the transaction of some substantial part of its business."*^ In keeping with this quoted view, it has been held that a corpora- tion, temporarily occupying space in an exposition in a foreign state as an exhibitor of merchandise, does not have, as a result thereof, "a regular and established place of biisiness" in the federal district in which the site of the exposition is located.*' Moreover, it has been held that this provision is inapplicable when the corporation sued is an alien, and that suit against such a corporation may be main- tained in any district in which service can be had upon the defend- ant.so the situation. Its sales agent chose for his own purposes to have an office in the business section of the city and pay the rent therefor out of his own pocket. If he had chosen to dis- pense with such an office, he might have transacted such business at his own private residence without in any way breaking any contract that he had with the defendant." See also W. S. Tyler Co. v. Ludlow-Saylor Wire Co., 236 IT. S. 723, 59 L. Ed. 808. 48Weller v. Pennsylvania E. Co., 113 Fed. 502, holding that a railroad company does not have a "regular and established place of business" in a certain district by reason of the fact that it therein maintains offices in charge of advertising and soliciting agents who have no authority to con- tract for the carriage of passengers or freight by it. 49 L. E. Waterman Co. v. Parker Pen Co., 100 Fed. 544. 60 United Shoe Machinery Co. v. Du- and established place of business" in, the district in which such offices are located. Thomson-Houston Elec. Co. V. Bullock Elec. Co., 101 Fed. 587. For a case wherein it was held that the maintenance of an office in a cer- tain district by the corporation-de- fendant's sales agent did not give the corporation a "regular and estab- lished place of business" therein, see General Elee. Co. v. Best Elec. Co., 220 Fed. 347, in which it was said: "Those words [regular and established place of business] imply something more than a mere doing of busi- ness in the district. I do not think the statement in its advertising liter- ature that it had offices in all the principal cities, without specifying any office in any city, suffices to make the office at which its sales agent chooses to make his personal head- quarters its regular and established place of business. Nor does the fact that it referred prospective customers to him in any wise necessarily change 841 §391] Private Coepokations [Ch. 13 Prior to the passage of this Act of 1897, it was necessary to look to the Act of 1888'^ to determine the jurisdiction of the federal courts of suits for the infringement of patents,** and, applying such, act, it was held, in accordance with the general rule,*' that a corpora- tion created by the state of Connecticut and having its principal office in the state of Massachusetts but doing business in a certain federal district of Illinois and sued in such district was not an "inhabitant" thereof within the meaning of the first section of the act which, after defining the jurisdiction of the circuit and district courts of the United States, provided that "no civil suit shall be brought before either of said courts against any person by original process or proceeding in any other district than that whereof he is an inhabitant," and hence the cause was required to he dismissed for want of jurisdiction.** In a ease decided by the Supreme Ck)urt of the United States, how- plessis Independent Shoe Machinery Co., 133 Fed. 930. BlAet of Aug. 13, 1888, §1, cor- recting Act of Mar. 3, 1887, § 1 (4 Fed. St. Ann., p. 266), which provided, inter alia, that "no civil suit shall be brought before either of said [circuit or district] courts against any person by any original process or proceeding in any other district than that where- of he is an inhabitant, but 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 the defendant." Section 1 of the Act of 1888 was expressly repealed by section 297 of the Act of Mar. 3, 1911 (Fed. St. Ann., 1 Supp. of 1912, p. 251), but section 51 of such Act of 1911 (Fed. St. Ann., 1 Supp. of 1912, p. 153) contains a provision, practically iden- tical with the one quoted, which is made to apply subject to certain exceptions therein indicated. See also § 396, infra. B2 See, however, on this point. United Shoe Machinery Co. v. Duples- sig Independent Shoe Machinery Co., 133 Fed. 930. 53 See § 396, infra. 64Gormully & Jeffrey Mfg. Co. v. Pope Mfg. Co., 34 Fed. 818. See also Miller V. Wheeler & Wilson Mfg. Co., 46 Fed. 882, a suit for the infringe- ment of letters patent, wherein the court said: "I understand the doc- trine to be settled, for the present, at least, in this circuit, that a corpo- ration can only be a resident and inhabitant of the state which cre- ates it, and that it cannot change its residence or inhabitance by doing business or maintaining an office and agency in a foreign state, although it may be found there for the purpose of the service of process. And the same doctrine is adhered to in other circuits. * * * I am aware that the question has been decided differently in other circuits (Riddle v. New York, L. E. & W. E. Co., 39 Fed. 290 [see § 396, infra] ; Zambrino v. Galveston, H. & S. A. Ey. Co., 38 Fed. 449 [see § 396, infra] ; Miller v. Mining Co., 45 Fed. 345 [see §396, infra]); but I must adhere to the rule that has thus far been followed in this cir- cuit." 842 Ch. 13] Citizenship, Domicile and Eesidence [§ 393 ever, it was held that this clause, if applicable at all to patent suits, at least had no application when the defendant was an alien corpora- tion, and, further, that such a corporation might be sued by a citizen of one of the states of the Union in any district in which valid service could be made upon it.** Applying the Act of 1888 ^^ to a suit for the wrongful Tise of a trade-mark, the Supreme Court of the United States has held that a corporation cannot be held to answer in a district in a foreign state although its principal office and place of business be located in such district.*' § 392. — Court of Claims. Under the federal act conferring upon the federal court of claims jurisdiction to inquire into and finally adjudicate "all claims for property of citizens of the United States" taken and destroyed by Indians under circumstances specified in the act,*' a state corporation is embraced within the designation "citizens of the United States. "*» § 393. For purpose of holding corporate meetings and transacting corporate business. A corporation created by the concurrent legis- lation of different states has a legal domicile in each one of such states, and can hold meetings and transact business in any one thereof.*" So also, it has been held that a consolidated railroad com- S5In re Hohorst, 150 U. S. 653, 37 329, followed in McCord v. Aspin- L. Ed. 1211. wall, 20 Ind. 498. 56 See note 51, supra, this section. In Eel River E. Co. v. State, 155 Ind. 67 In re Keasbey & Mattison Co., 433, 57 N. E. 388, a proceeding by in- 160 V. S. 221, 40 L. Ed. 402. See also formation in the nature of a quo § 390, supra, and § 396, infra. warranto, the court said: "It is indis- B8 Act of March 3, 1891, 26 Stat. L. pensably necessary to the exercise of 851, c. 538, 2 Fed. St. Ann. p. 91. the supervisory authority of the state B9 United States v. Northwestern over railroad corporations created by Express, Stage & Transportation Co., it, and owning property and enjoying 164 U. S. 686, 41 L. Ed. 599. See also corporate franchises within its terri- Philippine Sugar Estates Development tory, that every such corporation Co. v. United States, 39 Ct. CI. (U. 8.) should be regarded as having a domi- 225, 241. cile or place of residence within the 60 Covington & C. Bridge Co. v. state for the purposes of jurisdiction, Mayer, 31 Ohio St. 317. See Chap. litigation affecting its rights and du- 40, infra. ties, and the taxation of its personal That stockholders will not be bound property. When questions arise by corporate acts performed in a touching the domicile or residence of state other than that of the corpora- a domestic corporation, for the pur- tion's creation, see Aspinwall v. Ohio pose of determining the same, resort & M. R. Co., 20 Ind. 492, 83 Am. Dee. may be had to those principles which 843 393] Peivate Cokpoeations [Ch. 13 pany, composed of corporations created by adjoining states, has its domicile in each of such states for the purpose of holding meetings and transacting corporate business. ^^ are applied in case of natural person;a. Among the most familiar of these are the rules that every citizen of the state has a residence somewhere in one of the counties of the state, in .which alone he can claim certain po- litical and civil rights, and in which he must be sued in transitory actions in which he is the ^ole resident defend- ant; that a legal residence once estab- lished remains until a new one is acquired; and that a purpose to change such residence unaccompanied by actual removal or change of abode, does not constitute a change of domi- cile. * * * The place of the princi- pal office of a railroad corporation where its business is transacted, and where its books and records are kept, is generally considered the residence of such corporation." 61 Ohio & M. E. Co. V. People, 123 111. 467, 14 N. E. 874. "The Boston, Hartford & Erie Com- pany, therefore, though made up of distinct corporations, chartered by the legislatures of different states, had a capital stock which was a unit, and only one set of shareholders, who had an interest, by virtue of their owner- ship of shares of such stock, in all of its property everywhere. In its or- ganization and action, and the prac- tical management of its property, -it was one corporation, having one board of directors, though, in its relations to any state, it was a separate corpora- tion, governed by the laws of that state as to its property therein. It, therefore, had a domicile in each state, and the corporators or shareholders could, in the absence of any stalutcry provision to the contrary, hold meet- ings and transact corporate business in any one state, so as to bind the corporation in respect to its property everywhere." Graham v. Boston, H. & E. E. Co., 118 U. S. 161, 169, 30 L. Ed. 196. After an insurance company with the name "Grangers' Life and Health Insurance Company" had been incor- porated in Alabama, the legislature of Mississippi passed an act entitled "An act to authorize the Grangers' Life and Health Insurance Company to create and establish branch de- partments in this state," and provid- ing that said company, "incorporated by, and under the laws of the state of Alabama, be and the same is hereby authorized and empowered to create and establish in this state, one or more branch departments thereof whenever there shall be subscribed to, and paid into said company, * * * one hundred thousand dollars as capi- tal stock for such branch department, so created and established, the said stock to be subscribed for, and owned by, and the directors of any such branch department to be, citizens of the state of Mississippi," and further providing that, whenever any such branch department or departments should be created and established, the said company "shall be regarded as a home company, and shall be en- titled to, and may exercise and enjoy all the rights, privileges, immunities and exemptions of life insurance com- panies incorporated by the laws of the state of Mississippi," and making it the duty of the auditor of Missis- sippi, on the creation and establish- ment of any such branch department, to give to the officers or agents of said company a certificate "stating the same, and authorizing it to do business as a domestic life insurance company of Mississippi. " It was hefe^ in a suit for the cancellation of stoclf 844, Ch. 13] Citizenship, Domicile and Eesidence [§ 395 §394. Within acknowledging' and recording statutes. Where the articles of incorporation of a domestic corporation locate the cor- poration's principal office in a certain city and no change of location is afterwards made in the manner prescribed by statute, such city will be the residence of the corporation, in executing a chattel mort- gage, within the meaning of a statute providing that where a chattel mortgagor is a resident of the state, the mortgage must be acknowl- edged before a designated officer in the town, precinct, district or county wherein the mortgagor resides.*^ Likewise, where a domestic corporation fixes its principal place of business by its articles of incorporation as required by statute, the county designated as such is that of its residence within the meaning of a statute providing that all conditional sales of property shall be absolute as to subsequent creditors in good faith unless a memorandum of the sale shall be filed in the auditor's office of the county wherein the vendee resides at the time of the taking of possession of the property purchased.^' §395. For purposes of taxation. The location or residence of a corporation for purposes of taxation is generally regarded as being in the state by whose laws the corporation was created, and in the tax district of such state wherein its principal office or place of business is located,^* notwithstanding the fact that its notes, etc., that the efEect of this act 64 Illinois. Sangamon & M. E. Co. was not merely to license or to en- v. Morgan County, 14 111. 163, 56 Am. able the Alabama corporation to trans- Dec. 497. act business and exercise its powers Maryland. Baltimore v. Baltimore in Mississippi, but to create a dis- City Passenger E. Co., 57 Md. 31. tinct corporation in Mississippi having Michigan. Detroit Transp. Co. v. the same name and like franchises as Board of Assessors City of Detroit, 91 the Alabama corporation. Grangers' Mich. 382, 51 N. W. 978. Life & Health Ins. Co. v. Kamper, 73 New York. Western Transp. Co. v. Ala. 325. See also Copeland v. Mem- Scheu, 19 N. T. 408; People v. Me- phis & C. R. Co., 3 "Woods 651, Fed. Lean, 17 Hun 204; Peter Cooper's Cas. No. 3,209; Blackburn v. Selma, M. Glue Factory v. McMahon, 15 Abb. N. & M. E. Co., 2 Flip. 525, Fed. Cas. Cas. 314. No. 1,467; Bachmann v. Supreme Ohio. Pelton v. Northern Transp. Lodge Knights & Ladies of Honor, Co., 37 Ohio St. 450. 44 111. App. 188. Virginia. State Bank v. Richmond, 62 In re Federal Contracting Co., 79 Va. 113. 212 Fed. 688. Wisconsin. Milwaukee Steamship 63 First Nat. Bank of Everett v. Co. v. Milwaukee, 83 Wis. 590, 18 L. Wilcox, 72 Wash. 473, 130 Pac. 756, E. A. 353, 53 N. W. 839. ■ rehearing denied 131 Pae. 203. See A corporation occupying, in the also Malmo v. Washington Rendering conduct of its business, an ofSee or & Fertilizing Co., 79 Wash. 534, 140 building in a town, ward or village Pao. 569, , is deemed an "inhabitant" of such 845 I 395] Peivate Coepoeations [Ch. 13 principal officers have their places of residence outside of the state.** While it has been held that the fact that a foreign corporation has a place of business and a chief office in the state does not make it a resident of the state, or the place where its chief office is located, its residence in the state in the sense that all of its personal property in the state is to be deemed to be located there for purposes of taxation ■within the rule that the personal property of a resident is taxable at the place where he resides,*' it has also been held that where a cor- town, ward or village for the pur- pose of taxation. Ontario Bank v. Bunnell, 10 Wend. (N. T.) 186, 192. 65 Sangamon & M. E. Co. v. Morgan County, 14 111. 163, 56 Am. Dec. 497. 66 Ayer & Lord Tie Co. v. Keown, 122 Ky. 580, 93 S. W. 588. A corporation does not become domi- ciled in a foreign state, so as to give such state the right to tax all of its capital stock, merely by reason of its doing business therein. Foster- Cherry Commission Co. v. Caskey, 66 Kan. 600, 72 Pac. 268; Com. v. Stand- ard Oil Co., 101 Pa. St. 119, 146. See also Gloucester Ferry Co. v. Pennsyl- vania, 114 U. S. 196, 209, 29 L. Ed. 158. That ferryboats, operated by an Illinois corporation, are not "prop- erty within the city" of St. Louis, Missouri, for purposes of taxation by such city, although one of the ter- mini of such boats, and the residence of the corporation's officers and stock- holders are in the city, and much of the corporate business is transacted, and some of the corporate acts are performed therein, see St. Louis v. Wiggins Ferry Co., 11 Wall. (TJ. S.) 423, 20 L. Ed. 192. In Quincy Railroad Bridge Co. v. Adams County, 88 111. 615, it was held that a consolidated corporation, com- posed of corporations created by the states of niinois and Missouri, for the purpose of constructing a railroad bridge across the Mississippi river, whose consolidation was legalized by the general assembly of Illinois, was domiciled in the latter state to the extent that all of its property, whic]i was of such nature as to be taxable at the residence of the owner, was taxable in Illinois. Compare, how- ever, Chicago & N. W. Ey. Co. v. Audi- tor General, 53 Mich. 79, 91, 18 N. W. 586. See also, in connection with the case last cited, Duncan v. St. Louis, I. M. & S. E. Co., 49 La. Ann. 1700, 22 So. 924. Boards and societies and auxiliaries thereof, which are incorporated and organized under the laws of other states for "purposes of purely public charity or other exclusively public purposes," are not "institutions" of that class in Ohio within the mean- ing of the exemption clause of section 2731-1, Ohio Eev. St.; and where they are entitled to receive property within the jurisdiction of such state by gift, bequest, or devise, the gift, bequest or devise is subject to the collateral inheritance tax provided by such section 2731-1, notwithstanding certain of the charitable work, operations and enterprise of the in- stitutions are carried on within the state. Humphreys v. State, 70 Ohio St. 67, 70 N. E. 957. In this case the court said: "It is not a new proposi- tion that the home of the corporation is the state of its incorporation, and when so incorporated under the laws of a state selected for that purpose it has also selected its abiding place, and no longer can be recognized as homeless, or as abiding in every state where they have agencies carrying 846 ,Ch, 13] Citizenship, Domicile and Residence [§395 poration is doing business in a foreign state, its principal place of business and the situs of its governing office therein is its domicile for the purpose of taxing such of its property as is taxable at its domicile.*'' But it would seem that a foreign corporation is not a "resident owner" within the meaning of a statute barring resident owners who have failed to list their property from making application for an abatement of taxes, nor an "inhabitant" within the meaning of a statute requiring the tax assessors to give notice to the inhabitants to make tax returns, where the word "inhabitant" is defined by statute as a person having an established residence in the state." For purposes of taxation, domestic corporations generally have their domicile where their principal office®' or place of business is forward their work of benevolence depend upon the action of such of the and charity." 67McDaniel v. Texarkana Cooper- age & Manufacturing Co., 94 Ark. 235, 126 S. W. 727. The residence or domicile of a for- eign corporation for purposes of tax- ation is, under the Tennessee statutes, the county where the charter is reg- istered in compliance with such stat- utes; and it is the place where the governing power of the corporation re- sides and is exercised rather than the place where its ordinary business is conducted. Southern Exp. Co. v. Pat- terson, 122 Tenn. 279, 123 S. W. 353. See also Grundy County v. Tennessee Coal, Iron & Eailroad Co., 94 Tenn. 295, 308, 29 S. "W. 116. South African corporation "re- sides" in England, within meaning of Income Tax Act. De Beers Con- sol. Mines, Ltd. v. Howe, L. E. [1905] 2 K. B. 612. 68 John P. Squire & Co. v. Portland, 106 Me. 234, 30 L. E. A. (N. S.) 576, 20 Ann. Cas. 603, 76 Atl. 679. A railroad company having its prin- cipal offices in one of the states in which it was incorporated cannot be regarded as a resident of a certain city in a foreign state, for the pur- poses of a statute of such state mak- ing the improvement of a street owners of abutting property as are residents of the city, by reason of the location in such city of the offices, from which are controlled the opera- tions of the road throughout a district which includes the state, notwith- standing such company has been granted all of the privileges conferred by the laws of the state on domestic railroad companies. Kimmerle v. To- peka, 88 Kan. 370, 43 L. E. A. (N. S.) 272, 128 Pac. 367. 69McCandle3s v. Inland Acid Co., 115 Ga. 968, 42 S. E. 449; Union Steamboat Co. v. Buffalo, 82 N. T. 351 (under statute); Oswego Starch Factory Co. v. Dolloway, 21 N. Y. 449 (under statute); Western Transp. Co. V. Scheu, 19 N. Y. 408 (under stat- ute); People V. Marens, 62 N. Y. Misc. 317, 116 N. Y. Supp. 189; Pelton v. Northern Transp. Co., 37 Ohio St. 450; Loyd's Executorial Trustee v. Lynch- burg, 113 Va. 627, 75 S. E. 233; Atlan- tic & D. E. Co. V. Lyons, 101 Va. 1, 42 S. E. 932; Orange & A. E. Co. v. City Council of Alexandria, 58 Va. 176. In considering the location of the domicile of a corporation for the pur- pose of taxation, the Tennessee court said: "The charter itself does not fix the domicile or home office, but an amendment to the same adopted July 16, 1889, provides that the bi- 847 §395] Private Cobpoeations [Ch. 13 located.''" It has been held, however, that a railroad company passing through and occupying lands in several counties for the carrying on of its corporate business is, for the purposes of taxation, to be regarded as a resident of each town and county through which it passes, and its real estate, therefore, is properly assessed in personam as the land of a resident, and not as the land of a nonresident.'^ Where the statute authorizing the formation of corporations re- quires the corporation to state the place where its principal office is to be located, such statement in the certificate is frequently regarded as conclusive of the fact required to be stated.'^ ennial meetings of the stockholders shall be held at Tracy •City. The by- laws in force in 1889, and up to April 10, 1893, provide that the company shall have ofSees at Tracy City, South Pittsburgh, Nashville, Cowan, Pratt Mines, Ensley, Birmingham, New York, and such other places as the board may establish; and on the 10th of April, 1893, this provision was so amended as to provide that the offices of the company shall be at Tracy City and at such other places as the board of directors may establish. Under this proof, we think the domicile of the company must be held to be in Tracy City, Grundy county, Tenn.; that its primary controlling power is exercised under its charter as amended at that place; and that it is so recognized by the company. 'The principal office or place of busi- ness of a corporation,' says Desty on Taxation (volume 1, p. 341), 'is the residence of the corporation, within the meaning of the tax law in its pro- visions for taxation of the personal property of the company.' Welty, Assessm. p. 106, defines the 'resi- dence' of a corporation as follows:' ' The ' ' residence " or " domicile " of a corporation has been defined to be where the governing power of the corporation is exercised; where those meet in council who have a right to control' its affairs, and prescribe what policy of the e^rnoration shall be pursued; and not where the labor is performed in executing the requirements of the cor- poration in transacting its business. In order to determine the legal resi- dence of a corporation, reference must be had to the place where its will is declared and made known, and not to the place where its mandates are obeyed, or the business of labor trans- acted or performed which it author- izes or requires. It will be seen that this, too, is a question of fact, to be determined by the assessor, as in the case of natural persons.' " Grundy County V. Tennessee Coal, Iron & Rail- road Co., 94 Tenn. 295, 29 S. W. 116. 70 San Joaquin & K. E. Canal & Ir- rigation Co. V. Merced County, 2 Cal. App. 593, 84 Pac. 285. The domicile of a cemetery corpo- ration of a nonprofit, nonstock char- acter is where its cemetery is located and it is not to be an "inhabitant" of a certain city merely by reason of the fact that such city is the meet- ing place of its corporators and trus- tees and the place where its trust funds are kept. Collector of Taxes of Boston V. Proprietors of Mt. Auburn Cemetery, 217 Mass. 286, 104 N. E. 750. Tl Buffalo & State Line E. Co. v. Erie County Sup 'rs, 48 N. Y. 93. See also Hoyle v. Plattsburg & M. E. Co., 54 N. Y. 314, 13 Am. Eep. 595. 72 Union Steamboat Co. v. Buffalo, 82 N. Y. 351; Oswego Starch Factory v. Dolloway, 21 N. Y. 449; Western 848 Ch. 13] Citizenship, Domicile and Residence [§ 395 Where, however, the statute does not require the location of the principal office or place of business to be designated in the corpora/- tion's certificate or articles of incorporation, a designation so made is not conclusive of the fact for the purposes of taxationJ^ Although the statute permits the fixing of a certain county as that in which the principal office shall be located, a particular locality in such county cannot be designated as the locus of the principal office for the purpose of evading taxation by a municipality located in such county.''* Transp. Co. v. Scheu, 19 N. Y. 408; Pelton V. Northern Transp. Co., 37 Ohio St. 450. That the domicile of a domestic corporation, for purposes of taxation, is not conclusively determined by its designation as required by statute in the certificate of incorporation, pee Home Fire Ins. Co. v. Benton, 106 Ark. 552, 153 S.W. 830. A statute providing that all of the personal property of domestic corpo- rations organized for the purpose of engaging in maritime commerce or navigation shall be assessed only in the place designated in the articles of association as that in which their general ofiSce is to be located, ha^ been held violative of the constitu- tional requirement of a uniform rule of taxation. Teagan Transp. Co. v. Board of Assessors of City of Detroit, 139 Mich. 1, 69 L. E. A. 431, 111 Am. St. Eep. 391, 102 N. "W. 273. See also Portsmouth Tp. v. Cranage S. S. Co., 148 Mich. 230, 118 Am. St. Eep. 578, 111 N. W. 749. T3 Georgia Fire Ins. Co. v. Cedar- town, 134 Ga. 87, 19 Ann. Gas. 954, 67 S. E. 410; Teagan Transp. Co. v. Board of Assessors City of Detroit, 139 Mich. 1, 69 L. E. A. 431, 111 Am. St. Eep. 391, 102 N. "W. 273; Milwau- kee Steamship Co. v. Milwaukee, 83 Wis. 590, 18 L. R. A. 353, 53 N. W. 839. In Michigan the taxation statute provides that the place where the principal ofBce of a corporation is lo- cated shall be deemed its residence, provided its business is actually transacted at such office, but if the corporation establishes its principal office at a place elsewhere than at the place designated, then the place where it transacts its principal business shall be deemed its residence for pur- poses of the act. See Teagan Transp. Co. V. Board of Assessors City of De- troit, 139 Mich. 1, 69 L. E. A. 431, 111 A.m. St. Eep. 391, 102 N. W. 273. A statute providing that the arti- cles of incorporation shall state the "location" of the corporation does not authorize the fixing by such arti- cles of the corporation's "principal office" for purposes of taxation, and a provision thereof attempting so to do is void. Milwaukee Steamship Co. V. Milwaukee, 83 Wis. 590, 596, 18 L. E. A. 353, 53 N. W. 839. 74 Georgia Fire Ins. Co. v. Cedar- town, 134 Ga. 87, 19 Ann. Cas. 954, 67 S. E. 410. "It was stated in the application for a charter for an insurance com- pany that its principal office would be located in a named county of this state. It established an office in a municipal corporation of that county, where its president and secretary and treasurer had their offices, where the executive committee of the directors met, and where all the business of the company was transacted, except as stated below. In a by-law it was declared that an annual meeting of the stockholders should be held 'at I Priv. Corp. — 54 849 395] Pbivate Coepobations [Cli. 13 Where a corporation, for the purpose of evading taxation, states in its articles of association or certificate of incorporation that its principal place of business is in a certain place, when in reality it is located and does its business in another place, the latter place may be treated as its place of business for the purpose of taxation.'* their home office in Polk county, Georgia, at the home of W. S. Cole- man, one and one-quarter miles south of the courthouse, or with branch of- fices at Cedartown, or at other places in Georgia, as may be determined by the directors.' There was a similar rule as to the places of meetings of directors. Meetings of directors and stockholders were held at the resi- dence of Coleman, who furnished a room for the purpose free of rent. The minutes indicated that the di- rectors held one or more meetings at the Cedartown office. An iron safe was bought later and placed at Cole- man's house when he was elected treasurer, and the company's securi- ties were kept in it, except when there was occasion to bring them to the city office for the purpose of transfer. The company returned for municipal tax- ation its furniture in the city offices, but declined to return or pay munici- pal tax on its other personal property. It was held that the presiding judge did not err in denying an injunction to restrain the municipal authorities from collecting the tax on the personal property of the corporation, because it was claimed that its principal or home office was not within the limits of the city." Georgia Fire Ins. Co. v. Ce- dartown, 134 Ga. 87, 19 Ann. Cas. 954, 67 S. E. 410. 76 Georgia Fire Ins. Co. v. Cedar- town, 134 Ga. 87, 19 Ann. Cas. 954, 67 S. E. 410; Detroit, Y., A. A. & J. E. Co. V. Detroit, 141 Mich. 5, 104 N. W. 327; Detroit Transp. Co. v. Board of Assessors City of Detroit, 91 Mich. 382, 51 N. W. 978; Milwaukee Steam- ship Co. V. Milwaukee, 83 Wis. 590, 18 L. E. A. 353, 53 N. W. 839. "A corporation may establish its principal office at a place within the county, inside of a municipality or out- side of it. So an individual may live without the limits of an incorporated town, although he may transact busi- ness therein. If his residence is out- side of the incorporation, personal property which would be considered as located at the place of his resi- dence would not be subject to munici- pal taxation. But, if an individual actually lives in the city all the year round, he cannot escape municipal tax- ation on personalty by renting a room outside of the city, declaring it to be his home for the purpose of evading taxes, and going there and transact- ing business for an hour or two at a time two or three times a year. Neither can a corporation avoid mu- nicipal taxation, if its actual prin- cipal office is in a town or city in the county of its incorporation, where all of its business is transacted and its officers have their offices, by claim- ing as its principal office a place just outside the city or town, where valu- able papers are kept in an iron safe, and meetings of stockholders or direc- tors are held (though the by-laws per- mit them to be held elsewhere), but where no other business is trans- acted, and no agency is maintained, this being done with a view to non- payment to the municipality of taxes on pej'sonal property." Georgia Fire Ins. Co. V. Cedartown, 134 Ga. 87, 19 Ann. Cas. 954, 67 S- E, 410. 850 Ch. 13] Citizenship, Domicile and Residence [§396 §396. For purposes of venue— Suits in federal courts. The Federal Judiciary Act of 1911''* provides that "where the jurisdic- tion 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 the defendant. ' ' '* Applying this provision, it has been held that a corporation, al- though it has a usual place of business in a certain district in a foreign state, will not be deemed to reside in such district so as to be suable therein.''^ Nor will it have any effect upon this holding that a statute 76 Aet of March 3, 1911, § 51 (Fed. St. Ann., 1 Supp. of 1912, p. 153). Al- though the bulk of the cases cited infra this section were decided under the Judiciary Act of 1888 (correcting the Act of 1887), they are equally in point under the Act of 1911, since the clause quoted from the latter is identical with the clause, dealing with the same subject-matter, in the Act of 1888 (Act of Aug. 13, 1888, § 1). See also § 391, supra. 77 That the question of the district in which suit must be brought is one of venue rather than one of jurisdic- tion, see Fribourg v. Pullman Co., 176 Fed. 981. 78 An alien corporation is not an "inhabitant" within the meaning of that clause of § 1 of the Judiciary Act of 1888 (see also § 51 of the Act of 1911) which provides that "no civil suit shall be brought against any person * * * in any other district than that whereof he is an inhabi- tant." In re Hohorst, 150 IT. S. 653, 37 L. Ed. 1211, distinguished in In re Keasbey & Mattison Co., 160 U. S. 221, 229, 40 L. Ed. 402. Contra, Miller v. Eastern Oregon Gold Min. Co., 45 Fed. 345, wherein it was held that an English corporation may be an "inhabitant" of the state of Ore- gon for purposes of federal jurisdic- tion of a suit against it, on the ground of diversity of citizenship, within the meaning of the Judiciary Act of 1888. That there is no substantial differ- ence between being ' ' found " in • a certain federal district (see infra, this section) and being an "inhabitant" thereof, see Miller v. Eastern Oregon Gold Min. Co., 45 Fed. 345. 78 Shaw V. Quincy Min. Co., 145 XT. S. 444, 36 L. Ed. 768. See also In re Keasbey & Mattison Co., 160 XT. S. 221, 228, 40 L. Ed. 402; Adzenoska v. Erie E. Co., 210 Fed. 571; Colosino v. Pittsburgh & L. E. E. Co., 210 Fed. 550; Eevett v. Clise, 207 Fed. 673; Baldwin v. Pacific Power & Light Co., 199 Fed. 291; Stone v. Chicago, B. & Q. E. Co., 195 Fed. 832; Consolidated Eubber Tire Co. v. Ferguson, 183 Fed. 756; FribSurg v. Pullman Co., 176 Fed. 981; United States v. Northern Pac. E. Co., 134 Fed. 715; A. L. Wolff & Co. v. Choctaw, O. & G. E. Co., 133 Fed. 601; Freeman v. American Surety Co. of New York, 116 Fed. 548; United States v. S. P. Shotter Co., 110 Fed. 1; Booth v. St. Louis Fire-Engine Mfg. Co., 40 Fed. 1. The fact that a corporation has its principal place of business in a cer- tain federal district in a foreign state does not make it a resident of such district for purposes of federal juris- diction. Peale v. Marian Coal Co., 172 Fed. 639. A circuit court of the United States has no jurisdiction of an action by one who is confessedly a nonresident, against a foreign corporation, a part or even all of whose officers are resi- dent, and a part or even all of whose business is transacted in the state in which the circuit court district is 851 § 396] Pbivate Coepobations [Ch. 13 of such foreign state requires a foreign corporation, desiring to trans- act business in the state, to file a certified copy of its articles of incor- poration, accompanied by a resolution of its board of directors or stockholders authorizing service of process to be made on any of its officers or agents in the state who are engaged in transacting its 'busi- ness, and to agree to be subject to each of the provisions of the statute, one of which is that if it removes to a federal court, on the ground of its nonresidence, a suit brought against it in the state courts, it shall forfeit and render null and void its permit to transact business, such statute being invalid as in contravention of the Constitution and laws of the United States.s" On the question of the particular district, within the state, in which a domestic corporation resides for the purposes of this provision, it has been held that a domestic railroad company whose public office, which by statute is its domicile, is in one federal district in the state cannot for jurisdictional purposes be deemed an inhabitant of another such district in the state through which it operates its road and in which it maintains a ticket and freight office and depot in charge of an agent on whom under the statutes of the state process may be served, notwithstanding the further provision of the state statutes that it may be sued in any county through or into which its road is operated or extends.*^ "In the case of a corporation the question of inhabitancy must be determined, not by the residence of any particular officer, but by the principal offices of the corporation, where its books are kept and its located, since a corporation ia a resi- cases all of the property of the eor- dent of the state by which it was poration, to work which it was ineor- created and cannot even for the pur- porated, was in Michigan. It had poses of such act acquire a residence only an agency in New York where elsewhere. Booth v. St. Louis Fire- it was sued. And the Keasbey case Engine Mfg. Co., 40 Fed. 1. See also depended' on like facts," while in this Henning v. Western XT. Tel. Co., 43 case the defendant railroad company Fed. 97; Bensinger Self -Adding Cash was "an Illinois corporation, but Eegister Co. v. National Cash Eegis- with a line of road (through this ter Co., 42 Fed. 81; Filli v. Delaware, [Iowa] district." L. & W. R. Co., 37 Fed. 65. Contra, 80 Southern Pac. Co. v. Denton, 146 United States v. Southern Pac. E. Co., U. S. 202, 36 L. Ed. 943. See also 49 Fed. 297; Eiddle v. New York, L. Piatt v. Massachusetts Eeal-Estate B. & W. E. Co., 39 Fed. 290; Co., 103 Fed. 705. Bogue V. Chicago, B. & Q. E. Co., 193 81 Galveston, H. & S. A. E. Co. v. Fed. 728, distinguishing Shaw v. Gonzales, 151 IT. S. 496, 38 L. Ed. Quincy Min. Co., supra, and In re 248. Contra, Zambrino v. Galveston, Keasbey & Mattison Co., supra, on H. & S. A. Ey. Co., 38 Fed. 449. the ground that "in the first of those 852 Ch. 13] Citizenship, Domicile and Residence [§ 396 corporate business is transacted, even though it may transact its most important business in another place. * * * There are doubtless reasons of convenience for saying that a corporation should be con- sidered an inhabitant of every district in which it does business, and so the statutes of the several states generally provide; but the law contemplates that every person or corporation shall have but one domicile, and in the case of the latter, it shall be in that state by whose laws it was created, and. in that district where its general offices are located. ' ' *^ Eegarding a corporation created by act of congress, it has been held that it is a resident of the federal district wherein its general 82 Galveston, H. & S. A. E. Co. v. Gonzales, 151 V. S. 496, 504, 506, 38 L. Ed. 248. See also Eoszell Bros. v. Continental Coal Corporation, 235 Fed. 343; Kimmerle v. Topeka, 88 Kan. 370, 43 L. E. A. (N. S.) 272, 128 Pac. 367. The fact that a domestic street rail- way company also operates its road in a district other than the one in which it has its legal and actual resi- dence does not make it a resident of the former for purposes of federal jurisdiction of a suit against it by a citizen of another state. Weed v. Cen- tre & C. St. Ey. Co., 132 Fed. 151. Where the charter of a domestic corporation locates it in one federal district in the state, it cannot be deemed a resident of another district even though it maintains offices for the transaction of business in the latter. Grabsky v. Belmont Coal Min. Co., 210 Fed. 553. A domestic corporation, the certifi- cate of incorporation of which locates its principal office at a place within a particular federal district, will be deemed to have its residence in such district until the contrary is shown, or it attempts to deny the jurisdic- tion of the federal courts in such dis- trict. Firestone Tire & Eubber Co. v. Vehicle Equipment Co., 155 Fed. 676. Contrary to the rule obtaining in the case of a natural person, the law must fix the residence, within the state, of a domestic corporation by artificial considerations, such as the lo- cation of its principal place of busi- ness or the personal residence of its duty appointed attorney in fact. When the statutes of the state require each nonresident domestic corporation (defined as one whose principal place of business or chief works are located without the state) to appoint some person resident in the state upon whom service of process directed to it may be made, and to record the power of attorney, by which the per- son is appointed, in the county in which he resides, the appointment and recordation fix the county of the at- torney's residence as that of the corporation for the purpose of deter- mining the federal district in which the corporation may be sued. Where such statutes also provide that in addition to such person the state au- ditor shall be the attorney in fact of every nonresident domestic corpora- tion for the purpose of accepting serv- ice of process and notice directed to it, a corporation of such character which has not appointed a private person as its attorney has its residence for purposes of suit against it in each and every county and federal district of the state, the auditor being a pub- lic official whose functions as defined and fiied by law relate to every 853 §396] Peivate Cobpoeations [Ch. 13 office is located, one of its principal officers resides, and in which its board of directors ratifies action taken by it elsewhere.** It is one thing, however, for the venue of an action in the federal courts to he laid in the district in which the defendant ' ' resides, ' ' '* and quite another thing *^ for it to be laid, as in the Judiciary Act of 1875, in the district in which the defendant is "found," '* and on the question of venue under section 1 of the Act of 1875, it was held that a corporation, created by one state was "found" in a federal district in another state when it was doing business, by its officers or agents, therein, under a local law making possible the serving of process on it within the state.''' county of the state equally and alike regardless of his residence official or private. Lemon v. Imperial Window Glass Co., 199 Fed. 927. 83 In re Dunn, 212 U. S. 374, 53 L. Ed. 558. The fact that a corporation is a resident and has its general office in a certain city, and is, therefore, within a certain one of two federal districts in the state, cannot be implied from the mere circumstance that the name of such city is used in its corporate name. Harvey v. Richmond & M. Ey. Co., 64 Fed. 19. That the "principal place of busi- ness" of a corporation is no test of its residence, in determining the par- ticular division, of a federal district, in which a suit against a corporation will be properly brought, see Guinn V. Iowa Cent. Ey. Co., 14 Fed. 323. 84 See supra, this section. 86 "A corporation cannot change its residence or its citizenship. It can have its legal home only at the place where it is located by or under the authority of its charter; but it may by its agents transact business any- where, unless prohibited by its char- ter or excluded by local laws. Under such circumstances, it seema felear that it may, for the purpose of secur- ing business, consent to be 'found' away from home, for the purposes of suit as to matters growing out of its transactions." Ex parte Schollenber- ger, 96 U. S. 369, 24 L. Ed. 853. See also, generally, cases cited in notes, supra, this section. And compare Miller v. Eastern Oregon Gold Min. Co., 45 Fed. 345. 86 "No civil suit shall be brought * * * in any other district than that whereof he [defendant] is an in- habitant, or in which he shall be found at the time of serving such process or commencing such proceeding, except as hereinafter provided." Act of IVTarch 3, 1875, (4 Fed. St. Ann. p. 266n). 87 A corporation doing business in a foreign state under a statute requir- ing it, as a condition thereto, to agree to be bound by service of process made in such state on a designated individual therein is "found" in the state within the meaning of section 1 of the Act of 1875. Ex parte Schol- lenberger, 96 U. 8. 369, 24 L. Ed. 853. See also In re Louisville Underwrit- ers, 134 U. S. 488, 33 L. Ed. 991; New England Mut. Life Ins. Co. v. Wood- worth, 111 U. S. 138, 28 L. Ed. 379. "Without undertaking to review the authorities on the subject of a cor- poration's liability to suit in a state or district other than that of its cre- ation, we think the decisions of the supreme court have settled and estab- lished the proposition that, in the absence of a voluntary appearance. 854 Ch. 13] Citizenship, Domicile and Residence [§ 397 Somewhat conversely, it was held that a foreign corporation wao not "found" in a federal district, where it had no offlce nor place of business and was not engaged in business except as it occasionally made a purchase through a specially dispatched £igent, merely by reason of the temporary presence therein of its president, who came into the district to adjust a controversy growing out of a purchase made.'* §397. — Suits in state courts. The fact that a corporation created by one state is permitted by another state to do business within three conditions must concur or co- exist in order to give tlie federal courts jurisdiction in personam over a corporation created without the ter- ritorial limits of the state in which the court is held, viz.: (1) It must appear as a matter of fact that the corporation is carrying on its busi- ness in such foreign state or district; (2) that such business is transacted or managed by some agent or officer appointed by and representing the corporation in such state; and (3) the existence of some local law mak- ing such corporation, or foreign cor- porations generally, amenable to suit there as a condition, express or im- plied, of doing business in the state. When the local law, expressly or by comity, permits foreign corporations to do business in the state; when it also provides for suit against them in a reasonable and proper manner, and within the just limits of the state's power and authority; and when a for- eign corporation thereafter enters the state, and transacts its corporate busi- ness by means of resident agents coming within the terms of the local statute, — it may be 'found,' and is liable to suit there in either the state or federal courts, by service of process on such agent." United States v. American Bell Tel. Co., 29 Fed. 17. See also Elk Garden Co. v. T. W. Thay- er Co., 179 Fed. 556; Boston Elec. Co. V. Electric Gas-Lighting Co., 23 Fed. 839; Block v. Atchison, T. & S. F. E. Co., 21 Fed. 529; Merchants' Mfg. Co. V. Grand Trunk Ey Co., 13 Fed. 358; Mohr & Mohr Distilling Co. v. Insur- ance Companies, 12 Fed. 474; Knott v. Southern Life Ins. Co., 2 Woods 479, Fed. Cas. No. 7,894; Fonda v. British American Assur. Co., 2 Cent. L. J. 305, Fed. Cas. No. 4,904; Black- burn V. Selma, M. & M. E. Co., 2 Flip. 525, Fed. Cas. No. 1,467. When a corporation, in obedience to a statute of the foreign state in which it is doing business, keeps and main- tains in such state an agent on which service of process may be had, it is "found" therein within the meaning of section 8 of the Act of March 3, 1875 (4 Fed. St. Ann. p. 380), continued by section 5 of the Act of Aug. 13, 1888 (4 Fed. St. Ann. p. 389), which provides for service by publication, in certain cases, when the defendant shall not be found within the district. Spencer v. Kansas City Stock- Yards Co., 56 Fed. 741. One corporation sued by another un-j der the Sherman Anti-Trust Act is "found," for the purpose of service of process, where it is doing business. Michigan Aluminum Foundry Co. v. Aluminum Castings Co., 190 Fed. 879. On the question as to when a cor- poration, originally of foreign cre- ation, may be sued in the District of Columbia, jurisdiction depending on acts of congress local to the district, see Baltimore & 0. R. Co. v. Harris, 12 Wall. (U. S.) 65, 20 L. Ed. 354. 88 Good Hope Co. v. Railway Barb Fencing Co., 22 Fed. 635. 855 397] Pbivate Cobporations [Ch. 13 ite borders does not per se make it a resident of the latter state for pur- poses of venue." Thus it has been held that although a corpora- tion is lawfully doing business in a foreign state, it is a nonresident thereof within the meaning of a statute providing that if the defend- ant in an action is a nonresident of the state, the action may be tried in any county in which the defendant may be found or in the county designated in the complaint.'" SSEemington & Sherman Co. v. Ni- agara County Nat. Bank, 54 N. T. App. Div. 358, 66 N. Y. Supp. 560. Where it is provided by statute that a foreign, corporation doing busi- ness in the state may be sued in any county of the state where it has an agency, that where there are two or more defendants residing in different counties, suit may be brought in any county where any one of the defend- ants resides, and that the "public of- fice of a railroad shall be considered the domicile of such corporation," the word "domicile" must be understood as having been used in its general and popular sense as denoting "resi- dence," and as synonymous with "residence," for the purposes of the provision relating to a case where the two or more defendants are residing in different counties. Texas & P. Ey. Co. V. Bdmisson (Tex. Civ. App.), 52 S. W. 635. A railroad company incorporated by act of congress is not a "foreign" corporation within the meaning of the venue statute of a state in which it operates its road. Texas & P. R. Co. V. Weatherby, 41 Tex. Civ. App. 409, 92 S. W. 58. For purposes of jurisdiction, a cor- poration may be deemed to have a domicile as well in a country in which it is carrying on business and in which it has both real and personal property as in the country under the laws of which it was created and in which it has its manufactories. Car- ron Iron Co. v. Maclaren, 5 H. L. Cas. 416, 449 (by Lord St. Leonardo, dis- senting). See also Newley v. Colt's Patent Firearms Mfg. Co., 7 Q. B. 293, 295. 90 New York Life Ins. Co. v. Pike, 51 Colo. 238, 117 Pac. 899. Said the court: "The authorities, both court and text-writers, announce as settled doctrine that a corporation organized under the law3 of one state is a resi- dent of the state under whose laws it was created; that it cannot be a resident of any other state; and though such a corporation be per- mitted by another state, upon compli- ance with its laws, to carry on its business there, such permission and compliance does not make it a resi- dent of such other state." Although a foreign corporation do- ing business in the state is required by statute to designate an agent on whom process may be served, such a corporation does not by complying therewith acquire a fixed residence in the county in the state in which the agent designated resides, so far as the venue of actions against it is con- cerned. Boyer v. Northern Pac. R. Co., 8 Idaho 74, 70 L. E. A. 691, 66 Pac. 826, overruling Easley v. New Zealand Ins. Co., 4 Idaho 205, 38 Pac. 405. And a foreign corporation has been held to be a "nonresident" within the meaning of a statute providing that suit against a nonresident of the state may be brought in the county in which he may be found or may have estate or debts due him. Queensberry v. People's Building, Loan & Savings Ass'n, 44 W. Va. 512, 30 S. E. 73. Se« 856 Ch. 13] Citizenship, Domicile and Residence [§ 397 Domestic corporations, however, are, for such purposes, deemed to have, equally with natural persons, a residence at some place in the state,'^ and that place is generally regarded as being the one at which the principal office ^^ or principal place of business is located.^^ But also Savage v. People's Building, Loan & Savings Ass'n, 45 W. Va. 275, 31 S. E. 991. A corporation is a nonresident of a foreign state in which it has estab- lished an office within the meaning of a statute of such state providing that a nonresident defendant may be sued in any county in the state. New York, L. E. & "W. E. Co. v. Estill, 147 U. S. 591, 37 L. Ed. 292. Under the peculiar provisions of an- other statute it was held that a foreign insurance company doing busi- ness in the state was a resident of every county and township therein for purposes of local jurisdiction. Meyer V. Phoenix Ins. Co., 184 Mo. 481, 83 S. "W. 479. 81 Greacen v. Buckley & Douglas Lumber Co., 167 Mich. 569, 133 N. W. 538. 98 Etowah Milling Co. v. Crenshaw, 116 Ga. 406, 42 S. E. 709; Watson v. Richmond & D. E. Co., 91 Ga. 222, 223, 18 S. E. 306; Thorn v. Central E. Co., 26 N. J. L. 121; Eoff Oil & Cotton Co. V. King, — Okla. — , 148 Pae. 90. See also Finch School v. Pinch, 144 N. Y. App. Div. 687, 129 N. Y. Supp. 1. Where a religious corporation main- tained a treasurer 's office in one place, and transacted its business there, and conducted its religious exercises in an- other place, its residence was at the former place for purposes of venue. St. Michael's Protestant Episcopal Church V. Behrens, 10 N. Y. Civ. Proe. 181. In Dade Coal Co. v. Haslett, 83 Ga. 549, 10 S. E. 435, it was held that where a mining company was author- ized by law to carry on business in any county, and it conducted its prin- cipal mining business in one county, but had in another county an office "for the purpose of electing its of- ficers and conducting its financial operations," it was within the juris- diction of the courts of the latter county. In Georgia, the courts take judicial notice of the principal office or legal residence of railroad corporations or- ganized under the laws of that state. White v. Atlanta, B. & A. Ey. Co., 5 Ga. App. 308, 63 S. E. 234. SSTrezevant v, W. E. Strong Co., 102 Cal. 47, 48, 36 Pae. 395; Mc- Sherry v. Pennsylvania Consol. Gold Min. Co., 97 Cal. 637, 641, 32 Pae. 711; Buck v. Eureka, 97 Cal. 135, 31 Pae. 845; Cohn v. Central Pae. E. Co., 71 Cal. 489, 12 Pae. 498; Jenkins v. Cali- fornia Stage Co., 22 Cal. 538; Krogh V. Pacific Gateway & Development Co., 11 Cal. App. 237, 104 Pao. 698; Bloom V. Michigan Salmon Min. Co., 11, Cal. App. 122, 104 Pae. 324; Mul- len V. Northern Ace. Ins. Co., 26 S. D. 402, 128 N. W. 483. See also Finch School V. Finch, 144 N. Y. App. Div. 687, 129 N. Y. Supp. 1. A corporation may be situated in one county, its principal office or place of business may be in another, and its chief officer may reside in a third, within the meaning of a statute pro- viding that an action against a do- mestic corporation may be brought in the county in which it is situated, or has its principal office or place of businegs, or in which its chief of- ficer resides. ' Spratley v. Louisiana & A. E. Co., 77 Ark. 412, 95 S. W. 776, modifying former opinion in which it was held that a corporation is situated within the meaning of this statute where it has its principal of- fice or place of business. 857 §397] Pbivate Cobpokations [Ch. 13 if in the above statement there is any one word which must be empha- sized more than another, it is the word ' ' principal. ' ' Thus it has been held that a domestic corporation has its residence for purposes of venue in the county designated in its certificate of incorporation as that in which its principal place of business was to be located, not- withstanding the fact that it actually has places of business in one or more other counties.'* "Where the certificate of incorporation provides that the principal office of the corporation shall be in a certain county and its principal business shall be carried on in another county, the county in which it is provided that the principal office shall be located is the "resri- denee" of the corporation within the meaning of a statute providing that acts shall be tried in the county where the defendant resides.'* A domestic railroad company has a residence for purposes of venue in a county in which it exercises corpo- rate functions although no portion of its line of road is in such county. Bristol V. Chicago & A. E. Co., 15 111. 436. The fact that an agent of an insur- ance company resides in a county other than that in which the com- pany's principal place of business is located does not necessarily justify the inference that the company is "situated" in such county for pur- poses of venue. Security Mut. Life Ins. Co. V. Eess, 76 Neb. 141, 106 N. W. 1037. Under the express provisions of sec- tion 422 of the North Carolina statutes (Eevisal 1905), the principal place of business of a domestic corporation is its residence for the purpose of suing and being sued. See Eackley v. Eow- land Lumber Co., 70 N. C. 171, 69 S. E. 56; Eoberson v. Greenleaf Johnson Lumber Co., 153 N. C. 120, 68 S. E. 1064, in the latter of which cases it was said that "the sole purpose of this section was to remedy a defect in our statute law, as construed in Cline v. Bryson City Kfg Co , 116 N. C. 837, 21 S. E. 791, and Parmer? ' State Alliance of North Carolina v. Mur.-fill, 119 N. C. 124, 25 S. E. 785, in which cases it was held that a domestic cor- poration had no residence, within the meaning of section 424, Eevisal (Code, § 192), although it had a principal ofSce or place of business in the state, and, being without a legal residence in any particular county in the state, it could be sued, to its great inconven- ience and loss, by a nonresident in any county designated in the summons. This defect was remedied, and a do- mestic corporation can be sued in the same venue as an individual, except railroads, under the proviso of section 424, Eevisal," which must be sued "either in the county where the cause of action arose or in the county where the plaintiff resided at the time the cause of action arose, or in some county adjoining the county in which the cause of action arose, subject, however, to the power of the court to change the place of trial in the cases provided by statute." 84Eossie Iron-Works v. Westbrook, 59 Hun (N. Y.) 345, 13 N. Y. Supp. 141. See also Eemington & Sherman Co. V. Niagara County Nat. Bank, 54 N. Y. App. Div. 358, 66 N. Y. Supp. 560; Speare v. Troy Laundry Machin- ery Co., 44 N. Y. App. Div. 390, 60 N. Y. Supp. 1080. 95 Woods Gold Min. Co. v. Boyston, 46 Colo. 191, 103 Pac. 291. 858 Ch. 13] Citizenship, Domicile and Eesidence [§ 398 A railroad company, however, has been held to be a resident, for pur- poses of venue, of a county in which it operates its road and carries on a large part of its business although it has its principal office in another county. "When the defending company is other than a rail- road company, and has named its principal place of business in its articles of association, it is well settled that the place so fixed is to be deemed its place of residence. * * * But it seems also to be settled that, in the case of a railroad company, its place of residence must be ascertained by its place of business; and, if it have several places of business, it must also be deemed to have several places of residence. * * * Although its principal office may be located in a specified, county, the principal business of a railroad company can hardly be said to be located in any particular place. It owns prop- erty in, and operates its road through, many counties, and there are various reasons why its place of residence should not be limited to the place where its main office is located. ' ' '^ §398. Within statutes of limitations. The rule adopted by a number of courts, although disapproved by some, is that a foreign corporation is not to be deemed "out of the state" or a "nonresident" thereof within the saving clause of the statute of limitations when it is doing business, through agents, therein and can be reached by process, the ability to obtain service upon it within the state being sufficient to make the statute available to it as a defense.^' 98 Poland V. United Traction Co., the residence of a railroad company, 88 N. Y. App. Div. 281, 85 N. Y. Supp. for the purpose of bringing actions, 7, aff'd 177 N. Y. 557, 69 N. E. 1129. is in the county on the line of its In Georgia it has been held that the road where its principal ofice is situ- county in which a railroad company ated. Connecticut & P. Rivers E. Co. conducts its business is the county of v. Cooper, 30 Vt. 476, 73 Am. Dee. its residence, within a constitutional 319. provision that no person shall be sued 97 A corporation may be a resident elsewhere than in the county in which of more than one state as far as stat- he resides. Davis v. Central Railroad utes of limitations are concerned. & Banking Co., 17 Ga. 323. Louisville & N. R. Co. v. Pool, 72 Miss. That, for purposes of venue, a do- 487, 16 So. 753. See also Use v. .iEtna mestic railroad company is a resident Indemnity Co., 69 Wash. 484, 125 Pac. of the place where it has its principal 780. place of business, but that the state- Thus when a corporation has a man- ment in its special charter as to where aging agent in a foreign state, exer- such principal place of business is lo- cising his authority as such openly cated is not conclusive on that ques- and without fraudulent concealment, tion, see Boyd v. Blue Ridge R. Co., such corporation is within the state 65 S. C. 326, 43 S. E. 817. within the intent of the statute of It has been held in Vermont that limitations. Lawrence v. Ballou, 59 859 § 398] Private Coepobations [Ch. 13 "Absence from the state and residence out of the state, in the sense of the statute, means such absence and such nonresidence as renders it impracticable at all times to obtain service of process ; so that, while a corporation's technical legal residence may be where it was created, its residence and status for purposes of suit will be where it can, through its officers and agents, be reached with process. ' ' '* Cal. 258, 264. See also United States Exp. Co. V. Ware, 20 Wall. (U. S.) 543, 22 L. Ed. 422; King v. National Min- ing & Exploring Co., 4 Mont. 1, 1 Pae. 727. In like manner, a corporation doing business in and amenable to the courts of a foreign state must be deemed a resident of such state as far as its being entitled to plead the statute of limitations is concerned, and not a nonresident within the meaning of a statute providing that "the time dur- ing which a defendant is a nonresi- dent of the state shall not be included in computing any of the periods of limitations prescribed." Wall v. Chi- cago & N. W. B. Co., 69 Iowa 498, 29 N. W. 427. See also Taylor v. Union Pac. E. Co., 123 Fed. 155. Nor is a corporation doing business in a foreign state and subject to the jurisdiction of the courts thereof, a. person "out of the state" within the meaning of a statute which prevents the running of limitations in favor of such a person. Pennsylvania Co. v. Sloan, 1 111. App. 364. And a corporation, doing business in a foreign state, under the laws thereof which make it suable in any c'ounty where one of its agents carry- ing on its business may be found, is not a nonresident of the state within the meaning of the provision in the statute of limitations that "the time during which the defendant is a non- resident of the state shall not be in- cluded in computing any of the periods of limitation." McCabe v. Illi- nois Cent. E. Co., 13 Fed. 827. See also Baltimore & 0. E. Co. v. Eeed, 223 Fed. 689; Tiller v. St. Louis & S. F. E. Co., 189 Fed. 994; Southern Ey. Co. V. Mayes, 113 Fed. 84. An alien corporation, doing business in one of the states of the Union un- der the laws thereof, which had two oflB-cers who were resident citizens of the state and upon which service could be and was obtained, is a resident of the state so far as being entitled to plead the statute of limi- tations is concerned. Thompson v. Texas Land & Cattle Co. (Tex. Civ. App.), 24 S. W. 856, in which the court said: "The only reason that can be assigned for the provision in the stat- ute causing the running of limitation to cease during absence from the state is because the party is beyond the reach of the courts, and whenever the person or corporation can be reached by personal service the reason of the rule ceases, and not more so in the case of an individual than in that of a corporation." The appointment by a federal court of a receiver for a resident corpora- tion does not make such corporation a nonresident so as to prevent the running of limitations in its favor. Fowler v. Des Moines & K. C. Ey. Co., 91 Iowa 533, 60 N. W. 116. 98 Turcott V. Yazoo & M. V. E. Co., 101 Tenn. 102, 45 S. W. 1067. See also Bennett v. Western U. Tel. Co., 152 N. C. 671, 68 S. E. 202; Volivar v. Eichmond Cedar Works, 152 N. C. 656, 68 S. B. 200 (rev'g on rehearing 152 N. C. 34, 67 S. E. 42), which held Green v. Hartford Life Ins. Co., 139 N. C. 309, 51 S. E. 887, to have been not well decided and approved; Wil- 860 Ch. 13] Citizenship, Domicile and Residence [§398 Other courts, however, would hold a foreign corporation to be immune from the penalty attached to being "out of the state" or "residing out of the state" only when it has complied with the require- ments of the statute relative to its doing business in the state," espe- cially when noncompliance therewith precludes its being reached by process.^ Moreover, taking the view that the statute of limitations is not available to a foreign corporation, it has been held that such a cor- poration, although transacting business in the state, is "out of the state" within the meaning of the statutory provision that "if when a cause of action accrues against a person Ije be out of the state, the period limited for the commencement of the action shall not begin to run until he comes into the state."* Hams V. Iron Belt Building & Loan Ass'n, 131 N. C. 267, 42 S. B. 607. 99 St. Louis & S. F. Ey. Co. v. Keif- fer, — Okla. — , 150 Pac. 1026; Okla- homa Nat. Bank v. Chicago, E. I. & P. E. Co., 45 Okla. 707, 146 Pac. 716; Hale V. St. Louis & S. F. E. Co., 39 Okla. 192, 134 Pac. 949. In O'Brien v. Big Casino Gold Min. Co., 9 Cal. App. 283, 99 Pac. 209, the court said: "Foreign corporations, when attempting to claim the benefit of our statute of limitations, are re- quired, as a necessary prerequisite to the exercise of that right, to not only meet the demands of the law by vir- tue of which alone they may avail themselves of the privilege of trans- acting business in this state, but must prove the fact at the trial. Omission to make such proof is * * * fatal to their right to claim the benefit of the statute. ' ' Contra, see Turoott v. Yazoo & M. Val. E. Co., 101 Tenn. 102, 45 S. W. 1067, wherein it was held that the failure of a corporation to file and reg- ister its charter in a foreign estate as required by the statutes of such state as a condition to its enjoying all of the rights of a domestic corporation does not affect its status as a resident of such state for the purpose of plead- ing the statute of limitations. Where the statute requires a for- eign corporation, doing business in the state, to keep therein an office and an agent on whom service may be obtained, a foreign corporation, per- mitted to do business in the state and complying with such statute is not a nonresident within the meaning of the statute of limitations. Sidwayv. Missouri Land & Live Stock Co., 187 Mo. 649, 86 S. W. 150. 1 Johnson & Larimer Dry Goods Co. V. Cornell, 4 Okla. 412, 46 Pac. 860. 2 Williams v. Metropolitan St. E. Co., 68 Kan. 17, 74 Pac. 600, said in Tiller v. St. Louis & S. F. E. Co., 189 Fed. 994, to be "not only opposed to the great weight of authority in this country, but also to the very reason of the matter itself." But see, as sup- porting the doctrine of Williams v. Metropolitan St. E. Co., supra. Ball Engine Co. v. Bennett Co., 98 Neb. 290, 152 N. W. 550, wherein, although the facts involved are not similar, the court quotes approvingly from Williams v. Metropolitan St. E. Co., supra; Sutro Tunnel Co. v. Segregated Belcher Min. Co., 19 Nev. 121, 7 Pac. 271; Olcott V. Tioga E. Co., 20 N. Y. 210, rev'g 26 Barb. (N. Y.) 147; Thompson v. Tioga E. Co., 36 Barb. (N. Y.) 79; Hale v. St. Louis & S. F. E. Co., 39 Okla. 192, 134 Pae. 949; 861 §399] Peivate Cokpoeations [Ch. 13 §399. For purposes of attadunent and gamisliment. It is not proposed to discuss herein the question of jurisdiction generally in attachment and garnishment proceedings, but only so much of the question as turns upon residence or domicile.^ The place of its creation ordinarily determines the residence of a corporation within the meaning of an attachment statute.* Thus it has been held that a corporation created by an act of the legislature of a certain state and having, by law, its place of business in such state cannot be deemed "absent" or "residing out of the state" within a statute regulating the procedure in attachment when the Larson v. Aultman & Taylor Co., 86 Wis. 281, 56 N. W. 915. Although the court in Travelers' Ins. Co. of Hartford, Conneotieut v. Fricke, 99 Wis. 367, 78 N. W. 407, in denying a motion for a rehearing, makes the statement that "a foreign corporation which has acquired a domi- cile in this state for the purposes of litigation is not a nonresident, in such sense as to suspend the operation of the statute of limitations against it," thus apparently overruling its origi- nal opinion (74 N. W. 372, 374) in which it cites, with approval, Larson V. Aultman & Taylor Co., supra, it is said by the same court in a later case (State V. National Aec. Society, 103 Wis. 208, 79 N. W. 220, 223) that "notwithstanding the suggestion of counsel for appellant to the contrary, it is considered that in Travelers' Ins. Co. of Hartford, Connecticut v. Fricke, 99 Wis. 367, 74 N. W. 372, and 78 N. W. 407, it was held by this court that a foreign corporation is not entitled to the benefit of our statutes of limita- tions. Such benefit was insisted upon in that case, the right in that regard was considered as one of the material points for decision upon one theory of the case, and the proposition was de- cided adversely to the corporation, though it is true, on another theory, the court held that judgment should go against the corporation, independ- ent of whether it was or was not a resident of the state within the mean- ing of the limitation exemption act." A corporation "resides beyond the limits" of a foreign state within the meaning of a statute of such state sav- ing causes of action in favor of per- sons residing beyond the limits of the state when the statute was enacted. Clarke v. Bank of Mississippi, 10 Ark. 516, 52 Am. Dec. 248. A holding by a state court that a foreign corporation is "out of the state" so far as pleading the statute of limitations is concerned is conclu- sive on the Supreme Court of the United States on writ of error from that court. Tioga E. Co. v. Blossburg & C. E. Co., 20 Wall. (TJ. S.) 137, 22 L. Ed. 331. See also Hanchett v. Blair, 100 Fed. 817. 3 For a complete treatment of the subject of attachment and garnish- ment of corporations, see the chapter treating thereof, infra. 4 Barbour v. Paige Hotel Co., 2 App. Cas. (D. C.) 174; Harley v. Charleston Steam-Packet Co., 2 Miles (Pa.) 249. See also Title Insurance & Trust Co. v. California Development Co., 171 Cal. 173, 152 Pac. 542. And compare Brand V. Auto Service Co., 75 N. J. L. 230, 67 Atl. 19, in which the court said: "We conclude that a corporation is a resident, irrespective of its domicile, when it does business in this state and its officers reside here, upon whom process may be served at their nomes. 862 Ch. 13] Citizenship, Domicile and Eesidence [§39Q creditor is "absent or resides out of the state." ' Again it has been held that a railroad company, although operating a line of road in £i foreign state resides in the state of its creation, and may be garnished therein for a debt incurred in, and owing to a resident of, such for- eign state, the defendant having voluntarily gone into the state of the corporation's creation.^ Indeed, it has been said that a domestic corporation has its exclusive residence and domicile at all times in the jurisdiction of its origin, and cannot be garnished in another jurisdiction for debts owing by it to home creditors, so as to make the attachment effectual against its creditor, in the absence of juris- diction acquired over the person of such creditor.' Conversely it has been held that a foreign corporation doing business in the state under the laws thereof will be deemed a "nonresi- dent" within a statute making nonresidence a ground for attach- ment.* Even the fact that the alien insurance company, garnished, has filed the stipulation, required by statute, whereby it agreed that any legal process affecting it which shall be served on the insurance commissioner shall have the same effect as if personally served on it, itself, does not give it a domicile within the state for all purposes. Conversely, a corporation, no matter where incorporated, which does not do business in this state and does not have officers residing here upon whom process may be served, is nonresident. It may well be, and in practice fre- quently does happen, that a corpora- tion created by the laws of this state is nonresident, as where a domestic corporation does not transact any business in this state, and has no offi- cer or director resident here, and has no resident agent or principal office for the service of process. On the other hand, it may well be that a foreign corporation may be recognized as a corporation of this state, and still be a nonresident." 6 Trenton Banking Co. v. Haver- stick, 11 N. J. L. 171. 6 East Tennessee, V. & G. E. Co. v. Kennedy, 83 Ala. 462, 3 Am. St. Eep. 755, 3 So. 852, distinguished in Ala- bama Gr. S. E. Co. V. Chumley, 92 Ala. 317, 9 So. 286. 7 Douglass V. Phenix Ins. Co., 138 N. T. 209, 20 L. E. A. 118, 34 Am. St. Eep. 448, 33 N. E. 938, aff'g 63 Hun (N. Y.) 393, 18 N. Y. Supp. 259; considered in National Fire Ins. Co. of Hartford v. Chambers, 53 N. J. Eq. 468, 32 Atl. 663, and repudiated to the extent that it is authority for the proposition that a corporation can have but one domicile or "business residence. ' ' 8 Jennings v. Idaho Eailway, Light & Power Co., 26 -Idaho 703, L. E. A. 1915 D 115, Ann. Cas. 1916 B 359, 146 Pac. 101, wherein the court said: "To grant to a foreign corporation the right to hold property, to do business, maintain actions, enjoy the benefits of eminent domain, does not make it a domestic corporation; and notwith- standing the right to the enjoyment of all of these privileges, and such others as the legislature may from time to time provide, the residence or citizenship of a foreign corpora- tion would not be changed, and it would still, under the great weight of authority, be subject to attachment as a foreign corporation. * * • The au- 863 § 399] Pbivatb Cobpoeations [Ch. 15 nor bring therein the situs of a debt which it owes in another state by reason of business transacted therein.^ On the other hand, it has been held that where a railroad . com- pany doing business in a foreign state is, by the statutes of such state, made a domestic corporation and required to be treated as such in all cases, such company maintains a status equivalent to that of a resident of the state, and may be proceeded against as a garnishee to the same extent, and in respect to the same classes of debts, as natural persons residing in the state.^" Where a railroad corporation exists and performs its functions within the limits of a state, as a domestic corporation, by virtue of a charter granted by such state, the fact that the same incorporators obtained earlier charters from other states, and effected organization and still do business thereunder, does not render the corporation any less a resident of the state for purposes of garnishment, and the fact that the indebtedness for which the process is sought arose in one of such other states under a contract made therein with a resident thereof is not material.** thoritiea are uniform that the domi- cile, residence, and citizenship of a corporation are in the state where it is created, and that, where the cor- poration is not domesticated (that is, reincorporated in other states where it does business), it can have but one domicile, one residence, and one citizenship, and that is in the state is3uing its charter and maintaining supervision and control over the cor- poration. * * * These general prin- ciples respecting residency or inhabitancy of corporations cannot be denied or questioned. • * * We do not think that the legislature ever intended that a foreign corporation, by complying with the Constitution and laws of this state permitting it to do business, should be regarded as a resident of this state, within the mean- ing of our attE^chment laws, and that its property should be exempt from attachment. ' ' See also Voss v. Evans Marble Co., 101 111. App. 373. Contra, Burr V. Co-operative Const. Co., 162 111. App. 512. 9 Swedish-American Nat. Bank of Minneapolis v. Bleecker, 72 Minn. 383, 42 L. E. A. 283, 71 Am. St. Eep. 492, 75 N. W. 740. 10 Baltimore & O. E. Co. v. Allen, 58 W. Va. 388, 3 L. E. A. (N. S.) 608, 112 Am. St. Eep. 975, 52 S. B. 465, in which the court, distinguish- ing Pennsylvania E. Co. v. Eogers, 52 W. Va. 450, 62 L. E. A. 178, 44 S. E. 300, and declaring the use of the word "domicile" in such case to be inaccurate, said: "Though a corpora- tion is incapable of having a residence in the sense in which that term is applied to an individual, just as it is not in fact a citizen, it may be, and is often, deemed to have a residence or the equivalent thereof in a gtate other than that of which it is a citi- zen. ' ' See also Hannibal & St. J. E. Co. V. Crane, 102 111. 249, 40 Am. Eep. 581. U Mobile & O. E. Co. v. Barnhill, 91 Tenn. 395, 30 Am. St. Eep. 889, 19 S. W. 21 (adhering to the ruling in Holland v. Mobile & O. E. Co., 16 Lea [Tenn.] 414). Caldwell, J., said: "The fact that the indebtedness of 864 Ch, 13] Citizenship, Domicile and Residence [§ 401 § 400. Statute relating to judgment on filing affidavit of claim. An affidavit of claim filed with a declaration in a suit against a cor- poration, stating the amount due and that the principal office of the defendant is in the county where the suit is brought, is sufficient to show that the defendant is a resident of that county, within the mean- ing of a statute that if the plaintiff shall file such an affidavit he shall be entitled to judgment as in ease of default, unless the defendant, or his agent or attorney, if the defendant is a resident of the county in which the suit is brought, shall file an affidavit that he has a good defense to the suit on the merits.^* § 401. Corporations created by congress — In general. A cor- poration created by congress in the exercise of its powers as the local legislature for the District of Columbia is a citizen and resident of the district, and is a foreign corporation in so far as the states are con- the railroad company to Joyner arose in Mississippi, under a contract made in tliat state, does not render the rail- road company a nonresident of Ten- nessee as to that indebtedness. The contention to the contrary, and that the railroad company is a nonresi- dent of the state as to that debt, is not sustained by the case of Memphis & C. E. Co. V. State of Alabama, 107 TJ. S. 581, 2 Sup. Ct. Eep. 432. The decision in that case was that the rail- road company was a citizen of both Tennessee and Alabama, having been chartered in each state; and that, be- ing a citizen of Alabama, it could not upon the grounds of citizenship in Tennessee, remove into the circuit court of the United States a suit brought against it in a state court of Alabama by another citizen of Alabama. It was not there decided as here contended, that for the pur- poses of that litigation the corpora- tion was to be treated as not a citizen of Tennessee because the matters in- volved arose in Alabama. The ground of that decision was corporate citizen- ship in Alabama, the court holding that the corporation was a citizen of that state as well as of Tennessee, where it obtained its first charter. The Mobile & Ohio Eailroad Company, as already stated, was chartered and is doing business in Alabama, Missis- sippi, and Tennessee. It is therefore, in fact and in law, a citizen of each of the three states." See also Georgia & A. Ey. Co. v. Stollenwerck, 122 Ala. 539, 25 So. 258, citing Mem- phis & C. E. Co. v. Alabama, supra, and Central Eailroad & Banking Co. V. Carr, 76 Ala. 388, 52 Am. Eep. 339, in which the court said — ^but merely arguendo — "It is also sometimes the case, that a railroad, extending through two or more states, obtains a charter, identical in the powers and the privileges it confers, from each of the states through which it runs; thus constittiting it one corporation. In the latter class of cases, the corpora- tion is a unit, and whetlier sued in one of the jurisdictions or another, it cannot raise the question as to its resi- dence, or claim that it is nonresident. It has a common residence in each of the states which gave its concurring assent to its common charter of in- corporation." 12 Chicago, D. & V. E. Co. v. Bank of North America, 82 111. 493. I Priv. Corp. — 55 865 §401] Private Cokpokations [Ch. 13 cemed.^' A national corporation, however, — ^that is, a corporation created by congress in the exercise of its powers as the legislature of the United States — is not regarded as a foreign corporation, but as a domestic corporation, in any state or territory in which it may do business, or in which it may have an office.^* A corporation created by an act of congress in the exercise of its powers as the legislature of the United States may sue in the federal courts, or remove into the federal courts suits brought against it in the state courts, on the ground that such suits arise under the laws of the United States." But a railroad company, incorporated under acts of congress, whose activities and operations were not intended to be, and are not in fact, confined to a single state but are carried on in different states, is not a citizen of any state for the purpose of federal jurisdiction on the ground of diversity of citizenship.^® 13 Daly V. National Life Ins. Co., 64 Ind. 1; Williams v. Creswell, 51 Miss. 817; Hadley v. Freedmau's Savings & Trust Co., 2 Tenn. Ch. 122. 14 Com. V. Texas & P. E. Co., 98 Pa. St. 90, wherein it was held that a railroad company created by con- gress to construct and operate a rail- road from a point in Texas to a point in California was not a foreign cor- poration in Pennsylvania, where it had an oMee and also did business, within a, revenue law of that state. But compare Bank v. Deveaux, 5 Cranch (U. S.) 61 (decided in 1809), wherein one of the questions was as to whether a corporation could sue in a federal court on the ground of diver- sity of citizenship (see § 390, supra). The plaintiffs in this case were the president, directors and company of the Bank of the United States, which had been incorporated by an act of congress and was doing business in various of the states, and the court held, by Chief Justice Marshall, that it would regard the suit as one brought by the natural persons composing the corporation, and that, upon their citi- zenship being laid, by the declaration, in Pennsylvania and that of the de- fendants in Georgia, jurisdiction at- tached. But it is, if anything, the reasoning in this case, as distinguished from the conclusion reached, that would justify a statement to the effect that, in every ease and under all cir- cumstances, a national corporation can be deemed a citizen of one particular state only, namely, the one in which its corporators reside, and since such reasoning was afterwards disapproved by the Supreme Court of the United States (see Louisville, C. & C. E. Co. V. Letsou, 2 How. [U. S.] 497, 11 L. Ed. 353, and, generally, § 387, supra), the case fails as authority for such a proposition. In this connection, attention may be called to the fact that under the act incorporating the second Bank of the United States, the latter might "sue and be sued * * * in all state courts having competent jurisdiction, and in any circuit court of the United States." See Claflin v. Houseman, 93 U. S. 130, 135, 23 L. Ed. 833; Bank of United States v. Planters' Bank, 9 "Wheat. (U. S.) 904, 6 L. Ed. 244; Osborn v. Bank of United States, 9 Wheat. (U. S.) 738, 817, 6 L. Ed. 204. IB Pacific Eailroad Eemoval Cases, 115 U. S. 2, 29 L. Ed. 319. 16 Bankers' Trust Co. v. Texas & 866 Ch. 13] Citizenship, Domicile and Residence [§ 402 The legislative power exercised by the legislature oJ a territory of the United States is the legislative power of the territory, and not of the United States ; and a corporation created by or under an act of a territorial legislature is a corporation of the territory, and not a federal or national corporation, and therefore it cannot, as such, sue in the federal courts, even though it be conceded that corporations created under the laws of the United States have the right to sue in such courts.^' But where a corporation is created by a territorial legislature and the territory subsequently is admitted to the Union as a state, the cor- poration becomes a citizen of the state for purposes of federal juris- diction.^* § 402. — National banks. Under Act of Congress of June 3, 1864, the circuit courts of the United States were given jurisdiction of all suits by or against a national bank established within the district for which the court should be held, and such jurisdiction was not in any way affected by the citizenship of the parties or the amount in con- troversy.^® This provision, however, was held to have no application to suits brought by or against a national bank outside of the district in which it was established. As to such suits a national bank, for the purpose of determining the jurisdiction of the federal courts, was regarded as a citizen or resident of the state in which it was estab- lished.*" By Act of Congress of July 12, 1882, it was provided that the juris- diction for suits thereafter brought by or against any national bank- ing associations, except suits between them and the United States, or its officers and agents, should be the same as, and not other than, the jurisdiction for suits by or against banks not organized under any P. E. Co., 241 U. S. 295, 60 L. Ed. New Orleans v. Bohue, 8 Fed. IVi. 1010. This provision did not apply to suits 17 Adams Exp. Co. v. Denver & R. in relation to land, or other local ac- G. By. Co., 16 Fed. 712. tions. Casey v. Adams, 102 U. S. 66, 18 Kansas Pac. R. Co. v. Atchison, 26 L. Ed. 52. T. & S. P. R. Co., 112 U. 8. 414, 28 20 St. Louis Nat. Bank v. Allen, 5 L. Ed. 794. See also'shulthis v. Mc- Fed. 551; National Park Bank v. Nieh- Dougal, 225 U. S. 561, 56 L. Ed. 1205 19 V. S. Rev. St. § 5198, 5 Fed. St. Ann. p. 194n. See Wilson County v, National Bank of Nashville, Tennes- see, 103 V. S. 770, 26 L. Ed. 488 Third Nat. Bank of St. Louis v. Har rison, 8 Fed. 7gl; First Nat. Bank of 667. 867 ols, 4 Biss. 315, Fed. Cas. No. 10,048; Manufacturers' Nat. Bank v. Baack, 8 Blatchf. 137, Fed. Cas. No. 9,052. See also Orange Nat. Bank v. Traver, 7 Fed. 146; Cooke v. State Nat. Bank of Boston, 52 N. Y. 96, 11 Am. Rep. § 402] Peivate Coepokations [Ch. 13 law of the United States., which might be doing business where such national bank might be doing business when such suits might be commenced ; and all laws or parts of laws of the United States incon- sistent with this provision were repealed. And by the Act of August 13, 1888, it was provided that "all national banking associations established under the laws of the United States shall, for the purposes of all actions by or against them, real, personal, or mixed, and all suits in equity, be deemed citizens of the states in which they are respectively located. And in such eases the circuit and district courts shall not have jurisdiction other than such as they would have in cases between individual citizens of the same state." But it was also stipulated therein that these provisions should "not be held to affect the jurisdiction of the courts 9f the United States in eases commenced hy the United States or by direction of any ofificer thereof, or cases for winding up the affairs of any such bank. ' ' ^^ "The necessary effect of this legislation [Act of 1888] was to make national banks, for purposes of suing and being sued in the circuit courts of the United States, citizens of the states in which they were respectively located, and to withdraw from them the right to invoke the jurisdiction of the circuit courts of the United States simply upon the ground that they were created by, and exercised their powers under, acts of congress. ' ' ^'^ 21 1 v. S. Eev. St. Supp. pp. 354, and all suits in equity, be deemed 614. See Union Nat. Bank of Gin- citizens of the states in which they cinnati v. Miller, 15 Fed. 703. are respectively located.' If the 22 Continental Nat. Bank v. Buf ord, intent had been, as is claimed, to de- 191 U. S. 119, 48 L. Ed. 119. prive the United States courts of jur- "In support of the motion to dis- isdictiou of suits by or against miss this cause for want of jurisdic- national banks, it would have been tion, it is contended that, under the easy to have so declared. Instead of provisions of section 4 of the Act of so doing, it is enacted by the first Congress approved August 13, 1888, clause that, for the purpose of suing courts of the United States cannot and being sued, the banks shall be take jurisdiction of suits in which a deemed to be citizens of the states in national bank is a party. It cannot which they are respectively located; be questioned that the language of thus clothing them with the rights, the last clause of the section is sus- in matters of suits, possessed by indi- ceptible of the construction claimed vidual citizens tf the state of their for it by defendant, yet, if this is the location. And then follows the sec- meaning of the latter clause, it wholly ond clause, which declares that the destroys the force of the first clause circuit and district courts of the of the section, which declares that United States shall not have, in such national banking associations shall, cases, 'jurisdiction other than such 'for the purpose of all actions by or as they would have in cases between against them, real, personal, or mixed, individual citizens of the same state. ' 868 Ch. 13] Citizenship, Domicile and Eesidence [§402 In the Judiciary Act of March 3, 1911, it is provided that the dis- trict courts of the United States shall have original jurisdiction "of all cases commenced by the United States, or by direction of any' officer thereof, against any national banking association, and eases for winding up the affairs of any such bank ; and of all suits brought by any banking association established in the district for which the court is held, under the provisions of title 'National Banks,' Revised Stat- utes, to enjoin the Comptroller of the Currency, or any receiver act- ing under his direction, as provided by said title. And all national If this is to be construed as is claimed by defendant, it, in effect, nullifies the clear meaning of the first clause, for in that it is declared that the banks shall stand on a parity with individual citizen^, and it is the right of the individual citizen to sue a citi- zen of another state in the United States court. If the last clause had not been added to section 4 of the act of 1888, is it not entirely clear that, by the provisions of .the first clause, national banks would, in the matter of suits, have had just the rights, no more and no less, of an individual citizen of the state in which it was located, which would have included the right to sue a citizen of another state in the federal court? This is clearly the intent of the first clause, and could it have been the intent of congress to confer this right upon, banks in the first clause of the sec- tion, and then in the latter clause to take it away? It is a fundamental rule of construction that, if possible, all portions of the act shall be given force and effect, and one part shall not be so construed as to nullify other portions of the act, unless it clearly appears that such was the legislative intent. While the language used in the second clause is not happily chosen for the purpose, yet it seems reason- ably clear that it was not the intent to nullify one clause by the other, but to secure the general purpose of the section by further declaring that the federal courts should have no other or different jurisdiction in suits brought by or against national banks than they would have in case the given suits were pending between individu- al citizens. If, according to the literal construction sought to be put upon the last clause of the section, national banks cannot sue or be sued in the federal courts, except in cases involving a question arising under the Constitution or laws of the United States, then the enactment of the first clause was wholly superfluous; for, if jurisdiction exists only when a fed- eral question is involved, then it is immaterial whether the bank i^ or is not to be deemed a citizen of the state of its location. To give any force, therefore, to the first clause, it must be held that it was the legisla- tive intent by the first clause to place national banks on the same footing with corporations created under state laws, and by the second clause to negative the claim that might be made to federal jurisdiction by reason of the fact that national banks are cre- ated under a law of congress. Thus construed, force is given to both parts of the section. If this is not the con- struction, then we would be forced to the conclusion that congress in- tended to deprive national banks of rights enjoyed by the individual citi- zens, and by corporations created un- der the laws of the states." First Nat. Bank v. Forest, 40 Fed. 705. See also Petri v. Commercial Nat. Bank, 142 U. S. 644, 35 L. Ed. 1144. 869 §402] Pbivate Coepoeations [Ch. 13 banking associations established under the laws of the United States shall, for the purposes of all other actions by or against them, real, personal, or mixed, and all suits in equity, be deemed citizens of the states in which they are respectively located. ' ' ^* §403. "Principal place of business" and "residence" within bankruptcy acts. Section 2 of the Federal Bankruptcy Act of 1898, provides that the courts of bankruptcy shall have original juris- diction to adjudge bankrupt, persons who have had their principal place of business, have resided or have had their domicile within the courts' respective territorial jurisdictions for the preceding six months or the greater portion thereof.^* Under this provision, it has been held, in effect, that neither the place of incorporation nor the statement in the charter or articles of incorporation as to where the principal office of the corporation is to be located determines its prin- cipal place of business, but that the question is one of fact to be determined from all of the circumstances.*^ In other words, it is the 23 Act of March 3, 1911, c. 2, § 24, cl. 16, (Fed. St. Ann., 1912 Supp. vol. 1, p. 140). For a recent construction of this provision, see Herrmann v. Edwards, 238 U. S. 107, 59 L. Ed. 1224. 24 Since the amendment of the Act of 1898 in 1910 (Act of June 25, 1910, c. 412), any corporation, excepting a municipal, railroad, insurance or bank- ing corporation, may become a volun- tary as well as an involuntary bankrupt. See section 4 of the Act of 1898 as amended. 25 In re Perry Aldrich Co., 165 Fed. 249 (Maine corporation held not to have had its principal place of busi- ness in Massachusetts) ; In re Penn- sylvania Conaol. Coal Co., 163 Fed. 579 (West Virginia corporation held to have had its principal . place of business in Pennsylvania); In re Alaska American Fish Co., 162 Fed. 498; In re' Matthews Consol. Slate Co., 144 Fed. 724 (New Jersey cor- poration held to have had its princi- pal place of business in Massachu- setts) ; In re Duplex Eadiator Co., 142 Fed. 906 (New Jersey corporation held to have had its principal place of business in New York) ; Tiffany v. La Plume Condensed Milk Co., 141 Fed. 444 (New Jersey corporation held to have had its principal place of busi- ness in Pennsylvania) ; In re Magid- Hope Silk Mfg. Co., 110 Fed. 352; Dressel v. North State Lumber Co., 107 Fed. 255 (Michigan corporation held to have had its principal place of business in North Carolina). The charter of a corporation provid- ing that its principal place of busi- ness shall be at a certain place, but that it may have such other offices, principal and branch, as may be es- tablished by its board of directors, is not conclusive on the question as to where its principal place of busi- ness was within the meaning of the Bankruptcy Act. In re Guanacevi Tunnel Co., 201 Fed. 316. Where the charter of a consolidated railroad company designated a certain city as the place of its office, and the company represented the same to the railroad commissioners as the place of its general office, being the place where its transfer and stock books 870 Ch. 13] Citizenship, Domicile and Residence [§ 403 facts, not recitals in the charter nor the intent of the corporate officers which determine the question of where the corporation has its princi- pal "place of business." ^® Thus it has been held that the "principal place of business" of a corporation, which was engaged in mining and selling coal and whose land is located and mining operations and its accounts of receipts and dis- bursements were kept, and where its officer,s were elected, it was held that such city was the place of its prin- cipal ofS^ce for the purpose of the appointment of a receiver, although the operation of its road was con- ducted in another city. Olmstead v. Rochester & P. R. Co., 8 N. Y. St. Eep. 856. 26 In re San Antonio Land & Irri- gation Co., 228 Fed. 984; In re Beier- meister Bros. Co., 208 Fed. 945. See also In re E. H. Pennington & Co., 228 Fed. 388. The actual existence of the princi- pal place of business in a certain place, rather than the declaration in the articles of incorporation that it shall be located at another place, is controlling. In re Wenatchee-Strat- ford Orchard Co., 205 Fed. 964. Under a state insolvency statute requiring the petition in insolvency to be filed in the county in which the "debtor resides or has his place of business," it has been held that the petitioners in a proceeding against a corporation may prove by parol evidence in what county the corpora- tion has its place of business. Credi- tors V. Consumers' Lumber Co., 98 Cal. 318, 33 Pae. 196. The court said: ','A tradesman's residence and his place of business are often in different counties, and his creditors, under the foregoing provision, would be author- ized, to force him into insolvency in the county of his residence, or in the county where he has his place of busi- ness. A corporation occupies no bet- ter or different position. As has been held in Jenkins v. California Stage Co., 22 Cal. 538, and Cohn v. Central Pac, R. Co., 71 Cal. 488, 12 Pac. 498, the principal place of business of a cor- poration, as stated in its articles, ifi its residence; but, as in the case of an individual, its actual place of busi- ness, its scene of operations, the place where it buys and sells, may be a county entirely different from its place of residence. Justice Sander- son said in Harris v. McGregor, 29 Cal. 128: 'But the operations of a corporation may be carried on in one county, and its principal place of business, within the meaning of the statute, may be in another and dis- tinct county.' In the present case, conceding the residence, viz., the prin- cipal place of business of the appel- lant, to be in the city and county of San Francisco, its mill was located in Humboldt county; it carried on all its operations there; it contracted its liabilities there; and there its credi- tors lived. Under the statute, it had its place of business in Humboldt county, as contradistinguished from its residence, and it follows that the petition by the creditors was filed in the proper county. Under this con- struction of the statute, it becomes immaterial to examine the ruling of the court as to the rejection, as evi- dence, of a certified copy of the origi- nal articles - of incorporation. The certified copy was offered to prove residence, but as we have seen, resi; dence is an immaterial element in the present case. We might suggest that, as a certified copy of the original articles would not prove the existence of a corporation, it is not plain that such evidence would establish resi- dence for a corporation." 871 §403] Peivate Coepoeations [Ch. 13 are conducted wholly in the state by which it was created, was in such state rather than in a city in an adjoining state where it had what it had designated its principal ofifiee.'''' 27"! am not ignorant of the fact that some of the federal courts have construed this phrase 'principal place of business' to be the place where its chief ofScers reside and maintain an office; but in my judgment the deter- mination of the question of where the principal place of business is, depends upon where the actual business of the concern is trans- acted. It is a question of fact to be determined in each particular caae largely on the character of the cor- poration, its purposes, and the kind of business it is engaged in. As re- gards a coal mining corporation like this, it is very evident that the basic necessity for its doing business at all is to have somewhere a body of coal, owned or leased, from which it may mine and ship coal. It is not sufficient for the officers of such a corporation to gather together in a city office and call it 'the principal place of business' of the concern be- cause it better suits their conven- ience to live and meet in such city. Unless the coal exists in place some- where else to be mined and shipped to consumers, such city organization cannot exist. It is purely incident to and dependent upon the practical mining operations, 'the doing of busi- ness' elsewhere. The fact that such city organization may control the com- pany's sale of the coal cannot avoid the inevitable conclusion. In such ease the city office becomes only the agent of the corporation for a limited purpose, that of selling what cannot be sold until it has first been else- where mined, prepared for, and shipped to, market for sale. It is very clear that it was not the purpose of the bankrupt law to either discriminate against, suppress, or destroy the rights of creditors; never- theless, for a court in bankruptcy sit- ting in a city far distant from where the corporation's property is situate and its practical operations are con- ducted to assume jurisdiction is, in every ca^e, calculated to accomplish that very thing. To illustrate: Let us assume that the alleged bankrupt here has acquired its coal holdings by purchase, as is generally the case, from numerous farmers. Coal in place in West Virginia is real estate, and title in fee thereto can be acquired only by deed. These deeds are of record in the county in West Virginia wherein the coal purchased is situ- ate, not in the city of Philadelphia. Assume that the company has not paid in full for the coal, and that vendors' liens have been retained by the farm- ers upon the several tracts of coal sold by them to the company, to secure unpaid purchase money. In some companies 40 to 100 different convey- ances may have been made under such conditions; each vendor having such lien. Finally let us assume, what would be entirely true in many cases, that the company in bankrupt con- dition had suffered judgments to be recovered and docketed against it and was indebted to many local people at its mines for labor, material, and mer- chandise. All these farmers, mer- chants, laborers, and lienors would have to go to Philadelphia (it could be as well to San Francisco) to have their claims and liens adjudicated, solely because the officers of the cor- poration saw fit for their convenience to establish an office in such distant city, and call it the company's 'prin- cipal place of business.' I cannot for a moment believe that congress ever contemplated such a construction of 872 Ch, 13] Citizenship, Domicile and Residence [§403 While it has been held that an inactive foreign corporation whose principal business during the six months' period has been to try to work out a reorganization scheme has not had its "principal place of business" within the state merely by reason of the fact that the re- organization work has been done therein when it was required by the laws of the state by which it was created to have and keep a general office for the transaction of business within the state and its assets and most of its creditors are in such state,^^ it has also been held its act, nor can I for a moment believe the language of the act itself can be warped by construction so as to cre- ate or justify such a condition of af- fairs. I therefore decline to entertain the receivers' petition in ancillary proceeding, and I decline, until my conclusion^ herein are by a higher court held to be erroneous, to recog- nize that the District Court for the Eastern District of Pennsylvania has any jurisdiction in the premises." In re Tygarts Eiver Coal Co., 203 Fed. 178. See also Home Powder Co. v. Geis, 204 Fed. 568, wherein a corpo- ration which was incorporated in Ari- zona, had acquired and worked a lead and zinc mine in Missouri, and claimed its principal place of business was in Illinois was held to have actu- ally had such principal place of busi- ness in Missouri; and Boszell Bros. v. Continental Coal Corporation, 235 Fed. 343, distinguishing Burdick v. Dillon, 144 Fed. 737, writ of certiorari denied, 202 IT. S. 624, 50 L. Ed. 1176 (mem. dec), in which it was held that when a corporation op- erating factories, mills or mines in various states has a principal office where the supreme direction and con- trol of its business and finances is exercised and the bulk of its sales is negotiated, such principal office is its "principal place of business" within the meaning of the Bankruptcy Act. The county in which the manufac- tory of a corporation is located, and where it conducts its business, is the county in which its principal place of business is located, within the meaning of a statute giving jurisdic- tion of insolvency proceedings to the probate court of such county, although in another county it has the office of its clerk, where nothing is done ex- cept the holding of stockholders' meetings, the making and preserving of records of their proceedings, and making its sales and collections in another state. Kennett v. Wood- worth-Mason Co., 68 N. H. 432, 39 Atl. 585. A corporation doing business in a foreign state was held, by the su- preme court of the latter, to have had its domicile in the state of its cre- ation as far as its being affected by the discharge of its debtor under the in- solvency statutes of the foreign state was concerned. Bergner & Engel Brewing Co. v. Dreyfus, 172 Mass. 154, 51 N. E. 531, 70 Am. St. Eep. 251. 28 In re Tennessee Const. Co., 207 Fed. 203, aff'd 213 Fed. 33. A manufacturing corporation which was incorporated under the laws of one state and acquired land and buildings in a certain city in such state where it conducted the manu- facturing branch of its business, but had its general office, where its offi- cers were to be found, its books were kept, its purchases and sales were mainly effected, all of its banking business was transacted, and all of the meetings of its directors, exclud- ing the first one, were held, in a city in another state, and which, on 873 § 403] Peivate Coepobations [Ch. 13 that the "principal place of business" of a corporation, which was organized to carry on the theatrical business and which, in accord- ance with the statutory requirement, maintained a nominal office in the state of its creation, in which state some if not all of its officers resided and the meetings of its stockholders and directors were held, but in which no substantial property had ever been owned by it, was in a foreign state in which it had operated a theater and maintained an office until dispossessed thereof and in which it was engeiged in liti- gation whereby it was attempting to establish certain property rights.*' There is, however, authority for the proposition that the fact that a manufacturing corporation which has its mills and principal place of business in the state of its creation does not transfer such principal place of business to a foreign state by continuing to make sales therein, through an agent, after it has ceased manufacturing, of products which it has on hand.'" That a corporation has not filed ®^ or obtained, as the case may be, the certificate prescribed by a foreign state in the case of foreign cor- porations, has been held to be immaterial on the question whether the corporation has had its principal place of business in such foreign state.''^ The mere fact that a foreign corporation has filed a certificate in a public office designating a certain place as its principal place of busi- ness does not bring such place within the description made, unless business is actually done, there, it being necessary to the "principal place of business" that business not only can be but is done there.*' Moreover, it has been held that the statement in a voluntary petition in bankruptcy by a corporation, the filing of which was authorized by the board of directors, that the corporation's principal place of busi- becoming financially embarrassed, Marine Machine & Conveyor Co., 91 closed its manufacturing plant and Fed. 630. discharged all of its employees with 29 In re E. & G. Theatre Co., 223 the exception of two who were re- Fed. 657. tained to preserve the property but 30 In re Elmira Steel Co., 109 Fed. retained its general office where the 456. meetings of its directors were contin- 31 In re Perry Aldrich Co., 165 Fed. ued to be held and its business in 250. Compare, however, In re El- liquidation was transacted, was held mira Steel Co,, 109 Fed. 456. to have had its principal place of busi- 32 In re Duplex Eadiator Co., 142 ness in the city in which such office Fed. 906. was located during most of the six 33 In re Thomas MeNally Co., 208 months preceding the filing against it Fed. 291. of a petition in bankruptcy. In re 674 Ch. 13] Citizenship, Domicile and Residence [§403 ness was at a certain place, is prima facie evidence that it was actually located there, and casts the burden of showing the contrary on the creditor seeking to vacate the resultant adjudication on the ground of want of jurisdiction.'* So far as the territorial jurisdiction of a bankruptcy court, when the alleged bankrupt has "resided" within its district for the re- quired time, is concerned, it has been held that a corporation does not "reside" in a foreign state, although it has its principal place of business therein." S4Iii re Guanacevi Tunnel Co., 201 Fed. 316. See also In re Beiermeister Bros. Co., 208 Fed. 945, wherein it was said that ' ' the corporation ip pre- sumed to know where it has had its principal place of business, and when the corporation itself files its petition, jurisdiction is conferred on the court where filed, subject to a showing in that court that the principal place of business was or had been elsewhere. No prior creditors' petition filed in another district deprives such court of jurisdiction, or of the power to de- termine its own jurisdiction over the corporation filing a voluntary peti- tion therein and alleging such district to be the one in which It has and has had its principal place of business for the preceding six months and more. ' ' SB In re Mathews Consol. Slate Co., 144 Fed. 724. g75 CHAPTER 14 CoEPORATE Existence I. NECESSITY rOB EXISTENCE § 404. Existence essential to corporate acts. II. COMMENCEMENT, DURATION AND EXTENSION OP EXISTENCE § 405. Commencement of existence — ^Acceptance of charter. § 406. — Performance of conditions precedent. § 407. Duration and termination of existence. § 408. Extension and revival of charters — ^Definitions and distinctions, § 409. — The power and its exercise in general. §i410. — Eight as against nonconsenting stockholders. § 411. — Extension by special act. § 412. — Extension under general laws. § 413. — Effect of extension. § 414. — Eevival of charters. § 415. — Acceptance of extension or revival. III. PBOOP OP EXISTENCE § 416. Necessity to prove incorporation. § 417. What must be proved — ^In general. § 418. — De jure corporate existence. § 419. — De facto corporate existence. § 420. — Estoppel to deny corporate existence. § 421. Burden of proof. § 422. Presumptions and prima facie proof — ^In general. § 423. — : Use of name importing a corporation. § 424. — Presumption of continued existence. § 425. Parol evidence of incorporation ; reputation — In general. § 426. — In criminal actions. § 427. — Direct testimony that a company is a corporation. iS 428. Proof and judicial notice of special charters and general laws — Public acts § 429. — Private and foreign acts. § 430. Acceptance of charter. § 431. Organization of corporation and performance of conditions precedent-^ Corporate books and records. g 432. — Articles, certificates, letters patent, etc. § 433. — National banks. I 434. — Confirmatory act. J 435. — Affidavits; parol evidence. 876 Ch. 14] CoBPOKATE Existence [§404 5 436. — Presumptions. i 437. — Foreign corporations. I 438. — Conclusiveness of certificates, etc. § 439. Proof of user. { 440. Statutory provisions. I. NECESSITY FOR EXISTENCE §404. Existence essential to corporate acts. "A corporation is not a person in law until after the grant of its charter. ' ' ^ "It is an artificial person, and necessarily can have no legal being until it has been fully created. ' ' ^ And until it comes into existence it cannot, in the nature of things, legally act as a corporation.^ So, until that time, it cannot enter into contracts,* or acquire title to real 1 Bartram, Hendrix & Co. v. Collins Mfg. Co., 69 Ga. 751, quoted with ap- proval in Michael Bros. Co. v. David- son & Coleman, 3 Ga. App. 752, 60 S, E. 362. "Without a charter and organiza- tion it could do no corporate act, could receive no corpprate property, could incur no corporate liability, and against it no corporate judgment could be legally rendered." Michael Bros. Co. V. Davidson & Coleman, 3 Ga. App. 752, 60 S. E. 362. See also Eau V. Union Paper Mill Co., 95 Ga. 208, 22 S. E. 146. 2 Merges v. Altenbrand, 45 Mont. 355, 123 Pac. 21. 3W. L. Wells Co. V. Gastonia Cot- ton Mfg. Co., 198 U. S. 177, 49 L. Ed. 1003, rev'g 128 Fed. 369, which rev'd 118 Fed. 190; Perkins v. Sanders, 56 Miss. 733. Prior to that time it cannot perform any act, nor can any one per- form any act for it, as agent or other- wise. Utah Optical Co. v. Keith, 18 Utah 464, 56 Pac. 155. And until then it is incapable of authorizing any one to act in its behalf. Ennis Cotton- Oil Co. V. Burks (Tex. Civ. App.), 39 S. W. 966. As to the rights, duties and liabili- ties arising from the acts of promo- ters, see Chap. 5, supra. 4 Missouri. See Queen City Furni- ture & Carpet Co. v. Crawford, 127 Mo. 356, 30 S. W. 163. New Jersey. African M. E. Church V. Conover, 27 N. J. Eq. 157, 158. Ohio. Society Perun v. Cleveland, 43 Ohio St. 481, 3 N. E. 357. Oregon. MoVieker v. Cone, 21 Ore. 353, 28 Pac. 76. Rhode Island. Ireland v. Globe Milling & Eeduction Co., 20 E. I. 190, 38 L. E. A. 299, 38 Atl. 116. Texas. Ennis Cotton-Oil Co. v. Burks (Tex. Civ. App.), 39 S. W. 966. A corporation cannot be a party to a contract made before its cre- ation. Holyoke Envelope Co. v. United States Envelope Co., 182 Mass. 171, 65 N. E. 54; Abbott v. Hapgood, 150 Mass. 248, 5 L. E. A. 586, 15 Am. St. Eep. 193, 22 N. E. 907; Penn Match Co. V. Hapgood, 141 Mass. 145, 7 N. E. 22. A person cannot recover against a corporation for services rendered as its secretary before it acquired legal existence, or under an appointment to that ofBee made prior to that time. Franklin Fire Ins. Co. v. Hart, 31 Md. 59. As to the liability of a corporation on contracts made for its benefit by promoters and the personal liability 877 §404] Pkivate Corpobations [Ch. 14 estate,* or maintain an action for a tort.* "That a corporation," said the Illinois Supreme Court, "should have a full and complete organization and existence as an entity before it can enter into any kind of a contract or transact any busi- ness, would seem to be self-evident. * * * A corporation, until organized, has no being, franchises, or faculties. Nor do those en- gaged in bringing it into being have any power to bind it by contract, unless so authorized by the charter. Until organized as authorized by the charter there is not a corporation, nor does it possess franchises or faculties for it or others to exercise, until it acquires a complete existence. ' ' ' As we have seen, however, a de facto corporate existence is ordi- narily sufficient, since, as a rule, a de facto corporation has all the rights and is subject to all of the liabilities of a corporation de jure except as against the state, and its existence cannot be questioned col- laterally, but only in a direct proceeding instituted for that purpose by the state.' And, as we have also seen, both persons who hold them- selves out as being a corporation and those who contract with or other- of the promoters on such contracts, see Chap. 5, supra. That a corporation may become bound to fulfil a contract made in its name and behalf in anticipation of its existence, by afterwards accepting the benefits of the contract, and may ac- quire a right to enforce such a con- tract against the other party by his acceptance of performance by the cor- poration, see Chap. 5, supra. B Eau V. Union-Paper Mill Co., 95 Ga. 208, 22 S. E. 146; African M. B. Church V. Conover, 27 N. J. Eq. 157, 158. A deed to a corporation not in ex- istence and never created or organ- ized would be void. Cumberland Land Co. V. Daniel (Tenn. Ch.), 52 S. W. 446; Spring Garden Bank v. Hurlings Lumber Co., 32 W. Va. 357, 3 L. B. A. 583, 9 S. E. 243. A deed to a corporation does not divest the grantee of his title where there is no such corporation in exist- ence, acting under color of authority. Harriman v. Southam, 16 Ind. 190. "If a man grant an estate to an imaginary corporation, which exists only in his own mind, no title passes * * *." Eussell v. Topping, 5 Mc- Lean (U. S.) 194, 202, quoted in Har- riman V. Southam, 16 Ind. 190. That a deed to a corporation made before the grantee comes into exist- ence is valid if not delivered until after such existence is acquired, see § 29, infra. It cannot take or hold a leasehold estate. Utah Optical Co. v. Keith, 18 Utah 464, 56 Pac. 155. 6 National Shutter Bar Co. v. 6. F. S. Zimmerman & Co., 110 Md. 313, 73 Atl. 19. 7 Gent V. Manufacturers ' & Mer- chants ' Mut. Ins. Co., 107 111. 652, afe'giia 111. App. 308, quoted with ap- proval in Ireland v. Globe, Milling & Eeduetion Co., 20 E. I. 190, 38 L. E. A. 299, 38 Atl. 116. And see to the same effect McVicker v. Cone, 21 Ore. 353, 28 Pac. 76. 8 See Chap. 10, supra. S78 Ch. 14] CoKPOBATE Existence [§405 wise recognize an association as a corporation may be estopped to deny that it is one, even though in fact it is not.^ n. COMMENCEMENT, DURATION AND EXTENSION OF EXISTENCE § 405. Commencement of existence — ^Acceptance of charter. Since, in the case of a private corporation, an acceptance of the charter, express or implied, is necessary,^" an association of persons to whom a charter is granted by the legislature does not become a corporation until such acceptance.^^ On the other hand, if the act requires nothing to be done by the corporators named therein as a condition precedent to their acquiring corporate existence, they become a corporation immediately upon the passage of the act and its acceptance by them.^* And if the charter is granted unconditionally upon application therefor, it takes effect at onee,^* for under such circumstances the application is deemed an acceptance in advance.^* 9 See Chap. 11, supra. 10 See § 239, supra. 11 Hudson V. Carman, 41 Me. 84; Glymont Improvement & Excursion Co. v. Toler, 80 Md. 278, 30 Atl. 651. "The mere enactment of a charter for a corporation does not create the corporation without an act of accep- tance on the part of the persons named in the act as corporators." Eieh- mond Factory Ass'n v. Clarke, 61 Me. 351. 12 United States. W. L. Wells Co. v. Gastonia Cotton Mfg. Co., 198 IT. S. 177, 49 L. Ed. 1003, rev'g 128 Fed. 369, which rev'd 118 Fed. 190. Arkansas. Blackwell v. State, 36 Ark. 178. Coimectlcut. Goshen & S. Turnpike Co. V. Sears, 7 Conn. 86. Indiana. Stoops v. Greenburgh & B Plank-Road Co., 16 Ind. 46, 79 Am. Dec. 405. Maine. Hudson v. Carman, 41 Me. 84. Massachusetts. Eiddle v. Propri- etors of Locks & Canals, 7 Mass. 169, 5 Am. Dec. 35. See also Com. v. Worcester Turnpike Corporation, 3 Pick. 327. Mississippi. Perkins v. Sanders, 56 Miss. 733. Missouri. St. Joseph & I. B. Co. v. Shambaugh, 106 Mo. 557, 17 S. W. 581. New Jersey. Union Water Co. v. Keau, 52 N. J. Eq. Ill, 27 Atl. 1015. New York. Brouwer v. Appleby, 1 Sandf. 158. South Carolina. Cheraw & C. B. Co. V. White, 14 S. C. 51. 1 1 If * * * tjjg charter confers corporate capacity without any condi- tions precedent, acceptance of the charter is all that need be shown. In such eases the act of incorporatioil brings the corporate body into exist- ence." St. Joseph & I. E. Co. v. Shambaugh, 106 Mo. 557, 566, 17 S. W. 581, quoted in Boatmen's Bank v. Gillespie, 209 Mo. 217, 108 S. W. 74; First Nat. Bank of Deadwood, South Dakota v. Eoekefeller, 195 Mo. 15, 44, 93 S. W. 761. If the act prescribes conditions precedent, they must be performed before the corporation will come into existence. See § 406, infra. 13 Logan V. McAllister, 2. Del. Ch, 176; Perkins v. Sanders, 56 Miss. 733. 14 See § 245, supra. 879 405] Peivate Coepoeations [Ch. 14 In the case of corporations formed under general laws, no accept- ance is necessary. Under such circumstances, compliance by the cor- porators with the statutory conditions precedent to incorporation takes the place of an acceptance and is all that is required.^^ §406. — Performance of conditions precedent. The valid ac- ceptance of a charter includes the performance of all conditions prece- dent prescribed by the legislature. • Therefore, when a corporation is organized under a general law, it does not come into existence until all the conditions precedent prescribed by the statute have been com- plied with.^* And the same is true when the corporation is formed 15 See § 227, supra. That compliance with conditions precedent is necessary to the exist- ence of a corporation, see § 182, supra. 16 California. Mokelumne Hill Canal & Mining Co. v. Woodbury, 14 Cal. 424, 73 Am. Dec. 658. Colorado. Jones v. Aspen Hard- ware Co., 21 Colo. 263, 29 L. E. A. 143, 52 Am. St. Eep. 220, 40 Pae. 457; Ajspen Water & Light Co. v. Aspen, 5 Colo. App. 12, 37 Pac. 728. Illinois. Gent v. Manufacturers' & Merchants' Mut. Ins. Co., 107 111. 652, aff'g 13 HI. App. 308; Bigelow v. Gregory, 73 111. 197; Stowe v. Flagg, 72 111. 397. Kansas. Chicago, K. & W. E. Co. v. Stafford County Com'rs, 36 Kan. 121, 12 Pac. 593; Hunt v. Kansas & M. Bridge Co., 11 Kan. 412. Kentucky. Cincinnati Cooperage Co. V. Bate, 16 Ky. L. Eep. 626, 26 S. W. 538. Massachusetts. Utley v. Union Tool Co., 11 Gray 139. Missouri. Boatmen's Bank v. Gil- lespie, 209 Mo. 217, 108 S. W. 74; Fir3t Nat. Bank of Deadwood, South Dakota v. Eockefeller, 195 Mo. 15, 44, 93 S. W. 761. Montana. Merges v. Altenbrand, 45 Mont. 355, 123 Pac. 21. New York. Chase v. Lord, 77 N. y. 1; Walker v. Devereaux, 4 Paige 229; Crocker v. Crane, 21 Wend. 211, 34 Am. Dec. 228. Oregon. McVicker v. Cone, 21 Ore. 353, 28 Pac. 76. Pennsylvania. Borough of Brad- dock V. Penn Water Co., 189 Pa. St. 379, 42 Atl. 15. Rhode Island. Ireland v. Globe Milling & Eeduction Co., 20 E. I. 190, 38 L. E. A. 299, 38 Atl. 116. Texas. Bank of De Soto v. Eeed, 50 Tex. Civ. App. 102, 109 S. W. 256. Wisconsin. Bergeron v. Hobbs, 96 Wis. 641, 65 Am. St. Eep. 85, 71 N. W. 1056. If acts are required to be per- formed before the corporation comes into existence, no corporatioa is cre- ated or can exist until those acts are performed. W. L. Wells Co. v. Gas- tonia Cotton Mfg. Co., 198 IT. S. 177, 49 L. Ed. 1003. "Where a corporation is created by statute, or under a general statute, * * * which requires certain acts to be done before it can be considered in esse, there those acts must appear to have been done, in order to estab- lish the corporate existence." Lord V. Kssex Bldg. Ass'n No. 4, 37 Md. 320, quoted with approval in National Shutter Bar Co. v. G. F. S. Zimmerman & Co., 110 Md. 313, 73 Atl. 19; Mary- land Tube & Iron Works v. West End 880 Ch. 14] CoBPOKATE Existence [§406 under a special law prescribing: conditions precedent to its existence,^' ' ' In charters which are mere propositions for the organization of a corporation, and which require certain acts to be performed precedent to the existence of the corporation, no corporation can exist * * * till these conditions have been complied with. ' ' ^' And, as a necessary- consequence, no corporate act can be performed until such compliance, except such as may be expressly permitted by the charter; "and aa to those acts, it would be considered that the corporation had an existence before its full investiture with its corporate franchises."^® Improvement Co., 87 Md. 207, 39 L. E. A. 810, 39 Atl. 620. "There is a manifest difference, as to the effect o£ omission of the re- quirements of the law in the organi- zation of corporations, between a case where the corporation is created by special charter and there have been acts of user, and a case where in- dividuals seek to form themselves into a corporation under provisions of the general law. In the latter case * * * it is only in pursuance of the provisions of the statutes for such purposes that corporate existence can be acquired." Ireland v. Globe Mill- ing & Reduction Co., 20 E. I. 190, 38 L. E. A. 299, 38 Atl. 116. To the same effect, see Bigelow v. Gregory, 73 111. 197. Where the articles of association are signed upon the understanding that they shall not take effect until the happening of a certain contin- gency, they do not become effective and no corporation exists until such contingency happens. CoBey v. Mor- rill, 61 Vt. 598, 17 Atl. 840. 17 W. L. Wells Co. V. Gastonia Cot- ton Mfg. Co., 198 U. S. 177, 49 L. Ed. 1003, rev'g 128 Fed. 369, which rev'd 118 Fed. 190; National Shutter Bar Co. V. G. S. F. Zimmerman & Co., 110 Md. 313, 73 Atl. 19; Maryland Tube & Iron Works v. West End Improve- 881 I Priv. Corp.— 56 ment Co., 87 Md. 207, 39 L. E. A. 810, 39 Atl. 620; Lord v. Essex Bldg. Ass'n No. 4, 37 Md. 320; Franklin Fire Ins. Co. V. Hart, 31 Md. 59; Boatmen's Bank v. Gillespie, 209 Mo. 217, 108 S. W. 74; First Nat. Bank of Dead- wood, South Dakota v. Eoekefeller, 195 Mo. 15, 44, 93 S. W. 761; St. Joseph & I. E. Co. V. Shambaugh, 106 Mo. 557, 566, 17 S. W. 581. "Where the act of incorporation does not in and of itself confer cor- porate capacity, but provides for the doing of certain things, upon the doing of which the company shall become a body corporate, the perform- ance of these things constitute condi- tions precedent, and until performed the company has no corporate exist- ence." St. Joseph & I. E. Co. v. Shambaugh, 106 Mo. 557, 566, 17 S. W. 581, quoted in Boatmen's Bank v. Gil- lespie, 209 Mo. 217, 108 S. W. 74; First Nat. Bank of Deadwood, South Dakota v. Eoekefeller, 195 Mo. 15, 44, 93 S. W. 761. 18 Perkins v. Sanders, 56 Miss. 733. See also W. L. Wells Co. v. Gastonia Cotton Mfg. Co., 198 U. S. 177, 49 L. Ed. 1003, rev'g 128 Fed. 369, which rev'd 118 Fed. 190. 19 Perkins v. Sanders, 56 Miss. 733, quoted in W. L. Wells Co. v. Gastonia Cotton Mfg. Co., 198 V. S. 177, 49 L. Ed. 1003, rev'g 128 Fed, 369, which rev'd 118 Fed. 190. § 406] Pkivatb Cobpobations [Ch. 14 As soon as all conditions precedent are performed, corporate existence attaches.*" What are to be construed as conditions precedent, what constitutes a compliance with them, and the effect of failure to comply with them, are fully considered in other seotions,^^ When organization is necessary to give an association a corporate existence, its corporate life dates from its organization, and not from the time it begins to do business.** And its existence is in no way affected by its failure to comply with conditions subsequent pre- scribed by such law, unless it is specifically provided therein that such noncompliance shall ipso facto work a forfeiture of its charter or dis- solve it.*' A corporation may acquire its corporate existence under a special or general law, although it has not yet complied with conditions prece- dent to its right to commence business or to exercise the powers con- ferred.** § 407. Duration and termination of existence. Though a corpora- tion, unless the period for which it may exist is limited by statute, has the capacity of perpetual succession,*^ the period for which a cor- poration may exist is now very generally limited by the special or general laws by or under which it is created.** A corporation, as is the case with a natural person, may cease to exist,*'' and this cessation of existence may be accomplished in any one of several ways. So it may be dissolved, and thus cease to exist, by the expiration of the 20 Indiana. Atherton v. Sugar 24 Wechselberg v. Plour City Nat. Creek & P. Turnpike Co., 67 Ind. 334. Bank, 64 Fed. 90, 26 L. E. A. 470; Kansas. Hunt v. Kansas & M. Scholfield Gear & Pulley Co. v. Schol- Bridge Co., 11 Kan. 412. field, 71 Conn. 1, 40 Atl. 1046; Mueh- Maryland. Hager v. Cleveland, 36 lenbeck v. Babylon & N. S. E. Co., 26 Md. 476. N. Y. Misc. 136, 55 N. Y. Supp. 1023. Missouri. Columbia Bottom Levee "^^^^ ^* commences business before Co. V. Meier, 39 Mo. 53. conditions precedent to the right to Montana. Merges v. Altenbrand, ^° ^° ^^"^ ^^^'^ performed does not 45 Mont. 355, 123 Pac. 21. ^^^'^^ '*^ existence in law as a corpo- •nw„„«„-4_ TD r. y.r--i , ration. W. L. "Wells Co. v. Gastonia Wisconsin. Burhop v. Milwaukee, „ .. ,,„ „ -,,.„■..„ "''°''""*°' 21 Wis 257 *^°"°" ^*S- ^°-> ^^^ ^- ®- 1^^' ^^ 21 C5»l SB 189 1 «« ^- ^^- ^°°^' '■^'^ 'S 128 Fed. 369, which 21 See §§ 182-186, supra. ^^^.^ j^g j,^^ ^gg^ 22Hanna v. International Petroleum gge also Chap. 10, supra. Co., 23 Ohio St. 622. See also Mc- 25 See § 6, supra. Vicker V. Cone, 21 Ore. 353, 28 Pac. 26 See § 199, supra. ^^- *7 Bredell v. Kerr, 242 Mo. 317, 147 See Chap. 9, supra. S. W. 105. 83 See § 186, supra. 882 Ch. 14] CoEPOEATE Existence [§408 period fixed for its duration by its charter or the general law under which it was formed,^* unless such period is subsequently extended in some lawful way ; ^' or by the happening of some other contingency prescribed by its charter ;8'' or by the repeal or withdrawal of its charter under a power of repeal reserved by the legislature ; ^^ or by the failure or loss of some integral part of the corporation, without which it cannot exist ; ®^ or by a surrender of its charter, authorized or accepted by the state ;'^ or by a forfeiture of its charter for misuser, or nonuser, or a failure to perform conditions subsequent, in a proceeding instituted for that purpose by the state ; ^* or in such other ways as the statute may prescribe.'* It has been held that under a general power to amend its articles a corporation may, by amendment, shorten the term of its existence, even though the effect is to terminate its existence almost imme- diately.'^ A municipal corporation cannot abridge the life of a public service corporation by limiting the existence of a license to use its streets, which the corporation is required to obtain, to a period shorter than the term of its existence as fixed by its charter.''' Where it is shown that a company was at one time a corporation, that status is presumed to continue until the contrary is proven, at least during the period for which it might have been chartered.. But there is no presumption that its charter has been renewed." If the date of the incorporation of a company is not shown, it must be presumed that it is subject to the laws of the state passed pursuant to the existing constitution.'^ § 408. Extension and revival of charters — Definitions and distinc- tions. To renew a charter is to revive a charter which has ex- 28 See chapter on Forfeiture, Dis- 33 See chapter on Forfeiture, Dis- solution, etc., infra. solution, etc., infra. As to whether it can be regarded as Si See chapter on Forfeiture, Dis- a de facto corporation after that time, solution, etc., infra, see § 285, supra. 35 See chapter on Forfeiture, Dis- As to estoppel to deny the existence solution, etc., infra, of the corporation notwithstanding 36 Tognazzini v. Jordan, 165 Cal. 19, the expiration of the time limited for Ann. Gas. 1914 C 655, 130 Pac. 879. its existence, see § 330, supra. 37 In re Consolidated Gas Co., 56 29 See § 413, infra. N. Y. Misc. 49, 106 N. Y. Supp. 407, SO See § 409, infra. afE'd 124 N. Y. App. Div. 401, 108 N. 31 See chapter on Forfeiture, Disso- Y. Supp. 823. lution, etc., infra. 38 See § 422, infra. 32 See chapter on Forfeiture, Disso- 39 San Antonio Traction Co. v. Alt- lution, etc., infra. gelt (Tex. Civ. App.), 81 S. W. 106. 883 § 408] Peivate Coepoeations [Ch. 14 pired,*" or, in other words, "to give a new existence to one which has been forfeited, or which has lost its vitality by lapse of time."" To "extend" a charter is "to increase the time for the existeiiee of one which would otherwise reach its limit at an earlier period."*^ "There is a broad distinction between the extension of a charter and the grant of a new one. ' ' ** Whether a charter creates a new corporation or merely continues the existence of the old one is to be determined from its terms, con- strued in accordance with the legislative intent and the intent of the corporators.** It has been held that the act of a public officer, who is authorized to grant charters, in granting a charter to an existing corporation by the same name and with the same powers as it already has, and before the expiration of its original charter, is, in effect, but the renewal of its charter, though such officer is not given authority to renew charters.** § 409. — The power and its exercise in general. Since corpora- tions can be created by or under legislative authority only,*® it is only by or under such authority that the charter of a corporation can be extended beyond the period for which it was created.*'' Congress has power to extend the existence of corporations deriving their ex- istence from the federal laws.** And the states, acting through their 40 Cleveland, P. & A. E. Co. v. Erie, 44 Bellows v. Hallowell & Augusta 27- Pa. St. 380. Bank, 2 Mason (U. S.) 31, 44; Prost- 41 Moers v. Beading, 21 Pa. St. 188, burg Min. Co. v. Cumberland & P. E. 201. Co., 81 Md. 28, 31 Atl. 698. See also 42 Cleveland, P. & A. E. Co. v. Erie, § 413, infra. 27 Pa. St. 380. 45 St. Phillips Churoli v. Zion Pres- "To extend a charter is to give byterian Church, 23 S. C. 297, 315. one which now exists greater or longer ^ g^^ ^ jg^ ^^ time to operate in than that to which ' it was originally limited." Moers v. *T Boca Mill Co. v. Curry, 154 Cal. Beading, 21 Pa. St. 188, 201. ^^^' ^'^ ^^°- m^- "An act which continues the life "^^^^ *^« existence of a corpora- of a charter to a period beyond the *""' '=^''"°* ^^ extended by the grant time fixed in the charter for its ex- *° '* ^^ * municipality of privileges piration, and reserves the corporate ^""^ franchises for a longer period organization, privileges, powers, du- than the term of its existence as fixed ties, and rights, is an extension of ^^ ^*^ ''^''^^^'' ^^e Augusta & S. E. the charter." Franklin County Court ^°- ^- ^'^^ C'°"°"l °^ Augusta, 100 V. Deposit Bank of Erankf ort, 87 Ky. ^^- ''°^' ^^ ^- ^- ^^C. 370, 9 S. W. 212. See also § 413, infra. *' National Exch. Bank v. Gay, 57- 43 Franklin County Court v. Deposit Conn. 224, 4 L. E. A. 343, 17 Atl. 555. Bank of Frankfort, 87 Ky. 370, 9 S. As to the right of congress to cre- W. 212. ate corporations, see § 175, supra. 884 Ch. 14] CoKPOBATE Existence [§409 legislatures, have power to extend the existence of corporations created under their authority.*^ The power of the legislature in this regard is absolute,*" except in so far as it is limited by the constitution.*^ Among the most common limitations upon its power are constitutional provisions fixing the maximum period for which corporations may be created,*^ provisions containing express prohibitions against exten- 49 Miner v. New York Cent. & H. Eiver R. Co., 123 N. Y. 242, 25 N. E. 339; In re Consolidated Gas Co. of New York, 56 N. Y. Misc. 49, 106 N. Y. Supp. 407, aff'd Attorney-General V. Consolidated Gas Co. of New York, 124 N. Y. App. Div. 401, 108 N. Y. Supp. 823. The state has power at any time to extend the existence of a corpora- tion. New Orleans & C. E. Co. v. New Orleans, 34 La. Ann. 429. 50 Boca Mill Co. v. Curry, 154 Cal. 326, 97 Pac. 1117; People v. Marshall, 6 111. 672; Mason v. Perkins, 73 Mich. 303, 41 N. "W. 426. 61 The power is possessed by the legislature unless extension is clearly inhibited by the constitution. Peo- ple V. Marshall, 6 111. 672, 685. "The power to extend corporate existence beyond the time limited by charter, either before or after the limi- tation has expired, is possessed by the legislature as a prerogative o:^ sover- eignty, and is not conferred by con- stitutional provisions. If there is no express denial, or denial by necessary implication by other limitationa placed upon legislative power, con- tained in the constitution, the power exists and may be exercised at the pleasure of the law-making power." Mason v. Perkins, 73 Mich. 303, 41 N. W. 426. In Grey v. Newark Plank Eoad Co., 65 N. J. L. 51, 46 Atl. 606, modified 65 N. J. L. 603, 48 Atl. 557, an act providing for the extension of the existence of a certain class of corpora- tions was held to be unconstitutional because its title was misleading. As to constitutional limitations on the power to create corporations gen- erally, see §§ 169-174, supra. 62 In Mason v. Perkins, 73. Mich. 303, 41 N. W. 426, it was held that a constitutional provision to the effect that no corporation should be created for a longer time than thirty years prohibited the extension of corporate existence beyond that time, and hence that a statute providing for renewing the incorporation of existing compa- nies would be construed as applying only to corporations whose period- of existence was fixed by their articles at less than thirty years. This hold- ing was followed in Attorney General V. Gay, 162 Mich. 612, 17 Det. L. N. 664, 127 N. W. 814, where it was further held that, as against the state, no right to exercise corporate franchises under an attempted exten- sion beyond the period of thirty years could be acquired by laches, estoppel or acquiescence. See also Ovid Eleva- tor Co. v. Secretary of State, 90 Mich. 466, 51 N. W. 536, where it was held that the corporate existence might be extended by amendment of the arti- cles of incorporation under the gen- eral law authorizing amendments. In this case, the total term of existence as extended was less than thirty years, and no question as to the constitu- tionality of the extension was raised or considered. This constitutional provision was amended in 1889, so as to permit the legislature to provide by general laws for one or more ex- tensions, not to exceed thirty years each. Seneca Min. Co. v. Osmun, 82 Mich. 573, 9 L. E. A. 770, 47 N. W. 885 §409] Peivate Coepokations [Ch. 14 sions,^' prohibitions against the granting of special privileges or im- munities,®* and provisions as to local or special legislation.*® Whether an act operates as an extension is a question of legislative intention.*® Extensions by implication or the repeal of existing limitations by implication are not favored.*'' The repeal of an act limiting the existence of corporations will not necessarily extend the existence of a corporation subject to its pro- visions.*' Nor will an amendment to a general law striking out a 25. But this amendment did not op- erate to validate an invalid attempted extension made prior to its adoption. Attorney General v. Gay, 162 Mich. 612, 17 Det. L. N. 664, 127 N. W. 814. 63 The Constitution of California (Const. 1879, art. 12, §7) originally- provided that "the legislature shall not extend any franchise or charter, nor remit the forfeiture of any fran- chise or charter, of any corporation now existing, or which shall hereafter exist, under the laws of this state." In Boca Mill Co. v. Curry, 154 Cal. 326, 97 Pac. 1117, it was held that this provision prohibited the legisla- ture not only from enacting any law, general or special, extending the term of existence of any or all corporations, but also from enacting any general law under which corporations could themselves extend such period, and hence that a statute of the latter character was void. This provision of the Constitution was amended in 1908 80 as to make the prohibition apply only to quasi-public corporations, and so as to permit any other corporation to extend its existence for a period of not exceeding fifty years by pro- ceeding in the manner prescribed in the amendment. See Treadwell'e Ann. Const. 1916, p. 487. I>41n Indiana it has been held that a constitutional prohibition against the grant to any citizen or class of citizens of privileges or immunities which upon the same terms shaU not equally belong to all is violated by either a special or a general law ex- tending the existence of corporations created by special laws prior to the adoption of the constitution. In re Application of Bank of Commerce, 153 Ind. 460, 47 L. E. A. 489, 55 N. E. 224, followed in Clark v. American Cannel Coal Co., 165 Ind. 213, 112 Am. St. Eep. 217, 73 N. E. 1083. As to limits on power to create cor- porations having exclusive franchises, see § 173, supra. See also Chap. 8, supra. B6See Chap. 8, supra. As to the effect of such limitations on the right to create corporations, see § 173, supra. B6In New Orleans & C. R. Co. v. New Orleans, 34 La. Ann. 429, it was held that the existence of a railroad company, which was fixed by its char- ter at fifty years, was not extended by an amending act providing for the construction of another line of road, and that the latter should become the property of the state at the expiration of seventy-five years. 87 New Orleans & C. R. Co. v. New Orleans, 34 La. Ann. 429. 68 Where a corporation formed un- der a special act was subject to the provisions of a general law limiting the existence of corporations to ten years, and both the act creating the corporation and the general law were subsequently repealed, it was held 886 Ch. 14] CoBPORAtE Existence [§ 410 provision limiting the life of corporations formed thereunder be given a retroactive effect so as to extend the existence of a corporation so formed before the amendment takes effect, unless such an intent is clearly expressed or necessarily implied.*^ Since an act providing for the renewal of charters previously granted can only apply to corporations whose charters have expired or are about to expire at the time it takes effect, it cannot apply to a corporation whose life was extended by a special act passed and accepted by it prior to that time, even though the period of its ex- istence as originally fixed does not expire until after that time.^* A statute providing a method for the extension of "an existing corpora- tion" cannot be given a retroactive effect so as to apply to corpora- tions which expired by limitation before it went into effect, although the legislature may by a curative act validate an attempted extension thereunder by such a corporation.*^ §410. — Right as against nonconsenting stockholders. "The period of corporate existence is a matter which prima facie concerns the state only, and the limitation to a definite period is an exercise of control in the interest of the public. Stockholders may perhaps, under the laws which authorize special restrictions in charters, ex- clude the power of continuing corporate existence beyond a fixed period; but, unless this power is excluded, the corporation may, as between itself and the stockholders, extend its corporate existence under the laws for that purpose which existed at the time of the incorporation (provided these laws still remain in force at the time of the proceedings for continuance) or under subsequent laws, by which the state, as it has a right to do, in its control over corporations, restricts, rather than enlarges, the power of continuing the ex- istence."** Statutes in some states provide for the purchase of the stock of that even if such repeals did not abol- 62 Smith v. Eastwood Wire Mfg. Co., ish the corporation, they did not np- 58 N. J. Eq. 331, 43 Atl. 567. erate to extend its existence beyond It may extend its existence under a the period of ten years. Krutz v. subsequent law which requires a two- Paola Town Co., 20 Kan. 397. thirds vote of the stockholders in- B9 Knights of Pythias v. Weller, 93 stead of a majority vote required by Va. 605, 25 S. E. 891. the law in force when the corporation 60 Augusta & S. K. Co. v. City Coun- was organized. Smith v. Eastwood cil of Augusta, 100 Ga. 701, 28 S. E. Wire Mfg. Co., 58 N. J. Eq. 331, 43 126. . Atl. 567. 61 People V. Newburgh & S. Plank Eoad Co., 86 N. T. 1, rev'g on other grounds 23 Hun (N. Y.) 173. 887 §411] PeIVATE CoEPOBATIONa [Gh. 14 nonconsenting stockholders by the other stockholders'' or by the corporation.®* § 411. — Extension by special act. In the absence of a constitu- tional provision to the contrary, when a corporation is about to expire, or at any time before its expiration, the legislature may pass a special act extending its existence.®* As we shall see in a subsequent section, an extension of corporate existence does not create a new corporation, in contemplation of the law, but merely continues the existence of the old one ; ®® and for this reason it has been held that a special act extending the existence of a corporation does not violate a constitu- tional provision that there shall be no other corporations of a particular class except those already provided for by law,®' or prohibi- tions against the creation of corporations by special act.®' But there 63 This is true in Iowa. See C. Lamb & Sons v. Dobson, 117 Iowa 124, 90 N; W. 607, where reference is made to the statute to this effect. 64 Such a provision is contained in the federal statute providing for the extension of charters of national banks. (Act July 12, 1882, c. 290, §5, 22 Stat. 163.) Under it a non- consenting stockholder ceases to be a stockholder immediately on giving no- tice of withdrawal and appointing an appraiser to act for him in ascertain- ing the value of the stock, as therein provided, and he is not liable for as- sessments on the subsequent insol- vency of the bank even though, through no fault of his own, the fur- ther steps prescribed by the statute as to the appraisal and surrender of his shares are not taken, and his name remains on the books of the bank as a stockholder. Apsey v. Kimball, 221 U. S. 514, 55 L. Ed. 834, aff'g 164 Fed. 30; Apsey v. Whittemore, 221 U. S. 514, 55 Ii. Ed. 834, afE'g 199 Mass. 65, 85 N. E. 91. 66 Augusta & S. E. Co. v. City Coun- cil of Augusta, 100 Ga. 701, 28 S. E. 126; Foster v. Essex Bank, 16 Mass. 245, 8 Am. Dee. 135; Cotton v. Mis- sissippi & E. Eiver Boom Co., 22 Minn. 372; Exeter Bank v. Eogers, 7 N. H. 21. A company was incorporated under a general law, and the incorporation papers provided that it should ter- minate on a certain date. In the year following its incorporation, the legis- lature passed a special act to extend, amend and increase its powers, which provided that it should no longer be bound, controlled or in any way af- fected by the provisions of the general law under which it was incorporated except as prescribed in the special act. It waa. held that the special act operated to' continue the existence of the corporation indefinitely, and that it did not expire on the date originally fixed. Eubber & Celluloid Harness Trimming Co. v. Eubber-Bound Brush Co., 83 N. J. Eq. 510, 91 Atl. 641. 66 See § 413, infra. 67 People V. Marshall, 6 111. 672. 68 Cotton V. Mississippi & E. Eiver Boom Co., 22 Minn. 372; Black Eiver Improvement Co. v. Holway, 87 Wis. 584, 59 N. W. 126. As to the effect of such provi- sions generally, and for a discussion of what are special and what general laws, see Chap. 8, supra. 888 Ch. 14] CoBPOEATE Existence [§411 is authority to the effect that a prohibition of the latter character is violated by a special act extending the existence of a corporation created by a special act prior to the adoption of the constitution.*^ It has been held that an act extending the existence of a corporation is a grant of corporate power, and hence is within a constitutional prohibition against the passage of special acts conferring corporate powers,'"' but there is authority to the contrary, especially where the power to alter or repeal corporate charters is reserved by the legis- latureJ^ Of course to be valid, such an act must conform to a constitutional requirement that every law shall embrace but one subject, which must be expressed in its title.''' 69 In re Bank of Commerce, 153 Ind. 460, 47 L. E. A. 489, 55 N. E. 224, followed in Clark v. American Cannel Coal Co., 165 Ind. 213, 112 Am. St. Eep. 217, 73 N. E. 1083. See also Chap. 8, supra. 70 Jersey City v. North Jersey St. K. Co., 73 N. J. L. 175, 63 Atl. 906, aff'd on other grounds 74 N. J. L. 774, 67 Atl. 113. In Grey v. Newark Plank Eoad Co., 65 N. J. L. 51, 46 Atl. 606, modified 65 N. J. L. 603, 48 Atl. 557, an act providing for the extension of the existence of corporations organized under special acts, which had been empowered by any supplement to con- struct and operate horse railroads, and whose time limited for commencing and completing the work had expired, was held to be special, though gen- eral in form. In Jersey City v. North Jersey St. E. Co., 73 N. J. L. 175, 63 Atl. 906, it was held that a, statute general in form providing a method whereby any corporation may extend its ex- istence will not be held to be special on the theory that it extends the period of enjoyment of the powers and franchises granted to specially chartered corporations, and so recon- fers on them the peculiar powers and franchises invested in them. The Court of Errors and Appeals affirmed the judgment in this case on other grounds, holding that it was not neces- sary to decide whether the act re- ferred to was constitutional. Jersey City V. North Jersey St. E. Co., 74 N. J. L. 774, 67 Atl. 113. In State v. Lawrence Bridge Co., 22 Kan. 438, it was held that a statute purporting, among other things, to continue indefinitely corporations pre- viously created under special char- ters) was void as an attempted invasion of such a constitutional pro- vision, though it was general in form. As to the effect of such provisionjs generally, see Chap. 8, supra. 71 Black Eiver Improvement Co. v. Holway, 87 "Wis. 584, 59 N. W. 126. See also Chap. 8, supra. 72 A statute providing a method for extending the existence of plank-road companies is not made a local act by the fact that two countiejS are ex- empted from its operation; nor is an amendment extending the provisions of one of said counties a local act. People V. Newburgh & S. Plank Eoad Co., 86 N. Y. 1, rev'g on other grounds 23 Hun (N. Y.) 173. In Eubber & Celluloid Harness Trim- ming Co. V. Eubber-Bound Brush Co., 83 N. J. Eq. 510, 91 Atl. 641, it was held that "an act to extend, amend and increase the corporate powers §411] Pbivate Coepobations [Ch. 14 The constitutions of some of the states now specifically prohibit the extension of corporate existence by special laws.''^ A constitutional provision that no law shall "renew, or extend the charter of more than one corporation ' ' is not violated by an act which merely increases the privileges of several existing corporations,''* or which does not revive or extend the duration of the charter of more than one corporation though it confers additional authority upon severaU^ If the legislature passes an unconstitutional act extending the char- ter of a corporation, the state may institute a proceeding in. the nature of quo warranto to oust it from the exercise of powers under the act, but such a proceeding cannot be instituted until the expira- tion of the time limited by its original charter.''* § 412. — Extension tinder general laws. The general laws author- izing the formation of corporations, and limiting, as they generally do, the period for which they shall exist, very often contain provisions under which the members of a corporation may, by taking certain steps, extend the existence of the corporation for an additional period, and thus continue business without interruption or change.''"' and privileges of" a corporation did not violate such a provision because containing a provision that the com- pany should no longer be bound or affected by the provisions of the gen- eral law under which it was incorpo- rated. A3 to the effect of such provisions generally, see § 171 and Chap. 8, supra. 73 Boca Mill Co. v. Curry, 154 Cal. 326, 97 Pac. 1117. See also the con- stitutions of the various states. 74Moers v. Beading, 21 Pa. St. 188. 76 Cleveland, P. & A. B. Go. v. Erie, 27 Pa. St. 380. 76 The constitutionality of an act extending the existence of a corpora- tion will not be determined before tho expiration of the time of its existence as originally fixed, and hence before the act goes into effect, and where it is not alleged that it is interfering with any person's rights. State v. New Orleans Gaslight Co., 25 La. Ann. 398. 77 C. Lamb & Sons v. Dobson, 117 Iowa 124, 90 N. W. 607; Ohio Valley Tie Co. V. Bruner, 148 Ky. 358, 146 S. W. 749; Merges v. Altenbrand, 45 Mont. 355, 123 Pae. 21; State v. Toder, 39 Mont. 202, 203, 103 Pac. 499; Coal Creek Min. & Mfg. Co. v. Tennessee Coal, Iron & Bailroad Co., 106 Teun. 651, 62 S. W. 162. In California the constitution for- merly prohibited the legislature from extending corporate charters, and in Boca Mill Co. v. Curry, 154 Cal. 326, 97 Pac. 1117, it was held that a gen- eral law permitting corporations to themselves extend their existence by complying with its provisions was void. This constitutional provision was amended in 1908, however, so as to make the prohibition apply only to quasi-public corporations, and so as to permit other corporations to ex- tend their existence for a period not exceeding fifty years by complying with certain prescribed requirements. See Treadwell's Ann. Const. 1916, p. 890 Ch. 14] CoKPOBATE Existence [§412 The procedure for effecting the extension varies in the different states.''* Under some statutes there must first be a vote of a specified majority of the stockholders in favor of the extension at a meeting called for that purpose in the manner prescribed." Then provision is made for the preparation and execution of a certificate showing the proceedings had,*" and this certificate is required to be filed or recorded.*^ In some jurisdictions the extension is effected by an amendment of the articles of incorporation adopted in the manner prescribed for making amendments generally.*^ Since the privilege of extension is purely statutory, all of the statu- tory conditions precedent must be complied with in order that the 487. In People v. Pfister, 57 Cal. 532, it was held that a corporation which was formed prior to the adoption of the code and had elected to continue its existence under the provisions of the code might subsequently extend its existence in the manner pre- scribed by the code. Where a corporation amended its articles, extending the period of its existence, at a time when it had no legal authority to make such an amendment, but after a statute was enacted conferring such authority, adopted amended articles, the pream- ble of which made no reference to the period of existence, the former article of amendment in reference thereto, however, being retained with the ar- ticles as last amended and filed, it was held that the amendment was suf- ficient to extend the period of the cor- poration 's existence. People v. Green, 116 Mich. 505, 74 N. W. 714. In Iron Silver Man. Co. v. Cowie, 31 Colo. 450, 72 Pae. 1067, it was held that the term of existence of a for- eign mining corporation in Colorado will expire in twenty years from the time when it fllciS its certificate of incorporation with the secretary of state, unless it complies with the stat- utes of that state relative to exten- sions, though the term for which it was incorporated in the state where it was created has not expired. 78 See the corporation laws of the various states. 79 In Montana the extension must be authorized by a vote of at least two-thirds of all the shares of stock at a meeting of stockholders called in the manner prescribed by the statutp. Merges v. Altenbrand, 45 Mont. 355, 123 Pac. 21. 80 Merges v. Altenbrand, 45 Mont. 355, 123 Pac. 21. 81 Campbell v. Watson, 62 N. J. Eq. 396, 421, 50 Atl. 120. In Montana the certificate is re- quired to be filed with the clerk and recorder of the proper county, and a certified copy thereof to be filed with the secretary of state. In that state "the extension is effectuated, not by the favorable vote at the stockhold- ers' meeting, nor by the preparation of the certificate, nor by the filing of it with the clerk of the county, but by filing the copy with the secretary of state after all the prerequisite steps have been taken." Merges v. Alten- brand, 45 Mont. 355, 123 Pac. 21. 82 Ohio Valley Tie Co. v. Bruner, 148 Ky. 358, 146 S. W. 749; Home Bldg. Ass'n v. Bruner, 134 Ky. 361, 120 S. W. 306; Ovid Elevator Co. v. Secretary of State, 90 Mich. 466, 51 N. W. 536. 891 I 412] Pbivate Cobpobations [Ch. 14 extension may be effectuated.*' And generally these conditions must be complied with, and the steps necessary to effect the extension must be taken during the life of the corporation, and before the expiration of its term of existence as originally fixed by its charter or the general law,** since, as a rule, the corporation is ipso facto dissolved as soon as that time expires.** So where the extension is by amendment of the articles of incorporation, the amendment must be adopted before that time.*® And, similarly, the filing and recording of a certificate of extension after that time cannot relate back to the date of the pas- sage of a resolution by the stockholders in favor of the extension so as to save the life of the corporation.*'' The contrary is true, however, and the doctrine of relation will apply, where the delay is due to the neglect of the officer with whom the certificate is required to be filed, or to a wrongful refusal on his part to receive it.** And statutes in some states specifically provide that a renewal may be had within a specified time before or after the time fixed for the termination of the corporate existence.*® Since, as we shall see, the effect of the extension is not to create a In Iowa it has been held that un- der a statute providing for renewal without prescribing a method of ef- fecting it, the proper method was by amending the articles. C. Lamb & Sons V. Dobson, 117 Iowa 124, 90 N. "W. 607. As to amendments generally, see chapter on Amendment, infra. 83 Merges v. Altenbrand, 45 Mont. 355, 123 Pae. 21. In Montana the general statutes relative to extension do not apply to state bankS) they being governed by the special statutory provisions rela- tive to the extension of the existence of banking corporations. State v. Yoder, 39 Mont. 202, 203, 103 Pac. 499. 84 Statutory steps looking to an ex- tension which are taken after that time are ineffectual for any purpose. Merges v. Altenbrand, 45 Mont. 355, 123 Pac. 21. 85 See chapter on Forfeiture, Dis- solution, etc., infra. 88 Home Bldg. Ass'n v. Bruner, 134 Ky. 361, 120 S. "W. 306. 87 Merges v. Altenbrand, 45 Mont. 355, 123 Pac. 21. 88 Merges v. Altenbrand, 45 Mont. 355, 123 Pac. 21. So where the failure to issue a new charter before the expiration of the old one is solely the fault of the clerk, to whom application therefor is sea- sonably made, the new charter, when issued, will relate back, and will be treated as taking effect from the day when the corporation was entitled to have the charter issued. St. Phillip's Church V. Zion Presbyterian Church, 23 S. C. 297. See also State v. Toder, 39 Mont. 202, 203, 103 Pac. 499, where, although this principle was not re- ferred to, a writ of mandamus was issued after the expiration of the time fixed for the existence of the corpo- ration to compel the secretary of state to file a certificate seasonably ten- dered for filing which he wrongfully refused to file. 89 C. Lamb & Sons v. Dobson, 117 Iowa 124, 90 N. "W. 607. 892 Ch. 14] CoEPOKATB Existence [§412 new corporation, but merely to continue the existence of the old one," statutory provisions relative to the payment of fees on the formation of new corporations do not apply where the corporate existence is merely extended,^^ unless the statute specifically so provides.'^ A certificate of the comptroller of the currency that a national bank has complied with all of the statutory provisions governing the exten- sion of its corporate existence, and that it is authorized to have suc- cession until a specified date, is conclusive evidence, in a criminal prosecution of an officer of the bank foi" a violation of the national banking act, that the bank has complied with all the conditions pre- cedent to an extension of its existence.®' Mandamus will lie to compel the secretary of state to file a certificate of extension or amended articles where all the statutory requirements have been complied with.'* 90 See § 413, infra. 91 C. Lamb & Sons v. Dobson, 117 Iowa 124, 90 N. W. 607. In Kentucky, payment of a new or- ganization tax is not required of a corporation organized under the pres- ent general incorporation law which has once paid the organization tax therein provided for, at least where there is no change in the scope of the corporation or its rights and powers. Ohio Valley Tie Co. v. Bruner, 148 Ky. 358, 146 S. VP. 749. But if a corpo- ration organized under Gen. St. c. 56, seeks the benefits of the present gen- eral law by organizing or amending under it,_ it must pay the organization tax once; but it will be obliged to pay it only once. Ohio Valley Tie Co. v. Bruner, 148 Ky. 358, 146 S. "W. 749; Com. V. Licking Valley Bldg. Ass'n No. 3, 118 Ky. 791, 82 S. W. 435. 92 In New Jersey the corporation is required to pay the same fees as are required for the original certificate of organization, and this though the ex- tension is effected by filing a so-called amended certificate of organization. National Lead Co. v. Dickinson, 72 N. J. L. 313, 62 Atl. 1135, aff'g 70 N. J. L. 596, 57 Atl. 138. Even though a statute requiring tho payment of a fee by corporations ap- plying for renewals or extensions is expressly made retroactive, it will not apply to a corporation which did all that was required of it to effect an extension before such act went into effect, and this though the secretary of state wrongfully refused to file the amendment making such extension. C. Lajub & Sons v. Dobson, 117 Iowa 124, 90 N. W. 607. 93 Clement v. United States, 149 Fed. 305. It is immaterial that the certificate is signed by a deputy and acting comp- troller, and not by the comptroller himself. Clement v. United States, 149 Fed. 305. See also Keyser v. Hitz, 133 U. S. 138, 33 L. Ed. 531. The seal of the comptroller, of which the court will take judicial no- tice, is a sufficient authentication of the certificate, particularly when ac- companied by proof that the bank per- formed the functions of a national bank for many years after the certifi- cate of extension was given. Clement V. United States, 149 Fed. 305. 94 C. Lamb & Sons v. Dobson, 117 Iowa 124, 90 N. W. 607; Ohio Valley Tie Co. V. Bruner, 148 Ky. 358, 146 8. W. 749; Ovid Elevator Co. v. Secre- 893 413] Pkivatb Coepoeations [Ch. 14 The contrary is true where the law permitting the extension is unconstitutional.^* § 413. — Effect of extension. An extension of the existence of a corporation, either by a special act ^^ or under a general law,*'' does not create a new corporation, in contemplation of the law, but merely continues the existence of the corporation under its original charter, and therefore it does not in any way affect the identity of the corpora- tion, or its property, or contract rights, or liabilities. "The act of extension relates back to the date of the charter. ' ' '* And there is no tary of State, 90 Mich. 466, 51 N. "W. 536; Seneca Min. Co. v. Osnum, 82 Mich. 573, 9 L. R. A. 770, 47 N. W. 25; State v. Yoder, 39 Mont. 202, 203, 103 Pae. 499. As to the remedy by mandamus gen- erally to compel an officer to issue a certificate of incorporation, or to file certificates or articles of incorporation or amendments thereto, see § 213, supra. 95 Boca Mill Co. v. Curry, 154 Cal. 326, 97 Pac. 1117. 96 Connecticut. National Exch. Bank v. Gay, 57 Conn. 224, 4 L. B. A. 343, 17 Atl. 554. Illinois. People v. Marshall, 6 111. 672. Kentucky. Franklin County Court V. Deposit Bank of Frankfort, 87 Ky. 370, 9 S. W. 212. Maine. Lincoln & Kennebec Bank V. Richardson, 1 Greenl. 79, 10 Am. Dec. 34. Maryland. Frostburg Min. Co. v. Cumberland & P. B. Co., 81 Md. 28, 31 Atl. 698. Mississippi. Port Gibson v. Moore, 13 Smedes & M. 157. South Carolina. St. Phillip 's Church V. Zion Presbyterian Church, 23 S. C. 297, 315. Such an act does not create a new corporation in any sense, but merely prolongs the life of an existing one. Black River Improvement Co. v. Hol- way, 87 Wis. 584, 59 N. W. 126. Reincorporation, as we shall see, is generally different. Its effect is in most cases to create a new and dis- tinct corporation, and not merely to continue the existence of the old cor- poration. See § 414, infra. 97 Connecticut. National Exch. Bank v. Gay, 57 Conn. 224, 4 L. R. A. 343, 17 Atl. 555. Iowa. C. Lamb & Sons v. Dobson, 117 Iowa 124, 90 N. W. 607. Kentucky. Ohio VaUey Tie Co. v. Bruner, 148 Ky. 358, 146 S. W. 749. Michigan. Mason v. Perkins, 73 Mich. 303, 41 N. "W. 426. New York. People v. Backus, 117 N. Y. 196, 22 N. E. 759. "By the extension of its term of being, the legal identity of the defend- ant corporation remained unchanged. It was not a new life that it received. It was simply the power to continue the old life beyond the period first fixed for its expiration." First Pres- byterian Church V. National State Bank, 57 N. J. L. 27, 29 Atl. 320, aff'd 58 N. J. L. 406, 36 Atl. 1129. See also Mason v. Perkins, 73 Mich. 303, 41 N. W. 426. 98 Franklin County Court v. Depo- sit Bank of Frankfort, 87 Ky. 370, 9 S. W. 212. "The legislature and the company are presumed to have contracted for the extension with reference to that period of time, when the respective rights of the contracting parties were agreed on; which agreement, in consid- eration of the continuous discharge of 894 Ch. 14] CoEPORATE Existence [§ 413 alteration or break in the continued existence of the corporation origi- nally formed." "Its affairs are not wound up or liquidated; there is no distribution of its assets ; there is no change in the personnel of the stockholders or their liability." ^ The charter, as thus extended, "is the same charter, with a continued lease of life, under which the organization must be kept up ; to which the company must look for its powers, privileges and rights; by which it is to be governed and controlled."^ But if the act granting the extension continues the charter in force upon certain conditions and subject to certain restrictions, it becomes the corporate charter when accepted, and thereafter the corporation's rights, powers and privileges are to be measured and limited by its provisions.' Since the extension does not create a new corporation, constitutional limitations on the right to create corporations by special laws are gen- erally held not to apply to acts extending the existence of corpora- tions.* And, for the same reason, statutes requiring the payment of certain fees on the formation of new corporations do not apply where the corporation is merely renewed or extended." By-laws adopted before the expiration of the original charter con- tinue in force notwithstanding the extension.^ The corporation cannot claim, by virtue of the extension, the benefit of a statute, enacted before the extension took place, granting privi- leges or immunities to such corporations as might afterwards be created ; '' nor does it come within the terms of a statute enacted before the obligations therein expressed, is bell v. Watson, 62 N. J. Eq. 396, 421, to be continued beyond the time first 50 Atl. 120. agreed on. ' ' Franklin County Court 1 Ohio Valley Tie Co. v. Bruner, 148 V. Deposit Bank of Frankfort, 87 Ky. Ky. 358, 146 S. W. 749. To the same 370, 9 S. W. 212. effect, see Mason v. Perkins, 73 Mich. 99 Ohio Valley Tie Co. v. Bruner, 303, 41 N. "W. 426. 148 Ky. 358, 146 S. W. 749. 2 Franklin County Court v. Deposit In New Jersey it is expressly pro- Bank of Frankfort, 87 Ky. 370, 9 S. vided that upon the making and filing W. 212.- See also People v. Marshall, of the required certificate of exteu- 6 111. 672. sion, ' ' the period of the existence of 3 Augusta & S. E. Co. v. City Coun- such corporation shall be extended as cil of Augusta, 100 Ga. 701, 28 S. E. declared in such certificate as fully 126. as if the said period had been named i See § 233, supra, in the original charter or certificate 6 See § 225, supra, of organization of such corporation. ' ' 6 Campbell v. Watson, 62 N. J. Eq. Campbell v. Watson, 62 N. J. Eq. 396, 396, 420, 50 Atl. 120. 421, 50 Atl. 120. There is no hiatus TFrostburg Min. Co. v. Cumberland in the corporate existence. Camp- & P. E. Co., 81 Md. 28, 31 Atl. 698. 895 §413] Pkivate Gobpoeations [Oh. 14 the extension providing that charters "hereafter" grantea shall be subject to amendment or repeal at the will of the legislature.' The extension does not cancel the existing obligations of the cor- poratipn, and cannot be pleaded in repudiation of any of its outstand- ing lia,bili,ties ; ^ nor will it discharge guarantors of its contracts ; ^" nor, under such circumstances, is its power to enforce payment by its debtor affected by the expiration of the time first fixed for its existence, nor does its title to real estate need re-enforcement by additional conveyances.^^ .^, An act extending the charter of a corporation, the rights and franchises of which have been assigned under legislative authority to another company, should be construed as conferring the additional privilege upon either the corporation named in the act, if in existence, or upon, any other company which has succeeded to its rights.^^ § 414. — Revival of charters. The power to create a corporation includes the power to revive a corporation, and the legislature there- fore! may revive and continue a charter which has expired,^* unless prevented by some constitutional prohibition.^* It has been held that 8 Franklin County Court v. Deposit Bank of Frankfort, 87 Ky. 370, 9 S. W. 212. 9 Fii-st Presbyterian Chureli v. Na- tional State Bank, 57 N. J. L. 27, 29 Atl. 320, aff'd 58 N. J. L. 406, 36 Atl. 1129; 10 People V. Backus, 117 N. Y. 196, 22 N. E. 759. 11 National Exeh. Bank v. Gay, 57 Conn. 224, 4 L. R. A. 343, 17 Atl. 555. 12 Washington, A. & G. E. Co. v. Martin, 7 D. 0. 120. 13 Lincoln & Kennefeec Bank v. Bichardson, 1 Greenl. (Me.) 79, 10 Am. Dec. 34; St. Joseph & I. R. Co. v. Shambaugh, 106 Mo. 557, 17 S. "W. 581. See also Frostburg Min. Co. v. Cumberland & P. E. Co., 81 Md. 28, 31 Atl. 698. In Port Gibson v. Moore, 13 Smedes & M. (Miss.) 157, the court declined to deteKmine whether the legislature had power to revive an extinct cor- poration, but held that by the act there in question it had not attempted to exercise any such power. 14 A constitutional prohibition a- gainst reviving charters in certain cases implies that the charter to be revived is lifeless, and hence does not prevent the amendment of the charter of an existing corporation. St. Jo- seph & I. E. Co. V. Shambaugh, 106 Mo. 557, 17 S. W. 581. An act reviving a corporation will be presumed not to be violative of a constitutional prohibition against the passage of laws reviving or re-enact- ing acts creating private corporations which have not been organized and commenced businessi within a pre- scribed time after the passage of the act creating them, where it does not appear that the corporation in ques- tion was not organized and did not commence business within such time. It is a general rule that an act of the legislature will be presumed to be constitutional until its unconstitution- ality is made to appear. St. Joseph 896 Ch. 14] CoKPOEATE Existence [§414 the effect of such, an act is, in contemplation of law, not to create a new corporation, but merely to revive and continue the old one,^^ jiast as in a case where the charter is extended before its expiratioii.^' In this respect the revival of a charter must be distinguished from rein- corporation, the effect of which is to create a new and distinct cor- poration.^'' Whether an act operates as a revival or a reincorporation is a ques- tion of construction.^' To this point. Judge Story,! in an early federal case, said : "To ascertain whether a charter creates a new corporation or merely continues the existence of the old one, we must look to its terms, and give them a construction consistent with the le^slative intent and the intent of the corporators. ' ' ^® & I. E. Co. V. Shambaugh, 106 Mo. 557, 17 S. W. 581. 15 Lincoln & Kennebec Bank v. Eichardson, 1 Greenl. (Me.) 79, 10 Am. Dec. 34; Frostburg Min. Co. v. Cumberland & P. E. Co., 81 Md. 28, 31 Atl. 698. Where an act created a corpora- tion for a limited period and granted to it all property escheated to the state in a certain district, and, after expiration of said period, an, act was passed reviving the former act, and continuing it in force for a certain ttme, it was held that on its revival the corporation became entitled to the escheated property, the same as be- fore. Brown v. Chesterville Academy Society, 3 Eich. Eq. (S. C.) 362. In Phillips V. Albany, 28 Wis. 340, it was held that an act reviving a charter which had, by its termSj been forfeited for nonuser, but as to which there had. been na^- decree - of forfeiture, continued, the existing de facto organization. 16 See § 412, supra. ,, , . , .;, 17 See chapter on Eeorganization, infra. 18 See Lea v. American, A. & P. Canal Co., 3 Abb. Pr. N. S. (N. Y.) 1. In Knights ctf Pythias v. Weller, 93 Va. 605, 25 S. E. 891, it was held that a charter created a new corporation and did not revive an old one the charter of which had previously ex- pired. A town was incorporated by special act and its charter was thereafter amended by various acts. Subse- quently an act was parsed repealing the act of incorporation and all acts amending the same. Later this re- pealing act was repealed, and the original act of incorporation, and all acts amending the same, were "re- vived and declared to be" in full force." It was held that this latter act created a new corporation and did not revive the old one. Port Gibson V. Moore, 13 Smedes & M. (Miss.) 157. In Fitz V. Minnesota Cent. Ey. Co., 11 Minn. 414, and Huff v. Winona & St. P. E. Co., 11 Minn. 180, it was held that acts transferring the rights, properties and franchises of certain railroad companies, which had been acquired by the state, to certain per- sons under a new corporate name did not operate to revive the old corppra- tions, but created new ones. 19 Bellows V. Hallowell & Augusta Bank, 2 Mason (U. S.) 31, 44, quoted with approval in Frostburg Min. Co. V. Cumberland & P. E. pQ., 81 Md. 28, 31 Atl. 698j Huff V. Winona & St. P. E. Co., 11. Minn. 180; Port, Gibson v^ Moore, 13 Smedes & M. (Miss.) 157, I Priv. Corp.— 57 897 I 415] Private Cobpobations [Ch. 14 § 415. — Aoceptance of extension or revival. An act of the legis- lature extending a charter, like an original charterj^" and like any other amendment of a charter,^^ must be accepted before it can become operative. And this is true, whether the extending act is passed before or after expiration of the original charter.^^ The acceptance of the act, however, may be implied, as in the case of any other amendment.*' Thus, it may be implied from the bringing of an action in the name of the incorporation after expiration of the original charter, and after passage of the reviving act ; ** or from the fact that the corporation applies ft)r, obtains and uses franchises and privileges in its corporate capacity under and by virtue of the provisions of the act extending its existence.*^ And this has been held to be true even where the act pro- vides for a surrender of the old charter and a formal acceptance of the new one.** Where a national bank continues its existence and the performance of its functions as a national bank after the expiration of its original corporate existence, it will be presumed to have accepted the benefit conferred by the certificate of extension in its favor, and to have acted under authority thereof, and it is not necessary to show that such certificate was physically accepted or received by the bank.*'' III. PROOF OP EXISTENCE §416. Necessity to prove incorporation. Whenever an action is brought by or against a corporation, the corporate existence of the plaintiff or defendant, as the case may be, must be alleged, and if it is denied or otherwise put in issue, it must be proved,** unless, as is else- 20 See § 239, supra. 26 Augusta & S. E. Co. v. City Coun- 21 See chapter on Amendment, eil of Augusta, 100 Ga. 701, 28 S. E. infra. 126. 22 Augusta & S. E. Co. v. City Coun- cil of Augusta, 100 Ga. 701, 28 S. E. 126; Lincoln & Kennebec Bank v. Richardson, 1 Greenl. (Me.) 79, 10 28 Alabama. Snider 's Sons* Co. v. Am. Dec. 34. Troy, 91 Ala. 224, 11 L. E. A. 515, 24 23 See chapter on Amendment, Am. St. Eep. 887, 8 So. 658; Schloss infra. V. Montgomery Trade Co., 87 Ala. 411, 24 Lincoln & Kennebec Bank v. 13 Am. St. Eep. 51, 6 So. 360. Eiehardson, 1 Greenl. (Me.) 79, 10 Am. CaUfomia. Wall v. Mines, 130 Cal. ^^"^ ^^" 27, 62 Pac. 386. 25 Under such circumstances, the company is estopped to say that it Illinois. People v. Krittenbrink, did not accept the act and is not bound 269 111. 244, 109 N. E. 1005; Bush- by its provisions. Augusta & S. E. "«11 v. Consolidated Ice Mach. Co., 138 Co. V. City Council of Augusta, 100 HI. 67, 27 N. E. 596; Mix v. National Ga. 701, 28 S. E. 126. Bank of Bloomington, 91 111. 20, 33 898 27 Clement v. United States, 149 Fed. 305. Ch. 14] CoEPOEATE Existence [§416 where explained, there are circumstances operating as an estoppel.^' And this is equally true where a corporation is prosecuted criminally,^' or in a criminal prosecution for offenses against the property of a corporation.*^ Am. Rep. 44; American Ins. Co. of Newark, New Jersey v. McClelland, 184 111. App. 381; American Sales Book Co. V. Wemple, 168 111. App. 639; Fish V. Kanawha Dispatch, 118 111. App. £84, rev'd on other grounds 219 111. 236; Spreyne v. Garfield Lodge, 117 111. App. 253. Indiana. Morrison v. Indianapolis & W. E. Co., 166 Ind. 511, 9 Ann. Cas. 587, 77 N. E. 744, 76 N. E. 961. Kentucky. Pike, Morgan & Co. v. Wathen, 25 Ky. L. Eep. 1264, 78 S. W. 137. Missouri. Elorsheim & Co. v. Fry, 109 Mo. App. 487, 84 S. W. 1023. New York. Methodist Episcopal Union Church v. Pickett, 19 N. Y. 482. Oregon. Goodale Lumber Co. v. Shaw, 41 Ore. 544, 69 Pac. 546. South Dakota. Yankton Nat. Bank V. Benson, 33 S. D. 399, Ann. Cas. 1916 B 1011, 146 N. W. 582. Texas. HoUoway v. Memphis, E. P. & P. E. Co., 23 Tex. 465, 76 Am. Dec. 68. Vermont. Lord v. Bigelow, 8 Vt. 445. See other cases cited in the sections following. A foreign corporation seeking to exercise the right of eminent domain must prove that it is legally incor- porated where that fact is denied. Cumberland Telephone & Telegraph Co. V. St. Louis, L M. & S. E. Co., 117 La. 199, 41 So. 492; Cumberland Tele- phone & Telegraph Co. v. Morgan's Louisiana & T. E. & S. S. Co., 112 La. 287, 36 So. 352. A society cannot be treated as an incorporated one where the bill al- leges that it was constituted as an unincorporated society, and the an- swer denies that it was unincorporated and alleges that it was incorporated on a certain date under a different name, and the names and objects of the two societies are not the same, and no proof is made by the defend- ant of their identity, or even of the certificate of incorporation. Pirios v. First Eussian Slavonic Greek Catholic Benev. Society, 83 N. J. Eq. 29, 89 Atl. 1036. Such proof is not necessary unless corporate existence is properly put in issue. Brady v. National Supply Co., 64 Ohio St. 267, 83 Am. St. Eep. 753, 60 N. E. 218. In an action in the municipal court where the pleadings are oral, aflrma- tive proof that the plaintiff is a cor- poration is conclusive, in the absence of evidence to the contrary. Gillin Printing Co. v. Traphagen, 36 N. Y. Misc. 774, 74 N. Y. Supp. 900. As to the burden of proof under such circumstances, see § 421, infra. As to the necessity for pleading cor- porate existence, the sufficiency of a plea or answer to put the matter in issue, and admissions of corporate ex- istence by failure to deny it, see §§352-354, supra. 29 See Chap. 11, supra. 30 Madisonville, H. & E. E. Co. v. Com., 140 Ky. 255, 130 S. W. 1084; Standard Oil Co. v. Com., 29 Ky. L. Eep. 5, 91 S. W. 1128. As to the burden of proof under such circumstances, see § 421, infra. 81 Alabama. West v. State, 168 Ala. 1, 53 So. 277; Johnson v. State, 73 Ala. 483; Barr v. State, 7 Ala. App. 96, 61 So. 40. Colorado. Miller v. People, 13 Colo. 166, 21 Pac. 1025. 899 §416] Private CoEPOEATioifs [Ch. 14 Similarly, when an action is brought by or against persons as in- dividuals, and it is claimed that they are incorporated, and that the action should have been brought by or against the corporation, and the fact of incorporation is put in issue, it must be proved.*^ So, when proceedings are instituted against persons by the state, or by the attorney general on behalf of the state, to oust them from the exercise of corporate powers on the ground that they are not incorporated, they must allege and prove their corporate existence.*' The same is true in any other case in which the existence of a corporation is a material fact in the case, and is properly put in issue by the pleadings. As is seen in another chapter, however, proof of corporate exis1> ence may be rendered unnecessary by admissions in the pleadings in an action, or by the appearance of an association sued as a corpora- tion, or the like.** §417. What must be proved — In general. The facts necessary to be proved in order to establish corporate existence depend largely upon the nature and object of the particular proceeding, and upon the circumstances upon which it is based. In some cases it is necessary to prove a corporation de jure, while in others it is sufficient to prove a corporation de facto, and in others, by reason of facts operating as an estoppel to deny corporate existence, it is enough to show that the association was acting as a corporation, and it is not necessary to establish its existence as a corporation, either de jure or de facto. Georgia. Eoberson v. State, 12 Ga. Louisiana. Williams v. Hewitt, 47 App. 102, 76 S. E. 752. La. Ann. 1076, 49 Am. St. Eep. 394, 17 Illinois. People v. Struble, 275 III. So. 496. 162, 113 N. E. 938. Maine. McKenney v. Bowie, 94 Utah. State v. Brown, 33 Utah Me. 397, 47 Atl. 918. 109, 93 Pac. 52. New Jersey. Vanneman v. Young, The state must prove the organiza- 52 N. J. L. 403, 20 Atl. 53; Stout v. tion of the corporation under its char- Zulick, 48 N. J. L. 599, 7 Atl. 362. ter. State v. Murphy, 17 E. I. 698, As to the burden of proof in such 16 L.- E. A. 550, 24 Atl. 473. case, see § 421, infra. ;Aa to the burden of proof under 33 State v. Webb, 97 Ala. Ill, 38 such circumstances, see § 421, infra. Am. St. Eep. 151, 12 So. 377; People v. That such proof is not necessary Lowden (Cal.), 8 Pac. 66; People v. where the name of the association Self ridge, 52 Cal. 331; Attorney Gen- imports a corporation, see § 423, infra. era! v. Lorman, 59 Mich. 157, 60 Am. -32 United States. Owen v. Shepard, Eep. 287, 26 N. W. 311; State v. Crit- 59 Fed. 746. chett, 37 Minn. 13, 32 N. W. 787. And Florida. Duke v. Taylor, 37 Fla. see §421, infra. 64, 31 L. E. A. 484, 53 Am. St. Eep. 34 See Chap. 11, supra. 232, 19 So. 172. 900 Ch. 14] Corporate Existence [§420 § 418. — De jure corporate existence. In a direct proceeding by the state in the nature of quo warranto to oust persons from the exer- cise of corporate powers, on the ground that they; are not Ifegally incor- porated, it is necessary for the defendants to allege in their answer that they are a corporation, and to sustain the allegation by proof that they are legally incorporated — a corporation de jure,^* and in order to show this they must prove a valid special act of incorporation or charter, an application therefor or acceptance thereof, and, when it is required by the act, an organization thereunder and substantial com- pliance with all conditions precedent; or they must show a valid general law authorizing them to form such a corporation as they claim to be, an organization thereunder in compliance with its terms, and a substantial compliance with all conditions precedent.*^ According to some of the decisions, though not all, a de jure cor- porate existence must also be shown in condemnation proceedings by a corporation claiming the right to take private property undfer thei power of eminent domain, and in some other cases.^'' § 419. — De facto corporate existence. Generally, however, in an action by or against a corporation on a contract, in an action against individuals on a contract, in whicb they defend on the ground that they were a corporation and contracted as such, in an action by a corporation to recover property, in actions by or against a corpora- tion for a tort, and on indictments for offenses against corporations, and in other cases, it is only necessary to show a de facto corporate existence, as distinguished from a de jure corporate existence.^* And according to the weight of authority, as is shown in another chapter, all that is necessary in order to prove a de facto corporate existence is to show a valid law ^^ under M^hich such a corporation might have been organized, a bona fide attempt to organize under the law, a colorable, although not a substantial, compliance with the provisions of the law, and the exercise of corporate powers thereunder.*" § 420. — Estoppel to deny corporate existence. By the weight of authority, as has been shown at some length in a preceding chapter,*; if an association assumes to act as a corporation, even without any authority at all from the legislature, a person who recognizes'its exist- 35 See chapter on Forfeiture, Dis- 39 Some courts, as has been noted, solution, etc., infra. hold that a valid law is not essential 36 See § 182, supra. to the existence of a corporation de 37 See §310, supra. facto. See § 280, supra. 38 See §§ 312-315, supra. 40 See § 290, supra. 901 I 420] Private Cobpokations [Ch. 14 ence as a corporation by contracting or otherwise dealing with it as such is estopped to deny its incorporation in an action based upon such contract or dealing, whether the action is brought by the association as a corporation against him, or by him against the association to charge them as partners. And in like manner, persons who hold them- selves out as a corporate body, and contract or otherwise deal in that capacity, are estopped to deny their incorporation in an action against them as a corporation based upon such contract or dealing.*^ In such cases,, the estoppel renders it unnecessary, according to the weight of authority, to prove either a de jure or de facto corporate existence. It is only necessary to prove that the association was s,cting as a corpora- tion, and that it dealt or was dealt with as sueh.*^ § 421. Burden of proof. The burden of proving the existence of a corporation de jure or de facto, according to the circumstances, is upon the party who alleges it, though, as we shall see in the sections following, the burden will sometimes be sustained by proof of facts from which incorporation may be presumed. Thus, in quo warranto proceedings by the state to oust persons from the exercise of corporate powers, on the ground that they are not legally incorporated, the burden is upon the defendants to show legal incorporation.** Where persons doing business under a company name are sued individually as partners, and they deny individual liability, averring that they were incorporated and that the contract was made hy the corporation, the burden is upon them to prove their incorporation, or to show an estoppel to deny incorporation.** On the other hand, when an association is sued as a corporation and an allegation in the com- plaint that it is a corporation is denied, the burden of proving that it 41 See Chap. 11, supra. Where the "plaintiffs declare 42 See §§334-347, supra. against the defendant individually, 43 People V. Lowden (Cal.), 8 Pae. and yet seek to charge him as a part- 66. See § 422, infra. ner, it is incumbent on them, in the 44Harrill v. Davis, 168 Fed. 187, first instance, to show a partnership; 22 L. E. A. (N. S.) 1153; Owen v. but when they have introduced evi- Shepard, 59 Fed. 746; Bell v. Dowdy, dence which prima facie establishes 13 Ky. L. Eep. 543 (abstract) ; Louisi- a partnership, or from which it may ana Nat. Bank v. Henderson, 116 La. be reasonably inferred, the burden 413, 40 So. 779; Williams v. Hewitt, is cast on the defendant to show ineor- 47 La. Ann. 1076, 49 Am. St. Eep. 394, poration, when he seeks to avoid' in- 17 So. 496; Abbott v. Omaha Smelt- dividual liability on the ground that ing & Eefining Co., 4 Neb. 416. See the company is a corporation. ' ' Clark also Provident Bank & Trust Co. v. v. Jones, 87 Ala. 474, 6 So. 362. Saxon, 116 La. 408, 40 So. 778. 902 Ch. 14] CoKPOKATE Existence [§421 is one is on the plaintiff.** And on trial of an information against an alleged corporation for maintaining a nuisance, the burden is on the state to prove that the defendant is a corporation, since the allegation that it is one is a part of the description of the offense.** And the same is true on trial of a third person for a crime committed against the property of a corporation.*'' When an association sues as a corporation and its incorporation is denied, it has the burden of proving its corporate existence.** But it is only obliged to make out a prima facie case that it is a corporation 4B Pike, Morgan & Co. v. Wathen, 25 Ky. L. Eep. 1264, 78 S. W. 137. 46 Acme Fertilizer Co. v. State, 34 Ind. App. 346, 107 Am. St. Eep. 190, 72 N. E. 1037. 47Barr v. State, 7 Ala. App. 96, 61 50. 40; Eoberson v. State, 12 Ga. App. 102, 76 S. E. 752; State v. Murphy, 17 E. I. 698, 16 L. E. A. 550, 24 Atl. 473. That such proof is not necessary where the name of the association im- ports a corporation, see § 423, infra. 48 United States. Campbell & Zell Co. V. American Surety Co., 129 Fed. 491, aff'd 138 Fed. 531. Alabama. Sehloss v. Montgomery Trade Co., 87 Ala. 411, 13 Am. St. Eep. 51, 6 So. 360; Selma & T. E. Co. v. Tipton, 5 Ala. 787, 39 Am. Dec. 344. Ckilorado. Jones v. Aspen Hard- ware Co., 21 Colo. 263, 29 L. E. A. 143, 52 Am. St. Eep. 220, 40 Pac. 457. Illinois. Bailey v. Valley Nat. Bank, 127 111. 332, 19 N. E. 695, afE'g 21 111. App. 642; American Ins. Co. of New- ark, New Jersey v. McClelland, 184 111. App. 381; Dean & Son v. W. B. Conkey Co., 180 111. App. 162; Ameri- can Sales Book Co. v. Wemple, 168 ni. App. 639; Fish v. Kanawha Dis- patch, 118 111. App. 284, rev'd on other grounds 219 111. 236; Spreyne V. Garfield Lodge, 117 111. App. 253; Concord Apartment House Co. v. Alas- ka Eefrigerator Co., 78 111. App. 682. Indiana. Morrison y. Indianapolis & W. E. Co., 166 Ind. 511, 9 Ann. Cas. 587, 77 N. E. 744, 76 N. E. 961. Louisiana. Cumberland Telephone & Telegraph Co. v. St. Loui^, I. M. & S. E. Co., 117 La. 199, 41 So. 492; Cumberland Telephone & Telegraph Co. V. Morgan's Louisiana & T. E. 6 S. S. Co., 112 La. 287, 36 So. 352. New York. Methodist Episcopal Union Church v. Pickett, 19 N. Y. 482; Williams v. Bank of Michigan, 7 Wend. 539. Ohio. Queen City Tel. Co. v. Cin- cinnati, 73 Ohio St. 64, 76 N. E. 392. Oklahoma. J. P. Bledsoe & Son v. Keystone Steel & Wire Co., 41 Okla. 586, 139 Pac. 257. Oregon. Goodale Lumber Co. v. Shaw, 41 Ore. 544, 69 Pac. 546; Law Guarantee Trust Society v. Hogue, 37 Ore. 544, 63 Pac. 690. South Dakota. Yankton Nat. Bank V. Benson, 33 S. D. 399, Ann. Cas. 1916 B 1011, 146 N. W. 582. Vermont. Lord v. Bigelow, 8 Vt. 445. Where the jurisdiction of a federal court depends upon whether the plain- tiff is a corporation of a certain state, and its allegation that it is such a corporation is properly put in issue, the burden is on it to prove that such is the case. W. L. Wells Go. v. Gastonia Cotton Mfg. Co.,, 198 U. S. 177, 49 L. Ed. 1003, rev'g on other grounds 128 Fed. 369, which rev'd 118 Fed. 190. 90i> 422] Pkivate Cobpoeations [Ch. 14 de facto, and when it does so, the burden of proof is shifted to the defendant.*® §422. Presumptions and prima facie proof — ^In general. Proof of certain facts may often raise a presumption of due incorporation, which, in the absence of evidence tending to show want of incorpora- tion, will make out a prima facie case. For example, it has repeatedly been held that if it is shown that an association has exercised corporate powers for a long period of time under a claim of corporate existence, the grant of a charter will be presumed, in the absence of evidence to the contrary,^" Incorporation will not be presumed, however, fram acts, or from a mode of conducting business, which might just as well have been done or adopted by an unincorporated association as by a corporation.^^ Thus, the fact that the business of an association was conducted, or contracts made, by a president and secretary, raises no presumption of incorporation, for an unincorporated association may appoint a president and secretary.®^ And the corporate existence of a church is 49 Hudson V. Green Hill Seminary Corporation, 113 111. 618; Concord Apartment House Co. v. Alaska Ee- frigerator Co., 78 111. App. 682. See also Van Winkle Gin & Machine Works V. Mathews, 2 Ga. App. 249, 58 S. E. 396. As to what is sufficient to make out a prima facie case, see § § 422-424, infra. As to de facto corporations, see Chap. 10, supra. 50 United States. United States v. Amedy, 11 Wheat. 392, 6 L. Ed. 502. Contra, Griffin v. Clinton Line Ex- tension E. Co., Fed. Cas. No. 5816. Connecticut. Greene v. Dennis, 6 Conn. 293, 16 Am. Dec. 58. Illinois. Eose Hill & E. Road Co. v. People, 115 111. 133, 3 N. B. 725. Maine. Trott v. Warren, 11 Me. 227. Maryland. Hager's Town Turnpike Eoad Co. V. Creeger, 5 Har. & J. 122, 9 Am. Dec. 495. New Hampsliire. Bow v. Aliens- town, 34 N. H. 351, 69 Am. Dec. 489. New Jersey. Den v. Helmes, 3 N. J. L. 600. New York. Eobie v. Sedgwick, 35 Barb. 319; All Saints' Church v. Lov- ett, 1 Hall 213. Ohio. Sasser v. State, 13 Ohio 453. Vermont. Methodist Episcopal So- ciety V. Lake, 51 Vt. 353. Wisconsin. Eioketsou v. Galligan, 89 Wis. 394, 62 N. W. 87. England. Crafts of Mercers v. Hart, 1 Car. & P. 113; Kingston upon Hull V. Horner, 1 Cowp. 102. See also § 167, supra. Douthitt v. Stinson, 63 Mo. 268. 51 Clark V. Jones, 87 Ala. 474, 6 So. 362; Greene v. Dennis, 6 Conn. 293, 16 Am. Dec. 58; Abbott v. Omaha Smelt- ing & Eefining Co., 4 Neb. 416. 52 Clark V. Jones, 87 Ala. 474, 6 So. 362; Duke v. Taylor, 37 Fla. 64, 31 L. E. A. 484, 53 Am. St. Eep. 232, 19 So. 172. That it has a president, secretary and treasurer, is not sufficient to show that the body is incorporated. Cun- yus V. Guenther, 96 Ala. 564, 11 So. 649. 904 Ch. 14] CoBPOKATE Existence [§422 not shown by proof that the members held the ordinary meetings of a religious society, and elected ofScers, for these acts are entirely con- sistent with the existence of an unincorporated association.^^ The execution and delivery of an instrument to a corporation as such is prima facie evidence of its corporate existence in a suit on such instrument, and no further proof of that fact is necessary until such proof is rebutted.^* But this rule has been held to have no application B3 Fredenburg v. Lyon Lake M. E. Chureli, 37 Mich. 476. 64 West Side Auction House Co. v. Connecticut Mut. Life Ins. Co., 186 III. 156, 57 N. E. 839, aff'g 85 HI. App. 497; American Ins. Co. of Newark, New Jersey v. McClelland, 184 111. App. 381; Nelson Cheamau & Co. V. Singers, 183 111. App. 591; American Sales Book Co. v. Wemple, 168 111. App. 639. In an action by a corporation on a bond executed to it by the defendant, the production of the bond, which describes the plaintiff as a corpora- tion, makes out a prima facie case that it is a de facto corporation, and is sufficient. Campbell & Zell Co. v. American Surety Co., 129 Fed. 491, aff'd 138 Fed. 531. The fact that a contract on which a corporation has recovered judgment recites that it is a corporation under a particular name and that it has recovered judgment under that name is sufficient proof of its corporate ca- pacity in an action by it on such judgment. Cellulose Package Mfg. Co. V. Calhoun, 166 Cal. 513, 137 Pac. 238. A written receipt from which it ap- pears that the defendant contracted with the plaintiff in its corporate name and received money thereby ad- mitted to have been money of the plaintiff, is evidence of the incorpo- ration of the plaintiff. Sierra Land & Cattle Co. V. Bricker, 3 Cal. App. 190, 85 Pac. 665. A written contract evidencing that the defendant was dealing with the plaintiff as a corporation is competent against the defendant as evidence of corporate existence in an action for work performed and material fur- nished under such contract. Otis Ele- vator Co. V. Cape Fear Hotel Co., — N. C. — , 90 S. E. 253. It has been held that it appeared prima facie that the plaintiff in an action was a corporation where the defendant made with it the contract sued on, negotiated with it as to the discontinuance of a former suit on the same contract and agreed to pay a balance then due, and went to trial without notifying the plaintiff, by plea or otherwise, that its corporate existence would be disputed. MacMil- lan Co. V. Stewart, 69 N. J. L. 212, 54 Atl. 240, aff'd 69 N. J. L. 676, 56 Atl. 1132. Under a statute providing that the maker of a negotiable instrument ad- mits the existence of the payee and his capacity at the time to indorse, the maker of a note payable to a rail- way company is not in a position to deny the corporate existence of said company, and an indorsee of the note need not prove it in an action thereon. Grover v. Muralt, 23 N. D. 576, 137 N. W. 830. As to the effect of the use of a name which imports a corporation, see § 423, infra. That the maker of the contract is estopped to deny the existence of the corporation under such circumstances, see § 334, supra. That a de facto corporation isbouhd by its contracts and that persons con- 905 §422] Pbivate Coepokations [Ch. 14 where the contract itself in no way describes or refers to the plaintiff as a corporation, either directly or indirectly.*^ Proof that land has been conveyed to or by a company as a corpora- tion is sufficient prima facie evidence that it is a corporation, in an action involving title to such land.*® And a patent to a mine issued by the federal government to a corporation sufficiently establishes the fact that the grantee is a corporation, in a suit to determine conflicting claims to the property covered by such patent.*'' Proof that the de- fendant represented in a letter to the plaintiff's assignors that it was a corporation is sufficient to support a finding of its corporate character.** There is authority to the effect that it will be presumed that a rail- road company is a corporation unless the contrary appears.*' § 423. — Use of name importing a corporation. Some courts have held that there is no presumption of incorporation from the fact that an association has used a name appropriate to a corporate body,*" while traeting with it cannot attack its ex- istence in an action on such contract, Bee §§ 274 et seq., supra. 65 American Ins. Co. of Newark, New Jersey v. McClelland, 184 111. App. 381; American Sales Book Co. V. Wemple, 168 111. App. 639. 66 In an action of ejectment, proof that the state donated the land in con- troversy to a company by an act of the legislature, that the United States conveyed the land to it by patent, and that the company assumed to convey the same land as a corporation, are sufficient, prima facie at least, to es- tablish its legal entity as a corpora- tion. Altschul V. Casey, 45 Ore. 182, 76 Pac. 1083. A deed by a purported corporation is proof of the existence of the cor- poration in a suit involving the title to the property conveyed. Galbraith V. Shasta Iron Co., 143 Cal. 94, 76 Pac. 901. Admissions of persons intervening in an action that a company is a cor- poration, the fact that one of them refers to it as a corporation in his testimony, and the fact that deeds to land were taken in the name of the company instead of in the names of individuals as partners, furnish some evidence, as against such persons, that it is a corporation. Forbis v. Pied- mont Lumber Co., 165 N. C. 403, 81 8. E. 599. That the purported corporation is estopped to deny its corporate exist- ence under such circumstances, see § 306, supra. That a de facto corporation may convey or accept conveyances of land, Bee § 306, supra. 57 Galbraith v. Shasta Iron Co., 143 Cal. 94, 76 Pac. 901. 68 Marx v. Ealey & Co., 6 Cal. App. 479, 92 Pac. 519. That persons representing that they are a corporation are estopped to deny that fact, see § 343, supra. 69 Louisville & N. R. Co. v. Com., 154 Ky. 293, 157 S. W. 369; Madison- ville, H. & E. E. Co. v. Com., 140 Ky. 255, 130 S. "W. 1084. 60 Briggs V. McCullough, 36 Cal. 542, 550; Duke v. Taylor, 37 Fla. 64, 31 L. R. A. 484, 53 Am. St. Rep. 232, 19 So. 172; Welland Canal Co. v. Hatha- 906 Ch. 14] CoBPOEATE Existence [§ 423 other courts have held that the use of a name -which ordinarily imports a corporate existence is prima facie evidence of incorporation.'^ "Whether a particular name imports a corporation should, as a rule, be way, 8 Wend. (N. T.) 480, 24 Am. Dec. 51; Williams v. Bank of Michi- gan, 7 Wend. (N. Y.) 539; Holloway V. Memphis, E. P. & P. E. Co., 23 Tex. 465, 76 Am. Dec. 68. See also Ingle System Co. v. Norris & Hall, -132 Tenn. 472, 178 S. W. 1113, citing cases to this effect, but holding to the con- trary, 61 Georgia. Van Winkle Gin & Machine Works v. Mathews, 2 6a. App. 249, 58 S. E. 396. Indiana. Stein y. Indianapolis Building Loan Pund & Savings Ass'n, 18 Ind. 237, 81 Am. Dec. 353; Jones v. Cincinnati Type Foundry Co., 14 Ind. 89. Massachusetts. Williamsburg City Pire Ins. Co. v. Prothingham, 122 Mass. 391. Mlfsourl. Stoutimore v. Clark, 70 Mo. 471. Nebraska. Valley Bank v. Harding, 1 Neb. 461. North Carolina. See State v. Grant, 104 N. C. 908, 10 S. E. 554. Ohio. See Wild v. Oregon Short Line & U. N. Ey. Co., 21 Ore. 159, 27 Pac. 954. "When the name of a party to a euit is such as to import that the party is a. corporation, there is a presumption to this effect, which pre- vails until the contrary is shown." Georgia Co-operative Pire Ass'n v. Borchardt & Co., 123 Ga. 181, 3 Ann. Cas. 472, 51 S. E. 429; Turner's Chapel A. M. E. Church v. Lord Lumber Co., 121 Ga. 376, 49 S. E. 272; Holcomb V. Cable Co., 119 Ga. 466, 46 S. E. 671; Mattox V. State, 115 Ga. 212, 41 S. E. 709. It is not necessary for a, corporation, in bringing suit, to aver that it is a corporation, where its name imports a corporate body. Edenfield v. Bank of Millen, 7 Ga. App. 645, 67 S. B. 896. Where a complaint states the name of the plaintiff or defendant in such words as to imply a corporation, it will be presumed that the party so referred to is a corporation until that fact is put in issue by a denial. Ohio Oil Co. V. Detamore, 165 Ind. 243, 73 N. E. 906. "Where, in an indictment for lar- ceny, the ownership of the goods al- leged to have been stolen is laid in a name which imports a corporation, the presumption is that it is the name of a corporation, and it is not neces- sary, even as against a special demurrer, to allege the fact of incor- poration." Mattox V. State, 115 Ga. 212, 41 S. E. 709. On prosecution for embezzlement from a corporation, if its name im- ports a corporation, it will be pre- sumed that it is one, and the state need not prove that such is the case, where the indictment does not allege that it is a corporation and in the ab- sence of affirmative evidence by the accused that no such corporation ex- isted. A final judgment under such circumstances is not void or voidable for want of such proof. Vaughn v. State, 17 Ga. App. 268, 86 S. E. 461. The following names have been held to import a corporation: "Anglo-Cali- fornia Bank, Limited" (Anglo-Cali- fornia Bank v. Field, 146 Cal. 644, 80 Pac. 1080) ; "P. A. Lord Lumber Com- pany" (Turner Chapel A. M. E. Church V. Lord Lumber Co., 121 Ga. 376, 49 S. E. 272); "The Cable Com- pany" (Holcomb V. Cable Co., 119 Ga. 466, 46 S. E. 671); "C. H. Per- kins Co." (Perkins Co. v. Shewmake & Murphey, 119 Ga. 617, 46 S. E. 832) ; "Acme Brewing Company" (Mattox 907 §423] Pkivate Cokpoeations [Ch. 14 left to judicial knowledge.^* If the name manifestly indicates a re- ligious, charitable, educational, or other similar beneficence for the public good, or if it indicates a financial, commercial or manufacturing, or other kindred purpose, the usual subjects of incorporation, it should be held to import a corporation.^^ "There is a difference between such names and those indicating partnerships, joint contractors, or other natural persons not the usual subjects of incorporations. " «* But if a name "may fairly import either a corporation, an unincor- V. State, 115 Ga. 212, 41 S. E. 709) ; "Foley & Willianis Mfg. Co." (Foley & Williams Mfg. Co. v. Bell & Har- rell, 4 Ga. App. 447, 61 S. E. 856); ' ' Kanawha Dispatch ' ' (Fish v. Kana- wha Dispatch, 118 111. App. 284, rev'd on other grounds, 219 111. 236); "In- diana Millers' Mut. Fire Insurance Company" (Indiana Millers' Mut. Fire Ins. Co. v. People, 65 111. App., 355, aff'g 170 111. 474); "Huntington- Light & Fuel Company" and "Ohio Oil Company" (Ohio Oil Co. v. Deta- more, 165 Ind. 243, 73 N. E. 906); "Oregon Eailroad & Navigation Com- pany" (EllifE V. Oregon E. & Nav. Co., 53 Ore. 66, 99 Pac. 76) ; "Ingle System Company" (Ingle System Co. v. Nor- ris & Hall, 132 Tenn. 472, 178 S. W. 1113). "Tindle Cotton Company" (Pemiscot County Bank v. Central State Nat. Bank, 135 Tenn. 13, 185 S. "W. 702). The fact that notes sued on were made payable to "Goldberg, Bowen & Co., Inc.," the plaintiff, and that the plaintiff's cashier testified that it was a corporation, was held to be suflS- cient proof of its corporate existence in Goldberg, Bowen & Co. v. Dimick, 169 Cal. 187, 146 Pac. 672. In Georgia Co-operative Fire Ass'n V. Borchardt & Co., 123 Ga. 181, 3 Ann» Cas. 472, 51 S. E. 429, it was held that the name "The Georgia Co-operative Fire Association," by which the de- fendant was sued, when taken in connection with allegations of the pe- tition that it had an agent and a place of business in the county in which the action was brought, and that it issued the insurance policies in suit, imported a corporation; and that it was not nec- essary, even as against a special demurrer, to allege that it was a cor- poration. The name ' ' The Dry Fork Eailroad Company" imports a corporation, and is a sufBcient averment that a defend- ant indicted under that name is a cor- poration. State V. Dry Fork E. Co., 50 W. Va. 235, 40 S. E. 447. The name "Americus Furniture & Undertaking Company" connotes a corporation, and an allegation in a criminal case that a company having that name is a corporation is surplus- age and need not be proved. Ager v. State, 2 Ga. App. 158, 58 S. E. 374. It has been frequently held that one who contracts with an association in a name which imports a corporation, is thereby estopped to deny that it is one in an action on the contract. For a discussion of this doctrine and of whether the rule preventing him from questioning the existence of the corpo- ration under such circumstances, is based on the doctrine of estoppel or is a rule of evidence, see Chap. XI, supra. 62Mattox v. State, 115 Ga. 212, 41 S. E. 709; St. Cecilia's Academy v. Hardin, 78 Ga. 39, 3 S. E. 305. 63Mattox V. State, 115 Ga. 212, 41 S. E. 709; St. Cecilia's Academy v. Hardin, 78 Ga. 39, 3 S. E. 305. 64Mattox V. State, 115 Ga. 212, 41 S. E. 709; St. Cecilia's Academy v. Hardin, 78 Ga. 39, 3 S. E. 305. 908 Ch.l4'] CoEPOEATE Existence [§424 porated association, or a partnership, no presumption arises from the mere name that the company is either the one or the other. "®^ It has been held that the use of the word "company" does not im- port a corporate existence, since it is equally applicable to a partner- ship,^® although there are some cases which apparently hold to the contrary .8''' So it has been held that "^the word 'association,' when used with descriptive adjectives as the name of a business entity, is as much indicative of a corporation as the word 'company' when so used." 68 § 424. — Presumption of continued existence. Where it is shown that a company was at one time a corporation, that status is presumed to continue until the contrary is proven,®^ at least during the period for which it might have been chartered.'''*' But such presumption will 6Bln Clark v. Jones, 87 Ala. 474, 6 So. 362, this was held to be true of the name "Wetumpka Lumber Com- pany." 66 Its use in a contract with the company does not import that the company is a'eorporation so as to make the contract an instrument executed to a corporation as such, and hence sufficient prima facie evidence of its de facto existence. American Ins. Co. of Newark, New Jersey v. McClelland, 184 HI. App. 381; American Sales Book Co. V. Wemple, 168 111. App. 639. 67 See Georgia Co-operative Fire Ass'n V. Borehardt & Co., 123 Ga. 181, 3 Ann. Cas. 472, 51 S. E. 429; Mattox V. State, 115 Ga. 212, 41 S. B. 709. 68 Georgia Co-operative Fire Ass 'n V. Borehardt & Co., 123 Ga. 181, 3 Ann. Cas. 472, 51 S. E. 429. 69 Anglo-Calif ornian Bank v. Field, 146, Cal. 644, 80 Pac. 1080. ' ' The corporation having been shown to have been legally created and organized, is in judgment of law ■ supposed to continue to exist until the contrary is shown * * *." People V. Manhattan Co., 9 Wend. (N. Y.) 351. In Yankton Nat. Bank v. Benson, 33 S. D. 399, Ann. Cas. 1916 B 1011, 146 N. W. 582, the court says in reference to People V. Manhattan Co., supra: "In that case, however, the charter of the corporation provided for its per- petual existence, and the matter arose under the question as to whether it had performed certain things which by its charter should have been per- formed within a certain period after the charter was granted as a condi- tion for the continued existence of the corporation. ' ' In Humphry v. Powell, 145 Ga. 458, 89 S. E. 427, it was held that there was no merit in the contention that a bank was not in existence as a corpo- ration so as to be a necessary party defendant to the bill of exceptions, where it had been made a party de- -feudant in the court below two year^ previously, and there was nothing to show that it had ceased to be a cor- poration. 70 " A national banking corporation once shown to exist will be presumed to be a corporation during the period of twe'nty years thereafter " • *." The court will take judicial notice that such a bank is chartered for twenty years. The presumption of continued existence is annihilated after that length of time. Yankton 909 §424] Peivate Coepokations [Ch. 14 be subject to be overthrown by slighter evidence as the length of time increases after the existence of the corporation is shown.'^ And it will not be presumed that its charter has been renewed, although a renewal may be obtained almost as a matter of form.'^ §425. Parol evidence of incorporation; reputation — ^In general. As we shall see in the sections following, facts necessary to be shown in order to establish corporate existence may be proved by parol evi- dence, if better evidence is not available ; ■" and parol evidence may be both competent and sufficient to prove incorporation, if no objection or exception is taken to its admission.''* As a general rule, when it is necessary to prove the existence of a corporation in a civil action, parol evidence is not competent for that purpose, if objected to, when better evidence exists and can be pro- duced by the party.'* Thus, the articles or certificates of association or incorporation, or a duly-certified or authenticated copy thereof, are the best evidence of their execution or issuance and of their contents, and failure to produce them must be accounted for before the admis- Nat. Bank v. Benson, 33 S. D. 399, Ann. Cas. 1916 B 1011, 146 N. W. 582. 71 Yankton Nat. Bank v. Benson, 33 S. D. 399, Ann. Ca^. 1916 B 1011, 146 N. W. 582. 72 Tankton Nat. Bank v. Benson, 33 S. D. 399, Ann. Cas. 1916 B 1011, 146 N. W. 582. 73 See Rose Hill & E. Road Co. v. People, 115 111. 133, 3 N. E. 725; Weber V. Fickey, 52 Md. 500. And see the eectious following. 74 Colorado. Tollifson v. People, 49 Colo. 219, 112 Pac. 794. Illinois. People v. Noviek, 265 111. 436, 107 N. E. 138; People v. Burger, 259 111. 284, 102 N. E. 751; Doyle v. Frank Douglas Machinery Co., 73 HI. 273. Missouri. State v. Decker, 217 Mo. 315, 116 S. W. 1096. Rhode Island. State v. Habib, 18 R. I. 558, 30 Atl. 462. Washington. State v. Pittam, 32 Wash. 137, 72 Pae. 1042; Stanford Land Co. v. Steidle, 28 Wash. 72, 68 Pac. 178. This is equally true where the ob- jection is not seasonably made. Dick V. State, 107 Md. 11, 68 Atl. 286, 576; State V. Pittam, 32 Wash. 137, 72 Pac. 1042. 76 Owen V. Shepard, 59 Fed. 746; Warner v. Daniels, 1 Woodb. & M. 90, Fed. Cas. No. 17,181; A. Gauthier Decorating Co. v. Ham, 3 Colo. App. 559, 34 Pae. 484; Nicoll v. Clark, 13 N. Y. Misc. 128, 34 N. Y. Supp. 159; Hallett V. narrower, 33 Barb. (N. Y.) 537. Where no attempt is made to intro- duce the charter or general law under which an association claims to be in- corporated, oral testimony that it is in fact a corporation and that it has a corporate seal and transacts business under such seal is properly excluded i.a not the best evidence. American Ins. Co. of Newark, New Jersey v. McClel- land, 184 111. App. 381. 910 Ch. 14] CoBPORATE Existence [§ 425 sion of parol evidence of their existence and contents.'® If they have been lost or destroyed, parol evidence is admissible.''"' Ordinarily, the proper method of proving the nonexistence of a record is by testimony of the lawful custodian of such record.''* Hence, on an issue as to the existence of a corporation under a particular name, testimony of a witness that he had examined the files in the office of the secretary of state and failed to find any record of a charter incorporating an association by that name is inadmissible. Proof as to what is or is not shown by the records in the office of the secretary should be made by that officer.''^ But a witness may testify that he has never heard of a corporation, partnership or association of any kind doing business under the name stated.'" By the weight of authority, when an association contracts with a person as a corporation, it is estopped to deny its incorporation in an action on the contract ; and if a person contracts with an association as a corporation, he is estopped to deny its incorporation in an action by it as a corporation on the contract, or in an action by him against the associates as partners.*^ It follows that in such cases it is only necessary to prove by parol evidence or reputation that the associa- tion was acting as a corporation £ind was dealt with as such, for incorporation in fact need not be proved.*^ 76 Owen V. Shepard, 59 Fed. 746; 78 Cobb v. Bryan, 37 Tex. Ciy. Creditors' Union v. Lundy, 16 Cal. App. 339, 83 S. W. 887. App. 567, 117 Pae. 624; Bell v. Dowdy, 79 Cobb v. Bryan, 37 Tex. Civ. App. 13 Ky. L. Eep. 543 (abstract) ; Hal- 339, 83 S. W. 887. lett V. narrower, 33 Barb. (N. Y.) 80 Cobb v. Bryan, 37 Tex. Civ. 537. App. 339, 83 S. "W. 887. In an action against individuals as 81 See Chap. 11, supra, partners, their testimony that th^ com- 82 United States. Eoekville & W. pany which they represented was in- Turnpike Road v. Van Ness, 2 Cranch corporated under the laws of another C. C. 449, Fed. Cas. No. 11,986. state, without producing the articles niluois. Walker Paint Co. v. Bug- of incorporation, is insufficient to show gles, 48 111. App. 406. such incorporation. Bell v. Dowdy, 13 Indiana. Ewing v. Robeson, 15 Ind. Ky. L. Eep. 543 (abstract). 26. 77 Creditors' Union v. Lundy, 16 Kentucky. Woodson v. Bank of Cal. App. 567, 117 Pac. 624; Eose Hill Gallipolis, 4 B. Mon. 203. & E. Eoad Co. V. People, 115 111. 133, , ^^^^-""^ ^/T. ^^ '^'"*°"'^ ^^'^^• 3N. E. 725. ""'^r ,'f V'-T. , . , . , . Minnesota. French v. Donohue, 29 A copy which IS properly proven is -^^^^^ ^j^j^ ^^ j^_ ^ 35^ admissible, where the original article^ ^^^ york. United States Vinegar have been lost. Dan vers Farmers ' Co. v. Schlegel, 143 N. Y. 537, 38 N. E. Elevator Co. v. Johnson, 93 Minn. 323, 729; Eoberts v. National Ice Co 6 101 N, W. 492. Daly 426. 911 §426] Private Cokpokations [Ch. 14 Parol evidence is also admissible to show user for the purpose of proving the existence of a corporation de facto. *^ § 426. — In criminal actions. A de facto corporation may be prose- cuted criminally,** and hence in criminal prosecutions of a corporation it is not necessary to offer in evidence its articles of incorporation, but its de facto existence may be established by evidence tending to show that it acted and was accepted in the community as a corporation under the name alleged.** And it has been said that under such cir- West Virginia. Bon Aqua Improve- ment Co. V. Standard Fire Ins. Co., 34 W. Va. 764, 12 S. E. 771. Thus parol evidence that plaintiff was known and transacted business as a corporation has been held sufficient to meet the plea of nul tiel corpora- tion. Patton & Gibson Co. v. Shreve & Kelso, 134 111. App. 271. In an action by a national bank against the maker of a note indorsed to it by the payee, it is competent for the plaintiff to prove by parol that it is carrying on a general banking busi- ness as a national bank authorized by the general laws of the United States under the name by which it sues, in view of the fact that the court will take judicial notice of such laws. Yakima Nat. Bank v. Knipe, 6 Wash. 348, 6 Pae. 348, followed in National Bank of Commerce v. Galland, 14 Wash. 502, 45 Pac. 35. In an action of ejectment by the assignee of a mortgagee against the mortgagor upon a mortgage given to a corporation, it is not necessary to pro- duce the charter of the corporation. The admission by the defendant in the deed of mortgage is, as against him, sufficient proof, when uncontradicted, of the existence of the corporation. Den V. Van Houten, 10 N. J. L. 270. In Smathers & Co. v. Toxaway Hotel Co., 167 N. C. 469, 83 S. E. 844, it was held that proof that the defendant had recognized and dealt with the intervener as a corporation was suffl.- eient, in connection with the other evi- dence, to show prima facie at least, its incorporation, a person claiming to be an officer of the intervener hav- ing testified that it was a corporation, and an allegation of the intervener's answer that it was a corporation hav- ing been, in effect, admitted by the reply. Where it was claimed that a part- nership was dissolved by the forma- tion of a corporation to succeed it, but the attempted incorporation was so defective that not even a corpora- tion de facto resulted, it was held that mere uncontradicted testimony that the plaintiff dealt with the company as a corporation would not prevent him from enforcing the company's notes against its members as partners. Ward-Truitt Co. v. Bryan & Lamb, 144 Ga. 769, 87 S. B. 1037. 83 See § 303, supra. 84 See § 316, supra. 85 Louisville & N. R. Co. v. Com., 154 Ky. 293, 157 S. W. 369; Madison ville, H. & E. E. Co. v. Com., 140 Ky. 255, 130 S. W. 1084; George H. Good man Co. v. Com., 30 Ky. L. Eep. 519 99 S. W. 252; Standard Oil Co. v. Com 122 Ky. 440, 29 Ky. L. Eep. 5, 91 S. W 1128. See also Morse v. Com., 129 Ky. 294, 311, 111 S. W. 714. Corporate existence is sufficiently proved by the introduction of its char- ter, and proof that it had officers and a place of business, operated a rail- road, and held itself out to the world 912 Ch. 14] CoBPOKATE Existence [§426 cumstances any evidence tending to show that it is a corporation is sufficient.^® In criminal prosecutions for offenses alleged to have been committed against the property of a corporation, some of the courts have held that it is only necessary to show the existence of the alleged corpora- tion by parol evidence, or by reputation.^' And this rule has been as a corporation by the name alleged. State V. Western N. C. E. Co., 95 N. 0. 602. See also Acme Fertilizer Co. v. State, 34 Ind. App. 346, 107 Am. St. Eep. 190, 72 N. E. 1037, where it is said that there was sufficient evidence from which the inference that the de- fendant was a duly organized corpora- tion was deducible. 86 George H. Goodman Co. v. Com., 80 Ky. L. Eep. 519, 99 S. W. 252; Standard Oil Co. v. Com., 122 Ky. 440, 29 Ky. L. Eep. 5, 91 S. W. 1128. In a prosecution of a corporation for selling oil without a license, a receipt given by it in payment for oil so sold reciting that it is a corporation is competent. Standard Oil Co. v. Com., 122 Ky. 440, 29 Ky. L. Eep. 5, 91 S. W. 1128. 87 Arkansas. Turner v. State, 109 Ark. 332, 158 S. W. 1072; Brown v. State, 108 Ark. 336, 157 S. W. 934; Hears v. State, 84 Ark. 136, 104 S. W. 1095; Fleener v. State, 58 Ark. 98, 23 S. W. 1. California. People v. Dole, 122 Cal. 486, 68 Am. St. Eep. 50, 55 Pac. 581; People V. Ah Sam, 41 Cal. 645; People V. Hughes, 29 Cal. 257; People v. Frank, 28 Cal. 507. Colorado. Tollifson v. People, 49 Colo. 219, 112 Pac. 794; Perry v. People, 38 Colo. 23, 87 Pae. 796; Miller V. People, 13 Colo. 166, 21 Pac. 1025. District of Columbia. Fields v. United States, 27 App. Cas. 433, certi- orari denied 205 TJ. S. 292, 51 L. Ed. 807. Florida. Talheim v. State, 38 Fla. 169, 20 So. 938. I Priv. Corp.— 58 Georgia. See dictum in Mattox v. State, 115 Ga. 212, 41 S. E. 709. Illinois. Kossakowski v. People, 177 111. 563, 53 N. E. 115. Indiana. Norton v. State, 74 Ind. 337. Iowa. State v. Eozeboom, 145 Iowa 620, 29 L. E. A. (N. S.) 37, 124 N. W. 783. Kansas. State v. Thompson, 23 Kan. 338, 33 Am. Eep. 165. Kentucky. Swann v. Com., 169 Ky. 565, 184 S. W. 868; Morrow v. Com., 157 Ky. 486, 489, 163 S. W. 452; Morse V. Com., 129 Ky. 294, 311, 111 S. W. 714. Mississippi. Davis v. State, 67 So. 662, 108 Miss. 710, 67 So. 178. Missouri. State v. 'Williams, 152 Mo. 115, 75 Am. St. Rep. 441, 53 S. W. 424. Ohio. Burke v. State, 34 Ohio St. 79; Calkins v. State, 18 Ohio St. 366, 98 Am. Dec. 121; Reed v. State, 15 Ohio 217. Rhode Island. State v. Habib, 18 R. I. 558, 30 Atl. 462. South Carolina. State v. Sowell, 85 S. C. 278, 67 S. B. 316. Washington. State v. Pittam, 32 "Wash. 137, 72 Pac. 1042. The fact may be established prima facie by showing that the company was doing business as a corporation. Miller v. People, 13 Colo. 166, 21 Pac. 1025.. Its existence may be proved by evi- dence that it has carried on business as such and is publicly and universally known by the name set out in the in- dictment. State v. Grant, 104 N. C. 913 §426] Pbivate Coepobations [CL 14 adopted by statute in some states.*^ But it has been held that when the existence of the corporation is an essential element of the crime, it cannot be proved by oral testimony but must be shown by the records as the best evidence.*® "Reputation is what is generally said of a person by the people of the community where he is known. And, when the subject of inquiry is a corporation, the same rule governs that controls in the introduction 908, 10 S. B. 554. See also State v. Turner, 119 N. C. 841, 25 S. B. 810. In such cases "corporate existence may be shown either by the record, or by evidence of persons who are able to state that the concern in question is a corporation, or by other facts or circumstances showing that it i^ a cor- poration." Morse v. Com., 129 Ky. 294, 311, 111 S. W. 714. "The best evidence, doubtless, of the existence of a corporation, would be the production of its charter, or certificate of incorporation, though secondary evidence of general reputa- tion is admissible for that purpose." Dick V. State, 107 Md, 11, 68 Atl. 286, 576. The admission of secondary evi- dence to prove an allegation that a named company i^ a corporation is harmless where such allegation is surplusage because the name used con- notes a corporation, and the corporate entity has not been put in issue. Ager V. State, 2 Ga. App. 158, 58 S. E. 374. In State v. Missio, 105 Tenn. 218, 58 S. "W. 216, which was a prosecution for receiving goods stolen from a foreign railroad company, it was held that the existence of the company might be shown by proof that it was carrying on business as a common carrier under a corporate name. In this case the court distinguishes Jones v. State, 5 Sneed (Tenn.) 346, and Owen v. State, 5 Sneed (Tenn.) 493, which were prosecutions for counterfeiting the notes of foreign banking corporations, and in which evidence of the character under consideration was held not to be sufficient, on the ground that in those cases it was necessary to prove the charters of the banks in order to show that they had power to issue notes. In Trice v. State, 2 Head (Tenn.) 591, which was a prosecution for hav- ing possession of a counterfeit bank note, it was held that parol evidence was not admissible to prove the cor- porate existence of the alleged bank, but that it was necessary to introduce the written memorandum required by the statute to be made and filed as a condition precedent to corporate ex- istence, or a certified copy thereof. In State v. Murphy, 17 B. I. 698, 16 L. E. A. 550, 24 Atl. 478, which was a prosecution for obtaining goods from a corporation by means of a forged order, it was held that evidence that certain persons were doing business under the name alleged, that this con- cern owned the goods in question, and that an act had been passed by the general assembly incorporating the said company, was insufficient to sus- tain a conviction, in the absence of any proof that any organization waa ever effected under such act. For the admissibility and sufficiency of such evidence to prove the existence of a foreign corporation, see chapter on Foreign Corporations, infra. 88 See § 440, infra. 89 Such is the ease in a prosecution of a corporate officer for making » fraudulent report or statement as to the operations, etc., of the corporation. State v. Merchant, 48 Wash. 69, 92 Pac. 890. 914 Ch. 14] Corporate Existence [§427 of evidence respecting the reputation of a natural person. ' ' '" And it follows that in order to show the existence of a corporation by repu- tation it must be shown that the company in question was generally reputed to be a corporation in the community where it is known.'^ There is a conflict of authority as to whether a witness having knowl- edge of the facts may testify directly that a particular company is a corporation.^^ § 427. — Direct testimony that a company is a corporation. There seems to be considerable conflict of authority as to whether a witness may testify directly that a particular company is a corporation. In some jurisdictions it has been held that persons familiar with the facts may so testify in civil cases,^^ and that such testimony, either in connection with other evidence,'* or standing alone,'^ is sufSeient to show the fact of incorporation ; and a number of courts have held that such evidence is admissible and sufficient in criminal prosecutions for offenses against the property of corporations,'* or for crimes com- mitted by corporations.''' 90 state V. Brown, 33 Utah 109, 93 Pac. 52. 91 State V. Brown, 33 Utah 109, 93 Pae. 52. 92 See § 427, infra. 93 J. L. Smathers & Co. v. Toxaway Hotel Co., 167 N. C. 469, 83 S. E. 844; Locke V. Leonard Silk Co., 37 Mich. 479. (It is to be noted that in this case the defendant apparently pleaded the general issue, thereby admitting that the plaintiff had capacity to sue as a corporation.) Thus testimony of the cashier that it was a corporation existing under the laws of the state of California waa admitted on the question of corporate existence. Goldberg, Bowen & Co. v. Dimick, 169 Cal. 187, 146 Pae. 672. Testimony of the president of the company that it was a Washington corporation was held admissible. Pa- cific Drug Co. V. Hamilton, 71 Wash. 469, 128 Pae. 1069. 94 J. L. Smathers & Co. v. Toxaway Hotel Co., 167 N. C. 469, 83 S. E. 844. In Goldberg, Bowen & Co. v. Dimick, 169 Cal. 187, 146 Pac. 672, the testi- mony of the plaintiff's cashier that it was a corporation, together with the fact that the notes in suit were pay- able to "G. B. & Co., Inc.," was held to be sufficient proof that it was a corporation. 95 Pacific Drug Co. v. Hamilton, 71 Wash. 469, 128 Pae. 1069. 96Eeed v. State, 15 Ohio 217; State V. Pittam, 32 Wash. 137, 72 Pae. 1042. Oral evidence by one of the com- pany's agents that it is a corporation is enough to take the case to the jury. State V. Eozeboom, 145 Iowa 620, 29 L. E. A. (N. S.) 37, 124 N. W. 783. Testimony of a member that the company is incorporated is alone suffi- cient proof of incorporation. Swann V. Com., 169 Ky. 565, 184 S. W. 868. Testimony of a witness that a bank was a corporation, and proof that the business in question was conducted under the name of the Bluff City Sav- ings Bank, is sufficient in a prosecu- tion for embezzling its funds. Davis v. State (Miss.), 67 So. 662, 108 Miss. 710, 67 So. 178. 97 Testimony of a witness that a 915 §427] Peivate Cokpoeations [Ch. 14 Other courts have held such evidence to be incompetent, both in civil ^* and criminal ^' cases. So it has been held that testimony of a witness that a company is a corporation organized under the laws of a certain state has no tendency to prove the existence of the corpora- tion by reputation, and is incompetent for that purpose.^ And also that testimony that a company did business as a corporation affords no proof of user within the meaning of a statutory provision that the legal existence of a corporation may be proven prima facie in criminal cases by proof of user.^ But if direct testimony that a company is a corporation is received without objection, it is generally held that it may be considered and will be sufficient, even in those jurisdictions where it would otherwise be incompetent.' § 428, Proof and judicial notice of special charters and general laws — Public acts. If the act of the legislature granting a special charter is a public as distinguished from a private law, no proof thereof is necessary in the courts of the state, for the courts must take railroad company is a corporation is competent. This holding is apparently based on the theory that such evidence tend^ to show that it acted and was accepted in the community as a cor- poration. Louisville & N. E. Co. v. Com., 154 Ky. 293, 157 S. W. 369. 98 In an action against certain in- dividuals as partners, their testimony that the company which they repre- sented was incorporated under the laws of another state, without produc- ing the articles of incorporation, ia insufficient to show such incorporation. Bell V. Dowdy, 13 Ky. L. Eep. 543 (abstract). 99 People V. Struble, 275 111. 162, 113 N. E. 938; People v. Burger, 259 111. 284, 102 N. E. 751. In People v. Dole, 122 Cal. 486, 68 Am. St. Eep. 50, 55 Pac. 581, it wa^ teld to be technically erroneous to per- mit a witness to testify that the com- pany in question was a corporation. But in People v. Morley, 8 Cal. App. 372, 97 Pac. 84, which was a prosecu- tion for burning insured property, it was held that the fact that the policy of insurance stated that the insurer was a corporation, and testimony of a witness that he was in the employ of the Eoyal Insurance Company, a cor- poration, were sufficient to establish its de facto character. 1 State v. Brown, 33 Utah 109, 93 Pae. 52. 2 People V. Struble, 275 111. 162, 113 N. E. 938; People v. Krittenbrink, 269 HI. 244, 109 N. E. 1005. Such a statement is a mere opinion of the witness. Nor is it a statement that the company was a corporation, since it is a matter of common knowl- edge that partnerships frequently do business "as a corporation"; that is, like a corporation, through directors and persons selected as officers and managers. People v. Struble, 275 111. 162, 113 N. E. 938. SToUifson V. People, 49 Colo. 219, 112 Pac. 794; People v. Burger, 259 111. 284, 102 N. E. 751; State v. Habib, 18 E. I. 558, 30 Atl. 462; State v. Pit- tam, 32 Wash. 137, 72 Pac. 1042; Stan- ford Land Co. v. Steidle, 28 Wash. 72, 68 Pac. 178. 916 Ch. 14] CoEPOBATE Existence [§428 judicial notice of all public laws* This is true, for example, where the legislature expressly declares the act creating the corporation to be a public one ; * or where the constitution or a general law declares that all acts of incorporation shall be deemed to be public acts ; ^ or This is equally true where the objec- tion is not made until after the tes- timony has been given, and therefore comes too late. Dick v. State, 107 Md. 11, 68 Atl. 286, 576; State v. Pittam, 32 Wash. 137, 72 Pae. 1042. 4 Alabama. City Council of Mont- gomery V. Wright, 72 Ala. 411, 47 Am. Eep. 422. Arkansas. Hammett v. Little Eock & N. E. Co., 20 Ark. 204; McKiel v. Eeal Estate Bank, 4 Ark. 592. Connecticut. National Circle, Daughters of Isabella v. Hines, 88 Conn. 676, 92 Atl. 401; General Hospi- tal Society v. New Haven Eendering Co., 79 Conn. 581, 118 Am. St. Eep. 173, 9 Ann. Cas. 168, 65 Atl. 1065. Delaware. State v. Briscoe, 6 Pen- new. 401, 67 Atl. 154. Georgia. Atlanta & W. P. E. Co. v. Atlanta, B. & A. E. Co., 124 Ga. 125, 52 S. E. 320. Illinois. McArdle v. Chicago City Ey. Co., 141 111. App. 59. Indiana. Eussell v. Branhan, 8 Blackf. 277. Maryland, State v. Greenwell, 4 Gill & J. 407; Towson v. Havre-de- Grace Bank, 6 Harr. & J. 47, 14 Am. Dee. 254. New York. Bank of Utica v. Magher, 18 Joins. 341, 345. South Carolina. Eoach v. Farmers' Mut. Ins. Ass 'n of Oconee County, 102 S. C. 478, 86 S. E. 950; Parker v. Caro- lina Sav. Bank, 53 S. C. 583, 69 Am. St. Eep. 888, 31 S. B. 673. Tennessee. State v. Missio, 105 Tenn. 218, 58 S. W. 216; Trice v. State, 2 Head 591; Williams v. Union Bank, 2 Humph. 339; Owen v. State, 5 Sneed 463. Vermont. Village of Winooski v. Gokey, 49 Vt. 282; Buell v. Warner, 33 Vt. 570; Briggs v. Whipple, 7 Vt. 15. Virginia. Hays v. Northwestern Bank of Virginia, 9 Gratt. 127; Strib- bling V. Bank of the Valley, 5 Band. 132, 138. West Virginia. Beasley v. Beckley, 28 W. Va. 81. As to the distinction between public and private acts, see Village of Winooski v. Gokey, 49 Vt. 282; Strib- bling v. Bank of the Valley, 5 Band. (Va.) 132, 138. See also Chap. 8, Bupra. That a charter of a private corpora- tion may be a public law, although not expressly declared to be so, because of the public character of its under- taking, see Hammett v. Little Eock & N. E. Co., 20 Ark. 204; McKiel v. Eeal Estate Bank, 4 Ark. 592 ; State v. Viu- cennes ITniyersity, 5 Ind. 77; Eussell v. Branham, 8 Blackf. (Ind.) 277; Tow- son V. Havre-de-Grace Bank, 6 Har. & J. (Md.) 47, 14 Am. Dee. 254. B United States. Covington Draw- bridge Co. V. Shepherd, 20 How. 227, 15 L. Ed. 374. Arkansas. Hammett v. Little Eock & N. E. Co., 20 Ark. 204. Indiana. Eel Eiver Draining Ass 'n V. Topp, 16 Ind. 242; Herod v. Eod- man, 16 Ind. 241; Brookville Ins. Co. V. Eecords, 5 Blackf. 170. Missouri. Bowie v. Kansas City, 51 Mo. 454. Vermont. Buell v. Warner, 33 Vt.- 570. 6 In some states the constitution de- clares that every statute siall be deemed public, unless otherwise de- clared in the statute itself, and in, these states all statutes not declared 917 §428] Pkivate Coepokations rCh. 14 expressly requires the courts to take judicial notice of all acts of the legislature.' A charter will also be judicially noticed as a public law, if it has been recognized in a public law, as in a law extending it, or a law extending the powers of the corporation, or the like.* The general incorporation laws now in force in the different states, authorizing the formation of corporations, are public laws which must be judicially noticed.^ to be private must be judicially noticed. In Massachusetts, a statute declares that all acts of incorporation shall be deemed public acts, and be judicially- noticed. See American Steel & Wire Co. V. Bearse, 194 Mass. 596, 80 N. E. 623; Boynton v. Middlesex Mut. Fire Ins. Co., 4 Mete. (Mass.) 212. The court will therefore take judi- cial notice of the fact that a street railway company was not organized under a special charter before the tak- ing effect of a general law authorizing the incorporation of such companies. American Steel & Wire Co. v. Bearse, 194 Mass. 596, 80 N. E. 623. In Maine there is a similar statute. State V. Webb's River Improvement Co., 97 Me. 559, 55 Atl. 495; State v. McAllister, 24 Me. 139. And so of bank charters in Georgia. Terry v. Merchants' & Planters' Bank, 66 Ga. 177; Davis v. Bank of Fullerton, 31 Ga. 69. In Rhode Island, every act of in- corporation is deemed to be a public act, and hence the court will take judicial notice of the provisions of the same for the purposes of construction. Foley v. Bay, 27 E. I. 127, 61 Atl. 50; Gorham Mfg. Co. v. New York, N. H. & H. E. Co., 27 E. I. 35, 60 Atl. 638. 7 There is such a statute in Ken- tucky. Swann v. Com., 169 Ky. 565, 184 S. W. 868; Louisville & N. E. Co. V. Com., 154 Ky. 293, 157 S. W. 369; Madisonville, H. & E. E. Co. v. Com., 140 Ky. 255, 130 S. W. 1084; Com. v. Kinniconick & F. S. E. Co., 31 Ky. L. Eep. 859, 104 S. W. 290; Com. v. New- port, L. & A. Turnpike Co., 30 Ky. L. Eep. 1235, 100 S. W. 871; Chicago, St. L. & N. O. E. Co. V. Liebel, 27 Ky. L. Eep. 716, 86 S. W. 549. In Michigan there is also such a statute. Chapman v. Colby, 47 Mich. 46, 10 N. W. 74; People v. De Mill, 15 Mich. 164, 93 Am. Dec. 179; People v. Eiver Eaisin & L. E. E. Co., 12 Mich. 389, 86 Am. Dee. 64. S Young V. Bank of Alexandria, 4 Cranch (U. S.) 384, 388, 2 L. Ed. 655; Beaty v. Knowler, 4 Pet. (IT. S.) 152, 167, 7 L. Ed. 813; Bank of XJtica v. Magher, 18 Johns. (N. Y.) 341; Strib- bling V. Bank of the Valley, 5 Band. (Va.) 132, 139. Where an act to amend and renew the charter of a defendant is a public act, and its validity is not in question, the court will take judicial notice of ■ the defendant's corporate existence, and that fact need not be alleged in the complaint. Parker v. Carolina Sav. Bank, 53 S. C. 583, 69 Am. St. Eep. 888, 31 S. E. 673. 9 Kelly V. Alabama & C. E. Co., 58 Ala. 489; Danville & W. L. Plank- Road Co. v. State, 16 Ind. 456; Ewing V. Eobeson, 15 Ind. 26; Methodist Episcopal Union Church v. Pickett, 19 N. Y. 482; Dutchess Cotton Manu- factory v. Davis, 14 Johns. (N. Y.) 238, 245, 7 Am. Dec. 459; Trice v. State, 2 Head (Tenn.) 591. The court will take judicial notice that an incorporated trust company under the laws of the state is such only as is provided for in the general (Statutes of the state relative to the incorporation of such companies. Wy- 918 Ch. 14] GoBPOBATE Existence [§428 State courts will take judicial notice of the federal statutes relative to the incorporation of national banks/" and of special acts of congress creating other corporations.^^ If the corporation is formed under a special charter, of which the court is required to take judicial notice, the court is thus informed of its actual corporate existence.^* So the federal courts will take judi-/ cial notice that a particular company is a federal corporation.^^ As a rule this is not true of corporations formed under general laws. Under such circumstances the court merely takes notice of the law, and not of the steps taken by the corporators to comply with it.^* So it has been held that judicial notice will not be taken of articles or certificates coff V. Epworth Hotel Construction & Vermont. Briggs v. "Whipple, 7 Vt. Eeal Estate Co., 146 Mo. App. 554, 125 S. W. 550. 10 First Nat. Bank of Iowa, City v. Walker, 27 Idaho 199, 148 Pac. 46; Yakima Nat. Bank v. Knipe, 6 Wash. 348, 33 Pac. 834, followed in National Bank of Commerce v. Galland, 14 Wash. 502, 45 Pac. 35. The court will take judicial notice that a national bank is chartered for twenty years. Yankton Nat. Bank v. Benson, 33 S. D. 399, Ann. Cas. 1916 B 1011, 146 N. W. 582. 11 So a state court will take judicial notice of the act of congress creating the Northern Paeifle Bailroad Com- pany. Northern Pac. E. Co. v. Wade- kamper, 70 Wash. 392, 126 Pac. 909. 12 United States. United States v. Williams, 4 Bias. 302, Fed. Cas. No. 16,706. Georgia. Davis v. Bank of Fulton, 31 Ga. 69. Kentucky. Swann v. Com., 169 Ky. 565, 184 S. W. 868; Louisville & N. B. Co. V. Com., 154 Ky. 293, 157 S. W. 369; Madisonville, H. & E. E. Co. v. Com., 140 Ky. 255, 130 S. W. 1084; Com. V. Kinniconick & F. S. E. Co., 31 Ky. L. Eep. 859, 104 S. W. 290. IMlchigan. People v. De Mill, 15 Mich. 164, 93 Am. Dec. 179. South Carolina. Parker v. Carolina Sav. Bank, 53 S. C. 583, 69 Am. St. Eep. 888, 31 S. E. 673. 15. In State v. Briscoe, 6 Pennew. (Del.) 401, 67 Atl. 154, a prosecution for ob- taining money from a corporation by false pretenses, it was held that since the complaining company was a do- mestic corporation created by a public act of the legislature, it was not neces- sary for the ^tate to prove that it was a corporation. 13 In determining questions as to their jurisdiction, they will take judi- cial notice of the fact that a party to a suit is a federal corporation, although that fact is not alleged, or though it is erroneously alleged that it is a state corporation. In re Dunn, 212 II. S. 374, 53 L. Ed. 558; Texas & P. E. Co. v. Cody, 166 U. S. 606, 41 L. Ed. 1132; Hefeelflnger v. Choctaw, O. & G. E. Co., 140 Fed. 75. 14 People V. De Mill, 15 Mich. 164, 93 Am. Dec. 179; Trice v. State, 2 Head (Tenn.) 591. In a criminal prosecution for keep- ing a bucket shop for the pretended buying or selling of the securities of any corporation, the court will not take judicial notice that a railroad company, the shares of which are shown to have been traded in at the alleged bucket shop, is a corporation. People V. Wirsching, 239 HI. 522, 88 N. E. 169, rev'g 145 HI. App. 121. An appellate court will not take 919 428] Pbivate Cobpobations [Ch. 14 of incorporation filed in the office of the secretary of state. ^^ On the other hand, it has been held that a federal court will take judicial notice of the existence of a particular national bank.^^ And it has also been held that a state court will judicially notice charters granted by the secretaiy of state pursuant to a general law.^' "Where a corporation might have been formed under any one of several general laws enacted from time to time, it is not the duty nor is it in the power of the court to judicially know under which of them it was in fact created, nor whether, if created under one, it has subse- quently accepted the provisions of another, if it might have done so.^* A certified list of domestic corporations required to be published with the session laws, and which is placed on the same status as such laws, will be judicially noticed.^^ § 429. — Private and foreign acts. Except where there is a statu- tory provision requiring them to do so,^" the courts do not teike judicial notice of private acts of the legislature, and therefore, if a corpora- tion is created by a private act, its charter must be proved by intro- judicial notice of the fact that there was in existence a corporation of a, particular name at a time when the complaint was amended by correcting the name of the defendant corpora- tion, where its existence is not shown by the record. King Land & Improve- ment Co. v. Bowen, 7 Ala. App. 462, 61 So. 22. IB Louisville & N. E. Co. v. Com., 154 Ky. 293, 157 S. W. 369; Madison- ville, H. & E. E. Co. v. Com., 140 Ky. 255, 130 S. "W. 1084. ' ' We can take judicial notice of the statute authorizing * * * banks to be established, but we cannot take judicial notice of the books of the county register, or of private papers lodged in the oflce of the secretary of state, and only from one of these sources can it be judicially known that such a corporation legally exists." Trice v. State, 2 Head (Tenn.) 591. But see Dutchess Cotton Manufac- .tory V. Davis, 14 Johns. (N. T.) 238, 7 Am. Dec. 459. 18 United States v. Williams, 4 Biss. 302, Fed. Cas. No. 16,706. 17 Atlanta & W. P. E. Co. v. Atlanta, B. & A. E. Co., 124 Ga. 125, 52 S. E. 320. A corporation bringing suit need not allege that it is a corporation where the fact of its incorporation is a matter of judicial knowledge. Eden- field v. Bank Of Millen, 7 Ga. App. 645, 67 S. E. 896. 18 Danville & W. L. Plank-Eoad Co. V. State, 16 Ind. 456. 19 Coal Creek Consol. Coal Co. v. East Tennessee Iron & Coal Co., 105 Tenn. 563, 59 S. W. 634. 20 There is such a statute in Ken- tucky. Collier v. Baptist Education Society, 8 B. Mon. (Ky.) 68. Under the statutes of Oregon, pri- vate acts of the legislature are re- quired to be judicially noticed, and hence where a university is incorpo- rated under a special act, its incorpora- tion need not be proved. Hill v. Tualatin Academy & Pacific Univer- sity, 61 Ore. 190, 121 Pac. 901. 920 'Ch. 14] CoBPOBATE Existence [§429 ducing competent evidence of the aet.^^ Nor, unless required by statute to do so,^^ do the courts of a state take judicial notice of foreign laws, and the laws of a sister state are foreign, within this rule. It is necessary, therefore, in order to prove the charter of a foreign cor- poration, to prove the act by or under which it was created.*' Strictly, such an act must be proved by the production of a copy of the act, 81 Alabama. Kelly v. Alabama & C. E. Co., 58 Ala. 489; Perry v. New Orleans, M. & C. E. Co., 55 Ala. 413, 28 Am. Eep. 740; City Council of Montgomery v. Montgomery & W. Plauk-Eoad Co., 31 Ala. 76. Ooimecticut. Goshen & S. Turnpike Co. V. Sears, 7 Conn. 86. Indiana. Ohio & I. E. Co. v. Bidge, 5 Blaekf. 78. Kansas. Atchison, T. & S. F. Ey. Co. V. Blackshire, 10 Kan. 477. Louisiana. Mandere v. Bonsignore, 28 La. Ann. 415. Maryland. Agnew v. Bank of Get- tysburg, 2 Har. & G. 478. Blissouri. Bailey v. Lincoln Acad- emy, 12 Mo. 174; Kirby v. Wabash Ey. Co., 85 Mo. App. 345. New Hampshire. Haven v. New Hampshire Insane Asylum, 13 N. H. 532, 38 Am. Dec. 512. New Jersey. Warren v. Abbett, 65 N. J. L. 99, 46 Atl. 575; Perdicaria y. Trenton City Bridge Co., 29 N. J. L. 367. New York. Methodist Episcopal Union Church v. Pickett, 19 N. Y. 482, afe'g 23 Barb. 436; Williams v. Sher- man, 7 Wend. 109. North Carolina. Carrow v. Wash- ington Toll Bridge Co., 61 N. C. 118. Ohio. Pittsburgh, C. & St. L. E. Co. V. Moore, 33 Ohio St. 384, 31 Am. Eep. 543. Pennsylvaiiia. Timlow v. Philadel- phia & E. E. Co., 99 Pa. St. 284; First Nat. Bank of Clarion v. Gruber, 87 Pa. St. 468, 30 Am. Eep. 378. Texas. Holloway v. Memphis, E. P & P. E. Co., 23 Tez. 465, 467, 76 Am. Pec. 68. Vermont. Western U. Tel. Co. v. Burlington Traction Co., — Vt. — , 99 Atl. 4; Village of Winooski v. Gokey, 49 Vt. 282; Briggs v. Whipple, 7 Vt. 15. In Commercial Trust Co. of New Jersey v. Hudson County Board of Taxation, 86 N. J. L. 424, 92 Atl. 263, afe'd — N. J. L. — , 99 Atl. 799, it is said that ' ' the court is not required to take judicial notice without proof of the provisions of charters of private corporations." See sJso Jersey City V. Jersey City & B. E. Co., 70 N. J. L. 360, 57 Atl. 445, where it is held that the court cannot notice the provisions of such a charter on demurrer unless they appear on the face of the plead- ing. 22 In West Virginia there is such a statute. Singer Mfg. Co. v, Bennett, 28 W. ya.,16,,22. In Miller v. Johnston, 71 Ark. 174, 72 S. W. 371, it is held that the Arkansas statute requiring the courts of that state to take judicial notice of the laws of other states does not apply to the private statutes of those states. 23 Alabama. Savage v. Eussell, 84 Ala. 103, 4 So. 235; Johnson v. State, 73 Ala. 483. Arkansas. Hammett v. Little Eock & N. E. Co., 20 Ark. 204, 207; Gaines V. Bank of Mississippi, 12 Ark. 769. Bliuois. Cozzens v. Chicago Hy- draulic Press Brick Cp., 166 III. 213, 46 N. E. 788, afE'g 64 HI. App. 569; Hahnemannian Life Ins. Co. v. Beebe, 48 111. 87, 95 Am. Dee. 519; Interna- tional Text Book Co. v. Galligan, 185 111. App. 80; Dean & Son v. W. B. Conkey Co., 180 111. App. 162. 921 §429] Pbivate Cobpoeations [Ch. 14 authenticated as required by the act of congress relating to the authen- tication of records to be used in the courts of other states, or by the production of a sworn copy.** But, as a rule, printed statutes of Iowa. Petty v. Hayden, 115 Iowa under which the plaintiff claims to be 212, 88 N. W. 339. Louisiana. Cumberland Telephone & Telegraph Co. v. St. Louis, I. M. & S. E. Co., 117 La. 199, 41 So. 492. Maryland. Chesapeake & O. Canal Co. V. Baltimore & O. E. Co., 4 Gill & J. 1, 63. Massachusetts. Portsmouth Livery Co. V. Watson, 10 Mass. 91. Michigan. Chapman v. Colby Bros. & Co., 47 Mich. 46, 10 N. W. 74. Missouri. Eialto Co. v. Miner, 183 Mo. App. 119, 166 S. W. 629; Plors- heim & Co. v. Fry, 109 Mo. App. 487, 84 S. W. 1023. Montana. Milwaukee Gold Extrac- tion Co. V. Gordon, 37 Mont. 209, 95 Pae. 995. New Hampshire. State v. Carr, 5 N. H. 367. New Jersey. Stone v. State, 20 N. J. L. 401. New York. United States Bank v. Stearns, 15 Wend. 314. Ohio. Lewis v. Bank of Kentucky, 12 Ohio 132, 40 Am. Dec. 469. Oregon. Law Guarantee & Trust Society v. Hogue, 37 Ore. 544, 63 Pac. 690; State v. Savage, 36 Ore. 191, 61 Pac. 1128, 60 Pac. 610. Tennessee. Owen v. State, 5 Sneed 493. Texas. Holloway v. Memphis, E. P. & P. E. Co., 23 Tex. 465, 407, 76 Am. Dec. 68. Vermont. See Western TJ. Tel. Co. V. Burlington Traction Co., — Vt. — , 99 Atl. 4. In Arkansas this is true where the act of incorporation is a private statute. Miller v. Johnston, 71 Ark. 174, 72 S. W. 371. The appellate court in condemnation proceedings will not take judicial no- tice of the statutes of a foreign state incorporated, though such statutes were proved in another condemnation proceeding instituted in another court of first instance by the same ],laintiflf against a different defendant. Cum- berland Telephone & Telegraph Co. v. St. Louis, L M. & S. E. Co., 117 La. 199, 41 So. 492. It is necessary to plead and prove a statute authorizing the formation of such a corporation. International Text Book Co. v. Galligan, 185 111. App. 80; Eialto Co. v. Miner, 183 Mo. App. 119, 166 S. W. 629. "There must be evidence to show the laws of the foreign state author- izing the organization of guch a cor- poration, providing the mode of its incorporation and the proper custo- dians of the paper offered in evi- dence." Milwaukee Gold Extraction Co. v. Gordon, 37 Mont. 209, 95 Pac. 995. That the court will not take judicial notice of foreign laws, but that they must be proven as facts, see § 437, infra. 24 Stone V. State, 20 N. J. L. 401. See also United States v. Johns, 4 Dall. (U. S.) 412, 1 Wash. C. C. 363, Fed. Cas. No. 15,481; State v. Carr, 5 N. H. 367, 369; United States Bank V. Stearns, 15 Wend. (N. Y.) 314. A copy of an act of incorporation is duly authenticated by affixing thereto the seal of the state, without other proof. United States v. Johns, 4 Dall. (U. S.) 412, 1 Wash. C. C. 363, Fed. Cas. No. 15,481. In Wellersburg & W. N. Plank-Eoad Co. V. Young, 12 Md. 476, letters pat- ent from the governor of Pennsyl- vania, reciting the passage of an act creating a corporation, organization thereunder, and assumption of the 922 Ch. 14] CoBPOEATE Existence t§429 other states *^ or of foreign countries ^® are now held to be admissible for that purpose, if shown to have been published under authority ot such state or country. And it has been held that they may be identi- fied as authoritative editions by persons who are sufSeiently familia?? with them.'^'' Where a special act of incorporation passed by the legislature of another state is proved by producing a duly authentic' cated copy thereof, it is not necessary to show that the constitution of that state permits special acts of incorporation, even though such an act would be unconstitutional in the state of the forum. Under such circumstances it will not be presumed that the constitution of the powers conferred, was held sufficient evidence of incorporation to enable the corporation to sue a subscriber in Maryland. See also Hudson v. Green Hill Seminary Corporation, 113 HI. 618. See J. P. Bledsoe & Son v. Keystone Steel & Wire Co., 41 Okla. 586, 139 Pac. 257, where the foreign law was proved by introducing a certified copy thereof. 25 Johnson v. State, 73 Ala. 483; Miller v. Johnston, 71 Ark. 174, 73 S. W. 371; Hudson v. Green Hill Semi- nary Corporation, 113 HI. 618; Singer Mfg. Co. V. Bennett, 28 "W. Va. 16, 22. In Missouri, the statute provides for the introduction and receipt in evidence of the printed statutes and decisions of other states. Rialto Co. V. Miner, 183 Mo. App. 119, 166 S. W. 629. By statute in Oregon, books printed and published under the authority qf a sister state, and purporting to con- tain the statutes of such state, are admissible as evidence of such law. State v. Savage, 36 Ore. 191, 61 Pac. 1128, 60 Pac. 610. See also Law Guarantee & Trust Society v. Hogue, 37 Ore. 544, 63 Pac. 690. To render a volume of printed stat- utes admissible, it must purport upon its face to have been printed by the authority of the state. A mere decla- ration on the title page that it was "published by authority," without indicating by what authority, is not enough. Johnson v. State, 73 Ala. 483. The statute must also have been properly pleaded. Bialto Co. v. Miner, 183 Mo. App. 119, 166 S. W. 629. 26 Dean & Son v. W. B. Conkey Co., 180 111. App. 162; Law Guarantee & Trust Society v. Hogue, 37 Ore. 544, 63 Pac. 690. 27 Copies of the statutes of England are admissible where they are identi- fied by the deposition of an English attorney, who testifies that they were "issued by authority, being printed by Her Majesty's printer, and are as such by law receivable in evidence without further proof. ' ' Nashua Sav. Bank v. Anglo-American Land, Mort- gage & Agency Co., 189 U. S. 221, 47 L. Ed. 782. Books purporting to contain the corporation acts of England may be admitted where they are identified as authoritative and accepted editions of such statutes by an English chartered public accountant, who testifies that he is familiar with the English cor- poration laws and with the authorita- tive editions of the English statutes containing them. Dean & Son v. W. B. Conkey Co., 180 111. App. 162. A copy is admissible when it is proved to be a true copy by one who has compared it with the original, and it is not necessary that it be authenticated under such cireum- 923 429] Peivatk Coepokations [Ch. 14 foreign state is the same as that of the forum and hence that the act is unconstitutional, but rather that it is constitutional and is a valid and existing law.^* The federal courts are governed by the practice in the courts of the state in which they are sitting in regard to the proof of statutes of another state or country.^^ § 430. Acceptance of charter. It is not necessary that the accept- ance of a charter by the corporators shall be proved by or appear upon the books or records of the corporation.^® It may be so proved if it appears thereon, and they are properly identified and authenticated ; ^^ and it has been held that, if it does so appear, the books or records are the best evidence of the fact, and they must be produced, if it is within the power of the party to do so.'^ But if he cannot do so, or if the fact of acceptance does not appear thereon, it may be proved by parol evidence of a formal vote of acceptance, or by evidence of the exercise of corporate powers under the charter, from which an acceptance may be inferred.^' stances. Anglo-American Land, Mort- gage & Agency Co. v. Dyer, 181 Maas. 593, 92 Am. St. Eep. 437, 64 N. E. 416. 28 Fidelity Insurance, Trust & Safe Deposit Co. V. Nelson, 30 Wash. 340, 70 Pac. 961. 29 Nashua Sav. Bank v. Anglo- American Land, Mortgage & Agency Co., 189 U. S. 221, 47 L. Ed. 782. 30 See § 246, supra. 31 Golder v. Bressler, 105 HI. 419; Dows V. Naper, 91 111. 44; Hudson v. Carman, 41 Me. 84; CoiSu v. Collins, 17 Me. 440; Lancaster Sav. Bank v. Elwell, 17 Wash. 446, 49 Pac. 1070. 32 Hudson V. Carman, 41 Me. 84; Coffin V. Collins, 17 Me. 440. 33 United States. Bank of United States V. Dandridge, 12 Wheat. 64, 6 L. Ed. 552; Dorsey Harvester Be- volving Eake Co. v. Mar^h, 6 Pish. Pat. Cas. 387, Fed. Cas. No. 4,014. Alabama. Talladega Ins. Co. v. Landers, 43 Ala. 115. Delaware. Logan v. McAllister, 2 Del. Ch. 176. Kentucky. Sinking Fund Com 'rs v. Northern Bank, 1 Mete. 174. Maryland. Hammond v. Straus, 53 Md. 1. Massachusetts. Society of Middle- sex Husbandmen & Manufacturers v. Davis, 3 Mete. 133. Missouri. Sumrall v. Sun Mut. Ins. Co., 40 Mo. 27. New Hampshire. Woods v. Banks, 14 N. H. 101; Ameriscoggin Bridge V. Bragg, 11 N. H. 102. Ohio. Owen v. Purdy, 12 Ohio St. 73. Ehode Island. State v. Habib, 18 E. I. 558, 30 Atl. 462. South Carolina. McKay v. Beard, 20 S. C. 156. Tennessee. Gleaves v. Brick Church Turnpike Co., 1 Sneed 491. And the question whether there has been an acceptance or not is a ques- tion of fact for the jury. Hammond V. Straus, 53 Md. 1. In Newton v. Carbery, 5 Cranch C. C. 632, Fed. Cas. No. 10,190, it was held that a charter granted to certain persons therein named was to be pre- sumed, prima facie, to have been granted at their instance, and to have 924 Ch. 14] CoEPOEATE Existence [§431 Parol evidence or the corporate books and records are in like manner admissible to show the acceptance by the members of a corporation, by vote or otherwise, of an act amending its charter, unless there is some requirement in the charter or amendatory act excluding such evi- dence.'* In the absence of evidence to the contrary, the courts will presume acceptance of a charter, without any evidence at all of accept- ance, if the chai*ter is beneficial to the corporators.^' § 431. Organization of corporation and performance of conditions precedent — Corporate books and records. Unless other evidence is required by the statute, the records and books of a corporation, when properly identified and authenticated, but not otherwise,'^ are compe- been accepted by them, but that such presumption was rebutted by evidence that no proceedings were ever had under the charter, although seven years had elapsed since its date. "It is not necessary, even when the charter is granted by special act of the legislature, to prove such ac- ceptance by a formal vote of the cor- porators; on the contrary, it may be inferred from the exercise of cor- porate acts by them under the charter." Glymont Improvement & Excursion Co. v. Toler, 80 Md. 278, 289, 30 Atl. 651. Acceptance may be shown either by the books or by user. Acceptance is sufficiently shown by the purchase and acceptance of the note and mortgage sued on and the bringing of the ac- tion thereon. Lancaster Sav. Bank v. Elwell, 17 Wash. 446, 49 Pac. 1070. Where the charter prescribes no mode or time of acceptance, proof of acceptance may be inferred from use of corporate powers under the charter. Boatmen's Bank v. Gillespie, 209 Mo. 217, 108 S. W. 74. "According to the authorities, it requires stronger proof of an ac- ceptance when the corporation is cre- ated by a special act of the legislature than when brought into being under the general law * * *. " Boat- men's Bank v. Gillespie, 209 Mo. 217, 108 8. W. 74. That organization under the char- ter or the exercise of the powers conferred by it may constitute an acceptance, see § 246, supra. 34 City of Covington v. Covington & C. Bridge Co., 10 Bush (Ky.) 69. And see the cases cited in the pre- ceding notes and also § 415, supra. 35 Maine. Bangor, O. & M. E. Co. v. Smith, 47 Me. 34. Massachusetts. Proprietors of Charles Eiver Bridge v. Proprietors of Warren Bridge, 7 Pick. 344. New York. Astor v. New York Ar- cade Ey. Co., 48 Hun 562, 568, 1 N. Y. Supp. 174, aff'd 113 N. Y. 93, 20 N. E. 594, 2 L. E. A. 789. North Carolina. Taylor v. New- berue Com'rp, 2 Jones Eq. 141, 146, 64 Am. Dec. 566. Texas. City of Antonio v. Jones, 28 Tex. 19. The presumption is that the corpo- ration is created at the instance and on the request of the parties to be benefited thereby, and consequently that the charter has been accepted by them, and hence if they are found exercising the privileges granted it will be almost conclusive evidence of the fact of acceptance. Talladega Ins. Co. V. Landers, 43 Ala. 115, 136. See also § 246, supra. 36 Highland Turnpike Co. v. Mc- Kean, 10 Johns. (N. Y.) 154, 6 Am, 925 §431] Pkivate Cobpokations [Ch. 14 tent evidence, prima facie, to prove the organization of the corpora- tion, and performance of conditions precedent.*'' The minutes of the meetings of corporators for the purpose of organizing a corporation are prima facie evidence of the proceedings at such meeting.** § 432. — Articles, certificates, letters patent, etc. The organiza- tion and existence of a corporation organized under a general law may be proved, prima facie, by producing the original articles or memoran- dum of association or certificate of incorporation, according to the Dec. 324; Glenn v. Orr, 96 N. C. 413, 2 S. E. 538. 37 United States. Glenn v; Liggett, 47 Fed. 472. Alaliama. Semple v. Glenn, 91 Ala. 245, 24 Am. St. Eep. 894, 9 So. 265, 6 So. 46; Duke v. Cahawba Nav. Co., 10 Ala. 82, 44 Am. Dec. 472. Connecticut. Lane v. Brainerd, 30 Conn. 565. Illinois. McCoy v. World's Colum- bian Exposition, 186 111. 356, 78 Am. St. Rep. 288, 57 N. E. 1043, aSE'g 87 111. App. 605. See Culver v. Third Nat. Bank of CMcago, 64 111. 528. Indiana. Vawter v. Franklin Col- lege, 53 Ind. 88. Maine. Hudson v. Carman, 41 Me. 84; Coffin v. Collins, 17 Me. 440. Michigan. People v. Oakland County Bank, 1 Doug. 282. Missouri. Foster v. White Cloud City Co., 32 Mo. 505. New York. Wood v. Jefferson County Bank, 9 Cow. 194; McFar- lan V. Triton Ins. Co., 4 Denio 392; Highland Turnpike Co. v. MeKean, 10 Johns. 154, 6 Am. Dec. 324. North CaroUniU Glenn v. Orr, 96 N. C. 413, 2 S. E. 538; Buncombe Turnpike Co. v. McCarson, 18 N. C. 306. Eeyuolds v. Myers, 51 Vermont. Vt. 444. Virginia. Min. Co., 7 116. Crump V. United States Gratt. 352, 56 Am. Dec. Washington. State v. Superior Court Clarke Co., 44 Wash. 108, 87 Pac. 40. "The general rule is (and it is a rule of evidence essential to public •conveniences) that corporation books are evidence of the proceedings of the corporation, but then it must ap- pear that they are the corporation books, and that they have been kept as such, and the entries made by the proper officer, or some other person in his necessary absence." Highland Turnpike Co. v. McKean, 10 Johns. (N. Y.) 154, 6 Am. Dec. 324.. As to the admissibility and suffi- ciency of corporate books and records to show compliance with conditions relative to subscriptions to stock and payment of a part of the capital, see § 432, infra. As to the admissibility and suffi- ciency of corporate books and records, see generally Chap. 45, infra. 38 Illinois. Eyder v. Alton & S. B. Co., 13 111. 516. Indiana. Vawter v. Franklin Col- lege, 53 Ind. 88. Iowa. Sweney v. Taleott, 85 Iowa 103, 52 N. W. 106. North Carolina. Glenn v. Orr, 96 N. C. 413, 2 S. E. 538. Virginia. Crump v. United States Min. Co., 7 Gratt. 352, 56 Am. Dee. 116. 926 Ch. 14] CoKPOBATE Existence [§432 particular statute, filed or recorded ia the office of the secretary of state, or other office, as required by the statute, or by a duly certified copy thereof, if the original cannot be produced, — as where it remains in the office, or is in the p Dssession of the corporation, and it has failed to produce it on notice to do so.^^ The original charter duly certified 39 California. Fresno Canal & Irri- gation Co. V. Warner, 72 Cal. 379, 14 Pac. 37; Spring Valley Water Works V. San Francisco, 22 Cal. 434. Colorado. Eeno v. Beno & Juchem Ditch Co., 51 Colo. 588, 119 Pae. 473. District of Columbia. Fields v. United States, 27 App. Cas. 433, cer- tiorari denied 205 U. S. 292, 51 L. Ed. 807. Georgia. Hall v. Carey, 5 Ga. 239; Collins V. Armour Fertilizer Works, — Ga. App. — , 89 S. E. 1054. Illinois. McCoy v. World's Colum- bian Exposition, 186 111. 356, 78 Am. St. Rep. 288, 57 N. E. 1043, afE'g 87 111. App. 605; Jewell v. Rock River Paper Co., 101 111. 57; Fortin v. United States Wind Engine & Pump Co., 48 111. 451, 95 Am. Dec. 560; Smith V. Mayfield, 60 111. App. 266, aff'd 163 111. 447. Indiana. Washer v. Allensville, C. S. & v. Turnpike Co., 81 Ind. 78; Walker v. Shelbyville & E. Turnpike Co., 80 Ind. 452; Heaston v. Cincin- nati & Ft. W. R. Co., 16 Ind. 275, 79 Am. Dec. 430. Maryland. Laflin & Rand Powder Co. V. Sinsheiraer, 46 Md. 315, 24 Am. Rep. 522. Massachusetts. Chamberlain v. Huguenot Mfg. Co., 118 Mass. 532. Missouri. Thomas v. Walnut Land & Coal Co., 43 Mo. App. 653. South Dakota, Dowagiac Mfg. Co. V. Higinbotham, 15 S. D. 547, 91 N. W. 330. Wyoming. Heeht v. Acme Coal Co., 113 Pac. 786. The articles of incorporation with the filing marks thereon are evidence of the proper filing of such articles and of the due incorporation of a pur- ported corporation. Sierra Land ft Cattle Co. v: Bricker, 3 Cal. App. 190, 85 Pae. 665. The incorporation of the plaintiff in an action is sufSciently proved where it introduces in evidence a properly certified copy of its charter, which is regular on its face, and shows a compliance with the statutory require- ments. Calor Oil & Gas Co. v. Fran- zell, 33 Ky. L. Rep. 98, 109 S. W. 328. A copy of the articles which the law requires to be retained in the possession of the corporation, oral proof that the other copies were filed as required by statute, a certificate of the secretary of state showing that the articles had been filed in hU of- fice, and his receipt showing payment of the statutory license and fees, are sufficient prima facie proof of the existence of the corporation. State v. Superior Court Clallam Co., 62 Wash. 612, 114 Pac. 444. In a criminal prosecution of a cor- poration, its charter or articles may be shown to establish that it is a cor- poration. Standard Oil Co. v. Com., 122 Ky. 440, 29 Ky. L. Rep. 5, 91 S. W. 1128. A contention that a deed to a pur- ported corporation is inadmissible for the reason that the grantee has not been shown to be a corporation is un- tenable, where a duly certified copy of its articles was admitted in evi- dence, from which it appears that such a company was incorporated, had complied with the statute in reference thereto, had accepted its articles of ih'corporation, and had organized and transacted business thereunder. 927 §432] Private Cokpoeations [Ch. 14 is the highest evidence of incorporation.*" Where the copies are not made competent evidence hy statute, the originals are the best evi- dence.*^ And the originals are not rendered inadmissible because the statute provides for the admission of certified copies.** Letters patent of incorporation, apparently issued by authority and under seal of the state, are prima facie proof of due incorporation.*^ Thrmas v. Wiloox, 18 S. D. 625, 101 A' W. 1072. The delivery of articles of associa- tion to the officer by whom they are required to be filed may be proved by other evidence than his indorse- ment. Johnson v. Crawfordsville, ¥. K. & Ft. "W. E. Co., 11 Ind. 280. The articles will not be excluded be- cause they do not bear a revenue stamp, unless it appears that the fail- ure to af&x the stamp was with intent to defraud the revenue. State v. Glu- cose Sugar Eefining Co., 117 Iowa 524, 91 N. "W. 794. 40Sumpter Tobacco Warehouse Co. V. Phoenix Assur. Co., 76 S. C. 76, 10 L. E. A. (N. S.) 736, 121 Am. St. Eep. 941, 11 Ann. Cas. 780, 56 S. E. 654. 41 Evans v. Southern Turnpike Co., 18 Ind. 101. As to such statutes, see § 440, infra. Certified copies of certificates filed in compliance with the law in the office of the secretary of state, or other office, on the organization of a cor- poration, in connection with proof of corporate acts, are competent evidence to prove organization of the corpora- tion, in an action against it, after notice to it to produce its book of records, and its failure to do so. Dooley v. Cheshire Glass Co., 15 Gray (Mass.) 494. When a corporation refuses, on no- tice, to produce the certificate of its organization, office copies of the same are admiseible. Chamberlain v. Hug- uenot Mfg. Co., 118 Mass. 532. In Jackson v. Leggett, 7 Wend. (N. T.) 377, it was held that the record of a certificate of incorporation was not evidence of incorporation, where nonproduction of the certificate itself was not accounted for. In an action by a turnpike company, it was held that the appointment of inspectors by the governor, and the certificate of the inspectors that the road was completed, and that gates were erected, was not sufficient evi- dence of corporate existence. Bill v. Fourth Great Western Turnpike Co., 14 Johns. (N. Y.) 416. A certificate of a particular officer or judge that the provisions of an incorporation law have been complied with is no evidence of that fact, if the statute gives him no authority to determine the question. Boyee v. Towsontown Station of M. E. Church, 46 Md. 359. In many states, statutes make a copy of a certificate, duly certified, primary evidence. See § 440, infra. Where the statute does not provide for the recording of the charters of consolidated corporations, and pro- vides for the admission in evidence of certified copies of records, a certified copy of the charter of a consolidated corporation is inadmissible unless the corporation has faileJ to produce the original on notice. Montgomery v. Seaboard Air Line Ey., 73 S. C. 503, 53 S. E. 987. 42 Sumpter Tobacco Warehouse Co. V. Phoenix Assur. Co., 76 S. C. 76, 10 L. E. A. (N. S.) 736, 121 Am. St. Rep. 941, 11 Ann. Cas. 780, 56 S E. 654. 43 Dorsey Harvester Eevolving Eake Co. V. Marsh, 6 Fish. Pat. Cas, 387, Fed. Cas. No. 4,014. 928 Ch. 14] CoBPOBATE Existence [§ 435 A charter granted to a corporation under a certain name does not prove or tend to prove the corporate existence of an association having a different name, where the two names are not idem sonans.** § 433. — National banks. A certifieart« of the comptroller of the currency that an association has complied with the act of congress authorizing the incorporation of national banks, and that it is author- ized to do business, and proof that it has in fact been doing business as a national bank, is prima facie proof of its corporate existence.** And such a certificate is generally held to be conclusive evidence of all facts which he is required to ascertain before making it.*® §434. — Confinuatory act. An act of the legislature ratifying and confirming the organization of a corporation originally made under an act of incorporation or a general law, and expressly declar- ing it to be a legal corporation, is competent and sufficient evidence of its corporate existence.*'' The same is true of an act impliedly ratifying the organization of a corporation by recognizing it as a legally existing body.*' §435. — Affidavits; parol evidence. Organization of a corpora- tion cannot be proved by an ex parte affidavit.*' Nor is it competent, unless there is no better evidence available, to prove the organization and existence of a corporation by the testimony of persons claiming to have organized it, that they complied with the law and received a charter.^* Parol evidence is admissible, however, when the better evi- 44 Spreyne v. Garfield Lodge, 117 4« See | 438, infra. 111. App. 253. 47 West v. State, 168 Ala. 1, 53 So. 45 Mix V. Bloomington Nat. Bank, 277; Boykin v. State, 96 Ala. 16, 11 91 111. 20, 33 Am. Kep. 44. So. 66; Hudson v. Green Hill Semi- And see Merchants' Nat. Bank of nary Corporation, 113 111. 618. Bangor v. Glendon Co., 120 Mass. 97; That irregularities and defects in Tapley v. Martin,, 116 Mass. 275; the proceedings to incorporate are Washington County Nat. Bank v. Lee, cured by such an act, see § 190, supra. 112 Mass. 521; First Nat. Bank of 48 Williams v. Union Bank 2 Memphis v. Kidd, 20 Minn. 234; Mer- Humph. (Tenn.) 339. chants' Exch. Nat. Bank of Memphis That irregularities or defects in the V. Cardozo, 3 Jones & S. (N. Y.) 162. proceedings to incorporate are cured The certificate is competent evi- by such an act, see § 190, supra, dence tending to show the incorpo- 49 Bowyer 's Adm 'r v. Giles P. & K. ration of the bank. And in any event Turnpike Co., 9 Gratt. (Va.) 109. its admission is harmless where the BO Owen v. Shepard, 59 Fed. 746. undisputed facts are sufficient to show See also Warner v. Daniels, 1 Woodb. its organization without the certifi- & M. 90, Fed. Cas. No. 17,181- A. Gau- cate. National Bank of Commerce v. thier Decorating Co. v. Ham 3 Colo. Galland, 14 Wash. 502, 45 Pac. 35. App. 559, 34 Pae. 484; Bell v.' Dowdyj 929 I Priv. Corp. — ^^59 §435] Pbivate Coepobations [Ch. 14 dence has been destroyed, or when, for any other reason, it cannot be produced. Upon an information in the nature of quo warranto to oust an association from the exercise of corporate powers, it was held that, where the certificate of incorporation and the record thereof had been destroyed by fire, parol evidence was admissible to prove com- pliance with the law in organizing as a corporation, and to prove the contents of the certificate, and that it was not necessary that such evidence should be so minute as to permit of the reproduction of the certificate in all its details.^^ Parol evidence is also admissible to show user of corporate powers for the purpose of establishing the existence of a corporation de facto.^^ As we have seen, there is a conflict of authority as to whether a witness may testify directly that a company is a corporation.^^ § 436. — Presumptions. When an association has assumed to or- ganize as a corporation under a valid law and has exercised corporate powers, it will be presumed, in the absence of evidence to the contrary, that all conditions precedent have been complied with in its organiza- tion and that it has been legally incorporated.^* Thus, it will be pre- sumed that the articles of association were duly recorded as required 13 Ky. L. Rep. 543 (abstract) ; NiooU V. Clark, 13 N. Y. Misc. 128, 34 N. T. Supp. 159; Hallett v. Harrower, 33 Barb. (N. T.) 537. 81 Rose Hill & E. Road Co. v. Peo- ple, 115 111. 133, 3 N. E. 725; Weber V. Piekey, 52 Md. 500. M See § 425, supra. »3 See § 427, supra. 64 United States. Bank of TJnited States V. Lyman, 1 Blatchf. 297, Fed. Cas. No. 924, afl'd 12 How. 225, 13 L. Ed. 965. Arkansas. Memphis & St. F. Plank Road Co. V. Rives, 21 Ark. 302. Connecticut. Wood v. Wiley Const. Co., 56 Conn. 87, 13 Atl. 137. Indiana. Dunning v. New Albany & S. R. Co., 2 Ind. 437. Iowa. Sweuey v. Talcott, 85 Iowa 103, 52 N. W. 106; Bank of Monroe V. Gifford, 72 Iowa 750, 32 N. W. 669. Maryland. Keene v. Van Reuth, 48 Md. 184; Busey v. Hooper, 35 Md. 15, 6 Am. Rep. 350; Hagers Town Turnpike Road Co. v. Creeger, 5 Har. & J. 122, 9 Am. Dec. 495. Massachusetts. Packard v. Old Col- ony R. Co., 168 Mass. 92, 46 N. E. 433; Society of Middlesex Husbandmen & Manufacturers v. Davis, 3 Mete. 133. New York. Welch v. Importers' & Traders ' Nat. Bank, 122 N. Y. 177, 25 N. E. 269; Lorillard v. Clyde, 86 N. Y. 384. North Carolina. Tar River Nav. Co. v. Neal, 3 Hawks 520. Rhode Island. National Mut. Fire Ins. Co. V. Yeomans, 8 R. I. 25, 86 Am, Dec. 610. Texas. San Antonio & G. S. Ry. Co. V. San Antonio & G. R. Co. (Tex. Civ, App.), 76 S. W. 782. Vermont. Bank of Manchester 'f. Allen, 11 Vt. 302. Washington. Puget Sound & C. R Co. V. Ouellette, 7 Wa^h. 265, 34 Pao. 929. Wisconsin. Ricketson v. Galligan, 89 Wis. 394, 62 N. W. 87; Whitney v. Robinson, 53 Wis. 309, 10 N. W. 512. 930 Ch. 14] CoBPOEATB Existence [§436 by the statute ; *^ that they were duly published ; *^ that the required fees were paid ; ^^ that the requisite amount of stock was subscribed ^' and paid in,^" and that an affidavit to this effect, made to procure the charter, was true ; ^^ that notice of organization was given within the time prescribed by the statute,®^ and that the corporators or officers "When an organization has gone into operation as a corporation and rights have been acquired under it, every presumptien should be indulged in favor of the legality of its corpo- rate existence." Hasselman v. United States Mortg. Co., 97 Ind. 365. See also Duke v. Cahawba Nav. Co., 10 Ala. 82, 44 Am. Dee. 472; Selma & T. E. Co. V. Tipton, 5 Ala. 787, 39 Am. Dec. 344. It is not error to refuse to give an instruction requiring the jury to find that all the formalities of law were complied with in regard to the or- ganization of the plaintiff corporation, where its articles of incorporation are introduced in evidence and the plead- ings do not put in issue the publica- tion of the articles and return of proof to the secretary of state. Riverside Sand & Cement Mfg. Co. v. Hard- wick, 16 N. M. 479, 120 Pae. 323. Where a charter provided that the person^ named therein as corporators or subscribers to stock should be a cor- poration upon doing certain acts, and the existence of the corporation de facto appeared, it was held that it would be presumed that it was organ- ized immediately after the passage of the charter. Attorney General v. Chi- cago & N. W. R. Co., 35 Wis. 425. In Raccoon River Nav. Co. v. Eagle, 29 Ohio St. 238, it was held that on the trial of an issue nul tiel corpora- tion, where a condition precedent to the right of incorporation is pre- scribed by law, it is not error to re- ject as evidence the certificate of incorporation in form as prescribed by the statute, in the absence of tes- timony tending to show that the con- dition had been fulfilled. 56 Bank of Monroe v. Gifford, 72 Iowa 750, 32 N. W. 669. Where the articles are sworn to before an officer who, in the jurat, de- scribes himself a^ the county clerk, and the statement as to the record- ing of the articles is signed by the same person as recorder, it will be presumed that the articles were filed with the county clerk as provided by statute, in the ab3ence of proof that they were in fact filed with the re- corder. Marsh v. Mathias, 19 Utah 350, 56 Pac. 1074. It will be presumed that a foreign corporation doing business in a certain county has filed in the office of the county recorder an authenticated copy of its certificate or act of incorpo- ration, with a duly certified list of its officers appended, as required by law. Evans v. Lee, 11 Nav. 194. SB Wood V. Wiley Const. Co., 56 Conn. 87, 13 Atl. 137. B7 It will be presumed that the sec- retary of state did his duty and did not file the articles of a foreign cor- poration until the statutory fee was paid. State v. Superior Court Pierce Co., 42 Wash. 675, 85 Pac. 669. 68 Duke V. Cahawba Nav. Co., 10 Ala. 82, 44 Am. Dec. 472; Sweney v. Taleott, 85 Iowa 103, 52 N. W. 106; Ashtabula & N. L. E. Co. v. Smith, 15 Ohio St. 328. 69 Sweney v. Taleott, 85 Iowa 103, 52 N. W. 106. 60 Cherry v. First Texas Chemical Mfg. Co., — Tex. Civ. App. — , 115 S. W. 81. 61 Bank of United States v. Lyman, 1 Blatchf. 297, Fed. Cas. No. 924, aff'd 12 How. (U. S.) 225, 13 L. Ed- 965. 931 436] Pkivate Cokpobations [Ch. 14 chosen were shareholders ^* or citizens,*^ as required by the statute. But it has been held that the presumption that actual duty has been regularly performed cannot dispense with proof that a certificate of incorporation was issued by the secretary of state, or proof as to its contents.^* Generally to prove the existence of a corporation under a special charter, when its existence is in issue collaterally, it is sufBcient, prima facie, to prove the charter and acts of user under the same.*^ And the 62 In Welch V. Importers' & Trad- ers' Nat. Bank, 122 N. Y. 177, 25 N. E. 269, under a statute which authorized the incorporation of manufacturing companies, and provided that "the stock, property and concerns of such company should be managed by not less than three,inormore than thirteen trus- tees, who shall respectively be stock- holders in such company," where it appeared that two of the persons named in the certificate of incorpora- tion as trustees for the fir^t year were shareholders, and it did not ap- pear that the third was not, and it was not alleged that the corporation was not legally organized, it was held that it must be assumed that its or- ganization was legal. 63 In a Kansas ease, where corpo- rators had signed and acknowledged their articles as "citizens" of a cer- tain county in the state, and de- scribed themselves in the body thereof as "all of" such county, it was held that it should be presumed that they were citizens of Kansas, and, all else appearing regular, that the corpora- tion was duly incorporated. Sword y. Wickersham, 29 Kan. 746. Where the statute provides that no corporation shall own oi- hold any real estate in the state, if more than twenty per cent, of its stock is owned by aliens, it will be presumed that the required percentage of the stock- holders of a domestic corporation are citizens in a suit by it to condemn land. Northwestern Tel. Exch. Co. v. Chicago, M. & St. P. E. Co., 76 Minn. 334, 79 N. W. 315. 61 Wall V. Mines, 130 Cal. 27, 62 Pac. 386. es Arkansas. Gaines v. Bank of Mississippi, 12 Ark. 769. Illinois. Marshall v. Keach, 227 111. 35, 118 Am. Dec. 247, 10 Ann. Cas. 164, 81 N. E. 29; East St. Louis & C. R. Co. v. Belleville City E. Co., 159 111. 544, 42 N. E. 974; Peoria & P. U. Ey. Co. V. Peoria & F. E. Co., 105 111. 110; Eamsey v. Peoria Marine & Eire Ins. Co., 55 111. 311; Hamilton v. Carthage, 24 111. 22; Town of Men- dota V. Thompson, 20 111. 197; Ameri- can Ins. Co. of Newark, New Jersey V. McClelland, 184 111. App. 381; Dean k Son V. W. B. Conkey Co., 180 111. App. 162. See also Imperial Bldg. Co. V. Chicago Open Board of Trade, 238 111. 100, 87 N. E. 167. Kansas. Pape v. Capitol Bank, 20 Kan. 440, 27 Am. Eep. 183. Maine. Came v. Brigham, 39 Me. 35; Penobscot Boom Corporation v. Lamson, 16 Me. 224, 33 Am. Dec. 656. Massachusetts. Provident Inst, for Savings v. Burnham, 128 Mass. 458; Com. V. Bakeman, 105 Mass. 53; Nar- ragansett Bank v. Atlantic Silk Co., 3 Mete. 282. Michigan. Way v. Billings, 2 Mich. 397; Cahill v. Kalamazoo Mut. Ins. Co., 2 Doug. 124, 43 Am. Dec. 457. Minnesota. St. Paul Eire & Marine Ins. Co. V. Allis, 24 Minn. 75. Mississippi. Henderson v. Missis- sippi Union Bank, 6 Smedes & M. 314. 932 Ch. 14] CoBPoEATE Existence t§436 same principle has been held to obtain in respect to corporations formed under general laws, it being prima facie sufSeient under such circumstances to show the existence of a law under which incorpora- tion could be had and user.®* In a suit to enjoin a public service corporation from using certain streets, which is decided in favor of the defendant on a hearing on the petition alone, in determining whether the defendant is a de facto corporation, an effort in good faith to incorporate and user will be presumed, where the petition does not negative either of those facts.*'' Where the articles of incorporation of a company are not in evi- dence and no special charter is shown, it will be presumed that it was organized under the general corporation law permitting the incorpora- tion of such companies.** This presumption is a rebuttable one, but Missouri. Merchants' Bank v. Har- rison, 39 Mo. 433, 93 Am. Dec. 285. New York. Bank of Toledo v. In- ternational Bank, 21 N. Y. 542; Utica Ins. Co. V. Caldwell, 3 Wend. 296. North Carolina. Wilmington & M. E. Co. V. Saunders, 3 Jones L. (48 N. C.) 126. Oregon. United States Mortg. Co. V. MeClure, 42 Ore. 190, 70 Pao. 543. Vermont. Lopmis v. Wainwright, 21 Vt. 520; Bank of Manchester v. Allen, 11 Vt. 302. Virginia. Grays v. Lynchburg & S. Turnpike Co., 4 Hand. 578. 66 Imperial Bldg. Co. v. Chicago Open Board of Trade, 238 111. 100, 87 N. E. 167; American Ins. Co. of New- ark, New Jersey v. McClelland, 184 III. App. 381; Dean & Son v. W. B. Gonkey Co., 180 111. App. 162; Pape V. Capitol Bank, 20 Kan. 440, 27 Am. Eep. 183. In an action by a subcontractor to enforce a mechanic's lien, it was held that there wa^ sufficient evidence of the incorporation of the company which was the principal contractor, where it was shown to have been duly incorporated, and it made such contract as a corporation by its presi- dent or vice president, or both. Henry Weis Cornice Co. v. J. B. Neevel & Sons, 187 Mo. App. 496, 174 S. W. 159. In an action by a national bank on a note indorsed to it by the payee, its corporate existence i^ prima facie established by proof that it is carry- ing on a general banking business as a national bank authorized by the general laws of the United States un- der the name by which it sues, in view of the fact that the court will take judicial notice of such laws. First Nat. Bank v. Walker, 27 Idaho 199, 148 Pac. 46; Yakima Nat. Bank V. Knipe, 6 Wash. 348, 33 Pac. 834, followed in National Bank of Com- merce V. Galland, 14 Wash. 502, 45 Pac. 35. 67 Roaring Springs Townsite Co. v, Padueah Tel. Co., — Tex. Civ. App — , 164 S. W. 50. 68 Wisconsin Eiver Improvement Co V. Pier, 137 Wis. 325, 21 L. E. A. (N S.) 538, 118 N. W. 857. Thus where there is but one gen eral statute providing for the organ ization of banks of discount and deposit, it will be presumed that a bank of that character was organized under that statute. Brighton v. White, 128 Ind. 320, 27 N. E. 620. Where it is alleged that a street railway company is a corporation or- 933 § 436] Pbivate Cobpobations [Ch. 14 it is sufficient for the purpose of making out a prima facie ease.*^ It will be presumed that a bank using the term "national bank" in its title was organized under the national banking act, since otherwise it would be liable to the penalty imposed by that act for the wrongful use of that term.''* § 437. — Foreign corporations. The proper mode of proving the existence of a foreign corporation is to introduce proper evidence of the act by or under which it was created or organized,'^ and then, for the purpose of showing organization under the law, where an organ- ization was necessary, to introduce the articles or certificate of incor- poration, or the record or a copy thereof, authenticated in the mode prescribed by the laws of the state, or by section 906 of the Eevised Statutes of the United States (3 Fed. St. Ann. p. 39).''2 ganized under the laws of the state, it will be presumed that it was organ- ized under the general act for the incorporation of such companies. Smith V. Indianapolis St. B. Co., 158 Ind. 425, 63 N. B. 849. 69 Brighton v. White, 128 Ind. 320, 27 N. E. 620. 70 Slaughter v. First Nat. Bank, 109 Ala. 157, 19 So. 430. 71 See § 429, supra. 72 United. States. Owen v. Shepard, 59 Fed. 746. Arkansas. See Fleener v. State, 58 Ark. 98, 23 S. W. 1. Illinois. Cozzens v. Chicago Hy- draulic Press Brick Co., 166 111. 213, 46 N. E. 788, aff'g 64 111. App. 569. Iowa. Petty v. Hayden, 115 Iowa 212, 88 N. W. 339. Montana. Milwaukee Gold Extrac- tion Co. V. Gordon, 37 Mont. 209, 95 Pac. 995; Parcheu v. Peck, 2 Mont. 567. Nortli Carolina. State v. Turner, 119 N. C. 841, 25 S. E. 810. Oregon. State v. Savage, 36 Ore. 191, 61 Pac.-rll28, 60 Pac. 610. See also Law Guarantee & Trust Society v. Hogue, 37 Ore. 544, 63 Pac. 690, 62 Pac. 380. It must be made to appear affirm- atively that the statutory provisions relative to authentication have been complied with. Milwaukee Gold Ex- traction Co. V. Gordon, 37 Mont. 209, 95 Pac. 995. U. S. Eev. St. §906 (3 Fed. St. Ann. p. 39), does not provide an ex- clusive method of authentication. Petty V. Hayden, 115 Iowa 212, 88 N. W. 339. If there is no state statute de- fining the evidentiary value or effect of a copy of a record from another state, the federal statute controls. Mil- waukee Gold Extraction Co. v. Gor- don, 37 Mont. 209, 95 Pac. 995; Parchen v. Peck, 2 Mont. 567. Under the federal statute the attestation of the custodian of the rec- ord must be accompanied by a certifi- cate of the presiding justice of the court of the county, parish or district in which the office of such custodian is kept, or of the governor or secre- tary of state, the chancellor or keeper of the great seal of the state, terri- tory or country, that said attestation is in due form and by the proper offi- cers. If the certificate is given by the governor, secretary of state, chan- cellor or keeper of the great seal, it must be under the great seal. The provisions in relation to the certificate, and the attaching of the great seal of 934 Ch. 14] CoEPOKATE Existence [§437 A certified copy of the articles of incorporation is inadmissible un- less it is shown that the laws of the state where the corporation was formed require the paper to be kept or recorded by the officer making the state, territory or country mu^t be complied with in order to make the copy admissible. Milwaukee Gold Ex- traction Co. V. Gordon, 37 Mont. 209, 95 Pac. 995; Parchen v. Peek, 2 Mont. 567. A certificate of the secretary of a territory concluding: "In witness whereof I have hereunto set my hand and affixed my official seal," followed by the word "seal," but not bearing the impression of the seal of the ter- ritory or indicating what it is, is insufficient. Milwaukee Gold Extrac- tion Co. V. Gordon, 37 Mont. 209, 95 Pac. 995. The introduction of a registrar's certificate of incorporation of an Eng- lish company, the signature of the reg- istrar being attested by an English notary, and a certified copy of its articles of association is sufficient. Dean & Son v. W. B. Conkey Co., 180 111. App. 162. A certified copy of the articles of incorporation with proof of user makes out a prima facie case of the existence of a de facto corporation and is sufficient. Concord Apartment House Co. V. Alaska Eefrigerator Co., 78 111. App. 682. A certified copy of the charter of a bank with the deposition of its cash- ier that it had been duly organized under such charter and had been and still was doing business under it, and that it had regularly paid taxes as a, bank, together with a certified copy of the minutes of the meeting at which it was organized, is sufficient to make out a prima facie case of corpo- rate existence. State Bank v. Cavr, 130 N. C. 479, 41 S. B. 876. A certificate of the secretary of state of another state which refers to articles filed some years before, and states that the signers of such arti- cles, "their associates and successors, were legally organized and established as, and were thereby made,, an exist- ing corporation," is a mere narr£tt-\ve of past events and an expression of an opinion as to their legal effect, and is inadmissible in another state re- gardless of whether it is admissible in the state where it is made. Fish V. Smith, 73 Oonn. 377, 84 Am. St. Eep. 161, 47 Atl. 711. In West Virginia it is provided that "whenever in any case it becomes material to ascertain what the law, statutory or other, of another state or county or of the United States is, or was at any time, the court, judge or magistrate shall take judicial no- tice thereof and may consult any printed books purporting to contain, state or explain the same, and con- sider any information or argument that is offered on the subject." And it was held under this provision that the corporate existence of a corpora- tion created under a general law of New York might be proved in West Virginia by the production of a copy of the certificate of its incorporation, attested by the secretary of state of New York under the seal of his of-, fice, authenticated by the governor under the seal of the state, or by a copy of such certificate made by the clerk of the county in which the busi- ness of the corporation was carried on, under the seal of his office, and ~ certified by the presiding justice of the supreme court of said county, and further authenticated by the clerk of such court under the seal of the court, the certificates and attestations being in the form prescribed by statute. Singer Mfg. Co. v. Bennett, 28 W. Va. 16, 22. 935 §437] Pbivate Cobpobations [Ch. 14 the certificate.'' And, since there is no common-law rule in respect to the granting of charters to private business corporations,''* there can be no presumption as to the requirements of the statutes of other states in this regard^* Moreover, since the federal statute provides that the authenticated copies of the records shall be given such faith and credit as they have in the state from vrhich they come, they cannot be given any effect whatever in the absence of evidence as to the laws of the latter state respecting the use of certified copies of public records there.''^ There are numerous decisions in which proof other than that of the kind just considered has been held sufficient.''' For example, it has been held that a certificate of the secretary of state or other state officer authorizing a foreign corporation to do business in the state is suffi- cient, either alone or in connection with other evidence, to show its corporate existence; ''* and in at least one state the statute makes such a certificate issued by the secretary of state prima facie evidence of The corporation must show a com- pliance with the provisions of the statute under which it was organized. Cumberland Telephone & Telegraph Co. V. Morgan's Louisiana & T. E. & S. S. Co., 112 La. 287, 36 So. 352. In J. P. Bledsoe & Son v. Keystone Steel & Wire Co., 41 Okla. 586, 139 Pac. 257, the evidence was held suffi- cient to 3how the existence of a con- solidated foreign corporation. 73Florsheim & Co. v. Fry, 109 Mo. App. 487, 84 S. W. 1023; Milwaukee Gold Extraction Co. v. Gordon, 37 Mont. 209, 95 Pac. 995. 74 See § 167, supra. 7BFlorsheim & Co. v. Fry, 109 Mo. App. 487, 84 S. W. 1023. See also Milwaukee Gold Extraction Co. v. Gordon, 37 Mont. 209, 95 Pac. 995. 76 Milwaukee Gold Extraction Co. v. Gordon, 37 Mont. 209, 95 Pac. 995. 77 In Petty v. Hayden, 115 Iowa 212, 88 N. W. 339, it was held that even if a certificate of the secretary of state to the effect that an intervener was duly incorporated was improperly ad- mitted, its admission was harmless because there was other evidence tending to show that the intervener was a corporation de facto. 78 In Eafferty v. State, 91 Tenn. 655, 16 S. W. 728, it was held that a certificate of the state insurance com- missioner attached to a pamphlet copy of the charter of incorporation of a foreign insurance company, that it had complied with the law and was authorized to transact business in the state, was sufficient proof of its in- corporation in a criminal prosecution of a person insured by it for attempt to obtain money from it by false pretenses. In Federal Betterment Co. v. Reeves, 77 Kan. Ill, 15 Ann. Cas. 796, 93 Pac. 627, it was held that a ruling admitting a certificate of the secretary of state that the defendant, a foreign corporation, was authorized to do business in the state was imma- terial, where the defendant had pre- viously proved that it was duly incorporated by filing a copy of its charter on a motion to set aside the service of summons in the same e-i- tion. 936 Ch. 14] CoBPOKATE Existence [§437 the legal existence of the corporation.™ But it has been held that such a certificate does not tend to prove corporate existence, and is inad- missible for that purpose, where the statute under authority of which it is issued applies to partnerships and associations as well as to corporations.*" A certificate or statement, filed by the corporation pursuant to law, in which it designates an agent on whom process may be served in actions against it, is competent and sufficient evidence of incorporation in some jurisdictions.*^ And it has been held that a certified copy of a copy of its charter filed by a foreign corporation with the commis- sioner of coiT)orations pursuant to law is admissible to show its incorporation.'^ Certificates of incorporation or certified copies thereof which are prima facie evidence in the state where the corporation is formed have been held to be admissible in other states.'* 79 Northwestern Elee. Co. v. Zim- merman, 67 Ore. 150, Ann. Caa. 1915 G 927, 135 Pae. 330. 80 American lua. Co. of Newark, New Jersey v. McClelland, 184 111. App. 381. 81 Standard Oil Co. v. Com., 122 Ky. 440, 29 Ky. L. Eep. 5, 91 S. W. 1128. Such a certificate is competent evi- dence to show incorporation, and is sufficient for that purpose when not contradicted. Anglo-Calif ornian Bank V. Field, 146 Cal. 644, 80 Pae. 1080. The existence of a foreign corpora- tion may be proved prima facie, in an action by or against it, by the in- troduction of a copy of its articles of incorporation and of the appointment of an agent in the state, certified by the secretary of state as being of rec- ord in his office. Knapp, Burrell & Co. V. Strand, 4 Wash. 686, 30 Pae. 1063. 82 Com. V. Corkery, 175 Mass. 460, 56 N. E. 711. 83 A certificate of incorporation is- sued by the secretary of state of an- other state in the form prescribed by its laws, and which is there prima facie evidence of incorporation, is ad- missible to show, not that the state- ments which it contains are true, but that they were in fact officially made. Fish V. Smith, 73 Conn. 377, 84 Am. St. Eep. 161, 47 Atl. 711. In Bartlett v. Wilbur, 53 Md. 485, it was held that since a statute of New York provided that a certified copy of any certificate of incorpora- tion filed in a particular public of- fice should be received in all courts as prima facie evidence of the facts stated therein, such a copy was ad- missible in evidence in the courts of Maryland. See also Laflin & Band I'owder Co. v. Sinsheimer, 46 Md. 315, 24 Am. Eep. 522. In a Texas case it was held that the existence of a corporation of an- other state may be proved prima fa- cie by producing a copy of a general law authorizing the formation of such corporations, properly certified by the secretary of such state, under the seal of the state, to be a true copy of an enrolled law of the state, giving title and date of approval, and by producing a properly authenticated certificate of the organization of the company under the law. Western Elec. Mfg. Co. V. Curtis, 1 White & W. Civ. Cas. Ct. App. (Tex.) § 729. 937 §437] Peivate Cobpokations [Oh. 14 The rule that in criminal prosecutions for offenses alleged to have been committed against the property of a corporation it is only neces- sary to show the existence of the alleged corporation by parol evidence, or by reputation,** has often been applied in the case of foreign cor- porations.^* And the same is true of the rules prevailing in some states that a person familiar with the facts may testify directly that a company is a corporation ; *^ that the use of a name which ordinarily imports a corporation is prima facie evidence of corporate existence ; '^ that the execution and delivery of an instrument to a corporation as But in Bell v. Dowdy, 13 Ky. L. Eep. 543 (abstract), it was held that in an action against certain individu- als as partners, their testimony that the company for which they acted was incorporated under the laws of another state, without producing the articles of incorporation, is insuffi- cient to show that fact. For a discussion of the admissibil- ity of such evidence generally, see § 427, supra. 87 In Anglo-Calif orniau Bank v. Field, 146 Cal. 644, 80 Pac. 1080, the name by which the plaintiff was des- ignated in recitals in a deed to a third person was held to import that it was a corporation, and to furnish prima facie evidence of its corporate character. In Indiana Millers' Mut. Fire Ins. Co. V. People, 65 111. App. 355, aff'd 170 HI. 474, 49 N. E. 364, it was held that the name of the appellant, under which it had issued policies of insur- ance, imported a corporation. The fact that it was incorporated was also expressly averred in appellee's plea, however. See also Turner 's Chapel A. M. E. Church v. Lord Lumber Co., 121 Ga. 376, 49 S. E. 272, where it was held that the name of a foreign cor- poration imported a corporation. Here the question was whether a motion showed that the defendant was a for- eign corporation so as to give it the right to dissolve a garnishment. For a discussion of this rule, see § 423, supra. 84 See § 426, supra. 85 Arkansas. Turner v. State, 109 Ark. 332, 158 S. W. 1072; Fleener v. State, 58 Ark. 98, 23 S. W. 1. California. People v. Ah Sam, 41 Cal. 645; People v. Hughes, 29 Cal. 257. Illinois. Kossakowski v. People, 177 111. 563, 53 N. E. 115. ITortli Carolina. See State v. Turner, 119 N. C. 841, 25 S. E. 810. Oregon. See State v. Savage, 36 Ore. 191, 61 Pac. 1128, 60 Pac. 610. Tennessee. State v. Mi^sio, 105 Tenn, 218, 58 S. "W. 216, distinguishing Owen V. State, 5 Sneed 493, and Jones V. State, 5 Sneed 346, 347. 86 In Locke v. Leonard Silk Co., 37 Mich. 479, according to the syllabus, it was held that the fact of the cor- porate existence of a company might be found from the testimony of a wit- ness that, from information derived from the company in doing business for it, and from an examination of what purported to be its articles of incorporation, it was an incorporated company under the laws of another Btate. In State v. Pittam, 32 Wash. 137, 72 Pac. 1042, which was a criminal prosecution for embezzlement, it was held that oral testimony that the com- pany whose money was converted was a corporation existing under the laws of Illinois and was doing business in Washington was material, relevant and competent, especially where there was no proper objection to it. 938 Ch. 14] CoBPOBATE Existence [§437 such is prima facie evidence of its corporate existence,** and that the existence of a corporation created by a special law may be established by proof of the charter and user.*^ Acceptance of its charter by a foreign corporation may be shown by proof of user."* Statutes providing that proof that a company is doing business un- der a certain name shall be prima facie proof of its due incorporation,®^ or providing that corporate existence may be proved in criminal cases by general reputation, or by the printed statutes of the state or government by which such corporation was created,'* or making user prima facie evidence of corporate existence in all criminal prosecutions involving proof of the legal existence of a corporation,®' have been held to apply to foreign as well as to domestic corporations. But the contrary has been held to be true of a statute making a certified list of corporations published in the session laws prima facie evidence of the existence of such corporations.®* and user was applied in the ease of a foreign corporation. For a discussion of this rule, see § 429, supra. 90 Lancaster Sav. Bank v. Elwell, 17 Wash. 446, 49 Pao. 1070. For proof of acceptance generally, see §§ 227, 246, supra. 91 The Michigan statute to this ef- fect in terms applies to foreign cor- porations. Imperial Curtain Co. v. Jacob, 163 Mich. 72, 17 Det. L. N. 751, 127 N. "W. 772. For cases applying and construing such statutes generally, see § 423, supra. 92 State V. Moreaux, 254 Mo. 398, 162 S. W. 158; State v. Brown, 33 Utah 109, 93 Pac. 52. For cases applying and constru- ing such statutes generally, see § 429, supra. 93Graflf V. People, 208 111. 312, 70 N. E. 299, aff'g 108 111. App. 168; Kincaid v. People, 139 HI. 213, 28 N. E. 1060. ■ For cases applying and construing such statutes generally, see § 423, su- pra. 94 The Tennessee statute to this ef- fect is by its terms limited to domes- 88 In MacMillan Co. v. Stewart, 69 N. J. L. 212, 54 Atl. 240, aff'd 69 N. J. L. 676, 56 Atl. 1132, it was held that it appeared prima facie that the plain- tiff was a corporation where the defendant made a contract with it, ne- gotiated with it as to the discontinu- ance of a former suit on the same contract and agreed to pay the bal- ance then due and went to trial with- out notifying the plaintiff, by plea or otherwise, that its corporate exist- ence would be disputed. In an action by a foreign corpora- tion on a foreign judgment, that the contract on which the judgment was based recited the fact that the plain- tiff was a corporation under a certain name, and that the foreign judgment was recovered by it under that name, was held to be sufficient proof of its corporate capacity. Cellulose Pack- age Mfg. Co. V. Calhoun, 166 Cal. 513, 137 Pac. 238. For a discussion of this rule, see § 422, supra. 89 In United States Mortg. Co. v. McCIure, 42 Ore. 190, 70 Pac. 543, the rule that the existence of a cor- poration created by a special law may be established by proof of the charter 939 § 437] Private Cobpoeations [Ch. 14 Lawyers of a foreign country, duly qualified as experts, may testify that certain acts, documents and records which have been produced are competent to make a corporation in that country.^^ The facts that deeds to a company described it as being a corpora- tion of a certain other state, and that the word "the" was not a part of its name as required of domestic corporations by the statute of the forum, were held to be sufficient to show that it was a foreign rather than a domestic corporation, on appeal in a suit to quiet title, where, in objecting to the decree in the lower court, no contention was made that it was or was not a foreign corporation.^^ § 438, — Conclusiveness of certificates, etc. Certificates of incor- poration and other formal documents required to be filed or issued upon the organization of a corporation are not generally conclusive evidence of due organization unless made so by statute. It has been held, however, that if the charter of a corporation appoints commis- sioners, and directs them to ascertain and certify the performance of a condition precedent to incorporation, — such as the subscription of the amount of capital stock prescribed by the charter, — ^their certificates that the condition has been complied with, and that the corporation is duly organized, are conclusive as against every person except the state.*'' And this has been held to be equally true of recitals in the tic corporations, and does not apply 96 Austin v. King, 25 Colo. App. 363, to foreign ones. State v. Missio, 105 138 Pac. 57. Tenn. 218, 58 S. W. 216. 97 Tar Eiver Nav. Co. v. Neal, 3 For cases applying and construing Hawks (N. C.) 520. such statutes generally, see § 429, Where the charter of a bank pro- supra. vided that a board of commissioners 95 In Badisehe Anilin & Soda Fa- named therein should receive sub- brik V. A. Klipstein & Co., 125 Fed. scriptions to its capital stock, and 543, it was held that where the Ger- apportion the same among the sub- man Code under which a corporation scribers, holding a public meeting for was formed was set forth, and exem- the purpose, and certifying the result plified or sworn copies of its articles in a manner specially provided, it was of association, its application for reg- held that the decision and certificate istry and entries in the register as t» of the commissioners that the whole it were produced, and two German amount of stock had been legally lawyers, duly qualified as experts, taken were final on the question testified that such acts, documents and whether the bank was in that respect records were competent to make of legally organized. Litchfield Bank v. the associates a corporation under the Church, 29 Conn. 137. German law, this was prima facie evi- In Connecticut & P. E. R. Co. v. dence of incorporation, which must be Bailey, 24 Vt. 465, 58 Am. Dec. 181, taken as conclusive in the absence of the same rule was applied in the case any evidence to the contrary. of a railroad company. See also Lou- 940 Ch. 14] CoEPOEATE Existence [§438 articles of incorporation made by the incorporators pursuant to law.®* In some jurisdictions a certificate of incorporation issued by the secretary of state is conclusive evidence of the organization and exist- ence of the corporation as against all persons except the state.'® A certificate of the comptroller of the currency that an association has complied with the federal statute relative to the incorporation of national banks and is authorized to do business as such a bank, is conclusive evidence of all facts which he is required to ascertain before the issuance thereof; that is, of all that is essential to authorize the bank to begin and go forward with the character and functions it is allowed to assume.^ "The purposes of the act in providing for and making necessary the comptroller's certificate are that he shall make inquiry, and determine the existence of these essential facts ; and make record evidence, upon which the public may rely, that the required conditions do in fact exist. " ^ So such a certificate has been held to be conclusive in proceedings to enforce the individual liability of the stockholders of such a bank,^ or in a criminal prosecution of an officer of the bank for a violation of the national banking act,* or in an action on a contract made by the defendant with the bank.^ isiana Purchase Expos. Co. v. Kuen- zel, 108 Mo. App. 105, 82 S. W. 1099. 98 Louisiana Purchase Expos. Go. v. Kuenzel, 108 Mo. App. 105, 82 S. W. 1099. 99Pirst Nat. Bank v. Almy, 117 Mass. 476. In Missouri, such a certificate is a final determination of the right of the corporation to do business as such, and thereafter its corporate existence cannot be challenged except in a di- rect proceeding instituted for that purpose by the state. Boatmen's Bank v. Gillespie, 209 Mo. 217, 108 S. W. 74. In Dollbear v. American Bell Tel. Co., 126 U. S. 1, 31 L. Ed. 863, proof of a, special act of incorporation of Massachusetts, authorizing persons to organize as a corporation, and a cer- tificate of the secretary of the com- monwealth in the form required by law, were held conclusive evidence of incorporation. But where a clause in the charter of a navigation company authorized it to collect tolls as soon as the gov- ernor, after receiving the certificate of certain commissioners to the effect that the river was in sufficient repair to entitle the company to take tolls, should proclaim its right to do so, it was held that such certificate and proclamation were not of themselves conclusive evidence of the organiza- tion of the company. Duke v. Ca- hawba Nav. Co., 10 Ala. 82, 44 Am. Dec. 472. 1 Bailey v.. Tillinghast, 99 Fed. 801, afe'g 86 Fed. 46; Citizens' Nat. Bank V. Great Western Elevator Co., 13 S. D. 1, 82 N. W. 186. See also Brown V. Tillinghast, 93 Fed. 326; Colum- bia Nat. Bank of Tacoma v. Mathews, 85 Fed. 934. 2 Bailey v. Tillinghast, 99 Fed. 801, aff'g 86 Fed. 46. 8 Casey v. Galli, 94 U. S. 673, 24 L. Ed. 168; Bailey v. Tillinghast, 99 Fed. 801, aff'g 86 Fed. 46. 4 Clement v. United States, 149 Fed. 305. 5 Citizens ' Nat. Bank v. Great West- 941 438] Peivate Coepoeations [Ch. 14 In England, a certificate of incorporation issued by the registrar of companies is conclusive evidence that all the statutory requirements in respect to registration or matters' precedent or incidental thereto have been complied with.^ § 439. Proof of user. User of corporate powers may be shown by proof that the association elected officers or held meetings as a cor- porate body, that it maintained an office, or that it transacted business in a way which imports that it was acting as a corporation.' "The proof of user," said Judge Felch in an early Michigan case, "must necessarily consist of evidence of the acts of the corporation, showing that they are doing business under their charter. Any acts tending to show this, are admissible for that purpose ; as keeping open an office ; having officers acting in the name, and as the agents of the company, etc. The receiving of applications and issuing policies' of ern Elevator Co., 13 S. D. 1, 82 N. W, 186. In Thatcher v. West Eiver Nat. Bank, 19 Mich. 196, it is said: "The objection that the organization cer- tificate appears to have been acknowl- edged before a notary, who by the same document is shown to have been a shareholder in the bank, is one which might have been raided by, or before, the comptroller, but of which we can take no cognizance here. It was for him to decide upon the suf- ficiency of the evidence of compli- ance with the act of congress, and we cannot review his decision. His certificate of compliance removes any objection which might otherwise have been made to the evidence upon which he acted." See also Casey v. Galli, 94 U. S. 673, 24 L. Ed. 168. 8 Lindenberger Cold Storage & Can- ning Co. V. Lindenberger, 235 Eed. 542. 7 Illinois. Eamsey v. Peoria Marine & Fire Ins. Co., 55 111. 311. Indiana. Tipton Eire Co. v. Barn- heisel, 92 Ind. 82, 47 Am. Eep. 135. Maine, Sampson v. Bowdoinham Steam Mill Corporation, 36 Me. 78. Michigan. Cahill v. Kalamazoo Mut. In^. Co., 2 Doug. 124, 43 Am. Dee. 457. Missouri. Merchants' Bank of St. Louis V. Harrison, 39 Mo. 433, 93 Am. Dee. 285. New York. Williams v. Bank of Michigan, 7 Wend. 539; Utica Ins. Co. V. Tilman, 1 Wend. 555. Oregon. Brown v. Webb, 60 Ore. 526, Ann. Cas. 1914 A 148, 120 Pac. 387. Virginia. Crump v. United States Min. Co., 7 (Jratt. 352, 56 Am. Dee. 116. "User" means the exercise of cor- porate powers and functions. Peo- ple v. Struble, 275 111. 162, 113 N. E. 938. In a condemnation suit by a railroad company, instruments and deeds pur- porting to convey land and to grant franchises to it, plana and specifica- tions adopted by it for work done on it| line of road, and judgments in its favor condemning land for its use in building and operating such road, are admissible as tending to show that it is a. corporation de facto. Val- lejo & N. E. Co. V. Eeed Orchard Co., 169 Cal. 545, 147 Pac. 238. See also § 303, supra. 942 Ch. 14] CoEPORATE Existence [§440 insurance — ^in other words, doing the very business, and in the very manner pointed out by the statute, and in the name of the corpora- tion — ^WQuld be direct evidence of user. ' ' ' User may be proved either by the production of written instruments executed by the corporation, or its records and books showing corporate meetings, or other corporate acts,8 or by parol evidence of the exercise of corporate powers.^" So, for the purpose of establishing a corporation de facto, oral testimony tending to show that, after an attempt to organize a corporation by the execution of articles of incorporation, the supposed corporation held meetings, adopted by-laws, issued stock and did business as a corporation, and which does not purport to give the contents of corporate records or documents, is admissible without producing such records or accounting for their loss.^^ §440. Statutory provisions. The legislature may regulate the mode of proving the fact of incorporation,^* and may make such changes in the rules of evidence in this regard as it sees fit, provided 8 Cahill V. Kalamazoo Mut. Ins. Co., 2 Doug. (Mich.) 124, 135, 43 Am. Dec. 457. 9 Alabama. Duke v. Cahawba Nav. Co., 10 Ala. 82, 44 Am. Dec. 472. Illinois. Eamsey v. Peoria Marine & Kre Ins. Co., 55 111. 311; Eyder v. Alton & S. E. Co., 13 111. 516. Indiana. Vawter v. Franklin Col- lege, 53 Ind. 88. Massachusetts. Provident Inst, for Savings v. Burnham, 128 Mass. 458; Narragansett Bank v. Atlantic Silk Co., 3 Mete. 282. New York. Highland Turnpike Co. V. McKean, 10 Johns. 154, 6 Am. Dec. 324. Vermont. Reynolds v. Myers, 51 Vt. 444. Virginia. Crump v. United States Min. Co., 7 Gratt. 352, 56 Am. Dec. 116. West Virginia. Anderson v. Kana- wha Coal Co., 12 W. Va. 526, 537. 10 Alabama. Lucas v. Bank of Georgia, 2 Stew. 147. California. Lakeside Ditch Co. v. Crane, 80 Cal. 181, 22 Pac. 76. Illinois. See People v. Struble, 275 111. 162, 113 N. B. 938. Indiana. Tipton Fire Co. v. Barn- heisel, 92 Ind. 88. Michigan. Cahill v. Kalamazoo Mut. Ins. Co., 2 Doug. 124, 43 Am. Dec. 457. Minnesota, Finnegan v. Noeren- berg, 52 Minn. 239, 18 L. E. A. 778, 38 Am. St. Eep. 552, 53 N. W. 1150. New York. Whitford v. Laidler, 94 N. Y. 145, 46 Am. Eep. 131. Vermont.- Stone v. Congregational Society, 14 Vt. 86. Where it is sought to hold the mem- bers of an association liable 83 part- ners, testimony of its members that the association claimed to be a cor- poration and that they never claimed or informed the plaintiffs that it was a partnership is competent on the question of user. Johnson v. Oker- strom, 70 Minn. 303, 73 N. W. 147. 11 Johnson V. Okerstrom, 70 Minn.' 303, 73 N. W. 147; Brown v. Webb,' 60 Ore. 526, Ann. Cas. 1914 A 148, 120 Pac. 387. 12 Tillery v. State, 10 Lea (Tenn ) 35. 943 §440] Pbivate Coepoeations [Ch. 14 it does not thereby preclude a party from freely presenting the facts which tend to support his theory of the issues involved.^^ So it may declare documentary evidence to be prima facie evidence of the facts thereby shown, and impose on the adverse party the burden of over- coming the prima facie case thereby made.^* In many jurisdictions, the mode and sufSeiency of proof of incor- poration has been made the subject of express statutory provision. For example, in Michigan there is a statute declaring that proof that a company is doing business under a certain name shall be prima facie proof of its due incorporation and existence pursuant to law, and of its name.'* And in a number of states, statutes have been enacted making a duly certified copy of the articles of association or certificate of incorporation filed in pursuance of the law creating or authorizing the formation of a corporation,'® or a certificate of incorporation issued 13 Columbia Valley Trust Co. v. Smith, 56 Ore. 6, 107 Pac. 465. 14 Columbia Valley Trust Co. v. Smith, 56 Ore. 6, 107 Pac. 465. 15 Imperial Curtain Co. v. Jacob, 163 Mich. 72, 127 N. W. 772; Canal St. Gravel-Eoad Co. v. Paas, 95 Mich. 372, 54 N. W. 907; Lake Superior Bldg. Co. V. Thompson, 32 Mich. 293. If there is no countervailing evi- dence, such proof is sufS.cient. Im- perial Curtain Co. v. Jacob, 163 Mich. 72, 127 N. W. 772. But it is not enough to prove acts — holding meetings and electing ofS- cers — which are entirely ' consistent with the existence of an unincorpo- rated association. Fredenburg v. Lyon Lake M. E. Church, 37 Mich. 476. 16 See New Tork Car Oil Co. v. Bichmond, 6 Bosw. (N. T.) 213, 19 How. Pr. 505; Eassbeck v. Desterrei- cher, 55 How. Pr. (N. Y.) 516; Squires v. Brown, 22 How. Pr. (N. Y.) 35; Weed Sewing Maeh. Co. v. Kaulback, 3 Thomp. & C. (N. Y.) 304; Marshall V. Macon County Sav. Bank, 108 N. C. 639, 13 S. E. 182; Pacific Drug Co. V. Hamilton, 71 Wash. 469, 128 Pac. 1069; State v. Superior Court (Wash.), 114 Pac. 444; State v. Pit- tam, 32 Wash. 137, 72 Pac. 1042; Spo- kane & I. Lumber Co. v. Loy, 21 Wash. 501, 58 Pac. 672. Under the Michigan statute making a copy of any articles of association filed pursuant to law, with the re- quired affidavit annexed thereto, cer- tified by the secretary of jatate to be a true copy, prima facie evidence of incorporation, etc., the fact that the certificate of the secretary of state calls the articles a "certificate" is immaterial. Canal St. Gravel-Eoad Co. V. Paas, 95 Mich. 372, 54 N. W. 907. There is a statute to this effect in Illinois. Owen v. Shepard, 59 Ted. 746. In East St. Louis C. Ey. Co. v. Wa- bash, St. L. & P. Ey. Co., 24 111. App. 279, rev 'd on other points, 123 111. 594, 15 N. E. 45, it was held under the statute of that state that a copy of the articles of consolidation of two corporations, duly certified under the seal of the secretary of state, was prima facie evidence of the existence of the consolidated corporation. In Oregon, B. & C. Comp. §5054, provided that: "The articles of in- corporation or a certified copy of the one filed with the secretary of state 944 Ch. 14] CoBPOKATE Existence [§440 by the secretary of state,^' prima facie evidence, of incorporation. It is also sometimes provided that a certificate by the secretary of state, under the seal of the state, that a corporation has become duly organ- ized shall be taken by all the courts of the state as evidence of the corporate existence of such corporation ; ^* or that a certified copy of the certificate or charter issued by the secretary of staite shall be evi- dence of the due organization and existence of the corporation and of the matters specified in such certificate ; ^' or that the articles of in- corporation, or a duly certified copy thereof, may be used in evidence in any action for or against the corporation.^" General statutes making copies of all papers legally deposited in the oiHce of the secretary of state, duly certified by him and authenticated by the seal of his office, evidence in the same manner and withi like effect as the originals,^^ or providing that documents may be proved or the county clerk is evidence of the existence of such corporation." It was held that this provision was not to be construed as permitting the ex- istence of a de jure corporation to be established hj the introduction in evidence of the articles of incor- poration, or a certified copy thereof, without other proof except that of a subscribing witness, but, in addition thereto, performance of the statutory conditions precedent must be shown. Goodale Lumber Co. V. Shaw, 41 Ore. 544, 69 Pae. 546. Since that decision the statute has been amended by Laws 1905, p. Ill, so as to make the articles or a cer- tified copy of them prima facie evi- dence of the existence of the corporation and of its right to do the business mentioned in the articles without any other evidence thereof, and neither the testimony of a sub- scribing witness nor proof of compli- ance with the statutory conditions is now necessary in the first instance. Columbia Valley Trust Co. v. Smith, 56 Ore. 6, 107 Pac. 465. 17 Mont. Laws 1909, c. 94, does not apply to corporations organized prior to July 1, 1895, since prior to that time there was no provision of law for the issuance of certificates of in- corporation, and there is no provision since that time for the issuance of certificates to corporations formed prior thereto. Billings Realty Co. v. Big Ditch Co., 43 Mont. 251, 115 Pac. 828. 18 Mo. Eev. St. 1899, §955; Boat- men's Bank v. Gillespie, 209 Mo. 217, 108 S. "W. 74. 19 Sumpter Tobacco Warehouse Oo. v. Phoenix Assur. Co., 76 S. C. 76, 10 L. E. A. (N. S.) 736, 121 Am. St. Eep. 941, 11 Ann. Cas. 780, 56 S. B. 654. 20 Calor Oil & Gas Co. v. Franzell, 33 Ky. L. Eep. 98, 109 S. W. 328. 81 Kern v. Chicago Co-operative Brewing Ass'n, 40 111. App. 356, aff'g 140 HI. 371. In South Carolina it is provided that attested copies of all records, signed by the keeper of such records respectively, shall be deemed and al- lowed as good evidence in the same manner as the original documents. Montgomery v. Seaboard Air Line Ey., 73 S. C. 503, 53 S. E. 987. Where the statute provides for the admission of certified copies of rec- ords, a certified copy of a charter which the law requires to be recorded I Priv. Corp.— 60 945 §440] Pkivate Cobpoeations [Ch. 14 ay the original or by a copy, certified by the legal keeper thereof,*' apply to certificates or articles of incorporation or other papers which are required to be filed or recorded on the organization of a cor- poration. In at least one state, provision is made for the publication with the session laws of a certified list of all corporations organized since the last publication, and it is provided that such publication shall be legal evidence of the existence of such corporations.^* And it has been held that such publication is prima facie evidence of the existence or legal incorporation of such corporations, which may, however, be rebutted by proof that the corporate charter was not registered as required by law.** In another state, provision is made for printing certificates of incor- poration with the acts of the legislature, and it is further provided that the copy so printed shall, as evidence, be equivalent to the original.*^ It is sometimes provided that in criminal prosecutions corporate existence may be proved by general reputation, or by the printed stat- utes of the state or country by which such corporation was created,** is admissible. Montgomery v. Sea- board Air Line Ey., 73 S. C. 503, 53 S. E. 987. 22 A certified copy of the records of the oflSee of the secretary of state is admissible to show that he issued the certificate of incorporation required by the statute. But his certificate reciting that articles of incorporation were filed in his office on a certain day and that a certificate of incorpo- ration was issued on that day, is in- admissible for that purpose. Wall V. Mines, 130 Cal. 27, 62 Pac. 386. Under a statute providing that a public record of a private writing may be proved by the original record, or by a copy thereof certified by the legal keeper of the record, a certificate of incorporation which is of record in the office of the secretary of state is properly proved by a copy thereof certified by that officer. Western Iron Works V. Montana Pulp & Paper Co., 30 Mont. 550, 77 Pac. 413. 23 There is such a statute in Ten- nessee. Coal Creek Consol. Coal Co. V. East Tennessee Iron & Coal Co., 105 Tenn. 563, 59 S. W. 634; State v. Missio, 105 Tenn. 218, 58 S. W. 216; Tennessee Automatic Lighting Co. v. Massey (Tenn. Ch.), 56 S. W. 35; Tillery v. State, 10 Lea (Tenn.) 35; Brewer v. State, 7 Lea (Tenn.) 682. See also Bon Aqua Improvement Co. V. Standard Fire Ins. Co., 34 W. Va. 764, 12 S. E. 771, where the Tennes- see statute is referred to. 24 Coal Creek Consol. Coal Co. v. East Tennessee Iron & Coal Co., 105 Tenn. 563, 59 S. W. 634; State v. Mis- sio, 105 Tenn. 218, 58 S. W. 216; Til- lery V. State, 10 Lea (Tenn.) 35; Brewer v. State, 7 Lea (Tenn.) 682. 25 Bon Aqua Improvement Co. v. Standard Fire Ins. Co., 34 W. Va. 764, 12 S. E. 771. 26 State V. Thompson, 23 Kan. 338, 33 Am. Eep. 165; State v. Moreaux, 254 Mo. 398, 162 S. W. 158; State v. Decker, 217 Mo. 315, 116 S. W. 1096; State v. Knowles, 185 Mo. 141, 168, 83 S. W. 1083; State v. Jackson, 90 Mo. 156, 2 S. W. 128; State v. Tucker, 946 Ch. 14] CoKPOKATE Existence [§440 or that user shall be prima facie evidence of corporate existence.^' Statutory provisions as to the manner of proving corporate exist- ence will not be construed as impliedly excluding other evidence of that fact, which would be competent in the absence of the statute,*' unless such an intention on the part of the legislature clearly appears.*^ And a statute allowing a certified copy of the charter to be received in evidence does not render the original charter duly certified inad- missible.^" 84 Mo. 23; State v. Cheek, 63 Mo. 364; State v. Phelan, 66 Mo. App. 548; State v. Reese, 44 Utah 256, 140 Pac. 126; State v. Brown, 33 Utah 109, 93 Pac. 52, 36 Utah 46, 24 L. R. A. (N. S.) 545, 102 Pae. 641. In Arkansas it is provided that the existence of banking companies may be proved in this manner in criminal cases. Kirby's Dig. 1904, §3084; Mears v. State, 84 Ark. 136, 104 S. "W. 1095. As to proof by reputation in the absence of such a statute, see § 425, supra, 2T People V. Struble, 275 111. 162, 113 N. E. 938; Graff v. People, 208 111. 312, 70 N. E. 299, aff'g 108 111. App. 168; Kincaid v. People, 139 111. 213, 28 N. E. 1060. Proof of user means proof of the exercise of corporate powers and func- tions. People V. Struble, 275 111. 162, 113 N. E. 938. If there is no countervailing proof, proof of user sufficiently supports an allegation of corporate existence in an indictment; as, for example, in a prosecution for a conspiracy to de- fraud certain insurance companies, which are alleged to be corporations. Graff V. People, 208 111. 312, 70 N. E. 299, aff'g 108 111. App. 168. As to whether such statutes apply where the corporation is a foreign one, see § 437, supra. 28Iadlaiia. See Green v. Indian- apolis, 25 Ind. 490. Montana. See Billings Realty Co. 94' V. Big Ditch Co., 43 Mont. 251, 115 Pac. 828. New York. New York Car Oil Co. V. Richmond, 6 Bosw. 213, 19 How. Pr. 505. Compare Hallett v. Harrower, 33 Barb. 537. North Carolina. Glenn v. Orr, 96 N. C. 413, 2 S. E. 538; State v. Shaw, 92 N. C. 768. WaiShington. Pacific Drug Co. v. Hamilton, 71 Wash. 469, 128 Pac. 1069; State v. Superior Court Clal- lam Co., 62 Wash. 612, 114 Pae. 444; State V. Pittam, 32 Wash. 137, 72 Pae. 1042. Wyoming., Edelhoff v. State, 5 Wyo. 19, 36 Pac. 627. The original record of incorporation is admissible to prove the fact of in- corporation, as well as the letters of incorporation. State v. Abernathy, 94 N. C. 545. 29 In Porter v. State, 141 Ind. 488, 40 N". E. 1061, it was held that the admission of a person questioning the validity of the organization of a cor- poration, that the original articles were filed in the county recorder 's of- fice, did not render it unnecessary to produce either such articles or the record thereof, or a certified copy, where a statute made such record or a certified copy conclusive evidence of the recitals therein. See also State v. Brown, 33 Utah 109, 93 Pac. 52. SOSumpter Tobacco Warehouse Co. V. Phoenix Assur. Co., 76 S. C. 76, 10 L. R. A. (N. S.) 736, 121 Am. St. Rep. 941, 11 Ann. Cas. 780, 56 S. E 654. CHAPTER 15 Underwriting Agreements 5 441. Introductory statement. i 442. Definition. S 443. Distinctions — ^In general. j 444. — Subscription agreements. i 445. Form of agreement. 5 446. Eelation of underwriter to corporation. } 447. Corporations as underwriters or guarantors. ! 448. Acceptance of agreement — Necessity of acceptance ; notice. I 449. — What constitutes acceptance. j 450. — Time of acceptance. i 451. — Estoppel to deny acceptance. i 452. Consideration for underwriting — ^Payment in general; nature; right to pay commission. I 453. — Construction of particular words as to consideration. ; 454. — Actions for consideration. i 455. Conditions in agreements — As to place of business of corporation, i 456. — As to other subscriptions, i 457. — Parol evidence. ) 458. Application for shares of stock — Necessity of formal application, i 459. — Application by agent, i 460. — Extent of agent 's authority. i 461. — Calling upon underwriter to perform contract, i 462. Extent of obligation to take stock. ) 463. Breach of contract — ^Election of remedies, i 464. — Parties, i 465. — Breach of covenants, j 466. — Delivery of stock, i 467. — Insolvency as defense. 5 468. — Measure of damages, i 469. — Effect of indemnity agreement. 5 470. Specific performance. S 471. Discharge or release of underwriter — Lapse of time. ! 472. Alterations or variations of underwriting agreements. ] 473. Fraud in procuring underwriting — In general. 1 474. — Eemedies. ) 475. Underwriter 's liabilities to third persons. 5 476. Eights of underwriters to interest on bonds. 5 477. Pledges of underwriting agreements. i 478. Assignment of underwriting agreements — Assignability and negotiability. J 479. — Eights of assignee. 948 Ch. 15] Under WKiTiNG Agbeements [§441 § 441. Introductory statement. One^ of the important problems presented to the organizers and promoters of corporations, as well as the stockholders, is that of securing a ready market for the shares of stock, or the bonds and securities which are issued by the corpora- tion. Lawyers and laymen, more particularly business m€n, are usually familiar with the methods of stock or bond salesmen in effecting the disposal of their securities. Not only is the sound financial basis of the corporation discussed, and the alluring arguments as to the profits of the business presented, but usually, and as a climax, the pros- pective buyer is shown the list of subscribers to the desirable invest- ment. The potency of the last argument is well known, especially where the subscribers are men well known in the financial world, and respected for their judgment as to business eiffairs. Of equal efficacy is the argument presented by the subscription to the new corporation made by some well known bank, or trust company, or some large financial institution. Accordingly, the practice has grown up, and is now well established, by which the success of an issue of stock either by a new or old cor- poration, or the issue of bonds, is assured, and the "backing" of reputable financiers or financial institutions is obtained prior to the offering for sale of the securities which it is desired to sell. An agree- ment is entered into with such persons by which they are paid a stated commission, or a certain compensation for lending their aid to the flotation of securities. And they are required to become sub- scribers and to take the stock and bonds sought to be sold, but only on the contingency or condition that the public at large does not become the purchasers of such securities. In other words they become the "underwriters" or insurers of the success of the new venture. The advantages of such schemes are obvious. A large corporation, such as a public service company, may desire to extend its business, already well established and of unimpeachable integrity, by the cre- ation of a new or subsidiary corporation. In such ease if the issue of stock of the new company is underwritten by the old company, a ready sale to the public may be easily imagined. A like effect is almost certain where a reputable financial institu- tion is an underwriter. And in this manner a means may be put forth to combat those unforeseen events such as "panics," or sudden depressions in the business world, which frequently operate to seriously hinder, if not to actually destroy, both new and old cor- porations. Having thus stated the general reasons for the existence of under- writers, rather from the standpoint of the business man, than the 949 § 441] Peivate Coepobations [Ch. 15 lawyer, it may now be proper to consider the definition, nature and form of such agreements, as well as the obligations of the various par- ties concerned. § 442. Defmition. As applied to corporate stock, an underwrit- ing agreement is an agreement made before such stock is offered to the public whereby the signer, or "underwriter" ^agrees for a cer- tain compensation to take a stipulated number of shares of stock, or a portion thereof, if the public does not subscribe for or take all of such stock.^ The same definition applies to the underwriting of corporate bonds and it is termed an agreement by the subscribers, based on a con- sideration, to insure the sale of the bonds subscribed at a stipulated price, and, if they are not sold to others, that the subscribers will purchase and pay for them at the price fixed therein.* It has been held that an underwriting in this sense is a purchase together with a guaranty of a sale of the bonds.^ §443. Distinctions — In general. To "underwrite" means some- thing more than an agreement to "place" a number of shares. It is an agreement to take the number of shares specified in the under- writing in the event that the public does not subscribe for them.* And an agreement to underwrite must be treated not merely as a guaranty, but as an application for the shares not applied for by the public.^ In some cases, the word "guarantee" is used in underwriting lln re Licensed Victuallers' Mut. ZBusch v. Stromberg-Carlson Tel. Trading Ass'n, 58 L. J. Ch. 467, 42 Mfg. Co., 217 Fed. 328, rehearing de- L. E. Ch. D. 1, 60 L. T. E. 684, 37 W. nied 226 Fed. 200. E. 674. See also Busch v. Stromberg- 3 Bone v. Hayes, 154 Cal. 759, 99 Carlson Tel. Mfg. Co., 217 Fed. 328, re- Pae. 172; Fraser v. Home Telephone hearing denied 226 Fed. 200; Bone v. & Telegraph Co., 91 Wash. 253, 157 Hayes, 154 Cal. 759, 99 Pae. 172; Pae. 692. White V. Eohinson, 145 N. T. App. 4 In re Licensed Victuallers' Mut. Div. 751, 130 N. Y. Supp. 388; Fraser Trading Ass'n, 58 L. J. Ch. 467, 42 V. Home Telephone & Telegraph Co., L. E. Ch. D. 1, 60 L. T. E. 684, 37 W. 91 Wa^h. 253, 157 Pae. 692. E. 674. "The word 'underwriting' simply See Gorrissen's Case, L. E. 8 Ch. means that the persons joining in 507. the scheme agree to furnish the neoes- Bin re Licensed Victuallers' Mut. sary money and to take the shares Trading Ass 'n, 58 L. J. Ch. 467, 42 L. which cannot be sold to outsiders." E. Ch. D. 1, 60 L. T. E. 684, 37 W. E. Minot V. Burroughs, 223 Mass. 595, 674. 112 N. E. 620. 950 CIi. 15] Underwbiting Agkeembnts [§ 444 agreements, but the use of such word is not conclusive of the obliga- tions entered into by the parties. Upon examination of the agreement, and after a consideration of the objects of the business enterprise which is contemplated, it may develop that the subscribers are not merely "guarantors" but principals, as to the scheme entered into, or more properly "subscribers" to the stock.* In other cases, the underwriters may in fact be guarantors.'' §444. — Subscription agreements. An underwriting agreement is to be distinguished from a subscription agreement whereby the subscribers themselves become the owners of the stock. This is a question not entirely free from difficulty as it sometimes happens that a corporation intrusts the entire sale of its stock to certain agents, or to a syndicate or another corporation. And cases have arisen where such agents have been designated in the subscription agreement as "underwriters" when a careful investigation of the facts showed that they were subscribers. But since the signers of an underwriting agreement merely agree to take so much of the stock as is not taken by the public, it would seem that if the agreement disposes of all of the stock, leaving none to be offered at public subscription, a straight subscription agreement is entered into. An additional fact of import' 6 Where a corporation was about to to the general purpose of the enter- increa^e its capital stock and to take prise, its character and scope, and the over certain other corporations and interests of the parties. Since the properties, and it was decided to ob- subscribers, by the agreement entered tain the necessary capital by the into, conferred upon the syndicate marketing of stock, and the rights and manager authority in respect to the limitations of the parties were set general purpose sought to be accom- forth in an "underwriting agree- plished, such subscribers were in ef- ment," to which the promoters, the feet principals. Knickerbocker Trust corporation, the subscribers, and syn- Co. v. Evans, 188 Fed. 549. dieate managers were parties, and it I' Guardian Trust Co. v. Peabody, was provided that the promoters and 122 N. Y. App. Div. 648, 107 N. Y. managers might borrow money by Supp. 515, afE'd 195 N. Y. 544, 88 N. pledging the subscriptions and stock E. 1120. as security, and the agreement stipu- Where underwriters act as guaran- lated that the subscribers "guaran- tors of a loan to a corporation, their tee" the payment of the amount contract should be fairly construed; loaned, the subscribers were not aim- they have the right to specify the ply guarantors of the enterprise, and thing guaranteed and the courts can- the use of such words as "guaran- not make a new contract for them, tees," "undertakes," and the like, Guardian Trust Co. v. Peabody, 122 were not conclusive of the relation N. Y. App. Div. 648, 107 N. Y. Supp. of the subscribers, but in determining 515, afE'd 195 N. Y. 544, 88 N. E. such relation, reference was to be had 1120. 951 § 444] Private Cobpoeations [Ch. 15 ance in determining this question is the profit, remuneration or eom- pensation which is to be received by the subscribers or underwriters. If the facts are such that bonus stock is received by the signers, as where preferred stock is subscribed for and additional shares of common stock are allotted as .a bonus, such profit would tend to estab- lish a subscription agreement as distinguished from an underwriting agreement where the underwriters are usually allowed a commis- sion.* Cases have also arisen where a subscription agreement has been modified or changed by the practical construction placed upon it by the parties, so that the subscribers were held to be underwriters. Thus if it appears that the obligation of the signers is merely to take stock not disposed of to the public, and if such construction is acquiesced in, the corporation will be estopped from claiming that the signers are liable as subscribers, whatever the original agreement.^ In respect to the obligations assumed, there is, of course, considerable distinction between an underwriting agreement and a subscription contract. In the former case, where a pure underwriting agreement is entered into the signer can refuse to become a member of the com- pany in pursuance of his contract with the promoter. This will sub- ject him to liability for the damages which the promoter sustains, but the underwriter may prefer paying such damages to becoming a member and so liable to paying the amount due on the stock.^" § 445. Form of agreement. A search of the reported cases reveals, especially in the United States, a wide variety of underwriting agree- ments. As has been seen in a preceding section, in some cases the word "underwriter" is used as a synonym for "guarantor," or in connection with the usual subscription agreement.^^ In connection with subscription agreements, it may be stated as a general propo- 8 White V. Robinson, 145 N. Y. App. (N. S.) 18, wiere the distinction is Div. 751, 130 N. Y. Supp. 388. considered, and where the fact that In this case the referee held that an underwriter's commission was to an underwriting agreement was en- be paid in shares, was referred to as tered into, but the opinion of the insufficient, to cause such underwriter court tended to indicate a subscrip- to be regarded as a "careful in- tiou agreement. The point involved vestor. " however was as to the liability of the 9 Banker's Money Order Ass'n v. subscribers or underwriter^ to a per- Nachod, 128 N. Y. App. Div. 281, 112 son who had bought stock in reliance N. Y. Supp. 721. on the representations as to subscrip- 10 Elefftrie Welding Co. v. Prince, tion. White v. Eobinson, 145 N. Y. 195 Mass. 242, 81 N. E. 306. See also App. Div. 751, 130 N. Y. Supp. 388. Gorrissen's Case, L. K. 8 Ch. 507. See al^o Baty v. Keswick, 85 L. T. E. 11 See § 443, supra. 952 Ch. 15] Undebwbitikg Ageeements [§ 445 sition that underwriting agreements are a species of conditional sub- scription agreements. Statutes have been enacted in many states requiring corporations to have subscribed a certain amount of their capital stock before they will be allowed to do business. In such case, it is not improper for the corporation to agree with its subscribers that their obligation to take stock shall be reduced if sufScient sub- scribers are procured to warrant such reduction. Here we have an underwriting agreement which is in effect a conditional subscription agreement.'^ While, according to the definition noted above, an underwriting agreement, in the strict sense of the term, antedates the existence of the corporation to which it relates,^^ in the United States, the agree- ment often takes the form of a tripartite agreement, the parties being the promoters, or promoting corporation, the new corporation and the persons undertaking to do the underwriting.^* But more elaborate schemes are also entered into, and trust companies, or syndicates, become parties, either in one of the capacities mentioned or as agents for the performance of certain duties usually performed by one of such parties. Thus a syndicate may be formed to which the pro- moters and underwriters are parties, and syndicate managers may be appointed to carry through the enterprise.^* "A syndicate in this connection means an association of persons with a community of interest in the fund raised for the purpose of carrying to the particu- lar undertaking. The members share the profits and bear the losses in proportion to their respective interests." ^® A further type of agreement which has been styled "underwriting" is found in one ease where an "underwriting certificate" was referred to. This was merely an agreement by which the signer agreed to pay a certain sum of money to a named person, "or order," in consider- ation of which he was to receive certain bonds and stock. Later, the agreement was involved in a suit by an indorsee, who sought to recover the money, and it was held that such indorsee was bound to prove performance before the amount named was recoverable.^'' Here the 12 Burke V. Smith, 16 Wall. (U. S.) Pa. St. 350, 72 Atl. 695 (where an 390, 21 L. Ed. 361 (where the sub- underwriting agreement was held tri- scribers' agreement to take stock in a partite). railroad wag reduced when a city ex- 16 See Knickerbocker Trust Co. v. tended aid to the corporation and took Evans, 188 Fed. 549. acme of the stock). ISMinot v. Burroughs, 223 Mass. IS See § 442, supra. 595, 112 N. E. 620. 14 See Real Estate Trust Co. of Phila- 17 Litchfield Sav. Society v. Dibble, delphia v. Eiter-Conley Mfg. Co., 223 80 Conn. 128, 67 Atl. 47L 953 § 445] Pbivate Coeporations [Ch. 15 underwriting agreement might be described as a species of negotiable paper. In England, the nature of an underwriting agreement is well defined. The plan in vogue there is the execution of a letter by which the signer applies for a certain number of shares of stock, agreeing to take less if the public subscription warrants a reduction of the amount. Various other conditions are usually inserted in the letter, and the pro- moter is appointed as the signer's agent to' apply for the stock, if the underwriter neglects or fails to act. In this way the obligation is made secure, as regards the taking of stock.^* § 446. Relation of underwriter to corporation. A contract to get shares subscribed has been held not to be in any sense a contract of personal service. Such a contract can be equally well fulfilled by the contracting party procuring some one else to obtain the subscrip- tions for the shares, and in the case of the death of the contracting party, the executors could obtain subscriptions to the same extent as the individual.^' While the facts might be such as to make an underwriter an agent of a corporation, this is not usually the case. And the fact that a corporation advertises a person as an underwriter of its stocks and bonds does not as a matter of law make such underwriter an agent of the corporation. On the contrary he is an ultimate purchaser of so much of the stock which he agrees to take and which' he does not sell. And in selling stock or bonds the underwriter is obviously acting solely in his own interest, and to relieve himself of the necessity of taking such stoek.^" Of course, the evidence may he such as to estab- lish the relation of principal and agent,*^ and the doctrine of estoppel may be invoked if the facts are such as to show a holding out of an 18 For examples of underwriting 20 Fraser v. Home Telephone & Tele- lettere, see In re Bultfontein Sun graph Co., 91 Wash. 253, 157 Pac. 692. Diamond Mines, Ltd., 75 L. T. E. 669, 21 In an action where it was con- 13 T. L. E. 156. tended that an underwriter was an In re Harvey's Oyster Co., Ltd., 63 ^S^"* °* ^^^ corporation, evidence L. J. Ch. 578, 2 Ch. 474, 8 E. 715, 70 ^^"^"^^ showed merely that a friend of L. T. E. 795, 42 W. E. 701, 1 Manson ^^^ plaintiff told him that he was sell- 253 ing the stocks and bonds of the cor- Brussels Palaee of Varieties, Ltd. Zf°"' ''^°^'^""; '^' f""^' °' V. Prockter, 10 T. L. E. 72, and cases "f '""^rT' ^"d,,^"*^°^"ff .'^^ }° -.-,... t"e president, and that such friend in- referred to, infra. 4.,„j„„ j v i ^i. ' troduced him to the underwriter, who 19 In re Worthington, [1914] 2 K. had an office in the building with a B. 299, 83 L. J. K. B. 885, 110 L. T. sign thereon stating his business as B. 599, 31 Manson 119. "underwriter," and by whom the 954 Ch. 15] Underwriting Agrkbments [§ 448 underwriter as an agent. But obviously the doctrine of estoppel cannot be invoked by a person who purchases stock from an under- writer, not knowing what the term means. Such a person ea«inot claim that the underwriter is held out as an agent and represented to be such.2* § 447. Corporations as underwriters or guarantors. Unless such authority is expressly conferred,^* a corporation frequently has no power to act as guarantor or surety.^* By a parity of reasoning the existence of the power to underwrite securities would seem to be denied to a corporation. But this rule would not operate as to those banking or finance companies which are engaged in this kind of business. And in many cases underwriting is done by a trust company, a syndicate or some other corporation of this nature. Other instances may be found, as where one corporation engaged in some large business, which wishes to promote a sub- sidiary corporation, in order to insure the success of the second or new company, enters into agreements for the underwriting of the stock, or even the bonds.^^ The fact that a corporation is the owner of a large amount of stock of a new company and is largely interested in its success, and that it offers a bonus of stock to induce subscriptions cannot destroy its right to join with other subscribers in creating an underwriting syndicate to take bonds.^^ §448. Acceptance of agreement — Necessity of acceptance; notice. In reference to underwriting letters, it may be stated that ordinarily plaintiff was shown a prospectus of 23 Mine & Smelter Supply Co. v. the corporation, was held insufficient Stoekgrowers ' Bank, 173 Fed. 859. to show that the underwriter was an 24 Mapes v. German Bank of Tilden, agent though the plaintiff purchased 176 Fed. 89; Simmons Nat. Bank v. his bonds and stock from such under- Dilley Foundry Co., 95 Ark. 368, 130 writer. Fraser v. Home Telephone & S. W. 162; Gause v. Commonwealth Telegraph Co., 91 Wash. 253, 157 Pac. Trust Co., 196 N. Y. 134, 24 L. E. A. 692. (N. S.) 967, 89 N. E. 476; Gaston & The fact that an underwriter issues Ayres v. J. I. Campbell Co. (Tex. Civ. a prospectus to aid him in selling App.), 130 S. W. 222. stock and bonds, does not tend to 2B See Fraser v. Home Telephone & prove agency. Fraser v. Home Tele- Telegraph Co., 91 Wash. 253, 157 Pac. phone & Telegraph Co., 91 Wash. 253, 692. 157 Pac. 692. 26 Eastern Tube Co. v. Harrison, 22 Fraser v. Home Telephone & Tele- 140 Fed. 519. graph Co., 91 Wash. 253, 157 Pac. 692. 955 § 448] Pbivate Coepokations [Ch. 15 to constitute a contract by correspondence there must first be a pro- posal, then an acceptance, and thirdly a communication of the accept- ance of the agreement.^'' And the mere acceptance of an offer, unless it is brought to the knowledge of the person making it, does not, as a rule, convert the offer into a contract.*^ Of course, attention must be paid to the terms of the underwriting letter or agreement in each particular case.^' Thus, if an underwriting letter constitutes a mere offer, an acceptance is necessary.^" And where an applicant signs an underwriting letter agreeing to take a certain number of shares or "such less number as may be accepted by you," there is no bind- ing agreement until the underwriter has notice of how much of his proposal is aecepted.^^ But where the underwriting agreement is in the usual form and is not worded so as to be an offer, no acceptance is necessary, or, if necessary, it may be implied from the conduct of the promoter in retaining the letter.'^ It has been said that an underwriting agreement was "not like a bet that must be accepted before the event on which it became operative was known." In that ease it was pointed out that in the usual course of business, where an underwriter agrees to take an indefinite number of shares, in order to make up the amount required by a new corporation to do business, the corporation could not accept the underwriter's agreement until it was able to determine how many shares it wished him to take.^^ Under the same rules, notice of acceptance need not be communi- cated to the underwriter by the promoter or corporation, unless he expressly stipulates that such notice be eriven.^* § 449. — What constitutes a,cceptance. Acceptance of an under- writing agreement may be implied from the conduct of the promoter 27 In re Bultfontein Sun Diamond Ch. 297, 76 L. T. E. 300, 45 W. E. 420. Mines, Ltd., 75 L. T. E. 669, 13 T. L. 32 See § 449. E. 156. 33 In re Consort Deep Level Gold 28 In re Consort Deep Level Gold Mines, Ltd., [1897] 1 Ch. 575, 66 L. J. Mines, Ltd., [1897] 1 Ch. 575, 66 L. J. Ch. 297, 76 L. T. E. 300, 45 W. E. 420. Ch. 297, 76 L. T. E. 300, 45 "W. E. 420. 34 Under the usual underwriting 29 In re Consort Deep Level Gold agreement whereby the underwriter Mines, Ltd., [1897] 1 Ch. 575, 66 L. J. applies for certain shares and signs Ch. 297, 76 L. T. E. 300, 45 W. E. 420. an irrevocable authority whereby the 30 In re Consort Deep Level Gold agent may apply for shares if he fails Mines, Ltd., [1897] 1 Ch. 575, 66 L. J. to act, the underwriter is bound Ch. 297, 76 L. T. E. 300, 45 W. E. 420. though he has no notice of the accep- 31 In re Consort Deep Level Gold tance of the agreement. Shaw v. Mines, Ltd., [1897] 1 Ch. 575, 66 L. J. Bentley & Co., 68 L. T. E. 812. 956 Ch. 15] Undeeweiting Agebements [§ 451 or person who takes the agreement. Such conduct may consist in the mere retention of the underwriting letter or agreement,^* or in the acts of the agent in acting in conformity with the provisions of the contract, as by applying for stock.^* §450. — Time of acceptance. Where an underwriting letter to an agent authorizes him to apply for shares in the writer's name, and such agreement contains the stipulation that the "engagement is binding for two months" on the writer, the agreement must be con- sidered as being ambiguous, and must be interpreted according to the intention of the parties.*'' In such case, it has been held that the words "this engagement" do not mean an offer consummated by acceptance but must be interpreted as an offer binding for two months and no longer.^* §451. — Estoppel to deny acceptance. In some cases an appli- cant may be estopped from denying that his application for shares by his agent is binding although he was not notified of the acceptance of his agreement."^ And where an underwriter, regardless of whether his offer is accepted, takes the shares allotted to him and acts for some time as a shareholder, he cannot consequently repudiate his agree- 86 Where an underwriting letter is within a reasonable time and when retained by promoters without objee- completed was to be in force for two tion, such retention may be inferred months. Decision of Vaughan Wil- to constitute an acceptance, since if liams. In re Hemp, Yarn & Cordage the promoters did not wish to accept Co., Ltd., 65 L. J. Ch. 322, rev'd the agreement they would naturally In re Hemp, Yarn & Cordage Co., return the rejected letter. In re Bult- Ltd., [1896] 2 Ch. 121, 65 L. J. Ch. fontein Sun Diamond Mines, Ltd., 75 591, 74 L. T. E. 627, 44 W. B. 630, 3 L. T. E. 669, 13 T. L. E. 156. Manson 187. 36 Where an underwriting letter au- 38 In re Hemp, Yarn & Cordage Co., thorizes secretaries of the corporation Ltd., [1896] 2 Ch. 121, 65 L. J. Ch. addressed to apply for shares, an ac- 591, 74 L. T. E. 627, 44 W. R. 630, 3 ceptance may be implied from the con- Manson 187. duct of the secretary in placing the 39 In re Henry Bentley & Co. & form on the list as agent of the com- Yorkshire Breweries, Ltd., 69 L. T. K. pany. North Charterland Exploration 204. Co. V. Eiordan, 13 T. L. E. 80, 281. Doctrine of estoppel held not to 37 In re Hemp, Yarn & Cordage Co., apply where underwriter had not so Ltd., [1896] 2 Ch. 121, 65 L. J. Ch. conducted himself as to be precluded 591, 74 L. T. R. 627, 44 W. R. 630, 3 from denying agent's authority. In Manson 187. re Consort Deep Level Gold Mines, Such an agreement has been eon- Ltd., [1897] 1 Ch. 575, 66 L. J. Ch. strued as being an offer to be accepted 297, 76 L. T. R. 300, 45 W. R. 420. 957 §451] PbIVATE COBPOKATIONS [Ch. 15 ment and claim that he was entitled to acceptance of the underwrit- ing agreement.*" If an underwriter stipulates that his agreement is to be accepted within a certain time, and such condition is included in the agree- ment, the corporation would be bound to give him notice of accept- ance. But if the stipulation as to acceptance before a certain time is contained in a separate letter, which is handed to an agent together with the underwriting agreement, and passes through the hands of various other agents, there being no receipt of the condition by the corporation, the doctrine of estoppel may be invoked. There being nothing to put the corporation on inquiry, and the underwriting agreement having been executed with the intention that it should be acted upon, the underwriter will be estopped from denying the authority of his agent, contained in the agreement, to apply for shares.*^ §452. Consideration for underwriting' — Payment in general; nature; right to pay commission. Under an underwriting agree- ment a commission is usually paid on all shares to which the agreement applies, whether taken by the public or by the under- writer himself.** This commission is usually, and especially in England, stated to be a certain per centum of the par value of the stock referred to in the underwriting agreement. The agreement may, however, provide other methods of compensation. Thus there may be a provision en- titling the underwriter to a certain number of shares of stock, and to a contingent cash commission only in the event that the under- writers succeed in disposing of the stock to the public.*^ As to the right to pay commissions, it would seem that there should be no legal objection to such payment provided that the company does not misapply its capital. There are few decisions on this sub- ject. 40 In re Hemp, Tarn & Cordage Co., 43 Philadelphia Const. Co. v. Cramp, Ltd., [1896] 2 Ch. 121, 65 L. J. Ch. 138 Ted. 999. 591, 74 L. T. B. 627, 44 W. K. 630, 3 In the above case the contract was Manson 187. construed and held to provide that 41 In re Henry Bentley & Co. & the corporation was to receive 95 per Yorkshire Breweries, Ltd., 69 L. T, E. cent, of par value of the bonds, 204. whether sold by the underwriters or 42 In re Licensed Victuallers' Mut. taken by subscribers. Philadelphia Trading Ass 'n, 58 L. J. Ch. 467, 42 L. Const. Co. v. Cramp, 138 Fed. 999. E. Ch. D. 1, 60 L. T. E. 684, 37 W. E. 674. 958 Ch. 15] Undebwkiting Agbeements [§452 In one case, where a promoter was held liable for secret profits, and in determining the amount due, the promoter contended that he was entitled to a certain sum paid to his partner for underwriting shares, it was held that to allow such sum would be to make the com- pany misapply its capital.** This is submitted as being rather un- usual and no other case has been found with a like holding. Some other English cases deal with the construction of the "Com- panies Act" whereby it is specifically provided that it is lawful to pay a commission to persons subscribing, agreeing to subscribe, 'Or procuring or agreeing to procure subscriptions, if the payment of such commission is authorized by the articles, and, where the shares are offered to the public for subscription, if the amount of the com- mission is disclosed in the prospectus.*^ Such a statute does not apply where a corporation gives an individual an option of taking shares, and there is no prospectus or offer of shares to the public.*® 44Lydney & Wigpool Iron Ore Co. V. Bird, 33 Ch. Div. 85. 45 The text of the Companies (Con- solidation) Act, 1908 (8 Edw. VII, c. 69), §,89, is as follows: "(1) It shall be lawful for a company to pay a commission to any person in consid- eration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in the company, or procuring or agreeing to procure subscriptions, whether abso- lute or conditional, for any shares in the company, if the payment of the commission is authorized by the arti- cles, and the commission paid or agreed to be paid does not exceed the amount or rate so authorized, and if the amount or rate per cent, of the commission paid or agreed to be paid is — (a) In the case of shares offered to the public for subscription, dis- closed in the prospectus; * * * (2) Save as aforesaid, no company shall apply any of its shares or capital money either directly or indirectly in payment of any commission, discount, or allowance, to any person in consid- eration of his subscribing or agreeing to Subscribe, whether absolutely or oonditionaJly, for any shares of the company, or procuring or agreeing to procure subscriptions, whether abso- lute or conditional, for any shares in the company, whether the shares or money be so applied by being added to the purchase money of any property acquired by the company or to the contract price of any work to be exe- cuted for the company, or the money be paid out of the nominal purchase money or contract price, or otherwise. (3) Nothing in this section shall af- fect the power of any company to pay such brokerage as it has heretofore been lawful for a company to pay, and a vendor to, promoter of, or other person who receives payment in money or shares from, a company shall have and sharll be deemed always to have had power to apply any part of the money or shares so received in pay- ment of any commission, the pa,yment of which, if made directly by the xiom- pany, would have been legal under this section." 48 linger Companies Ac* 1900 (63 & 64 Viet. c. 48), §8 providing that it shall be lawful for a company to pay a commission to any person subscribing or agreeing to 'subscribe absolutely or. conditionally for shares in the com- 959 § 452] Pbivate Coepoeations [Ch. 15 And the payment of commissions is illegal except as autnorized by the statute. It will be noted that the statute operates as a permissive, as well as a prohibitory, enactment. In the second portion the pay- ment of commissions is, prohibited, except in the cases mentioned in the first portion, or subsection. This prohibition has been held to apply to private as well as public companies.*'' Where an underwriting agreement provides for a stated commis- sion to be paid, and another agreement is entered into prior to the formation of the corporation, by which an existing company is to be paid a per centum on thershares subscribed to the new company, in consideration of the transfer of certain trading rights to such new company, it would seem that the statute is not violated, even though the commission of the promoter added to the per centum agreed to be paid the existing corporation would exceed the limit allowed by the articles of the new company. There is a dictum to this effect in one case and the court was inclined to hold that the amount paid as a per centum was merely stated as an indirect way of fixing the amount of the purchase money of the stock. In any event, regardless of misstatements in the prospectus, there was no intention to break the law.« §453. — Oonstruction of particular words as to consideration. Where an agreement provides for the underwriting of shares at a "discount" of a certain per cent., the word "discount" is to be con- strued as equivalent to the term "commission."*^ pany, or procuring or agreeing to pro- L. S. Ch. D. 1, 60 L. T. B. 684, 37 W. cur© subscriptions, etc., if tlie pay- E. 674. ment of commission and the amount This construction was based upon or rate is disclosed in the pros- the phrasing of an underwriting let- pectus, does not apply where the ter reading as follows: "In consider- company gives an individual an option ation of your underwriting 10,000 £ of taking shares and there is no " of - • A ' shares in the Licensed Victuallers ' fer to the public for subscription," Mutual Trading Association, Limi- and where there is no "prospectus." ted, at fifteen per cent, discount, I, Shorto V. Cblwill, 101 L. T. E. 598. acting on behalf of the company, 47 ^Dominion of Canada Gen. Trad- undertake that all applications which ing & Investment Syndicate v. Brig- have been received up to the present 9tocke, [1911] 2 K. B. 648, 80 L. J. K. time, or may be received within one B. 1344, 105 L. T. E. 894, 18 Manson week of the closing of the lists, shall 369, 55 Sol, J. 633, 27 T. L. E. 508. be allotted in full from the said 10,000 48 In re Wprthington, [1914] 2 K. shares underwritten by you." In B. 299, 83 L. J. K. B. 885, 110 L. T. reaching this conclusion the court ad- E, 599, 21 Manson 119, verted to the fact that the term, when . 49 In re Licensed Victuallers' Mut. not explained by the context, was {im- irading Ass'n, 58 L. J. Ch. 467, 42 biguous. 960 Ch. 15] Undeeweiting Ageeements [§ 456 § 454. — Actions for consideration. Where an underwriting ton- tract provides f er a stipulated commission to be paid the underwriter, and also gives the promoter authority on default of the underwriter to apply for the shares which the underwriter agrees to take, an ap- plication for the shares is not a condition precedent to a right of action for the commission.^" § 455. Conditions in agreements — ^As to place of business of cor- poration. If an underwriter wishes to condition his signature or his covenant to sell or purchase bonds or securities by a stipulation that the corporation is to erect its plant at a named place, it is his duty ifi express that condition in the contract.*^ If the underwriting agreement contains no stipulation as to the place of business of the corporation, and the underwriter continues with the performance of his agreement, he cannot subsequently con- tend that his subscription was conditional.^^ A condition as to the place of business may be contained in a sepa- rate covenant, but such a covenant does not operate to condition the remainder of the agreement. The breach of such covenant does not operate as a defense to an action for the breach of the remainder of the agreement.^* § 456. — As to other subscriptions. In some underwriting agree- ments it is stipulated that the signer is not, to be called upon to take the shares underw;ritten unless a certain amount of stock is subscribed for. But it has been held that if a contract contains no condition that underwriting certificates shall be unenforceable unless sub- scriptions to bonds shall aggregate a certain amount, such a condition will not be implied.** An express stipulation that an underwriter is not to be called upon to accept his allotment until a specified number of shares are sub- scribed for by the residents of a foreign country has been held to constitute a condition precedent to the Underwriter's liability,** and such condition is not fulfilled by obtaining the underwriting of such a number of shares by such residents. The contract having provided 60 gangster v. Netter, 9 T. L. E. 63Busch v. Stromberg-Carlson Tel. 4dl. Mfg. Co., 217 Fed. 328. 61 Buseh V. Stromberg-Carlson Tel. 64 Knickerbocker Trust Co. v. Da^is, Mfg. Co., 217 Fed. 328. 143 Fed. 587. 62Buscli V. Stromberg-Carlson Tel. 55 Paul Boyer, Ltd. v. Edwarois, 17 Mfg. Co., 217 Fed. 328. T. L. E. 16. 961 IPrir. Corp.— 61 §457] Pkivate Coepobations [Ch. 15 for the sale of the stock, or its subscription, it was necessary to per- form suclf condition.*® § 457. — Parol evidence. The general rule prohibiting the admis- sibility of parol evidence to vary the terms of a written contract applies to underwriting agreements. And in the same manner the exceptions to stich rule apply. Not only can ambiguities be explained by parol, but the agreement may in the same manner be varied, added to, or even contradicted where it is shown that but for the oral stipu- lations made at the time, the party affected would not have executed it. In accordance with this rule a conditional agreement was held to exist in one case where an issue of bonds was underwritten. And the subscriber was held entitled to be relieved from liability since he in- troduced strong evidence showing the existence of the conditional agreement and since his release did not operate to injure the co- subscribers. Also the corporation was bound by the stipulation of its agent though it was contended that he exceeded his authority.*'' It cannot be contended that an underwriting agreement is avoided by an oral promise that the subscription will not be collected, where it is not alleged that such oral agreement has been omitted from the written agreement by fraiid, accident or mistake.*^ §458. Application for shares of stock — Necessity of formal ap- plication. Ordinarily, and in the usual course of business, a formal application should be made for the allotment of the shares of stock which are underwritten.*® But this is a matter which is governed by the contract entered into. The terms may be such that the agreement operates as an application for the stock, in addition to the guaranty.*" B6 Where an underwriting agree- shares, as such agreement by the ment provided that the signer was French underwriter could not be eon- to Aake a certain number of prefer- sidered as a fulfillment of the eondi- ence shares, but it stipulated that the tion. Paul Boyer, Ltd. v. Edwardes, signer was not to be called upon to 17 T. L. E. 16. accept his allotment unless 8,000 pref- 67 Eeal Estate Trust Co. of Phila- erence shares were irrevocably ap- delphia v. Riter-Conley Mfg. Co., 223 plied for by persons residing in Pa. St. 350, 72 Atl. 695. France, it being also stipulated that 88 "Warburton v. Trust Co. of Ameri- the application money should be duly ca, 158 Fed. 969. paid on each of such shares, such 69 In re Licensed Victuallers' Mut. stipulation constituted a condition Trading Ass'n, 58 L. J. Ch. 467, 42 L. precedent and the underwriter was E. Ch. D. 1, 60 L. T. R. 684, 37 W. E. not liable, and was not required to 674. take shares when another underwriter 60 In re Licensed Victuallers ' Mut. residing in France applied for 8,000 Trading A^s'n, 58 L. J. Ch. 467, 42 962 Ch, 15] Under WBiTiNG Agbeements [§ 460 §459 — Application by agent. It is customary, particularly in England, for the underwriter to authorize the promoter as his agent to apply for the shares in his name, it being also stipulated, usually, that the authority given is irrevocable. Under such an agreement the underwriter cannot contend that he has the power to revoke the agent's authority, this being the case of an authority coupled with an interest.^^ This is manifestly of distinct advantage, not only as a means of securing performance of the underwrite 's agreement, but also as giving the corporation something of value which can be relied upon. Frequently, the underwriting agreement is pledged, as where a loan is contemplated, and in such cases it is necessary that the underwrit- ing agreement should be of the value of a subscription contract. To allow the revocation of the agreement would be to admit the under- writer to the position of a mere broker or agent. If the underwriting agreement is intended to be shown to the cor- poration and acted upon, the doctrine of estoppel may be invoked to prevent the underwriter from denying the authority of his agent (the promoter) to apply for the shares. Such doctrine was applied in one case where there was nothing in the agreement to put the cor- poration on inquiry as to the agent's authority. And such authority was not limited by a letter which contained a stipulation as to accept- ance of the agreement, but which letter did not reach the corpora- tion.62 The agent's authority is subject to revocation, or is in fact termi- nated, where there is a substantial alteration of the underwriter's risk.®^ This is a matter M'hieh is treated in another section,^* but it is apparent that an underwriter who gives a person a power of at- torney to apply for a certain number of shares is entitled to rely on the original agreement or scheme entered into. § 460. — Extent of agent's authority. The extent of authority of an agent of the under\s'riter to apply for shares, is governed by the terms of the underwriting agreement. If such a contract contains L. E. Ch. D. 1, 60 L. T. R. 684, 37 W. 63 Warner International & Overseas R. 674. Engineering Co., Ltd. v. Kilburn, 61 In re Hannan 's Empress Gold- Brown & Co., 84 L. J. K. B. 365, 110 Mining & Development Co., Ltd., L. T. E. 456, 30 T. L. R. 284, revers- [1896] 2 Oh. 643, 65 L. J. Ch. 902, 75 ing decision of Pickford, J., 29 T. L. L. T. R. 45. R. 322, See also Electric Welding Co. 62 In re Henry Bentley & Co. & v. Prince, 195 Mass. 242, 81 N. • E. Yorkshire Breweries, Ltd., 69 L. T. R. 306. 204. 64 See § 472, infra- 963 §460] PbIVATE COKPOEATIONS [Ch. 15 the usual irrevocable authprity allowing the a^ent to apply for shares, and the underwriter agrees to take a certain number of shares, or a portion of such number if the public subscribes, the contract is bind- ing, and the underwriter is bound by the agent's application.®^ In such case the agreement operates to give the underwriter an option to find subscribers for the stock until the time mentioned in the agree- ment when he is bound to take the shares.®* .Under an agreement for a number of shares, where the underwriter gives authority to "hand in my application form to the company as my agent," it has been held that the agent, who applied for a less number of shares than that mentioned in the agreement, had no authority to do so. If any authority was conferred, it was to be con- strued strictly, and the agent had no power to apply for the lesser number of shares though some of the stock was subscribed for by the public.®'' §461. — Calling upon underwriter to perform contract. In a number of eases the underwriting letter or agreement has contained the statement that the underwriter agreed to send in his application or to find subscribers for the shares underwritten, "when called upon," or "if and as called upon." There were also the usual stipu- lations that the agent was authorized irrevocably to apply for the shares, and the like. It has been uniformly held that the stipulation as to calling upon the underwriter or notifying him to perform the contract, was a condition precedent to an application by the agent, even though the contract was binding.®' The agreement was not to be used until the underwriter was called upon to perform, and an application by the qgent in disregard of the stipulation was unauthorized.®' §462. Extent of obligation to take stock. The underwriting agreement entered into is, as has already been noted, a distinct agree- ment from a subscription to take stock.'® But there is no objection 65 Shaw V. Bentley & Co., 68 L. T. 68 In re Bultf ontein Sun Diamond E. 812 (where the agent applied for Mines, Ltd., 75 L. T. E. 669, 13 T. L. 164 shares and the underwriter who ^- 156; In re Harvey's Oyster Co., 63 had. agreed to take 200, could not re- ^- J- ^h. 578, L. E. (1894) 2 Ch. 474, pudiate the application). ^0 L. T. E. 795, 42 W. E. 701, 1 Man- , CO T rn ^0" 153; Brussels Palace of Varieties 66 Shaw V. Bentley & Co., 68 L. T. ^_ prockter, 10 T. L. E. 72. ^- ^^^- 69 Electric "Welding Co. v. Prince, 67Holophane v. Hesseltine, 13 T. 195 Mass. 242, 81 N. E. 306. L. E. 7. 70 See § 444, supra. 964 Ch. 15] Undbkwbiting Agbeements [§465 to an underwriter becoming a subscriber in addition to Ms btber obli- gations. This is rather an advantage, as Operating to decrease the other underwriters' liabilities. Accordingly where certain underwriters indorsed a note agreeing to take SD many shares "firm," it has been held that an independent contract was entered into by which the underwriters mentioned agreed to become shareholders unconditionally.''^ Cases have also arisen where there was doubt whether the original agreement made the signers subscribers, or mere underwriters with the obligation to take stock not disposed of to the public. In such case the practical construction adopted by the parties may be conclusive, and signers of an original subscriptioii agreement may be bound only as underwriters.''' § 463. Breach of contract — Election of remedies. Where there is a breach of contract by an underwriter, the plaintiff, has the option to retain the bonds and stock which the underwriter agreed to take, and to sue for damages for the failure of siieh underwriter to take and pay for them. Or he may deliver the securities to the under- writer, and if he refuses to receive them, bring them into court and sue to recover the contract price.'^ § 464. — Parties. The usual underwriting agreement is made, with a promoter, at least this is one of the common forms in England.; The corporation is not a party to such a,greement, and accordingly it may be stated as a general rule that the promoter must sue, where; there is a breach of contract by the underwriter.''* But where under- writers agree to pay a portion of their subscription on demand to a certain trust company, and the agreement provides for the enforce- ment of the obligations by such trust company, it is a proper party to sue on the agreement.''^ § 465. — Breach of covenants. If an underwriting agreement contains a covenant stipulating that certain acts are to be done at ' 71 Sydney Harbour Collieries Co. v. action at law for breach of contrsact/ Grey, 14 T. L. B. 373, aff'g 13 T. L. Gilbert v. Bunnell, 92 N. Y. App. Div. R. 564. 284, 86 N. Y. Supp. 1123. 72 Bankers' Money Order Ass'n v. 74 Brussels Palace of Varieties v. Naehod, 128 N. Y. App. Div. 281, 112 Prockter, 10 T. L. E. 72. See also N. Y. Supp. 721. Electric Welding Co. v. Prince, 195 TSBusch V. Stromberg-Carlson Tel. Mass. 242, 81 N. E. 306. Mfg. Co., 226 Fed. 200. 76 Warburton v. Trust Co. cf Aineri- Complaint held to state cause of ca, 158 Fed. 969. ^■ 965 § 465] Pbivate Cobpobations [Ch. 15 certain times, and another covenant refers to the performance of other acts at other times, the latter covenant does not condition the former, but is independent of it, and a breach of the latter covenant, while it may raise a cause of action, is no defense to an action for the breach of the former covenant." § 466. — Delivery of stock. Under the usual underwriting agree- ment the production and tender of the stock or bonds underwritten is a prerequisite to demand upon the underwriters for performance of their agreement." Underwriters who pay the contract price are entitled to the delivery of the property contracted to be sold. Payment is only the final act necessary to make the contract complete. If parties agree upon the delivery of a particular security, delivery ia essential, regardless of whether such security becomes worthless or not." §467. — Insolvency as defense. Where ah underwriting agree- ment is complete in itself and there are mutual covenants, there being an agreement on the part of the corporation or the promoter or some other person to furnish certain stock and bonds and there being the usual agreement of the underwriter to insure the sale of such securities at par, it is no defense to an action against one of the underwriters for breach of his contract that the corporation became insolvent and the bonds worthless after he made his contract.'" This is especially true where the underwriter is largely interes.ted in the venture and nearly completes the performance of his undertaking and receives the benefit therefrom.^" 76 Bnsch V. Stromberg-Carlson Tel. Biinply a provision for the payment of Mfg. Co., 217 Fed. 328. In this case a certain sum of money to a named the underwriter contended that his person or order, in consideration of agreement was void because the cove- which the underwriter was to receive nant as to location of the corpora.- certain bonds and stock. In a suit tion's plant at a certain city was for the money by an indorsee, it was broken. held that such indorsee was bound to 77Kirkpatriekv. Eastern Milling & V^ove performance or an offer to Export Co., 135 Fed. 146; Hudson P"form before he could recover the Valley E. Co. v. O'Connor, 95 N. Y. consideration. The parties having App. Div. 6, 88 N. Y. Supp. 742. f ^reed upon the delivery of a particu- ^^ ' , ^^^ security, such delivery was 78 Litchfield Sav. Society v. Dibble, essential, regardless of whether the 80 Conn. 128, 67 Atl. 476. In the security named was worthless or not. above case the contract which was 79Busch v. Stromberg-Carlson Tel. termed an "underwriting certificate," Mfg. Co., 217 Fed. 328. was radically different from the usual 80 Busch v. Stromberg - Carlson underTrriting agreement, there being Tel. Mfg. Co., 217 Fed. 328. 966 Ch, 15] Underwkiting Agreements [§ 471 § 468. — Measure of damages. The measure of damages for the breach of an agreement to insure the sale of subscribed bonds and stock at par, and to buy at par the subscribed securities not sold, is the difference between the agreed price and the value at and after the breach of the contract of such bonds and stock with interest on that difference.*^ There is no more difficulty in establishing the value of an under- writing contract by proof, than there is in other cases where the value of the contract depends upon the profits to be made from a given venture.*® § 469. — Effect of indemnity agreement. The fact that the trust company requires another person for whose benefit the bonds of the corporation are issued, to indemnify it still further by advancing money in anticipation of the payment by underwriters and as an indemnity against their nonpayment, in no wise affects its right to collect, nor the obligation of the underwriter to pay his subscription.*^ §470. Specific performance. It is well settled that courts of equity have jurisdiction to entertain a suit for, and to decree specific performance of a contract for the sale of a chattel or of a chose in action agreed to be transferred.** This rule applies to underwriting agreements, but parties cannot as a matter of absolute right demand the specific performance of such a contract. Whether it will be allowed in a given case, rests in the sound discretion of the court. Such discretion will be favorably exercised when it is made to appear that compensation in damages is difficult or impossible of establish- ment, and the law will then be inadequate in remedy.*^ § 471. Discharge or release of underwriter — Lapse of time. When an underwriter enters into an agreement to underwrite shares, it would seem that he will not be bound to keep his money ready to 81 Buseh V. StromlDerg-Carlson Tel. 83 Warburton v. Trust Co. of Mfg. Co., 217 Fed. 328. America, 158 Fed. 969. Where the plaintiff suing for a 84 Gilbert v. Bunnell, 92 N. T. App. breach of contract brings into court Div. 284, 86 N. Y. Supp. 1123. and tenders the bonds and stock 85 Gilbert v. Bunnell, 92 N. Y. App. which the underwriter was to receive, Div. 284, 86 N. Y. Supp. 1123. the rule of damages mentioned does Where a complaint states a con- not apply. Buach v. Stroraberg-Carl- tract, a breach of it, and that plain- son Tel. Mfg. Co., 217 Fed. 328. tiffs have sustained damages, and 82 Gilbert v. Bunnell, 92 N. Y. App. prays for relief to the extent of the Div. 284, 86 N. Y. Supp. 1123. money damages suffered, it states the 967 § 471] Peivate Coepokations [Ch. 15 answer to that investment for an indefinite time, but that the new corporation should be launched, within a reasonable time.^® On the other hand, the state of the financial market and other conditions may be such that it is impossible to bring out the new company with any hope of success, and consequently delay is necessary. If an adven- ture underwritten cannot be carried through within, the time stipu- lated, the agreement will be ended.*'' Cases may arise, however, where the underwriter has paid a certain portion of money to the promoter or corporation and acquiesces in the retention of such money. In such case it would be difficult to see how the lapse of time would operate to terminate the agreement.** §472. Alterations or variations of underwriting agreements. A substantial alteration or variation of the agreement entered into by the underwriter will operate to discharge him from his obligation, and accordingly stipulations are usually inserted in such agreements as to what changes may be made. This becomes important where the matter of underwriting is taken up at such an early stage of the proceedings that the amount of stock or bonds or other securities which is to be issued has not been determined, except tentatively. It is apparent that any radical change in the amount of stock or other securities, either by increasing the same or reducing them, may seriously affect the risk assumed by the underwriter. On the other hand, the necessity of such changes is equally apparent. If there is acquiescence in a change of the agreement, or if a change is contemplated to which the underwriters agree, there can be no discharge of the underwriters. Accordingly, where underwriters agree that a promoting corporation is to settle the amount of shares, and such corporation is also an underwriter with interests identical with those of the other underwriters, a reduction in the amount of capital stock cannot be contended to operate as a release of the under- writers.*® But the promoting corporation has no right to change the basis on which the underwriters have agreed with it to furnish the underwriting.®" It may also be said that a slight "variation" of the agreement does existence of an adequate remedy at 88 Electric Welding Co. V. Prince, law. Gilbert v. Bunnell, 92 N. Y. App. 195 Mass. 242, 81 N. E. 306. Div. 284, 86 N. Y. Supp. 1123. 89 See Electric Welding Co. V; 86 Electric Welding Co. v. Prince, Prince, 195 Mass. 242, 81 N. E. 306. 195 Mass. 242, 81 N. E. 306. 90 Electric Welding Co. v. Prince, 87 Electric Welding Co. v. 195 Mass. 242, 81 N. E. 306. Prince, 195 Mass. 242, 81 N. E. 306. 968 Ch. 15] Underwriting Agreements [§ 473 not affect the underwriter's liability, while an "alteration" has that effect. And the question of what constitutes a "variation" or "alter- ation" was taken up in an English case, where* ' the underwriters agreed that their obligation was to hold good notwithstanding any "variation" between the draft prospectus submitted to the under- writers and the prospectus as finally settled and published. It was originally provided that the minimum subscription on which the directors could proceed to the allotment of shares was 15,000 pounds, but as finally settled the amount was placed at the nominal sum of 100 pounds, and since the amount of stock subscribed for was con- siderably in excess of that sum, it was decided to proceed to allot- ment. It was held that this was a strong instance of an alteration of the risk of the underwriter, that in fact an essentially different risk was submitted, and the underwriters were not liable.*^ § 473. Fraud in procuring underwriting — ^In general. The usual rules as to fraud in procuring the execution of contracts apply to underwriting agreements, and such fraud may consist in misrepre- sentations which are material, and which are relied upon as well as the concealment of material facts.®^ A statute providing that any prospectus issued, not specifying a material contract, shall be deemed fraudulent, does not apply where an underwriter signs an agreement before the prospectus is issued and does not rely upon it.'' 91 Warner International & Overseas tails of transaction for issuing bonds. Engineering Co., Ltd. v. Kilburn, his statements being supported by Brown & Co., 84 L. J. K. B. 365, 110 other documentary evidence. War- L. T. R. 456, 30 T. L. R. 284, reversing burton v. Trust Co. of America, 158 decision of Pickford, J., 29 T. L. R. Fed. 969. 322. 93 Baty v. Keswick, 85 L. T. R. (N. 92 The concealment of the fact of a S.) 18. pledge and the statement that the Companies Act 1867 (30 & 31 "Vict, proceeds of an issue of bonds are to If 131), § 38, does not apply to specula- be used for the corporation's benefit tors or their friends not members of and false representations as to the the public, where the prospectus is culmination of a sale of bonds may be being settled preparatory to issuance BufScient to authorize rescission. to the public. Baty v. Keswick, 85 L. Rose v. Merchants' Trust Co., 96 N. T. R. (N. S.) 18. Y. Supp. 946. Evidence held to show that the Evidence held not to show fraud in underwriter did not read the contract obtaining signature in underwriting but acted on the faith of two names agreement, it appearing that the per- thereon. Baty v. Keswick, 85 L. 1'. son accused of fraud took the stand R. (N. S.) 18. and frankly and fully stated all de- 969 § 473] Pkivate Cobpokations [Ch. 15 Where an underwriter is induced to enter into his agreement by fraud, he has a right upon discovery of the tort, either to restore what he has received, and claim restoration to the position occupied before the agreement, or keep what he has received and prosecute the de- fendant for the damages alleged to have been sustained. He cannot prosecute both remedies, as they are inconsistent.®* §474. — Bemedies. If fraud is shown to exist, the agreement entered into may be avoided at the election of the defrauded party.'* Also an underwriter entitled to rescind the agreement for fraud must act promptly on discovering the fraud, since his delay may operate to deprive him of the remedy.'* If, after knowledge of the fraud, a party, so situated, proceeds in recognition or affirmance of his con- tract, he, as a general rule, is deemed to have ratified it, and is denied such remedy or relief, and his right of action resting in the fraud for its support is only for the damages occasioned by it.'' If a suit is brought in equity to declare void an underwriting agree- ment on the ground that it was obtained by fraud, and the defendant contends that an adequate remedy at law for deceit exists, it has been held that such a defense is not available unless pleaded in the answer.'* §475. Underwriter's liabilities to third persons. To hold a sub- scriber to the capital stock of an unsuccessful company liable over to a purchaser upon a public subscription, it seems necessary that there should be fraud, misrepresentation or deceit personally brought home to and chargeable upon him." And where the stock is not purchased of the underwriters, neither underwriters nor subscribers can be held liable to future purchasers of stock or subscribers, because of the mere fact that the purchasers or subscribers acted in reliance upon an advertisement as to underwriters having underwritten such stock.^ 94Eose V. Merchants' Trust Co., 96 raising the question. If he delays N. Y. Supp. 946. action and retains the securities be- 95 An agreement induced by fraud is yond a reasonable time, or accepts not void but only voidable. Eose v. performance after discovery of the Merchants' Trust Co., 96 N. Y. Supp. fraud, he is held to have ratified the 946. contract and to have waived his ob- 86 Eose V. Merchants ' Trust Co., jections. Eose v. Merchants ' Trust 96 N. Y. Supp. 946. Co., 96 N. Y. Supp. 946. 97 Eose V. Merchants' Trust Co., 96 98 Eose v. Merchants' Trust Co., 96 N. Y. Supp. 946. N. Y. Supp. 946. The alleged fraud must be proved 99 "White v. Robinson, 145 N. Y. and the underwriter may be required App. Div. 751, 130 N. Y. Supp. 388. to explain why the acceptance of the 1 White v. Eobinson, 145 N. Y. App. securities does not preclude him from Div. 751, 130 N. Y. Supp. 388. 970 Ch. 15] Underwriting Agreements [§ 478 There being no privity, there can be no implied contract to the subsequent subscribers, and an action does not lie for money had and received.'^ § 476. Rights of underwriters to interest on bonds. Coupons are part of a bond and are affected by its infirmities as well as endowed with its strength, and their character is not changed by detaching them from the bonds. Accordingly, where an issue of bonds is under- written and there is no agreement stipulating that the bonds shall not be deemed issued until taken up by the subscribers, or that the bonds shall not bear interest, it would seem that the underwriters are en- titled to recover the interest evidenced by the coupon and are entitled to sell such coupons.' §477. Pledges of underwriting agreements. Where an under- writing agreement authorizes syndicate managers to borrow money of a trust company and to pledge the stock, bonds and underwriting certificates as security, the subscriber guarantying the repayment of the loan to the extent of his subscription, such agreement is enforce- able even though the entire issue of bonds is not sold. In such case it cannot be contended that there is an implied condition that all the bonds shall be subscribed for, in the same manner as the conditions referred to in stock subscription cases where a corporation is held unable to enforce assessments against subscribers until the business of the corporation is commenced and all the stock is disposed of. A condition of this sort if desired in an underwriting agreement, should be expressly included,'* § 478. Assignment of underwriting agreements — ^Assignability and negotiability. It is a general rule that contracts and choses in ac- tion are assignable, and an underwriting agreement is no exception to that rule,^ though it has been contended that underwriting agree- ments are not assignable, and that they have a distinct personal character, especially when made with a corporation which alone is com- 2 White V. Eobinson, 145 N. T. App. B Buseh v. Stromberg-Carlson Tel. Biv. 751, 130 N. Y. Supp. 388. Mfg. Co., 217 Fed. 328. 3 Hudson Valley R. Co. v. O 'Connor, It must be held that underwriting 95 N. Y. App. Div. 6, 88 N. Y. Supp. agreements are assignable whetlier 742. made with a corporation or with the 4 Knickerbocker Trust Co. v. Davis, promoters. Kirkpatrick v. Eastern 143 Fed. 587. Milling & Export Co., 135 Fed. 14V 971 § 478] Pkivate Coepobations [Ch. 15 petent tO see when and how it should be enforced.* But such agree- ments representing large values are being constantly assigned and accepted as the basis for the organization of incorporated companies,' and to announce a doctrine prohibiting assignment, would be to dis- turb seriously prevailing ideas in the business world.* The usual underwriting agreement cannot in any sense be termed a negotiable instrument. It is merely a contract and, as has already been pointed out, is more in the nature of a conditional subscription contract, or guaranty.* In one case an action was brought by the indorser of an under- writing "certificate," by which the obligee agreed to pay a certain sum of money to a named person or order, it being stipulated that he was to receive bonds and stock therefor. It was held that the plaintiff could not recover, since there was no proper performance, or tender of the security underwritten to the person who signed the agreement.^* But the matter of the negotiability of the agreement was not involved, and in any event, the agreement M'as different from the usual under- writing certificate. §479. — Rights of assignee. An assignee of an underwriting agreement occupies the same position as the assignor.^^ As to the underwriter, an assignee who accepts an agreement as collateral for money loaned cannot contend that it stands in a better position than its assignor. Instead the agreement is subject to all defenses which might be made against the original corporation, or assignor. In one case, a subscriber contended that his subscription was conditional when it was sought to enforce it, and it was held that the assignee of the underwriting agreement, in order to protect itself, was bound to inquire of the subscribers if they had any defense 6Kirkpatrick v. Eastern Milling & authorized in case of default to bring Export Co., 135 Fed. 146. suit in the name of the company, 7Kirkpatrick v. Eastern Mill- against any, and all subscribers, the ing & Export Co., 135 Fed. 146. bank is invested in the fullest man- 8 Kirkpatrick v. Eastern Milling & ner with the rights of the company Export Co., 135 Fed. 146. to and under the agreement, and by 9 See §§ 443, 444, supra. implication with whatever is essential 10 Litchfield Sav. Society v. Dibble, to the exercise and enforcement of 80 Conn. 128, 67 Atl. 476. those rights. Kirkpatrick v. Eastern 11 Where a corporation by an ex- Milling & Export Co., 135 Fed. 136. press agreement assigns, transfers, Where an underwriting agreement and sets over to a bank all its rights, is assigned to a bank and it has the claims, and demands under an under- right to enforce the agreement of the writing agreement, and such bank is underwriters, and the corporation be- 972 Ch. 15] Undekwbiting Agkeembnts [§ 479 to their subscriptions.^^ Usually the assignee may enforce the agree- ment of the underwriter, regardless of the value of the securities which were underwritten. It is only necessary to tender the par- ticular stocks and bonds. Where underwriters entered into an agreement which was not to be held by a corporation until the subscribers were required to accept bonds, the purpose being to enable the corporation to assign the lia- bility of the subscribers as collateral security for a loan, the under- writer was liable to the assignee under the conditions of the agreement regardless of the value of the securities, as where the corporation became insolvent.^^ This proposition is the same as that referred to in another section, as to the liability of underwriters for breach of con- tract, regardless of the worthlessness of the stock, or the subsequent insolvency of the corporation whose securities were underwritten.^* comes insolvent and the stock passes 12Eeal Estate Trust Co. of Phila- into the hands of receivers, such bank delphia v. Eiter-Conley Mfg. Co., 223 is entitled to possession of such gtock. Pa. St. 350, 72 Atl. 695. Although worthless, its production and 13 Eastern Tube Co. v. Harrison, 140 tender are prerequisite to a demand Fed. 519. upon the subscribers for fulfillment of 14 See § 467, supra, their agreement. Kirkpatrick v. East- ern Milling & Export Co., 135 Fed. 146. 973 CHAPTER 16 By-Laws I. DEFINITION AND DISTINCTIONS I 480. Definition. i 481. Distinguished from resolutions. j 482. Distinguished from laws of municipal corporations. i 483. Distinguished from rules and regulations operating upon third persons, n. ADOPTION AND PROOP S 484. Adoption — Power in general. i 485. — Necessity. ] 486. — By whom power exercised. ] 487. — Mode. § 488. Proof. III. VALIDITY § 489. Consonance with law. § 490. Consonance with public policy and public welfare. § 491. Ousting courts ' jurisdiction. § 492. Impairment of obligation of contracts and destruction or impairment of vested rights. § 493. Restraint of trade. § 494. Consonance with charter and with nature, purposes and objects of cor- poration. § 495. Beasonableness. § 496. Uniformity of operation. § 497. Effect of partial invalidity. § 498. Right to enforce invalid by-law as contract. IV. CONSTRUCTION § 499. General rules as to construction. V. NOTICE § 500. Presumption of knowledge. VI. OPERATION AND EFFECT § 501. On stockholders or members. § 502. On third persons. 974 Ch. 16] By-Laws [§ 480 VII. WAIVER § 503. Power of corporation, members and officers as to waiver of by-laws; proof of waiver. VIII. AMENDMENT AND SUBSEQUENT ADOPTION § 504. Power in general. § 505. Eeservation of power. § 506. Who may amend. S 507. Mode. IS. BEFEAI, § 508. Power in general. § 509. Who may repeal. § 510. Mode. X. EEGULATION OP PAKTICULAR MATTERS § 511. Acquisition of, and expulsion from membership ; fine^. § 512. Stock; issue; payment; assessments; rights and liabilities of stockholders in general. § 513. Transfer of stock — ^Eestrictions on alienation. § 514. — Protective regulations. § 515. — Creating or reserving lien on stock. § 516. Corporate meetings. § 517. Eight to vote and manner of voting at corporate meetings. § 518. Directors and officers. § 519. Inspection of books and papers. I. DEFINITION AND DISTINCTIONS §480. Definition. Originally the term "by-laws" was applied to the laws and ordinances enacted by public or municipal corporations.^ At the present time, however, it more often has reference to the private laws of private corporations, unincorporated associations and other private bodies.* As used in connection with private corporations, it has a peculiar and limited meaning, designating as it does the orders and regulations which a corporation, as one of its legal incidents, has power to make, and which is usually exercised to regulate its own 1 Monroe Dairy Ass'n v. Webb, 40 Yonkers v. Copcutt, 71 Hun (N. Y.) N. Y. App. Div. 49, 57 N. Y. Supp. 149, 24 N. Y. Supp. 625 (from opinion 572. See also Com. v. Tjirner, 1 Cush. of Dykman, J., at special term). (Mass.) 493. See also concurring opinion of Good- The history of by-laws "is briefly rich, P. J., in Hanna v. Nassau Elee. this: Where the Danes acquired^pos- E. Co., 18 N. Y. App. Div. 137, 45 session of a shire in England, the N. Y. Supp. 437. township was often called a 'by,' and 8 Board of Health City of Yonkers as they enacted laws of their own v. Copcutt, 71 Hun (N. Y.) 149, 24 they were called by-laws or town N. Y. Supp. 625 (from opinion of Dyk- laws." Board of Health City of man, J., at special term) . 975 § 480] Pbivate Coepobations [Ch. 16 actions and concerns, the rights and duties of its stockholders or members in their relation to it and among themselves, and the rights, powers and duties of the directors and officers.' In other words, the by-laws of a private corporation are the permanent and continuing* rules adopted by it for its own government and that of its officers and stockholders or members.* 3 Calif oraia. Cheney v. Canfield, 158 Cal. 342, 32 L. E. A. (N. S.) 16, 111 Pac. 92; Bornstein v. District Grand Lodge No. 4, Independent Order B' nai B'rith, 2 Cal. App. 624, 84 Pae. 271. Kansas. Hogsett v. .3!tna Building & Loan Ass'n, 78 Kan. 71, 96 Pac. 52. Massachusetts. Plint v. Pierce, 99 Mass. 68, 96 Am. Dec. 691; Com. v. Turner, 1 Cush. 493. Missouri. Smoot v. Bankers' Life Ass'n, 138 Mo. App. 438, 120 S. W. 719. Pennsylvania. Hayes v. German Beneficial Union, 35 Pa. Super. Ct. 142, 148. Bhode Island. Ireland v. Globe Mill- ing Co., 21 E. I. 9, 79 Am. St. Eep. 769, 41 Atl. 258. England. Norris v. Staps, Hob. 211a. "The function of a by-law * * * is to prescribe the rights and duties of the members with reference to the in- ternal government of the corporation, the management of its affairs, and the rights and duties existing between the members * * *." Cummings v. State, — Okla. — , 149 Pac. 864. The English "articles of associa- tion" under which a corporation is organized correspond to the American "by-laws." New England Trust Co. V. Abbott, 162 Mass. 148, 27 L. E. A. 271, 38 N. E. 432. While the by-laws of a private cor- poration are not strictly speaking rec- ords (see, however, Miller v. John- ston, 71 Ark. 174, 72 S. W. 371), those which are written or printed are docu- ments within the general rules relat- ing to documentary evidence.' Knights & Ladies of America v. Weber, 101 111. App. 488, 490. 4 United States. Hayes v. Canada, Atlantic & Plant S. S. Co., Ltd., 181 Fed. 289. Indiana. State v. Anderson, 31 Ind. App. 34, 67 N. E. 207. Oklahoma. Cummings v. State, — Okla. — , 149 Pac. 864. Oregon. Griffith v. Klamath Water Ass'n, 68 Ore. 402, 137 Pac. 226. Texas. Steger v. Davis, 8 Tex. Civ. App. 23, 27 S. W. 1068. Wisconsin. North Milwaukee Tovra Site Co. No. 2 v. Bishop, 103 Wis. 492, 495, 45 L. R. A. 174, 79 N. W. 785. That by-laws are not "permanent and continuing" rules in the sense that they cannot be amended or re- pealed, see §§ 504-510, infra. 5 United States. Hayes v. Canada, Atlantic & Plant S. S. Co., Ltd., 181 Fed. 289. California. Wells v. Black, 117 Cal. 157, 37 L. E. A. 619, 59 Am. St. Eep. 162, 48 Pac. 1090; People's Home Sav. Bank v. Sadler, 1 Cal. App. 189, 81 Pac. 1029. Indiana. Eenn v. United States Cement Co., 36 Ind. App. 149, 73 N. B. 269; State v. Anderson, 31 Ind. App. 34, 67 N. E. 207. Iowa. Van Atten v. Modern Broth- erhood of America, 131 Iowa 232, 108 N. W. 313; Dempster Mfg. Co. v. Downs, 126 Iowa 80, 106 Am. St. Rep. 340, 3 Ann. Cas. 187, 101 N. W. 735. Maine. Flaherty v. Portland Long- shoremen 'a Benev. Society, 99 Me. 253. 59 Atl. 58. Mississippi. Bank of Holly Springs 976 CL 16] By-La v/s l§481 §481. Distinguished from resolutions. "While a by-law may be in the form of a resolution, a resolution is not necessarily a by-law,* V. Piuson, 58 Miss. 421, 436, 38 Am. Eep. 330. New York. Drake v. Hudson Eiver E. Co., 7 Barb. 508. North Dakota. J. P. Lamb & Co. v. Merchants' Nat. Mut. Pire Ins. Co., 18 N. D. 253, 119 N. W. 1048. Oklahoma. Cummings v. State, — Okla. — , 149 Pac. 864. Oregon. Griffith v. Klamath Water Ass'n, 68 Ore. 402, 137 Pae. 226. Fennsylyania. Bagley v. Eeno Oil Co., 201 Pa. 78, 56 L. E. A. 184, 50 Atl. 760. Texas. Steger v. Davis, 8 Tex. Civ. App. 23, 27 S. W. 1068. Wisconsin. North Milwaukee Town Site Co. No. 2 v. Bishop, 103 Wis. 492, 495, 45 L. E. A. 174, 79 N. W. 785; Germania Iron Min. Co. v. King, 94 Wis. 439, 36 L. E. A. 51, 69 N. W. 181. It would seem that a provision in the articles of incorporation which, although not repugnant to the stat- ute, is not responsive to any speci- fication thereof, will have no more force than a by-law. See State v. Anderson, 31 Ind. App. 34, 67 N. E. 207; O'Brien v. Cummings, 13 Mo. App. 197, 200. So a provision in the charter of a land company that its indebtedness should not exceed five hundred dol- lars at any one time was held to have no more force than a by-law, and to be directory only, the statute pro- viding that the charter of a corpora- tion should set out the amount of its capital stock, but not requiring that its indebtedness should have any other limit. Sherman Center Town Co. v. Morris, 43 Kan. 282, 284, 19 Am. St. Eep. 134, 23 Pac. 569. Where, however, a provision in the articles of association is in conflict with the statute, it cannot be applied as a by-law even. State v. Anderson, supra. That the "constitution" of a cor- poration, particularly one of a mutual or fraternal benefit character, has no greater force than a by-law, see Blasin- game v. Eoyal Circle, 111 111. App. 202, 206; that it is, in fact, nothing more than a by-law under an inappro- priate name, see the following: Illinois. Peterson v. Gibson, 191 111. 365, 54 h. E. A. 836, 85 Am. St. Eep. 263, 61 N. E. 127, aff'g 92 111. App. 595; Supreme Lodge Knights of Pythias v. Kutscher, 179 111. 340, 70 Am. St. Eep. 115, 53 N. E. 620, rev'g 72 111. App. 462; People v. Crossley, 69 III. 195, 196. Compare People v. Women's Catholic Order of Foresters, 162 111. 78, 86, 44 N. E. 401, aff'g 59 111. App. 390. Indiana. Supreme Lodge Knights of Pythias v. Knight, 117 Ind. 489, 495, 3 L. E. A. 409, 20 N. E. 479. Mississippi. Domes v. Supreme Lodge Knights of Pythias, 75 Miss. 466, 23 So. 191. New York. Burns v. Manhattan Brass Mut. Aid Society, 102 App. Div. 467, 92 N. Y. Supp. 846; Stein v. Marks, 44 Misc. 140, 89 N. Y. Supp. 921. Wisconsin. See Wuerfler v. Grand Grove of Wisconsin, Order of Druids, 116 Wis. 19, 96 Am. St. Eep. 940, 92 N. W. 433. That the statute law under which a stock corporation is organized and the certificate of incorporation constitute such corporation's "constitution," see Scanlan v. Snow, 2 App. Cas. (D. C.) 137. 6 Domes v. Supreme Lodge Knights of Pythias, 75 Miss. 466, 23 So. 191; Drake v. Hudson Eiver E. Co., 7 Barb, (N. Y.) 508. I Priv. Corp. — 62 977 § 481] Pkivate Coepoeations [Ch. 16 The distinction between the two has been said to lie in the fact that a resolution applies to a single act of the corporation whereas a by-law is a permanent and continuing rule which is to be applied on all future occasions.'' § 482. Distinguished from laws of municipal corporations. A by- law of a private corporation differs from a law enacted by a municipal corporation in that the former is merely a rule, adopted by the stock- holders or members, or a majority of them, acting under authority from the corporate membership, for the regulation and management of their joint affairs, while the latter is a local law enacted by public officers under legislative power delegated to them by the state.^ A further difference lies in the fact that a by-law of a private corporation — at least, one of a mutual benefit character — derives its force from assent either actual or constructive,^ while a law enacted by a munici- pal corporation binds, by statutory or prescriptive force, all who happen to be within the territorial limits of its jurisdiction, whether corporators or strangers.^' §483. Distingxiished from rules and regulations operating upon third persons. The rules and regulations of a corporation which do not relate to its government or that of its ofiScers, or stockholders, or members, except in the matter of the corporation's dealings with third persons, are not, strictly speaking, by-laws. An example of such rules and regulations is those formulated by a common carrier which have for their purpose the safety, convenience and comfort of pas- A by-law providing that resolu- The duration of by-laws may be tions adopted for any special purpose general or limited, according to the shall be as binding as if they were necessity or convenience of the cor- embodied in by-lawa refers to resolu- poration. Germania Iron Min. Co. t. tions which are not inconsistent with, King, 94 Wis. 439, 36 L. B. A. 51, 69 and hence do not have the effect of N. W. 181. amending or repealing the by-laws. 8 See Monroe Dairy Ass 'n v. Webb, Flaherty v. Portland Longshoremen's 40 N. Y. App. Div. 49, 57 N. Y. Supp. Benev. Society, 99 Me. 253, 59 Atl. 572. 58. estate v. Overton, 24 N. J. L. 435, 7Steger v. Davis, 8 Tex. Civ. App. 440, 61 Am. Dec. 671; Black & White 23, 27 S. W. 1068. See also Hayes v. Smiths' Society v. "Vandyke, 2 Whart. Canada, Atlantic & Plant S. S. Co., (Pa.) 309, 30 Am. Dec. 263. Ltd., 181 Fed. 289; People v. Throop, See also § 501, infra. 12 Wend. (N. Y.) 183; Budd v. Malt- 10 Black & White Smiths' Society nomah St. By. Co., 15 Ore. 413, 3 Am. v. Vandyke, 2 Whart. (Pa.) 309 30 St. Bep. 169, 15 Pae. 659. Am. Dee. 263. 978 Ch. 16] By-Laws [§484 sengers and the securing to the carrier of its rights under the contracts of carriage.^^ n. ADOPTION AND PROOF § 484. Adoption — Power in general. The power of a corporation to adopt by-laws is regarded as of so much importance that it is rarely left to implication, but is as a general rule expressly conferred by the law from which corporate existence is derived.^* Such power, however, does not depend for its existence upon any formal statement in the charter ^' or governing statute, but is, in the absence of a posi- tive legislative provision to the contrary, inherent in, and an insepa- rable incident of every corporation.^* Nor is this view one that has 11 "All regulations of a company Bank v. Smith, 19 Johns. (N. T.) 115, affecting its business, which do not 124. operate upon third persons, nor in any way affect their rights, are prop- erly denominated by-laws of the com- pany. » * * But there is another class of regulations, made by corpo- rations, as yvell as by individuals, who are common carriers of passengers, which operate upon, and affect the rights of others which are not, prop- erly speaking, by-laws of the corpora- tion * * *. Of this character are all regulations touching the comfort and convenience of travelers, or pre- scribing rules for their conduct to secure the just rights of the com- pany. ' ' State V. Overton, 24 N. J. L. 435, 440, 61 Am. Dec. 671. See also Compton v. Van Volkenburgh, 34 N. J. L. 134, 135; Morris & E. R. Co. V. Ayres, 29 N. J. L. 393, 395, 80 Am. Dec. 215. 12 Supreme Commandery Knights of Golden Rule v. Ainsworth, 71 Ala. 436, 46 Am. Eep. 332. See also Leg- gett V. New Jersey Manufacturing & Banking Co., 1 N. J. Eq. 541, 23 Am. Dee. 728; Martin v. Remington-Mar- tin Co., 95 N. Y. App. Div. 18, 88 N. Y. Supp. 573; People v. Medical So- ciety County of Erie, 24 Barb. (N. Y.) 570, 574; Mechanics' & Farmers' 18 A clause in a charter, giving "the force and effect of legal enact- ment" to the "constitution and by- laws" that may be adopted, confers no greater power than is usually given or implied without such clause. Mar- tin V. Nashville Bldg. Ass'n, 2 Coldw. (Tenn.) 418. 14 Alabama.. Supreme Commandery Knights of Golden Rule v. Ainsworth, 71 Ala. 436, 46 Am. Rep. 332; Cun- ningham V. Alabama Life Insurance & Trust Co., 4 Ala. 652, 654. California. Cheney v. Canfield, 158 Cal. 342, 32 L. R. A. (N. S.) 16, 111 Pae. 92; Bernstein v. District Grand Lodge No. 4, Independent Order B 'nai B 'rith, 2 Cal. App. 624, 84 Pac. 271 ; People 's Home Sav. Bank v. Sad- ler, 1 Cal. App. 189, 81 Pac. 1029. Georgia. Interstate Building A Loan Ass'n v. Wooten, 113 Ga. 247, 38 S. E. 738. Illinois. Peterson v. Gibson, 191 111. 365, 369, 54 L. R. A. 836, 85 Am. St. Rep. 263, 61 N. E. 127, aff'g 92 111. App. 595; Fullenwider v. Supreme Council of Royal League, 180 111. 621, 72 Am. St. Rep. 239, 54 N. E. 485, aff'g 73 111. App. 321; People v. Chi- cago Live Stock Exchange, 170 111. 556, 570, 39 L. R. A. 373, 62 Am. St. 979 484] Private Cokpobations [Ch. 16 obtained only in recent years. Blaekstone includes among the pow- ers, rights and capacities which "are necessarily and inseparably incident to every corporation; which incidents, as soon as a corpora- tion is duly erected, are tacitly annexed, of course," the power "to Eep. 404, 48 N. E. 1062; People v. Itt- ner, 165 111. App. 360, 363. See also People V. Julia F. Burnham Hospital, 71 111. App. 246, 249. Indiana. McCallister v. Shannon- dale Co-operative Tel. Co., 47 Ind. App. 517, 94 N. E. 910. Iowa. Farmers' Mut. Hail Ins. Ass'n of Iowa v. Slattery, 115 Iowa 410, 88 N. W. 949. Louisiana. State v. Bank' of Louisi- ana, 5 Mart. (N. S.) 327, 344. Maryland. Anaeosta Tribe No. 12, Improved Order of Red Men v. Mur- bach, 13 Md. 91, 71 Am. Dee. 625. MlcMgan. Wineland v. Knights of Maccabees of World, 148 Mich. 608, 112 N. W. 696. Nebraska. Miller v. Farmers' Mill- ing & Elevator Co., 78 Neb. 441, 126 Am. St. Rep. 606, 110 N. W. 995. New Jersey. Taylor v. Griswold, 2 Green L. 222, 27 Am. Dec. 33. See also lieggett V. New Jersey Manufacturing & Banking Co., 1 N. J. Eq. 541, 23 Am. Dec. 728. New York. EngelLardt v. Fifth Ward Permanent Dime Saving & Loan Ass'n, 148 N. Y. 281, 286, 35 L. R. A. 289, 42 N. E. 710; Matthews v. Associated Press State of New York, 136 N. Y. 333, 32 Am. St. Rep. 741, 32 N. E. 981; National League of Com- mission Merchants of United States v. Hornung, 72 Mise. 181, 129 N. Y. Supp. 437; People v. Medical Soc. County of Erie, 24 Barb. 570, 574; Me- dhaniea' & Farmers' Bank v. Smith, 19 Johns. 115, 124; Thomas v. Dakin, 22 Wend. 9, 16; In re Long Island E. Co., 19 Wend. 37, 32 Am. Dec. 429; People V Throop, 12 Wend. 183, 186. See also Driscoll v. West Bradley & C. Mfg. Co., 59 N. Y. 96, 106; Cohen v. Budd, 52 Mise. 217, 103 N. Y. Supp, 45. North Carolina. Duffy v. Fidelity Mut. Life Ins. Co., 143 N. C. 697, 55 S. E. 1047 (mem. dec.), 142 N. C. 103, 7 L. R. A. (N. S.) 238, 55 S. E. 79. Pennsylvania. Bagley v. Reno Oil Co., 201 Pa. 78, 56 L. R. A. 184, 50 Atl. 760; Lynn v. Freemansburg Building & Loan Ass'n, 117 Pa. St. 1, 2 Am. St. Rep. 639, 11 Atl. 537; Evans v. Philadelphia Club, 50 Pa. St. 107. South Carolina. St. Luke's Church v. Mathews, 4 Desauss. Eq. 578, 6 Am. Dee. 619; Palmetto Lodge No. 5, I. O. O. F. v. Hubbell, 2 Strobh. 457, 49 Am. Dec. 604. Tennessee. Doty v. American Tele- phone & Telegraph Co., 123 Tenn. 329, 330 S. W. 1053. Texas. Supreme Ruling of Frater- nal Mystic Circle v. Ericson, — Tex. Civ. App. — , 131 S. W. 92. Wisconsin. Germania Iron Min. Co. v. King, 94 Wis. 439, 36 L. E. A. 51, 69 N. W. 181. England. Sutton's Hospital Case, 10 Coke 30; Norris v. Staps, Hob. 211a; Child v. Hudson's Bay Co., 2 P. Wms. 207. "It must be conceded that the de- fendant, like every other corporation, possessed the inherent power of self- government. Its by-laws are the chan- nels through which this power is ex- erted and declare the corporate will as to the manner in which the corpo- rate functions are to be exercised and such other matters as to which it may properly and lawfully legislate." Hayes v. German Ben. Union, 35 Pa. Super. Ct. 142, 147. Provisions contained in the articles 980 CL 16] By-Laws [§ 484 make by-laws or private statutes for the better government of the corporation which are binding upon themselves, unless contrary to the laws of the land, and then they are void. This is also included by law in the very act of incorporation: for as natural reason is given to the natural body for the governing it, so by-laws or statutes are a sort of political reason to govern the body politic. And this right of making by-laws for their own government, not contrary to the law of the land, was allowed by the law of the Twelve Tables of Eome."'^ In other words, a corporation without the power to make by-laws would, generally speaking, be a nonentity, such power ordi- narily being necessary for it to accomplish the purposes of its cre- ation.^^ But whatever the inherent power may be and however broad its scope, it may be said with assurance that no corporation has the power to legislate on any subject and in any manner that it chooses. Always there are restrictions and limitations. Always the power is circumscribed to some extent or degree. Always it carries with it certain implications such as, for example, that the by-law adopted will be in harmony with the purposes of the corporation,^'' and that it will be reasonable. ^8 And again, even where there is an express grant in the charter or general law of power to make by-laws, such grant may itself carry implied limitations and restrictions. Thus, although it cannot be laid down as a rule that has been invariably sanctioned and has no exceptions, it has been held that where the charter or the general law expressly gives to the corporation the power to make by-laws, not generally, but for certain purposes, enumer- ating them, the corporation, unless there is something to show a of incorporation which are inconsiat- it was created. Knights of Pythias v. ent with or additional to those pre- Weller, 93 Va. 605, 25 S. E. 891. scribed by the statute are surplusage 15 i Bl. Com. *475 476. and do not afCect the power to adopt is People v. Chicago Live Stock Ex- by-laws relative to the matters of g^^nge, 170 111. 556, 570, 39 L. E. A. which they treat. Eenn v. United 373^ gg Am. St. Eep. 404, 48 N. E. nVSlS^ ^°" ^^ ^''^' ^^^' ^^^' "^^- ^'" ^''° ^^"°"^^ ^'^^^ °°"'- mi.' " i-i" i- J! X. j:l • i mission. Merchants of United States The constitution of a benefit society „ ' _ „ cannot deprive the society of its in- ^- H<»-"""?. 72 N. Y. Misc. 181, 129 herent power to adopt such other by- ^- "^- ^''PP- ^37; Bagley v. Eeno Oil laws as its charter permits. Blasin- Co., 201 Pa. 78, 56 L. E. A. 184, 50 game v. Eoyal Circle, 111 111. App. 202, -^tl- 760; North Milwaukee Town Site 206. Co. No. 2 V. Bishop, 103 Wis. 492, 496, A corporation has no power to adopt 45 L. E. A. 174, 79 N. W. 785. by-laws after it has been dissolved by 1'' See § 494, infra. the expiration of the period for which 16 See § 495, infra. 981 §484] Pbivate Coepokations [Ch. 16 contrary intention on the part of the legislature, cannot make by-laws for any other purpose, the enumeration of certain purposes being an implied exclusion of other purposes.^' § 485. — Necessity. The mere fact of the existence in the corpo- ration of the power to adopt by-laws does not ordinarily make the exercise of such power necessary to its corporate life^" or to the validity of any of its acts.*^ § 486. — By whom power exercised. In the absence of a charter or statutory provision to the contrary, the power to adopt by-laws resides originally in the stockholders or members of the corporation, 19 Nicholson v. Franklin Brewing Co., 82 Ohio St. 94, 137 Am. St. Eep. 764, 19 Ann. Cas. 699, 91 N. E. 991; Child V. Hudson's Bay Co., 2 P. Wms. 207. See also Cunningham v. Alabama Life Insurance & Trust Co., 4 Ala. 652, 654; People v. Ittner, 165 111. App. 360, 365. "The rule is that where by the provisions of the particular charter, or by a general statute relating to corporations, power is conferred upon a corporation to enact by-laws for certain specified purposes, its power of legislation is limited to the cases and objects enumerated, all others be- ing excluded by implication. 'Ex- pressio unius est exclusio alterius.' " Ireland v. Globe Milling & Beduction Co., 19 K. I. 180, 29 L. R. A. 429, 61 Am. St. Eep. 756, 32 Atl. 921. But see, as possibly minimizing the value of this statement, Ireland v. Globe Milling Co., 21 E. I. 9, 79 Am. St. Eep. 769, 41 Atl. 258. Contra, Com. v. St. Patrick's Society, 2 Binn. (Pa.) 441, 4 Am. Dec. 453, in which it was held that the fact that the charter of a benevolent society contains an express power of expulsion in certain cases does not of itself preclude the adop- tion of a by-law providing for expul- sion in such other cases as the good government of the corporation may require. In People 's Home Sav. Bank v. Sad- ler, 1 Cal. App. 189, 81 Pac. 1029, it was held that a statute enumerating special matters as to which the corpo- ration may adopt by-laws does not preclude it from adopting by-laws re- lating to other matters which are proper under its inherent power, as it is statutorily recognized. See also Ireland v. Globe Milling Co., 21 E. I. 9, 79 Am. St. Eep. 769, 41 Atl. 258. 20 Powell Bros. v. McMullan Lum- ber Co., 153 N. C. 52, 68 S. E. 926. A statute requiring corporations to adopt by-laws within one month after the filing of the articles of incorpora- tion held to have been repealed so far as it applied to banking corporations. Smock V. Farmers' Union State Bank, 22 Okla. 825, 98 Pac. 945. 21 Steger v. Davis, 8 Tex. Civ. App. 23, 27 S. W. 1068. Where the steps taken in forfeiting unpaid stock were treated as sufficient by the corporation and the stock- holder, the validity of the forfeiture is not open to attack by a creditor of the corporation seeking to enforce a stockholder's individual liability against the estate of the one whose stock was forfeited, although the stat- ute provided that the directors should require subscribers to pay their sub- scriptions in such manner and instal- 982 Ch. 16] By-Laws [§486 and not in the officers or the board of directors, trustees or man- agers.^* The charter of the corporation or the general law may, however, expressly vest such power in the governing board. When this is done, the by-laws must, of course, be adopted, not by the stockholders or members, but by such board.*' But the inherent right of the stock- ments as the by-laws might provide, and no by-laws regulating the matter of payment were ever adopted. Cris- sey V. Cook, 67 Kan. 20, 72 Pae. 541. 22 United States. Thayer v. Her- rick. Fed. Gas. No. 13,868. minois. See People v. Ittner, 165 III. App. 360, 365. Indiana. Morton Gravel Boad Co. V. Wysong, 51 Ind. 4. Maryland. Darrin v. Hoff, 99 Md. 491, 58 Atl. 196. Michigan. Borgards v. Farmers' Mut. Ins. Co., 79 Mich. 440, 44 N. W. 856.- Mlssourl. Brinkerhoff-Farris Trust & Savings Co. v. Home Lumber Co., 118 Mo. 447, 24 S. W. 129; Klix v. Polish Boman Catholic St. Stanislaus Parish, 137 Mo. App. 347, 118 S. W. 1171; Watson v. Sidney F. Woody Printing Co., 56 Mo. App. 145; Albers v. Merchants' Exchange, 39 Mo. App. 583; State Sav. Ass'n v. Nixon-Jones Printing Co., 25 Mo. App. 642. New Jersey. In re A. A. Griffing Iron Co., 63 N. J. L. 357, 57 L. E. A. 624, 46 Atl. 1097, 63 N. J. L. 168, 41 Atl. 931. New York. See In re Empire State Supreme Lodge Degree of Honor, 118 App. Div. 616, 53 Misc. 344, 103 N. Y. Supp. 465. Pennsylvania. United Fire Ass 'n v. Benseman, 4 Wkly. Notes Cas. 1. Wisconsin. North Milwaukee Town Site Co. No. 2 v. Bishop, 103 Wis. 492, 45 L. K. A. 174, 79 N. W. 785, over- ruling In re Klaus, 67 Wis. 401, 405, 29 N. W. 582; Hughes v. Wisconsin Odd Fellows' Mut. Life Ins. Co., 98 Wis. 292, 73 N. W. 1015. Compare The Chevaliers v. Shearer, 27 Ohio Cir. Ct. 509, in which the court says: "We take it that in Ohio a corporation not for profit is gov- erned somewhat as a corporation for profit is; the fundamental law or con- stitution is adopted by the members who elect trustees; the trustees adopt by-laws for their own government in the management of the business of the association. By the statute * • * the trustees of fraternal beneficial associations like the defend- ant for the first year are entrusted with the management of the concerns of the corporation. Whether the trus- tees had a right to adopt a constitu- tion providing, for instance, how many trustees there should be — a fun- damental law — is doubtful, but that they had a right to adopt * • • [a provision of the corporate consti- tution], which concerns only the con- duct of the business of the associa- tion, we have no doubt." Under a statute providing that per- sona signing articles of incorporation, their associates and successors shall be a body politic and corporate by the name and for the purposes stated in such articles, the subscribers to articles of incorporation are "stock- holders, ' ' and the fact that they have not paid for the stock subscribed, or that stock certificates have not issued to them does not affect their right to adopt by-laws. Cummings v. State, — Okla. — , 149 Pae. 864. 23 Illinois. See People's Bank of Bloomington v. Gridley, 91 111. 457, 468; People v. Ittner, 165 111. App. 360, 365. 983 §486] Pbivate Cobpoeations [Ch. 16 holders or members to adopt by-laws is a valuable, important and essen- tial one, and inference or implication is not sufficient to deprive them of it,** though a by-law enacted by the directors pursuant to usage has been sustained as valid.*^ It would seem that the stockholders or mem- bers may themselves yield up this right and delegate the power of adop- tion to the corporation's governing board,*® although the general rule Iowa. See Farmers' Mut. Hail Ins. Ass'n of Iowa v. Slattery, 115 Iowa 410, 88 N. W. 949. Michigan. Cahill v. Kalamazoo Mut. Ins. Co., 2 Dougl. 124, 43 Am. Dee. 457. Minnesota. Heintzelman v. Druids' Eelief Ass'n, 38 Minn. 138, 36 N. W. 100. Mississippi. Bank of Holly Springs V. Pinson, 58 Miss. 421, 38 Am. Eep. 330. Iilissourl. See Purdy v. Bankers' Life Ass'n, 101 Mo. App. 91, 74 8. W. 486. Bhode Island. See Lockwood v. Meehanica' Nat. Bank, 9 R. I. 308, 11 Am. Eep. 253. Wisconsin. See Hughes v. "Wiscon- sin Odd Fellows' Mut. Life Ins. Co., 98 Wis. 292, 73 N. W. 1015. A statute vesting the corporate powers in a board of directors or man- agers and providing that it "may" adopt by-laws for the government of the officers and affairs of the company reposes the power of adopting by-laws in such board solely, the word "may" being interpretable only as meaning "shall." Manufacturers' Exhibition Bldg. Co. V. Landay, 219 HI. 168, 76 N. B. 146, rev'g 121 HI. App. 96. See also Steinweg v. Antiseptol Liquid Soap Co., 168 HI. App. 479, 482; Independent Brewing Ass'n v. Klein, 135 111. Appl 234, 248, rev'd on other grounds 231 111. 594, 83 N. E. 434. Where the petition upon which let- ters of incorporation are issued com- mit to the board of directors the man- agement and control of the hospital that is to be maintained by the cor- poration, and no restrictions on the power of the board appear, they must be deemed empowered to adopt any regulation for the government of the hospital that is reasonable and con- sistent with the general purposes of the corporation. People v. Julia F. Burnham Hospital, 71 111. App. 246. The directors of a corporation have the power to adopt by-laws when they are vested therewith by statute even though such power is not specifically delegated to them by the articles of incorporation. Houdeck v. Mer- chants' & Bankers' Ins. Co., 102 Iowa 303, 71 N. W. 354. 24 A statute placing the stock, property, affairs and business of cor- porations under the care and manage- ment of their directors does not give the directors the power to adopt by- laws. North Milwaukee Town Site Co. No. 2 v. Bishop, 103 Wis. 492, 45 L. E. A. 174, 79 N. W. 785. 25 Morton Gravel Eoad Co. v. Wy- song, 51 Ind. 4, 26Eex V. Spencer, 3 Burrows 1827. See also In re Empire State Supreme Lodge Degree of Honor, 118 N. T. App. Div. 616, 53 Misc. 344, 103 N. T. Supp. 465; North Milwaukee Town Site Co. No. 2 v. Bishop, 103 Wis. 492, 495, 45 L. E. A. 174, 79 N. W. 785. The articles of association of a mutual insurance company may validly empower its directors to adopt by-laws. Pfister v. Gerwig, 122 Ind. 567, 23 N. E. 1041. A corporation cannot, in the ab- 984 Ch. 16] By-Laws [§ 486 is that by-laws adopted by the goveruing board of the corporation when the power of adoption reposes in the stockholders or members, and those adopted by the stockholders or members when the power of ftdoption 2'' has been vested by statute in the governing board, will be invalid.^* It would seem that this rule will not apply where the by-laws adopted by the powerless body are the only by-laws that the corporation has ever had, are properly recorded in the books kept by the body that should have adopted them, and have been referred to, used, and acted upon as the by-laws of the corporation by all con- cerned for a long period of time.^' Moreover, even though the statute vests the power of making by-laws in the "directors" or "managers," a by-law shown by the record of the company's proceedings to have been adopted by the "stockholders" will not for that reason be invalid when at the time of its adoption all of the stockholders were directors or managers and vice versa.^" Somewhat conversely, where a by-law is adopted at a stockholders' meeting, it is not invalid by reason of sence of express authority, delegate its power to adopt by-laws affecting certain of its members in a funda- mental manner to a subordinate body, wholly ministerial in character, which it is authorized to create, although for administrative purposes the subordi- nate body has direct control over such members in the matter to which the by-laws relate. Supreme Lodge Knights of Pythias v. Stein, 75 Miss. 107, 37 L. E. A. 775, 65 Am. St. Eep. 589, 21 So. 559; Supreme Lodge Knights of Pythias of World v. La Malta, 95 Tenn. 157, 30 L. R. A. 838, 31 S. W. 493. See also Supreme liOdge Knights of Pythias v. Kutseher, 179 111. 340, 70 Am. St. Rep. 115, 53 N. E. 620, rev'g 72 111. App. 462; Supreme Lodge Knights of Pythias v. McLennan, 171 HI. 417, 49 N. B. 530, aff'g 69 111. App. 599; Lange v. Royal Highlanders, 75 Neb. 188, 10 L. R. A. (N. S.) 666, 121 Am. St. Eep. 786, 110 N. W. 1110, 106 N. W. 224. But the body having authority to adopt by-laws may approve one adopted by the administrative body, and thus make it binding and opera- tive. Supreme Lodge Knights of I'ythias v. Trebbe, 179 111. 348, 70 Am. St. Rep. 120, 53 N. E. 730, rev'g 74 111. App. 545. Although it be denied that a corpo- ration may delegate its power to make by-laws, the corporation may yet leave to its board of directors the determi- nation of the question when a by-law shall go into efEeet, such act not con- stituting a delegation of the adopting power. Evans v. Southern Tier Ma- sonic Relief Ass'n, 76 N. Y. App. Div. 151, 78 N. Y. Supp. 611. 27 Amendment and repeal of by- laws, see §§ 504-510, infra. 28 See People v. Ittner, 165 111. App. 360, 365. 29 State v. Curtis, 9 Nev. 325, 335. See also Graebner v. Post, 119 Wis. 392, 100 Am. St. Rep. 890, 96 N. W. 783. 30 People V. Sterling Burial Case Mfg. Co., 82 111. 457, 460. See also Manufacturers' Exhibition Bldg. Co. v. Landay, 219 111. 168, 76 N. E. 146, rev'g 121 111. App. 96. 985 §486] Pbivate Cobpobations [Ch. 16 the fact that the meeting is designated in the records as a directors' meeting.*^ When the statute vests the power of adoption exclusively in the directors, the concurrence of the stockholders is not required, and, if procured, adds nothing to the by-law's validity.'* §487. — Mode. When either the general law or the charter of the corporation prescribes the mode in which by-laws may be adopted, the by-laws which the corporation seeks to make must be adopted in such mode in order to be valid.'' So, whether the stockholders or the directors are the ones having the power to make by-laws, the meeting at which they are adopted must be called and conducted in accordance with the law and with the charter of the corporation.'* In the absence, however, of any statutory or charter provision on the sub- ject, no particular formality is ordinarily requisite to their adoption.'^ 31 state Sav. Ass'n v. Nixon- Jonea 86 Md. 668, 39 Atl. 527 (in this case, Printing Co., 25 Mo. App. 642. 32 Independent Brewing Ass'n v. Klein, 135 111. App. 234, 248, rev'd on other grounds 231 111. 594, 83 N. E. 434. See also Manufacturers' Exhibi- tion Bldg. Co. V. Landay, 219 111. 168, 177, 76 N. E. 146, rev'g 121 111. App. 96; Steinweg v. Antiseptol Liquid Soap Co., 168 111. App. 479, 482. 33 Manufacturers' Exhibition Bldg. Co. V. Landay, 219 111. 168, 76 N. E. 146, rev'g 121 111. App. 96; Dunston V. Imperial Gas Light & Coke Co., 3 B. & Ad. 125. See also Cummings v. State, — Okla. — , 149 Pac. 864. A finding that a code of by-laws was not adopted in the manner con- templated by the statute providing that a code might be adopted after the organization of the corporation either at a meeting of the stockhold- ers called for the purpose or by the' written assent of the holders of two- thirds of the stock, is sustained by the fact that the code was prepared and signed by a large number of the stock- holders before the creation of the cor- poration. Vercoutere v. Golden State Land Co., 116 Cal. 410, 48 Pac. 375. 34 Mutual Fire Ins. Co. v. Farquhar, a resolution of the members of a cor- poration was held invalid as a by- law, because of insufficient notice of the meeting). 36 A statute requiring the certifica- tion of the by-laws by a majority of the directors and by the secretary of the corporation does not thereby make such certification a condition prece- dent to the by-laws taking effect. Cummings v. State, — Okla. — , 149 Pac. 864. A statutory requirement that a copy of the by-laws with the names of all the corporation's officers appended be posted in the corporation's principal place of business and be subject to public inspection is for the benefit of the public, and it is the duty of the corporation to comply therewith for the protection of persons who may be affected by the by-laws. Des Moines Nat. Bank v. Warren County Bank, 97 Iowa 204, 66 N. W. 154. Where there has been a failure to post a copy of the by-laws in the cor- poration 's principal place of business as required by statute, a person in- jured thereby may have an action for damages or performance may be re- 986 Gil. 16] By-Laws [§487 They need not be under seal nor even in writing. ^^ Nor is an express vote necessary.^'' Indeed, it seems that they may be adopted as well by the conduct of the corporation and the acts and conduct of its officers as by an express Vote or an adoption in a meeting.^* Even in the case of formal action by the stockholders, a majority vote of quired by mandamus. Boardman v. Marshalltown Grocery Co., 105 Iowa 445, 75 N. W. 343. Where the statute requires the a"dop- tion of by-laws and the filing of a copy thereof with the county clerk, but does not prescribe the time within which such copy is to be filed, by-lawa adopted are not invalid because the filing of the copy is postponed for a number of years. Taylor v. Laurid- son, 161 Cal. 718, 118 Pac. 535; Willis V. Lauridson, 161 Cal. 106, 118 Pac. 530. The typewriting of by-laws on a sheet of paper and the pasting of the latter in a book, kept in the o£H.ce of the corporation and designated "Sec- retary's Record and Stock Account" held a sufficient compliance with a statute requiring them, as a condition precedent to their taking effect, to be "copied in a legible hand in some book kept in the office of the corpora- tion, to be known as the 'Book of By-laws.' " Cummings v. State, — Okla. — , 149 Pac, 864. 36 Knights & Ladies of America v. Weber, 101 111. App. 488, 490; Union Bank of Maryland v. Eidgely, 1 Harr. & G. (Md.), 324; Bank of Holly Spring;s v. PinsOn, 58 Miss. 421, 38 Am. Bep. 330. See also District Grand Lodje No. 4 v. Cohn, 20 111. App. 335, 344; Loekwood v. Mechanics' Nat. Bank, 9 E^ I. 308, 11 Am, Rep. 253; See Germania Iron Min. Co. v. King, 94 Wis. 439, 36 L. E. A. 51, 69 N. W. 181. Where the statute requires the cor- porate seal to be affixed to by-laws, a resolution to which Such seal was not affixed cannot be sustained as a by-law. Dunston v. Imperial ■ Gas Light & Coke Co., 3 B. & Adol. 125. The court may inquire into whether the by-laws of a voluntary association were adopted according to the rule agreed upon by the association 's mem- bers. Green v. Felton, 42 Ind. App. 675, 84 N. E. 166. 87 Bank of Holly Springs v. Pinson, 58 Miss. 421, 439, 38 Am, Eep. 330;- Germania Iron Min. Co. v. King, 94 Wis. 439, 36 L. E. A. 51, 69 N. W. 181. 38 Domes v. Supreme Lodge Knights of Pythias, 75 Miss. 466, 23 So. 191: Bank of Holly Springs v. Pinson, 58 Miss. 421, 439, 38 Am. Eep. 330; Graebner v. Post, 119 Wis. 392, 100 Am. St. Eep. 890, 96 N. W. 783; Ger- mania Iron Min. Co. v. King, 94 Wis. 439, S6 L. E. A. 51, 69 N. W. 181. "The by-laws of the company were admitted in evidence over the plain- tiff's objection that they were not legally adopted. The record does not show a formal adoption by the board of directors of the company, or by the company itself, but the by-laws them- selves show an approval over the sig- natures of more than a majority of the incorporators. The articles of incorporation provide that the com- pany may ' establish by-laws. ' The by- laws thus approved were published and acted upon during the existence of the company, and were undoubt- edly adopted, though informally. We think this sufficient." Smith v. Sher- man, 113 Iowa 601, 85 N. W. 747. A custom or usage long continued and invariably pursued has the force of a by-law, and, where not repugnant to any of the provisions of the ehar- 987 §487] Private Coepokations [Ch. 16 those present at the meeting, provided they constitute a quorum, will, ordinarily and in the absence of any law or binding rule to the con- trary, be sufficient for the adoption of a iby-law.^^ When the charter vests the power to make by-laws in the president and directors, the power may be exercised by the president and a majority only of the directors.*" Illegality of adoption will not be presumed but must be proven by the one alleging it." Where by-laws have been acquiesced in and acted upon, the pre- sumption is that they were regularly and duly adopted.*^ Moreover, a stockholder may be estopped, by consent or acquiescence, to object to the mode in which a by-law was adopted.** ter, is valid. Mutual Fire Ins. Co. V. Farquhar, 86 Md. 668, 39 Atl. 527. That custom does not take the place of a by-law, see District Grand Lodge No. 4 V. Cohn, 20 111. App. 335, 344. 39 Granara v. Italian Catholic Ceme- tery Ass'n, 218 Mass. 387, 105 N. E. 1073. Pee also Ex parte Willcocks, 7 Cow. (N. T.) 402, 17 Am. Dee. 525; Iiockwood V. Mechanics' Nat. Bank, 9 E. I. 308, 11 Am. Rep. 253. "Two-thirds of the stockholders" in a statute providing that regulations may be adopted by the assent in writ- ing of two-thirds of the stockholders, held, in view of the provisions of stat- utes in pari materia, to mean "two- thirds of the stockholders in interest. ' ' Toledo Traction, Light & Power Co. v. Smith, 205 Fed. 643. 40 Cahill V. Kalamazoo Mut. Ins. Co., 2 Dougl. (Mich.) 124, 43 Am. Dec. 457. 41 Star Mut. Tel. Co. v. Longfellow, 85 Kan. 353, 116 Pae. 506. Where a by-law of a de facto cor- poration has been acquiesced in and acted upon for a period of more than eleven years by all of the stockholders and ofllcers it must be presumed to have been regularly and duly adopted. Marsh V. Mathias, 19 Utah 350, 56 Pac. 1074. 42 Marsh v. Mathias, 19 Utah 350, 56 Pac. 1074. Provisions printed on a policy is- sued by a mutual insurance company and purporting to be its by-laws will be accepted as such in a suit on the Ijoliey until impeached. Wilson v. Union Mut. Fire Ins. Co., 77 Vt. 28, 58 Atl. 799. 43 Morrison v. Dorsey, 48 Md. 461. A stockholder who participated in the adoption of a by-law and who has lecognized it as being in force, will not be heard to say that it was not legally adopted. Bank of Atchison County V. Durfee, 118 Mo. 431, 40 Am. St. Rep. 396, 24 S. W. 133. So, too, one who has legally participated in the adoption of a by-law and acted and acquired rights under it, and through whom it has been held out to the public as one of the laws of the corporation, is estopped, after third persons have acquired rights in the corporation on the faith of its validi- ty, to deny that it was legally adopted. People v. Sterling Burial Case Mfg. Co., 82 111. 457, 461. A member of a mutual insurance company cannot attack the validity of by-laws under which he acquired membership, on the ground that they were not regularly adopted. Pfister V. Gerwig, 122 Ind. 567, 23 N. E. 1041. 988 Ch. 16] By-Laws [§488 §488. Proof. The courts do not take judicial notice of tlie by- laws of a corporation, but they must be proved^** and the burden of proving them is on the party oifering them in evidence.** When they are matters of record on the books of the corporation, it has been held that they cannot be proved by parol,*' but the general rules relating to documentary evidence apply.*' When thus of But the fact that a by-law was adopted by a majority vote of the stockholders does not estop an in- dividual stockholder from attacking its validity when he did not partici- pate in its adoption or assent to it. Laughlin v. Geer, 121 111. App. 534, 539. 44Kempton Lodge, No. 482, I. O. O. F. V. Mozingo, 180 Ind. 566, 103 N. E. 411; Elkhart Hydraulic Co. v. Tur- ner, 170 Ind. 455, 84 N. E. 812; Haven V. New Hampshire Asylum for Insane, 13 N. H. 532, 38 Am. Dee. 512; Simp- son V. South Carolina Mut. Ins. Co., 59 S. C. 195, 37 S. B. 18. See also liucas. Turner & Co. v. San Francisco, 7 Cal. 463, 474. The court will not take judicial notice of the "laws of the Catholic Church." Katzer v. Milwaukee, 104 Wis. 16, 79 N. W. 745. 46MUler V. Johnston, 71 Ark. 174, 72 S. W. 371. » Where in a suit on a benefit certifi- cate issued by a fraternal benefit so- ciety, the plaintiff's declaration averred generally, under the statute, the performance of all conditions precedent to recovery, and the defend- ant's pleading specified an after- adopted by-law as a condition prece- dent, the performance of which it in- tended to contest, the burden of proving the adoption of such by-law was on the defendant. Herman v. Supreme Lodge K. of P., 66 N. J. L. 77, 48 Atl. 1000. 46 Supreme Lodge Knights of Pythias v. Bobbins, 70 Ark. 364, 67 S. W. 758. 47 Knights & Ladies of America v. Weber, 101 111. App. 488, 490. In proving the constitution of an insurance association the best evidence rule obtains, and the best evidence in such case is the constitution itself. Masons' Union Life Ins. Ass'n v. Broekman, 20 Ind. App.. 206, 50 N. E. 493. "Publications of a mutual insurance company, generally circulated among its members, and purporting to con- tain its rules and by-laws, are admis- sible as prima facie evidence of such rules and by-laws." Knights & Ijadies of America v. Weber, supra. What were claimed to be the by-laws of a religious corporation held sufi- ciently proved to be such. Church of St. Stanislaus v. Algemeine Verein, 31 N. T. App. Div. 133, 52 N. T. Supp. 922, afl'd 164 N. Y. 606, 58 N. E. 1086. Where plaintiff, in an action against a corporation and certain of its offi- cers, introduces, over the defendants* objection that they were not legally adopted, some of the corporation 's by- laws although with a reservation that he did not admit their legality, de- fendants have the right to introduce the others which are recorded in the same book as those introduced by plaintiff, where the statute provides that when part of a writing is given in evidence by one party the whole thereof on the same subject may be inquired into by the other. McCon- nell V. Combination Mining & Milling Co., 30 Mont. 239, 104 Am. St. Rep. 703, 76 Pac. 194. 989 §488] Pbivate Cobpoeations [Ch. 16 record, they may be proved by the books of the corporation containing the minutes of the .meeting at which they were adopted,** or, where it is inconvenient to produce such books, by an examined or authenti- cated copy.** Parol evidence will be, competent, however, if they were not entered on the records and there is no charter or statutory requirement that they be recorded, or if the records cannot be pro- duced.^" They may be proved also by the acts and uniform course of the corporation, as well as by an entry or memorandum in writing.*^ III. VALIDITY § 489. Consonance with law. In order to be valid, by-laws must 48 Com. V. Woelper, 3 Serg. & E. (Pa.) 29, 8 Am. Dee. 628. 49 Supreme Lodge Knights of Pythias v. Bobbins, 70 Ark. 364, 67 S. W. 758. See also Zimmerman v. Masonic Aid Ass 'n of Dakota, 75 Fed. 236, appeal dismissed 90 Fed. 832. Where a fraternal benefit society sued on a certificate issued by it pleads an after-adopted by-law as a condition precedent, the performance of which it intends to contest, the adoption of such by-law cannot be proved by the testimony of a member that a printed book produced by him, in which such by-law was included, contained the by-laws of the society in force at a certain date. Herman V. Supreme Lodge K. of P., 66 N. J. L. 77, 48 Atl. 1000. 60 Union Bank of Maryland v. Eidgely, 1 Harr. & G. (Md.) 324; Flakne v. Minnesota Farmers' Mut. Ins. Co., 105 Minn. 479, 117 N. W. 785. "It is not necessary to prove the adoption of by-laws by a formal vote of the members or directors. The adoption of by-laws is sufficiently proved by showing that they appear upon the records of the corporation, and have been uniformly acted upon and enforced as the by-laws of the corporation." Hagerman t. Ohio Bldg. & Sav. Ass'n, 25 Ohio St. 186, 204. A book containing what is testified by the president of a mutual associa- tion to be its by-laws as they have been used and recognized generally by its members for years, is admis- sible in evidence as containing the by-laws of the association, the presi- dent further testifying that no set of by-laws was ever copied into the minutes. Star Loan Ass 'n v. Moore, 4 Pennew. (Del.) 308, 55 Atl. 946. See also §§484-487, supra. Bl Walker v. Johnson, 17 App. Gas. (D. C.) 144, 161; Union Bank of Maryland v. Ridgely, 1 Harr. & G. (Md.) 324. See also Henry v. Jack- son, 37 Vt. 431. Custom may be resorted to as evi- dence of the adoption of a by-law. District Grand Lodge No. 4 v. Cohn, 20 111. App. 335, 344. Where the benefit society offering in evidence what purport to be the constitution and by-laws of the parent society shows that such constitution and by-laws were furnished it for its government and have been so used by it, it thereby prima facie establishes their adoption. Home Circle Soo. No. 1 V. Shelton (Tex. Civ. App.), 81 S. W. 84. 990 Oh. 16] By-Laws [§489 be consistent with the law of the land.*^ Accordingly, a by-law is void 62 United States. Peck v. Elliott, 79 Fed. 10, 38 L. B. A. 616, rev'g Eoss-Meehan Brake Shoe Foundry Co. V. Southern Malleable Iron Co., 72 Fed. 957. Alabama. Weatherly v. Medical & Surgical Society, 76 Ala. 567, 570. California. Union Sav. Bank of San Jose v. Leiter, 145 Cal. 696, 79 Pao. 441; Wells v. Black, 117 Cal. 157, 37 L. R. A. 619, 59 Am. St. Rep. 162, 48 Pae. 1090; Bernstein v. District Grand Lodge No. 4, Independent Order B'nai B'rith, 2 Cal. App. 624, 84 Pac. 271; People's Home Sav. Bank V. Sadler, 1 Cal. App. 189, 81 Pac. 1029. Delaware. State v. Jessup & Moore Paper Co., 24 Del. 379, 77 Atl. 16. Illinois. People v. Chicago Live Stock Exchange, 170 111. 556, 570, 39 L. E. A. 373, 62 Am. St. Rep. 404, 48- N. E. 1062; People v. Board of Trade of Chicago, 45 111. 112, 118; People V. Ittner, 165 111. App. 360, 364; Wierman v. International Building, Loan & Investment Union, 67 111. App. 550, 551. Indiana. State v. Anderson, 31 Ind. App. 34, 67 N. E. 207. Louisiana. State v. Bank of Lou- isiana, 5 Mart. (N. S.) 327. Massachusetts. Sargent v. Frank- lin Ins. Co., 8 Pick. 90, 96, 19 Am. Dec. 306. New Jersey. State v. Overton, 24 N. J. L. 435, 61 Am. Dec. 671. New York. Kent v. Quicksilver Min. Co., 78 N. Y. 159, 182; National League of Commission Merchants of United States v. Hornung, 72 Misc. 181, 129 N. Y. Supp. 437; People v. Throop, 12 Wend. 183, 186. Pennsylvania. In re National Liter- ary Ass'n, 30 Pa. St. 150, 151. See also Bagley v. Reno Oil Co., 201 Pa. 78, 56 L. R. A. 184, 50 Atl. 760. Tennessee. Herring v. Ruskin Co- op. Ass'n (Tenn. Ch. App.), 52 S. W. 327. Utab. Daniher v. Grand Lodge A. O. U. W., 10 Utah 110, 37 Pae. 245. In re Long Island R. Co., 19 Wend. (N. Y.) 37, 32 Am. Dec. 429, the court said: "When taken as incidental it [the power to adopt by-laws] must be exercised in conformity to the general law of the land, that being the rule to regulate the proceedings of artificial bodies, as well as the conduct of natural persons, independ- ently of express provisions of the charters of those companies to the contrary. This general law has ascer- tained the rights of person and of property of the citizen, and estab- lished modes of proceeding in case of a violation of them; and corporate bodies must conform to them, in seek- ing redress, the same as individuals. The former can no more take the reme dy into their own hands than can the latter. So strict has this salutary principle of subjection been held in England, that even a by-law in pur- suance of an express power in a charter granted by the king, is void, if contrary to the common law or act of parliament. * * * Thus a by. law imposing a forfeiture of goods is void, though the letters patent au- thorized it; and a power granted to a corporation of dyers to search, and if they found cloth dyed with logwood, to ; seize it as forfeited, was adjudged void as contrary to magna charta. On the same principle, by-laws in re- straint of trade are adjudged void. * * * So a by-law that may be lawful cannot be enforced by an ex- traordinary penalty, such as impris- onment or forfeiture of goods, or by distress and sale of ^oods, for, by the general law of the kingdom, no man is to \\e imprisoned, or dispossessed of 991 489] Peivatb Cokpokations [Ch. 16 if it contravene any provision of the federal or state constitution,*' his goods and chattels nisi per legale judicium parivm suorutn, vel per legem terrae: and if such penalties were allowed, eorporations would be en- abled to set up private particular laws in contradiction to the laws of the land, whicli is against the nature and essence of a by-law. * * • Even an act of parliament does not by implication invest the corporation with any extraordinary authority and if it is intended to be given, it must be by express words to that effect." "The power of a corporation to make by-laws for the government of its members does not authorize it to violate law, nor to require its members to do so. The power is limited by the nature of the corporation and the laws of the country. It can make no rule which is contrary to law, good morals, or public policy." Sayre v. Louisville Union Benev. Ass'n, 1 Duv. (Ky.) 143, 85 Am. Dec. 613. "If this by-law be contrary to the laws of this state, it certainly has no validity. It is not a settled principle, however, that a by-law must never modify or vary the rights of individu- als, lest it should be contrary to the laws of the state. According to such a principle no valid by-law whatever could be made. No; all by-laws of a minor corporation are good that are reasonable, and calculated to carry into effect the objects of the institu- tion, and are not contradictory to the general policy of the laws of the land." State v. Tudor, 5 Day (Conn.) 329, 5 Am. Dec. 162. 63 United States. Peck v. Elliott, 79 Fed. 10, 14, 38 L. R. A. 616, rev'g Eoss-Meehan Brake Shoe Foundry Co. v. Southern Malleable Iron Co., 72 Fed. 957. Alabama. Supreme Commandery Knights of Golden Rule v. Ainsworth, 71 Ala. 436, 46 Am. Rep. 332. Oallfomia. Union Sav. Bank of San Jose v. Leiter, 145 Cal. 696, 79 Pac. 441; Bernstein v. District Grand Lodge No. 4, Independent Order B' nai B'rith, 2 Cal. App. 624, 84 Pae. 271. nUnols. People v. Chicago Live Stock Exchange, 170 111. 556, 570, 39 L. R. A. 373, 62 Am. St. Rep. 404, 48 N. E. 1062; Durkee v. People, 5S 111. App. 396, 402, afE'd 155 111. 354, 46 Am. St. Rep. 340, 40 N. E. 626. New York. Kent v. Quicksilver Min. Co., 78 N. Y. 159, 182; National League of Commission Merchants of United States v. Hornung, 72 Misc. 181, 129 N. Y. Supp. 437; Pennsylvania. In re German Gen- eral Ben. Ass'n of Philadelphia, 30 Pa. St. 1455; Granger v. 'Grubb, 7 Phila. 350. Tennessee. Herring v. Ruskin Co- op. Ass'n (Tenn. Ch. App.), 52 S. ^V. 327. Provisions of the federal and of the state constitutions are "laws of the United States and of the state ' ' with- in the meaning of a statute provid- ing that corporations shall have power and authority to make and es- tablish rules and regulations not con- trary to the laws of the United States or of the state. Kern v. Arbeiter Un- terstuetzungs Verein, 139 Mich. 233, 102 N. W. 746. A by-law restricting the free exer- cise of the constitutional right of franchise is invalid. Stein v. Marks, 44 N. Y. Misc. 140, 89 N. Y. Supp. 921. This is also true of a by-law conflicting with the constitutional guaranty of religious freedom. People V. St. Franciscus Ben. Society, 24 How. Pr. (N. Y.) 216. A by-law of a press association which provides that no member of such association shall receive or pub- lish regular news dispatches of any 992 Ch. 16] By-Laws [§489 or of any federal or state statute^* or any of the rules of the com- other news association organized for a like purpose and covering a like ter- ritory is not open to the objection that it restricts' the liberty of the press. Matthews v. Associated Press State of New York, 136 N. Y. 333, 32 Am. St. Kep. 741, 32 N. E. 981. 84 United States. Peck v. Elliott, 79 Fed. 10, 38 L. K. A. 616, rev'g Eoss- Meehan Brake Shoe Foundry Co. v. Southern Malleable Iron Co., 72 Fed. 957. Alabama. Supreme Commandery Knights of Golden Eule v. Ainsworth, 71 Ala. 436, 46 Am. Eep. 332. California. Union Sav. Bank of San Jose V. Leiter, 145 Cal. 696, 79 Pac. 441; People's Home Sav. Bank v. Su- perior Court City & County of San Francisco, 104 Cal. 649, 29 L. B. A. 844, 43 Am. St. Eep. 147, 38 Pac. 452. Illinois. Durkee v. People, 53 111. App. 396, 402, afe'd 155 111. 354, 46 Am. St. Eep. 340, 40 N. E. 626. Kentucky. Corydon Deposit Bank v. McClure, 141 Ky. 481, 133 S. W. 201. Maine. Jay Bridge Corporation v. Woodman, 31 Me. 573; Kennebec & P. E. Co. V. Kendall, 31 Me. 470. Maryland. Darrin v. Hoff, 99 Md. 491, 58 Atl. 196. Missouri. Kahn v. Bank of St. Joseph, 70 Mo. 262, 269. New York. Picalora v. Gulf Co- operative Co., 68 Misc. 331, 123 N. Y. Supp. 980. Oregon. Griflth v. Klamath Water Ass'n, 68 Ore. 402, 137 Pac. 226. Pennsylvania. Commonwealth v. Detwiller, 131 Pa. St. 614, 7 L. E. A. 357, 18 Atl. 990; In re German General Ben. Ass 'n of Philadelphia, 30 Pa. St. 1455; Granger v. Grubb, 7 Phila< 350. South Dakota. Sehultz v. Dea Moines Mut. Hail & Cyclone Ins. Ass'n, 35 8. D. 627, 153 N. W. 884. Texas. Eaton v. International Trav- elers ' Ass'n of Dallas, — Tex. Civ, App. — , 136 S. W. 817. Equity will not give its aid or coun- tenance to a by-law, the purpose of which is to frustrate and defeat the plain intent and provision of the statute. New York Protective Ass'n v. McGrath, 23 N. Y. St. 209, 5 N. Y. Supp. 8. Where the rights of a member of a fraternal benefit society have become fixed prior to the time of the enact- ment of a statute which it is claimed validated certain invalid by-laws, tending to impair such rights, the statute, whatever its prospective force and effect may be, will not be held to operate retroactively. Leland v. Modern Samaritans, 111 Minn. 207, 126 N. W. 728. A by-law of a fraternal benefit society cannot nullify the statutory presumption of death from seven years' absence. Samberg v. Knights of Modern Maccabees, 158 Mich. 568, 133 Am. St. Eep. 396, 123 N. W. 25; Sovereign Camp Woodmen of World V. Eobinson, — Tex. Civ. App. — , 187 S. W. 215; Supreme Euling Fraternal Mystic Circle v. Hoskins, — Tex. Civ, App. — , 171 S. W. 812. An express charter provision that by-laws on a particular matter shall not be contrary to the general law of the state has been stated to mean that they shall "not contravene the general laws other than that govern- ing the subject about which they are prescribed." St. Louis Perpetual Ins. Co. V. Goodfellow, 9 Mo. 149. Though the form of expression employed might be taken as implying that a by-law might contravene the law gov- erning the particular matter to which I Priv. Corp.— 63 993 t§489] Peivate Cobpoeations [Ch. 16 mon law forming a part of the law of the state.^^ In this connection, it has been held that the term "existing law" in a statute providing that "every corporation as such has power, though not specified in the law under which it was incorporated: * * * to make by-laws not inconsistent with any existing law" refers not only to statutes but also to judicial decisions as to what powers a corporation may or may not possess, where the subject is not covered by statutory enactment.*^ In other words, by-laws must not conflict with the law as laid down by the courts. So, where the courts have held that the subordinate lodge or council of a benefit order is the agent of the supreme lodge or council, by-laws of such an order cannot, even as between the order and its members, validly declare to the contrary." the by-law relates, such construction is not warranted by the decision, which merely held that under power conferred by its charter to regulate the transfers of stock, the corporation might impose restrictions on such transfers running counter to the regu- lations of the general law of the state governing the transfer of other spe- cies of personal property. A member of a building and loan as- sociation may be estopped by his con- duct from denying the existence of a by-law, adopted at a time when its provisions were invalid under the statute but sought to be enforced against him after the statute had been so amended as to permit of the adop- tion of a similar one. Collins v. Cobe, 202 m. 469, 66 N. E. 1079, aff'g 104 111. App. 142. B6 United States. Peck v. Elliott, 79 Fed. 10, 38 L. R. A. 616, rev'g Eoss-Meehan Brake Shoe Foundry Co. V. Southern Malleable Iron Co., 72 Fed. 957. Alabama. Supreme Commandery Knights of Golden Bule v. Ainsworth, 71 Ala. 436, 46 Am. Eep. 332. Illinois. See People v. Crossley, 69 111. 195. Michigan. People v. Fire Depart- ment City of Detroit, 31 Mich. 458, 466. Missouri. Kahn v. Bank of St. Joseph, 70 Mo. 262, 269. See also God- dard v. Merchants' Exchange, 9 Mo. App. 290, aff'd 78 Mo. 609. New Jersey. Taylor v. Griswold, 14 N. J. L. 222, 27 Am. Dee. 33. Pennsylvania. See Com. v. Detwil- ler, 131 Pa. St. 614, 7 L. E. A. 357, IS Atl. 990. The validity of a by-law permitting voting by proxy was sustained in State V. Tudor, 5 Day (Conn.) 329, 5 Am. Dec. 162, although such form of voting was not permitted at common law, the court taking the view that it was doubtful whether the common-law rule was applicable to other than pub- lic corporations and also that such a by-law did not contravene the general policy of the laws of the state, in view of the fact that the legislature had enacted a law permitting votes by proxy in the case of banking corpo- rations. 56Eaub V. Gerken, 127 N. Y. App. Div. 42, 111 N. Y. Supp. 319. 57Dromgold v. Eoyal Neighbors of America, 261 111. 60, 103 N. E. 584. See also Supreme Lodge K. of P. v. Withers, 177 XJ. S. 260, 44 L. Ed. 762, aff'g 89 Fed. 160. See also Supreme Tent Knights of Maccabees of World V. Volkert, 25 Ind. App. 627, 57 N. E. 994 Ch. 16] By-Laws [§490 In a proper case, the question whether a by-law is consistent with the law of the land is one for judicial investigation *' and determina- tion. Such question, however, should not be submitted to the jury, it being solely one of law for the court.*' When; however, the question is whether a by-law, invalid under the statute under which the cor- poration was formed, was adopted subsequently to the enactment of an amendment to the statute, under which the by-law was valid, it is one of fact for the jury.^o § 490. Consonance with public policy and public welfare. By- laws must also be consistent with public policy *^ and not in conflict 203; Brown v. Supreme Court 1. O. F., 176 N. Y. 132, 68 N. E. 145. In Sternaman v. Metropolitan Life Ins. Co., 170 N. Y. 13, 57 L. E. A. 318, 88 Am. St. Rep. 625, 62 N. E. 763, while the validity of a by-law waa not involved, the principle which apparently underlies the holding of the court in Dromgold v. Boyal Neigh- bors of America, supra, was stated as follows: "The power to contract is not unlimited. While, as a general rule, there is the utmost freedom of action in this regard, some restrictions are placed upon the right by legisla- tion, by public policy, and by the nature of things. Parties cannot make a binding contract in violation of law or of public policy. They cannot in the same instrument agree that a thing exists, and that it does not exist, or provide that one is the agent of the other, and at the same time, and with reference to the same subject, that there is no relation of agency be- tween them. They cannot bind them- selves by agreeing that a loan in fact void for usury is not usurious, or that a copartnership which actually exists between them does not exist. They cannot by agreement change the laws of nature or of logic, or create rela- tions, physical, legal, or moral, which cannot be created. In other words, the^ cannot accomplish the impossible by contract." 88 State V. Bank of Louisiana, 5 Mart. N. S. (La.) 327. It is only when an attempt is made to enforce an invalid by-law to the detriment of a stockholder that the question of its validity can properly be raised for adjudication. Burden v. Burden, 8 N. Y. App. Div. 160, 40 N. Y. Supp. 499. Moreover, under a statute empowering the trustees of a corporation to make such prudential by-laws as they shall deem proper for the management of the affairs of the corporation, they not to be incon- sistent with the laws of the state, judicial inquiry as to the validity of a by-law is limited to the question whether it is inconsistent with the laws of the state. Burden v. Burden, supra. 59 State V. Overton, 24 N. J. L. 435, 61 Am. Dec. 671; People v. Throop, 12 Wend. (N. Y.) 183, 186. See also Compton v. Van Volkenburgh, 34 N. J. L. 134, 135; Morris & E. E. Co. v. Ayres, 29 N. J. L'. 393, 395, 80 Am. Dec. 215. 60 Supreme Council v. Perry, 140 Mass. 580, 5 N. E. 634. 61 Alabama. Weatherly V. Medical & Surgical Society, 76 Ala. 567, 570. Illinois, People v. Chicago Live Stock Exchange, 170 111. 556, 570, 39 L. E. A. 373, 62 Am. St. Eep. 404, 48 N. E. 1062; People v. Ittner, 165 111. App. 360, 364; Dufkee v. People. 53 995 §491] Peivate Cokpokations [Ch. 16 ■with public welfare.^^ If they conflict with either they are invalid and will not be sustained. §491. Ousting courts' jurisdiction. The general rule, as recog- nized by no less an authority than the Supreme Court of the United States, is that parties cannot by contract completely oust the' juris- diction of the courts over claims involving property rights which may in Ihe future arise out of their dealings one with the other .^' m. App. 396, 402, aff'd 155 111. 354, 46 Am. St. Kep. 840, 40 N. E. 626. Indiana. State v. Anderson, 31 Ind. App. 84, 67 N. E. 207. Michigan. Van Poucke v. Nether- land St. Vincent de Paul Society, 63 Mich. 378, 29 N. W. 863; People v. Fire Department City of Detroit, 31 Mich. 458, 466. Keliraska. Markham v. Supreme Court I. O. F., 78 Neb. 295, 110 N. W. 638. New York. National League Com- mission Merchants of United States v. Hornung, 72 Misc. 181, 129 N. Y. Supp. 437. Utah. Daniher v. Grand Lodge A. O. TJ. W., 10 Utah 110, 37 Pae. 245. A by-law of a mutual accident asso- ciation providing that the association shall not be liable for the payment of benefits or indemnity on account of disability or death resulting from a bodily injury caused by the discharge of firearms, unless the member or per- son claiming by, through or under any certificate issued to such member, shall establish the accidental charac- ter of such discharge by the testimony of at least one person, other than the member, who was an eyewitness of the event, held not contrary to public policy. Eoeh v. Business Men's Pro- tective Ass'n of Des Moines, 164 Iowa 199, 15 L. E. A. (N. S.) 221, Ann. Cas. 1915 C 813, 145 N. W. 479. See also Moses v. Illinois Commercial Men's Ass'n, 189 HI. App. 440, 448. A by-law of an incorporated under- takers' association not for pecuniary profit, by which personal solicitation of business is prohibited under pen- alty of suspension or expulsion, etc., is not unreasonable in the sense that it is illegal or contrary to public poli- cy. Allen V. Chicago Undertakers' Ass'n of Illinois, 137 111. App. 61, aff'd 232 111. 458, 83 N. E. 952, distinguish- ing People V. Chicago Live Stock Ex- change, 170 111. 556, 39 L. E. A. 373, 62 Am. St. Eep. 404, 48 N. E. 1062. 62 People V. Chicago Live Stock Ex- change, 170 111. 556, 570, 39 L. E. A. 373, 62 Am. St. Eep. 404, 48 N. E. 1062; National League Commission Merchants of United States v. Hor- nung, 72 N. Y. Misc. 181, 129 N. Y. Supp. 437. 63 "A man may not barter away * * * his substantial rights. * * • In a civil case he may submit his particular suit by his own consent to an arbitration, or to the decision of a single judge. * * * In these aspects, any citizen may no doubt waive the rights to which he may be entitled. He cannot, however, bind himself in advance by an agreement, which may be specifically enforced, thus to for- feit his rights at all times and on all occasions, whenever the case may be presented." Home Ins. Co. of New York V. Morse, 20 Wall. (U. S.) 445, 22 L. Ed. 365. See also Barron v. Burnside, 121 U. S. 186, 30 L. Ed. 915. 996 Ch. 16] By-Laws [§491 Under this rule,®* which is said to have existed ever since and even before the time of Lord Coke,** there are courts which hold that by-laws ** which attempt to deprive the courts of any and all juris- diction over the property rights of the stockholders or members of the corporation are invalid. Thus the by-law of a mutual insurance company or a benefit society making final and conclusive the action of a tribunal created by it in regard to the allowance of a claim, will not ordinarily be sustained.*' 64 In Cotter v. Grand Lodge A. O. U. W. of Montana, 23 Mont. 82, 57 Pae. 650, it is said that ' ' the common- law doctrine that a provision in an ordinary contract requiring all differ- ences between the parties touching their rights and liabilities thereunder to be submitted to arbiters, whose de- cision or award shall be conclusive and final, will not be allowed to bar the litigation of such differences in the courts of the land, is an anomaly, and inconsistent with the right freely to contract; and, if it were not so firmly and well-nigh universally es- tablished, we apprehend that it would be overturned, as resting upon no solid foundation of reason. Its oper- ation should not be extended by construction, nor should it ever be invoked to nullify or impair contrac- tual provisions not clearly infected with the supposed evils intended to be cured or prevented. * * * The doe- trine is, however, recognized and ap- proved by the decisions of this court * * * and also by section 2245 of the Civil Code of 1895." 65 Munson v. Straits of Dover S. S. Co., 99 Fed. 787. 66 In this section, by-laws will be treated as contracts, pure and simple, into which the stockholders or mem- bers expressly enter, the question of the validity of the by-laws herein referred to turning on their subject- matter rather than on the mode of their adoption. «» Grimbley v. Harrold, 125 Cal. 24, 73 Am. St. Rep. 19, 57 Pao. 558. Com- pare Eobinson v. Irish-American Benev. Society, 67 Cal. 135, 7 Pac. 435 (while this case carries the intimation that recourse to the courts might be had after the exha,ustion of the reme- dies provided by the society, &ever- theless the only cases that are cited are Anaeosta Tribe No. 12, Improved Order of Bed Men v. Murbach, and Black & White Smiths' Society' v. Van Dyke, discussed in note 69, infra, and these are cited approvingly). Where a member of a fraternal benefit society resorts to the tribunal established by the society to procure the allowance of his claim for bene- fits, although he is not required so to do even by the by-laws of the society, he is bound by its judgment in the absence of fraud, misconduct and mis- take. See the following decisions: California. Eobinson v. Templar Lodge No. 17, I. O. O. F., 97 Cal. 62, 31 Pac. 609, distinguished in Grimbley V. Harrold, 125 Cal. 24, 73 Am. St. Rep. 19, 57 Pac. 558. Indiana. Supreme Council Order of Chosen Friends v. Garrigus, 104 Ind. 133, 54 Am. Rep. 298, 3 N. E. 818; Bauer v. Samson Lodge, 102 Ind. 262, 1 N. E. 571. Maine. Perry v. Cobb, 88 Me. 435, 49 L. R. A. 389, 34 Atl. 278; Ste- phenson v. Piscataqua Fire & Marine Ins. Co., 54 Me. 55. North Carolina. Duffy v. Fidelity Mut Life Ins. Co., 143 N. C. 697^ 55 S. E. 1047 (mem. dec), 142 N. C. 997 491] Pbivate Coepoeations [Ch. 16 The ground on which such by-laws are deemed void is that they 103, 7 L. R. A. (N. S.) 238, 55 S. E. 79. Ohio. Myers v. Jenkins> 63 Ohio St. 101, 81 Am. St. Eep. 613, 57 N. E. 1089; Baltimore & 0- E- Co. v. Stank- ard, 56 Ohio St. 224, 49 L. B. A. 381, 60 Am. St. Bep. 745, 46 N. B. 577. To an action for the recovery from a beneficial society of certain bene- fits claimed by plaintiff under the society's by-laws, the society inter- posed the plea that by its by-laws all contests between the society and members must be referred to a com- mittee whose decision was final. The (jourt held that inasmuch as the by-law operated to deprive members of the right of seeking to enforce the monetary obligations of the society by the aid of the court, the by-law was invalid. The court, while ad- mitting that it is true that a member of such society may not in all re- spects come to the court regardless of the by-laws of the society, indi- cated that such by-laws are not in all respects binding absolutely upon members, and continued: "Where, as we have said, the by-laws relate simply to matters of internal admin- istration, or of discipline, courts will not undertake to review them. Courts are not established for such a purpose. Also, where the by-laws amount to a condition precedent to a right of action, such as a proper opportunity to hear and examine a claim for the purpose of ascertaining the liability or the amount due, they must be followed before a court will hear a party who has failed thus to conform tp his reasonable contract. This is a principle applicable to all contracts. A familiar illustration is found, in contracts of insurance, in provisions relating to notice, adjust- ment of loss, and the like. Also, in statutory provisions requiring those who have claims against a city or town to present them for a certain time, in order to allow opportunity for investigation. But where a per- son who has a right of action is deprived of his remedy, either by nonaction or wrong action on the part of the society, or where by-laws imposed conditions which would not be allowed to stand, under recog- nized rules of law, in other cases of contracts, such by-laws are invalid, upon the ground that they operate to deprive a person of his remedy of recourse to the law, which is a com- mon constitutional right." Pepin v. Societe St. Jean Baptiste, 23 B. I. 81, 91 Am. St. Eep. 620, 49 Atl. 387. A by-law of a stock corporation providing that differences thereafter arising between the corporation and its stockholders shall be submitted to arbitration is not effective to bar the right of a stockholder to resort to the courts, a stipulation whereby persons undertake to shut the doors of the courts with regard to matters to arise in the future not being enforceable. State v. North American Land & Tim- ber Co., 106 La. 621, 87 Am. St. Eep. 309, 31 So. 172. The trustees or treasurer of a bank cannot be made ultimate arbiter of whether a bank book has been lost or destroyed, so as to deprive the courts of jurisdiction to decide the matter by a by-law which provides that no part of a deposit shall be withdrawn without producing the regular book unless the trustees or the treasurer shall have been satisfied that such book has been lost or idestroyed, even though the provisions of the by-law be looked upon as constituting a con- tract between the parties. Webber v. Cambridgeport Sav. Bank, 186 Mass. 314, 71 N. E. 567. See also Stein v. 998 Ch. 16] By-Laws [§491 are against public policy.** On the other hand, there are courts which seem to find nothing per se invalid in a by-law's closing the courts to the adjudication of a claim under a benefit certificate, issued by the benefit society adopting the by-law.*' But whether or not a Marks, 44 N. T. Misc. 140, 89 N. Y. Supp. 921. 68 Markham v. Supreme Court I. O. P., 78 Neb. 295, 110 K. W. 638. See also Kelly v. Trimont Lodge No. 249, I. O. O. F., 154 N. C. 97, 52 L. R. A. (N. S.) 823, 69 S. E. 764. A provision in the constitution and by-laws of a benefit society which leaves it wholly within the discretion of the beneficiary board whether they will pay a disability claim, denies an appeal from the decision of the board, and makes its terms pleadable in bar of any suit in equity or action at law brought on a benefit certificate, held to be against public policy. Convery V. Brotherhood of Eailroad Trainmen, 190 111. App. 479. It has been suggested, however, by the court which decided the case just cited that although a beneficiary in a benefit certificate is not required be- fore bringing suit to submit his claim to the tribunal provided in the by- laws where such tribunal is composed of the ofScers of the society, a by-law providing for arbitration before or an adjudication by some third person or a tribunal whose members are in no way- connected with the society would, perliaps, be a complete bar to a suit in court. Great Hive Ladies of Mod- ern Maccabees v. Hodge, 130 HI. App. 1, 3. See also Bond v. Grand Lodge Brotherhood of Eailroad Trainmen, 165 111. App. 490, 497. 69 United States. Rood v. Railway Passenger & Freight Conductors ' Miit. Ben. Ass'n, 31 Fed. 62. Maryland. Osceola Tribe No. 11, Independent Order of Red Men v. Schmidt, 57; Md. 98; Anacosta Tribe No. 12, Improved- Order of Red Men V. Murbaeh, 13 Md. 91, 71 Am. Dec. 625. Michigan. Conley v. Supreme Court Independent Order of Forest- ers, 158 Mich. 190, 122 N. W. 567; Fillmore v. Great Camp Knights of Maccabees, 103 Mich. 437, 61 N. W. 785; Hembeau v. Great Camp Knights of Maccabees, 101 Mich. 161, 49 L. B. A. 592, 45 Am. St. Rep. 400, 59 N. W. 417 (such a by-law does not vio- late the constitutional right of trial by jury) ; Canfield v. Great Camp Knights of Maccabees, 87 Mich. 626, 13 L. R. A. 625, 24 Am. St. Rep. 186, 49 N. W. 875; Van Pouche v. Nether- land St. Vincent de Paul Society, 63 Mich. 378, 29 N. W. 863. Pennsylvanlai. Black & "White Smiths' Society V. Vandyke, 2 Whart. 309, 30 Am. Dec. 263. A by-law of a benefit association which requires a claim to be submitted to arbitrators and makes their deci- sion final, and which is made a part of the policy of insurance, is valid. Russell V. North American Ben. Ass 'n, 116 Mich. 699, 75 N. "W. 187. A by-law of a fraternal benefit so- ciety which provides that a tribunal of the society's members shall hear and determine all claims against it on the part of its members and that such tribunal's finding shall be final, will be sustained by the courts. Derry v. Great Hive Ladies of Modern Macca- bees, l35 Mich. 494, 98 N. W. 23. A by-law of a mutual fire insurance company which provides that the de- cision of arbitrators in the matter of a claim for loss shall be final and that neither party shall thereafter have any right of action in regard to such matter either at law or in equity, and 999 §491] Pbivate Coepoeations [Ch. 16 by-law of this character is valid, it would seem that the courts, very generally, will sustain a by-law of a benefit society which pro- vides that before any suit at law or in equity shall be instituted on a claim for benefits, the means afforded by the by-laws for the press- ing of the claim shall be exhausted.'"' to which a member agrees, in his appli- cation, to conform, is valid, notwith- standing a statute which gives a mem- ber the right to sue on a claim which has accrued if payment be withheld more than a certain length of time, the claim which the by-law requires to be submitted to arbitration not be- coming due until the award is made. Raymond v. Farmers' Mut. Fire Ins. Co., 114 Mich. 386, 72 N. W. 254. See also Patrons' Mut. Fire Ins. Co. of Michigan v. Attorney General, 166 Mich. 438, 131 N. W. 1119. In Cotter v. Grand Lodge A. O. TJ. W. of Montana, 23 Mont. 82, 57 Pae. 650, the court, citing Eobinson v. Templar Lodge, 117 Cal. 370, 49 Pae. 170, infra, Canfield v. Great Camp Knights of Maccabees, supra, and Fill- more V. Great Camp Knights of Maccabees, supra, said: "We are inclined to think the better reason- ing is with those courts which, while recognizing and following the common-law rule [which holds ineffec- tive for their purpose agreements oust- ing the jurisdiction of the courts over civil and property rights] where ordi- nary contracts are involved, never- theless hold that the members of, and those claiming benefits from, the so- ciety are bound, in the absence of fraud or palpable error, to seek re- dress of their grievances in the mode prescribed by the society, wherein vests the sole jurisdiction to right their wrongs, and that they are pre- cluded from resort to the courts." A by-law of a tobacco board of trade, adopted "pursuant to its char- ter powers," which created trial and appellate tribunals for the settlement of disputes between members arising put of business transactions, and pro- vided that the decision of the appel- late tribunal should be considered final, held valid, binding and wise. Vaughn v. Herndon, 91 Tenn. 64, 17 S. W. 793. The power of a membership cor- poration, not for profit, to adopt a by-law providing for a tribunal to set- tle disputed accounts, a failure to exe- cute whose judgment subjects a member to the penalty of expulsion, will not be lightly implied. National Iieague of Commission Merchants of United States v. Hornung, 72 N. Y. Misc. 181, 129 N. T. Supp. 437. 70 Connecticut. McGuiness v. Court Elm City No. 1, Foresters of America, 78 Conn. 43, 3 Ann. Gas. 209, 60 Atl. 1023. Delaware. King v. Wynema Coun- cil No. 10, Daughters of Pocahontas Improved Order of Eed Men, 25 Del. 255, 78 Atl. 845. Illinois. Grant v. LangstafC, 52 111. App. 128, 132. Indiana. Bauer v. Samson Lodge, 102 Ind. 262, 1 N. E. 571. Kansas. Supreme Lodge Order of Select Friends v. Raymond, 57 Kan. 647, 49 L. E. A. 373, 47 Pae. 533. Maine. Jeane v. Grand Lodge A. O. U. W., 86 Me. 434, 30 Atl. 70. Massachusetts. Oliver v. Hopkins, 144 Mass. 175, 10 N. E. 776. Michigan. Larkin v. Modern Wood- men of America, 163 Mich. 670, 127 N. W. 786; Conley v. Supreme Court Independent Order of Foresters, 158 Mich. 190, 122 N. W. 567; Monger v. New Bra Ass'n, 156 Mich. 645, 24 L. E. A. (N. S.) 1027, 121 N. W. 823. 1000 Ch. 16] By-Laws [§ 491 This rule is, however, subject to certain limitations, such as Montana. Cotter v. Grand Lodge A. O. U. W. of Montana, 23 Mont. 82, 57 Pae. 650. New Hampshire. Levy v. Order of Iron Hall, 67 N. H. 593, 38 Atl. 18. New Jersey. Ocean Castle, Knights of Golden Eagle v. Smith, 58 N. J. L, 545, 33 Atl. 849. New York. Poultney v. Bachman, 31 Hun 49, 54. Ohio. Myers v. Jenkins, 63 Ohio St. 101, 81 Am. St. Eep. 613, 57 N. E. 1089; Baltimore & O. R. Co. v. Stank- ard, 56 Ohio St. 224, 49 L. E. A. 381, 60 Am. St. Eep. 745, 46 N. E. 577; Supreme Court I. O. ¥. v. Herlinger, 27 Ohio Cir. Ct. 151, 153. Pennsylvania. Beeman v. Supreme Lodge Shield of Honor, 215 Pa. 627, 64 Atl. 792; McAlees v. Supreme Sit- ting Order of Iron Hall, 13 Atl. 755. Rhode Island. Wood v. What Cheer Lodge No. 298, Sons of St. George, 35 Atl. 1045. "It is not unreasonable to provide that the member claiming benefits shall appeal to the governing body of the association. The member volun- tarily enters the association, with knowledge of its by-laws, and agrees to be bound by such as are not in vio- lation of law, and certainly no princi- ple of law is violated in making pro- vision for the submission of claims of a member to the highest body of the association with which he volun- tarily unites himself. It is but just to the association that its chief ofS- cers should have an opportunity to ijivestigate the claim asserted by the member before it is harassed by liti- gation, and, indeed, the provision is presumptively for the benefit of the member, for the fair inference is that the governing officers will do their duty, and allow all rightful claims. At all events, there is no principle of law violated by a by-law requiring an appeal to the governing body. * * * We have no doubt that a by-law re- quiring the presentation of claims to subordinate officers, and requiring, in case of a decision adverse to the claimant, an appeal to the governing body of the society, is reasonable and valid." Supreme Council Order of Chosen Friends v. Eorsinger, 125 Ind. 52, 9 L. E. A. 501, 21 Am. St. Eep. 196, 25 N. E. 129. Compare, however, Daniher v. Grand Lodge A. O. U. W., 10 Utah 110, 37 Pac. 245, in which the court said: "It is further contended by the appellants that the plaintiff cannot recover, because he failed and refused to submit his ease to the board of arbitration, as provided in the con- stitution and laws of the order, after demanding a hearing. The constitution, among others, contains a provision relating to the board of arbitration, as follows: 'In this board is vested jurisdiction to hear and determine all controversies as to the liability of this grand lodge for any claim made against it by those claiming to be the beneficiaries of deceased members, and also as to who are entitled as beneficiaries where conflicting claims are set up; and the decision of a ma- jority of said board shall be final and conclusive, unless reversed by the grand lodge or supreme lodge, it being the purpose and intention of this pro- vision that all these rights shall thus be determined without recourse to courts of law.' It then provides how appeals may be taken. It is evident that this provision is intended to cover the whole subject of conflicting or disputed claims of beneficiaries, and the intention is that claimants shall not have recourse to courts of law. When individuals unite to form a voluntary association, and adopt a 1001 § 491] Pkivate Coepokations [Ch. 16 that the means afforded by the by-laws shall not be unreason- constitution and by-laws, the relation which exists between the members is one of contract, and the constitution and by-laws form the terms of the agreement. Such agreement is valid and binding upon them, so long as it is not in contravention of the law of the land or of public policy. As to their binding effect, there is no dis- tinction between the constitution and the by-laws, except that it generally requires less solemnity and formality to change the latter than the former. If in either the association inserts pro- visions attempting to create a tribunal haying the power to adjudicate upon all the property rights of members or beneficiaries arising by virtue of mem- bership in the order, then such provi- sions have no more effect than a revocable agreement to submit to an award, because, otherwise, the attempt would be to usurp the functions of the sovereign power, for it alone can cre- ate judicial tribunals. In the construc- tion of all such provisions, the courts will apply the most cautious rules in the interests of justice and fair deal- ing. If the constitution or agreement provides for the determination only of some particular fact or facts, or of a question where no obligation to pay a fixed sum is expressed in the contract, or where no particular thing is to be done, but only such sum is to be paid, or such thing is to be done, as may be determined by the arbitrators, then, in such and like cases, the pro- vision or agreement to submit is bind- ing, in the absence of . fraud. The case at bar must be distinguished from these classes of cases, however, for here the sum to be paid is defi- nite; and the constitutioij, which pro- vides, in general terms, that all claims and rights of members and benefici- aries shall be submitted to the board of arbitration of its own creation, and that its decision shall be final and con- clusive, is legally ineffectual to bar this action. The rule of law is well settled that in such a case an agree- ment to arbitrate does not preclude the parties to it from resorting to their legal remedies. Nor is a sub- mission to arbitration, under such an agreement, a condition precedent to the bringing of an action. To hold otherwise would be an attempt to clothe such voluntary associations with power to create judicial tribu- nals, which would be contrary to the law of the land. ' ' In People v. Women's Catholic Or- der of Foresters, 162 111. 78, 44 N. E. 401, aff 'g 59 111. App. 390, it was said: "It is to be remembered, however, that there is a clear distinction be- tween the obligation to appeal from the lower to the higher tribunals of the society itself resting upon one who presents a question of discipline, and such obligation so far as it concerns one who asserts a claim to money due upon a contract. Where the contro- versy is concerning the discipline or policy or doctrine of the order or fra- ternity, the member must resort to the method of procedure prescribed by the association including the remedy by appeal, before invoking the power of the courts. But it is otherwise, where a member claims money due from, the society on its contract, or where the beneficiary of a deceased member claims money due from the society on its contract of insurance; in such case, the right to resort to the courts to coerce payment will not be abridged by the right of appeal from a lower to a higher tribunal of the society as conferred by its laws and rules. 'Courts of justice are freely open to those who seek money due them upon 1002 Ch. 16] By-Laws [§491 able '^ or such as will work a denial of justice,''^ and the intent to abridge the right to resort to the courts immediately is made to appear by express terms and is not dependent on mere implication. In order in any way to abridge the. right of a member of a benefit order to resort to the courts to obtain the benefits to which he claims to be entitled, the by-law must do so expressly, and where it does so only by implication, the abridgment will not Ibe binding on the member, a contract.' * * • Hence, there is a distinction between the question of the validity of the expulsion when it is set up as a defense to an action upon a benefit certificate or other con- tract, and the question of the validity of the expulsion when restoration to the privileges of the society is sought to be secured through the writ of man- damus or other procedure. In the for- mer ease, it is sufficient for the bene- ficiary to show, that the judgment of expulsion was invalid, without fur- ther showing the exhaustion of all remedies within the order or society for the purpose of having the judg- ment vacated. * * * In the latter case, it must appear that the remedy provided by the rules of the society for the review of the judgment com- plained of was resorted to." And see in connection with these last two cases: Supreme Lodge Order of Mutual Protection v. Meister, 204 111. 527, 68 N. E. 454, aff'g 105 111. App. 471; Harris v. National Council Junior Order United American Me- chanics, 168 N. O. 357, 84 S. E. 405; Kelly V. Trimont Lodge No. 249, I. O. O. F., 154 N. C. 97, 52 L. B. A. (N. S.) 823, 69 S. E. 764; Pearson v. Anderburg, 28 Utah 495, 80 Pac. 307. A member of a fraternal benefit association must ordinarily exhaust all of the remedies provided by such association before resorting to the civil courts, but his beneficiaries are not required to thus proceed after his death unless the by-law contains a mandatory provision to that effect. Grubbs v. Comanche Tribe No. 6, 1. O. E. M., 16 Ga. App. 11, 84 S. E. 494. The assignee of a beneficiary was held in Strasser v. Staats, 59 Hun (N. Y.) 143, 13 N. Y. Supp. 167, not to be subject to the operation of a by-law whereby benefits are forfeited by a resort to the courts before the reme- dies within the society are exhausted. But that the assignee of a member of a stock exchange whose seat was, upon his insolvency, disposed of in accord- ance with the by-laws of the exchange, must, in asserting his claim, exhaust the remedies open to him under the exchange's by-laws before resorting to the courts, see Gartner v. Pittsburgh Stock Exchange, 247 Pa. 482, Ann. Cas. 1916 E 878, 93 Atl. 759. 71 A by-la* of a fraternal benefit society which requires the exhaustion of all of the remedies provided by the society's constitution and by-laws be- fore legal proceedings are instituted will be enforced against the benefici- ary in a benefit certificate only when the remedies provided are reasonable. Lindahl v. Supreme Court I. O. F., 100 Minn. 87, 8 L. E. A. 916, 117 Am. St. Eep. 676, 110 N. W. 358. See also Kane v. Supreme Tent Knights of Maccabees of World, 113 Mo. App. 104, 87 S. W. 547. 72 Where resort to the remedies pro- vided by a benefit order for its mem- bers would work a denial of justice, a, by-law requiring the exhausting of such remedies as a condition prece- dent to the bringing of any civil ac- tion or legal proceeding will not be 1003 §491] Private Coepokations [Ch. 16 regardless of its being in conformity with custom.''' Certain it is that if by-laws which seek to oust the jurisdiction of the courts en- tirely can be sustained at all, they can accomplish their purpose only when it is made to appear by clear and explicit terms.'* ' ' The judicial mind is so strongly against the propriety of allowing one of the parties, or its especial representative, to be judge or arbitra- tor in its own ease, that even a strained interpretation will be resorted to if necessary to avoid that result. ' ' ''* Moreover, where through the • fault of a fraternal benefit society, it becomes impossible for a member or his beneficiary to pursue the means provided by the society for securing the allowance of a claim for benefits, the society cannot avail itself of a by-law requiring the exhaustion of all such means as a condition precedent to the institution of legal proceedings.'" That there was fault on the part of the society is not, however, a matter of presumption but it must be pleaded.'''' sustained. Brown v. Supreme Court I. O. r., 176 N. Y. 132, 68 N. E. 145. T3 Bauer v. Samson Lodge, 102 Ind. 262, 1 N. E. 571. 74 Supreme Lodge Order of Select Friends v. Eaymond, 57 Kan. 647, 49 L. E. A. 373, 47 Pac. 533. 7B Eailway Passenger & Freight Oonductora' Mut. Aid & Benefit Ass'n V. Eobinson, 147 111. 138, 159, 35 N. E. 168, afE'g 38 111. App. 111. See also Eailway Passenger & Freight Conductors' Mut. Aid & Benefit Ass'n V. Tucker, 157 111. 194, 204, 44 N. E. 286, 42 N. E. 398, rev'g 54 111. App. 445; Great Hive Ladies of Mod- ern Maccabees v. Hodge, 130 111. App. 1, 3; Brotherhood of Ey. Trainmen v. Greaser, 108 111. App. 598, 600. "It has been held, in effect, that a. by-law of a benefit association author- izing an officer of such association finally to construe a law of the asso- ciation purporting to limit its liability to pay benefits, and obligating a mem- ber to abide the decision of such offi- cer in the construction of such by-law, will not be enforced by the courts against a member, if it be possible to avoid Uiat result. Bailway Conduc- tors' Ben. Ass'n v. Eobinson, 147 111. 138 [supra]. We are inclined to the opinion that such a by-law should, upon grounds of public policy, be held by the courts to be invalid as an at- tempt to usurp the judicial functions of government." Fraternal Aid Ass'n v. Hitchcock, 121 111. App. 402, 408. 76Euterbusch v. Supreme Court I. 0. F., 162 Mich. 213, 127 N. W. 288. See also Supreme Sitting Order of Iron Hall v. Stein, 120 Ind. 270, 22 N. E. 186; Steiner v. Supreme Court 1. O. F., 149 Mich. 567, 113 N. W. 15; Harris v. National Council Junior Or- der IJnited American Mechanics, 168 N. C. 357, 84 S. E. 405; Myers v. Jen- kins, 63 Ohio St. 101, 81 Am. St. Eep. 613, 57 N. B. 1089. When a benefit society denies lia- bility on a claim under a benefit cer- tificate, disallows the same, and re- fuses an appeal to its appellate tri- bunal, it estops itself from relying on provisions of its constitution for such an appeal. Dague v. Grand Lodge Brotherhood of Eailroad Trainmen, 111 Md. 95, 73 Atl. 735. 77<'We do not doubt that if the 10G4 Ch. 16] By-Laws [§ 492 Nothing that has been said in this connection, however, must be understood as authority for the proposition that by-laws cannot pro- vide that certain facts shall be established by a tribunal within the corporation or by arbitration as a condition precedent to the attaching of legal liability. Indeed so far from the courts' lending themselves to any such proposition, it would seem that by-laws thus providing will, if otherwise valid, be sustained. It is only of jurisdiction over the question of legal liability on the facts that the courts refuse to be deprived, and it is only to this point that the above discussion goes. In keeping with the rule that the courts cannot be ousted of their jurisdiction over the property rights of stockholders or members by by-law, or perhaps, more properly, as an extension of such rule, it has been held that a corporation cannot by by-law fix the venue of suits against it and thus change the jurisdiction of the courts as established by law.'* §492. Impairment of obligation of contracts and destruction or impairment of vested rights. The word ' ' by-law ' ' ordinarily sig- nifies a rule for future action,'* and the power of a corporation to adopt by-laws does not extend to the adoption of such as impair the obligation of contracts or destro^y or impair vested rights, and by-laws which have such effect will not be sustained.*'* In this oon- officers of the society should refuse "A by-law, like any other law, is a ar. appeal, or do any act hindering or rule prescribed to regulate future eon- delaying an appeal, that the member duct, not to- act retrospectively, by might at once invoke the assistance of which a forfeiture is incurred, or the courts. * * * But it cannot be onerous conditions imposed amounting presumed, in the absence of averments to a forfeiture. ' ' Illinois Conference to the contrary, that the ofieera have Female College v. Cooper, 25 111. 148, been guilty of a breach of duty, so 150. that it is incumbent upon a party who 80" A corporation has not capacity, relies upon the wrong of the corporate as the legislative power from which it officers to show by affirmative allega- derives existence has not competency, tiohs their wrongful conduct." Su- by laws of its ov/u enactment, to dis- preme Council Order of Chosen turb or divest rights which it had cre- I'riends v. Forsinger, 125 Ind. 52, 9 L. ated, or to impair the obligation of its E. A. 501, 21 Am. St. Eep. 196, 25 N. contracts, or to change its responsibili- E. 129. ties to its members, or to draw them 78 Amesbury v. Bowditch Mut. Fire into new and distinct relations. ' ' Ins. Co., 6 Gray (Mass.) 596; Nute v. Supreme Commandery Knights of Hamilton Mut. Ins. Co., 6 Gray Golden Eule v. Ainsworth, 71 A.la. (Mass.) 174. See also Eaton v. Inter- 436, 46 Am. Eep. 332. national Travelers' Aas'n of Dallas, — In support of this rule, see also: Tex. Civ. App.— , 136 S. "W. 817. United States. Peck v. Elliott, 79 79 People V. Fire Department of De- Fed. 10, 38 L. E. A. 616, rev 'g Eoss- troit, 31 Mich. 458, 465. Meehan Brake Shoe Foundry Co. v. 1005 §492] Peivate Cokpokations [Ch. 16 neetion, however, a by-law which is a mere declaration or expression of an implication of the law cannot be attacked as impairing the obli- gation of contracts.'^ Southern Malleable Iron Co., 72 Fed. 957. California. People's Home Sav. Bank v. Superior Court City & County of San Francisco, 104 Cal. 649, 29 L. R. A. 844, 43 Am. St. Eep. 147, 38 Pac. 452; Bornsteiu v. District Grand Lodge No. 4, Independent Order B 'nai B'rith, 2 Cal. App. 624, 84 Pac. 271. lUinols. Illinois Conference Female College V. Cooper, 25 111. 148, 151. Indiana. State v. Anderson, 31 Ind. App. 34, 67 N. E. 207. Iowa. Van Atten v. Modern Broth- erhood of America, 131 Iowa 232, 108 N. W. 313. Maine. Northport Wesleyan Grove Camp-Meeting Ass'n v. Perkins, 93 Me. 235, 48 L. E. A. 272, 74 Am. St. Eep. 342, 44 Atl. 893. Michigan. People v. Fire Depart- ment Oity of Detroit, 31 Mich. 458, 465. Minnesota. Duluth Olub v. Hae- Donald, 74 Minn. 254, 73 Am. St. Eep. 344, 76 N. W. 1128; Bergman v. St. Paul Mut. Bldg. Ass'n, 29 Minn. 275, 13 N. W. 120. Missouri. Smoot v. Bankers' Life Ass'n, 138 Mo. App. 438, 120 S. W. 719. New York. Kent v. Quicksilver Min. Co., 78 N. Y. 159. Oregon. Griffith v. Klamath Water Ass'n, 68 Ore. 402, 137 Pac. 226. Bhode Island. Ireland v. Globe Milling Co., 21 E. I. 9, 79 Am. St. Eep. 769, 41 Atl. 258. The right of a benefit society to, make by-laws of such character is no broader than that of any other cor- poration. Wuerfler v. Grand Grove of Wisconsin Order of Druids, 116 Wis. 19, 96 Am. St. Eep. 940, 92 N. W. 433. When a moneyed corporation makes and attempts to enforce a by-law which involves a forfeiture of vested property rights, it must show ex- press legislative authority or a power lawfully conferred by its charter to declare such a forfeiture. March v. Fairmount Creamery Ass'n, 32 Pa. Super. Ct. 517, 520. A by-law of a creamery association, a moneyed corporation, which provides that stockholders producing milk and failing to dispose of it as required by the by-laws shall forfeit their stock unless a reason for noncompliance therewith which shall be satisfactory to the board of managers be given, is invalid as to persons who are stock- holders at the time of its adoption, and did not assent thereto, as provid- ing for a forfeiture of vested prop- erty rights. March v. Fairmount Creamery Ass'n, supra. A physician whose only interest in the government of an endowed hos- pital is the hope of gains and profits to arise from the practice of his pro- fession therein, is not a beneficiary of the trust and has no standing in a court of law or equity to complain that the by-laws of the charity are such as to deprive him of the gains and profits that he might otherwise obtain. People v. Julia F. Burnham Hospital, 71 HI. App. 246. A by-law must not unlawfully inter- fere with a member's right to con- tract. Matthews v. Associated; Press State of New York, 136 N. Y. 333, 32 Am St. Eep. 741, 32 N. E. 981. See also §§ 504, 505, infra. 81 Supreme Commandery Knights of Golden Eule v. Ainsworth, 71 Ala. 436, 46 Am. Eep. 332. See also Plunkett v. 1006 Ch. 16] By-Laws [§493 § 493. Restraint of trade. A by-law is invalid if it is in unreason- able restraint of trade.*^ It has been said, however, that the invalidity- Supreme Conclave, 105 Va. 643, 55 For by-laws of a live stock exchange S. E. 9. 82 Illinois. Inter-Ocean Pub. Co. v. Associated Press, 184 111. 438, 48 L. E. A. 568, 75 Am. St. Eep. 184, 56 N. E. 822, rev'g 83 111. App. 377; People v. Chicago Iiive Stock Exchange, 170 111. 556, 39 L. E. A. 373, 62 Am. St. Eep. 404, 48 N. E. 1062. Iowa. Parmers ' & Merchants ' Bank of Lineville v. Wasson, 48 Iowa 336, 30 Am. Eep. 398. . Kentucky. Huston v. Eeutlinger, 91 Ky. 333, 34 Am. St. Eep. 225, 15 S. W. 867. Massachusetts. Sargent v. Franklin Ins. Co., 8 Pick. 90, 96, 19 Am. Dee. 306. New York. Matthews v. Associated I-ress State of New York, 136 N. Y. 333, 32 Am. St. Eep. 741, 32 N. E. 981. Oregon. See Budd v. Multnomah St. Ey. Co., 15 Ore. 413, 3 Am. St. Bep. 169, 15 Pae. 659. Pennsylvania. Commissioners v. Gas Co., 12 Pa. St. 318. Tennessee. Bailey v. Master Plumb- ers, 103 Tenn. 99, 46 L. E. A. 561, 52 S. W. 853. England. Tailors of Ipswich Case, 11 Coke 53; Eex v. Wardens of Coop- ers Co., 7 T. E. 543. In People v. Chicago Live Stock Exchange, 170 111. 556, 39 L. E. A. • 373, 62 Am. St. Eep. 404, 48 N. E. 1062, it was held that a by-law of a live stock exchange board, limiting the number of solicitors who might be employed by any member within cer- tain states,, prohibiting the employ- ment of any solicitors except upon a salary, and allowing a member to so- licit only when counted as a solicitor, and while complying with the regula- tions of the by-laws, was void as being in unreasonable restraint of trade. which are not invalid under the fed- eral act prohibiting restraints and monopolies, see Hopkins v. United States, 171 U. S. 578, 43 L. Ed. 290, rev'g 82 Fed. 529. In Matthews v. Associated Press State of New York, supra, it was held that a by-law of a news association, composed of the publishers of news- papers in a state, and organized for the purpose of procuring and supply- ing its members with news, prohibit- ing its members from receiving or publishing the dispatches of any other news association covering the same territory, and organized for the same purpose, was not unreasonable or op- pressive, nor void as being in restraint of trade and competition, or of the liberty of the press. See also State v. Associated Press, 159 Mo. 410, 51 L. E. A. 151, 81 Am. St. Eep. 368, 60 S. W. 91. On the other hand, the same by-law was held invalid in restraint of trade in an Illinois decision. See Inter- Ocean Pub. Co. v. Associated Press, 184 111. 438, 48 L. E. A. 568, 75 Am. St. Eep. 184, 56 N. E. 822, rev'g 83 111. App. 377. An association of manufacturers may adopt a by-law giving it the right to order the closing down of the fac- tories of its members, provided the ob- jects sought to be attained be within its lawful purposes and the means used be legal. Associated Hat Manu- facturers V. Baird-Unteidt Co., 88 ConnJ 332, 91 Atl. 373. Where an incorporated milk ex- change adopted by-laws declaring that its directors should have the power to make and fix the standard or market price at which milk should be pur- chased by the corporation's stoek- 1007 493] Jr'RIVATB COEPORATIONS i,(,.i. si attaching to such a by-law goes only to the extent that the law wiL refuse to enforce it, and that a third person cannot complain if the members of the corporation choose to conform to it.*' §494. Consonance with charter and with nature, purposes and objects of corporation. In order for by-laws to be valid, they must be consistent with the terms and spirit of the charter of the cor- poration — the word "charter" being here used in its broadest sense and as having reference to the statutory right to be a corporation without regard to whether such right be obtained by special act or under general statutes. A by-law which is not thus consistent with the charter but is in conflict with and repugnant to it, is void.'* Thus holders, and, acting under such by- laws, the directors from time to time fixed the price of milk to be paid by dealers, and the price so fixed largely controlled the market in and about the city in which the exchange had its place of business, it was held that a verdict or finding that the exchange as managed constituted a combination inimical to trade and commerce was authorized. People v. Milk Exchange, 145 N. Y. 267, 45 Am. St. Eep. 609, 39 N. E. 1062. 83 American Live Stock Commission Co. V. Chicago Live Stock Exchange, 143 111. 210, 235, 18 L. E. A. 190, 36 Am. St. Eep. 385, 32 N. E. 274, aff'g 41 111. App. 149. 84 United States. BuUard v. Na- tional Eagle Bank, 18 Wall. 589, 21 L. Ed. 923; First Nat. Bank of South Bend v. Lanier, 11 Wall. 369, 20 L. Ed. 172; Peek v. Elliott, 79 Fed. 10, 38 L. E. A. 616, rev'g Eoss-Meehan Brake Shoe Foundry Co. v. Southern Malleable Iron Co., 72 Fed, 957. Alabama. Supreme Commandery Knights of Golden Eule v. Ainswprth, 71 Ala. 436, 46 Am. Eep, 332. California. People's Home Sav. Bank v. Superior. Court City & County of San Francisco, 104 Cal. 649, 29 L. E. A. 844, 43 Am. St. Eep. 147, 38 Pac. 452; Brewster v. Hartley, 37 Cal. 15, 99 Am. Dee. 237; Bernstein v. District Grand Lodge No. 4, Independent Or- der B'nai B'rith, 2 Cal. App. 624, 84 Pac. 271; People's Home Sav. Bank V. Sadler, 1 Cal App. 189, 81 Pac. 1029. Delaware. Brooks v. State, 26 Del. 1, 79 Atl. 790. Illinois. People v. Chicago Live Stock Exchange, 170 111. 556, 570, 39 L. E. A. 373, 62 Am. St. Eep. 404, 48 N. E. 1062; King v. International Building, Loan & Investment Union, 170 III. 135, 48 N. E. 677; Durkee v. People, 155 111. 354, 46 Am. St. Eep. 340, 40 N. E. 626; People v. Ittner, 165 111. App. 360, 364; Cerny v. Sesterska Podporujici Jednota, 146 111. App. 590; Cerny v. Jednota Cesky Dam, 146 111. App. 518, 523; "W'ierman v. Interna- tional Building, Loan & Investment Union, 67 111. App. 550, 551. Indiana. Presbyterian Mut. Assur. Fund V. Allen, 106 Ind. 593, 7 N. E. 317; McCallister v. Shannondale Co- operative Tel. Co., 47 Ind. App. 517, 94 N. E. 910; State v. Anderson, 81 Ind. App. 34, 67 N. E. 207. Maryland. Mutual Fire Ins. Co. v. Farquhar, 86 Md. 668, 39 Atl. 527. Massachusetts. Supreme Council v, Perry, 140 Mass. 580, 5 N. E. 634. Minnesota. Kolff v. St. Paul Fuel Exchange, 48 Minn. 215, 50 N. W. 1008 Cli. 16] By-Laws [§494 where a corporation has been made one of a stock character by the articles of incorporation, it cannot be made one of a mutual character 3036; Bergman v. St. Paul Mut. Bldg. Ass'n, 29 Minn. 275, 13 N. "W. 120. Missouii. Kahn v. Bank of St. Jos- eph, 70 Mo. 262, 269; Kretzef v. Cole Bros. Lightning Eod Co., 193 Mo. App. 99, 181 S. W. 1066; O'Brien v. Cum- niings, 13 Mo. App. 197. Nevada. State v. Curtis, 9 Nev. 325. NeV Hampsblre. Great Falls Mut. Fire Ins. Co. v. Harvey, 45 N. H. 292. New Jersey. In re United Towns Building & Loan Ass 'n, 79 N. J. L. 31, 74 Atl. 310; State v. Overton, 24 N. J. L. 435, 61 Am. Dec. 671; Taylor v. Griswold, 14 N. J. L. 222, 27 Am. Deo. 33; Kearney v. Andrews, 10 N. J. Eq. 70. New York. Conklin v. Second Nat. Bank of Oswego, 45 N. Y. 655; Parish V. New York Produce Exchange, 60 App. Div. 11, 69 N. Y. Supp. 764; National League Commission Mer- chants of United States v. Hornung, 72 Misc. 181, 129 N. Y. Supp. 437; Stein V. Marks, 44 Misc. 140, 89 N. Y. Supp. 921. North Carolina. Duffy v. Fidelity Mut. Life Ins. Co., 143 N. C. 697, 55 S. E. 1047 (mem. dec), 142 N. C. 103, 7 L. E. A. {N. S.) 238, 55 S. E. 79. OMo, Nicholson v. Franklin Brew- ing Co., 82 Ohio St. 94, 137 Am. St. Eep. 764, 19 Ann. Cas. 699, 91 N. E. 991. Oregon. Grifiith v. Klamath Water Ass'n, 68 Ore. 402, 137 Pac. 226. Pennsylvania. In re German Gen- eral Ben. Ass'n of Philadelphia, 30 Pa. St. 155. Bhode Island. Ireland v. Globe Milling & Eeduction Co., 19 E. I. 180, 29 L. E. A. 429, 61 Am. St. Eep. 756, 32 Atl. 921. South Carolina. St. Luke's Church V. Mathews, 4 Desauss. Eq. 578, 6 Am. Dec. 619. Tennessee. State v. Vanderbilt Uni- versity, 129 Tenn. 279, 164 S. W. 1151; Bailey v. Master Plumbers, 103 Tenn. 99, 46 L. E. A. 561, 52 S. W. 853; Martin v. Nashville Bldg. Ass'n, 2 Cold. 418; Herring v. Euskin Co-op. Ass'n (Tenn. Ch. App.), 52 S. W. 327. Texas. Tempel v. Dodge, 89 Tex. 69, 33 S. W. 222, 32 S. W. 514. England. Child v. Hudson's Bay Co., 2 P. Wms. 207. "In so far as its by-laws are incon- sistent with the object of the corpora- tion, and the spirit and terms of its. charter, or attempt to authorize the corporation to perform acts beyond its charter powers, they are void, al- though adopted with the unanimous consent of the stockholders. ' ' Steiuer V. Steiner Land & Lumber Co., 120 Ala. 128, 26 So. 494. It is possible;; however, that the fact that the provi- sions of a by-law are such that the effect of invoking it in a particular instance would be to prevent the meeting of a requirement of the gen- eral corporation act will not invali- date it as to cases wherein its oper- ation will not in any way impair the force and effect of such act. Lutz v. Webster, 249 Pa. 226, 94 Atl. 834. A by-law prescribing a religious qualification for membership in a so- ciety, the articles of association of which are silent on the subject, can- not be sustained. People v. Young Men's Father Matthew T. A. B. So- ciety, 41 Mich. 67, 1 N. W. 931. If the articles of association of an English corporation wkich correspond to the by-laws of an American cor- poration conflict with the act of par- liament under which the company is 1009 I Priv. Corp. — 64 §494] Private Cokpoeations [Ch. 16 by a by-law.*^ Further applying such rule, a corporation cannot by a by-law vest the management of its business in an executive com- mittee, when the charter or enabling act vests the management in the board of directors.*® A by-law can neither enlarge the rights and powers conferred by the charter nor restrict .the duties and liabilities imposed thereby, and in case it attempts so to do, the charter will prevail.*'' organized, the act of parliament will Union Mut. Fire Ins. Co. v. Keyser, 32 N. H. 313, 64 Am. Dee. 375. 87 Steiner v. Steiner Land & Lumber Co., 120 Ala. 128, 26 So. 494; Kelly V. Mobile Building & Loan Aas'n, 64 Ala. 501; Brewster v. Hartley, 37 Cal. 15, 99 Am. Dec. 237; State v. Ander- son, 31 Ind. App. 34, 67 N. E. 207. See also Parish v. New York Produce Exchange, 60 N. Y. App. Div. 11, 69 N. Y. Supp. 764. The articles of association of a cor- poration cannot be modified by by- laws as to any matters which the statute requires to be stated therein. State V. Anderson, 31 Ind. App. 34, 67 N. E. 207. See also Guinness v. Land Corp. of Ireland, 22 Ch. Div. 349. Since a corporation has such powers only as are conferred upon it by its charter, and its powers cannot be added to or diminished by the consent of the shareholders, it necessarily fol- lows that the powers of a corporation cannot be affected by its by-laws. That additional power cannot be con- ferred by a by-law is clear, for to hold otherwise would allow a corporation to assume any powers it might see fit to exercise. Brewster v. Hartley, 37 Cal. 15, 99 Am. Dee. 237; Andrews v. Union Mutual Fire Ins. Co., 37 Me. 256; Traders' & Mechanics' Ins. Co. V. Brown, 142 Mass. 403, 8 N. E. 134; Mutual Ben. Life Ins. Co. v. Utter, 34 N. J. L. 489. "It is not competent for the stock- holders, by the adoption of by-laws * * * to enlarge or extend the pow- ers of the corporation beyond the prevail. Republican Mountain Silver Mines v. Brown, 58 Fed. 644, 24 L. E. A. 776. Stockholders or members are not estopped by consent or acquiescence to object to a by-law on the ground that it violates the charter of the cor- poration, or is contrary to the law or to public policy. Durkee v. People, •155 111. 354, 46 Am. St. Rep. 340, 40 N. E. 626, aff 'g 53 111. App. 396. If a by-law is unauthorized and void as against a stockholder or member, his mere failure to object to it until it is sought to enforce it against him does not estop him, where the rights of third persons are not involved. Kolff V. St. Paul Fuel Exchange, 48 Minn. 215, 50 N. "W. 1036. An action to annul a by-law on the ground of its alleged invalidity does not ordinarily lie; it is only when there is an attempt to enforce it to the detriment of a stockholder that the question of its validity is open to adjudication, and even then the stock- holder cannot invoke equitable relief unless there is reason to apprehend irreparable injury. Burden v. Burden, 8 N. Y. App. Div. 160, 40 N. Y. Supp. 499. See als6 Thomas v. Musical Mut. Protective Union, 121 N. Y. 45, 8 L. R. A. 175, 24 N. E. 24. 85 Canyon Creek Irrigation Dist. v. Martin, 52 Mont. 339, 159 Pac. 418. See also Shiflett v. John W. Kelly & Co., 16 Ga. App. 91, 84 S. E. 606. 86Tempel v. Dodge, 89 Tex. 68, 33 S. W. 222, 32 S. W. 514. See also loio Ch. 16] By-Laws [§494 A by-law prohibiting acts which are within the powers conferred, expressly or impliedly, by its charter, affects the authority of its officers, but does not render such acts ultra vires. "By-laws of a corporation are not enforced by avoiding contracts made in violation of them."" By-laws must be consistent with the nature, purposes and objects of the corporation; otherwise, they will be invalid." Thus, where there is nothing in the articles of incorporation which suggests power in the corporation to control, regulate or interfere with its stock- holders in the conduct of their separate, individual businesses, by-laws scope authorized by its charter and the general laws." Steiner v. Steiner Land & Lumber Co., 120 Ala. 128, 26 So. 494. "A by-law may regulate the exer- cise of a corporate power, but it can- not enlarge or alter the powers con- ferred by the charter or by statute." Peck V. Elliott, 79 Fed. 10, 38 L. E. A. 616, rev 'g Ross-Meehan Brake Shoe Foundry Co. v. Southern Malleable Iron Co., 72 Fed. 957. It has been held that a corporation organized for the purpose of a purely private business may adopt a by-law at the time of its organization limit- ing the duration of its corporate ex- istence. Merchants' & Planters' Line V. Waganer, 71 Ala. 581. Injunction is the proper remedy where ultra vires by-laws are at- tempted to be enforced against a stockholder. Kolff v. St. Paul Fuel Exchange, 48 Minn. 215, 50 N. W. 1036. 88 Kelly V. Mobile Building & Loan Ass'n, 64 Ala. 501. And see Tome v. Parkersburg Branch R. Co., 39 Md. 36, 17 Am. Rep. 540; First Nat. Bank of Washington v. Eureka Lumber Co., 123 N. C. 24, 31 S. E. 348. 89 ' ' The controlling consideration [in determining the validity of a by- law] is, the nature and purpose of the corporation. If a by-law is clearly alien to its nature and a departure from its purpose, it will be held ultra vires and void; if not, and it is consistent with the general laws of the land, it will be valid." People v. Board of Trade of Chicago, 45 111. 112, 118. See also in this connection: Alabama. Steiner v. Steiner Land & Lumber Co., 120 Ala. 128, 26 So. 494; Supreme Commandery Knights of Golden Rule v. Ainsworth, 71 Ala. 436, 46 Am. Rep. 332. California. Brewster v. Hartley, 37 Cal. 15, 99 Am. Dec. 237. Illinois. People v. Chicago Live Stock Exchange, 170 111. 556, 570, 39 L. R. A. 373, 62 Am. St. Rep. 404, 48 N. E. 1062. Iowa. Van Atten v. Modern Broth- erhood of America, 131 Iowa 232, 108 N. W. 313. Maine. Andrews v. Union Mut. Fire Ins. Co., 37 Me. 256. Massachusetts. Traders' & Me- chanics' Ins. Co. v. Brown, 142 Mass. 403, 8 N. E. 134. New Jersey. Mutual Benefit Life Ins. Co. V. Utter, 34 N. J. L. 489; Taylor v. Griswold, 14 N. J. L. 222, 27 Am. Dec. 33. New York. National League Com- mission Merchants of United States v. Hornung, 72 Misc. 181, 129 N. Y. Supp. 437; Stein v. Marks, 44 Misc. 140, 89 N. Y. Supp. 921. South Carolina. Palmetto Lodge No. 5, I. O. O. F. V. Hubbell, 2 Strobh, 457, 49 Am. Dec. 604. 1011 494] Peivate Cobpobations [Ch. 16 which assume to do this are beyond the scope of the corporate pur- poses and are void.*" Whether a by-law is in conflict with and repugnant to the charter is a question of law for the court.'^ § 495. Reasonableness. Reasonableness is another essential of a valid by-law,'^ and an essential, the existence of which in the case "When the directors of a corpora- tion are given the right to enact by- laws for the government of the con- cern, this is not to be construed as an unlimited power to make fundamental or radical changes in the conduct of the afEairs of the corporation, but only such as will be in harmony with the powers they are supposed to exercise and the purposes sought to be accom- plished." Clark V. Brown (Tex. Civ. App.), 108 S. "W. 421. 90 KolfE V. St. Paul Fuel Exchange, 48 Minn. 215, 50 N. W. 1036. See also Monroe Dairy Ass'n v. Webb, 40 N. Y. App. Div. 49, 57 N. Y. Supp. 572 (by-law of association, incorporated under manufacturing statute, impos- ing penalty on stockholder failing to furnish milk to association). 91 State V. Overton, 24 N. J. L. 435, 61 Am. Deo. 671. See also Compton V. Van Volkenburgh, 34 N. J. L. 134; Morris & E. R. Co. v. Ayres, 29 N. J. L. 393, 395, 80 Am. Dec. 215. 92 United States. Peck v. Elliott, 79 Fed. 10, 38 L. E. A. 616, rev'g Ross-Meehan Brake Shoe Foundry Co. V. Southern Malleable Iron Co., 72 Fed. 957. Califomla. People's Home Sav. Bank v. Superior Court City & County of San Francisco, 104 Cal. 649, 29 L. R. A. 844, 43 Am. St. Rep. 147, 38 Pac. 452; Bornstein v. District Grand Lodge No. 4, Independent Order B 'nai B'rith, 2 Cal. App. 624, 84 Pac. 271; People's Home Sav. Bank v. Sadler, 1 Cal. App. 189, 81 Pac. 1029. Connecticut. State v. Tudor, 5 Day 329, 5 Am. Dec. 162. Delaware. State v. Jessup & Moore Paper Co., 1 Boyce (24 Del.) 379, 77 Atl. 16. Illinois. Vierling v. Mechanics' & Traders' Savings, etc., Ass'n, 179 111. 524, 527, 53 N. E. 979, rev'g 66 111. App. 621; People v. Chicago Live Stock Exchange, 170 111. 556, 570, 39 L. R. A. 373, 62 Am. St. Rep. 404, 48 N. E. 1062. Indiana. State v. Anderson, 31 Ind. App. 34, 67 N. E. 207. Louisiana. State v. Bank of Louisi- ana, 5 Mart. (N. S.) 327. Massachusetts. Saltman v. Nesson, 201 Mass. 534, 88 N. E. 3. Michigan. Samberg v. Knights of Modern Maccabees, 158 Mich. 568, 571, 133 Am. St. Rep. 396, 123 N. W. 25; Wineland v. Knights of Macca- bees of World, 148 Mich. 608, 112 N. W. 696; Van Pouche v. Netherland St. Vincent de Paul Society, 63 Mich. 378, 29 N. W. 863; AUnutt v. Subsidiary High Court, 62 Mich. 110, 28 N. W. 802. Nebraska. Markham v. Supreme Court L 0. F., 78 Neb. 295, 110 N. W. 638. New Jersey. State v. Overton, 24 N. J. L. 435, 61 Am. Dec. 671. New York. Brown v. Supreme Court I. O. F., 176 N. Y. 132, 68 N. E. 145; Matthews v. Associated Press State of New York, 136 N. Y. 333, 32 Am. St. Rep. 741, 32 N. E. 981; Kent v. Quick- silver Min. Co., 78 N. Y. 159, 182; DriscoU V. West Bradley & C. Mfg. Co., 59 N. Y. 96, 102; Stanton v. Ec- centric Ass 'n of Firemen, Local Union No. 56 of International Brotherhood 1012 Ch. 16] By-Laws [§495 of a particular by-law, presents a question of law for the court rather than one of fact for the jury ,8' Before a by-law will be of Stationary Firemen, 130 App. Div. 129, 114 N. Y. Supp. 480; Burns v. Manhattan Brass Mut. Aid Society, 102 App. Div. 467, 92 N. Y. Supp. 846; Monroe Dairy Ass'n v. Webb, 40 App. Div. 49, 57 N. Y. Supp. 572; National League of Commission Merchants of United States v. Hornung, 72 Misc. 181, 129 N. Y. Supp. 437; Stein v. Marks, 44 Misc. 140, 89 N. Y. Supp. 921; Cartan v. Father Matthew United Benev. Society, 3 Daly 20; People v. Throop, 12 Wend. 183, 186. North Carolina. Duffy v. Fidelity Mut. Life Ins. Co., 143 N. C. 697, 55 S. E. 1047 (mem. dec), 142 N. C. 103, 7 L. K. A. (N. S.) 238f 55 S. E. 79. Oregon. Budd v. Multnomah St. By. Co., 15 Ore. 413, 3 Am. St. Eep. 169, 15 Pae. 659. Pennsylvania. Lynn v. Freemans- burg Building & Loan Ass'n, 117 Pa. St. 1, 2 Am. St. Eep. 639, 11 Atl. 537; Commissioners v. Gas Co., 12 Pa. St. 318; Granger v. Grubb, 7 Phila. 350; Com. v. Gill, 3 Whart. 228. South Carolina. St. Luke's Church V. Mathews, 4 Desauss. Bq. 578, 6 Am. Deo. 619; Palmetto Lodge No. 5, I. O. O. F. V. Hubbell, 2 Strobh. 457, 49 Am. Dec. 604. . Tennessee. Graham v. House-Build- ing & Loan Ass'n (Tenn. Ch. App.), 52 S. W. 1011. Texas. Sovereign Camp Woodmen of World V. Bobinson, — Tex. Civ. App. — , 187 S. W. 215. "Courts will compel adherence to the charter [in the adoption of by- laws] and to the laws under which it [the corporation] is organized, and will interfere to prevent an unreason- able and arbitrary invasion of private rights." McCallister v. Shannondale Co-operative Tel. Co., 47 Ind. App. 517, 94 N. B. 910. By-laws must not be oppressive. Van Poucke v. Netherland St. Vincent de Paul Society, 63 Mich. 378, 29 N. W. 863. It is immaterial, under the Wiscon- ein statutes, on the question of the legality, as against objecting members, of the incorporation of a religious so- ciety whether the by-laws adopted by the corporation are reasonable or not. Spiritual & Philosophical Temple v. Vincent, 127 Wis. 93, 105 N. W. 1026. 93 Florida. South Florida E. Co. v. Ehodes, 25 Fla. 40, 3 L. E. A. 733, 23 Am. St. Eep. 506. Illinois. People v. Ittner, 165 111. App. 360, 367. Massachusetts. Com. v. Worcester, 3 Pick. 462. New Jersey. See Compton v. Van Volkenburgh, 34 N. J. L. 134, 135; Morris & E. E. Co. v. Ayres, 29 N. J. L. 393, 80 Am. Dec. 215; State v. Over- ton, 24 N. J. L. 435, 61 Am. Dee. 671. New York. See Kennedy v. Local Union No. 726, United Brotherhood of Carpenters & Joiners of America, 75 App. Div. 243, 78 N. Y. Supp. 85; Cartan v. Father Matthew United Benev. Society, 3 Daly 20; People v. Throop, 12 Wend. 183, 186. North Carolina. Duffy v. Fidelity Mut. Life Ins. Co., 143 N. C. 697, 55 S. E. 1047 (mem. dec), 142 N. C. 103, 7 L. E. A. (N. S.) 238, 55 S. E. 79. Pennsylvania. Hibernia Fire En- gine Co. V. Com., 93 Pa. St. 264. Compare Highland Park Ass'n v. Boseker, 169 Mich. 4, 135 N. W. 106. The. reasonableness of the by-laws of a corporation is a question open to judicial investigation. State v. Bank of Louisiana, 5 Mart. N. S. (La.) 327, 344. It has been held, however, that when the statute empowers the trus- 1013 §495] Pbivatb Coepobations [Ch. 16 declared invalid for unreasonableness, however, the fact that it is unreasonable must clearly appear.'* In other words, where its reason- ableness is a mere matter of judgment and one upon which reasonable minds must necessarily differ, the court will not be warranted in sub- stituting its judgment for the judgment of those who were authorized to adopt by-laws and who exercised their authority by adopting the one attacked.'* On the other hand, a by-law which the corporation was without power, under the statute, to adopt, will not be validated tees of the corporation to make such prudential by-laws "as thay shall deem proper" for the management of the affairs of the corporation, they not to be inconsistent with the laws of the state, the question of the wisdom or expediency of a by-law adopted is not one for judicial determination. Bur- den V. Burden, 8 N. Y. App. Div. 160, 40 N. Y. Supp. 499. See also Me- Callister v. Shannondale Co-operative Tel. Co., 47 Ind. App. 517, 94 N. E. 910. That the courts have no visitorial power to determine the reasonableness of the by-laws of a voluntary asso- ciation, see Green v. Felton, 42 Ind. App. 675, 84 N. E. 166. See also Tau- fer V. Brotherhood of Painters, Deco- rators & Paperhangers of America, 137 N. Y. App. Div. 838, 122 N. Y. Supp. 527. 94 People V. Ittner, 165 111. App. 360, 367; Shelly v. Private Coach- men 's Benev. Society, 13 Daly (N. Y.) 2. See also Taufer v. Brotherhood of Painters, Decorators & Paperhang- ers of America, 137 N. Y. App. Div. 838, 122 N. Y. Supp. 527. The board of directors of an incor- porated hospital adopted a by-law re- citing that certain medical societies had adopted codes of medical ethics as nearly identical as possible and uni- form in scope and arrangement, and providing that only physicians who complied with the codes of such as- sociations should practice in the hos- pital. It was held that the by-law was reasonable and within the power of the directors to adopt. People v. Julia F. Burnham Hospital, 71 111. App. 246. That a by-law is inconvenient or embarrassing in administration does not invalidate it. Weatherly v. Medi- cal & Surgical Society, 76 Ala. 567. 96 People V. Ittner, 165 111. App. 360, 367. . "The power of every corporation * * * [to make by-laws] has its limits, which are at the boundaries of what is reasonable under the circum- stances of each case. Though that is determinable, primarily, by the corpo- ration, there is this legal check upon it: If, resolving all fair doubts in favor of its action, the boundaries of Teaaon have been exceeded, to that extent such action is ultra vires." Wuerfler v. Grand Grove of Wis- consin Order of Druids, 116 Wis. 19, 96 Am. St. Eep. 940, 92 N. W. 433. That a by-law confers many and im- portant powers on a single person goes to its expediency rather than to its legality, the powers conferred being Such as are delegable. Burden v. Burden, 8 N. Y. App. Div. 160, 40 N. Y. Supp. 499. The court will not determine whether a by-law alleged to have been devised by the individual defendants to perpetuate themselves or those chosen by them in ofSce, is so un- reasonable and oppressive as to be invalid until it is manifest that no change can be effected through appro- 1014 Ch. 16] By-Laws [§496 by the fact that its provisions are reasonable.'* Furthermore, a by-law may be reasonable as to the corporation and as to third persons con- tracting, subsequently to its adoption, with the corporation, and yet be invalid as to third persons sustaining, at the time of its adoption, contractual relations with the corporation.*'' . When the stockholders alone are affected by the unreasonableness of the by-law, it can be attacked by them only and not by a third person." § 496. Uniformity of operation. In order that a by-law affecting stockholders or members may be reasonable, it must be general; that is, it must affect alike, and operate equally as to, all stockholders or members under the same circumstances, and not be directed against particular stockholders or members.®® "It is plain that all corporation by-laws must stand on their own validity, and not on any dispensation granted to members. They cannot be subjected to any conditions which do not apply to all alike, and cannot be compelled to receive, as matter of grace, anything which is matter of right ; neither on the other hand should there be personal exemptions of a general nature from any valid regulations priate corporate action. Granara v. Italian Catholic Cemetery Ass'n, 218 Mass. 387, 105 N. E. 1073. 96 Ireland v. Globe Milling & Reduc- tion Co., 19 R. I. 180, 29 L. R. A. 429, 61 Am. St. Rep. 756, 32 Atl. 921. When a by-law is ultra vires, the motives which led to its adoption, and its reasonableness, are immaterial. Gaut V. American Legion of Honor, 107 Tenn. 603, 55 L. R. A. 465, 64 S. W. 1070. 97 Illinois Conference Female Col- lege V. Cooper, 25 111. 148, 150. See also Northport Wesleyan Grove Camp- Meeting Ass'n V. Perkins, 93 Me. 235, 48 L. R. A. 272, 74 Am. St. Rep. 342, 44 Atl. 893. And see further §§ 511-519, infra. 98 American Live Stock Commis- sion Co. V. Chicago Live Stock Ex- change, 143 111. 210, 18 L. R. A. 190, 86 Am. St. Rep. 385, 32 N. E. 274, aff'g 41 111. App. 149; Detweiler v. Breekenkamp, 83 7Io. 45. The doctrine of estoppel may pre- vent a member of a benefit society from attacking a by-law as unreason- able. Falcone v. Societa Sarti Italiani di Mutuo Soccorso, 30 N. Y. Misc. 106, 61 N. Y. Supp. 873. 99 Illinois. See Wierman v. Inter- national Building, Loan & Investment Union, 67 111. App. 550, 551. Maryland. Mutual Fire Ins. Co. v. Fafquhar, 86 Md. 668, 39 Atl. 527. See also Baltimore Building & Loan Ass'n V. Powhatan Improvement Co., 87 Md. 59, 39 Atl. 274. Mississippi. Domes v. Supreme Lodge Knights of Pythias, 75 Miss. 466, 23 So. 191. Missouri. Goddard v. Merchants' Exchange, 9 Mo. App. 290, 295, afE'd 78 Mo. 609. Oregon. Griffith v. Klamath Water Ass 'n, 68 Ore. 402, 137 Pae. 226. Wisconsin. Germania Iron Min; Co. v. King, 94 Wis. 439, 36 L. R. A. til, 69 N. W. 181. 1015 § 496] Pbivatb Cokpoeations [Ch. 16 that bind the mass of corporators. " ' So an order of certain dire6tors that one of the members of the board be denied the right to inspect the corporate books cannot be sustained as a valid by-law.^ Not even a statute authorizing a corporation to pass by-laws for the sale of delinquent stock for unpaid assessments authorizes a by-law or reso- lution declaring a forfeiture of the stock of a particular stockholder only.' §497. Effect of partial invalidity. A by-law is not necessarily void as a whole because invalid in part. If the portion of it which is unobjectionable is independent of and separable from the portion which is bad, the unobjectionable portion will be sustained;* but if a by-law is indivisible, so that the part which is bad cannot be separated from the part which is good, it will be void in its entirety." § 498. Right to enforce invalid by-law as contract. The power of a natural person to make contracts not prohibited by law is, in its scope, far beyond the power of a corporation to adopt by-laws,® and although a regulation, adopted by the corporation, be not enforce- able, considered strictly as a by-law, it may be enforceable as a contract' against a stockholder or member who agrees to be bound 1 People V. Young Men 's Father Rogers v. Jones, 1 Wend. (N. T.) 237, Matthew Total Abstinence Benev. 260, 19 Am. Dec. 493. Society, 41 Mich. 67, 1 N. W. 931. 6 State v. Curtis, 9 Nev. 325. 2 People V. Throop, 12 Wend. (N. « Farmers' Mercantile & Supply Co. Y.) 183, 186. V. Laun, 146 Wis. 252, 131 N. "W. 366. 3Budd V. Multnomah St. Ey. Co., 15 "It is manifest that a stockholder Ore. 413, 3 Am. St. Eep. 160, 15 Pae. may make a contract with a corpora- 659- tion to do or not to do certain things 4Amesbury v. Bowditch Mut. Fire in regard to his stock, or to waive Ins. Co., 6 Gray (Mass.) 596 (in this certain rights, or to submit to certain case, a by-law of a mutual insurance restrictions respecting which the company was held void so far as it stockholders might have no power of provided relative to the jurisdiction compulsion over him. ' ' New England of courts in actions for losses, but Trust Co. v. Abbott, 162 Mass. 148, 27 valid so far as it provided with re- L. R. A. 271, 38 N. E. 432. spect to the time within which such 7 Jennings v. Bank of California, 79 actions should be brought). Cal. 323, 5 L. E. A. 233, 12 Am. St. See also Supreme Council of Order Rep. 145, 21 Pac. 852; People's Home of Chosen Friends v. Forsinger, 125 Sav. Bank v. Sadler, 1 Cal. App. 189 Ind. 52, 9 L. E. A. 501, 21 Am. St. Eep. 81 Pae. 1029; New England Trust Co! 196, 25 N. E. 129; State v. Anderson, v. Abbott, 162 Mass. 148, 27 L E A 31 Ind. App. 34, 67 N. E. 207; Burden 271, 38 N. E. 432; Weiland v Hoean V. Burden, 159 N. Y. 287, 54 N. E. 17; 177 Mich. 626, 143 N. W. 599; Blue Mfc! 1016 Ch. 16] By-Laws [§499 by it, provided it is not of itself illegal ' or ultra vires the corpora- tion.® IV. CONSTRUCTION §499. G^ieral rules as to construction. By-laws must be given a reasonable construction ^^ and, when reasonably susceptible thereof, Forest Ass'n v. Borrows, 71 N. H. 69, 75, 51 Atl. 670. See also Smoot v. Bankers' Life Ass'n, 138 Mo. App. 438, 120 S. W. 719. Mutuality is necessary in order that regulation not enforceable as by-law may be enforceable as contract. Mnch, Jr. v. Macoupin Telephone & Telegraph Co., 146 111. App. 158, 162. A by-law which the corporation was without power to adopt may be good as a contract between the trustees as- senting to and voting for it, but not as a by-law to affect strangers, or those not consenting. Driscoll v. West Bradley & C. Mfg. Co., 59 N. Y. 96, 109. A provision that is unreasonable as a by-law may be valid as a contract. Purdy V. Bankers' Life Ass'n, 101 Mo. App. 91, 74 S. W. 486. 8 National League Commission Mer- chants of United States v. Hornung, 72 N. Y. Misc. 181, 129 N. Y. Supp. 437. If a by-law is otherwise unobjec- tionable, a stockholder or member who has consented to its adoption cannot object that it impairs his rights under his contract of membership, or under an independent contract between him and the corporation. Matthews v. As- sociated Press State of New York, 136 N. Y. 333, 32 Am. St. Eep. 741, 32 N. E. 981. If a person becomes a stockholder or member of a corporation after the adoption of a by-law which is not illegal, he impliedly consents to it, and it enters into his contract with the 101 corporation. He cannot object to it on the ground that it impairs his rights as a stockholder or member, whether he knew of it or not, for he is chargeable with notice of it. Mat- thews V. Associated Press State of New York, supra. 9 An ultra vires by-law cannot be valid as a contract. Purdy v. Bank- ers' Life Ass'n, 101 Mo. App. 91, 74 S. W. 486. See also Steiner v. Steiner Land & Lumber Co., 120 Ala. 128, 26 So. 494. 10 Carney v. New York Life Ins. Co., 162 N. Y. 453, 49 L. H. A. 471, 76 Am. St. Eep. 347, 57 N. E. 78. The president of a corporation, one of the by-laws of which imposes on him the duty ' ' to have a special super- vision and care over the property and concerns of the company" is not en- titled thereunder, ' ' in order to conceal his own defalcation, to borrow either money or securities upon the credit of the company, and make it responsible for the return thereof." Logan v. i'idelity-Phenix Eire Ins. Co., 161 N. Y. App. Div. 404, 146 N. Y. Supp. 678. The word "conveyance" in a by- law providing that "no mortgage or conveyance shall be made without the consent of the holders of at least two- thirds of the outstanding stock of the corporation" held to refer to an act whereby the legal or equitable title to leal property is transferred and not to merely a lease for a term of years. Seal of Gold Min. Co. v. Slater, 161 Cal. 621, 120 Pac. 15. A by-lavf of a mutual insuranca 7 §499] Peivate Corporations [Ch. 16 a construction which will sustain their validity.^^ So too a con- struction that will render a by-law just and equal in its operation will be adopted in preference to one that will have a contrary eifect.^^ The by-laws of a fraternal benefit society will be given a liberal construction and their language will be given such meaning as will tend not to defeat but rather to carry out the manifest intention of the parties, and as will promote the object of the issuance and accept- ance of the certificate, consistently with the rules, regulations, and requirements of the society.^^ This rule does not, however, permit company forbidding the transfer of the property insured and providing that in case of a transfer thereof the policy shall be void, will not be con- strued as applying in case of transfer by operation of law as upon the death of the assured. Pfister v. Gerwig, 122 Ind. 567, 23 N. E. 1041. A third person against whom a by- law is sought to be made operative is entitled to that construction of the same which makes it conform to the jjopular and ordinary signification of its language. Smith v. Brooklyn Sav. Bank, 101 N. Y. 58, 54 Am. Eep. 653, 4 N. E. 123. An unintelligible and meaningless by-law is, of course, inoperative. Boulware v. Farmers' & Laborers' Co- operative Ins. Co., 77 Mo. App. 639, 648. See also Egg Harbor Building & Loan Ass'n v. Baake (N. J. Ch.), 65 Atl. 864. In Schultz V. Citizens' Mut. Life Ins. Co., 59 Mian. 308, 61 N. W. 331, the court observed in passing that it had "no patience with the prolix, ob- scure, and involved provisions and conditions which so many so-called co- operative, life, endowment, casualty insurance, and other similar associa- tions usually incorporate into their policies and by-laws. The patrons of such associations are largely composed of people of limited means, neither astute lawyers nor experienced busi- ness men, whose object is to make moderate provision for their families in case of death. Whether intended to have such result or not, such pro- visions and conditions are calculated to mislead the insured, and entrap him into some act of omission or com- mission that will work a forfeiture of his insurance. It would certainly be a great boon to the public if there could be devised legislative forms of contracts and rules for all such asso- ciations, couched in clear, concise, and intelligible language, and to or from which the associations could neither add nor subtract." 11 Hibernia Fire Engine Co. v. Com., 93 Pa. St. 264. A by-law will not be so construed as to bring it in conflict with a statute, where it is reasonably sus- ceptible of another construction, under v/hich it can be sustained. Kahu v. Bank of St. Joseph, 70 Mo. 262. IZThibeault v. Association St. Jean Baptist, 21 E. I. 157, 42 Atl. 518. 13 Woodmen of World v. Gilliland, 11 Okla. 384j 67 Pac. 485. See also Starnes v. Atlanta Police Belief Ass 'n, 2 6a. App. 237, 58 S. E. 481; Knights Templar & Masons' Life Indemnity Co. V. Vail, 206 111. 404, 68 N. E. 1103, aff'g 105 111. App. 331; Coverdale v. Boyal Arcanum, 193 111. 91, 101, 61 N. E. 915, rev'g 93 111. App. 373; Grand Lodge A; O. IT. W. of Kansas V. Smith, 76 Kan. 509, 92 Pac. 710. "The construction must be put upon the laws of the order, taken as a whole, which is most favorable to the 1018 CL 16] By-Laws [§499 a strained construction or interpretation contrary to the obvious mean- ing of the language.^* Where the violation of a by-law of a benefit society will forfeit all of the member's rights and privileges, such by-law should receive the strict construction accorded a penal statute.** This rule of strict construction must, however, be read in connection with the rule which favors a construction upholding the validity of the by-law.*^ An implication of which a by-law of a mutual insurance company will possibly permit but which it does not require, will not be read into it when to do so will defeat the right of action of the beneficiary in a membership certificate.*'' Unless the intent that a by-law was to have a retrospective oper- ation clearly appears, it will, as a general rule, be construed as operating prospectively only,** and this rule is not limited to by-laws assured and most protects the benefi- ciaries under certificates issued by the order." Supreme Lodge Order of Mut. Protection v. Meister, 105 111. App. 471, 477, aff'd 204 111. 527, 68 N. E. 454. See also Woodmen of "World V. Gilliland, 11 Qkla. 384, 67 Pac. 485. When the by-laws of a mutual bene- fit society contain inconsistent provi- sions, the one most favorable to the member will be held to govern. Wolf V. District Grand Lodge No. 6, I. O. B. B., 102 Mich. 23, 60 N. W. 445. When a liberal construction of an amendment will work the forfeiture of property rights, such construction should not be adopted. Grand Lodge A. O. IT. W. of Kansas v. Haddock, 72 Kan. 35, 1 L. E. A. (N. S.) 1064, 82 Pac. 583. 14 Grand Lodge I. O. U. W. v. Crandall, 80 Kan. 332, 102 Pac. 843. 16 Supreme Council Eoyal Arcanum v. Urban, 137 111. App. 292, 296. See also Knights Templar & Masons' Life- Indemnity Co. V. Vail, 206 111. 404, 68 N. E. 1103, afE'g 105 111. App. 331; Coverdale v. Eoyal Arcanum, 193 111. 91, 101, 61 N. E. 915, rev'g 93 111. App. 373; Egg Harbor Building & Loan Ass'n v. Baake (N. J. Ch.), 65 Atl. 864. 16 Nelson v. Modern Brotherhood of America, 78 Neb. 429, 110 N. W. 1008. 17Hobbs V. Iowa Mut. Ben. Ass'n, 82 Iowa 107, 11 L. E. A. 299, 31 Am. St. Eep. 466, 47 N. W. 983. ISBornstein v. District Grand Lodge No. 4, Independent Order B' nai B'rith, 2 Cal. App. 624, 84 Pac. 271; Kaemmerer v. Kaemmerer, 231 111. 154, 83 N. E. 133, aff'g 137 HI. App. 28; Illinois Conference Female College V. Cooper, 25 111. 148, 150; Haley v. Supreme Court of Honor, 139 111. App. 478, 487; Hayes v. German Ben. Union, 35 Pa. Super. Ct. 142, 149. A by-law will be given retrospective operation only when the intention that it should have such operation is evidenced by language clear, strong, and imperative fro ■< ait -kt ^ Conkhn v. Oswego Nat. Bank, 45 N. or which may arise before the corpora- y -gg tion has notice of the transfer of the 23 Just V. State Sav. Bank, 132 scrip. But where the certificate Mich. 600 94 N. W. 200. makes no reference to the existence of 24 chambersburg Ins. Co. v. Smith, the lien, a pledgee or transferee of n pg,. gt. 120 126. corporate stock is not affected by the 26 People v. Crockett, 9 Cal. 112. terms of a by-law lien of which he 26 Bryon v. Carter, 22 La. Ann. 98. has no notice." Bank of Culloden v. 27 Eureka Mining & Power Co. v. 1099 § 516] Pbitate Coepokations [Ch. 16 § 516. Corporate meetings. As a general proposition, by-laws may fix the time and place of holding stockholders' meetings, and the mode of calling and of conducting the same unless, of course, this is prohibited by the charter or statute.*' Without regard, however, to the power of the corporation to adopt such by-laws, or to their inherent validity, they manifestly cannot be employed for an unlaw- ful purpose. Thus, a by-law requiring four-fifths of the capital stock to be represented either in person or by proxy to constitute a quorum for the transaction of business at a stockholders' meeting cannot be Lively, 59 Wash. 550, 110 Pae. 425. See also Bank of CuUodeu v. Bank of Forsyth, 120 Ga. 575, 102 Am. St. Eep. 115, 48 S. E. 226. 28 Connecticut. State v. Tudor, 5 Day 329, 5 Am. Dee. 162. New Jersey. Taylor v. Griswold, 14 N. J. L. 222, 27 Am. Dec. 33. New York. In re Election of Di- rectors of Long Island E. Co., 19 Wend. 87, 32 Am. Dec. 429. Pennsylvania. Juker v. Com., 20 Pa. St. 484; Com. v. Woelper, 3 Serg. &■ E. 29, 8 Am. Dec. 628. England. Newling v. Francis, 3 T. K. 189. As to regulations concerning corpo- rate meetings and elections, see gen- erally Chap. 40, infra. The answer in an action held suffi- cient, under the statute, to show a usage establishing the practical con- struction of a by-law, ambiguous as to the time at which the annual meet- ing of the society was to be held. State V. Conklin, 34 Wis. 21, 32. Where the statute under which a fraternal beneficiary association was incorporated authorized the associa- tion to so amend or alter its by-laws as to provide for holding the meet- ings of its legislative body in any state or territory where it had subor- dinate lodges, and the governing body of the association at a regular meet- ing adopted a resolution to change the place of meeting provided in the by-laws to another state, a meeting held under such resolution, provided it was otherwise regular, was au- thorized and its proceedings were not void because of its being held in a state other than that named in the by- laws. Miller v. National Council Knights & Ladies of Security, 69 Kan. 284, 76 Pae. 830. A by-law requiring four-fifths of the capital stock to be represented either in person or by proxy to consti- tute a quorum for the transaction of business at a stockholders' meeting is a valid exercise of corporate power under the Pennsylvania statutes. Lutz V. Webster, 249 Pa. 226, 94 Atl. 834. The by-laws of a membership cor- poration attempting to fix a quorum being inconsistent and conflicting, held the statutory provision on the subject would control. New York Electrical Workers' Union v. Sullivan, 122 N. Y. App. Div. 764, 107 N. Y. Supp. 886. By-laws may adopt Gushing 's Manual to govern debates at cor- porate meetings. People v. Ameri- can Institute City of New York, 44 How. Pr. (N. Y.) 468. A by-law of a railroad company which provides that no contract in- volving the franchise of the road shall be made except the same be ap- proved by a general meeting repre- senting a majority of the stock, after being recommended by a majority of the stockholders, precludes a lease of the road for a term of years by the 1100 Ch. 16] By-Laws [§517 set up to defeat the requirement of the general corporation law that directors be chosen annually.^' § 517. Ri^ht to vote and majin«r of Voting at corporate meetings. By-laws, regulating in a reasonable manner the method of voting at corporate elections, will be sustained if their provisions do not oon- jElict with the charter or statute.^" But it does not lie within the power of the majority to deprive a nonconsenting stockholder or member of either the right to vote, given him by the charter or statute, or the number of votes to which he is entitled thereunder, or to impose new qualifications on him as a voter or unreasonable restrictions on the exercise of his rights as such.^^ Moreover, where the charter or board of directors, for while such lease does not involve the company's essen- tial franchise to be a corporation, it does involve its franchise to take tolls upon the road, and this comes within the meaning of the phrase "the fran- chise of the road." Stevens v. Davi- son, 18 Gratt. (Va.) 819, 98 Am. Deo. 692. 29Lutz V. Webster, 249 Pa. 226, 94 Atl. 834. The court held to have the power under the exceptional facts of the case, to determine whether a by-law fixing a quorum at four-fifths of the capital stock was inconsistent with the general corporation act which re- quired that directors be chosen an- nually, and, on finding that it was, to decree that there be held an election at which a majority of the stock should constitute a quorum. Lutz v. Webster, supra. 30 State V. Tudor, 5 Day (Conn.) 329, 5 Am. Dec. 162; Beckett v. Hous- ton, 32 Ind. 393; Com. v. Detwiller, 131 Pa. St. 614, 7 L. E. A. 357, 18 Atl. 990; Com. v. Woelper, 3 Serg. & E. (Pa.) 29, 8 Am. Dec. 628. In Com. V. Woelper, 3 Serg. & E. (Pa.) 29, 8 Am. Dec. 628, it was held that a religious corporation could make a by-law vesting In the presi- dent the power to appoint inspectors of corporate elections and a by-law prohibiting the counting of ballots on which anything should be written other than the names of the persons voted for. SlOalifomia. People's Home Sav. Bank v. Superior Court City & County of San Francisco, 104 Cal. 649, 29 L. E. A. 844, 43 Am. St. Eep. 147, 38 Pac. 452; Brewster v. Hartley, 37 Cal. 15, 99 Am. Dec. 237. Colorado. Lilylands Canal & Eeser- voir Co. V. Wood, 56 Colo. 130, 136 Pac. 1026. Delaware. Brooks v. State, 26 Del. 1, 79 Atl. 790. Illinois. Durkee v. People, 155 111. 354, 46 Am. St. Eep. 340, 40 N. E. 626, aff'g 53 III. App. 396. New Jersey. Taylor v. Griswold, 14 N. J. L. 222, 27 Am. Dec. 33; Loewen- thal v. Eubber Eeelaiming Co., 52 N. J. Eq. 440, 28 Atl. 454. South Carolina. St. Luke's Church V. Mathews, 4 Desauss. Eq. 578, 6 Am. Dec. 619. A by-law requiring qualifications of voters at elections of trustees of a religious corporation additional to those required by statute is void. People V. Phillips, 1 Den. (N. T.) 388, See also State v. Anderson, 81 Ind. App. 34, 67 N. E. 207. 1101 § 517] Peivate Coepokations [Ch. 16 general law provides as to who shall be entitled to vote, a by-law can- not confer the right to vote on others.'* "Where under the charter or statute a stockholder is entitled to one vote for each share of stock dwned by him, a by-law cannot limit the number of votes which he may cast to less than one for each such share.'* Where the statute gives a vote to each member of the corporation, a by-law limiting the right to vote to stock a year old is in.valid.'* A corporation cannot by by-law require the answer to a challenge of the right to vote to be made under oath.'* A stockholder who con- sents to a by-law which takes away from him his right to vote will be bound thereby.'* A by-law cannot, without his consent, deprive a stockholder of his constitutional, charter or statutory right''' of cumulative voting," and it has been further held that a by-law which permits cumulative voting cannot be repealed without the consent of all of the stock- holders." On the other hand, a corporation may, in the absence of a charter or statutory provision to the contrary,*" adopt a by-law which changes the common-law rule, giving each stockholder or member one vote only, without regard to the number of shares of stock owned by him,** and allows stockholders or members to cast as many votes as they have shares of stock.** 32Durkee v. People, 155 111. 354, 46 SSTomlin v. Tarmers' & Merchants' Am. St. Eep. 340, 40 N. E. 626, aff'g Bank, 52 Mo. App. 430. 53 111. App. 376. 39 Loewenthal v. Eubber Eeclaiming 33 Beckett v. Houston, 32 Ind. 393. Co., 52 N. J. Eq. 440, 28 Atl. 454. Votes upon amendments to the by- *<' Taylor v. Griswold, 14 N. J. L. laws of a mutual fire insurance com- 222, 27 Am. Dec. 33. pany held required, under the charter, *' See § 489, supra. to be taken not per capita but upon 42 Procter Coal Co. v. Finley, 98 the representation of risks — one vote ^y- 405, 33 S. W. 188; Com. v. Det- for each risk held by a member. filler, 131 Pa. St. 614, 7 L. E. A. 357, Walker v. Johnson, 17 App. Cas. ^ -'^"- ^^0- ^ee also Stata v. Tudor, (D C) 144 160 ^ ^^^ (Conn.) 329, 5 Am. Dec. 162. 34 In re United Towns Building & ^J^\ 'i'""?^^ '^^y^°' ^- Griswold, 14 T A ) Ta -KT T T o^ riA Ail ^^ J" ^- ^22, 27 Am. Dec. 33. Loan Ass'n, 79 N. J. L. 31, 74 Atl. . , , , . , ^g A by-law which provides that at a „■ , TT- A r, ,T.T -o- V stockholders ' meeting each stockholder 36 People V. Kip, 4 Cow. (N T. ^^^^ ^^^, ^^^ ^^^^ ^^^ ^^^^ ^^^^^ 382; People v. Tibbets, 4 Cow. (N. T.) „f ^^^^^ „^^^^ ^^ ^.^_ ^ppj.^^ ^^^ ^^^- only to the election of directors at 36 Com. v. Detwiller, 131 Pa. St. sxwh a meeting, but also to the elec- 614, 7 L. E. A. 357, 18 Atl. 990. tion of a chairman to preside over the 37 See §§489, 494, supra. meeting, to a motion to adjourn, in 1102 Ch. 16] By-Laws [§517 Unless the charter or statute requires votes to be cast in person, a by-law under which, contrary to the common-law rule,** they may be east by proxy will be valid.** Where the charter or statute expressly gives the right to vote by proxy, a by-law which deprives a stockholder of such right or restricts its exercise in an unreasonable manner will be invalid as to him, pro- vided he has not consented thereto.*^ Neither a statutory provision that the election of trustees shall be made by the stockholders in attendance at the meeting either in person or by proxy, *^ that the stockholders may be represented at all elections by proxies,*' nor that the corporation may by by-law, where no other short, whenever a vote is necessary. Procter Coal Co. v. Pinley, 98 Ky. 405, 33 S. W. 188; In re Rochester Dist. Tel. Co., 40 Hun (N. Y.) 172. 43 In State v. Tudor, 5 Day (Conn.) 329, 5 Am. Dec. 162, it is doubted whether the common-law rule prohib- iting voting by proxy applied in the case of private corporations. See also § 489, supra. 44 Com. V. Detwiller, 131 Pa. St. 614, 7 L. E. A. 357, 18 Atl. 990. Contra, Taylor v. Griswold, 14 N. J. L. 222, 27 Am. Dec. 33, on the ground that such a by-law contravenes the com- mon-law rule. Voting by proxy, how- ever, is now permitted in New Jersey by statute. See Kreissl v. Distilling Co., 61 N. J. Eq. 5, 47 Atl. 471. Where the charter of a trading corporation on the statute is silent on the question, the power to adopt a by- law permitting voting to be by proxy will be implied. Walker v. Johnson, 17 App. Cas. (D. C.) 144, 163. See also Market St. Ey. Co. v. Hellman, 109 Cal. 571, 42 Pac. 225. Where a benevolent society is au- thorized to adopt by-laws not incon- sistent with the constitution or laws of the state or of the United States and to elect directors in such manner as may be specified by its by-laws, it may adopt a by-law providing that its members may vote for directors by proxy especially when the state con- stitution directs the general assembly to "provide by law, that in all elec- tions for directors or managers of in- corporated companies, every stock- holder shall have the right to vote, in person or by proxy, for the number of shares of stock owned by him, for as many persons as there are directors or managers to be elected, or to cumu- late said shares," etc., this being an expression in favor of the policy of voting by proxy. People v. Crossley, 69 ni. 195. 45 People's Home Sav. Bank v. Su- perior Court City & County of San Praneisco, 104 Cal. 649, 29 L. E. A. 844, 43 Am. St. Eep. 147, 38 Pac. 452; In re Lighthall Mfg. Co., 47 Hun (N. Y.) 258; White v. New York State Agr. Society, 45 Hun (N. Y.) 580; Com. V. Coxe, 1 Leg. Chron. (Pa.) 89. 46 In re Lighthall Mfg. Co., 47 Hun (N. Y.) 258. 47 ' ' While it is provided by section 312 of the Civil Code that stockholders of corporations may be represented at all elections by proxies, yet the by- laws of the petitioner bank provide that no proxy shall be voted by any one not a stockholder of the corpora- tion; and it is upon the validity of such by-law that the merits of this case hinge. It is suggested in argu- ment of counsel that all banking cor- porations have a by-law of similar import; but, notwithstanding this gen- 1103 517] Pbivate Coepokations [Ch. 16 provision is specially made, provide for the mode of voting by proxy, authorizes the adoption of a hy-law prohibiting the voting of a proxy by any one not a stockholder .^^ eral practice, we have arrived at the conclusion, after careful consideration, that the making of such a law is with- out the power of the corporation. Corporations have no power to create by-laws that are unreasonable in their practical application, or that are vio- lative of the statute of the state; and we think this by-law an infringement upon the statute, and a most substan- tial limitation upon the rights of stockholders granted by section 312 of the Oivil Code. That section is broad in its terms, and when it says that a stockholder in a corporation may ap- point a proxy — an attorney in fact — to represent him at elections held by the corporation, in the absence of limitations in the law, it must be held Ijhat the statute gives him the right to name an attorney in fact of his own selection. Any other construction would entirely nullify all benefits in- tended to be conferred by its provi- sions. To declare that, though the statute in general terms gives all stockholders of corporations the right to vote by proxy, yet the corporation, by its by-laws, has the power to say who that proxy shall be, is to give the corporation full power to throttle the statute. The stockholders of many of our corporations are limited in num- ber, and the case would undoubtedly often arise where the absent stock- holder, deeirous of being represented at an election, would be unable to find a friend among them in whom to trust his interests. The statute contem- plates no such conditions, and neither says nor intended to say that such a stockholder would be deprived of his right to vote by proxy. If you may limit by by-law the right of holding a proxy to stockholders, you may limit it to directors, or the president, or the secretary, and thus the interests in control would have the power to compel the minority interests, if un- able to be present in person, to be represented by the very interests to which they are opposed, and to rein- state in office the very men whose elec- tion they desire to defeat. The prin- ciple of cumulative voting has been authorized and approved in the inter- ests of minority representation, yet this by-law squarely strikes at this principle which has been so carefully fostered. The substantial rights of a stockholder under the law cannot be taken from him, or even abridged, by the by-laws. The right to vote by proxy is a most substantial right, and this by-law handicaps this right out of all usefulness." People's Home Sav. Bank v. Superior Court City & County of San Francisco, 104 Cal. 649, 29 L. E. A. 844, 43 Am. St. Eep. 147, 38 Pac. 452. 48 "Section 303 of the Civil Code provides: 'A corporation may by its by-laws, where no other provision is specially made, provide for: * * * i(3) The mode of voting by proxy.' This provision does not give the cor- poration power to pass the by-law here assailed. It refers to the prelimi- nary requirements to be followed in order that the proxy may be entitled to vote, as that the authorization nuist be in writing, properly wit- nessed, acknowledged, filed with the records, etc. In creating this provi- sion it was not in the mind of the legislature to curtail the right of vot- ing by proxy, but rather that such right might be exercised by stockhold- ers within any reasonable restrictions which the corporation deemed proper 1104 Ch. 16] By-Laws [§518 §518. Directors and officers. By-laws, if not inconsistent with charter or statutory provisions, may prescribe the qualifications of the directors or other of&cers of the corporation, and the time and mode of electing or appointing them, and provide for their removal.*® A by-law is not invalid as taking away the stockholders' statutory right to vote their stock for directors merely because it prescribes certain qualifications as necessary to persons voted for.^" to incorporate into their by-laws. The statute gives to the corporation the power to regulate the exercise of the right, but no power to either qual- ify or limit the right, and certainly no power to so shackle the right as to result in its nullification." People's Home Sav. Bank v. Superior Court City & County of San Francisco, 104 Cal. 649, 29 L. E. A. 844, 43 Am. St. Eep. 147, 38 Pac. 452. 49lUin.ois. People v. Crossley, 69 111. 195; People v. Ittner, 165 111. App. 360, 364. Missouri. Savings Bank of Hanni- bal V. Hunt, 72 Mo. 597, 37 Am. Bep. 449. New Jersey. In re A. A. Griffing Iron Co., 63 N. J. L. 168, 41 Atl. 931; Kearney v. Andrews, 10 N. J, Bq. 70. New York. Burden v. Burden, 159 N. T. 287, 54 N. E. 17, 8 App. Div. 160, 40 N. Y. Supp. 499. Pennsylvania. Com. v. Woelper, 3 Serg. & R. 29, 8 Am. Dec. 628. Tennessee. See State v. Vanderbilt University, 129 Tenn. 279, 164 S. W. 1151. West Virginia. Cross v. West Vir- ginia Cent. & P. By. Co., 37 W. Va. 342, 18 L. B. A. 582, 16 S. E. 587. A by-law cannot take away the power of electing directors, given the stockholders by statute. Brewster v. Hartley, 37 Cal. 15, 99 Am. Dec. 237. See also State v. Anderson, 31 Ind. App. 34, 67 N. E. 207. When the act incorporating a religi- ous society is silent on the subject, by-laws may regulate the mode of con- ducting elections of trustees. Juker v. Com., 20 Pa. St. 484. See also Com. V. Woelper, 3 Serg. & E. (Pa.) 29, 8 Am. Dec. 628. 60 People V. Ittner, 165 111. App. 360, 366. A corporation will not by implica- tion be denied the right to prescribe the qualifications of its directors and to provide that no attorney employed in suits against it shall be eligible to the directorate. Cross v. West Vir- ginia Cent. & P. By. Co., 37 W. Va. 342, 18 L. B. A. 582, 16 S. E. 587. A by-law may validly provide that in order to be qualified for the oflSce of director a person must not be di- rectly or indirectly interested as a stockholder in any other like firm, company or association, or be the immediate member of the family of a stockholder in such firm, company or association. People v. Ittner, 165 111. App. 360. A statute held not to invalidate a by-law of a corporation not for profit providing that no person should be eligible to the ofSce of director unless he is a bona fide holder of a certain amount of the corporation's capital stock. Waterbury v. Temescal Water Co., 11 Cal. App. 632, 105 Pae. 940. A by-law which requires that, in order to be qualified for the office of director, a person must have been the bona fide owner and holder of not less than two shares of stock standing registered in his name at least six months prior to the time of the annual meeting at the time of his election, is 1105 I Priv. Corp.— 70 §518] Private Coepobations [Ch. 16 Stockholders in a corporation whose charter provides that the elec- tion of trustees shall be regulated by by-law are required to take notice of the time and place established by a by-law for the election of trustees.'^ Where the statute provides that the directors shall be elected by such of the stockholders as attend, the meeting either in person or by proxy, the corporation cannot adopt a by-law providing that a majority of the entire stock shall constitute a quorum.^^ Since the filling of a vacancy on the board of trustees is a corporate act, a by-law authorizing a vacancy to be filled by less than a majority not on that account unreasonable. People V. Ittner, 165 111. App. 360. A by-law which, in keeping with the statute, provides that no person who is not the holder or owner of at least one share of stock shall be a trustee of the corporation, and that a trans- fer by a trustee of his entire stock shall work a forfeiture of his office and be equivalent to his resignation, precludes the holding of the office of trustee by one to whom stock was transferred in order to qualify him, and who immediately assigned such stock in blank to the true owner, not- withstanding the prior amendment of the statute in such manner as to per- mit a by-law allowing one not a stock- holder to be a trustee. In re George Eingler & Co., 204 N. T. 30, Ann. Cas. 1913 C 1036, 97 N. E. 593. 61 Jones V. Hilldale Cemetery So- ciety, 23 Ky. L. Eep. 1486, 65 S. "W. 838. The fact that the statute requires notice of a meeting for the election of directors does not preclude the cor- poration from electing directors at an adjourned meeting of which no notice was given under a by-law providing for the adjournment of meetings at which a quorum is not present and that no notice of the adjourned meet- ing need be given. In re Hammond, 139 Ted. 898. A by-law which provides that ' ' the annual meeting for the election of officers shall be held on the first Sun- day of July in each year, and the monthly meeting shall be held on the first Tuesday of each month at half past seven o 'clock p. m. " does not, on its face, certainly and incontro- vertibly fix the hour for the holding of the annual meeting, but, to the con- trary, is on that point doubtful and ambiguous, and its practical construc- tion by the corporation will govern. State V. Conklin, 34 Wis. 21, 28. While for practical purposes it would be more satisfactory for the by-laws to specify the number of hours the polls shall be kept open 'for the election of directors, a by- law which leaves this matter to the discretion of the inspectors will not for that reason be invalid, and their action relative thereto will not be dis- turbed by the courts in the absence of an abuse of the discretion allowed. Clopton V. Chandler, 27 Cal. App. 595, 150 Pac. 1012. Where an addition to the corpora- tion 's committee on elections was unauthorized, it will not repeal, or change or modify a by-law which designates certain officers as constitut- ing such committee. Clopton v. Chan- dler, supra. 52Darrin v. Hoff, 99 Md. 491, 58 Atl. 196. 1106 Ch. 16] By-Laws [§518 of the trustees is void, where the statute makes possible the doing of corporate acts by a majority only of such trustees.*^ "Where an officer is removed in harmony with by-laws, in force at the time he took office and adopted under a statute providing that the officers shall hold their places during the pleasure of the board of directors, he will not be heard to complain thereof.^* But a statute^ providing that the directors may remove any officers when the inter- ests of the corporation shall require it, does not authorize a by-law giving the directors power to remove any one of their number who shall be guilty of certain acts opposed to the corporate interests, where it also declares that the officers of the corporation shall be "a president, secretary and treasurer, and such other officers and agents as shall be determined by the directors," thus requiring that the word "officers" as used in that part giving the power of removal be not construed as including the directors themselves.^* Moreover, where the state constitution gives to each stockholder the right of voting — and in a cumulative manner — for directors, the corporation cannot adopt a by-law giving the directors power to remove any one of their number who shall be guilty of certain specified acts, since such by-law would operate to nullify the constitutional right of a 63 state V. Curtis, 9 Nev. 325. 64Darrah v. Wheeling lee & Stor- age Co., 50 W. Va. 417, 40 S. E. 373. See also Hunter v. Sun Mut. Ins. Co. of New Orleans, 26 La. Ann. 13. A by-law of a public institution, giving the board of directors power to remove oflScers without assigning any reason for their removal, is proper and reasonable — even indispensable. Ellis V. North Carolina Institution for Deaf & Dumb & Blind, 68 N. C. 423. A by-law giving the board of direc- tors power "to discontinue" officers or agents in office at its pleasure, gives it power "to remove" officers or agents from office whenever it chooses. Darrah v. Wheeling Ice & Storage Co., supra. Under a by-law providing that all officers shall hold office at the pleasure of the board of directors, such board has no power to employ a managter by the year. Eowler v. Great Southern Telephone & Telegraph Co., 104 La. 751, 29 So. 271. A by-law, adopted by the board of trustees whose term of office was four years, which empowered the president and actuary "to appoint, remove and fix the compensation of each and every person, except agents, employed by the company" did not give the president 'and actuary power to enter into a contract whereby a person was employed for life. Carney v. New York Life Ins. Co., 162 N. Y. 453, 49 L. R. A. 471, 76 Am. St. Eep. 347, 57 N. E. 78. 55Laughlin v. Geer, 121 111. App. 534, 537. In the absence of an express statu- tory provision and of any provision in the articles of incorporation or in by-laws duly adopted by the stock- holders conferring such power, the directors of a business corporation have no power to expel one of their number and hence no power to amend 1107 §518] Peivate Cokpoeations [Ch. 16 stockholder to choose whomsoever he might think proper to represent him on the board of directors.^^ "Where it is competent for the stockholders to adopt a by-law in the first instance fixing the number of directors, it is also competent for them to amend the by-law relative thereto in accordance with the rules for such amendment agreed upon and prescribed.^'' the by-laws so as to make their ex- pulsion of such one possible. Raub v. Gerken, 127 N. Y. App. Div. 42, 111 N. Y. Supp. 319. 56 Laughlin v. Gear, 121 111. App. 534, 538. An injunction will lie to prevent the directors from removing one of their number under an invalid by- law. Laughlin v. Geer, supra; Eaub V. Gerken, 127 N. Y. App. Div. 42, 111 N. Y. Supp. 319. 57Eenn v. United States Cement Co., 36 Ind. App. 149, 73 N. E. 269. Where the statute requires the adoption of by-laws and the filing of a copy thereof with the county clerk and authorizes the fixing of the num- ber of directors by by-law but does not prescribe' the time within which the copy is to be filed, postponement of the filing for a number of years and until after directors to the num- ber called for by the by-laws are elected, will not invalidate their elec- tion. Taylor v. Lauridson; 161 Cal. 718, 118 Pae. 535; Willis v. Laurid- son, 161 Cal. 106, 118 Pae. 530. That the articles of incorporation state the number of directors which the corporation shall have, does not affect the power to enact by-laws fix- ing the number when the statement in the articles was not required by statute. Eenn v. United States Ce- ment Co., supra. Under statutes which authorized the stockholders to make necessary by- laws and required the business of the corporation to be managed by not less than three nor more than eleven di- rectors, and that "the number of directors and their names who shall manage the affairs of the company for the first year" be stated in the articles of association, a change in the number of directors from seven, as the articles provided, to three, by means of the adoption of a by-law to such effect by the stockholders, was not invalid, the quoted words having reference to the first year only. Eenn V. United States Cement Co., supra. The number of directors may of course be changed by by-law When the statute thus provides. Gold Bluff Mining & Lumber Corporation v. Whitlock, 75 Conn. 669, 55 Atl. 175; In re Griffing Iron Co., 63 N. J. L. 168, 171, 41 Atl. 931. A statute providing that the num- ber of directors may be increased or reduced "when the stockholders own- ing a majority of the stock shall so determine," etc., precludes the adop- tion of a by-law requiring the vote of more than such majority in order to change the number of directors. Katz V. H. & H. Mfg. Co., 109 N. Y. App. Div. 49, 95 N. Y. Supp. 663, aff'd 183 N. Y. 578, 76 N. E. 1098. "A change in the by-laws, increas- ing the number of directors of a cor- poration, being manifestly of great importance, extraordinary and out of the usual business transacted at a regular or annual meeting of the stockholders, the weight of authority seems to be, as it ought to be, that in the absence of notice previously given, it cannot be made." Bagley 1108 Ch. 16] By-Laws [§518 The by-laws may prescribe the powers and duties of the directors or other officers,^* and require particular officers to give bond for the V. Eeno Oil Co., 201 Pa. 78, 56 L. E. A. 184, 50 Atl. 760. 68 Hale V. Mechanics ' Mut. Fire Ins. Co., 6 Gray (Mass.) 169, 66 Am. Dee. 410; Burden v. Burden, 159 N. T. 287, 54 N. E. 17, 8 N. T. App. Div. 160, 40 N. Y. Supp. 499; Railway Equipment & Publication Co. v. Lincoln Nat. Bank, 82 Hun (N. Y.) 8, 31 N. Y. Supp. 44; Stevens v. Davison, 18 Gratt. (Va.) 819, 98 Am. Dee. 692. A banking association 'organized under the general New York law may, by its articles of association and by- laws, divide the business which it is authorized to transact into distinct departments and create a separate board of directors for each depart- ment, or, what is the same thing, in- trust to separate committees of the directors the exclusive charge of such departments, clothing each committee with all of the powers of a board in relation to the business which its de- partment embraces. Palmer v. Yates, 3 Sandf. (N. Y.) 137. However extensive the authority conferred upon the president by a by- law providing that he shall have the general charge and direction of the business of the company as well as all matters connected with the interests and objects thereof and that he shall be an ex officio member of all stand- ing committees, it does not include authority which is expressly and in unmistakable terms conferred i^pon a certain committee as such. Twelfth St. Market Co. v. Jackson, 102 Pa. St. 269. Where the by-laws authorize the president to "buy and sell the articles in which the corporation deals with- out first obtaining the sanction or con- sulting the board of directors," the president has power to purchase such articles on credit and give the cor- poration's notes for the price. Siebe v. Joshua Hendy Maeh. Works, 86 Cal. 390, 25 Pac. 14. A by-law authorizing the president to execute accommodation paper, held beyond the charter powers of the cor- poration and therefore void. Steiner v. Steiner Land & Lumber Co., 120 Ala. 128, 26 So. 494. A by-law authorizing the president of a bank to certify checks, does not authorize him to certify checks drawn by himself. Claflin v. Farmers' & Citizens' Bank, 25 N. T. 293. The sole purpose of a by-law of a trust company providing that its presi- dent shall not accept a trusteeship or office of receiver without the approval of the executive committee, held to be to prevent the president from bind- ing the company wdthout the approval of its executive committee by the ac- ceptance of any trust which it was authorized to execute. Citizens ' Trust & Deposit Co. v, Tompkins, 97 Md. 182, 54 Atl. 617. A by-law authorizing the general manager to bind the company by con- tracts for merchandise, to sign notes, drafts and acceptances in the name of the company and to make checks upon the company's funds in bank for the payment of the proper debts of the bank does not authorize him to bind the company as a guarantor for the in- debtedness of another. Dobson v. More, 164 111. 110, 114, 56 Am. St. Hep. 184, 45 N. E. 243, aff'g 62 111. App. 435. A by-law cannot make the directors personally liable for the corporate debts in excess of their subscribed capital stock. Underbill v. Santa Barbara Land, Building & Improve- ment Co., 93 Cal. 300, 28 Pac. 1049. 1109 §518] Private Cobpoeations [Ch. 16 faithful discharge of their duties.*' But such by-laws must not be inconsistent with the charter of the corporation or the governing statute.^" They cannot limit the powers of the directors as defined by the charter or general law ®* nor vest the management of the cor- poration 's business in an executive committee when the charter or enabling act vests it in the board of directors.®^ By-laws, however, which provide that the corporate affairs shall be managed by directors, who may exercise all powers not required by law, or by the charter or by-laws to be otherwise exercised, subject to control by the com- mon stockholders, are in harmony with the law as to the powers of directors.®' A corporation cannot, in the absence of charter or statutory authori- ty, limit or restrict the powers of its directors or ofiScers by by-law and set up the limitations or restrictions contained therein against third persons who deal with the directors or officers, as they have a right to do, on the strength of their apparent authority.®* 69 Bank of Wilmington & Brandy- wine V. WoUaston, 3 Harr. (Del.) 90; Savings Bank of Hannibal v. Hunt, 72 Mo. 597, 37 Am. Eep. 449. 60 Brewster v. Hartley, 37 Cal. 15, 99 Am. Dec. 237; Tempel v. Dodge, 89 Tex. 69, 33 8. W. 222, 32 S. "W. 514. 61 Union Mut. Fire Ins. Co. v. Key- ser, 32 N. H. 313, 64 Am. Dec. 375. See also Campbell v. Merchants' & Farmers' Mut. Fire Ins. Co., 37 N. H. 35, 72 Am. Dee. 324. 62 Tempel v. Dodge, 89 Tex. 69, 33 S. W. 222, 32 S. W. 514. 63 Kidd V. New Hampshire Traction Co., 74 N. H. 160, 66 Atl. 127. 64 Alabama. Kelly v. Mobile Build- ing & Loan Ass'n, 64 Ala. 501. Georgia. Ealeigh & G. R. Co. v. Pullman Co., 122 Ga. 700, 50 S. E. 1008; Johnson v. Waxelbaum Co., 1 Ga. App. 511, 58 S. E. 56. Illinois. Ashley Wire Co. v. Illinois Steel Co., 164 111. 149, 56 Am. St. Eep. 187, 45 N. E. 410, afe'g 60 111. App. 179; Union Mut. Life Ins. Co. v. White, 106 HI. 67, 75; Wait v. Smith, 93 111. 385, 390; Smith v. Smith, 62 111. 493; Trawick v. Peoria & Ft. C. St. Ey. Co., 68 111. App. 156; Metro- pole Building & Turkish Bath Co. v. Garden City Fan Co., 50 111. App. 681, 683. Maryland. Tome v. Parkersburg Branch E. Co., 39 Md. 36, 17 Am. Eep. 540. Michigan. See Hellenbeck v. Pow- ers & Walker Casket Co., 117 Mich. 680, 76 N. W. 119. Missouri. Eosenbaum v. Gilliam, 101 Mo. App. 126, 74 8. W. 507. Nebraska. Johnston v. Milwaukee & W. Inv. Co., 46 Neb. 480, 64 N. W. 1100. New York. Eathbun v. Snow, 123 N. Y. 343, 10 L. R. A. 355, 25 N. E. 379; Lyon v. West Side Transfer Co., 132 App. Div. 777, 117 N. Y. Supp. 648; Bacon v. Montauk Brewing Co., 130 App. Div. 737, 115 N. Y. Supp. 617; Newman v. Lee, 87 App. Div. 116, 84 N. Y. Supp. 106; Standard Fashion Co. V. Siegel-Cooper Co., 44 App. Div. 121, 60 N. Y. Supp. 739; Marine Bank of Buffalo v. Butler Colliery Co., 52 Hun 612, 5 N. Y. Supp. 291; Mer- chants' Bank v. MeColl, 6 Bosw. 473. South Carolina. Mayer v. East 1110 Cli. 16] By-Laws [§518 If not inconsistent with the charter, by-laws may fix the time, as superintendent at a certain salary, cannot be sustained as against the cor- poration where a by-law, providing for certain officers, among them a su- perintendent, required such officers to be elected by the board of directors. Said the court: "If there is a provi- sion of charter or a by-law requiring the powers of a board to be exercised in some particular way, then the thing must be done in that way, and all per- sons dealing with such corporation must know what the limitation of power is." See also in connection with this last case: Miners' & Mer- chants' Bank of Lonaconing v. Ards- ley Hall Co., 113 N. Y. App. Div. 194, 99 N. Y. Supp. 98; Bocock's Ex'r v. Alleghany Coal & Iron Co., 82 Ya. 913, 3 Am. St. Eep. 128, 1 S. E. 325; Haden v. Farmers' & Mechanics' Fire Ass'n, 80 Va. 683. Where the statute under which a corporation is organized provides that the by-laws shall prescribe the powers and duties of the corporate officers, by-laws adopted in pursuance thereof are part of the corporation's charter, and not only define and limit the pow- ers and duties of the officers as be- tween them and the corporation, but put third parties upon notice in treat- ing with such officers as to the extent of their power and agency without regard to whether knowledge thereof has been specifically brought home to them. In re Millward-ClifE Cracker Co.'s Estate, 161 Pa. St. 157, 28 Atl. 1072. The by-laws of a corporation may be placed in evidence to show that a contract attempted to be entered into by its president was without authori- ty, no question of estoppel or ratifi- cation being involved. Northwestern Packing Co. v. Whitney, 5 Cal. App. 105, 89 Pae. 981. Shore Terminal Co., 41 S. C. 300, 25 L. R. A. 48, 44 Am. St. Eep. 709, 19 S. E. 651. Tennessee. Barnes v. Black Diamond Coal Co., 101 Tenn. 354, 47 S. W. 498. Vermont. Howland Bros. & Cave v. Barre Sav. Bank & Trust Co., 89 Vt. 290, 95 Atl. 679; Lyndon Sav. Bank v. International Co., 75 Vt. 224, 54 Atl. 191. Virginia. Pine Beach Inv. Corpora- tion V. Columbia Amusement Co., 106 Va. 810, 56 S. E. 822. A corporation cannot escape liabili- ty upon its indorsement of a note in the course of its business on the ground that the indorsement was. not in accordance with its by-laws. First Nat. Bank of Washington v. Eureka Lumber Co., 123 N. G. 24, 31 S. E. 348. See also Lyndon Sav. Bank v. Interna- tional Co., 75 Vt. 224, 54 Atl. 191. The fact that under the statute, the certificate of incorporation may place limitations on the ordinary powers of the corporate officers, does not consti- tute notice to the world of the existence of by-laws containing such limitations, so as to make the same binding on all of those dealing with the corporation. Powers v. Schlicht Heat, Light & Power Co., 23 N. Y. App. Div. 380, 48 N. Y. Supp. 237, aff'd 165 N. Y. 662, 59 N. E. 1129. A by-law of a corporation requiring one of its officers to notify sureties on obligations held by it of any dues unattended to, is intended merely for the convenience and protection of the corporation, and a surety is not re- leased by the officer's failure to com- ply therewith. New Hampshire Sav. Bank v. Downing, 16 N. H. 187. Contra, Colpe v. Jubilee Min. Co., 2 Cal. App. 393, 84 Pac. 324, in which it is held that a contract between the general manager of a corporation and another, whereby the latter was to act 1111 §518] Pkivatb Cobpoeations [Cli. 16 place and mode of holding and conducting directors' meetings,®^ and may determine and fix the number of directors who shall constitute a quorum for the transaction of business, even though they fix the number at less than a majority, and the number who must concur in voting on questions.*^ There being no charter or statutory provision to the contrary, the salaries to be paid the directors and officers are a proper subject of by-laws,*' and the stockholders ordinarily have the power to adopt 65 Stockton V. Harmon, 32 Fla. 312, 13 So. 833; Hill v. Rich Hill Coal Min. Co., 119 Mo. 9, 24 S. W. 223; Foster V. Mullanphy Planing Mill Co., 92 Mo. 79; Smith v. Law, 21 N. Y. 296; Hoyt V. Thompson's Ex'r, 19 N. Y. 207; Hoyt V. Sheldon, 3 Bosw. (N. Y.) 267. A by-law requiring regular meetings of the board of directors to be held ab the home office of the corporation does not require the special meetings of the board to be held at such place. Ash- ley Wire Co. v. Illinois Steel Co., 60 111. App. 179. A by-law providing that whenever less than a quorum is present at a regular meeting of the board of di- rectors, those present, if three or more in number, shall have power to adjourn to such time and place as they may deem proper, not passing over the next regular meeting, is reason- able, and proper action taken at a meeting to which a regular meeting was adjourned under such by-law will be binding, although it does not appear that the absent directors had notice of the adjourned meeting ex- cept as they were chargeable with notice under the by-laws. Smith v. Law, 21 N. T. 296, 297. 66 Stockton V. Harmon, 32 Ma. 312, 13 So. 833; Hoyt v. Thompson's Ex'r, 19 N. Y. 207; Hoyt v. Shelden, 3 Bosw. (N. Y.) 267. When the charter of a corporation requires a majority of the directors to act, a by-law cannot authorize action by less than a majority. State v. Curtis> 9 Nev. 325. There exists the presumption that the words ' ' majority vote ' ' as used in a by-law providing that a majority vote of the directors shall at all times determine the action of that body, were intended to mean a majority vote of the directors present at a meeting, and constituting at least a majority of the number composing the board. Foster v. Mullanphy Planing Mill Co., 92 Mo. 79, 4 S. W. 260. A by-law providing that the unani- mous vote of the directors shall be necessary to the sale of the business as a going concern or to a sale of the corporate property in bulk or in any way other than in the usual course of business, is not invalid under a statute making the action of the majority of the directors the action of the board "unless it is otherwise provided," such by-law being within the excep- tion quoted. Levin v. Mayer, 86 N. Y. Misc. 116, 149 N. Y. Supp. 112. 67 Green v. Felton, 42 Ind. App. 675, 84 N. E. 166. A by-law providing that the salaries of certain corporate officers should be fixed prior to their election held, in accordance with its practical construc- tion, not mandatory but merely di- rectory. Francis v. Brigham-Hopkins Co., 108 Md. 233, 70 Atl. 95. The right of a person acting as sec- retary of a corporation to recover compensation for his services is not defeated by the fact that the by-laws authorized the "appointment" of a secretary and the resolution naming him as secretary referred to him as 1112 Ch. 16] By-Laws [§518 a by-law permitting the directors to fix and determine such salaries.** Although it seems that when the directors fix their own salaries under authority vested in them, their action in the matter is not final against a dissenting stockholder who promptly applies for relief ; such action will not be set aside unless there appears injustice or oppression or circumstances amounting to fraud.®' Notwithstanding the fact that the directors are authorized by statute to ad-opt by-laws, they cannot, even under a by-law adopted, vote a salary to one of their number when the vote of such one is necessary to make a quorumJ" "elected" to that office. Dodge v. Lansing & Suburban Traction Co., 152 Mich. 100, 115 N. "W. 1004. A by-law, providing for the appoint- ment cf a secretary but not fixing hia compensation, which the corporation was authorized to allow, does not en- title a director acting as secretary to compensation. Kleinschmidt v. Ameri- can Min. Co., 49 Mont. 7, 139 Pac. 785. 68 Green v. Telton, 42 Ind. App. 675, 84 N. E. 166. The directors cannot be regarded as "officers" within a by-law providing that "the salaries of officers and em- ployees shall be determined by the board of directors," especially when another by-law distinguishes between officers and directors by providing that "the directors and officers of the asso- ciation shall be stockholders therein, ' ' etc. Schoening v. Sehwenk, 112 Iowa 733, 84 N. W. 916. The execution of a by-law must be fair and honest and not unreasonable and arbitrary; hence where a by-law gives the directors power to fix the salaries of the officers, the directors cannot reduce that of the president to less than half of what it had for- merly been, merely because of hostili- ty to him. and opposition to his policy. Banigan v. United States Rubber Co., 22 K. I. 452, 45 Atl. 739. 69 Green v. Felton, 42 Ind. App. 675, 84 N. E. 166, citing Hayes v. Pierson (N. J. L.), 45 Atl. 1091; Davis v. Thomas & Davis Co., 63 N. J. Eq. 572, 52 Atl. 717. A by-law providing that the salary or compensation of all officers, employ- ees or agents of the corporation ap- pointed by the board of directors shall be fixed by such board does not divest equity of its jurisdiction .to hold to an accounting directors who have voted excessive salaries to themselves as officers. Carr v. Kimball, 153 N. Y. App. Div. 825, 139 N. Y. Supp. 253, afE'd 215 N. Y. 634, 109 N. B. 1068, remittitur amended 215 N. Y. 714, 109 N. E. 1069. 70McConnell v. Combination Min- ing & Milling Co., 31 Mont. 563, 79 Pac. 248. See also Carr v. Kimball, 153 N. Y. App. Div. 825, 139 N. Y. Supp. 253, afe'd 215 N. Y. 634, 109 N. E. 1068, remittitur amended 215 N. Y. 714, 109 N. E. 1069. See gener- ally the chapter on Compensation of Officers, infra. A by-law, adopted by the directors, which authorized them to appoint a secretary and fix his salary, will not validate a resolution giving a director, whose presence at the meeting at which the by-law was adopted and at which he was elected secretary and at the subsequent meeting at which his salary was fixed was necessary to con- stitute a quorum, the right to collect such salary as from the time of his .1113 ,§ 519] PRIVATE COKPOBATIONS [Ch. 16 §519. Inspection of books and papers. A corporation may un- doubtedly make reasonable by-laws regulating the inspection of its books and papers by its stockholders, but it cannot deny them the right, or impose unreasonable restrictions ; nor can it make provisions on the subject which conflict with its charter or the general law.''^ So it has been held that a by-law delegating the stockholder's legal right to inspect the books to the discretion of the board of directors and taking away entirely his right to make abstracts therefrom is unreasonable and unlawful, and that mandamus will lie at the instance of a stockholder to enforce his rights in the matter^* election. Martin v. Santa Cruz Water Storage Co., 4 Ariz. 171, 36 Pac. 36. See also McConnell v. Combination Mining & Milling Co., 30 Mont. 239, 104 Am. St. Eep. 703, 76 Pac. 194. 71 State V. Citizens ' Bank of Jen- nings, 51 La. Ann. 426, 25 So. 318. See generally Chap. 40, infra. A by-law providing that the books and papers in the oflSees or custody of the secretary and treasurer shall be open at all times during business hours to tho inspection of any stock- holder, changes the common-law rule as to the necessity of alleging or prov- ing the purpose for which the exami- nation is sought. Wyoming Coal Min. Co. V. State, 15 "Wyo. 97, 123 Am. St. Rep. 1014, 87 Pac. 337. 72 State V. Jessup & Moore Paper Co., 24 Del. 379, 77 Atl. 16. See also State V. Jessup & Moore Paper Co., 7 Pennew. (Del.) 370, Ann. Cas. 1912 D 69, 72 Atl. 1057. "A by-law of a corporation, which provides Jhat no stockholder or other person shall have the right to Inspect the books without special authority from the board of directors, must be subordinated to the provisions of the charter and the general and funda- mental law. ' ' State v. Citizens ' Bank of Jennings, 51 La. Ann. 426, 25 So. 318. An order by certain directors that a member of the board be denied the right to inspect the books held not a by-law and invalid. People v. Throop, 12 Wend. (N. Y.) 183. 3114